All in the details

[devo]

Ok, so I've spent alot of time trolling around your wonderful place here and I really apprecitate the contributions by all. I've learned alot and it has, at least in the short term changed my views on many things. I'm looking for advice on several topics and as you all say, you need details. Hurt my feelings if you must, I'm not smart enough to take it personally anyway!!

Married...daughter is 3, son due in June ! No more, snip, snip. Wife and I are 32.
Social Security number is...kidding.

My wife is the bread winner in industry and I teach grade school. We have just recently started this whole LBYM thing and are sorry to have missed the ways before. Wife is still a spender, but she's trying hard. LBYM is so logical...spending is so psychological. We're struggling to be sure to fly coach, as opposed to carrying one on her arm.

Anyway back to details:

Combined income is roughly $125,000
Now saving 15% of gross to 401k/403b
Have about $80,000 combined in 401k/403b/IRA
Emergency savings: $10,000

Assets:
Residence value: $400,000/we owe $270,000 on a sub 6% 30yr fixed
Rental Value: $175,000/we owe $120,000 on a sub 6% 30yr fixed

Debts:
School Loan: $14k at sub 4% fixed (monthly=$97)
Family Van: Don't have the total here, sorry, $527/mo for another 2 1/2 years
No CC or other consumer debt.

With this rate of savings we are spending close to everything else, between expensive high quality childcare, tivo, internet, gym membership, life insurance, commuting, and other unnecessary, quality of life luxuries. I know this is not top notch LBYM, but we're taking baby steps. We really like our life right now and are looking only to continue our lifestyle at a not-so-early ER. We're thinking 55 to 60. I should have a 25k (inf. adj.) pension (50k if I work til 60) without health ins (come on national health care!) . I'm not counting on anything from SS (although I really do think, it will be there in some form). The rest will be from the egg. Houses will be paid by then, kids through college, and so on.

Many questions:

If I'm not willing to save anymore, does it make sense to save to a Roth rather than the 401k/403b? I know to at least get the wife's match, but should I be saving less in the work plans to save into a roth. I'm thinking that I'll probably not be in a much lower bracket after I retire, but who knows what taxes will look like in 25 years.

Any thoughts on 529's for the kids. If you like 'em, which states do you prefer?

Are we not saving enough to continue a lifestyle that we're accustomed to? I know we have 25 years on our side, but is it enough?

What assumptions can I use? Is 3% inflation realistic over the next 25 years. What about market appreciation...5%, 6, 7, 10? What is reasonable over that length of time?

The rental is losing a little bit before the tax benefit. After taxes, I'm good. Is this a bad investment? I'm looking for the long term. Someday it'll be paid for and rented right?

Allocations for someone with my time frame would be helpful. I'm largely in index funds and target funds. Less than 10% bonds. Most of my NW is obviously in RE. Good or bad, I'm in for the long haul there.

I know lots of you can live on Ramen and white rice. I appreciate your strength. I am spoiled and I know it. But any thoughts you have on how I can best invest or prepare to retire would be appreciated.

Thanks again, and I love this place.

DEVO

 

[Sisyphus]

Hey Devo,

There are a ton of financial calculators out there that include the famous "FIRE calc" linked at the bottom of almost every page on the site. Most calcs include basic assumptions (7% return, 4% inflation or something similar).

IMO, you need to maintain a balance between enjoying life and saving. It's a hard balance to acheive (one I struggle with every day), but worth striving for. I'm nearly the same age as you and can't do the ramen and rice either, so I can relate.

If you run the numbers on what you're doing and are happy with the retirement age that sets you up for, then there is no need for adjustment. If you want to retire at 55 and the calculations say you won't be ready until 65, you may want to make some changes.

You can get a ton of excellent advice here, but it really comes down to how much you want in the future vs. what you want today. If you're not really willing or able to save more, discussion of additional investment vehicles is really beside the point.

Regarding taxes, everyone has an opinion, but with the Social Security crunch, Baby Boomers,Nat'l debt, etc. in the future... I can't imagine the tax brackets will be lower than they are today (barring some sort of massive tax revamp or National Sales Tax). People who agree with that opinion often invest in 401K only up to the company match and put any extra into Roth.

Regarding the rental (which we also share in common), it's never bad to have a rental look like a loss on paper... as long as you're not dumping tons of cash into it or losing property value, I'd hang onto it.

Hope this was somewhat helpful. Welcome to the site!

 

[newyorklady]

I agree about the 401k v. roth. only put in up to what company matches. a few links you might find useful

http://mutualfunds.about.com/cs/retirement/a/401kmistakes.htm

http://www.knowyourpension.org/warningsigns.aspx

 

[REWahoo]

Any thoughts on 529's for the kids. If you like 'em, which states do you prefer?

This site is a good source for information on 529's. There are several good plans, we selected Utah's 529 because of low cost and their use of Vanguard funds (big surprise).

Welcome to the forum.

 

[maddythebeagle]

welcome devo. so what's behind the name...makes me think of guys with flower pot hats driving around on mopeds.

who knows what taxes will look like in 25 years.

I think it is great idea to have investments in a roth, tax deferred, and taxable and always max out the roth. I was listening to a tax planner on public radio the other day discussing where taxes have gone the last 20-30 years and how things have been cyclical with there being better times to tap different types of accounts.

 

[youbet]

Any thoughts on 529's for the kids.  If you like 'em, which states do you prefer?

Just a couple quick comments..........

Before you jump into a 529B for each of the kids, check out Coverdale ESA's.  Other than the fact they are currently limited to $2K/yr per child, they are superior to 529B's because of flexibility.

If you plan to have a lifetime career in teaching, you already have a leg up on ER.  Although beginning salaries are stingy, get that MA+30 done and you'll find yourself making excellent money by the time you're 40.  And your pension and retiree hospitalization benefits will make the rest of us sigh with envy.  (I'm assuming you live in a state where the teachers union is strong and you don't retrogress from the current level of pay and benefits teachers enjoy.)

Good luck.

 

[Ed_The_Gypsy]

Welcome to the nuthouse, DEVO.

If you need affirmation, you got it. Y'all are doing OK.

If you can keep on putting away 15% of your income, you should do just fine.

I am a big fan of Roths. Someone once pointed out to me that company matching in a 401K was just a prepayment of the taxes when you pull the money out. Without matching, you ought to save in a non-tax-protected account or a Roth.

Roths protect you from future uncertainty and taxes (until they change the rules, which may or may not happen). In any case, I think they are the best choice today for most of us blokes, especially young folks.

Although it has been much higher in my lifetime, I feel that inflation will be between 3 and 4% on average over time (because that is about the average over long periods of time). Returns on equity to average about 6.5% (although this, too, has been higher in my lifetime--and is still higher for my pot today) for the foreseeable future (because Warren Buffett and John Templeton think so). The long-term historical average is about 11%. Your milage may vary--mine does.

Good luck.

Ed

 

[wabmester]

Have you seen how far DEVO has devolved?   It's shocking and horrible.   And kind of funny.

DEVO is now a Trademark of Disney:

DEVO 2.0

 

[bpp]

Have you seen how far DEVO has devolved? It's shocking and horrible. And kind of funny.

DEVO is now a Trademark of Disney:

DEVO 2.0

That's. Just. Wrong.

Or brilliant.

One of the two.

 

[mikew]

Johnny Rotten on joining the R&R hall of fame.

We're not coming. We're not your monkey.

http://www.johnlydon.com/jlhome.html#congrats

 

[Sasquatch]

Have you seen how far DEVO has devolved?   It's shocking and horrible.   And kind of funny.

DEVO is now a Trademark of Disney:

DEVO 2.0

a moment of silence, please...

 

[ats5g]

Man, talk about straying OT. 

Anyway Devo, we're in the same sort of situation as you [early 30's, two kids, hoose]. For my own edification, I came up with a little spreadsheet to calculate what % return I'd need to reach a comfortably low withdrawal rate.  It's probably better to leave inflation @ zero and just get inflation adjusted answers. Unfortunately, I didn't allow for your contributions to increase every year.  From the looks of things, you guys might be working another 30 years - certainly nothing wrong with that if you guys are okay with it. There's nothing like scaring your wife into LBYM with a spreadsheet that shows you'll be working another 30+ years. ewwww...

As for LBYM, we use dependent care spending accounts, don't go out much with 2 kids, get more than enough toys and clothes for the kids from friends and the fam [too many toys].

As far as asset allocation goes, whatever you're comfortable with. We're roughly 70 stocks /30 bonds [index funds]. The RE is probably good for portfolio diversification. We use REITs 'cause we're lazy passive investors.

On 529 plans for the kids, my parents contribute to NY's plan [b/c PA's sucks] for our kids. When we can afford it, we'll contribute to either MD [where we live] or one of Vanguard's low cost 529 plans. I've been considering using a mix of MD's prepaid tuition plan [to definitely cover tuition] and a 529 investment plan for other things like books, etc. I'm still investigating to make sure that if the kids don't go to a MD state school, we will get the equivalent tuition to pay another school.

It's funny to look at what the 529 plans charge in fees vs. what the underlying funds charge in fees.  The Vanguard funds that are used charge b/w 0.10-0.25% and then the state tacks on another 0.30-0.50%! At least it's not as bad as WV DFA 529, which charges an extra 0.50-0.70% on top of the DFA funds. I can't imagine the plans cost this much to administer.

As others have said, the Roth IRA route after the 401(k) match would give you some future tax bracket hedging, as one is pretax and one is post tax. I disagree with Ed on forgoing the unmatched pretax 401(k) to invest in a taxable account. The 401(k) should always come out ahead.

- Alec

 

[yelnad]

Alec,

Could you expand on this part please....

On 529 plans for the kids, my parents contribute to NY's plan [b/c PA's sucks] for our kids.

I have the PA 529 pre-paid tuition plan. What have you found about it that sucks?

Thanks!

 

[ats5g]

Alec,

Could you expand on this part please....

I have the PA 529 pre-paid tuition plan. What have you found about it that sucks?

Thanks!

I was referring to the PA 529 investment plan, not the prepaid tuition plan.

- Ale

 

[SLC Tortfeasor]

That's.  Just.  Wrong.

Or brilliant.

One of the two.

Very wrong. Disturbing.

 

[xmanz3]

Devo

It seems that your Emergency Fund is a little low. You need to consider your mortgage, utilities and any other debt when you have an Emegercy Fund. Also, most of the Financial Planners recommend to have between 6-8 months. If you have a $400,000 home, your mortgage payment should be around $3000 or more. Basically, $10,000 would not last more than 2 months in case of an emergency. Something to think about!

Good luck!