Contributing too much to 457?

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Topic Author
Allan12
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Joined: Wed Nov 28, 2012 1:40 pm

Contributing too much to 457?

Post by Allan12 »

Wife (26)- State government worker, contributes 10% to 457, makes 60k, increases roughly $2k a year
Husband, myself (27)- City government worker, contributes 15.5% to 457, makes 50k, will double in 4 years

Mortgage, 309k @ 3.625%, 28 years remaining, pay $300 towards principle every month

Roth IRAs - $90k between us both in vanguard target 2060
Old 401k- $15k in S&P 500
457- $2k just started investing

Already maxed out both Roth IRAs for the year and plan on doing so until we can no long due to income limits.

We live in NYC, and are literally just breaking even every month. There are cosmetic home repairs that we want to take care of, but don't have any positive cash flow. I don't want to touch my Roth emergency fund.

Are we contributing too much to the 457? Would it be advisable to drop it down for the remainder of the year, and then in January when our combined income goes up $7000 to start it up again. I am literally torn between doing what I feel is right, vs stopping 457 temporarily which in the long run is a bad thing.

Ps. We both have defined benefit retirement plans, but retirement is too far away to rely on these.
Any advice would be greatly appreciated!
BigPrince
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Re: Contributing too much to 457?

Post by BigPrince »

Not sure about your general question, but curious as to why you chose Target 2060 for the roth ira....wouldn't that put you at roughly 72?
sscritic
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Re: Contributing too much to 457?

Post by sscritic »

Allan12 wrote:Wife (26)- State government worker,
Husband, myself (27)- City government worker,
...
Ps. We both have defined benefit retirement plans, but retirement is too far away to rely on these.
Any advice would be greatly appreciated!
My advice is not to disregard your state and city DB plans. You may not get the full amount you think you were promised, but your state and city are not going to disappear. I don't know if your state and city are in social security, from which you might also get a lesser amount in 40 years, but social security is not going to disappear.

Maybe I was just super naive 35 years ago, but I took my DB government pension at face value as I was planning. I kicked in a little more into a 403(b) TSA along the way, but not that much. I had the good(?) fortune to have a stupid state legislature (who doesn't) that decided midstream to give us even more than originally promised. Woo hoo! You won't be that lucky, but I am pretty confident you will get something.
freddie
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Re: Contributing too much to 457?

Post by freddie »

Why not stop putting 300/month towards your principle? It seems like that choice is what is driving your cash flow problems. I get paying off the house early but doing it at the expense of retirement savings isn't the way I would go.
Topic Author
Allan12
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Joined: Wed Nov 28, 2012 1:40 pm

Re: Contributing too much to 457?

Post by Allan12 »

BigPrince wrote:Not sure about your general question, but curious as to why you chose Target 2060 for the roth ira....wouldn't that put you at roughly 72?
Yes, and ideally we will be retired in our late 50's.

However, I love the idea of the target date funds, but I also want the most aggressive position possible, which is the 2060 fund.
Topic Author
Allan12
Posts: 195
Joined: Wed Nov 28, 2012 1:40 pm

Re: Contributing too much to 457?

Post by Allan12 »

sscritic wrote:
Allan12 wrote:Wife (26)- State government worker,
Husband, myself (27)- City government worker,
...
Ps. We both have defined benefit retirement plans, but retirement is too far away to rely on these.
Any advice would be greatly appreciated!
My advice is not to disregard your state and city DB plans. You may not get the full amount you think you were promised, but your state and city are not going to disappear. I don't know if your state and city are in social security, from which you might also get a lesser amount in 40 years, but social security is not going to disappear.

Maybe I was just super naive 35 years ago, but I took my DB government pension at face value as I was planning. I kicked in a little more into a 403(b) TSA along the way, but not that much. I had the good(?) fortune to have a stupid state legislature (who doesn't) that decided midstream to give us even more than originally promised. Woo hoo! You won't be that lucky, but I am pretty confident you will get something.
Yes, we are in social security. I am confident I will get something too, that's why I'm not going crazy maxing out the 457, and also trying to pay down the principal.

After a few posts I'm realizing that my biggest cash flow pinch is from now until January. Once January comes, the pay will increase $600/month gross while not including overtime.
DSInvestor
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Re: Contributing too much to 457?

Post by DSInvestor »

Stop the extra principal payments of $300/month. I don't think it is a good idea to cut back on retirement savings for cosmetic home repairs.
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Allan12
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Re: Contributing too much to 457?

Post by Allan12 »

Update: Been working tons of overtime, and now I am contributing almost $1000 a month to my 457, and my wife is contributing $400 month.

Am I flawed in my logic that this amount is too high? We plan on both having pensions, social security, and a paid off house in retirement?

Really feeling with the amount of ot I am working, shouldn't be putting so much away for retirement and having to struggle to maintain monthly positive cash flow.

Let me know
Grt2bOutdoors
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Re: Contributing too much to 457?

Post by Grt2bOutdoors »

Allan12 wrote:Update: Been working tons of overtime, and now I am contributing almost $1000 a month to my 457, and my wife is contributing $400 month.

Am I flawed in my logic that this amount is too high? We plan on both having pensions, social security, and a paid off house in retirement?

Really feeling with the amount of ot I am working, shouldn't be putting so much away for retirement and having to struggle to maintain monthly positive cash flow.

Let me know
Allan - you are a uniformed service worker, stop making extra principal payments into your mortgage, you can pick up where you left off when your base increases to $100K. Reduce the amount of your 457 contribution to 10 percent, each year starting next year increase the amount of your deferral by 1% so it's 11% next year, 12% the following year, 13% the following year until you get to 15% then keep it at that level until retirement. The NYS Common Retirement Fund is fully-funded, the NYC Police and Firefighters Pension is about 62-68% funded (if you're in that plan or the general NYC Retirement Fund you need to keep saving in the 457plan). The pension will be there, it's the amount available that is the big question.

Good Luck!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Twins Fan
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Re: Contributing too much to 457?

Post by Twins Fan »

If you're saving to the point of feeling deprived, I think that's too much. JMHO

You guys are still young and have plenty of time. Great job getting after it so early! But, give yourselves some breathing room. I like Grt2b's idea of cut back and then build back up.
freddie
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Re: Contributing too much to 457?

Post by freddie »

Twins Fan wrote:If you're saving to the point of feeling deprived, I think that's too much. JMHO

You guys are still young and have plenty of time. Great job getting after it so early! But, give yourselves some breathing room. I like Grt2b's idea of cut back and then build back up.
Having an extra 300/month is a lot of breathing room and it doesn't come at the expensive of an assets that is use it or lose it.

Now they might be saving too much money (you would need to add up the pensions+SS and a guess of retirement age) but given the uncertainty I would play it safe for 5-10 years and oversave. If things work out, you will have a great 40s and 50s.
Twins Fan
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Re: Contributing too much to 457?

Post by Twins Fan »

[OT comments removed by admin LadyGeek]

$300 left over at the end of the month is not breathing room to me, let alone "a lot of breathing room". JMHO :wink:
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dbCooperAir
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Re: Contributing too much to 457?

Post by dbCooperAir »

I think is helps to put into some perspective at times, ok its mostly some wild fuzzy logic guesses.

But......if a person was to just fund your IRA's from the start to the max and nothing else where would that put you? I find the following thread grounding in some ways.

http://www.bogleheads.org/forum/viewtop ... A#p1541080
Just for fun I took the max amount one could put in an IRA without any catch up plans etc., based it on 6% real growth starting in the first year one could get an IRA (1974).

At the start of 2013 after 38-39 years you would end up around $310,000, if married go ahead and double it. These are just rough numbers of sorts.

Now put yourself in the shoes of one who did not have a 401K, pension etc. Just a plain Joe lunch box worker who lived below his means, owns his little America dream home, lived decent during your working years and was just was able to save the max for an IRA and that was about it.

After taking your 3-4%SWR toss in SS what would your retirement look like? I have no clue but I’m willing to bet many are worse off today but still find happiness of sorts.

Some other end numbers at different growth rates:
4% = $202,000
5% = $250,000
7% = $390,000
8% = $495,000

For myself I have a good 20 years to go and have a hard time envisioning what my retirement may look like, this just helps to put it in a little perspective while we max out the I IRA's and toss as much as we can into the work plans.
If you took the above and say you had $600,000 today in the bank, 60% (wild guess) of your pay coming from your pension, a paid for home would you be ok?

You would be in better shape than most being you both should have a pension, many people are far worse off that's for sure.

I like the idea of loading up at 10% than 11% the next year etc. as noted above. Even 10% this year then 11% at your next raise would be sane as well.
Neither a wise man nor a brave man lies down on the tracks of history to wait for the train of the future to run over him. | -Dwight D. Eisenhower-
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slow n steady
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Re: Contributing too much to 457?

Post by slow n steady »

My wife and I are roughly at the same age and income level. I am also expecting to get a hefty pension when I retire, but we are still maxing out our retirement accounts. Sometimes we are negative cash flow for the month, but it doesn't stress me out because we have a large (1 year plus) emergency fund.

I would suggest growing your emergency fund to the point that you would feel invincible for a year. We also have Roth IRA's that we could use in an emergency, but like you I would never want to touch those. A large emergency fund might not be the most efficient for your portfolio, but I would prefer to sleep well at night.

P.S. Do any of your coworkers your age put money in retirement accounts like you do? I know not very many of mine do. They all plan on having the pension, but I figure it would be nice to have an extra $1-2M laying around in case something doesn't work out. :D
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