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You did, and then you just repeated it. You make $165K between you, and save 10% or 15%. That's $140K. You're talking about aggressive investing, and you can't even grasp the simple concept that what you earn minus what you save is your cost of living at the standard you have chosen for yourselves.
Hmmm... really? 10-15%?
Take home pay: 8000 (all after saving for retirement, savings for kids' college). Money left over every month: 4000 - and these don't include lifestyle expenses. They are simply there to save (and invest).
Are you saying we should contribute more to retirement? Sure - and we are about to increase those contributions.
Do we want to put all those money left over every month in a retirement account (in addition to what we already contribute) so we can never touch it until we actually retire?
Not necessarily. This is what the question was about.
And by the way, the smug tone doesn't exactly place you in a great light.
If your investment-related knowledge is just too grand to waste on someone as stupid as to not be able to "grasp" subtraction...then you could just as easily choose to skip posting altogether.
I am not sure about your reading comprehension though or your addition skills.
Even assuming you missed the part about those 4000 dollars left over every month (which are not busted on "lifestyle", but saved for now) ...you did not even understand that one of us contributes 10% to the retirement plan (the lower earner) and the other (the higher earner) 15%.
Location: Chapel Hill, NC, formerly NoVA and Phila
9,782 posts, read 15,836,055 times
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I'll go against the grain here and suggest that you should be putting more toward your retirement. I think both you and your spouse should maximize your 401(K)s each year. Also, if you qualify, you should each be putting $5K toward a Roth IRA each year. You say that you want to make some passive income, well maximizing your contributions will allow you to be more passive not only in retirement but also before retirement, because you will be able to retire earlier if you save more now. $120K is a good start, but it is not nearly enough for someone who is in their late 40's and lives on a fairly high income. You should be doing more toward that end.
Also, you don't mention how old your children are, but you mention having a 529 plan for them. Is it enough? How long until college? Are you paying for their whole ride or a partial ride? Regardless, are you on track to pay the amount you plan to pay?
Do you have a year's worth of emergency fund? Or will you after you put the down payment on your house? Before you do anything, you should have that covered.
What other goals/expenses do you have that will be coming up in the future? New (or used) cars? Visits to family overseas? Medical expenses? Do you have money allocated for those?
I don't think you are ready to buy a rental property without taking care of other more pressing needs first.
I'll go against the grain here and suggest that you should be putting more toward your retirement. I think both you and your spouse should maximize your 401(K)s each year. Also, if you qualify, you should each be putting $5K toward a Roth IRA each year. You say that you want to make some passive income, well maximizing your contributions will allow you to be more passive not only in retirement but also before retirement, because you will be able to retire earlier if you save more now. $120K is a good start, but it is not nearly enough for someone who is in their late 40's and lives on a fairly high income. You should be doing more toward that end.
Also, you don't mention how old your children are, but you mention having a 529 plan for them. Is it enough? How long until college? Are you paying for their whole ride or a partial ride? Regardless, are you on track to pay the amount you plan to pay?
Do you have a year's worth of emergency fund? Or will you after you put the down payment on your house? Before you do anything, you should have that covered.
What other goals/expenses do you have that will be coming up in the future? New (or used) cars? Visits to family overseas? Medical expenses? Do you have money allocated for those?
I don't think you are ready to buy a rental property without taking care of other more pressing needs first.
We will up our contributions starting August (there is a reason for that but will not get into it). The idea of maximizing the retirement and not worry about investing elsewhere is something to consider, of course. Trouble is I inherited from my parents, at least partially, a distrust of the idea of putting all your money into abstract markets, somewhere out there. They sometimes sound medieval but they do have a point, deep down.
Money in bank accounts, leaves in the wind.
Children are 6 and 4 - but there are chances they will go to college overseas (they are dual citizens) - hopefully for free. The idea of student debt drives me bananas. We do save for college though, just in case this plan doesn't work. We will pay for as much of their ride as it is humanly possible. They will face a harsher world than we have - so we will do our very best to help them. That includes encouraging the type of education that will make them fit enough for scholarships.
If that fails, we will step in.
Roth IRA-s ...yes, we are considering that too. But again, can you touch it before retirement just in case you want to do that?
By the time we make the down-payment on the house (a year and a half from now or so), yes - we will have both the 20% down-payment AND an emergency fund. As I said, we are now still in the stage of just saving for the down-payment so we are not about to start investing aggressively tomorrow.
Other goals?
NEVER a new car.
Yes, visits overseas. Almost yearly as I need to visit my family.
We've been factoring the plane tickets into our monthly expenses for years now. For us, those visits are fixed expenses.
Medical expenses? No, we don't have a specific fund allocated for those but we do have very good health insurance and all of us are healthy as of now - praise Heavens.
But we always save ... so just in case a serious illness strikes we will hopefully be able to pay. However, when it comes to serious illness...let's just say "Lord Forbid". Often times, even billionaires don't have enough to cover what the Man Upstairs decides should not be covered by the "plan". After all, how much does one "allocate" for the potential of a serious illness? Millions?...
Otherwise, we can easily pay for regular medical expenses.
As for not yet being ready for rental, it is clear we are not right now. My question had more to do with how soon that might become a possibility once we buy the house. Or if ever.
I am currently contributing 15% in my retirement plan (including employer matching) and husband contributes 10%.
You did not mention anything at all about any other savings. You did say there was "discretionary income", but said nothing about saving it, so I assume you are spending it. That amounts to $40K per year, which is not accounted for in your future plans. Even then, your current lifestyle is already committed to $100K a year in income, not counting retirement packages and discretionary income, which is double what the average person is living on, and you don't even own a home yet.
My interpretation is based on what you said. If you are saving that, just say so, instead of calling it "discretionary income".
And you still haven't answered my basic question: How rich do you want to be? How much do you expect to gain by "aggressive investing", as opposed to any other kind of investing, and how much are you willing to lose if your aggressive investing reveals its dark side?
You did not mention anything at all about any other savings. You did say there was "discretionary income", but said nothing about saving it, so I assume you are spending it. That amounts to $40K per year, which is not accounted for in your future plans. Even then, your current lifestyle is already committed to $100K a year in income, not counting retirement packages and discretionary income, which is double what the average person is living on, and you don't even own a home yet.
My interpretation is based on what you said. If you are saving that, just say so, instead of calling it "discretionary income".
And you still haven't answered my basic question: How rich do you want to be? How much do you expect to gain by "aggressive investing", as opposed to any other kind of investing, and how much are you willing to lose if your aggressive investing reveals its dark side?
In that case, maybe it was my fault for calling those 4000 a month net "discretionary income". I thought I didn't call it this way but I did. Sorry about that.
We are not spending it. We are SAVING it. True, right now it doesn't go into a retirement plan, taxed-deferred, but IT IS going into a savings account. This situation will stay the same (only 15% in retirement for me, and only 10% in retirement for husband) until we buy the house, which we expect to happen in about a year and a half from now.
THEN we will revisit and will change it to higher contributions.
As for "lifestyle", I think you can get a better picture if you look at what we take home net (after retirement, medical and all other witholdings from the paycheck), and then you look at what we spend, and finally what we save.
Take home net: 8000
Monthly expenses: somewhere between 3500-4000
(this is where "lifestyle" is reflected, including rent (now), mortgage (in the future), food, utilities, kids' activities, what have you).
Left over to save/invest: 4000-4500
You can, of course, argue that we might spend more than the average American household in absolute numbers but this is also because we make significantly more in absolute numbers. We do currently pay a relatively high rent and we will pay a relatively high mortgage (if you consider 1400 high) simply because we choose to be in a very good public school district.
Such areas come at a premium and it is a choice we make to be in one, certainly not without due gratitude for being able to make such a choice.
I would not move to an area with less good schools to pay even less than 1400 on a mortgage. Cuts would have to happen elsewhere.
We also spend what many Americans would consider ridiculous amounts of money on almost yearly plane tickets overseas for the entire family - so I can visit my own family and so that my kids can spend time with their grandparents over there. This is important to us and we budget for it.
But yes, it adds up.
All these feed into the concept of "lifestyle" you seemed to be most interested in. We make it possible by cutting in other areas, such as cars (modest, paid, off, never new), clothes (I am very low maintenance), food (we rarely eat out and I cook almost everything from scratch despite working a professional full-time job...not something many SAHM-s around here would be able to brag about), etc.
However, if you look at expenses (lifestyle) as % of take home pay, I have a hard time believing most Americans are that disciplined.
Most dual earner families don't set aside 50% (sometimes more) of their family income, and this after they've contributed to retirement.
Most take mortgages that they would have a hard time continuing to pay if one spouse lost the job.
Never mind the single-earner families where the mother stays at home.
If the father can support the entire family with a little bit left over at the end of each month they consider themselves lucky; and when the father loses the job, they all pack up and go wherever the next job takes them.
As for your ultimate question: how "rich" do I want to become?
I would not mind becoming so "rich" that I would only need to work part-time without us fearing the consequences of my husband losing his job and without having to modify the main aspects of the lifestyle you were pointing to, including good schools, being able to go overseas regularly, etc.
My husband is the higher-earner but my contribution to the family income is no change either. My job also happens to be quite secure, with very nice health benefits. If I worked only part time it would be much less secure and we would have no health insurance.
So, as of now, I simply cannot make the choice of only working part-time.
When I said "more aggressive" investing I just wanted to know whether there is anything else we could do in the somewhat near future OTHER THAN retirement savings. This is why I asked about a rental - something that would bring us an additional income stream and that we can get our hands on, if we really want to, BEFORE retirement.
The reason I say this is because we would like to move back to Europe to be close to my aging parents - if/when the right opportunity came along.
Having ALL your left over money in a retirement account that you cannot touch until you're...well...old, just doesn't sound good to me.
I wanted to know what else is out there.
Of course, if you stretched it to the max..."how rich would I REALLY want to be?"
The answer would be: THAT rich so that none of us would ever HAVE TO work again in order to lead a middle- to upper-middle class type of lifestyle.
I would love to have the opportunity to only work a little bit, when I want it (as in "when the spirit moves me"), however much I want it, mainly by volunteering my skills. There is a world of difference between CHOOSING to work at something and HAVING TO work a full-time job.
That's it. Not ashamed to say it.
Am I naive enough to think this could ever happen?
Thank Goodness, not THAT naive.
Location: Chapel Hill, NC, formerly NoVA and Phila
9,782 posts, read 15,836,055 times
Reputation: 10894
You can touch your Roth IRA retirement contributions. Because Roth is after-tax money, there are no penalties or taxes due when withdrawing your contributions. (Earnings on the contributions have some rules for withdrawals). If you qualify (based on modified adjusted gross income), then I would contribute the $5K per year to a Roth for each of you.
Location: Chapel Hill, NC, formerly NoVA and Phila
9,782 posts, read 15,836,055 times
Reputation: 10894
After reading over your detailed description again, I would take $10K out of the ($48,000-$54,000) that you have left over each year and put it in a Roth IRA, assuming you qualify for it. It's too late to do it for 2011, but you can do it for 2012 and 2013 and beyond. I would maximize the the 401(k) contributions, if it were me, but if you don't, that will leave you with $38K to $33K to save for your house.
Once you have finished saving for your house in 1 1/2 years and have bought it, I would absolutely maximize your 401(K) to $17K each if you are allowed at your places of employment. You have some catching up to do in the retirement area if your husband wants to retire by the time he's 65 or 67 (in comparison, my husband and I are 44 and 46 and have 5 times the amount you do saved toward retirement and we make less annually than you do), but between the extra $10K for Roth and the increase in 401(k) contributions, you will be on a good path.
At that point, figure out what your discretionary income is (home ownership comes with new expenses - maintenance, rising taxes, etc. Also, as your kids age, you might find that they are more expensive. Expenses that you hadn't thought of suddenly creep up - braces, cars + insurance on cars, sports team involvement, etc) and that can be your savings toward a rental property or other investment. Until you buy your house and figure out your new expenses at that point and bump up your retirement savings, you should not put anything toward another invesetment.
You can touch your Roth IRA retirement contributions. Because Roth is after-tax money, there are no penalties or taxes due when withdrawing your contributions. (Earnings on the contributions have some rules for withdrawals). If you qualify (based on modified adjusted gross income), then I would contribute the $5K per year to a Roth for each of you.
We are about to do this - yes.
Roth seems like a nice idea.
After reading over your detailed description again, I would take $10K out of the ($48,000-$54,000) that you have left over each year and put it in a Roth IRA, assuming you qualify for it. It's too late to do it for 2011, but you can do it for 2012 and 2013 and beyond. I would maximize the the 401(k) contributions, if it were me, but if you don't, that will leave you with $38K to $33K to save for your house.
Once you have finished saving for your house in 1 1/2 years and have bought it, I would absolutely maximize your 401(K) to $17K each if you are allowed at your places of employment. You have some catching up to do in the retirement area if your husband wants to retire by the time he's 65 or 67 (in comparison, my husband and I are 44 and 46 and have 5 times the amount you do saved toward retirement and we make less annually than you do), but between the extra $10K for Roth and the increase in 401(k) contributions, you will be on a good path.
At that point, figure out what your discretionary income is (home ownership comes with new expenses - maintenance, rising taxes, etc. Also, as your kids age, you might find that they are more expensive. Expenses that you hadn't thought of suddenly creep up - braces, cars + insurance on cars, sports team involvement, etc) and that can be your savings toward a rental property or other investment. Until you buy your house and figure out your new expenses at that point and bump up your retirement savings, you should not put anything toward another invesetment.
Thanks so much, michgc. Sound like very good advice.
We both know we are behind in terms of 401K but my husband sometimes likes to bring into the equation whatever will be left from our parents.
I don't. Let that be the cherry on the cake, when times comes, IF it comes.
All that being said, I still think I have a bit of a hard time with the idea of putting so much money into these 401K-s.
I am somehow not able to trust them 100% to this day. Lend the money to companies out there and they'll give you back "returns".
Well...yeah. I know this is how it's supposed to work but the whole thing feels so remote, untouchable and out of my control.
I am aware I sound like some kind of tribal barbarian but I grew up in a "stash it under the mattress" type of economy, with parents who absolutely do not trust the idea of "stock market" and would never trust it regardless of how much you'd be trying to convince them.
Today you have some money, tomorrow the market tanks....ooops, your banknotes just flew into the wind.
I remember once reading about a guy from a very modest background who won the lottery. When asked what he planned to do with it, he said "land" because "they don't make no more dirt".
This sounds like such incredibly simple yet deep wisdom to me.
You have some catching up to do in the retirement area if your husband wants to retire by the time he's 65 or 67 (in comparison, my husband and I are 44 and 46 and have 5 times the amount you do saved toward retirement and we make less annually than you do), but between the extra $10K for Roth and the increase in 401(k) contributions, you will be on a good path.
Also, not sure if this matters, because it might not by that time, but there is a 99% chance we will retire somewhere in a part of Europe that is very likely to continue to have an overall lower cost of living than the US, at least those parts of the US where we would retire without having to go insane (in other words, don't tell me that middle of nowhere Alabama or Nebraska might have a lower cost of living than almost ANY part of Europe).
As for kids...well...only time will tell how expensive they will get; but they also say that kids get as expensive as you allow them to become.
Cars at 16? Not sure yet ...although I do understand this is US where a car is a crutch, not a choice (it leaves you literally handicapped if you don't have it).
Sports team? Not gonna happen with my "athlete". He is anything BUT athletic and I just don't see such expenses happening in the future.
He is musically inclined though and we just busted a few hundred dollars on a used piano so he can start lessons...so I don't know where that would lead.
Paying for college board (expenses in addition to tuition?) so that the children can experience "college life", as in drinking, partying and feeling like they're independent when they actually aren't? Not so much.
I am of the mind: what's wrong with mama's house and mama's food while they study? Room to bring girlfriend in, even over night, will be made available.
What else?...
Well, you get the idea. But only time will tell about such aspects, of course.
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