On May 7, 10:43 am, Bill Woessner <woess...@[EMAIL PROTECTED]
> wrote:
> My wife and I have about $95K in retirement accounts (we're 29 and
> 30). That includes a mix of 401k, Roth and traditional IRA. But our
> after-tax savings are pretty small in comparison. Between checking
> and savings, we have $23K, $13K of which is about to go toward closing
> costs on the new house we're building ($20K has already been put
> toward various deposits). Needless to say, we have to rebuild our
> savings after closing.
>
> What sort of balance do you all suggest for balancing retirement and
> non-retirement savings?
>
> Another consideration: Large purchases. Certainly the new house
> qualifies, but what about things like a new car? My wife's car is 4
> years old. It runs perfectly and doesn't have any problems. However,
> I suspect she'll be interested in getting a new car in, say, 2-4
> years. When that time comes, I'd prefer to pay cash for the car
> instead of having a car payment. Of course, that money will have to
> come from non-retirement savings. How do you strike that balance?
95k at age 30 is good for retirement, but far from excellent or more
than needed. That 95k is only 4k in income in retirement (4% withdraw
rate). If you make more than 4k per year, you need to have more saved
to retire.
Here are the guidelines I think you asked for (which I used for my
family):
1) save 10% of gross pay for retirement to 401k
2) max out Roths (for wife and me).
3) keep 3 months expenses in a cash account
4) keep 3 months expenses in a mid term investment
5) contribute to HSA enough to cover estimated yearly medical
expenses.
3 and 4 defy some convention- here is my logic:
6 months expenses are suggested in cash. This is to cover
emergencies. I have a hard time watching 6 months expenses (25k+ for
me) earning 2-4%.
So I took a 3 and 3 approach.
3 months expenses in 90 day CDs (laddered to mature every 30 days)
3 months expenses in a moderate mutual fund (I use PRPFX).
I am working on a new household budget. That budget will add to
PRPFX. $500/month for car. $20/month for new roof for house ($5000
every 20 years), $10/month for new hot water heater ($2500 every 10
years). Any money I would use to pay down mortgage (5.75%) will be
added to this same account. Money for kids education gets added to
this same account.
The account is liquid, grows faster than cash (7% yearly return
expected), grows faster than inflation, has little risk (it invests in
4-5 asset classes with low correlation to each other), and can be used
for many reasons.
The tough part in your situation is that when you start, you need
everything (3 months expenses, money for new car, maybe house
repairs). But once you get the system implemented for around 2 years,
it will have more than enough liquid cash to fund current expenses.
Of course if I knew when my hot water heater would go, I would stop
contributions for a month or two or six, then use the cash to get a
new one.
The idea is to have money grow while I wait for something bad to
happen.
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