How are we doing and What should we do next?

[skives]

So I am just curious as to how everyone here thinks my wife and I are doing financially. Breakdown is below.

Monthly savings - $900

Emergency fund - 25K

Mortgage - $37,028.83 44 payments of $900 a month left. House Zestimate is $252,500

No other debt.

Income and retirement below

Wife 34 in March. 15% of her pay goes into the Roth 401k. She is no longer putting money into a regular 401k

Income 2022 - $42,589.03

Roth IRA - $2,353.38 no longer contributes to. 100% stocks

401k - $46,422.42 100% stocks

Roth 401k - $36,176.61 100% stocks

Pension - Monthly benefit as of 2/4/2023 $253.08 Still accruing benefits.

Husband 39. 15% of his pay goes into the Roth 401k. He is no longer putting money into a regular 401k

Income 2022 - $39,196.59

Roth IRA - $2,353.38 no longer contributes to. 100% stocks

401k - $168,175.14 100% stocks

Roth 401k - $47,493.54 100% stocks

Pension - Monthly benefit $179.20 pension is frozen

What should we do next after the house is paid off? We will have $1,800 a month free. I figure at some point in the next 5 years we should move some retirement money out of stocks and into bonds or something less risky. What do you guys think? Should we up our Roth 401k contributions?

[kork13]

First off, I'll say that you're doing great. You've got about 5x expenses (post-mortgage) currently saved up, which will accelerate rapidly once you pay off your house. When do you plan to retire? If early, you may want to build up assets available prior to 59.5.

The biggest thing I'd suggest is to restart Roth IRA contributions, up to the annual max. Those accounts have alot more flexibility than your 401k's.

Otherwise, I'd just divert the extra money from paying off your house into taxable investments. Though upping your Roth 401k contributions certainly wouldn't be a bad choice either.

Any interest in creating separate income streams? Like a small business, rental RE, or otherwise? Those goals would be another good option for that excess.

[Jluke]

Agree with Kork.

Add to your Roth IRAs. You can still make contributions for 2022.

Besides your emergency fund do you have other savings? If not, you might want more cash on hand.

as far as risk in your retirement accounts, I would look for a target date fund with a low expense ratio and use that. I would also check the expense ratios of your existing holdings.

You could switch your traditional 401k to the target fund and let it ride. Keeping your Roth in 100% stocks with continued contributions.

ignore any urges to pay off or make extra payments to your mortgage.

[bjl584]

I'd bump the Roth IRA's to max.
Besides that, do you have any major expenses on the horizon? Home improvements? New car? Etc?

[skives]

No other savings besides the EF. Saving this year to switch to natural gas from propane. Also will be getting a new furnace and water heater. So that’s going to be $10-$12k.

[skives]

When you guys contribute to your Roth IRAs do you do it weekly, monthly or annually?

[kork13]

When you guys contribute to your Roth IRAs do you do it weekly, monthly or annually?

I do Roth IRA contributions twice monthly (1st & 15th), the same days that I paid.

[disneysteve]

When you guys contribute to your Roth IRAs do you do it weekly, monthly or annually?

I max it out as early in the year as possible. I’ve fully funded them as early as the first week of January when we had the funds to do so.

[myrdale]

It's a really exciting place where you guys are at. You're "this close" to having the mortgage paid off. Yeah $37k might seem like alot, but when you realize you have nearly $1,000 a month to throw at it, it's only 3 years and you're debt free, and probably 2 and change if you include your normal payment, and like 18 months or less when you figure out how to make it happen!

Mortgage or Roth IRA? This is one of those I wish I had a better answer for you. I wish I had started my Roth long before I paid off my home, but I was glad to have the mortgage gone. When you start throwing house payments at your retirement you will be amazed how fast those accounts will grow!

Keep it up!

[skives]

Why max out the Roth IRA? Is it because no RMDs? I just read starting next year there will be no RMDs on Roth 401Ks because of the secure act 2.0

[kork13]

Why max out the Roth IRA? Is it because no RMDs? I just read starting next year there will be no RMDs on Roth 401Ks because of the secure act 2.0

Basically to open up more tax-free space in your portfolio. Adding the Roth IRA would give you 6.5K/yr (tax free growth and yes, no RMDs) in ADDITION to your Roth 401k limits. Though I suppose you're probably not currently maxing the Roth 401k right now...

The other benefit of the Roth IRA vs. Roth 401k is investment flexibility. The 401k limits what you can invest in, and may have additional management fees charged by the 401k administrator (in addition to the MF expense ratio). The IRA, however, can be invested in basically anything, and will have no extra management costs beyond the ER (assuming you use a discount broker like Vanguard, Fidelity, etc.).

[LivingAlmostLarge]

What is your long term plan and goals? Kids? Why haven't you been maxing out the 401k Roth and IRA and instead paying off the house? Why would you have no just paid the house until you have maxed out all retirement vehicles?

I guess it depends would be my answer. Depends on when you want to retire, kids, staying in place. I find you can't go back and put money into a retirement account so sometimes taking longer to pay off a house makes more sense than maximizing house payoff. You are basically leverage secured debt.

Also if you have kids or plan to have kids are you saving for college? Again you'd be better off stretching out the mortgage and taking advantage of compounding for kids college funds.

[skives]

No kids and no plans to have kids. I would like to retire at 60 and my wife 55. Right now we are saving for switching to natural gas from propane which will include a new water heater and furnace.

We are not maxing Roth 401k or Roth IRAs because the above savings. Also probably couldn’t max both anyway. We want our house paid off asap for security. We will be maxing Roth IRA after house is paid off plus continue to do 15% in Roth 401k.

[skives]

Should I consider converting some of my 401k to Roth 401k?

[kork13]

Should I consider converting some of my 401k to Roth 401k?

If you're in the 12% bracket, then doing some conversion up to the top of that bracket certainly wouldn't be a bad idea. In the 22% bracket, I'd call it more of a 'take it or leave it' option.