Input on financial situation-if you don't mind

[Bertie]

Hello everyone. I'm brand new to this forum and have some very basic questions. I'll start by laying out my financial position and then ask some questions. Also note that I am most definitely not a mustachian and don't aspire to be.  I like comfort (not necessarily luxury), hate diy, will use a car nearly every day until I am dead, and plan to stay in my current job until I retire.  However, this is a really active board I would really value the input and advice of the people on this forum. 

Age and situation: 41 and my wife is 33. No kids and don't plan to have any, but it could happen. I plan to retire at age 57 which is the earliest I can get a full retirement (I work for a federal agency).

Monthly cash flow-net positive of about $1100 once all expenses are paid including maxing out my 401k at work

Debts-about $18k balance on student loan (interest rate is 2% and payment is $225 per month), own two cars outright with no payments, we rent so no mortgage payment, we use credit cards but always pay them in full every month

Assets-401k balance is about $170k right now, my wife has a Roth IRA that is maxed out every tax year with a current balance of a little over $11k, we also have $110k in a money market account from the sale of our house earlier in the year.

Other-We do not intend to buy another house and plan to be long term renters. We got very lucky with the timing of the house we just sold. We bought at the bottom of the housing crash and sold in a sellers market as things were recovering. We made a lot of money, but this wouldn't happen again and the expense and effort of owning and maintaining a home was not something we enjoyed. We like the freedom and flexibility of renting.

So..plans and some questions: We want to retire when I am 57 (16 years from now) and never have to work again and have a very comfortable life. I will have a pension of about $33k a year plus whatever investments we can accumulate. Calculators say that if I continue to max out my 401k until retirement the balance will be between $850k and $950k depending on market performance. If we keep maxing out my wife's Roth IRA until she is able to retire that should be a little over $100k. I guess the main question is what to do with the money we made from our house and our positive monthly cash flow? How should that be invested? We considered paying off my student loan, but since the rate is so low and the payment doesn't hamper us any it would probably be better off invested. I like to keep things very simple. I was thinking of maxing out a Roth IRA for myself and then opening a Vanguard Index fund and putting $40-50k in that. I like keeping a large balance in savings for unexpected expenses and paying cash for cars and taking trips. Maybe keep $60k in money market and when it climbs much above that either take a trip or put more into the index fund.

Does this sound like a sensible plan? Would my pension plus maybe $1.2M in investments be enough to live on comfortably for 30 plus years?

Sorry for writing a novel. Thanks for reading and thanks for any advice

[mskyle]

You didn't give us any information about your expenses. No one can give you any advice on whether your proposed investment is enough to retire on without knowing what your expenses are! If your expenses are $30K a year, then a portfolio of 1.2M on top of a $33K pension is way overkill. If you're spending $150K a year, it's not nearly enough.

Even if you don't want to do a full "case study" you have to include some information about your expenses if you want useful answers. 

[Caymanite]

Sounds like you have a handle on your shit!  The piece of information missing is your expected expenses in retirement.  MMM and many others on this board would be exceedingly happy to retire with ONLY a pension of $33k a year.  Total income from the $1.2m plus pension based on 3%, 4% and 5% withdrawal rates would be $5,750; $6,750 and $7,750.  It sounds like any of those amounts will allow you to live how you want while still saving each year (for emergencies, new cars, etc.) without having to touch the principal.  Again, it is all about your expenses in retirement as it seems you have the savings and investments handled.

As for the cash you have, if you are keen to use the stock market the Vanguard index fund sounds like the best option.  We have quite a bit in taxable accounts as well.  It affects your overall return but there isn't much you can do if the desire is to keep it simple.

Hope that helps!

[Bertie]

Thanks folks! I've never thought of calculating yearly expenses. I usually think of monthly cash flow as the standard.  We could probably adjust our expenses to meet any income level and still be comfortable.

Guess I'm just not sure what to do with all the cash from the sale of the house since we won't need it for down payment.  An index fund was what first came to mind.  Any other suggestions? 

[runningthroughFIRE]

Do the same thing with this windfall of yours as you would with any other investment.  Getting a large lump sum of money isn't a good reason to change your inestment allocation; if what you are invested in works then stick with it.  I argue for putting the funds into something simple like VTSAX, and if you want to get a bit more diverse than every stock in the US public market, allocate some of it to VBTLX for bonds and/or VTIAX for international exposure.

There's a few people here who pick individual stocks, but if you want simplicity and don't want to put the effort in to doing your own analysis, stay far far away from that.

[Slow&Steady]

Since you are not a MMM person, have you considered looking into the Bogleheads Investing forum. I think that is exactly the information you are looking for.

[Bertie]

FIRE...definitely not into doing all the research necessary to trade individual stocks.  It will most likely be a Vanguard mutual fund.  I like the idea of putting some money in VSTAX and VBTLX.  Thanks!

Nicole...thanks for the recommendation.  I'll check it out.  I'm new to the world of personal finance forums. 

[Catbert]

What's your TSP invested in?  Remember that 170K and how it is invested when figuring your overall asset allocation.

Personally I don't invest in the C Fund (S&P 550) because an S&P500 mutual fund is easily and cheaply found at Vanguard and elsewhere.  Whatever International exposure you want is good to do in TSP.  Costs are lower than commercial international mutual funds assuming you could find something as broad at the I Fund.  (Please note I'm not recommending you put all 170K into I Fund, just whatever allocation you want in international.  By comparison I have about 15% international in my overall portfolio.)

[neo von retorch]

Let's say your expenses (in retirement) are $3000 / month ($36k / year) including all taxes.

Let's assume your pension is $1000 / month ($12k / year) net income after taxes.

Disregarding social security, you would need $2000 * 12 * 25 = $600k in invested assets upon retirement (needs adjusted for inflation)

The point being - you need to consider your pension income and your expenses. (It's less important that you calculate it yearly or monthly as long as you're consistent!)

[Bertie]

Mary...I'm in one of the lifecycle funds L2030. I figured my mix right now...it's 46% stocks, 35% bonds, and 19% int'l spread across my TSP and the Vanguard Roth in VBIAX.  With 16 years to go until retirement does this seem like a reasonable mix?  What should it move towards at retirement age...80/20 bonds to stocks?  This allocation stuff makes my brain hurt.  I'm definitely a set it and forget it sort.  I hate thinking about this stuff, but I want to do all I can now to set up a long and comfortable retirement. 

[Catbert]

The lifecycle funds are aimed at the set it and forget it crowd.  Nothing necessarily wrong with that - especially if it keeps you from panicing when the market gets bad.  When you decide where to put your IRA and taxable accounts you do need to keep in mind where you money is in TSP. 

I'm in my 60s and have been retired from the Fed for 8 years.  My portfolio is more aggressive than yours.  Aggressive enough that my Fidelity Rep always hyperventilates when we occasionally meet.  For me, my pension provides enough money to live comfortably.  My portfolio is for extras so I can afford to be aggressive.  Also market turn downs in 2000 and 2008 didn't both me so I know I won't panic and   YMMV.

[Bertie]

Thanks again, Mary.  I'll just find a couple of funds I'm comfortable with and put some money in them. I'm probably overcomplicating things.  I think a good approach for me would be to just have each fund I buy be balanced within itself.  I don't have the patience or inclination to track things and worry about allocations every year and all that stuff. I'm really good with budgeting but talking about investing makes my eyes glaze over.  I find it more of a necessary evil than something I'm interested in.  I'm sure this will cost me some gains, but whatever. 

[fattest_foot]

Mary...I'm in one of the lifecycle funds L2030. I figured my mix right now...it's 46% stocks, 35% bonds, and 19% int'l spread across my TSP and the Vanguard Roth in VBIAX.  With 16 years to go until retirement does this seem like a reasonable mix?  What should it move towards at retirement age...80/20 bonds to stocks?  This allocation stuff makes my brain hurt.  I'm definitely a set it and forget it sort.  I hate thinking about this stuff, but I want to do all I can now to set up a long and comfortable retirement.

Please...no.

That's WAY too conservative, probably for anyone. You should check out the Stock Series by JLCollins. You don't even have to read all of it, just read as many as you can.

[aceyou]

Bertie, you seem a little more like an MMM'er than you claim to be:)  Congrats on having your act together.  If it were me I'd put it all into VTSAX and click to reinvest the dividends, then just keep plugging along like the sale of the house never happened.  you say you were living comfortably financially before you got the windfall, plus you have $1100 dollars already that you don't need coming in each month, so I don't see why you need to stash any of it aside in cash.  If you really need it you can always pull a little out of VTSAX, but I doubt you ever will.  Oh, and I'd second reading through the JL Collins Stock Series.  That's one area where Collin's writing exceeds MMM, but overall I think MMM is gold.  But again, you've got your act together, so you're life will keep rollin along fine regardless of what you do with this:)  Good luck!

[Seppia]

The lifecycle funds are great for anybody who doesn't want to think too much.
They do a very reasonable asset allocation for you.
I would just continue to throw the money at it, the benefits greatly outweigh the cons.

Benefits:
- they do the work for you
- it's a good asset allocation
- they change the asset allocation throughout the years to match it to a theoretical ideal for your age
- it's only one fund!
- it rebalances automatically.

Cons
- maybe a bit conservative