That being said, my question: Am I sufficiently on-track for retirement that I’d be better off putting a $2000 raise towards intermediate or emergency fund savings than into a 457?
Emergency fund: 5 months funded. Bucket 1 is $2k in low-interest highly-accessible savings account, Bucket 2 is $8.5k in .1% fixed rate I bonds and $5600 in 4% EE bonds. The EEs start maturing next year, considering converting to more I bonds as they do - open to suggestions but that's not my main purpose here today.
Debt: Mortgage 30-year fixed at 4.25%, PITI ~$980/month, $108k principal and 23 years left, final mortgage payment will be 2 months after retirement and final paycheck. Car 5-year fixed at 1.74%, 4 years left, $288/month. Home improvement loan at 0%, 3 years left, $195/month.
Tax filing status: Single
Tax rate: 22% federal, 5.1% state
State of residence: MA
Desired retirement asset allocation: 80-85% stocks, 15-20% bonds
Desired international allocation: 30-35% of stocks
Current retirement assets: $93k
Vanguard Roth IRA, $64400:
- 60% in Total Stock Index (VTSAX, ER .04%)
22.7% in Total International Stock index (VTIAX, ER .11%)
17.5% in Total Bond Index (VBTLX, ER .05%)
- 58% in Total Stock Market Index (FSTVX, ER .03%)
42% in Global ex-US Stock Index (FSGDX, ER .06%)
Retirement contributions: $5500/year post-tax into Roth IRA, and 11% of salary into state teacher pension system.
Retirement: No Social Security. Medicare eligible. Current contract allows retirees to remain on their health & dental insurance at same rates as current employees but who knows if that will change.
Retirement at age 59 in 23 years nets lifetime defined benefit pension of 80% of (basically the) second-to-last year’s salary. I project the pension to pay out $76480 annually in today’s dollars. Pension benefit will be federally taxable but not state, so between no more 11% pension contributions, 5.1% state income tax, or mortgage payments, I figure that would fully cover me at my current lifestyle. Negligible COLA though, only about $300/year in today’s dollars.
Primary objective of retirement savings is therefore to be the COLA, and if investments perform well enough, secondary objective is to also have enough to spend about $5k/year (today’s dollars) on travel and personal enjoyment during those first 10-15 years when I’m hopefully still feeling up to it.
...I have difficulty gauging what the total size of my portfolio will need to be for that, online calculators generally don't appear to be built for this scenario. Consequently, I have difficulty gauging whether my portfolio is on-track or is over- or under-funded.
Other savings: ~$24k. $10k in 1.6% online savings account; $800 in CDs and $1000 in treasury bills that will mature within the next year and will be rolled into online savings and MM instead; and $12k in taxable brokerage at Vanguard: $6k in Prime MM, $3k in tax-exempt intermediate term bonds (VWITX, ER .19%), $3k in total stock index (VTSMX, ER .14% . It served the role of long-term savings, but as I had some big spends last year, I’m exchanging it for VWITX. With less conservative savings sitting around, I think I’ll have less stomach now for its volatility.)
My budget for next year includes $4000 in savings added to the online savings account and prime MM, which is typical for me. I am not eligible for an HSA.
The question: My happy dilemma is that in addition to my above-budgeted savings next year, I’m getting a raise of about $2000 (post-tax and pension contribution) that I need to put somewhere. I’d love your help in deciding where.
Now up until recently, I would’ve just put it into intermediate-term savings by default because my 403b tax-deferred retirement account options through work have been steamy garbage. No match, 500-page-prospectus annuities through the likes of AXA, and even the few index funds have fees no lower than 1% not including surrender fee. Typical for those of us teaching in public schools, sadly. But I’ve now got access to a tax-deferred 457 that looks really good. Still no employer match but a mere .0775% annual fee, and the best investment options are:
- State Street Global All-Cap Equity Ex-US Index, ER.09%
State Street Russell Small Cap Index Securities Lending Series I, ER .03%
State Street S&P 500 Large Cap Index Securities Lending Series I, ER .01%
State Street US Bond Index Securities Lending Series I, ER .04%
So I’m torn on what the best use of that $2000 would be, and am seeking Boglehead wisdom to honestly assess the current state of my savings, and on that basis, suggest where to put the extra money. Open a 457? (Maybe plow it into the bond fund, and exchanging some VBTLX for VTSAX in my Roth to achieve my AA?) Or am I pretty on-track for retirement and would be better off putting that $2000 into bulking up my non-retirement savings? Split it and do both? Something else I haven't thought of?
Many thanks in advance for your analysis and advice!