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 Post subject: convincing my wife to invest more...
PostPosted: Mon Mar 18, 2013 8:40 am 

Joined: Tue Jan 01, 2008 4:25 pm
Posts: 110
Location: Boston, Ma
Hi all -

I've been maxing my 401k for a few years now and my wife who is a teacher contributes 11% to her pension fund. I was looking into further investing and came across the backdoor roth (our income is too high for traditional). I'd like to do this, but am having a bit of trouble convincing my wife. She wants to save, but also is interested in a home renovation in a few years. So by adding the backdoor to our investment mix, for the next four years, we'd have an additional $40k+ in our retirement accounts, but have $40k less cash saved for a home renovation. We'd still be saving, but this certainly would have an impact on our rate. Right now we don't have investments outside my 401k and previous Roth IRA. The rest is in cash or equity in our house (~20%). In my mind, until we have maxed out all tax sheltered retirement investments, we shouldn't be investing otherwise (or saving too much cash for a renovation). Just curious what your thoughts are. Our income this year will be around $200k. So a 401k is only saving about 9% of our income specifically for retirement. I don't really know how to factor in her pension @ 11% though, since it isn't like a traditional investment. That is about $6k per year.

Any thoughts, advice, things I could share with my wife would be apprecaited!


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 Post subject: Re: convincing my wife to invest more...
PostPosted: Mon Mar 18, 2013 9:13 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
This is why you need goals that are mutually agreed upon by you and the wife. Money is meant for spending - but when you spend it, on what and how are entirely up to you. Apparently, you see long-term future value in the money. Your wife disagrees. What does doing a "backdoor" roth give you? Are you planning to retire early? Are you behind?

And of course, the default is, "if momma ain't happy, ain't no one happy."

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 Post subject: Re: convincing my wife to invest more...
PostPosted: Mon Mar 18, 2013 9:39 am 

Joined: Wed Aug 17, 2011 8:28 am
Posts: 250
Location: Pittsburgh
I can relate to what you are going through. Since I am very passionate about my ideas, it is very difficult for me to deal with resistance when I try to discuss them with my wife. The approach I have adopted over the years is to put my ideas in writing and support them with the numbers. It has worked our fairly well recently.

If you are able to have the conversation face to face without it becoming emotional or heated, awesome! But still go into the discussion with the numbers to support your idea.

And if she doesn't agree with your plan, wave the white flag and surrender. Let some time pass then come up with another plan. :)


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 Post subject: Re: convincing my wife to invest more...
PostPosted: Mon Mar 18, 2013 1:28 pm 

Joined: Tue Jan 01, 2008 4:25 pm
Posts: 110
Location: Boston, Ma
Thanks guys. I guess I wouldn't say we are behind. We have about $105k in retirement accounts, $105k in home equity, and $85k in cash and bonds. I'm 30 and she's 27. So I think we are doing pretty well. But I always feel like we should be maxing out while we can. We don't get another chance to add to these tax advantaged funds later. She is very reasonable and it isn't like a big fight, but I'm just trying to help her understand.

I'm all for the renovation in a few years as well, but I guess I feel like it is kind of irresponsible if we haven't maxed retirement funds.


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 Post subject: Re: convincing my wife to invest more...
PostPosted: Mon Mar 18, 2013 1:58 pm 

Joined: Fri May 04, 2007 8:14 pm
Posts: 1953
Why don't you just show her what that $40K will be worth by the time you retire and ask her if she thinks it's a good investment to make? If not, see if you can't compromise and do the Roth for just one of you instead of both of you. There's a lot of compromising in marriage.


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 Post subject: Re: convincing my wife to invest more...
PostPosted: Mon Mar 18, 2013 2:53 pm 

Joined: Tue Jan 01, 2008 4:25 pm
Posts: 110
Location: Boston, Ma
Sounds like a good option Vintek.

My wife understands compound interest and that it will be worth more in retirement, she just also wants some things like a home renovation as well. I'm on the very conservative side (my father's lack of planning terrifies me), so I want to max as much as possible.

I'm sure I'd enjoy the home renovation as well, it's just hard to know if I'm being too conservative or not sometimes. I'd like to think by maxing out my 401k, I'm already ahead of a lot of people!


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 Post subject: Re: convincing my wife to invest more...
PostPosted: Mon Mar 18, 2013 3:21 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
berg wrote:
I'm sure I'd enjoy the home renovation as well, it's just hard to know if I'm being too conservative or not sometimes. I'd like to think by maxing out my 401k, I'm already ahead of a lot of people!


Too bad your networth relative to the rest of the world has no bearing on if you will successfully retire or not.

And what if you die a month after your home reno? What then?

There is some merit to saving lots. There is some merit to spending now. What you lack is a plan agreed upon by you and the wife. You need goals and priorities. Then you don't have to ask random people over the interwebz for advice. Just my 2 cents. Trying to teach a man to fish rather than giving him a hamburger.

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"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: convincing my wife to invest more...
PostPosted: Mon Mar 18, 2013 4:49 pm 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1627
Location: Seattle, WA
You need to be saving more anyways. As a high income household, social security will replace a smaller percentage of your pre-retirement income (smaller meaning, relative to an average household). So, it's on you to save more of your current income, for future consumption.

Don't think of it as "$40k", think of it as $10k/year, only 5% of your income.


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 Post subject: Re: convincing my wife to invest more...
PostPosted: Mon Mar 18, 2013 6:49 pm 

Joined: Tue Jan 01, 2008 4:25 pm
Posts: 110
Location: Boston, Ma
Bichon Frise wrote:
There is some merit to saving lots. There is some merit to spending now. What you lack is a plan agreed upon by you and the wife. You need goals and priorities. Then you don't have to ask random people over the interwebz for advice. Just my 2 cents. Trying to teach a man to fish rather than giving him a hamburger.


I guess I'm trying to use some help from the interwebz developing my plan. I'm sure my wife agrees that having a comfortable retirement is a priority, but I'm trying to get more data points for her that we should be saving more for retirement. That's all.


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 Post subject: Re: convincing my wife to invest more...
PostPosted: Mon Mar 18, 2013 7:48 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
berg wrote:
Bichon Frise wrote:
There is some merit to saving lots. There is some merit to spending now. What you lack is a plan agreed upon by you and the wife. You need goals and priorities. Then you don't have to ask random people over the interwebz for advice. Just my 2 cents. Trying to teach a man to fish rather than giving him a hamburger.


I guess I'm trying to use some help from the interwebz developing my plan. I'm sure my wife agrees that having a comfortable retirement is a priority, but I'm trying to get more data points for her that we should be saving more for retirement. That's all.


Have you tried to calculate how much of a golden egg you would need if you were to retire today at whatever age you desire to do so? For instance, if you want to retire at 60, do you know how much of a nugget you would need?

If not, I'm sure I can, or someone else can, help you get a rough number.

Once you have an annual budget, you know how much you'll need annually. Then, you can wack off a chunk with your wife's pension. Then you can factor in SS (be careful of the WEP). Anything leftover will need to be covered by your nest egg. You can buy and annuity (which I wouldn't in your case) or you can risk it in the market. You can make assumptions about a withdrawal rate (anywhere from 2-4% annually, that accounts for inflation). This gives you the size of the nest egg you need. Then you can make a return assumption and annual contribution rate and see if you are saving enough, just right, or perhaps, too much.

For instance, I want to retire between 45-55. I calculate I need about $3MM in today's dollars, on the conservative side. So, then I know I need to invest $XX thousand/year with y% return assumption. I can then make decisions if I want invest more than that and "buy years" and/or "security" or I can trade it off for something today.

With out knowing what the trade offs are, how can you make decisions?

If none of this makes sense, start by tracking every single penny you spend.

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: convincing my wife to invest more...
PostPosted: Mon Mar 18, 2013 7:59 pm 

Joined: Fri Jan 18, 2013 7:21 am
Posts: 95
Location: New York
Can I make a suggestion?

The idea of marriage isn't one where one person explains his superior position, and she goes along. Instead, the couple should set aside an hour for talk. With plans for many more.

Really ask her what her financial goals are. And actually listen. You will hopefully get the chance to share yours as well but listening is the first step. Once both of you have explained what your goals are, see how to mesh them. Then, and only then, will you be ready to discuss the means to get there. And get there jointly

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 Post subject: Re: convincing my wife to invest more...
PostPosted: Tue Mar 19, 2013 3:22 pm 

Joined: Tue Jan 01, 2008 4:25 pm
Posts: 110
Location: Boston, Ma
Bichon Frise wrote:

Have you tried to calculate how much of a golden egg you would need if you were to retire today at whatever age you desire to do so? For instance, if you want to retire at 60, do you know how much of a nugget you would need?


A great question. I do track every penny in mint. So we are on top of where we spend. This is a tough question though and at this point I think my opinion is more! We are 30 and 27. I'd expect our incomes to change. We also plan to have kids. It's really hard to say. At our current income, to retire for 20 years @ 80% of income we'd need around $8 million. This sounds like a lot, but it is 35 years from now, so I don't really think it is crazy. Of course to get there will take some diligent investing. But I must admit, I think it's hard to nail down an exact number yet.


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 Post subject: Re: convincing my wife to invest more...
PostPosted: Tue Mar 19, 2013 3:25 pm 

Joined: Tue Jan 01, 2008 4:25 pm
Posts: 110
Location: Boston, Ma
Mario wrote:
Can I make a suggestion?

The idea of marriage isn't one where one person explains his superior position, and she goes along. Instead, the couple should set aside an hour for talk. With plans for many more.

Really ask her what her financial goals are. And actually listen. You will hopefully get the chance to share yours as well but listening is the first step. Once both of you have explained what your goals are, see how to mesh them. Then, and only then, will you be ready to discuss the means to get there. And get there jointly


I'm certainly not trying to talk down to her. I just handle all of the finances. So I'm trying to explain things in a way she will understand. She gets saving for retirement is good, but I think she views it as so far away that she doesn't appreciate how critical it is as I do. That is where I'm looking for advice.

And just like her, I would like to do the home renovation someday, I'm just trying to explain it is best to take care of retirement before we save for another goal.


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 Post subject: Re: convincing my wife to invest more...
PostPosted: Tue Mar 19, 2013 6:30 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
berg wrote:
Bichon Frise wrote:

Have you tried to calculate how much of a golden egg you would need if you were to retire today at whatever age you desire to do so? For instance, if you want to retire at 60, do you know how much of a nugget you would need?


A great question. I do track every penny in mint. So we are on top of where we spend. This is a tough question though and at this point I think my opinion is more! We are 30 and 27. I'd expect our incomes to change. We also plan to have kids. It's really hard to say. At our current income, to retire for 20 years @ 80% of income we'd need around $8 million. This sounds like a lot, but it is 35 years from now, so I don't really think it is crazy. Of course to get there will take some diligent investing. But I must admit, I think it's hard to nail down an exact number yet.


why do you think you'll need to replace 80% of your income? I'm skeptical you will need to do that. And if you did, $200k*.8*25=$4mil, not $8mil. Assumes "4% rule", the merits of which should be debated in another conversation.

Here is another way to think about it. Assume the 4% rule is valid. Assume no market return (not realistic, I know, but this is just an example in our whimsical world)...

If you save 10%, you would need 225 yrs to have saved enough to replace your income using the 4% rule (.9/.1*25)

10% - 225 yrs
15% - 142 yrs
25% - 75 yrs
50% - 25 yrs

This blog uses an equation to factor in ROR and that lowers the time. http://the-military-guide.com/2011/01/03/how-many-years-does-it-take-to-become-financially-independent-2/

If you don't want to think hard about your expenses in retirement, you can't make proper decisions with your money today. I can't tell you what is right, only you can decide that.

Consider this exchange from Lewis Carroll's book:

“Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where–” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.
“–so long as I get SOMEWHERE,” Alice added as an explanation.
“Oh, you’re sure to do that,” said the Cat, “if you only walk long enough.”

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: convincing my wife to invest more...
PostPosted: Thu Mar 21, 2013 4:02 am 

Joined: Fri Jan 18, 2013 7:21 am
Posts: 95
Location: New York
berg wrote:
Mario wrote:
Can I make a suggestion?

The idea of marriage isn't one where one person explains his superior position, and she goes along. Instead, the couple should set aside an hour for talk. With plans for many more.

Really ask her what her financial goals are. And actually listen. You will hopefully get the chance to share yours as well but listening is the first step. Once both of you have explained what your goals are, see how to mesh them. Then, and only then, will you be ready to discuss the means to get there. And get there jointly


I'm certainly not trying to talk down to her. I just handle all of the finances. So I'm trying to explain things in a way she will understand. She gets saving for retirement is good, but I think she views it as so far away that she doesn't appreciate how critical it is as I do. That is where I'm looking for advice.

And just like her, I would like to do the home renovation someday, I'm just trying to explain it is best to take care of retirement before we save for another goal.


Oh. I'm sorry if that's what it appeared I implied.

I just think we wouldn't be here if it weren't for women.

I almost certainly am going to take my wife's name when I get married.

_________________
http://debtblag.com

Track my fiscal fitness with $0.5 million in debt: http://getrichslowly.org/forum/viewtopic.php?f=11&t=61052 Latest update: As of April 16, I've paid off $21,400 in credit card debt this year (after starting with $35k)


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