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Chris Farrell Feb 6, 2008

Question: My husband and I are in our mid 30’s, no kids, both have good incomes and we’re putting money away towards our retirement through our employers (so pretax) as well as other sources (Roth). My husband has about maxed the amount he can contribute. I have not, but my employer puts in a substantial amount as long as I put in the minimum required. My husband thinks I should try and max mine out as well, but I want us to put some in shorter term investments so we can enjoy some of the money now to travel, etc. We have a decent amount in savings for emergencies. First, as long as both of us are putting away at least 15% of our income, is it fine to stockpile our savings so we can enjoy some of it now? And second, is there something else besides savings/CD that have a better return rate, but that we can access (within a few months to a year like CD). Thanks. Heather

Answer: My standard advice is to max out your retirement savings plans, and you clearly can afford to do it. However, you and your husband are saving a good chunk of your income every year. You’re money smart with a good financial safety net. In this case, I’m on your side. Take that trip (or trips). Go out to dinner. Have fun.

Where to put this money? I would take two very different approaches with the money. First, I’d put the bulk of it into a conservative money market mutual fund with brandname national or international financial institution. (These big companies have a reputation to protect, so the odds are good they’ll do whatever it takes to preserve the value of the fund, even if it faces financial difficulties).

I would also consider putting a sliver of the money into a broadbased equity index fund or a tax-managed fund. Your annual tax burden on the savings is low with either product. The money should compound over the years. When you do tap into it, you’ll pay low capital gains taxes on the gain.

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