This post is suggesting you "pay yourself first" by maximizing tax-advantaged investments, then adjust spending to fit whatever is left.Great advice. Take advantage of your 401k and reduce your tax bill. I'm sure you used to live on a lot less than you currently make, so think back about how you used to live for some ideas on where to cut back.
Seems you could contribute $35K/yr to your 401k plans, and $11K/yr to Roth IRAs (maybe a little to traditional IRAs, depending on the exact definition of "income is around $150K"). Does anything prevent you from doing so?
Do you take advantage of any company stock discounts?
Others here will likely take you to task for overspending and tell you to invest what you save when you reduce spending. This post is suggesting you "pay yourself first" by maximizing tax-advantaged investments, then adjust spending to fit whatever is left. Same overall advice - follow whichever path suits you better.
Good luck!
$400 / month for term life insurance? Is that right? How much do you have? How long are the terms?
Recently cut mine from $102 / month down to about $30 for $1 million for me (31/male - in the 'preferred' rating group, so this isn't even the lowest you could get, if you're healthy - Cholesterol ratio bit me in the ass) by recognizing 2 things:
1. We no longer need (possibly never needed) a 30 year term - cut it to 10 years, which is still too long, but much closer to what we actually need.
2. We had bought from the wrong insurer - middle of the road within the rating category for premiums - now we are at the low end.
Any way, there could be some significant savings there.
If you're maxing the Roth then no. You get one bucket of money to share between Roth and Traditional IRAs. At your income, you might want to consider Traditional IRAs (assuming you can deduct the contributions - maxing the 401Ks can help you to qualify there). Sounds like you might be in the 25% bracket, so you're getting into 'saving lots of money at today's rate' territory.Seems you could contribute $35K/yr to your 401k plans, and $11K/yr to Roth IRAs (maybe a little to traditional IRAs, depending on the exact definition of "income is around $150K"). Does anything prevent you from doing so?
Do you take advantage of any company stock discounts?
Others here will likely take you to task for overspending and tell you to invest what you save when you reduce spending. This post is suggesting you "pay yourself first" by maximizing tax-advantaged investments, then adjust spending to fit whatever is left. Same overall advice - follow whichever path suits you better.
Good luck!
Thanks MDM for your inputs, I agree with you 100% that it is the right thing to "pay ourselves first" and up the 401K contribution to max (currently maxing Roth IRA at $11K a year..questions here, if we're doing Roth, we can't do a traditional IRA no?)
Ah - you might be getting there where you've had the whole-life so long that it does make sense to keep it. I've heard it usually takes 20+ years before the math works out in favor of keeping, so do the math yourself - if you ask your advisor who sold you the policy and continues to get residual commissions on it, you know what answer you're going to get.$400 / month for term life insurance? Is that right? How much do you have? How long are the terms?Both Term and Whole. Whole was bought by husband about 12 yrs ago while young and naive..we looked into canceling whole and just keeping the term (about $150/mo for $2MM 30 yrs) but our friend (advisor) said it might be worth just keeping it given how long it's been in place and the value it has accumulated).
Recently cut mine from $102 / month down to about $30 for $1 million for me (31/male - in the 'preferred' rating group, so this isn't even the lowest you could get, if you're healthy - Cholesterol ratio bit me in the ass) by recognizing 2 things:
1. We no longer need (possibly never needed) a 30 year term - cut it to 10 years, which is still too long, but much closer to what we actually need.
2. We had bought from the wrong insurer - middle of the road within the rating category for premiums - now we are at the low end.
Any way, there could be some significant savings there.
We are in the same place (32 & 37, with a 17 month old), and our house is about 500k too.
Comparing to our expenses, I would say your childcare is high (ours is 870/month), but that may drop as your child approaches the 1.5yr mark. It is more expensive for babies than toddlers.
Our cell phone bill is 75/month - includes free long distance & unlimited data for two phones (this is in canada where cells are expensive). And at 400$/month in gas with 250$/month insurance - it looks like you have two cars and drive a lot! We have two cars, but are down to 110$/month insurance and less than 100$/month gas.
Those look like your best opportunities to trim some expenses.
Also the 800$/month for food is in line with yours, but I know that we spend ridiculous amounts on food and dining... I could (and have at times) trimmed down to 450 fairly easily.
Generally I would say you're on the right track, spending less than you earn. Just keep questioning your expenses from time to time, spend money where it matters to you.
If you're maxing the Roth then no. You get one bucket of money to share between Roth and Traditional IRAs. At your income, you might want to consider Traditional IRAs (assuming you can deduct the contributions - maxing the 401Ks can help you to qualify there). Sounds like you might be in the 25% bracket, so you're getting into 'saving lots of money at today's rate' territory.Seems you could contribute $35K/yr to your 401k plans, and $11K/yr to Roth IRAs (maybe a little to traditional IRAs, depending on the exact definition of "income is around $150K"). Does anything prevent you from doing so?
Do you take advantage of any company stock discounts?
Others here will likely take you to task for overspending and tell you to invest what you save when you reduce spending. This post is suggesting you "pay yourself first" by maximizing tax-advantaged investments, then adjust spending to fit whatever is left. Same overall advice - follow whichever path suits you better.
Good luck!
Thanks MDM for your inputs, I agree with you 100% that it is the right thing to "pay ourselves first" and up the 401K contribution to max (currently maxing Roth IRA at $11K a year..questions here, if we're doing Roth, we can't do a traditional IRA no?)
as I feel it's pretty trimmed down
...please explain why doing a traditional IRA might be better in our income range?
shelters your income from taxes this year - if you're in the 25% federal bracket, and living / working in California (9%ish state income tax there, yes?), and you're gonna invest 11K this year, you can put it in the Roth IRA and have the peace of mind that you'll never pay taxes again on that money. You also get a little more withdrawal flexibility with the Roth. Or you can go traditional and save ~34% of that 11K right now - about $3,740 that you'll save on taxes this year. So that peace of mind / flexibility is expensive. At lower tax rates (i.e. lower incomes), going Traditional does not save nearly as much in taxes - which makes the benefits of the Roth IRA much less expensive. At the extreme low end, the Roth is a no-brainer - if you're paying any more than $0 in taxes, you've got to weigh the taxes saved today vs. the potential taxes saved in the future to make the decision.If you're maxing the Roth then no. You get one bucket of money to share between Roth and Traditional IRAs. At your income, you might want to consider Traditional IRAs (assuming you can deduct the contributions - maxing the 401Ks can help you to qualify there). Sounds like you might be in the 25% bracket, so you're getting into 'saving lots of money at today's rate' territory.Seems you could contribute $35K/yr to your 401k plans, and $11K/yr to Roth IRAs (maybe a little to traditional IRAs, depending on the exact definition of "income is around $150K"). Does anything prevent you from doing so?
Do you take advantage of any company stock discounts?
Others here will likely take you to task for overspending and tell you to invest what you save when you reduce spending. This post is suggesting you "pay yourself first" by maximizing tax-advantaged investments, then adjust spending to fit whatever is left. Same overall advice - follow whichever path suits you better.
Good luck!
Thanks MDM for your inputs, I agree with you 100% that it is the right thing to "pay ourselves first" and up the 401K contribution to max (currently maxing Roth IRA at $11K a year..questions here, if we're doing Roth, we can't do a traditional IRA no?)
Thank you dandarc! can you please explain why doing a traditional IRA might be better in our income range?
We're in southern cali so public transportation is pretty tricky and gas bills price is what it is.Don't just assume it is what it is. You may not be able to change the price of gas, but you can control how you use it. The big factors that you can control are how long the commute is and how efficient the vehicle is.
shelters your income from taxes this year - if you're in the 25% federal bracket, and living / working in California (9%ish state income tax there, yes?), and you're gonna invest 11K this year, you can put it in the Roth IRA and have the peace of mind that you'll never pay taxes again on that money. You also get a little more withdrawal flexibility with the Roth. Or you can go traditional and save ~34% of that 11K right now - about $3,740 that you'll save on taxes this year. So that peace of mind / flexibility is expensive. At lower tax rates (i.e. lower incomes), going Traditional does not save nearly as much in taxes - which makes the benefits of the Roth IRA much less expensive. At the extreme low end, the Roth is a no-brainer - if you're paying any more than $0 in taxes, you've got to weigh the taxes saved today vs. the potential taxes saved in the future to make the decision.
Here's the big thing you've gotta realize about taxes in the future though - if you embrace the teachings of this blog / board, you'll lower your expenses a lot and it will then be extremely likely that you will pay much lower taxes in retirement than you are today - so you save taxes today with the traditional IRA, then don't pay taxes (or at least not nearly as much) in the future. Traditional is a better deal for a lot of people - you just have to be sure you can legally deduct the contributions (phase-out of that starts around 96K, I think if you both work and have access to 401Ks). There are a lot of ways to reduce your income for this purpose, so even though your gross salary might be 150K, it is not totally out of the question to get down to below 96K MAGI for IRAs.
Subtract any health insurance premiums, HSA, and 401K deductions from 150K - they might be closer than you think. Maybe part of that is self-employment income? Subtract half the self-employment tax as well, maybe use a Solo401K or SEP-IRA to get under the limit. Also if one spouse has access to a work 401K and the other does not, then the lower limit only applies to the spouse with the 401K - a much higher limit applies to the spouse without one available.
shelters your income from taxes this year - if you're in the 25% federal bracket, and living / working in California (9%ish state income tax there, yes?), and you're gonna invest 11K this year, you can put it in the Roth IRA and have the peace of mind that you'll never pay taxes again on that money. You also get a little more withdrawal flexibility with the Roth. Or you can go traditional and save ~34% of that 11K right now - about $3,740 that you'll save on taxes this year. So that peace of mind / flexibility is expensive. At lower tax rates (i.e. lower incomes), going Traditional does not save nearly as much in taxes - which makes the benefits of the Roth IRA much less expensive. At the extreme low end, the Roth is a no-brainer - if you're paying any more than $0 in taxes, you've got to weigh the taxes saved today vs. the potential taxes saved in the future to make the decision.
Here's the big thing you've gotta realize about taxes in the future though - if you embrace the teachings of this blog / board, you'll lower your expenses a lot and it will then be extremely likely that you will pay much lower taxes in retirement than you are today - so you save taxes today with the traditional IRA, then don't pay taxes (or at least not nearly as much) in the future. Traditional is a better deal for a lot of people - you just have to be sure you can legally deduct the contributions (phase-out of that starts around 96K, I think if you both work and have access to 401Ks). There are a lot of ways to reduce your income for this purpose, so even though your gross salary might be 150K, it is not totally out of the question to get down to below 96K MAGI for IRAs.
They make 150k combined, they CAN'T do traditional - no tax break, Roth is the only way they get a tax advantage (on the back end)
Subtract any health insurance premiums, HSA, and 401K deductions from 150K - they might be closer than you think. Maybe part of that is self-employment income? Subtract half the self-employment tax as well, maybe use a Solo401K or SEP-IRA to get under the limit. Also if one spouse has access to a work 401K and the other does not, then the lower limit only applies to the spouse with the 401K - a much higher limit applies to the spouse without one available.
shelters your income from taxes this year - if you're in the 25% federal bracket, and living / working in California (9%ish state income tax there, yes?), and you're gonna invest 11K this year, you can put it in the Roth IRA and have the peace of mind that you'll never pay taxes again on that money. You also get a little more withdrawal flexibility with the Roth. Or you can go traditional and save ~34% of that 11K right now - about $3,740 that you'll save on taxes this year. So that peace of mind / flexibility is expensive. At lower tax rates (i.e. lower incomes), going Traditional does not save nearly as much in taxes - which makes the benefits of the Roth IRA much less expensive. At the extreme low end, the Roth is a no-brainer - if you're paying any more than $0 in taxes, you've got to weigh the taxes saved today vs. the potential taxes saved in the future to make the decision.
Here's the big thing you've gotta realize about taxes in the future though - if you embrace the teachings of this blog / board, you'll lower your expenses a lot and it will then be extremely likely that you will pay much lower taxes in retirement than you are today - so you save taxes today with the traditional IRA, then don't pay taxes (or at least not nearly as much) in the future. Traditional is a better deal for a lot of people - you just have to be sure you can legally deduct the contributions (phase-out of that starts around 96K, I think if you both work and have access to 401Ks). There are a lot of ways to reduce your income for this purpose, so even though your gross salary might be 150K, it is not totally out of the question to get down to below 96K MAGI for IRAs.
They make 150k combined, they CAN'T do traditional - no tax break, Roth is the only way they get a tax advantage (on the back end)
It really isn't as simple as 'they make 150K, so they can't do it'. http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits (http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits)
shelters your income from taxes this year - if you're in the 25% federal bracket, and living / working in California (9%ish state income tax there, yes?), and you're gonna invest 11K this year, you can put it in the Roth IRA and have the peace of mind that you'll never pay taxes again on that money. You also get a little more withdrawal flexibility with the Roth. Or you can go traditional and save ~34% of that 11K right now - about $3,740 that you'll save on taxes this year. So that peace of mind / flexibility is expensive. At lower tax rates (i.e. lower incomes), going Traditional does not save nearly as much in taxes - which makes the benefits of the Roth IRA much less expensive. At the extreme low end, the Roth is a no-brainer - if you're paying any more than $0 in taxes, you've got to weigh the taxes saved today vs. the potential taxes saved in the future to make the decision.If you're maxing the Roth then no. You get one bucket of money to share between Roth and Traditional IRAs. At your income, you might want to consider Traditional IRAs (assuming you can deduct the contributions - maxing the 401Ks can help you to qualify there). Sounds like you might be in the 25% bracket, so you're getting into 'saving lots of money at today's rate' territory.Seems you could contribute $35K/yr to your 401k plans, and $11K/yr to Roth IRAs (maybe a little to traditional IRAs, depending on the exact definition of "income is around $150K"). Does anything prevent you from doing so?
Do you take advantage of any company stock discounts?
Others here will likely take you to task for overspending and tell you to invest what you save when you reduce spending. This post is suggesting you "pay yourself first" by maximizing tax-advantaged investments, then adjust spending to fit whatever is left. Same overall advice - follow whichever path suits you better.
Good luck!
Thanks MDM for your inputs, I agree with you 100% that it is the right thing to "pay ourselves first" and up the 401K contribution to max (currently maxing Roth IRA at $11K a year..questions here, if we're doing Roth, we can't do a traditional IRA no?)
Thank you dandarc! can you please explain why doing a traditional IRA might be better in our income range?
Here's the big thing you've gotta realize about taxes in the future though - if you embrace the teachings of this blog / board, you'll lower your expenses a lot and it will then be extremely likely that you will pay much lower taxes in retirement than you are today - so you save taxes today with the traditional IRA, then don't pay taxes (or at least not nearly as much) in the future. Traditional is a better deal for a lot of people - you just have to be sure you can legally deduct the contributions (phase-out of that starts around 96K, I think if you both work and have access to 401Ks). There are a lot of ways to reduce your income for this purpose, so even though your gross salary might be 150K, it is not totally out of the question to get down to below 96K MAGI for IRAs.
Thanks for all this info aphalite. Yep, we're not self-employed and actually don't pay that much on health premiums so seem slike we won't qualify for a traditional. Homework done! :)Subtract any health insurance premiums, HSA, and 401K deductions from 150K - they might be closer than you think. Maybe part of that is self-employment income? Subtract half the self-employment tax as well, maybe use a Solo401K or SEP-IRA to get under the limit. Also if one spouse has access to a work 401K and the other does not, then the lower limit only applies to the spouse with the 401K - a much higher limit applies to the spouse without one available.
shelters your income from taxes this year - if you're in the 25% federal bracket, and living / working in California (9%ish state income tax there, yes?), and you're gonna invest 11K this year, you can put it in the Roth IRA and have the peace of mind that you'll never pay taxes again on that money. You also get a little more withdrawal flexibility with the Roth. Or you can go traditional and save ~34% of that 11K right now - about $3,740 that you'll save on taxes this year. So that peace of mind / flexibility is expensive. At lower tax rates (i.e. lower incomes), going Traditional does not save nearly as much in taxes - which makes the benefits of the Roth IRA much less expensive. At the extreme low end, the Roth is a no-brainer - if you're paying any more than $0 in taxes, you've got to weigh the taxes saved today vs. the potential taxes saved in the future to make the decision.
Here's the big thing you've gotta realize about taxes in the future though - if you embrace the teachings of this blog / board, you'll lower your expenses a lot and it will then be extremely likely that you will pay much lower taxes in retirement than you are today - so you save taxes today with the traditional IRA, then don't pay taxes (or at least not nearly as much) in the future. Traditional is a better deal for a lot of people - you just have to be sure you can legally deduct the contributions (phase-out of that starts around 96K, I think if you both work and have access to 401Ks). There are a lot of ways to reduce your income for this purpose, so even though your gross salary might be 150K, it is not totally out of the question to get down to below 96K MAGI for IRAs.
They make 150k combined, they CAN'T do traditional - no tax break, Roth is the only way they get a tax advantage (on the back end)
It really isn't as simple as 'they make 150K, so they can't do it'. http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits (http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits)
It's also not as simple as 'maybe they are self employed, so use solo401k or sep-ira' - she has not mentioned anywhere that they are self employed, and 401k + HSA aside, they'd have to pay 15k+ a year on health insurance premiums, and if their premiums are that high, they're probably not on a HDHP, so now you're looking at 21k+ a year to get to the cutoff on full tax deduction
That said, I'm assuming that they both have a 401k and they're not self employed, while you're assuming that at least one of them is self employed, so now she has two scenarios to look at to make her decision
That right there is the point - you're close enough it is worth looking into. This article might give you some ideas - they don't all necessarily apply for the IRA purpose, but here's someone who found a way to pay $150 in federal income taxes on $150K gross income. http://rootofgood.com/make-six-figure-income-pay-no-tax/ (http://rootofgood.com/make-six-figure-income-pay-no-tax/)shelters your income from taxes this year - if you're in the 25% federal bracket, and living / working in California (9%ish state income tax there, yes?), and you're gonna invest 11K this year, you can put it in the Roth IRA and have the peace of mind that you'll never pay taxes again on that money. You also get a little more withdrawal flexibility with the Roth. Or you can go traditional and save ~34% of that 11K right now - about $3,740 that you'll save on taxes this year. So that peace of mind / flexibility is expensive. At lower tax rates (i.e. lower incomes), going Traditional does not save nearly as much in taxes - which makes the benefits of the Roth IRA much less expensive. At the extreme low end, the Roth is a no-brainer - if you're paying any more than $0 in taxes, you've got to weigh the taxes saved today vs. the potential taxes saved in the future to make the decision.If you're maxing the Roth then no. You get one bucket of money to share between Roth and Traditional IRAs. At your income, you might want to consider Traditional IRAs (assuming you can deduct the contributions - maxing the 401Ks can help you to qualify there). Sounds like you might be in the 25% bracket, so you're getting into 'saving lots of money at today's rate' territory.Seems you could contribute $35K/yr to your 401k plans, and $11K/yr to Roth IRAs (maybe a little to traditional IRAs, depending on the exact definition of "income is around $150K"). Does anything prevent you from doing so?
Do you take advantage of any company stock discounts?
Others here will likely take you to task for overspending and tell you to invest what you save when you reduce spending. This post is suggesting you "pay yourself first" by maximizing tax-advantaged investments, then adjust spending to fit whatever is left. Same overall advice - follow whichever path suits you better.
Good luck!
Thanks MDM for your inputs, I agree with you 100% that it is the right thing to "pay ourselves first" and up the 401K contribution to max (currently maxing Roth IRA at $11K a year..questions here, if we're doing Roth, we can't do a traditional IRA no?)
Thank you dandarc! can you please explain why doing a traditional IRA might be better in our income range?
Here's the big thing you've gotta realize about taxes in the future though - if you embrace the teachings of this blog / board, you'll lower your expenses a lot and it will then be extremely likely that you will pay much lower taxes in retirement than you are today - so you save taxes today with the traditional IRA, then don't pay taxes (or at least not nearly as much) in the future. Traditional is a better deal for a lot of people - you just have to be sure you can legally deduct the contributions (phase-out of that starts around 96K, I think if you both work and have access to 401Ks). There are a lot of ways to reduce your income for this purpose, so even though your gross salary might be 150K, it is not totally out of the question to get down to below 96K MAGI for IRAs.
Ah, that makes sense about paying a lot in taxes in absolute terms, I gotta do some homework to see if we can qualify for traditional IRA after 401K deductions then.
Thank yoU!
Like everyone else has already said, max both 401k (35k total), then max Roth IRA - another 11k, and then think about maxing an HSA if you guys have a HDHP (6.5k) - that forces you to save a little over 50k, which is likely close to or more than 50% of your after tax income after federal, FICA, and state tax (25+7+9 = 41%) - this means that you're currently about 28k short of that goalThank you for for your detailed advice, really appreciate it. Going to look closer at all these categories, some are work in progress (childcare/gas) and some can probably be implmented right away (food, phone).
To reach it, start cutting from below:
Childcare costs are a little high, any chance you can find an alternative? (Maybe a SAHM friend who can watch your kid for less than 1500 a month?), if you knock it down to even 1k a month that's 6k of the 28k you need to get to
Gas - cut it in half if possible, another 2.5k of the 28k
Grocery/Dining - eat out less, bring lunches, should be able to knock it down to 600 or less, another 2.5k
Phone - Republic Wireless/Ting - knocked down to 50 or less, another 2.5k
Insurance - Get rid of whole life - you might need to provide us with some more details to decide where to keep, but most likely the answer is no, that should save you about 200-300 a month, we'll say 250, which is 3k
The remaining (28-(6+2.5+2.5+2.5+3)=11.5) 11.5k should come from tax savings as you up your before tax contributions to 401k and HSA
Good luck! Keeping a 50% savings rate requires a lot of discipline, which can be hard in a place like California, where money is sometimes treated like toilet paper : )
I don't know where we can/should cut costs from as I feel it's pretty trimmed down.
To spend $7000 a month, you need $2.1 million in investments for a 4% withdrawal rate. My spreadsheet (5% interest) has you hitting that in about 17 years. That means that you're on track to retire at about 49 and 54, pretty darn good. If you can get your spending down to $1783 you can retire today. (All these calculations assume that you didn't include home equity in net worth)This might be a tad optimistic - Starting Balance is $175K or less (depending on how you count the cash), no? Retire today at 4% = 583.00 / month (Actually 7K per year - so they are 1/12th of the way there with current spending, yes?)I don't know where we can/should cut costs from as I feel it's pretty trimmed down.
You can cut pretty much everything. Living in an RV and eating rice and beans with no cell phone or cable really is an option. I doubt it's the one that you'll choose and you don't have to. My one rule is that you have to acknowledge the luxury in your life. I'm guessing that you wouldn't be giving what you are to charity if you didn't know that plenty of people live on less than you, so I won't harp on this.
To spend $7000 a month, you need $2.1 million in investments for a 4% withdrawal rate. My spreadsheet (5% interest) has you hitting that in about 17 years. That means that you're on track to retire at about 49 and 54, pretty darn good. If you can get your spending down to $1783 you can retire today. (All these calculations assume that you didn't include home equity in net worth)This might be a tad optimistic - Starting Balance is $175K or less (depending on how you count the cash), no? Retire today at 4% = 583.00 / month (Actually 7K per year - so they are 1/12th of the way there with current spending, yes?)I don't know where we can/should cut costs from as I feel it's pretty trimmed down.
You can cut pretty much everything. Living in an RV and eating rice and beans with no cell phone or cable really is an option. I doubt it's the one that you'll choose and you don't have to. My one rule is that you have to acknowledge the luxury in your life. I'm guessing that you wouldn't be giving what you are to charity if you didn't know that plenty of people live on less than you, so I won't harp on this.
Ah - you might be getting there where you've had the whole-life so long that it does make sense to keep it. I've heard it usually takes 20+ years before the math works out in favor of keeping, so do the math yourself - if you ask your advisor who sold you the policy and continues to get residual commissions on it, you know what answer you're going to get.$400 / month for term life insurance? Is that right? How much do you have? How long are the terms?Both Term and Whole. Whole was bought by husband about 12 yrs ago while young and naive..we looked into canceling whole and just keeping the term (about $150/mo for $2MM 30 yrs) but our friend (advisor) said it might be worth just keeping it given how long it's been in place and the value it has accumulated).
Recently cut mine from $102 / month down to about $30 for $1 million for me (31/male - in the 'preferred' rating group, so this isn't even the lowest you could get, if you're healthy - Cholesterol ratio bit me in the ass) by recognizing 2 things:
1. We no longer need (possibly never needed) a 30 year term - cut it to 10 years, which is still too long, but much closer to what we actually need.
2. We had bought from the wrong insurer - middle of the road within the rating category for premiums - now we are at the low end.
Any way, there could be some significant savings there.
I just moved to SoCal and found the public transit better than I was led to believe. I don't want to make assumptions, but if you haven't gone to maps.google.com (http://maps.google.com) and found transit directions for you and your husband, you should try. My commute is 3.50 roundtrip or $70-80/mo if I don't bike (I should, but I've been sick). Or if you find out that doesn't work for you, have you considered e.g. a scooter for one of the work commutes? I was thinking about one if we couldn't find housing within biking distance (we did); I've never owned one but they're fun to ride, and the climate here is perfect for them.Thank you galliver and welcome to sunny Socal! Husband started to take the train to work from a nearby train station so it will help with the gas expense :) No transit to my work but it's pretty close from home.
Just throwing some ideas out there for you. :)
I had a lengthy post, and scrapped it when you said you were checking into it. Now I'm not so sure you're actually going to research this - read Root of Good's post - then read it again - there are lots of ways you can reduce your income for this purpose. And keep in mind, the phase-out range is 96K - 116K. If your MAGI is say 106K, you'd have half of the IRA deductions available to you - sheltering $5500 is potentially worth it - you could go half traditional, half Roth. Maxing 2 401Ks alone gets you down into the top of the phase-out range from 150K - wouldn't be able to much with just those, however that should be your starting point.
List of things you might have available to you that can reduce your income for this purpose:
1. 401Ks (obviously) - 2X 17.5K - 35K
1.a - worth looking into would be to create a profit sharing contribution beyond the employer match - some employers allow this, some (most?) don't - if you ask Cheddar Stacker real nice, he can probably tell you the basics of the procedure.
2. 457B (either / both of you government / state university / public school employees? You may have one or two of these available - although your 401Ks would likely be 403Bs in that case. Another possible 2 X 17.5K
3. Pension plan - percentage may be set by your employer, and varies
4. HSA (if you have eligible insurance) - $6500
5. Healthcare FSA - $2500
6. Transit FSA - $250ish / month for parking ($3K / year), another $130ish / month for transportation ($1.5K / year)
7. Dependent Care FSA - $5K per year
8. Tax-loss harvesting - if you've got any stocks / funds that are down, you can sell, then re-invest in other stocks / funds to capture the loss and deduct up to $3K per year. Be careful to do this right.
9. Health / Dental / Vision Insurance premiums - amount varies, but generally premiums deducted from your paystub for these things reduce your taxable income for this purpose.
Anyway, there are many things like these. You may have some / all of these available through your employers. Be careful with FSAs - they are typically 'use it or lose it' deals. HSAs are great because you can keep the money in there even if you don't spend it in the year you contribute.
And if you've read this far - none of this tax optimization stuff is as important as cutting your living expenses. Cutting taxes only helps on one side - you have more to save. Cutting living expenses gives you more to save AND reduces your need forever, so you need to save less to get there.
To spend $7000 a month, you need $2.1 million in investments for a 4% withdrawal rate. My spreadsheet (5% interest) has you hitting that in about 17 years. That means that you're on track to retire at about 49 and 54, pretty darn good. If you can get your spending down to $1783 you can retire today. (All these calculations assume that you didn't include home equity in net worth)I don't know where we can/should cut costs from as I feel it's pretty trimmed down.
You can cut pretty much everything. Living in an RV and eating rice and beans with no cell phone or cable really is an option. I doubt it's the one that you'll choose and you don't have to. My one rule is that you have to acknowledge the luxury in your life. I'm guessing that you wouldn't be giving what you are to charity if you didn't know that plenty of people live on less than you, so I won't harp on this.
To spend $7000 a month, you need $2.1 million in investments for a 4% withdrawal rate. My spreadsheet (5% interest) has you hitting that in about 17 years. That means that you're on track to retire at about 49 and 54, pretty darn good. If you can get your spending down to $1783 you can retire today. (All these calculations assume that you didn't include home equity in net worth)I don't know where we can/should cut costs from as I feel it's pretty trimmed down.
You can cut pretty much everything. Living in an RV and eating rice and beans with no cell phone or cable really is an option. I doubt it's the one that you'll choose and you don't have to. My one rule is that you have to acknowledge the luxury in your life. I'm guessing that you wouldn't be giving what you are to charity if you didn't know that plenty of people live on less than you, so I won't harp on this.
Starting 2015, we'll be maxing out 401k (just one for now as the other doesn't offer much selection)
Starting 2015, we'll be maxing out 401k (just one for now as the other doesn't offer much selection)
See http://jlcollinsnh.com/2013/06/28/stocks-part-viii-b-should-you-avoid-your-companys-401k/, particularly Addendum I. The tax advantage of the 401k over a regular taxable account is substantial, so the fund selection has to be extremely bad for the 401k to be your worse choice. Doesn't mean yours isn't that bad, but worth checking into.
Still think you could handle $35K into 401ks and $11K into Roth IRAs, given $170K gross....
Category | Monthly amt. | Comments | Annual |
Salary/Wages | $14,167 | From recent post | $170,000 |
401(k) / 403(b) / 457(b) / TSP /etc. | $2,917 | At maximum | $35,000 |
Federal Adj. Gross Inc. | $11,250 | $135,000 | |
Federal tax | $1,191 | 2014 rates, item. ded., 3 exemptions | $14,295 |
State/City tax | $619 | Guess, using 5.50% * Fed. AGI | $7,425 |
Soc. Sec. | $878 | Assumes 2 earners paying | $10,540 |
Medicare | $205 | $2,465 | |
Total income taxes | $2,894 | $34,728 | |
Income before other expenses | $8,356 | $100,272 | |
Monthly Expenses: | |||
Mortgage | $1,432 | $17,186 | |
HOA | $168 | Guesses to match | $2,016 |
Property Tax | $1,000 | $2600 in OP | $12,000 |
Cable TV | $100 | Includes utilities? | $1,200 |
Car Insurance | $250 | Includes home | $3,000 |
Charitable contributions | $400 | $4,800 | |
Childcare | $1,500 | $18,000 | |
Fuel/Public Transport | $400 | $4,800 | |
Groceries | $800 | $9,600 | |
Life Insurance | $400 | $4,800 | |
Miscellaneous | $300 | $3,600 | |
Phone (cell) | $250 | $3,000 | |
Non-mortgage total | $5,568 | $66,816 | |
Roth IRA | $917 | $11,000 | |
Total Expense | $7,917 | $95,002 | |
Available for taxable investment: | $439 | $5,270 |