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Extra savings toward retirement--or not

Question: Chris, I'm over 50 and as a federal employee I have the ability to contribute $5000 more each year (to "catch up" on my retirement savings) than the maximum annual contribution to my Thrift Savings Plan. I currently contribute the maximum amount each year.

My wife and I have few debts beyond our mortgage. We have sons who start college in 4 years and in 7 years--but we fully funded a 529 plan several years ago.

My question: should we contribute the $5000 in catch up funds to the TSP; should I take that money and invest it in the market or in bonds; or should we add the funds to our 529 plans? Many thanks. John, Alexandria, VA

Answer: My first thought is good, no matter what you want to save the $5,000.

Now, you say your 529 college savings plan is fully funded. I imagine you could top it off, but you're probably okay on that front.

So, my bias is to suggest adding to your retirement savings.

However, I would look at your taxable savings accounts and see how you're doing. Do you have enough money set aside to deal with routine unexpected expenses, such as engine trouble or a busted boiler, let alone a job loss or medical emergency?

If the answer is yes, then put all $5,000 into retirement savings. If you're not sure, it would make sense to put, say, an additional $3,000 into retirement and the remaining $2,000 in taxable savings accounts. (You can play with the numbers; that's just an illustration.) . And if you don't end up tapping the savings it's still available for spending on college or your retirement.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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