Need Advice on What to do

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moneymama
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Joined: Sun Jul 16, 2017 10:52 am

Need Advice on What to do

Post by moneymama » Sun Jul 16, 2017 11:01 am

Here's some background: I'm a stay at home mom, we have a 5 year old and a one year old. My hubby's salary is about $50,000 a year and we live in a low cost of living area. I do bring in some extra income by babysitting but it's not tons and it's not consistent. I'm 33 and my hubby is 40. We owe $103k on our house, the interest rate is 3.75% and we have 17 years left. We have in retirement (with Vanguard): Me: about $70k and him $20k. I freak out because I feel like we are so behind with retirement savings!

Here's where I'm confused. We have $70k in savings because when I worked I saved all my paychecks in anticipation of being a stay at home mom. I don't know if we should take some of the money from savings and put it in some other type of investment account (I am considering Vanguard index funds), on the mortgage, towards our 2018 Roth IRA contribution, or just leave it in savings. It's not earning hardly anything from interest in the savings account.

BUT that money includes savings for new cars for us (his car is 15 years old and mine is 12 so we'll have to replace them with used cars eventually), our emergency fund, and money for house expenses like new roof, windows, HVAC etc that we will eventually have to replace.

What would you do? I hate to put a lot of money on the mortgage and then not be able to access it and I'm worried about investing in stocks and then possibly needing the money. I just feel like that money sitting in savings is not working for us like it could.

b42
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Joined: Thu Apr 11, 2013 7:00 pm

Re: Need Advice on What to do

Post by b42 » Sun Jul 16, 2017 12:08 pm

Welcome to the forums!

From the information you have listed, you appear to be in a good financial position (no huge amounts of debt, retirement accounts already created).

Something that may be useful is to first come up with an Investing Policy Statement (link to a wiki article below):
https://www.bogleheads.org/wiki/Investm ... _statement

It can be as simple as a one-page document expressing you (and your husband's) plans for the future.

Your current mortgage seems manageable, so it probably makes sense to continue paying it off as usual, and if you do have extra funds you can make extra payments towards paying it off early.

It is great that you already have a sizable emergency fund (more info below):
https://www.bogleheads.org/wiki/Emergency_fund

What you should do is sit down with your husband and figure out how much money is appropriate for the emergency fund, which usually is 6-months of expenses. After that, you can add in any cash that may be needed in the next 1-5 years (such as a new car, HVAC, etc.). That way you have a cash cushion in the event of a job loss or an expensive repair. Once this is taken care of, you can then start putting more income into investments.

Does your husband have access to a 401k at work? Usually you want to contribute up to the company match. In addition, what are the funds you currently have in each retirement account? That will help determine your current asset allocation.

The Roth IRA contributions seem to make sense due to your overall income. You can each put in $5,500 a year post-tax, and those funds grow tax-free.

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BL
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Re: Need Advice on What to do

Post by BL » Sun Jul 16, 2017 12:55 pm

One idea is to keep emergency money in safe accessible place and also keep money needed in about 5 years in CDs or higher interest savings/money market. Have you checked online banks and credit unions for higher FDIC guaranteed safety and higher rates? I hear Ally mentioned here quite a bit. Also the Vanguard money market is now yielding around 1% which isn't too bad. Our local banks are very low.

Places like bankrate.com may have a list of CD rates available.

I like the idea of funding both of your Roth IRAs using the 3-fund portfolio or single funds such as Target date or Life Strategy.

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Watty
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Re: Need Advice on What to do

Post by Watty » Sun Jul 16, 2017 1:04 pm

It is hard to know what would be best but a couple of options to consider would be;

1) Use part of the money each year to contribute to a Roth account for you and your husband. You could put $5,500 each into a Roth and invest it for your retirement. The Roth money can be used as emegency fund if you really need it some day since you can withdraw your contributions, but not earnings.

https://www.bogleheads.org/wiki/Roth_IR ... gency_fund

2) You could call your mortage lender and ask if they will "recast your mortage"(google this) if you make a large prepayment. This is different than a refinance. They are not required to do this but they often will for just a processing fee of a few hundred dollars. The way this works is that if you pay off a 33% of your mortage(or whatever percent makes sense to you) then they will reduce your required mortage payment by the same percentage. For example if you have $600 a month mortage payment it would be reduced to $400. Your interest rate and lenght of the mortage will stay the same. Having the lower mortage payment could be important if there is a layoff or some other emergency.

That would be like getting a 3.75% return on that money.

You would want to keep a significant amount of case availalbe for large expenses and emergenices.
moneymama wrote:I freak out because I feel like we are so behind with retirement savings!
I didn't try to crunch the numbers but if you are able support yourselves with $50,000 in income while having two kids and a mortage then you are likely doing fine. Once the house is paid off and the kids are grown up and out on their own your expenses will go down and eventually you will get Social Security which will cover a significant percentage of your expenses.

10YearPlan
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Re: Need Advice on What to do

Post by 10YearPlan » Sun Jul 16, 2017 1:36 pm

It's not clear from your post...is that $70k in retirement plus another $70k in savings? Or is it the same $? If the same I would not take that money out of retirement acts to create an emergency fund or other purpose. Instead I'd find a way to save for those separately. If you post your monthly budget I am sure the big brains here will be able to help you figure out how to do that. Also I would prioritize emergency fund over paying off the mortgage.

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nedsaid
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Re: Need Advice on What to do

Post by nedsaid » Mon Jul 17, 2017 12:43 pm

moneymama wrote:Here's some background: I'm a stay at home mom, we have a 5 year old and a one year old. My hubby's salary is about $50,000 a year and we live in a low cost of living area. I do bring in some extra income by babysitting but it's not tons and it's not consistent. I'm 33 and my hubby is 40. We owe $103k on our house, the interest rate is 3.75% and we have 17 years left. We have in retirement (with Vanguard): Me: about $70k and him $20k. I freak out because I feel like we are so behind with retirement savings!

Nedsaid: Don't feel bad about your position in life. You are raising two kids and you will find this is expensive. You are also relatively young. You own a home and you have savings and this puts you miles ahead of many people your age. Raise your kids and do a good job at that, society needs kids and society needs good mothers. Somehow we get the idea that we are failures in life if we aren't multi-millionaires by the time we retire. You are doing fine and congratulations for being a stay at home mom.

Here's where I'm confused. We have $70k in savings because when I worked I saved all my paychecks in anticipation of being a stay at home mom. I don't know if we should take some of the money from savings and put it in some other type of investment account (I am considering Vanguard index funds), on the mortgage, towards our 2018 Roth IRA contribution, or just leave it in savings. It's not earning hardly anything from interest in the savings account.

Nedsaid: What I would do is set aside 6 months to a year in living expenses in safe FDIC Insured Bank Accounts for your emergency fund. That would be probably $25,000 to $50,000. You could invest the rest. I would err on the side of having a larger emergency fund.

BUT that money includes savings for new cars for us (his car is 15 years old and mine is 12 so we'll have to replace them with used cars eventually), our emergency fund, and money for house expenses like new roof, windows, HVAC etc that we will eventually have to replace.

Nedsaid: Okay, set aside $50,000 and invest the remaining $20,000. Cars, homes, and kids are expensive. I would not pre-pay the mortgage.

What would you do? I hate to put a lot of money on the mortgage and then not be able to access it and I'm worried about investing in stocks and then possibly needing the money. I just feel like that money sitting in savings is not working for us like it could.
A fool and his money are good for business.

moneymama
Posts: 2
Joined: Sun Jul 16, 2017 10:52 am

Re: Need Advice on What to do

Post by moneymama » Wed Jul 19, 2017 10:08 pm

Thank you all for your advice! I feel pretty good about things. I think we will continue to live frugally and possibly open an investment account for some of the money we won't need any time soon. It's so hard to know what to do!

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