Take a walk with me down memory lane, won’t you? Previously, I’ve made two primary arguments in favor of contributing to a Traditional 401(k). They’ve mostly been based on logic that seems ironclad to me:

• When comparing your tax rate in your working years (think Roth contributions) to your tax rate in retirement (think Traditional distributions), you’re not comparing apples to apples: You’re comparing your marginal rate now (likely 24% or 32%, depending on how much money you make) to your effective tax rate later (likely sub-20% in retirement, depending on how much money you spend). That was the crux of this piece. (Someone contacted me recently and said some of my calculations at the end of that article are incorrect because of discounted cash flows, but I was too tired this weekend to do real math, so…I’m revisiting this week. I’ll keep you apprised of any necessary corrections!)
• It’s unlikely that you’d be able to spend much more than you earn now in retirement, simply because of how the safe withdrawal rate works. That was the crux of this piece.

Still, I heard pushback both times from passionate Roth advocates: “But I’m paying taxes on the seed, not the harvest!” they’d argue poetically—completely missing the point.

If you chop off enough of the seed before you plant it, your harvest is smaller.

Not only that, but who eats their entire harvest all at once? Why not grow a bigger harvest and then pay as you go, as you nibble on the smaller sections? The “seed and harvest” argument ignores how people actually spend their money in retirement.

I thought my reasoning (and the math) made a metric dickton of sense. In fact, the only compelling argument I’ve really ever heard in favor of going all Roth is that of RMDs, or Required Minimum Distributions: Once you turn 72, the government looks at the size of your pre-tax bucket and says, “All right, you’ve got too much money and we want our cut—you gotta start withdrawing more than you are right now (maybe), and paying taxes on it.”

That event—in which the government may wrest back control and force you to use your own money—means you no longer have total control over your tax rate, and it’s a valid criticism (though it’s also one of those problems you’d be happy to have, if it means you have so much money the government starts making you spend some of it).

Now that we’ve summarized memory lane and you’re up to speed, let’s talk about FICA taxes.

What the FICA?

FICA taxes = payroll taxes = Social Security and Medicare.

These pesky little buggers take an extra 7.65% from your paycheck. You probably noticed it early on in your career when your paycheck was even smaller than you anticipated after taxes.

And you know what FICA taxes apply to?

Employee elective salary deferrals. Also known as: your contributions to your retirement accounts.

That’s right. You pay 7.65% on your Traditional and your Roth contributions to your 401(k), even if your Traditional contributions are exempt from federal and state taxes. Bummer, huh?

That means your effective tax rate on your Traditional contributions is 7.65%, but your effective tax rate on your Roth contributions is your marginal tax rate + 7.65%.

You thought you were paying 24% on your Roth contributions? Think again: You pay 31.65%.

That’s almost a third of your contribution that gets eaten up in taxes if you’re in the common 24% bracket! Take your seed and slice off a third, not a quarter.

At the outset, this really doesn’t make a difference—after all, the tax applies to both Traditional and Roth contributions, so in a way, it’s like it applies to neither. In the contribution phase, its net effect is zero when weighing one option against the other.

But in retirement? When you’re using that money? Here’s the kicker: You don’t pay FICA taxes on your distributions. None of your retirement income from your retirement accounts is subject to FICA (payroll) taxes, making your effective tax rate even lower than I originally thought.

I first realized this while writing a different post referencing this T. Rowe Price analysis that finds the income needed in retirement is around 75% of your income in your working years. It casually noted that the “reduction in taxes” retirees experience lowers their expenses overall, causing them to need less money than when they were working.

I was like, “Wait a second, we’re just going to gloss over the fact that this T. Rowe Price piece is tossing in lower taxes as a given in retirement?”

Technically, it’s not the FICA tax itself that makes the difference, but our perception of our post-tax income.

Since we pay FICA taxes on our contributions on both the pre-tax and Roth options, but pay FICA on neither set of distributions, its true net effect is zero.

But it’s still impactful. Why? Because your own perception of your post-tax income is nearly 8% lower because of FICA taxes.

Keep reading.

Given our focus this week on potentially needing less than you think in retirement, I wanted to throw it back to a post I wrote early last year about “mini early retirement”—also known as “Coast FI” or “Barista FI,” as it implies you’re able to stop adding money to the metaphoric pot, because you’ve saved enough early enough that time will do the rest of the work.

I had an interesting realization the other day:

My entire strategy thus far on my journey to true financial independence (in which my investments create enough passive income to live on, and work becomes optional) was to work high-paying gigs (regardless of passion or enjoyment) and hit the magic number ($1M alone or $2M with a spouse—allowing for a $40,000 or $80,000 annual drawdown, respectively, tax-free and every dollar available for spending) in as little time as possible.

Because of my save rate and projected increase in income, I was on track to hit $1M in less than 7 years—that lands me right at age 33.

“7 years? F*** yeah! I can do that.”

Fast-forward 6 months of grinding 80 hours a week, working Saturdays, waking up at 5, and constantly feeling behind.

Guess what? 7 years doesn’t feel like it’s going to fly by anymore.

Could I muscle through it? Sure. Will I muscle through it? Maybe.

But a big part of striving for financial independence is living an intentional life—clarifying what it is, exactly, you want—and in my discovery phase, I asked myself: Do I want a million dollars? Or do I want control over my time?

Unequivocally, it’s not about the money. The money is just what you use to buy the time.

Where I am now: 25% of the way toward FI

As I write this, my net worth is hovering somewhere around $260,000, which means I’m a little more than 25% of the way there.

Nobody talks about the weird in-between phase of cranking toward FI. It’s this weird high in the beginning: You feel like you’ve discovered the secret to life, and the adrenaline high is powerful enough to make you swear off your nail appointments and non-happy hour-priced cocktails forever.

But then there’s this period that comes later (after your first few big milestones) when—suddenly—you look out at the horizon, and you realize: Shit, that’s still really far away. Sure, it’s happening! Sure, the more you invest, the faster it grows! But damn, there’s nothing like working your ass off, investing like a crazy person, and looking up and going, “OK…only 7 more years!”

The point is, it’s a marathon, not a sprint—so my, “It’s cool, I don’t need time, sleep, a social life, or balance—I’ll work four jobs until I’m 33 and then chill,” plan started to look (and feel) like I was losing the plot.

FI is about optimizing for happiness

…and for me, a big source of my day-to-day happiness comes in those quiet moments—the rare afternoons when meetings get canceled. Saturday mornings when I can take Georgia to the park and not immediately rush home or risk being late for something. Friday nights when I can rest on the couch, watch a little TV, and ignore email, knowing I’m (mostly) free for the next 48 hours.

The more I started to notice my joy in the simple moments, the more I wondered if maybe there was a less extreme way to achieve what I was trying to do.

Simply working fewer corporate jobs and making less money didn’t feel like a great answer, since it would still require me to be tethered to a workstation from 9 to 5 every day, 5 days a week. Whether I’m responsible to one employer or three might make the days themselves a little less chaotic, but it didn’t quite solve the “technically required to be sitting at a desk all day” thing. There may be less work, but my time wouldn’t be mine.

And sadly, I feel too much loyalty, obligation, and corporate guilt to half-ass my work—if my name is attached to something or I’m a member of a team, I take my responsibility to people too seriously for the answer to be, “Care (and try) less.”

The birth of the idea for mini retirement

There was one moment specifically when I remember feeling a little silly. I was talking to a friend who owns her own small business, works her own hours, and genuinely enjoys her day-to-day life. If I had to guess, I bet she makes anywhere from $3,500 to $5,000 per month, depending on her client load.

“So…why are you working so much? What are you trying to do?” she asked me.

“Katie, what are you saving for?”

I launched into my monolithic explanation about financial independence. Early retirement! Endless vacation! No responsibilities! Control over your time! Mission-driven work! Purpose!

She seemed confused.

Frustrated, I changed my approach: “I just want to be able to do whatever I want all the time,” I said, probably expressing my obsession with FI in the simplest terms I had found yet.

It wasn’t about financial independence. It was about independence. I was sure she would get it.

“Hm,” she replied, “Well, I guess that makes sense…but I already do that.”

A thousand records scratched. Cars crashed. Air horns sounded.

“I already do that.”

Keep reading.

My fun finds this week are all over the place. Enjoy.

• “Social Media: Being Curious, Not Critical, with Ayishat Akanbi” from Exactly. with Florence Given. Y’all know that weird phenomenon playing out on the internet right now wherein you’re a little terrified to say the wrong thing for fear of being identified as an ignorant asshole? This podcast episode does an amazing deep dive into why that is and how we fix it. Here’s my favorite quote: “Just because you saw an infographic a week earlier than someone else doesn’t mean you’re better than them.” Oof.
• Magnesium L-Threonate (also known as “Magtein”). Okay, this is not a medical recommendation (because I’m not a doctor, nor do I play one on television)—but I’ve been taking magnesium supplements for sleep for a few months and it’s improved my deep sleep (as tracked by my Oura Ring). Magnesium threonate is a version of magnesium that doesn’t…um…make you need to visit the little girls’ room a lot. Ask your doctor if a magnesium supplement makes sense for you.
• These limited edition Nespresso pods. I splurged on these “Hawaiian Kona” coffee pods for my Nespresso machine (usually, I only buy the standard double espresso pods). They’re pretty good—and I’ve been wanting to visit Maui again, so these feel like the next best thing.

I know, I know—feels a little weird to hear that from me, right? It certainly feels foreign to me.

But that’s the thing: It took two real-world examples to make me realize that maybe my extreme approach was just that…extreme.

Today’s podcast episode dives into the math behind why you may need to save less than you think for retirement—plus, an interview with Kim Curtis, a nationally recognized wealth management advisor and president and CEO of Wealth Legacy Institute. She dives into what we actually need to be worried about in retirement. Hint: It’s likely not running out of money.

Listen now.