Giving Your Money a Second Job
“Dishonest money dwindles away, but whoever gathers money little by little makes it grow.” Proverbs 13:11 (emphasis mine)
Finding enough money to meet your stewardship goals can be tough at every season of life. Young couples are working to practice generosity, live life, pay down debt, invest in their retirement, and buy a couch quickly enough so they don’t get stuck with that ugly floral couch their father-in-law is trying to pawn off on them. In mid-career, you add your kids' interest in lacrosse, acting, and coding lessons (yes, that’s a thing). By late career, you're wrestling with how to fund a fruitful retirement while not outliving your money. Many feel they can’t win, but not trying can make things even worse.
Before giving up or going straight to budget cutting, see if any of your investments can work a second job by supporting a goal that isn’t their primary purpose. Let’s look at the asset best positioned to work the hardest: your retirement plan. Whether a 401(k), 403(b), 457(b) (remind me to not let the Dept of Labor name my children or grandchildren), IRA, or other tax-deferred plan, your retirement contributions can help offset costs in other areas.
The first job of a retirement plan should be to provide assets to live on after you have quit working. It’s an easy way to do “Proverbs 13:11 investing”—saving a percentage of your income, taking some risk, and letting capital markets provide you with a long-term return.
Retirement plans offer extra advantages because they create two sources of free money. The government is the first source, by not taxing the account until you take the money out. Your employer often offers an even better deal by matching 50% or more of your contribution to a certain level. Someone with a 25% tax rate can reduce their paycheck by $75 and end up with $150 in their retirement account the same day.
Using the free money from the government and your employer can allow retirement funds to function as second- and third-level defenses against a host of unforeseen circumstances.
Emergency Fund for Job Loss:
A long period of unemployment is likely to push you into a 0% tax bracket. If you have no income, then there is no income tax. You would still pay a 10% penalty, but the match (If vested) and the tax savings are likely worth more. Given that a long period of unemployment is unlikely, I’d rather have a smaller emergency fund and risk a 10% penalty than wait to invest in a retirement account.
Life and Disability Insurance:
The premiums increase as you age. If you pass away, your heirs get your retirement plan. The 10% penalty disappears if you are totally and permanently disabled. Larger contributions to retirement plans can gradually reduce the level of insurance you need.
Capacity for Charitable Funding:
Retirement may reduce your income and thus reduce your giving. Because retirement distributions from an IRA can be given directly to charity tax-free, investments in retirement plans can free up additional assets to go to charity. If God blesses you with financial health, high contributions can allow you to lead an extra-generous retirement.
When assigning your assets a dual purpose, a retirement plan is the strongest workhorse to hitch to. But it’s not the only one. Roth IRAs have a provision where contributions can be taken out anytime. 529 education savings plans currently allow for a transfer of $50,000 to a Roth IRA if the funds aren’t needed. An Orchard Alliance savings investment helps fund ministry while supplying part of your reserve fund. Charitable Gift Annuities provide income that protects you from outliving your assets by paying income for life while supporting a worthwhile ministry or charity when you pass.
Understanding how your assets can work a second job will allow you to start earlier, earn the full match, invest meaningfully, and position yourself as an even more generous steward in your retirement years.
