Hello all
Wondering what are your thoughts on our situation.
My husband is 51 and I am 37. He does not want to retire early (loves his job), but I do.
I would like to be FI in the next 10 years.
Please analyze our portfolio, I am having a hard time figuring out the big picture in terms of our age difference and where we should put our money (taxable vs non taxable)
Currently have:
$95k in a 403b plan (husband )
$55k in a Traditional IRA (me)
$3500 brokerage acount, joint
$2000 savings (joint)
$3k in a Roth IRA (husband)
Husband has a pension from work, coming in at around $2300 if he waits till age 60
or about $2600 at age 65.
Have not figured out SS, assume something will be there for both.
Just paid off all debt, owe 2 vehicles, no mortgage, we currently rent.
Combined income of $ about 105k a year (maybe more next year).
Starting this month we will have $3500 available to invest each month going forward.
Need help figuring out the most advantageous approach, what do we invest in and in what order? Here are a few things we are considering:
a) start a Roth for my DH this year (mine is maxed out)
b) start a SEP (eligible for one, self employed, no employees) and a Roth for DH, fund to the maximum allowed
c) contribute more to husband's 403b and fully fund the Roth for him
d) purchase a home and pay it off fast
e) Do all of the above?
Keep in mind, I am 37 years old and DH is 51...
Appreciate your thoughts on this...
Location: USA
Age difference, it matters how?
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George the original one
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Re: Age difference, it matters how?
First things first... how much are your expenses relative to your takehome pay? How much will your husband's pension cover those expenses?
In general, since your husband has no intention of retiring until at least age 60, his retirement accounts should be maxed out. Because you'd be significantly less than age 59.5, you probably want to maximize taxable accounts (and/or pay for the home) unless your husband's accounts can cover all your expenses.
In general, since your husband has no intention of retiring until at least age 60, his retirement accounts should be maxed out. Because you'd be significantly less than age 59.5, you probably want to maximize taxable accounts (and/or pay for the home) unless your husband's accounts can cover all your expenses.
Re: Age difference, it matters how?
We are spending about $3600 a month, includes $1350 rent and a good health and dental insurance and kid activities.
Our rent is high now because we want to stay in the area for the good school district (expensive part of town).
In 8 years it will be college time, so we can move to a MUCH cheaper place...
So if our rent goes down to $900 a month and there will only be the two of us, we can easily make it on the DH's pension...
Another factor, pension is calculated according to the two highest salary years, so it is not very clear, could be as high as $2800...
He also has option to get a lump sum payment, however looks like it is less than the monthly payments would be...
Our rent is high now because we want to stay in the area for the good school district (expensive part of town).
In 8 years it will be college time, so we can move to a MUCH cheaper place...
So if our rent goes down to $900 a month and there will only be the two of us, we can easily make it on the DH's pension...
Another factor, pension is calculated according to the two highest salary years, so it is not very clear, could be as high as $2800...
He also has option to get a lump sum payment, however looks like it is less than the monthly payments would be...
Re: Age difference, it matters how?
Correction to original post: the $3k for my husband is an old Traditional IRA, not ROTH
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George the original one
- Posts: 5406
- Joined: Wed Jul 28, 2010 3:28 am
- Location: Wettest corner of Orygun
Re: Age difference, it matters how?
So in 9-10 years, at today's expenses, you'll need to supply:
$3600/mo expenses - $2300/mo pension = $1300/mo.
Using the 4% rule of thumb, $1300/mo * 12 months * 25 years = $390k pot of money.
You already have $158k saved, so you need to save $232k in the next 10 years. Since you plan on saving $3500/mo, you'll be there in 5.5 years.
Now whether you invest in house or not is your decision, but it looks like a 10 year plan is well-funded.
$3600/mo expenses - $2300/mo pension = $1300/mo.
Using the 4% rule of thumb, $1300/mo * 12 months * 25 years = $390k pot of money.
You already have $158k saved, so you need to save $232k in the next 10 years. Since you plan on saving $3500/mo, you'll be there in 5.5 years.
Now whether you invest in house or not is your decision, but it looks like a 10 year plan is well-funded.
Re: Age difference, it matters how?
Thanx George...
Do we factor in SS at any point? DH can start taking it as early as 62...
Do we factor in SS at any point? DH can start taking it as early as 62...
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George the original one
- Posts: 5406
- Joined: Wed Jul 28, 2010 3:28 am
- Location: Wettest corner of Orygun
Re: Age difference, it matters how?
You are not financially ready yet. As I was reading your bio, I was really hoping you had a house paid off, but you don't... Renting??? Oh no...
37 with only 55k in the IRA? holy smokes, i wouldn't even think about retiring. You need minimum $500,000 in the ira to draw down comfortably assuming expenses of $5,000 a month at age 60.
I would not rely on a pension, who knows how the company will be doing long term and if the company goes bankrupt when you are 70, say bye bye to the pension benefits.
Government pension though is worth its weight in gold.
I personally wouldn't be able to retire living on $2600/month, that's not what I call retirement.
37 with only 55k in the IRA? holy smokes, i wouldn't even think about retiring. You need minimum $500,000 in the ira to draw down comfortably assuming expenses of $5,000 a month at age 60.
I would not rely on a pension, who knows how the company will be doing long term and if the company goes bankrupt when you are 70, say bye bye to the pension benefits.
Government pension though is worth its weight in gold.
I personally wouldn't be able to retire living on $2600/month, that's not what I call retirement.
Re: Age difference, it matters how?
Epoch
I am not sure I understand your remark...
As far as pension--DH's pension is run by the state (teacher).It could fail, sure..So could SS or our investments, right?
I am not saying I want to retire tomorrow, just hoping to b ready after about 10 years (12 to be precise)
My original question was what accounts we need to maximize for savings in term of pre or post tax...Should we contribute more to my accounts or maximize my husbands?
I am not sure I understand your remark...
As far as pension--DH's pension is run by the state (teacher).It could fail, sure..So could SS or our investments, right?
I am not saying I want to retire tomorrow, just hoping to b ready after about 10 years (12 to be precise)
My original question was what accounts we need to maximize for savings in term of pre or post tax...Should we contribute more to my accounts or maximize my husbands?
Re: Age difference, it matters how?
Let's say you're FI in 10 years. At that time you'll be 47 and he will be 61. And you have at least 2 kids headed to college.
For heaven's sake, don't leave cash sitting in taxable accounts right now!
If it were me, I would:
1. Contribute enough to the 403(b) to get the match, if any,
2. Max out both Roths, and then
3. Buy a house and pay it off, and only THEN
4. Max out all other retirement accounts.
You don't want to leave a match on the table. Roth contributions (but not growth) can be pulled out without a penalty if necessary because you've already paid the taxes on that money, so definitely do those as well. If you choose to retire early, they are your friend.
After that, I'd buy a house and pay it off. Not only are mortgage rates on the way up from historic lows, but your kids will be penalized in their financial aid calculations for every dollar you have sitting around in a taxable account. However, any colleges that use the FAFSA for aid computations do NOT look at your home equity or mortgage status in their aid calculations. (Also excluded: retirement accounts and cash-value life insurance. Source: Kiplinger). And as a bonus, if you pay off your home right about the time the kids leave for university, that will free up your income to pay college costs as you go.
For heaven's sake, don't leave cash sitting in taxable accounts right now!
If it were me, I would:
1. Contribute enough to the 403(b) to get the match, if any,
2. Max out both Roths, and then
3. Buy a house and pay it off, and only THEN
4. Max out all other retirement accounts.
You don't want to leave a match on the table. Roth contributions (but not growth) can be pulled out without a penalty if necessary because you've already paid the taxes on that money, so definitely do those as well. If you choose to retire early, they are your friend.
After that, I'd buy a house and pay it off. Not only are mortgage rates on the way up from historic lows, but your kids will be penalized in their financial aid calculations for every dollar you have sitting around in a taxable account. However, any colleges that use the FAFSA for aid computations do NOT look at your home equity or mortgage status in their aid calculations. (Also excluded: retirement accounts and cash-value life insurance. Source: Kiplinger). And as a bonus, if you pay off your home right about the time the kids leave for university, that will free up your income to pay college costs as you go.
Re: Age difference, it matters how?
GandK
excellent advice...The FAFSA for college is definitely a consideration we did not take into account.
The problem with the house--we cannot commit to buying a house until school district doesn't matter anymore (ideally about 8 years down the road).
So rates will probably be up by than...However, we will be looking for a very modest house in a cheap area at that time.
As far as education for kids:
We have about 5k in a 529 plan in an aggressively managed option (get tax deduction in our state).
We are not really worried about paying for college--would love to help some, but will not feel bad if we don't...
Kids are bright enough and doing well in a very good public school, hoping to have great SAT scores and get lots of scholarships
excellent advice...The FAFSA for college is definitely a consideration we did not take into account.
The problem with the house--we cannot commit to buying a house until school district doesn't matter anymore (ideally about 8 years down the road).
So rates will probably be up by than...However, we will be looking for a very modest house in a cheap area at that time.
As far as education for kids:
We have about 5k in a 529 plan in an aggressively managed option (get tax deduction in our state).
We are not really worried about paying for college--would love to help some, but will not feel bad if we don't...
Kids are bright enough and doing well in a very good public school, hoping to have great SAT scores and get lots of scholarships