A freelancer who stopped contributing to her 401(k) plan after losing her employer match decided to contribute to a taxable brokerage account instead in search of more flexibility. She explains her reasons for this life-changing switch.
Leslie Quander Wooldridge, an expert in her field who has reached millions of readers with her writing, editing, consulting and coaching, stopped posting about retirement plans in 2019. Ironically, she is a strong advocate of planning for the future.
Wooldridge even went out of her way to help others understand the importance of investing. She spoke openly about her recent break from contributing to retirement accounts, a decision that may surprise many—but it’s working!
The magic of compound interest
“I started saving for retirement in my twenties through an employer’s 401(k) plan,” Wooldridge explained. Although retirement was still a long way off for the author and editor, she recognized the potential of compound interest to significantly improve her financial future.
The Wooldridge company worked to match employee contributions to a retirement account, but with a delayed vesting period. Still, she diligently contributed her pre-tax income, wondering if she would receive the full employer contribution. In the end, she didn’t.
At her next job, she contributed to a 401(k) plan with every paycheck. That employer offered a much more generous match—up to 5 percent of her salary with immediate vesting. “I was getting free money, guys, and that was a great incentive. I could see my retirement account growing,” she wrote in a post for Business Insider.
Wooldridge eventually found a job with an agency that offered a generous 5 percent match to her retirement plan. Since she reached full vesting after three years, she strategically decided to consolidate her previous 401(k) pension into that plan to take advantage of lower fees.
Wooldridge always contributed at least the minimum amount required to receive the full employer match for the job, often exceeding 10 percent of her salary. She focused on maximizing her savings, growing her retirement nest egg and reducing her taxable income.
However, when she decided to leave her traditional employment and become self-employed, she lost her employer match and the ability to contribute to a company pension plan, so she stopped contributing to those accounts.
Life as a freelancer: A shift in financial focus
While Wooldridge could have switched to tax-free IRAs as a freelancer, her priorities shifted. The newfound flexibility of self-employment required increased financial liquidity. Building a stable freelance business required a financial cushion. Unlike traditional jobs with paid time off, freelancers often have to dip into their savings when unexpected expenses or income fluctuations occur.
This immediate access has become a higher priority than long-term retirement savings. Traditional retirement accounts, especially those with employer contributions, are invaluable for long-term planning during your working life. However, life circumstances can change and require a change in financial strategy.
Wooldridge’s transition into self-employment highlighted the limitations of these accounts. The potential for penalties for early withdrawals was a significant obstacle. While pre-tax contributions can reduce an employee’s taxable income, business owners often receive more immediate tax benefits through qualified business deductions.
Wooldridge knew, however, that simply hoarding cash in a savings account was not the answer. While liquidity was essential, she was well aware of the destructive power of inflation. Fiat money sitting idle in a savings account gradually loses value over time.
A recent report from BlackRock Read on Retirement highlighted a growing concern: 60 percent of Americans across all generations fear they will not be able to afford retirement savings. With inflation adding to these worries, Wooldridge stressed the importance of diversifying investments. Her portfolio includes index funds, individual stocks and cryptocurrencies.
While her existing employer-sponsored retirement accounts continue to grow, Wooldridge is equally proud of her post-tax investments. “And I’m grateful. Because as we continue to grapple with economic uncertainty, I can move or withdraw my post-tax funds as needed — without penalty,” she noted.
Adapting to the changes in life
A report from the Pew Research Center revealed a sobering reality: One in five older Americans on fixed incomes are considering returning to work due to rising living costs. Wooldridge, on the other hand, attributes her earlier investments in employer-sponsored retirement plans to the fact that she now feels more in control of her financial future.
“Today, because of my investments, I don’t have to work as much as I used to. I have more time to see my family and pursue the media and speaking projects that bring me so much joy. And I know I’ve positioned myself well for my current situation and for my future,” she added.
While there is no one-size-fits-all approach to retirement planning, Wooldridge’s story highlights the importance of flexibility and adaptability. By carefully considering her financial goals and her stage of life, she has developed a strategy that allows her to move forward with confidence.
