"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

[Laura33]

I would actually recommend a full case study, because it is hard to give advice without the full picture.  E.g., what are your current expenses, and how do you expect that to change in retirement?  What are your pensions worth, when can you draw them, and what is the risk they may be cut?  What are your plans for drawing Social Security, and what benefits do you expect at that time?

I am a little worried that your current retirement savings and your savings rate are so low.  If you are saving 10%, that is $7800/yr; if you do that every year for the next 12 years and add your current $26k, and even if you assume some raises and everything doubles over that timeframe, you still end up with around $250k -- not horrible, but only enough to support a $10k/yr withdrawal.  Will your SS and pensions be enough to cover the rest of what you need?

This is also why we need the full context -- if in fact you need your investments to double over the next decade or so to meet your target number, the only chance you have of that happening is in stocks.  OTOH, if your pensions and SS already cover your needs, then anything you save is just extra, and you can afford to be more conservative if that makes you feel more comfortable.  Make sense?

Generally speaking, I would say maximize any tax-deferred options you have to start with.  Pick the lowest-cost broad market index funds available in your plan (or a target date fund is fine, too -- it will be a little more conservative, which is probably appropriate given your time to retirement).  Do the same thing in your own IRA or Roth -- go to Vanguard and choose their version of that same index fund or target date fund.  And if you still have money to invest, well, you can always open a regular taxable brokerage account at Vanguard and put it in the exact same fund as your IRA!  It doesn't have to be complicated -- the important thing is to make sure you are putting enough away to get you where you want to be in 12 years.  Good luck!  And congrats on the big raise!!