I'm not sure my actual question is actually worth an entire write up, so you can skip the the
QUESTION at the bottom. Bolded for easy finding.
Life Situation:We are a married couple, living in Washington state, in our late twenties. I'm joining a new school district for my second year of teaching; since we moved for my job, my partner doesn't have a job yet. No dependents or children, though we would like to foster older kids/teens in the near-ish future.
Gross Salary/Wages: $46k, plus optional days brings it to ~$51k. (more once my partner gets a job)
Pre-tax deductions: None, at this point, that's what the post is about!
Taxes: Income tax: ~$7k (estimate)
Current expenses, by month:Rent: $950
Union Dues: $100
Health Insurance: $344
Retirement: $?
Water/Garbage: $120? (Just moved, so don't know our average yet)
Electricity: $120? (Just moved, so don't know our average yet)
Cellphones: $80
School Loan: $490
Gym/hobbies/health: $300 (yes, this is a lot, but it's also very important to both of us. More detail would reduce my anonymity greatly, which I'm not comfortable with.)
Food: $200-300
Pets: <$30
Household stuff: $100 (we haven't furnished the house yet, so this is inflated)
Transport: $45 (we don't have a car, but our bikes need some repair so this will probably be larger in September. Plus we use the bus sometimes)
Left over: ~$690.
Assets:~5k inheritance sitting in a mutual fund(? It's not mine, so I never really found out the details, but I do know that if we need it, we can spend it)
~5k retirement from last year.
Liabilities:Educational loan: 40k from 2015, interest rate ~5% (actually 5.1% on half, and 5.9% on the other). Payments are about $490 as stated above. Current balance is ~38k. I want to pay this off. Quickly.
Specific Question(s):Background to question:
I'm trying to figure out my retirement allocations vs educational loan repayment. I have access to a 401a, a 403b, and a DCP.
For the 401a, there is no employer match, it's instead a combination of a defined benefit and we're required to put in between 5% and 15% of our income. We are only allowed to pick our percentage once. Because of this, I think it may be best to simply do the 5% minimum so that I can dump more of my money into my loans until they are paid off. Additionally, the paperwork the district provides is incomplete, doesn't talk about fees, and I'm going to have to call them to figure that out, which I will soon.
For the 403b, there are certain providers I have to pick from, which can be found here:
http://osd.wednet.edu/media/osd/payroll/2016%20Authorized%20Investment%20Providers%20403b.pdf. This one I can choose to enroll in now, or later, and can change the amount I put in when ever I'd like.
We also have a DCP (457 plan), which I ignored at first, because it had a fancy handout, and my instinct is that if someone is trying to sell me something, they're probably making money off of me. Anyway, it's a 457. We again can choose, and I saw fee rates from .02% to .2%. This again seems to be something that I can enroll in when I want, and change how much I'm contributing.
ACTUAL QUESTION:- Right now, my thinking is that given the high interest rates (5.1% on about 20k and 5.9% 17k)(this is a hair-on-fire debt emergency, is it not?) on the school loans, I should just do the minimum 5% on the 401a, and put off the 403b and 457 plans until I've paid off the loan, and put as much as I can into the loan. I hate that they won't let me change the % contribution for the 401a, but given the high interest debt I don't believe that it's reasonable to be putting money into investments rather than my debt.
Everything I've read said to pay off loans first if their interest rates were >5%, and both of mine are, but to do that, I'm stuck with the 5% of income withdrawal for my 401a
forever, which seems really awful/stupid. Can some one just tell me that yes, I should do the minimum and pay off the loans as quickly as possible, and once that's done put the near third of my take home pay into various investment vehicles. Or, conversely, no, and why?
Additional questions/thoughts:
- Once the loans are finished, it seems like the next step is to increase our savings from 5k to 18k, and after that, I can start thinking about the 403b vs the 457. Although honestly I think I'm ok with a smaller emergency fund than that, but they did say 6 months of expenses...
- Meanwhile, I need to decide how to allocate the 5% I am putting into the 401a. That I'm confident I can figure out on my own.
- Once hubby gets a job, the plan is to put at least 50% of his money into savings, if not closer to 100%. But he probably won't be making as much as me for another few years.