You are on the very site you seek. The forum has a wiki. I would start there.
I have to say if you're making regular contributions to a Target Date Fund in a 401k you are way ahead of the average person already. Good work.
1. Max out all tax-advantaged space you have. Meaning $19.5k for this year in your 401k / 403b. If your wife works, ditto.
2. Max out all your Roth IRA space. $6k for you, $6k for your wife -- even if your wife does not work, you are allowed to contribute $6k for her.
3. Accelerate the principal payments on your mortgage.
My preferred order is (2), (1) and (3); some might take issues with contributing to Roth before contributing fully to Traditional space, so (1), then (2) then (3) is also equally suggested.
We can get into nuances, but this will be the gist of your first action points. If you have been contributing money into the 401k for the past 20 years and the balance is only $135k, it's clear that you have not been maxing it out all these years.
Consider a planning tool like YNAB (you need a budget). This has made a world of difference for my wife and I when it comes to decisions about spending.
Also recommend the book Simple Path To Wealth along with Bogles Common Sense Investing.
We especially need more information on the debt.
lakpr: I do want to make one editorial to your post which is many real people can not actually max their 401ks, or two of them, and the teacher might also have a 457 which would mean 3 x 19.5k.
Definitely without question, if at all possible contribute enough to get any available match.
Not at all ... I accept that this is a valid critique. My point is only that, before you think about investing in any taxable account (Robinhood, wealthfront etc. that ask for micro deposits like $20 or $50 per month ...), don't waste time. That money is better spent in deferring to the tax-advantaged space first. That's where you get the most bang for your buck. Any taxable investing should be looked at only after maxing out that available space.mega317 wrote: ↑Fri Feb 14, 2020 3:47 pmlakpr: I do want to make one editorial to your post which is many real people can not actually max their 401ks, or two of them, and the teacher might also have a 457 which would mean 3 x 19.5k.
Definitely without question, if at all possible contribute enough to get any available match.
[ A healthy emergency fund, 3 to 6 months, expected to be in place first of course ]
Also, mega317 is correct.....there is no way we can currently max out 401k at this point.
We currently have no emergency fund.
What's your monthly expenses? Can you take a hard look at them and identify fat that you can cut?
[ You don't have to respond to me, just ask yourself that question. High-fee internet plan? smart phones? etc... ]
Not having an emergency fund scares the bejeezus out of me. That should be your first and foremost priority, at least get it up to 3 months worth of expenses. If you can identify and cut fat from your expenses, the task of achieving 3 months of expenses becomes so much smaller and easier ...
In general, the more information you can give us, the better tailored the responses are going to be. Not payoff dates on debt, but perhaps how much was the initial balance when you took out the debt, how many monthly payments you made so far, how many months remaining, and of course, the monthly payment amount required
Target Retirement account is just fine (most have low fees). Just make sure and maximize your contributions each year. If you did nothing else, this would be enough IMO.illinoisguy wrote: ↑Fri Feb 14, 2020 2:55 pmI am a brand new member here (45 years old) and am looking for some advice on where to go to start learning about investing. I know almost nothing about investing (although I have had a 401k for approximately 20 years that I contribute to from every paycheck to with Vanguard. Current investment is in Target Retirement 2040 Trust fund). I need to decide if my current investment amount in my 401k is correct, if I should change the fund it is going to, and if I should consider splitting some to an IRA. I also would like to start investing a small amount (maybe $50 a month or so). Is there a good site that I can go to start learning? Thanks!
Like another poster suggested, start reading the wiki.
The Illinois state income tax rate is 4.95%
Here are methods you can use to estimate your federal tax bracket. First estimate your "taxable income". Moneychimp, "Tax Calculator". Or if your income etc. is fairly consistent from year to year, then look at your 1040 tax return for last year for your "taxable income". Then use your "taxable income" to estimate your "tax bracket". Moneychimp, "Federal Tax Brackets".
Mortgage – Approximately $225k left on 30 year fixed at 4.375% (32 years until payoff). Monthly payment (including taxes and insurance included) $2,200.
Second Mortgage – Approximately $45k left on 30 year fixed at 10% (22 years left). Monthly payment of $465.
Credit Cards – Approximately $20k at 12.99%
Student Loans – Approximately $4k at 6.3% (November 2020 payoff) Monthly payment of $310
Approximately $95k at 6%. Currently in voluntary forbearance.
Car Loans – Both cars are paid off.
College tuition for kids is covered.
Tax Filing - Married Filing Jointly
Tax Rate – Federal 24% for 2020; State 4.95%
State of Residence - Illinois
Ages - Myself: 45; Wife: 40
My 401k –Current balance approximately $138k with Vanguard - Target Retirement 2040 Trust I I am currently contributing 7% of pre-tax (just increased from 6%). Employer matches 100% of my contributions between 0 and 1%, then 50% of my contributions up to 6%
Wife’s 403b – Current balance approximately $12k – Invested through Franklin Templeton. Currently contributing $100 a month.
Illinois Teacher’s Pension – My wife has been contributing for over 10 years.
I would keep my 401k at 6% to get all the match. Thats free money.
Also the rates you are paying on your 2nd mortage and credit cards are fairly high and I would put as much money as possible in paying off those. You are guarenteed a 10% and 12% return there and you probably would not make that investing.
You should also try to establish an emergency fund of 3-6 month expenses to avoid carrying a credit card balance in the future.
Once you do those things then increase your retirement savings.
First, build up an emergency fund of $1k. Don't touch it except for real emergencies.
You need to stop all voluntary savings and pay off the high interest rate debts. It makes no sense to invest when you are paying out interest rates as high as yours. You are paying out more in interest than your investing is bringing in.
The exception is putting money into the 401k to get a match. You definitely want to put in 1% but I'm not sure I'd go all the way to 6% even with a 50% match. I'd probably put in something like 3% to 4%, but you pick your number as long as it is not over 6%.
This means you need to reduce your 401k savings and your wife needs to stop contributing to her 403b. For now.
Stop using the CCs even if that means going without things you want. Pay off the $20k at 12.99%. When the student loan is paid off, put that $310 a month to the CC. When the CC is paid off put everything into the second mortgage until it is paid off. Even the second mortgage is costing you more than you could expect to make with investing.
Then refinance the 30 year loan if you can.
You are in a bit of a mess. And it is not because you don't make enough money. If you are really in the 24% bracket, your income is not small. You have a spending problem, not an income problem. Figure out what you can live without and make it happen. Otherwise, you will always be digging yourself out and you will never be able to retire.
How can your student loan be $95k with a payoff this coming November?
The way I read it .. two student loans. One has a balance of $4k, and with regular payments will be paid off Nov-2020.
The other one is in voluntary forbearance (2nd line from the post), has an interest rate of 6% and balance of $95k
Ramsey's program is reported to be very successful at getting people out of debt. It's different from what I suggested above, but it works. Many swear by it.
Few if any here would suggest that you use Ramsey's approach to investing though. Debt? Yes. Investing? No. Good luck!
Steps:illinoisguy wrote: ↑Fri Feb 14, 2020 2:55 pmI am a brand new member here (45 years old) and am looking for some advice on where to go to start learning about investing. I know almost nothing about investing (although I have had a 401k for approximately 20 years that I contribute to from every paycheck to with Vanguard. Current investment is in Target Retirement 2040 Trust fund). I need to decide if my current investment amount in my 401k is correct, if I should change the fund it is going to, and if I should consider splitting some to an IRA. I also would like to start investing a small amount (maybe $50 a month or so). Is there a good site that I can go to start learning? Thanks!
Find folks who are really sharp and experienced with personal investment finance that help others (mentors) at no charge because they love what they do and are good at it. Old guys and some young guys that have the book knowledge but also have walked the talk and gone through thick and thin and came out ahead.
You can read all the books you want but without experiential knowledge, it's useless as applied to you.
So, work with the young or old experienced smart person (mentor) who helps folks for free, to create various long term financial strategies based on your personal financial scenario right now. (learn by doing)
Where do you find these kinds of people that donate their time doing this?
Here's the process:
Portfolio Review Request
https://www.bogleheads.org/forum/viewt ... =1&t=6212
Paying off your large, high interest debt is a priority even over establishing a 3-6 months emergency fund. Put $500-1,000 in a savings account for true emergencies, and attack the outstanding debt. The debt you already have is an emergency.
Reduce contributions to his employer's 401k plan to the 6% necessary to get the full employer match. Stop contributions to her employer's 403b plan (unless there is an employer match offered). Redirect that money to paying off debt.
Take a close look at your spending to find areas where you can cut. Be ruthless in cutting your spending. Consider using a budgeting app like Mint or YNAB. Redirect the savings to paying off debt.
Look into refinancing the mortgages to secure lower interest rates.
2. Focus on reducing your spending and paying off these debts ASAP:
$20K at 12.99%
$45K at 10.00%
$04K at 06.30%
$95K at 06.00%
3. See if you can consolidate some of these loans at a lower interest rate.
4. After you've paid off the debts listed above (the 4.375% mortgage is a lower priority), you can turn your attention back to investing.
https://www.daveramsey.com/everydollar is a good one.