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Why I stopped contributing to my retirement accounts

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  • Self-directed investments offer greater control and flexibility compared to traditional retirement accounts.
  • Diversifying investments can potentially yield higher returns and reduce risk.
  • Personalized financial strategies can lead to greater financial freedom and long-term security.

Retirement planning is a crucial aspect of personal finance, yet many find themselves questioning traditional methods. Since 2019, I have not significantly contributed to my retirement accounts, but this decision stems from a strategic shift towards a more personalized and potentially rewarding financial plan. My journey from employer-sponsored retirement plans to self-directed investments has been enlightening and empowering, offering a fresh perspective on achieving financial freedom.

The Early Years: Employer-Sponsored Plans

I began my retirement savings journey in my twenties, leveraging an employer's 401(k) plan. As a writer and editor, retirement seemed a distant prospect, but I understood the power of compound interest. My initial employer offered matching funds with a staggered vesting schedule, which, while not ideal, provided a foundation for my retirement savings. Despite contributing pre-tax dollars, I never fully benefited from the matching payout due to job changes.

A More Generous Employer

My next job offered a more attractive 401(k) plan, with a company match of up to 5% and immediate vesting. This "free money" was a significant motivator, and I watched my retirement accounts grow steadily. The immediate vesting meant that every dollar matched by the company was mine to keep, enhancing my retirement savings and reducing my taxable income.

Consolidation and Growth

Eventually, I joined an agency that also matched up to 5% of my retirement contributions. Here, I was fully vested after three years and took the opportunity to consolidate my previous 401(k) plans to lower fees. At this job, I contributed the minimum required for matching and, at times, more than 10% of my salary. My focus was on saving money, growing my retirement account, and reducing taxable income.

The Shift to Self-Directed Investments

Despite the benefits of traditional retirement accounts, I realized that a more personalized approach could offer greater financial freedom. Self-directed investments allow for more control over where and how my money is invested. This strategy involves diversifying my portfolio beyond the typical mutual funds and stocks found in 401(k) plans, exploring real estate, peer-to-peer lending, and other alternative investments.

The Benefits of Self-Directed Investments

Control and Flexibility: Unlike employer-sponsored plans, self-directed investments provide the flexibility to choose specific assets that align with my financial goals and risk tolerance.

Potential for Higher Returns: By carefully selecting investments, I can potentially achieve higher returns compared to traditional retirement accounts.

Diversification: Investing in a variety of asset classes reduces risk and increases the potential for growth.

While traditional retirement accounts remain valuable for many, my shift towards self-directed investments has been a game-changer. This approach not only aligns with my financial goals but also offers the potential for greater returns and financial freedom. By taking control of my investments, I am confident in my ability to secure a prosperous future.

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