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Old 05-27-2016, 11:09 PM   #1
Confused about dryer sheets
 
Join Date: May 2016
Posts: 8
Hello--newbie here...

Hi everyone- We are new to this site. I just found this only a week ago. I've been reading and finally decided post where we are today. Let's me say, we are not close to retirement. We paid off a lot of debt last year.

Let me be honest, my own retirement is not enough. I only have $50K in my 457 & Roth. I can collect pension early at 55, much higher at age 63. Most likely 63 is the best age to retire. I stand to collect around $60K maybe $70K a year with cola. I also plan to collect SS at 63. My wife will have pension at age 60. Her pension is maybe around $4000 a month w/cola.

So here's our information.

current age 47, her 40.
Our combined income $193K. Our taxable income $157K last year.

This year, we are putting:
36K - Tax deferred Account
5500 - ROTH(contributed fully)
15K - EE mandatory pension contributions
$22K - ER pension contributions
$78,500

Our investment profile: 70% stock Index/International, 20% bonds, 10% REITS

Retirement balance 457 & 401K (no match): 380K Fidelity & Vanguard index
Emergency fund:$30K MM
Brokerage $5K Wellington Fund Vanguard
Home Value $333K

Our kids age 10 & 12 years old (son is special need)

Our only debt is our mortgage: $218K (15-year fixed 3.3%) Refi last year. Payment $2000 a month (PITI). Total monthly expenses $6500 a month include our mortgage.

Our current dilemma. Max retirement 457 & 401K + ROTH or Pay off the home + increase into taxable savings. We do not have much in savings since we plan to use some of that to do some home renovation in few years. I drive a beater to work that will need to be replaced in few years as well.

The problem is we pay so much in taxes. Our accountant is always hammering us to put more towards retirements since we do not have much in retirement balance. It will help our lower our taxes. I'm trying to find the balance. Do we put more in retirement or more towards taxable savings while paying more towards the mortgage. What is the best approach in your opinion.

As far our career. We both have stable jobs. Our family + both parents are here, we do not plan to move anywhere else. Sure its HCOLA but we love it here. We have no plan to move anywhere except until we retire. Even then we still plan to live in California.
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Old 05-28-2016, 06:25 AM   #2
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Originally Posted by tripods68 View Post
Do we put more in retirement or more towards taxable savings while paying more towards the mortgage. What is the best approach in your opinion.
Welcome Aboard!

Keep going with maxing out any and all retirement accounts. Even any HSA. Then, do not use any HSA money.

Mortgage interest is tax deductible. Maxing out the retirement accounts forces you to live on less. In the end, you will find you do not need as much to live on.

Figure out what you actually need to live on. Here is an example that shows you only need to have ~40% replacement income, once you pay off your mortgage. My numbers show an over 50 401K amounts, and over 55 HSA amounts.



Salary
DescriptionAmount
Salary$100,000
-FICA($7,650)
-Health Care Sav($4,350)
Less Purch Vac$0
Less 401K($24,000)
Less Roth IRA($6,500)
Tax SavingsTBD
Sub Total$57,500
Mortgage Pmt($16,836)
  
  
Annual Total$40,664
Monthly Total$3,389
Salary Equiv %40.66%
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Old 05-28-2016, 06:26 AM   #3
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It seems to me that you are doing just fine. Presuming that you continue to earn and save as much as you plan to this year you should be on track for FI and retirement at the ages that your pensions kick in. Regarding your questions, I'd first ask if you plan to fund 529's or otherwise save for your children's college education. I see mention of that in your calculations. With your mortgage set to be paid off the year before you turn 63 , I can see no reason to prepay that debt. As to maxing retirement investing the answer to that question lies in the tax bracket you expect to be in after retirement versus the bracket you are in now.
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Old 05-28-2016, 07:42 AM   #4
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+1 on Senator's analysis. I agree that reducing taxes is valuable. In your taxable account if you have new money, look toward in state municipal bonds, and index funds with little turnover, thus less taxable distributions.
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Old 05-28-2016, 08:46 AM   #5
Confused about dryer sheets
 
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Originally Posted by Golden sunsets View Post
Regarding your questions, I'd first ask if you plan to fund 529's or otherwise save for your children's college education. I see mention of that in your calculations. With your mortgage set to be paid off the year before you turn 63 , I can see no reason to prepay that debt. As to maxing retirement investing the answer to that question lies in the tax bracket you expect to be in after retirement versus the bracket you are in now.

We have set up 529 plan for our kids. Its worth 14K S&P Vanguard. Because I'm also a veteran with disability (3 years Navy Veteran), the State of California has a tuition Program for dependents. My brother and I used it for us when in college (my step dad is US Air Force veteran retired with disability) anywhere in California as long its state college. As long she doesn't make more than 10K a year of taxable income she will qualify for free tuition. All we have to pay for is housing & books we will cash flow.

We are paying extra a month towards our mortgage which we should pay off before i turn 60.

I'm hoping to reduce our taxes by remaining in the 15% bracket by retirement age. I don't really know if that is even possible. However, my wife do plan to work until she is 60 maybe retire early at 55. We have a lot of expenses ahead in next 5 years plus college. We have save extra $7000 and plan to add more to this in the next a year. I'm hoping to increase this to $20K by next summer. But our take home very squeezed with retirement savings and planned expenses. I'm not complaining. Its just that we just got out of debt last year, and we have mountain of expenses up ahead (house renovation, upgrade to another better car for myself, college, deductible cost for our son therapy).
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Hello--newbie here...
Old 05-28-2016, 09:04 AM   #6
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Hello--newbie here...

Ok you'll collect $70K with cola but that is 16 years from now. Is that $70K in today's dollars What will $70 be worth 16 years from now when you retire at 63? Example: the taxes on my home are roughly $7K a year today if they average only 2% inflation each year they will be $9600 in 16 years. What will your wife's $4000 be worth 20 years from now?

My advise increase you savings and put it in diversified index mutual funds...
Every dollar put away today has 16 years to grow and that's a good amount of time...
I had my savings pulled first and we lived on the balance ... Before I knew it Bam a big pile.
You can do this!

By the by dividends are taxed at 15% if you make less then $200K
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Old 05-28-2016, 11:15 AM   #7
Confused about dryer sheets
 
Join Date: May 2016
Posts: 8
rayinpenn,

That's the range. Yes i will have cola each year after I retired (max 2% a year) I'm trying to be conservative maybe used $60K in pension a year at age 63 with lifetime survivor benefits if at anytime i die during my retirement years. I expect to live to maybe 86 years old.

My wife will receive 2 pension from two hospitals 1) is a form of annuity paid out 10 years max at $3350 a month starting age 55, or lifetime payment of $750 a month. Her current job Pension estimate--assuming she works for 20 years will pay her 50% of her highest salary. She might receive low end $4000 to highest $6000 a month at age 60. Her employment does offer lump sum pay out instead of monthly pension. We won't know that until then.

Our Retirements 457, 403b & 401K are fully invested in 80%-90% stocks/international/emerging markets/reits. The only individual stock I own is Netflix 100 shares worth about 10K in my ROTH. All are in aggressive growth. Remaining funds are in Vanguard Wellington & Wellesley bonds & money market.

I'm trying to estimate our taxes next year with lower AGI. Is there a software to get estimate?
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Old 05-28-2016, 11:19 AM   #8
Confused about dryer sheets
 
Join Date: May 2016
Posts: 8
Quote:
Originally Posted by DrRoy View Post
+1 on Senator's analysis. I agree that reducing taxes is valuable. In your taxable account if you have new money, look toward in state municipal bonds, and index funds with little turnover, thus less taxable distributions.

Where in the mutual fund index where I can know the 'turnover' of funds.

Everybody's take about firCall. Is this a monte carlo simulation... Is there a link to this?


You're signature....that's where we are going Sunday. Muir Woods in North of San Francisco. It's very nice place to visit.
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Old 05-29-2016, 08:15 AM   #9
Confused about dryer sheets
 
Join Date: May 2016
Posts: 8
Quote:
Originally Posted by Senator View Post
Welcome Aboard!

Figure out what you actually need to live on. Here is an example that shows you only need to have ~40% replacement income, once you pay off your mortgage. My numbers show an over 50 401K amounts, and over 55 HSA amounts.



Salary
DescriptionAmount
Salary$100,000
-FICA($7,650)
-Health Care Sav($4,350)
Less Purch Vac$0
Less 401K($24,000)
Less Roth IRA($6,500)
Tax SavingsTBD
Sub Total$57,500
Mortgage Pmt($16,836)
  
  
Annual Total$40,664
Monthly Total$3,389
Salary Equiv %40.66%

We figured we only need $30K a year of our core expenses (Food, Utilities, Taxes, Transportation, Discretionary). Above that would be another $20K of traveling budget a year. Our requirement income is at least $50K which should cover with my pension, assuming with don't have any other major expenses, moving to a new house, another home renovation. If that's the case we would pay cash for it, and might cash flow get things done before retiring.
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