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 Post subject: Starting Late / Goal Finish Strong
PostPosted: Sun Jan 23, 2011 10:36 am 

Joined: Mon Dec 03, 2007 1:14 pm
Posts: 48
Personal Finance Worksheet

I, at the advice of some forum members are going to keep everyone update, (I am sure you all care. :D ) of our progress.

We (my wife (49)and I (50)) getting a very, very late start to reach the land of critical mass. We have not saved for emergency fund or retirement much at all. We have paid off a mountain of debt to get where we are now. Where is that you ask, I heard you asking. Listed below is a brief summary.

Combined Income $70k
Debts:
PNC Mortgage = $111,470 (6% interest)
Sallie Mae Student Loan = $4384 (9% interest)

Investments/Savings
Fidelity MMA = $166
Fidelity Roth IRA = $340

Yes, like I said we are so far behind it isn't believable. However, after many years of making mistakes we are both focused on reaching the finish line in good shape. Good for me I run marathons and know that it is a long race not a sprint.

Neither of us have any work related retirement plans. She is self employed and my company doesn't offer any.

So, there are the basics. Please feel free to post comments and suggestions.

One question I have is should I just dump the IRA and MMA and open a true online savings account at Ally Bank. Some have suggested that I should concentrate on savings and paying off both the mortgage and student loan before any retirement savings? That does make sense given our age.


Last edited by dalekeener on Sun Jan 23, 2011 2:37 pm, edited 1 time in total.

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 Post subject: Re: Starting Late / Goal Finish Strong
PostPosted: Sun Jan 23, 2011 12:33 pm 

Joined: Wed Oct 07, 2009 4:16 pm
Posts: 961
What's your plan? How do you intend to allocate what you have available to save? You gotta give us a bit more.

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 Post subject: Re: Starting Late / Goal Finish Strong
PostPosted: Sun Jan 23, 2011 2:02 pm 

Joined: Tue Jan 11, 2011 3:43 am
Posts: 31
What are the interest rates on the debts?


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 Post subject: Re: Starting Late / Goal Finish Strong
PostPosted: Sun Jan 23, 2011 2:41 pm 

Joined: Mon Dec 03, 2007 1:14 pm
Posts: 48
I guess I was a bit vague. I updated with the interest rates. I have about $1k-2k extra each month to put towards the debts.

Goal is to have the student loan paid off by March.

Would it be wise at that point to save/invest the additional money or put it towards the mortgage?

With no other debts I would have nearly 2k extra each month.


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 Post subject: Re: Starting Late / Goal Finish Strong
PostPosted: Mon Jan 24, 2011 6:06 am 

Joined: Mon Feb 04, 2008 7:35 am
Posts: 1148
Location: Maryland
I'm glad you posted over here. I saw your initial post and saw that someone suggested it. We're much more reasonable with our ideas on this side of town (HA!!HA!!) .

Have you considered refinancing your mortgage? 6% is really high considering the rates dropped down to 3.5 or 4%. Did you think about doing that, or is there some reason why you have such a high rate (bad credit scores, etc..)?

If I were you, I would pay down the student loan, and focus on your retirement. You and your wife can still put money in a 2010 Roth until April 15, and then start maxing out your Roth for 2011.

Out of curiosity, did you not save for retirement because it wasn't offered at your work, or you never thought about it EVEN THOUGH everyone and their mother talks about saving for retirement? I am interested in the mindset of those that don't save for the future. Do you have kids?

On what are you currently spending your retirement money?


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 Post subject: Re: Starting Late / Goal Finish Strong
PostPosted: Mon Jan 24, 2011 6:44 am 

Joined: Tue Mar 11, 2008 12:19 pm
Posts: 1780
Location: Ottawa, Canada
Just to repeat what I said in the other thread, I would build up a 3 month emergency fund, then focus on paying off the debt, including the mortgage.

My reasoning for focusing on the debt instead of saving is because he cannot afford to carry that mortgage into retirement - he needs to eliminate that monthly expense. And given the relatively short time horizon, he doesn't really have enough time for investment return compounding to have much of an effect.

Paying down the debt, on the other hand, will give him an immediate investment return effectively equal to the interest rate of the loans being paid off.

Finally, we're only getting half the story here. Dale, why not post your monthly budget and see if there's any fat that can be trimmed from your monthly spending, to speed things up a little?


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 Post subject: Re: Starting Late / Goal Finish Strong
PostPosted: Mon Jan 24, 2011 10:48 am 

Joined: Fri May 04, 2007 8:14 pm
Posts: 1960
dalekeener wrote:
I guess I was a bit vague.

Still too vague.

Right now, you're between a rock and a hard place. In order to maximize your potential gains, you'll have to take on relatively high risk. But on the other hand, your age suggests that your time horizon is relatively short, so there's a definitely limit to the risk you can afford to take. If the markets should turn against you, you don't have a lot of time to make up those short term losses. No doubt you know this already, but that whole risk/reward relationship has to be emphasized so that you can make intelligent choices.

What you need to do is to determine your risk profile. And to determine that, you probably need to figure out how much risk you're already carrying. So answer for yourself the following questions:

    How long to you intend to work before you retire?
    After retirement, will you still work part time to supplement your income?
    What is the state of your health?
    Do you have health insurance?
    Do you have (hopefully term) life insurance? If so, is it enough to pay off the house if something should happen to you?
    Do you have disability insurance?

The answers to those questions should help determine how much additional risk you can afford to take on, and that in turn should help you determine where your money should go. In order to figure out where you should go, you need to figure out where you are first.


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 Post subject: Re: Starting Late / Goal Finish Strong
PostPosted: Mon Jan 24, 2011 12:52 pm 

Joined: Mon Dec 03, 2007 1:14 pm
Posts: 48
VinTek wrote:
dalekeener wrote:
I guess I was a bit vague.

Still too vague.

Right now, you're between a rock and a hard place. In order to maximize your potential gains, you'll have to take on relatively high risk. But on the other hand, your age suggests that your time horizon is relatively short, so there's a definitely limit to the risk you can afford to take. If the markets should turn against you, you don't have a lot of time to make up those short term losses. No doubt you know this already, but that whole risk/reward relationship has to be emphasized so that you can make intelligent choices.

What you need to do is to determine your risk profile. And to determine that, you probably need to figure out how much risk you're already carrying. So answer for yourself the following questions:

    How long to you intend to work before you retire?
    After retirement, will you still work part time to supplement your income?
    What is the state of your health?
    Do you have health insurance?
    Do you have (hopefully term) life insurance? If so, is it enough to pay off the house if something should happen to you?
    Do you have disability insurance?

The answers to those questions should help determine how much additional risk you can afford to take on, and that in turn should help you determine where your money should go. In order to figure out where you should go, you need to figure out where you are first.



How long to you intend to work before you retire? = 67 (more than likely)
After retirement, will you still work part time to supplement your income? = part time
What is the state of your health? = great
Do you have health insurance? = Yes
Do you have (hopefully term) life insurance? If so, is it enough to pay off the house if something should happen to you? Term = 350k
Do you have disability insurance? = no.


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 Post subject: Re: Starting Late / Goal Finish Strong
PostPosted: Mon Jan 24, 2011 3:35 pm 

Joined: Fri May 04, 2007 8:14 pm
Posts: 1960
dalekeener wrote:
How long to you intend to work before you retire? = 67 (more than likely)
After retirement, will you still work part time to supplement your income? = part time
What is the state of your health? = great
Do you have health insurance? = Yes
Do you have (hopefully term) life insurance? If so, is it enough to pay off the house if something should happen to you? Term = 350k
Do you have disability insurance? = no.


Okay then. Your risk is relatively low with regard to what's going on in your life. You have a time horizon of about 17 years, you intend to have some form of continued income after retirement (it would be nice if your wife intended to do some part time work after retirement as well) and you're covered if something should happen to you if you got sick or worse. The disability thing is a gamble in that you're assuming that you'll be able to work until your planned retirement. That's part of your risk profile though.

As others have suggested, I'd start by building an emergency fund. One or a series of emergencies can put you back into the weeds, so having that fund is good for both peace of mind and from a pure financial standpoint.

Second, I echo the suggestion that you should pay off the student debt. Paying it off is a guaranteed return of 9%. Can't pretend that there are a lot of investments that guarantee that much.

How much longer do you have to pay off your mortgage? I agree with the idea that you shouldn't carry that debt into retirement, but on the other hand, the interest is tax-deductible, so it's net cost isn't really as high as 6%. I'd stay with the current program right now, diverting money toward retirement savings so you get get at least some of the time factor working for you. Put your money into a Roth IRA so that your interest paid is tax-deductible, but your earnings are tax free. You can elect to accelerate your mortgage payments later, when they'll be covering more principal and less interest. The tax benefit will be less at that point, so you might as well pay it off. Or you could just continue working to pay it all off by the time you retire and continue growing your savings instead. Your call.

The one thing left that you have to figure out is what your risk tolerance is. This, along with your time horizon, will determine your asset allocation (how much in stocks, how much in bonds, how much in savings vehicles like CDs, etc.). Rather than tell you what to buy, I strongly recommend that you read http://transparentinvesting.com/uploads/wholestory.pdf then determine for yourself what works best for you. It does a very nice job of explaining risk/reward, and it plays into your time horizon and risk tolerance. Then come back and ask more questions if you feel the need.


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 Post subject: Re: Starting Late / Goal Finish Strong
PostPosted: Mon Jan 24, 2011 3:36 pm 

Joined: Fri May 04, 2007 8:14 pm
Posts: 1960
I had to break my reply up into 2 posts because I'm allowed only 1 URL per post for some reason.

If you like what you do, I'd also consider working a bit longer, especially if you like your job. People are living longer and are healthier in their advanced years than they've ever been before. 2 benefits of working longer are that (1) you've got a longer time to build your nest egg (which also allows for taking on more risk) and (2) your Social Security benefits can grow considerably if you put off starting those benefits. Check out the http://www.ssa.gov/planners/benefitcalculators.htm on the Social Security Web site.


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