Help me retire

[aewanttoretire]

Hi all,

I'm a former Knot/Nest regular who just lurks occasionally since the transition to ProBoards.  DH and I have recently paid off all of our debt and now really need to bulk up our savings and retirement - but we have no idea where to start.  Any suggestions, things to read, websites that you found helpful would be great.  There is so much information out there and it's a bit overwhelming to try to process.

Here is where we currently stand: 

Net monthly income: $19K
DH also gets $58K net annual bonus paid out in increments throughout year - exact times are dependent upon reaching various company goals. 

We live in a VHCOL area.  We do not plan to live here forever, and expect to move to a much lower COL area for retirement.  However, we're here for the foreseeable future.

No debt (finally!!).  We own our car outright and are not homeowners.  We have just paid off the last of a lot of credit card debt.

Current retirement status: My 401k is at 25K and I'm now contributing 20% of my salary and will hit the federal max contribution this year and every year moving forward.  My company does not match 401k. I also have $45K in a state retirement system from a previous job.  I don't have exact figures for DH's 401k but it's in the ~$250K total range.  He will also hit the maximum contribution for 2019 (and forward) and his company will match 50%.

Monthly expenses = ~8,500
Rent - $5,100 
Auto Insurance - $160
Gas- $100
Internet/basic cable - $100
Cell Phone  - $0 (both are reimbursed by our jobs)
Streaming services - $20
Electricity - $150
Life Insurance - $35 (this is an older, $250K policy that we should probably update)
Groceries - $250
Restaurants - $1,000
Gym - $100
Renter's Insurance - $150 (paid annually)
Pet insurance + monthly meds/maintenance - $250
Fun Money Me - $500
Fun Money DH - $500
Travel/Vacation - ~$8,000 (annual - this is an estimate)
Public transit for both of us comes out of our paychecks pre-tax, so I didn't count it in our net monthly income

We are really (really!) terrible at budgeting and spend indiscriminately, which is how we ended up with so much CC debt in the first place (albeit, with significantly lower salaries).  

We have no emergency fund to speak of, and for our ages (I'm 39, DH is 45), our retirements are not nearly where they should be.  My plan is to build an emergency fund of $60K and work on bulking up retirement funds.  Since we are both maxing out our 401k contributions for the year, I think we need to open an IRA.  Roth or traditional?  Are there other options for retirement funding?  I really truly just don't know where to start but I would like the bulk of our extra monthly $ to go into savings and/or retirement.

In this situation, where would you recommend starting?

[oswin]

Read up on backdoor Roth IRAs www.nerdwallet.com/blog/investing/backdoor-roth-ira-high-income-how-to-guide/
Contribute the max every year, both you and your husband.

Since in theory according to your budget you may still have some leftover after that, open a Vanguard investment account and set up automatic contributions. It won't be a retirement account, but taxable investments are perfectly fine for catching up. Pick an index fund or two, like VTSAX. Invest, keep investing, and don't fip out when the market inevitably crashes - it'll recover eventually.

ETA: since you mentioned having trouble budgeting, automatic contributions for saving/investing are definitely the way to go. Then never let your credit card balance go above what you can immediately pay off. Ideally set a number that you always want it to be below and look at the balance through the month to check how you're doing.

[Roc A Bee]

I’m a little confused. Do you have $11k a month after your bills to save?

If it were me, I’d set up automatic withdrawals for retirement if lost tax. Then I’d set up an automatic withdrawal to a savings account for an emergency fund. I’d probably aim for $30k total since you are renters and that’s 4ish months of paying all your bills with 0 income. I’m not sure how likely that is with your jobs.

[badgergrl]

I would do the backdoor Roths even before you have your emergency fund. You can only contribute 11k total per year, and you can withdraw the contributions at any time without penalty (not the earnings). So That way it can be a back up to your emergency fund.

[raangoli]

I would do what oswin said to do since that’s basically what we do 😂

[lacey]

I would find a fee based financial advisor and sit down with them. Do you actually have 10k worth of money left over at the end of the month or is this an ideal budget? Or, if this is the first month with no debt payments, were you putting 10k towards debt each month?

I think my steps would be:
1. Get an appointment with a financial advisor.
2. Set up a savings account for your emergency fund. We use Capital One 360 but it can be a different online bank or a local bank or credit union.
3. Create a direct deposit into the emergency fun account for this month for 10k.
4. Don't touch the 10k
5. Hopefully by next month you'll be able to meet with a professional. If not, I would probably just put the 10k in the emergency fund again.
6. Now you have 20k in cash, don't touch it. If you decided not to sit down with someone, it's time to open up some investment account on your own. Read up on backdoor Roth IRAs and focus on those the next couple months. You could do 5k towards the emergency fund and 5k towards the IRAs.
7. Once you max the IRA open up a Fidelity or Vanguard account and figure out what to invest in for post tax retirement savings.
8. Just keep putting money in and it will grow (minus those pesky resessions).

I would focus on 20-30k of cash emergency fund savings and then focus on investing. Investments can be sold and cash in hand within a few days. I can't think of too many things I need instantaneous money for. Obviously there is a risk to having to sell when the market is low, but there is also the advantage of the money working while you are waiting for that just in case. If your jobs are highly tumultuous then by all means save up more. I'd probably get to the 20k mark and then split between investments and adding to the emergency fund.

[ohgillian]

You need a financial planner. This board sent me to Vanguard a few years ago and we're super happy there.

[aewanttoretire]

Thank you all.  These suggestions are really helpful and DH and I will be sitting down to discuss our plan of attack.  I would love to talk to a financial planner, but I'm not sure I can get him on board.  He's very private about $$ and feels like this is something we can do on our own, while I'm the opposite; I feel overwhelmed and really kind of want someone knowledgable to just tell me what to do. In the meantime, it sounds like backdoor Roth is where we should start, and then I'll look into a Vanguard account after we have contributed the max to that and have started our e-fund. The stock market scares the crap out of me because I don't feel like I have the knowledge to invest wisely, but I suppose that is why they have mutual funds.

lacey and @roc a Bee: In theory we will have ~10K remaining each month, but we'll see what the next few months look like to see how the spending pans out now that that extra is no longer going to pay off debt.  But yes, for the last few months, we've been sending approximately that much towards credit cards.  I've closed down all but two cards (one with cash rewards and one with airline miles) and they both will be paid in full each month.

[oswin]

Since you say the stock market scares you, read these (my favorite financial planner blog): flowfp.com/investing-primer-pretty-much-need/ flowfp.com/401k-goes-down/ flowfp.com/invest-outside-401k/ flowfp.com/mountain-of-cash/

[Chuppathingy]

Apr 6, 2019 18:57:10 GMT -5 ohgillian said:

You need a financial planner. This board sent me to Vanguard a few years ago and we're super happy there.

I second this. A professional should be able to help guide you to the right investment vehicles.

[ohgillian]

Apr 7, 2019 21:07:15 GMT -5 aewanttoretire said:

Thank you all.  These suggestions are really helpful and DH and I will be sitting down to discuss our plan of attack.  I would love to talk to a financial planner, but I'm not sure I can get him on board.  He's very private about $$ and feels like this is something we can do on our own, while I'm the opposite; I feel overwhelmed and really kind of want someone knowledgable to just tell me what to do. In the meantime, it sounds like backdoor Roth is where we should start, and then I'll look into a Vanguard account after we have contributed the max to that and have started our e-fund. The stock market scares the crap out of me because I don't feel like I have the knowledge to invest wisely, but I suppose that is why they have mutual funds.

lacey and @roc a Bee: In theory we will have ~10K remaining each month, but we'll see what the next few months look like to see how the spending pans out now that that extra is no longer going to pay off debt.  But yes, for the last few months, we've been sending approximately that much towards credit cards.  I've closed down all but two cards (one with cash rewards and one with airline miles) and they both will be paid in full each month.

If he wants to do it on his own, I'd be asking him how much time he has to dedicate to it per week/month, what his long-term plan is, if he intends to set financial goals and then report in on a regular basis about how you're doing in achieving those goals, etc. But that's just b/c I personally don't think that high income people should be doing this on their own. Our takehome is only about 2/3s of yours, I'm super interested in personal finance, and there's no way I'd want to be managing our income and wealth alone without our Vanguard planner. 

[Shreddingbetty]

aewanttoretire After I got divorced last fall I got a financial advisor (you want to get a fiduciary) and I am so glad I did. I got a fair amount of money in 401k and IRA in the divorce and I had a good chunk myself. A couple of my friends use out of state people but my lawyer recommended this local guy through Stifel (he uses him himself). I am so glad I have someone local because I prefer to do stuff face to face, for me it is easier to not be overwhelmed and feel more comfortable asking questions.
He was a huge help through the divorce process, helped me with my mortgage (he figured out rates for his own company vs a couple of local one and was an advocate for using local if it was a better rate, which it was not), he helped me compare 3 homeowners and car insurance policies and figure out what I really needed and not needed coverage wise. I have always been pretty good with money but all my 401 k and IrA has just been sitting in the same funds for several years. He explained everything like I was 5 and explained how they invest and how they change things when the market goes down for a lo get period of time. This is all stuff that I would have no clue how to do on my own. We talked about retirement goals (I am 46) and goals for after my alimony runs out after 6 years. He explained that saving for retirement is more than just putting a bunch of money away. Early retirement is more focused on fun and travel usually and alter retirement you have to think more about longterm and health care. He is also helping me figure out my budget now that I have been on my own for a few months and have a better idea of what my costs are each month.
Anyway, with your income I would definitely advise a financial advisor. It will help you invest wisely and with purpose. And yes it cost money (mine is 1% per year or 0.25% per quarter ) of my managed accounts. You can pay that or just have them take it out of your accounts (so it is like it doesn’t cost anything haha) but I think in the long run you probably still make more money by having them advise you than if you winged it on your own. Since you state that you guys have no idea where to start it makes me think that your H isn’t necessarily investment and financially savvy so having an advisor is much better. They will be able to help you figure out how to catch up.
Anyway, I would get a financial advisor. Just make sure he or she is a fiduciary. With the amount of money you earn and you pr bills you should be blé to stash away quite a bit IMO so might as well have someone help you guide where to put it to maximize your gains as much as possible.