Later retirement - where to put the money?

[SavingsTab]

Hi there.

This may be a different sort of case study, so may require less details than others. Husband and I are both 48 years old, both work for government entities in CA. I'm a social worker and recently got a big supervisor promotion with pay increase, now making $78K/year. He is a high school culinary teacher, and also teaches at night in the local community college culinary program, making $70K/year.

We are debt free, except for the mortgage (around $160K), which we're refinancing to a 15 year loan (saving around $45K in interest over the old 30 year loan!). I have just over $26K in my govt employer's 457(b) and now contribute 10% of my pre-tax pay to this. I'm in the Fidelity Freedom K 2030 plan, and the expense ratio is 0.61%. I also recently opened a Vanguard Roth IRA brokerage account, and have $2300 in it so far. He has not participated in any retirement savings plans to date, but has $30K in a savings account. We both *hope* to have our government pensions and Social Security available to us at some point, but who knows?

We're pretty frugal, but now find ourselves with a lot more money than we need to live. So here's the big question:

WHERE TO PUT THE MONEY?

We would like to retire in 12 years max, by the time we're 60 years old (late my MMM standards, I know), so not sure if all of the early FI information applies to us. MMM recommends index funds, but we need to have investments that will be available to us in 12+ years, not 30+ years.

More specific questions:

Should we both max out the deferred comp offered by our government employers?

Should I stick with the Fidelity 2030 plan or switch to another Fidelity plan?

How should I invest the money in my Roth IRA? (I realize this is up to me and I am seriously lacking in investment knowledge)

Are index funds still a good option for us? If so, are there specific recommendations?

In general, I'd like to thank everyone on the MMM forum, and MMM himself, of course. I am now riding my bicycle to work, we cancelled our cable service, and eat out less to save more money. And we are happier! I just wish I had known this information in my 20s...but better late than never...

~Tabs

[matchewed]

Yes all the same investment advice still applies. Max out tax deferred options and stick with low cost index funds which reflect your risk tolerance.

The specific questions:

1) Probably but that depends on the details.

2) Does it reflect your risk tolerance? Is there a cheaper (smaller expense ratio) fund available?

3) http://jlcollinsnh.com/stock-series/

4) Yes. Vanguard, seriously read #3

It's okay to start in your late 40's. With your income you will be just fine as long as you turn those lifestyle efficiencies into savings.

[Beach_Stache]

I think having a good estimate on pension/social security is very important.  When you retire at 60, will you start collecting your pension from your jobs right away, and what will that pension be?  If for some reason you have an awesome pension plan and when you start collecting social security and pensions you are making more than when you were working, then your tax rate could be higher in retirement than when you were working.  I imagine this may not be the case, and even if it's just pensions for a while and you delay social security until 70, then you've got 10 years from 60-70 where you will most likely be "earning" less through your pensions, at which point your tax rate would be lower, so I think 401k is the best place to put your money.  I would opt for low-cost index funds.  In fidelity I put my money in FSTVX (Total Market) and FUSVX (S&P 500) and both I believe cost 0.045% if you have $10k in and I just auto-invest and forget it.  If you have a lifestyle fund in the 2030 pot as you said you're paying more money in fees and you probably have a lot more money in bonds.  MMMers tend to be pretty aggressive in investment, and if you have pensions you can almost treat this as your "bonds" since those will be fixed and hopefully go up with inflation, but it's something you can count on.

I generally agree that you are probably better off putting as much in your 401k as possible now to lower your tax rate and if you retire at 60 you can start taking money from it without penalty and you will mostly likely be in a lower tax rate from ages 60-70 even with these withdraws.

If you have a pension then I would make sure that you have a good estimate on what you will be receiving once you retire and when you can start receiving it.  If you can't receive it until 62 or 65 then you've got a few years where you will rely on cash or post-tax investments.  Knowing what you need in retirement spending is the most important, and then filling in the gaps from there is where you need to go.  So having a good estimate of what your pension(s) will be and what you will take home post-tax is a must, and then fill in the gaps.