Easy retirement savings question

[american_mama]

I have been getting much more active about retirement savings in the last few months and am consistently hearing that you should save 10-15% for retirement. Is that including whatever your employer is contributing, or is that on top? DH has a generous retirement plan which contributes 10.2% of his salary, so does that mean just via his employer contributions, we're following best financial practices? We contribute even a little over that to get the employer match, and we contribute the annual max to my Roth IRA.

Should we be contributing more to retirement? I mean, if money grew on trees, of course we'd contribute more, but since it doesn't, we're trying to say whether we should use our money for more retirement savings or move on to other financial goals, like college savings or advanced payment of our second mortgage, which has a somewhat high interest rate.

[BeachBum]

IMO, rules of thumb are just that. Most people do not have such a generous employment plan. I think the rule means 10% of take home pay...
I personally think that I would spend additional $ paying down the high 2nd mortgage.

[MoJo]

I agree with BeachBum. You are already saving far more than most people for retirement, because very few employers offer that level of match any more.

Good job!

[KrisM]

Personally, I save 15% of MY money and ignore the employer match. This allows us to not only save more, but to be comfortable living on 85% of the pay. If you only put away 5% to get to the 15, you'll be used to living on 95% of what you make and the retirement savings will not last as long, since you'll be pulling more money out.

I'd probably do something in the middle and put in 5-10 of my money while paying the second mortgage at the same time, if it's possible.

ETA: It depends on your age, too. We are 40. I am very, very thankful we both put away 15% of our income in our 20s before being married. We cut back our contributions for a couple years, but those early years have made us a HUGE amount of movey at this point.

[egoldber]

I really don't think it is possible to save too much. But I would not do it at the expense of other debt (credit card, student loans, etc.).

As for paying off the second mortgage, if that is at a high interest rate, I would consider paying that down first. Are you eligible to refinance to get rid of the second?

[emily]

I agree with Kris and ignore the employer match. Are you maxing out your retirement contribution?

A few other things to consider. What is interest on the second mortgage after taxes? Don't forget that the mortgage interest is tax deductible. Also, your children can borrow for college but you can not borrow to retire.

[blisstwins]

We are very aggresive in terms of retirement savings. I put in 5% and my employer matches with 8%. On top of that I contribute the maximum allowed into the supplemental account (16K, I think). I am of the mind that if you don't see it you don't miss it and the only thing worse that not having enough money is being old and not having enough money.

[wellyes]

We both do 401k to employer match plus max out our IRAs annually ( I think 5000 each?)

Whether 10% is enough depends on his salary, your other savings, your expected cost of living etc. Do an online calculator to get a better sense of how you,re doing, is my advice.

[kbud]

My DHs employer also matches 10% total, 5% match and 5% yearly bonus into his 401K regardless of profits. For right now we are only doing 5% of my dhs income but w/the match 15% total. We too have a second mortgage we desperately want to get paid off early so that's why we are only doing 5% but the match makes it awesome. When we get the 2nd mortgage paid off in a few years hopefully we may up our %.

[american_mama]

The 10% is not a match. We contribute some on our own to get the very small match on top of the 10%, but even if we did nothing, DH would have the 10%.

So, are some people suggesting we ignore that 10% and save 15% (or generically "more") of our income specifically for retirement, meaning our family would be saving 25% of our income towards retirement? That seems like a very high standard that would get in the way of other financial goals like college savings, paying down debt (2nd mortgage and student loan), and savings without the restrictions of a retirement account.

It feels a little blind to say we are ok on the retirement savings front, because I agree, it's hard to save too much. And the 10% contribution relies on the employer - if they changed the terms, or if DH changed jobs, we'd have to do more on our own to stay on track. But, the here and now is that the 10% is guaranteed and DH is secure and happy in his job. The reality is that retirement savings are in competition with all our other financial goals and I'm trying to figure out the balance.

I am looking into refinancing,but right now, the second mortgage is preventing us from having enough equity to refinance for many lenders. Hence me thinking that putting money towards paying that down is pretty important.

[american_mama]

>> We are very aggresive in terms of retirement savings. I put in 5% and my employer matches with 8%. On 'top of that I contribute the maximum allowed into the supplemental account (16K, I think)."

That is amazing. So, you alone are saving the equivalent of 13% of your income, plus $16,500 every year? Does your husband do something similar? Are you able to achieve other financial goals with that high retirement savings rate? I am trying to figure out the balance, and am not sure if for us, I want retirement savings to outweigh other financial goals. But it feels like financial heresy to say that.

[egoldber]

It sounds like paying off the second should be a primary goal.

But I don't think you can "count" the employer 10% as your savings, IYKWIM. If it were *me*, I would just not factor that in and consider it a bonus. I would strive to save 10% (through some combination of means, 401K, IRAs, etc.) and then work to pay down the second. I am assuming that even if you pay off the second you'll have enough interest from the first mortage that you'll still qualify for the mortgage interest deduction.

Now, in terms of balancing student loan repayment vs. the second, I don't know enough about the tax advantages (if any) of paying off one vs. the other.

But for me, those three things (retirement, the second and student loans) would take priority over college savings. As a PP said, you can borrow later to pay for college. And there are various ways to borrow, not just traditional student loans.

[marymoo86]

I am looking into refinancing,but right now, the second mortgage is preventing us from having enough equity to refinance for many lenders. Hence me thinking that putting money towards paying that down is pretty important.

What about looking to refinance just the 2nd mortgage instead of rolling into a new first? Not sure how much you owe but you get get a HELOC for pretty cheap or even a 10y HEL and concentrate on paying that off before prime rates go up significantly

[KrisM]

It depends on so much. If you are used to living on 90% of pay, then you'll need more per year when you retire, unless your standard of living goes down. I'd think most people plan to do things like travel, which means you'll have expenses up there, still.

It also depends on your goals for how much money you hope to have. Do you want to live off only interest payments and keep the principal the same, leaving your kids with a good amount later? Or, do you want to use part of the principal with the hope you run out of money the day after you die :). Clearly, if you want to leave a lot for your kids, you need to invest more now.

Will you have paid off your house entirely before you retire? If so, your expenses will decrease when that happens. Our house will be paid for in about 5 years and I plan on using the money freed up by that to pay for college. DS1 will only be 12 when we pay off the house, so we have 6 years to save that cash.

I think paying off debt, like student loans and the second are good priorities. Paying off the first mortgage can be done later. As for saving money by not paying off mortgages, remember you only save the part that's over the standard deduction and only a percentage. If your property taxes, state taxes, donations and other deductions equal only $8000 and you pay $5000 in mortgage interest, only $13,000-$11,400 = $1,600 is helping you with a deduction of 15-28%. You'd get the $11,400 regardless of whether you pay any interest or not. Spending $5000 to save $548 is not the best return :).

[blisstwins]

That is amazing. So, you alone are saving the equivalent of 13% of your income, plus $16,500 every year? Does your husband do something similar? Are you able to achieve other financial goals with that high retirement savings rate? I am trying to figure out the balance, and am not sure if for us, I want retirement savings to outweigh other financial goals. But it feels like financial heresy to say that.


Yes. We are saving a lot. We have an unusual/good situation. We started out our marriage and raising children while my husband was in fellowship and I was in graduate school so we got used to living without a lot that our peers have (no cleaning lady, modest car, smallish apartment). Then I went back to work and my husband's income increased dramatically so it was easy to enjoy the increase in income from that, but save a lot because we have never had that kind of income. We just never added in the perks that our peers did and that is fine by us. We were in school until our 30s so I feel behind in retirements savings. I am actually a terrible financial manager so I can only save if I do not see it. We do retirements savings, college savings, and then have a little taken out for ING. So I do not feel terrible guilty about how I spend our monthly income because I know I have "paid myself first." We have student loans, but they are less than 3% so with the tax savings of deferred comp I am OK with saving first and paying that debt over time.

I should add that retirement and college are monumentally important for us. I want to be the grandma who takes her grandkids to Europe, I want to travel, I want to have freedome when we are done. I have several relatives who are close to 70 and still working and really need to work. I think that is a scary place to be.