My wife and I have 2 questions about our finances we’d like opinions on; neither is related to asset allocation.
My wife has some, albeit limited, interest in our finances/investments/mortgage etc. I watch Suze Orman each week, as much for entertainment as anything else, as I rarely learn anything from it these days. My wife watches “Can I Afford It” and often is in the room during other parts. Increasingly lately she reacts that she doesn’t think we’re doing well enough, saving enough, etc. I offered to get some opinions here and she agreed.
We replaced her car at the end of June, 2012 (all cash) and refinanced to a PenFed 5/5ARM, closed in late August, 2012. With that done we decided to continue fully funding our Roths and put everything else towards the mortgage.
This has allowed us to take the balance down from $83K to $57K. (Some was refund of payments made after the refi application; realistically we’re paying 3-4K a month to it since November)
Having just preliminarily filled out our taxes we have income in the 25% bracket and I’m questioning if we should put everything (after funding Roths) to the mortgage or try to use some tax advantaged space to have less income taxed at 25%.
2012 Gross 2012 Income: 104K
-$13K in itemized deductions for 2012
-$11.4K in Exemptions
Taxable Income: $80K
33/31 years old
$500 in Flex Spending for healthcare
$5K in Flex Spend for daycare
3 year old son with 8K in 529 (adding $250 a month)
Emergency Fund steady at $37.5K, all excess going to mortgage. E.F. is broken into:
20K Ally 5 Year CD earning 1.88%, matures November, 2017
10K ibonds, issued June, 2012
7.5K in checking and savings
This is probably 10-12 months of expenses including 1500/month mortgage.
76K total in our Roths
57K mortgage at 3%, at current payment amounts will have paid off sometime in the May-October 2014 range.
Two cars, 2008 and 2013, planning to keep many years to 100K+ miles.
Forever home, purchased May, 2007 for $180K with $140K original mortgage (now 57K, see above)
We are both in education, and are enrolled in Ohio STRS, we have 10% withdrawn pretax from paychecks (going up to 14% over a few years) for a defined benefit plan that will pay 60something% of final 5 year average when we retire with 35 years worked and age 60. (currently 66%, can’t find the new exact percentage)
As teachers, we have access to 403b and 457 options. Looking at them I believe the best, by far, is the Ohio Public Employees Deferred Compensation Program http://www.ohio457.org
as it has several Fidelity and Vanguard funds, with ERs of many options from 0.04 to around 0.41
My wife is paid over 20 pays, and not in the summer unless she teachers summer while I am paid 26 pays.
1. How are we doing? I know we’re doing far better than before we got serious with funding retirement a few years ago (balance at end of 2007: 23K) Could be better I’m sure but could be a lot worse too. I don’t think we can compare ourselves to others, especially Suze guests making 145K a year and renting, etc.2. Slow down the mortgage prepay to get under 72.5K in taxable?
We’re debt adverse and I know the classic mortgage prepay vs. investment debate. As summer pay is different and we’d still like to pay down the mortgage faster I’m thinking we want until summer and reassess as we may be pregnant will have a better idea of total 2013 income, etc. Then: fund a 457 to the max or enough to get taxable income below $72.5, the start of the 25% bracket. As my wife’s Roth is currently a smaller amount and she gets more per paycheck this would probably be in her name. Last year she brought home $22K after taxes from when pay resumed in August until the end of the year. This would give us $4.25K in tax savings to put towards the mortgage as well.
We don’t know what our taxable income will be when we retire or tax rates, etc. That’s why I’m thinking hedge against that by continuing to fund Roth IRAs. (There is no 457a Roth option with Ohio DC as far as I can tell)
All the contributions would be in the last quarter, but I don’t think we’re comfortable funding to the max now and are more focused on the mortgage.
Thanks in advance for advice. If I’ve left out any info that would be helpful please let me know.