HobbyDave-Thanks so much for taking the time to explain so much for me!
No problem, I enjoy spending time at this, rather than doing my real work
At the moment we're concentrating all of our extra efforts towards paying off our 2 cars, home equity loan, and then the mortgage.
One suggestion if you're not doing it already, I'd put aside an automatic transfer of funds into a high yield savings account to pay for your next cars in cash. I'm not sure how fast you go through cars, how new they are, etc, but even more than getting rid of your current car loans, you'll want to make sure you never have car loans again.
So I actually have our last car loan still sitting there making payments on it, but we also have around $16k saved for purchasing a new car (or used more likely) in cash once one of ours dies.
My question though is, based on our annual incomes, I don't think we could EVER get to a point that we're putting away the annual max. It would be a HUGE chunk of our income put somewhere we'd have NO access to it. So in that case should we be saving in other vehicles? That's what I mean when I ask is it ALWAYS the case that people should max out 401k's first?
Well, since your incomes are low and may stay low, as someone mentioned, a ROTH Ira would be a fine investment choice. A brief explanation:
Lets say you make 40k, and you pay 10k in taxes on that 40k of income. Now in retirement, you could pull 40k from your 401k, and would again pay 10k in taxes (since 401k money is treated as income). Or you could instead pull 20k from your 401k (paying little to no taxes), and pull 20k from your Roth IRA (non taxed).
Now the best thing is that you never paid taxes on that 401k money. The Roth IRA money was taxed in the past, so again you are paying no taxes currently.
Now there is an argument that the 401k is still more efficient in the end than a Roth with current tax rates, but as tax rates may increase in the future, it may be a good idea to pay your taxes now rather than later
In general, for tax flexibility in the future, it is good to have your investments in multiple types of accounts. It will allow you to increase/decrease your tax burdens year by year as your need allows.
My recommendations:
1. If possible, see if you can get your expenses to be lower than either of your salaries. That will give you a huge security blanket, that if one of you loses their job, the other job can cover expenses.
2. Get an emergency fund of at least 3 months expenses. My wife and I are 29/30, so we're around the same age, also with no kids. I think around 3 months expenses is good enough, as you don't have kids and therefore should be somewhat flexible with your expenses. Paying off your debts will also help make you more financially secure, as will #1 above.
3. Max out your 401k match (as you're doing).
4. Max out yours & your husbands Roth IRAs.
5. If you have extra funds, put them into your 401k, Taxable account, emergency fund, etc. Likely this won't be a huge problem for a number of years.
Also, he says (I'll double check though!) that the NALC gives it's retired employees and their spouses the option to continue their health insurance permanently.
Does this require retiring at full retirement age? That will be a big if. As your plans could change drastically, you will want to look into all options, including what happens if he retires at age 47, 50, etc.
The only thing I'm worried about is possible health problems in the meantime, and then they won't put me on.
Well, I'm not a health insurance expert, but I thought if you were married and the insurance was company provided, that they were forced to cover you no matter what (it's not like buying on the open market, where people could just refuse you). So I would think that you could always switch over to his insurance, no questions asked. That's certainly something you'll want to look into.
When it comes to pension...he'll get something if he retires earlier, but 58 for him is full pension. His plan is actually to retire at 57 and use his accumulated vacation (or was it sick) pay to cover his last year.
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Its a very tough job on your knees, ankles and heart (just for starters) and he's already having knee problems, so a lot could change in 30 years.
Well as you said, a lot can change. If your savings rate increases (once the money starts growing, it becomes somewhat addictive to save extra), you could end up with enough funds to retire earlier. I don't think either of you would be upset if you found you could retire at age 50 instead of 57
Also, based on most of the calculations I've done, even with what we're saving now it shouldn't take us 37 years. How did you come up with that amount? (in other words, what am I doing wrong!! LOL)
Well, again remember that I'm not counting in your pension at all. This is very very general numbers, no taxes, expense changes, etc included.
Take 100,000 (the amount doesn't matter, as this calculation is all about percents)
Assumptions: You save 15%, your expenses are 85%, and your investments increase at 7% per year, no inflation included (it's probably more realistic to assume 5% with no inflation per year, but you also will likely save more each year, so I'm calling it a wash). Your expenses in retirement will be the same as they were while working.
After year 1, you will save 15,000.
After year 2, you will have (15,000 * 1.07 = 16050) + 15,000 = 31050
After Year 3, you will have (31050 * 1.07 = 33223.5) + 15,000
etc etc,
After year 36, you will have about $2233701.90.
Taking 4% off that amount per year would yield about 89348.076 per year, which is right around those expenses. So in year 37 you could retire.
There are lots and lots of ways to calculate this information, and this is about as simple as it gets (and least accurate). The best thing to do is to play with the FIRECalc tool (link is on the bottom-right of the message board pages). That takes into account a lot more options.
We should have very little expense in retirement fortunately...all he really wants is a small boat and a fishing pole and he'll be happy, and I just want a hammock, a cup of coffee and a good book. We'd love a place on/near a lake somewhere. We're not world travelers or anything like that, but we'd like to have the option if we want to go somewhere every other year or so. Anyway, the kids thing, none right now, and no plans to have any, however I'm not so naive as to think that we'll definitely feel the same way in 5 years...
Well, of course this can make a large difference in your retirement plans as well. If you live near a city now, your expenses could drop once you move to the country. For example, my parents have a place on a lake in northern Wisconsin where they plan on retiring. It's a wonderful place to fish / swim / water ski / read. And since you're at least 15 minutes (well, I've timed myself at 8 minutes when I was younger, but don't tell the cops) from the nearest tiny town, you're unlikely to blow lots of money at shops. So that type of retirement lifestyle could certainly be cheap.
As I mentioned above, my wife and I are 29/30, and we're also not planning on kids (but not completely crossing them off the list). That makes a very large difference in our savings rate and our future expenses. We could have a whole different long conversation about having kids or not
Anyway, I think I've blabbed enough and I don't think I missed any of your questions