Retirement savings advice

[penguin1986]

My wife and I are both 32 with a kid on the way (due in February) and we are currently living rent free (we live with her parents).  Our joint income before taxes is about $163K.  Our take home every month minus taxes and 403b/401k contributions (15%) is about $7670. 

Currently I have $33,692 in my 403b and $14k in an employee funded pension account where I can control the investments (I work for the state and they fund the account annually at 6.5% of our annual salary, my salary increases on average 2-3% a year, it is currently 75K).  I also have $6560 in a ROTH IRA. 

My wife has 1K in a ROTH IRA, $27K in a 401k.  We also have a joint savings account with $8k in it and an ETRADE account with about 1k in ETF investments (ITOT, IJR, IXUS).

Our monthly expenses are around 2700 per month and we are currently putting 2500 per month into a high yield savings account, 1k per month in IRA contributions, and $400 per month in the ETRADE account.  The high yield savings account is for a future down payment on a house. 

Here are how my accounts are invested at the moment:

ETRADE = 60% ITOT; 30% IJR; 10% IXUS

Fidelity 403b = 28% FSPSX; 25% FSKAX; 16% FXAIX; 15% FSMDX; 8% FPADX; 8% FNBGX

Vanguard Pension Account = 37% VINIX; 30% VWILX; 20% VEXAX; 8% VEXRX; 5% VWIAX

Wife's 401k = 50% GTLOX; 20% VIEIX; 20% VTSNX; 10% DFSTX

So I just want some insight about how we are doing.  We obviously should have more saved up by this age but between our wedding, job situations, and some questionable financial decisions this is where we are at.  We both have very stable jobs and are on a very good path now but I just want to make sure we are investing our money correctly.

Our goal would be to be able to retire at 55.

Thank you. 

[fell-like-rain]

I could use a little math clarification here. You list your monthly outflows as such:

Spending- 2700
House fund- 2500
IRA- 1000
Taxable- 400

That sums to 6600, which is 1000 less than your take-home income of 7600.

Furthermore, I feel like you're missing things from your budget- do you ever buy clothes, for instance, or go to the movies? There isn't any kind of entertainment or shopping listed other than a few specific line items. The vague amounts for food/eating out also make it seem like you're guessing on those and not actually tracking spending. So that's something you need to do- you can't understand how you're doing financially if there's hundreds (thousands?) of dollars of spending out there that's going unnoticed.

Onto the budget itself. You're two people living in free housing and you're still spending 2700 a month. That's ridiculous. Yeah, a lot of it is loans, but you've still got some major fat to trim. That food budget, for instance, is totally nuts- ignoring loan repayment, literally half of your spending right now is on food. You could slash that by half and still be living very comfortably. Same thing with the AT&T bill. You're being robbed blind if you're paying that for a two-person phone plan. And what is that $121 to Apple? Did you buy a laptop on layaway or something?

Re: investments, fund selections look superficially reasonable to me (though that GTLOX is a bit pricey). Other folks would be more qualified to comment on your asset allocation.

Overall, I think you folks could retire a fair bit sooner than 55, if you make some reasonable spending adjustments and don't go house-crazy. But you'd have to get serious about budgeting first.

[penguin1986]

So this budget is very new and I would probably say that the excess 1K is going towards credit card payments from the previous two months and the 1K includes clothing plus entertainment. 

My grocery bill includes food, toiletries, other household necessities.  We also help my in-laws out so that's a contributing factor as well.

The eating out category only includes whenever my wife and I eat out together or individually, it doesn't include entertainment.

I agree I need to do a better job and labeling things individually. 

Also the $121 is an interest free credit card for a MacBook Pro I purchased.  The wife's student loan amount is about 8600, which I could pay off this month if I wanted to and that would eliminate the $274 payment, it's a federal loan with an interest rate of about 6.5%.

Thank and I appreciate any additional feedback, especially on how much we are putting away and our investment choices. 

[fell-like-rain]

especially on how much we are putting away

You're spending 45k a year and saving (including all retirement accounts) about 77k by my math. Naively, your savings rate is thus about 63%, which is quite good- that would let you retire in 11 years or so. However, you're going to have a kid and buy a house soon, which changes things. What is your price range for a house, and what do you expect your PITI to be? When the kid comes, is one of you going to stop working, or do you have other childcare arrangements? How much would those cost? What are you expecting to spend on food, clothes, and other kid stuff?

And then there's all this debt you aren't telling us about- what are the balances and interest rates on those? It's possible that clearing some of those out should be prioritised over the house savings and taxable investments.

Anyways, this all is why I said you need to get serious. You guys make a lot of money- if you get a handle on your finances and stop blowing $1000 a month on food and $1000 on stuff you don't even know about, there's a lot of room in your budget, probably enough for a reasonable house and kids and still retiring quite early. Or you could keep doing what you're doing. Both are valid choices, but it is a choice.

[MDM]

How well do you think Investment Order applies to your situation?

How well does your actual asset allocation match your desired asset allocation?

[soccerluvof4]

i will just say on the spending side 500$ a month for eating out, for Groceries and your At&T bill those 3 seem very high

[nsmall]

I am 39.5 and I just found this site last month so you are already ahead of me.  Learning to live on a tight budget NOW will hopefully program you for living on your own.  Yes homes and children are expense so get on it now.  Good luck to your family.

[Abe]

My advice regarding investments: you have too much of an alphabet soup. Do you have a clear idea of what your risk tolerance is and what asset allocation you want? If not, review https://www.bogleheads.org/wiki/Asset_allocation
 
There's probably a lot of overlap and you'd have more clarity on what you're invested in with fewer funds. I presume you're invested in a lot of different funds to mitigate risk, but when you're at these <10% ranges that value is minimal. There are tools online to analyze overlaps in investments: https://www.bogleheads.org/forum/viewtopic.php?f=1&t=150267

The bigger issue are fund expenses. Luckily most of your funds are low expense ratio, so it's not that big a deal. However, GTLOX has an astronomically high expense ratio of 0.86%, and you all need to change into a comparable Vanguard fund with lower expense.

Regarding budget items:
What is "Apple" for?
Your grocery expenses are too high, as others have noted.
You have limited flexibility for childcare expenses, and need to make room for those!

[penguin1986]

I bought a macbook pro with an apple credit card that has 0 interest for a year, so that's the monthly payment on it.

My grocery expenses include everything (paper towels, food, toilet paper, deodorant, and stuff to help my in-laws out with).

My mother in law is going to take care of our kid while we work, I expect that to cost us about 1400 per month but that won't be an issue until September of 2019 because of all the parental leave I get at work (@ full pay).

My risk tolerance is whatever it needs to be --- the bottom line is I want to be able to retire at 55 years old.  The goal is to buy a home in 4 years in the range of 450-500 with 25% down.  It's going to have to be a 30 year mortgage so you figure at the age of 55 I'll be entering the last 10 years of payments.

I'm open to specific investment ideas ... thank you everyone!

[MDM]

I'm open to specific investment ideas ... thank you everyone!

Perhaps some form of a three-fund portfolio?

[Abe]

You’re young enough that you can be weighted mostly towards stocks. Invest in vanguard’s stock index fund (VTSAX) and bond index fund VBTLX. You can divide some of the stock allocation into international equity (VTIAX) but it isn’t that much different than vtsax. Same idea for fidelity. We’re the same age and have same retirement goal age. My wife and I are 80/20 VTSAX and VBTLX.