Family from NJ trying to start planning for retirement… a little behind the ball

[sergdman]

Hello everyone. I am looking to start planning my retirement. I have been searching the forums and see that I am way behind on my planning, WAY BEHIND! A little about me, us. I am 34 years old, married with one child (1). We plan on having another one day. My wife is 33. We live in NJ. Combined income of about $150,000. Our expenses are, well too high. That will be changing. I am also setting up Mint to track our spending. We will both have pensions when we retire. We currently have a deferred compensation plan with about $40,000 and savings of about $75,000. We also have about $6,000 for our daughters college fund which we plan on investing, I think in a 529 plan (your advice is welcomed and much needed.) We own a home, owe $250,000 and has about $150,000 in equity, 13 years mortgage left. Cars paid off. Wife student loans of $45,000. As you can see, we are not doing well at all, for retirement that is. This is due to our going out, traveling, and buying what we want when we want attitude. Life has been good, but I am willing to start sacrificing, especially now that my little princess is around. I wish I would have started this planning when I started working at 14. I will be passing down what I learn to my children. They will be prepared, that’s for sure. We are not finance savvy and really need to research and any help. At this point, I am just shooting to retire comfortably, early may not be possible.
My plan thus far. I have ordered Bogleheads on Investing and Bogleheads on Retirement as it was recommended in the forums. This will hopefully give me a basic idea on what to invest in. I have become a member of this site and am seeking help and researching. I will be pumping money into the student loan to get that out of the way. Now any suggestions and advice for a family who is ready to work hard for retirement and saving for daughter future.
Thank You Very Much Everyone

 

[whipsaw]

Congrats on deciding to change your lifestyle to allow you a better life down the road. With your income, 34 is definitely not too late to make a meaningful impact on your retirement.

A couple of notes. First, start tracking all of your expenses for several months to a year to see where your money is going. Set up a budget and stick to it. Second, consider whether pouring money into your wife's student loans is the most prudent move. If you are paying loans at the expense of 401k contributions or other tax advantaged retirement contributions, you really need to consider whether it's worth it. Given your age I'm guessing your wife's student loan interest rates are pretty low. You might be better off putting that money into a 401k.

Keep reading and stick to it! It will be worth it!

 

[retire2020]

Welcome sergdman. I'm also from NJ. First pay off any CC debt if applicable. If your employer matches, max out 401K at least until match. Then invest in Roth IRA(5500/each). Build an emergency fund with at least six months of expense. Then if leftover, pay student loan, save in 529 and your after tax savings. 34 is not late at all. All the best!

 

[BuysToys]

Is your savings targeted for something, such as new cars?

I agree with whipsaw's statement about your wife's student loans. If the interest rate is low, you may be better off investing the "extra" rather than throwing it at the loan. Also, do you and your wife both have Roth accounts? If not, I would open one up for each of you and try to max it every year.

What percentage of your income are you putting into your retirement accounts currently? Are you contributing enough to receive any matching contributions from your employers?

 

[target2019]

It could be worse. For instance, you could be 54 and just starting serious planning! Like we did. LOL.

In NJ, take a look at Franklin Templeton 529 Plan.

If you try to "fix" everything at once, you will make the family very unhappy. As has been written, start tracking everything so you can identify the spending categories which are killing you. Knock down one of those expenses each month.

You won't get four sides square in a week, or even a month. It took us a few years to come up with a method to track things and not drive everyone crazy. But once I had the measures, we discussed this every few weeks. "What is measured is managed." If you show the future numbers to the spouse, get agreement, it will gel.

It may help to think of this as a cash flow problem. You are pi$$ing away capital, and your ability to leave the rat race is pushed ahead by years.

Good luck with your planning.

 

[rodi]

You're not too late. I was a similar age when I got super serious about saving/debt reduction, etc.

There's a snowball effect when you start. You cut a splurge here, and a discretionary expense there - and divert that money to savings and/or debt reduction... and it starts to snowball... In a few years you're out of debt, your savings is growing, and you're finding even more ways to save money.... It becomes addictive.

As far as investing... Keep it simple. Figure out an asset allocation - at your age you can be fairly aggressive in your equity vs fixed ratio... Find some index funds that match your ratio... and start investing.

As far as 529's... some states give a state tax benefit for 529 contributions if you use the state plan. It doesn't look like NJ has any tax benefit for using their plan. I'm in CA and in the same boat... so I used a vanguard plan from another state. What I like about 529's in general are: - parents (or grandparents, or whomever) owns it - not the kid. It can be transferred to another kid. Growth is tax free, like a Roth, if you use it for qualified expenses.

Welcome to the ER community. This place is great and full of encouragement.

 

[sergdman]

Congrats on deciding to change your lifestyle to allow you a better life down the road. With your income, 34 is definitely not too late to make a meaningful impact on your retirement.

A couple of notes. First, start tracking all of your expenses for several months to a year to see where your money is going. Set up a budget and stick to it. Second, consider whether pouring money into your wife's student loans is the most prudent move. If you are paying loans at the expense of 401k contributions or other tax advantaged retirement contributions, you really need to consider whether it's worth it. Given your age I'm guessing your wife's student loan interest rates are pretty low. You might be better off putting that money into a 401k.

Keep reading and stick to it! It will be worth it!

Thanks, It will be difficult changing lifestyles. Yes I will start tracking with Mint. I’ll have to dig into the rates on the student loan. We have no 401k through our employment. We have the deferred compensation plan (a government 457 plan) and the pension. I hope to stick with it.

 

[sergdman]

Welcome sergdman. I'm also from NJ. First pay off any CC debt if applicable. If your employer matches, max out 401K at least until match. Then invest in Roth IRA(5500/each). Build an emergency fund with at least six months of expense. Then if leftover, pay student loan, save in 529 and your after tax savings. 34 is not late at all. All the best!

Thanks
I have no CC debt at this time. I pay off every month. No employer matches, just the pension and the government 457 plan. I guess I will have to look into the Roth IRA. This way I have a retirement income invested in both pre-taxed and taxed. Any advice on setting up the Roth IRA. Thanks again. _

 

[FIREd]

Hello sergdman, welcome!

if you both have pensions, you may not be as far behind as you think (few people in your age group have pensions around here). Still, it does not hurt to start tracking your expenses to see if you can trim back some of the fat in your budget.

 

[sergdman]

Is your savings targeted for something, such as new cars?

I agree with whipsaw's statement about your wife's student loans. If the interest rate is low, you may be better off investing the "extra" rather than throwing it at the loan. Also, do you and your wife both have Roth accounts? If not, I would open one up for each of you and try to max it every year.

What percentage of your income are you putting into your retirement accounts currently? Are you contributing enough to receive any matching contributions from your employers?

Saving were to maybe invest in a multifamily home or income property. No more cars. Will be checking on that interest tonight, I know I should know! No Roth accounts, but looking into it. Any advice? We are putting in only 5% each of our income currently. No contributions.

 

[sergdman]

It could be worse. For instance, you could be 54 and just starting serious planning! Like we did. LOL.

In NJ, take a look at Franklin Templeton 529 Plan.

If you try to "fix" everything at once, you will make the family very unhappy. As has been written, start tracking everything so you can identify the spending categories which are killing you. Knock down one of those expenses each month.

You won't get four sides square in a week, or even a month. It took us a few years to come up with a method to track things and not drive everyone crazy. But once I had the measures, we discussed this every few weeks. "What is measured is managed." If you show the future numbers to the spouse, get agreement, it will gel.

It may help to think of this as a cash flow problem. You are pi$$ing away capital, and your ability to leave the rat race is pushed ahead by years.

Good luck with your planning.

Thanks for the information. Yeah, I feel like I am late to the game. I was looking at all the 529, but NJ does not give any tax break so was thinking of going with out of state with low fees and performing well. So difficult to choose. I will tackle one thing at a time. But so much to do, don’t want to drive the wife crazy.

 

[BuysToys]

Saving were to maybe invest in a multifamily home or income property.No more cars.Will be checking on that interest tonight, I know I should know! No Roth accounts, but looking into it.Any advice? We are putting in only 5% each of our income currently.No contributions.

Vanguard is who I use and they will help you set up Roth accounts. You could also use T. Rowe Price or Fidelity as they all offer low fee index funds.

Before setting up your Roth accounts, though, you do need to educate yourself enough to set your AA (Asset Allocation) to match your investment goals. You said you both have deferred compensation plans. What is your asset allocation there? You are both fairly young, so I would think a higher equities exposure would be appropriate for you, but you have to decide how comfortable you are with risk. The three companies listed above can also help you make that determination initially, but you likely want to continue your own education on investing strategies.

 

[sergdman]

You're not too late. I was a similar age when I got super serious about saving/debt reduction, etc.

There's a snowball effect when you start. You cut a splurge here, and a discretionary expense there - and divert that money to savings and/or debt reduction... and it starts to snowball... In a few years you're out of debt, your savings is growing, and you're finding even more ways to save money.... It becomes addictive.

As far as investing... Keep it simple. Figure out an asset allocation - at your age you can be fairly aggressive in your equity vs fixed ratio... Find some index funds that match your ratio... and start investing.

As far as 529's... some states give a state tax benefit for 529 contributions if you use the state plan. It doesn't look like NJ has any tax benefit for using their plan. I'm in CA and in the same boat... so I used a vanguard plan from another state. What I like about 529's in general are: - parents (or grandparents, or whomever) owns it - not the kid. It can be transferred to another kid. Growth is tax free, like a Roth, if you use it for qualified expenses.

Welcome to the ER community. This place is great and full of encouragement.

I hope the snowball is fast. I feel like time just goes by so fast. I am trying to keep it simple, but this sounds difficult when you say find some index funds to match your ratio! I will pick it up with reading the forums and books I ordered. What 529 plan did you go with? Thanks.

 

[sergdman]

Hello sergdman, welcome!

if you both have pensions, you may not be as far behind as you think (few people in your age group have pensions around here). Still, it does not hurt to start tracking your expenses to see if you can trim back some of the fat in your budget.

Yes, I am trying to learn everything about our pensions to invest accordingly in the future. Going to start tracking and adjusting. Thanks

 

[sergdman]

Vanguard is who I use and they will help you set up Roth accounts. You could also use T. Rowe Price or Fidelity as they all offer low fee index funds.

Before setting up your Roth accounts, though, you do need to educate yourself enough to set your AA (Asset Allocation) to match your investment goals. You said you both have deferred compensation plans. What is your asset allocation there? You are both fairly young, so I would think a higher equities exposure would be appropriate for you, but you have to decide how comfortable you are with risk. The three companies listed above can also help you make that determination initially, but you likely want to continue your own education on investing strategies.

Thanks, I started looking at Vanguard since many people here use them. I am in aggressive investment goal, but could not really tell you exactly where the money is. I just looked and saw that high percentage was in Large caps, value and growth and international. Then a smaller percentage in small caps value and growth and some others. Yes, I agree that I sure need to educate myself. Thanks for the help.

 

[MikeWillRetire]

When I was your age, I had nothing saved for retirement, nothing saved for kids college, 26 years left on my mortgage. Now at 52, it looks like retirement will be possible in 4 years or so. You have only 13 years left on your mortgage, you and your spouse will have pensions, and your cars are paid off, and you have $121 k saved up. Not bad.
Regarding saving for college, I have a son in college now, and I've found that room & board is just about equivalent to what it cost me to house and feed him believe it or not (the college now has to feed him, he doesn't need gas money while at college, the college now has to pay for his long showers, etc). I've only had to save for tuition, and that runs about $10k for in-state university here. With your combined incomes, it is doable if you are happy with state universities or community college, depending on how many kids you have.

 

[38Chevy454]

First, welcome to the forum. Second, you are not too late, in fact you are ahead of most of the general public by even being aware of your finances and retirement savings. Getting a handle on your budget and where spending goes is important, but ultimately it comes down to LBYM as the real end result. Having a goal and doing periodic evaluations will ensure you stay on-track and succeed.

Agree with advice to learn what your interest rate is on student loans and mortgage. Balance that vs the need to invest now so you can gain the advantage of compounding. For sure max out your pre-tax savings even without any match, and then add what you can to after-tax accounts like Roth. 529 are good for college savings, too bad your state does not give any tax advantage.

At your age, with adequate savings and adding in your pensions, you should be able to meet your goal of a nice retirement. What age that starts is up to your ability to increase the savings.

 

[mystang52]

Welcome from another Garden State resident. Your introductory post has an apologetic tone but I don't see where you're doing all that bad! You have a goal, you're taking steps to get there, and most importantly you have plenty of time on your side.

 

[sergdman]

Thanks everyone for your input. I and my wife were nervous and hesitant about investing our money. We have realized that our savings is not doing anything in our savings account that's for sure. We come to realize that there is no other way to do it without taking risk. No way we could pay for our children's education and our retirement saving money without investing. It would be impossible.

Thanks again everyone, I am definitely looking into the ROTH IRA for me an my wife. Have to check on the her student loan rate to let you guys know to see if it should be over an done with.

 

[marinauser]

I think that you really need to assess your tax rates and see whether a Roth makes sense. There sometimes is a knee jerk reaction to go to a Roth but you really need to look at your marginal tax rates now and make an educated guess at what they will be in the future. The 457 may make more sense to build tax deferred money. Obvioiusly, it comes down to your personal situation. Personally, I don't like to pay any tax now that I can defer to someday in the future but we also have a marginal rate that means it just doesn't make sense to pay now.

 

[target2019]

Thanks for the information. Yeah, I feel like I am late to the game. I was looking at all the 529, but NJ does not give any tax break so was thinking of going with out of state with low fees and performing well.So difficult to choose.I will tackle one thing at a time.But so much to do, don’t want to drive the wife crazy.

There is a $1500 scholarship for the first year if child goes to NJ college.

 

[rodi]

I hope the snowball is fast. I feel like time just goes by so fast. I am trying to keep it simple, but this sounds difficult when you say find some index funds to match your ratio! I will pick it up with reading the forums and books I ordered. What 529 plan did you go with? Thanks.

The lazy portfolio or couch potato portfolio are pretty simple.

For example - if you wanted a 60/40 asset allocation - 60% equities, 40% fixed income. You could go super simple with 60% of your investments in a total stock market index fund, and 40% of your investments in a total bond market index fund. That's about as simple as you get.

Another option that's even simpler - Vanguard's Wellington or Wellesley funds. They are relatively low cost, not quite as cheap as index funds - but still cheap... and they do the asset allocation for you.

Link to some sample portfolios.
Lazy Portfolios - Couch Potato Portfolios - AssetBuilder Inc., Registered Investment Advisor

I think the 529 we have is for Nevada. Mind you we live in CA - but since there is no break for investing in the less-than-wonderful CA plan - we are in the Nevada plan.
https://personal.vanguard.com/us/whatweoffer/college/finda529?Link=facet

 

[papadad111]

How is your spouse to all of this. I suspect she is a big part of the spending issue. Is she on board? Are you both really and truly ready to change lifestyle ? It's pretty tough to change your attitude about money when you are already in your mid 30s... Not impossible but maybe 1 in 5 actually succeed in making all the changes necessary to get on a path to financial independence. If you are accustomed to keeping up with the neighbors it will be really difficult to not care about the neighbors starting Monday morning. That's what you have to do.

My bet is slow or no progress when you check back in 12 months from now. Not being negative but given a half lifetime of spending it's really gonna be hard to change from being profligate to miserly, unless you grew up poor and money was tight and you know how to live that lifestyle again for a decade or so to "catch up"


I calculated that you have approximate net worth today of ....zero. (I gave you about 25k credit for the type of cars you probably drive). That's better than being negative but you can't live long on zero.

Guard those pensions with your life.









Sent from my iPhone using Early Retirement Forum

 

[rodi]

How is your spouse to all of this. I suspect she is a big part of the spending issue. Is she on board? Are you both really and truly ready to change lifestyle ? It's pretty tough to change your attitude about money when you are already in your mid 30s... Not impossible but maybe 1 in 5 actually succeed in making all the changes necessary to get on a path to financial independence. If you are accustomed to keeping up with the neighbors it will be really difficult to not care about the neighbors starting Monday morning. That's what you have to do.

My bet is slow or no progress when you check back in 12 months from now. Not being negative but given a half lifetime of spending it's really gonna be hard to change from being profligate to miserly, unless you grew up poor and money was tight and you know how to live that lifestyle again for a decade or so to "catch up"


I calculated that you have approximate net worth today of ....zero. (I gave you about 25k credit for the type of cars you probably drive). That's better than being negative but you can't live long on zero.

Guard those pensions with your life.









Sent from my iPhone using Early Retirement Forum

I'm hoping that the OP's wife is on the same page. It's also not as dire as you paint it. They have ($100k + $45k) debt and ($250+$75+$40+$6k) in assets. To me, that adds up to more than zero with my math... They've paid off a big chunk of their house and have not debt besides the house and student loans.

Lets not deflate the guy before he tries. Lets encourage him. I agree that the wife needs to be on board... but I disagree that it's a lost cause. In some households the wife is actually the driver of the budget cuts.

 

[MikeWillRetire]

I calculated that you have approximate net worth today of ....zero. (I gave you about 25k credit for the type of cars you probably drive). That's better than being negative but you can't live long on zero.

Guard those pensions with your life.









Sent from my iPhone using Early Retirement Forum

His net worth is 226K. You didn't include the value of his home. I think he is doing very well for a guy with two pensions.