No non-mortgage debt, full e-fund - where to focus now?

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VinTek
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Re: No non-mortgage debt, full e-fund - where to focus now?

Postby VinTek » Mon Mar 25, 2013 10:12 am

RayinPenn wrote:4) now close you eyes and think if you took the extra money and putit in the market tell me how you think you will feel if the market tanks again.

If I make as much money as I did in the last market downturn, I'd feel like I have the opportunity to make enough money to retire earlier than planned.

slamjam
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Re: No non-mortgage debt, full e-fund - where to focus now?

Postby slamjam » Mon Mar 25, 2013 10:52 am

Thanks for all the input guys. My work told me an HSA is out of the question, so that's off the table. At this point I feel like I have a solid plan:

1. Max out my 401k (S&P 500 index), stop contributing to Wife's fee-laden 403b
2. Open Roth IRA for my wife (riskier funds a la Bogleheads portfolio suggestions) and fully fund for 2012 before 4/15
3. Convert Vanguard mutual fund account from VASGX to... something (need to do more research here since this is the only account that qualifies for admiral shares!)
4. Misc savings goals (vacation fund, house stuff)
5. Divert any extra to paying down mortgage

I think 4 and 5 I'll be doing side by side, since I want to get out of debt sooner (and I need to be below 80% LTV to stop paying PMI) but I don't think it makes sense to effectively ignore one or the other (savings vs. mortgage).

Sound good? Any suggestions on funds, especially for the post-tax account ($40k) where I can purchase admiral shares?

VinTek
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Re: No non-mortgage debt, full e-fund - where to focus now?

Postby VinTek » Mon Mar 25, 2013 1:05 pm

slamjam wrote:Sound good? Any suggestions on funds, especially for the post-tax account ($40k) where I can purchase admiral shares?

Depends on what you're going to buy in your wife's IRA, since that's part of your overall asset allocation. Since you're in the S&P500 index, I'd be thinking about some international exposure (VFWAX or VTAIX) or mid-to-small cap exposure (VEXAX) to give yourself some added diversity.

You're both young, so I'd stick to equities for now, if you can stand the volatility. You already have real estate exposure via your home.

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Re: No non-mortgage debt, full e-fund - where to focus now?

Postby fantasma » Mon Mar 25, 2013 3:21 pm

VinTek wrote:
slamjam wrote:Sound good? Any suggestions on funds, especially for the post-tax account ($40k) where I can purchase admiral shares?

Depends on what you're going to buy in your wife's IRA, since that's part of your overall asset allocation. Since you're in the S&P500 index, I'd be thinking about some international exposure (VFWAX or VTAIX) or mid-to-small cap exposure (VEXAX) to give yourself some added diversity.

You're both young, so I'd stick to equities for now, if you can stand the volatility. You already have real estate exposure via your home.



Another reason why they should pay down the mortgage correct?
Be what you want to attract.

VinTek
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Re: No non-mortgage debt, full e-fund - where to focus now?

Postby VinTek » Mon Mar 25, 2013 4:41 pm

fantasma wrote:
VinTek wrote:
slamjam wrote:Sound good? Any suggestions on funds, especially for the post-tax account ($40k) where I can purchase admiral shares?

Depends on what you're going to buy in your wife's IRA, since that's part of your overall asset allocation. Since you're in the S&P500 index, I'd be thinking about some international exposure (VFWAX or VTAIX) or mid-to-small cap exposure (VEXAX) to give yourself some added diversity.

You're both young, so I'd stick to equities for now, if you can stand the volatility. You already have real estate exposure via your home.



Another reason why they should pay down the mortgage correct?

Depends. LeRainDrop posted this link in another thread. I think it's worth reading.

fantasma
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Re: No non-mortgage debt, full e-fund - where to focus now?

Postby fantasma » Mon Mar 25, 2013 7:38 pm

I'd rather have a paid for house, personally. He could also do a hybrid and put money towards everything.

There's nothing like peace of mind, to me that is.
Be what you want to attract.

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Re: No non-mortgage debt, full e-fund - where to focus now?

Postby fantasma » Mon Mar 25, 2013 7:41 pm

A nother point the article didn't make.

You pay off your mortgage; the amount you used to put towards the mortgage and extra thrown at the balance you can now aggressively put towards an investment account.
Be what you want to attract.

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Re: No non-mortgage debt, full e-fund - where to focus now?

Postby VinTek » Mon Mar 25, 2013 8:06 pm

fantasma wrote:A nother point the article didn't make.

You pay off your mortgage; the amount you used to put towards the mortgage and extra thrown at the balance you can now aggressively put towards an investment account.

Do the math. You have to throw an enormous amount of money at your investments to make up for those early years where you put money into your mortgage instead of investments. Assuming you put in $2,000 into the market when you're 22 years old (at 10%), that original investment is earning $10,953 per year by the time you're 65 and is worth $120,480. Start 10 years later, and it's only earning $4,223 and is worth $46,450. Time is more powerful than what you can typically muster in terms of savings. That's the power of compound returns.

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Re: No non-mortgage debt, full e-fund - where to focus now?

Postby fantasma » Mon Mar 25, 2013 8:18 pm

I hear you on the math, but one cant put a price on peace of mind. Getting rid of the mortgage they could keep or sell to downsize.

Not having to pay a mortgage/rent takes a chunk out of anyones income.

Its a huge weight off ones shoulders.
Either its up to the op.
Be what you want to attract.

VinTek
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Re: No non-mortgage debt, full e-fund - where to focus now?

Postby VinTek » Mon Mar 25, 2013 8:29 pm

Peace of mind is a relative thing. I'm not particularly attached to houses, I suppose. We only bought our most recent one 3 years ago and we already know that we'll sell it and downsize some day. I'd rather have a large portfolio and a mortgage than a paid-off house and no money to take care of it (or pay for property taxes, or upkeep, or heating, etc.)

We did discuss a similar situation (only with older folks) recently in this thread.

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Re: No non-mortgage debt, full e-fund - where to focus now?

Postby Bichon Frise » Mon Mar 25, 2013 8:55 pm

slamjam wrote:Thanks for all the input guys. My work told me an HSA is out of the question, so that's off the table. At this point I feel like I have a solid plan:

1. Max out my 401k (S&P 500 index), stop contributing to Wife's fee-laden 403b
2. Open Roth IRA for my wife (riskier funds a la Bogleheads portfolio suggestions) and fully fund for 2012 before 4/15
3. Convert Vanguard mutual fund account from VASGX to... something (need to do more research here since this is the only account that qualifies for admiral shares!)
4. Misc savings goals (vacation fund, house stuff)
5. Divert any extra to paying down mortgage

I think 4 and 5 I'll be doing side by side, since I want to get out of debt sooner (and I need to be below 80% LTV to stop paying PMI) but I don't think it makes sense to effectively ignore one or the other (savings vs. mortgage).

Sound good? Any suggestions on funds, especially for the post-tax account ($40k) where I can purchase admiral shares?


You need an asset allocation, and then you pick the funds to fit your desired allocation. Then you drop them in the appropriate accounts to stay tax efficient. Of course, don't let the tail wag the dog. Taxes are paid, and you stick to your plan.

I hold three funds in my taxable account. VTSAX, VTIAX and VEMAX.

I also didn't mention, but once your taxable account reaches a sufficient size, you can decrease your cash holding. I only hold about $5k in an online savings, $20k in CD's (2.6%) and $12.5k in gubimint bonds. And I'm thinking about terminating the CD's to free up a little cash to invest....when the time is right. Why? Even if I lost half of my equity value, I'd still have enough to live for many years. My cash savings builds quickly. Just something else to think about.
Bichon Frise

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

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Re: No non-mortgage debt, full e-fund - where to focus now?

Postby peachy » Tue Mar 26, 2013 4:56 am

I'll throw my two cents into the ring:

I am in agreement with VinTek on not paying down the mortgage. People move, or sell their houses, so what is the rush in paying it off (of course, I'm of a military family, so staying in one place for life isn't in my nature). I think the priority should be investments over mortgage. I have a 15 year mortgage that is almost paid off. I haven't done anything special except when I set up bi-weekly payments when I first took out my loan. In a couple years when the house is paid off, I will have a house payment that I can use towards retirement or home improvements or whatever I want. In the meantime, I have my emergency fund funded as well as having my retirement at a point which makes me happy. I used my extra money in the "recession" and kept chugging away at funding my Roth and extra retirement funds, and it has paid off. I don't feel stressed out about any of my piles of $, and I feel that I am in a good place.

If I move in a few years, fine. I'll rent my house and get a new one, or sell it and get a new one. No big deal. Everyone has to really think about what they are likely to do and what course of action is best for them. If they are staying in their house until they have grandkids, sure, pay it off. If you are unsure, why put the money in your house when it can go towards other things (vacation, a new house, renovations, retirement, etc..). You just have to know yourself and your immediate family to make the best decision.

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Re: No non-mortgage debt, full e-fund - where to focus now?

Postby stannius » Wed Mar 27, 2013 1:34 pm

slamjam wrote:My work told me an HSA is out of the question, so that's off the table.


Why is it off the table? Do they mean that you aren't eligible for one, or that they don't offer one through payroll deduction?

Ranger wrote: As has been noted here, some HSA providers simply suck. Obviously, that would play into the calculus of whether or not to prioritize the HSA above further savings in a traditional retirement account.

If I had my druthers (and I don't, because my employer makes me have an HSA through J.P. Morgan Chase), I would have an HSA with the following provider because they offer access to Vanguard funds.

https://hsaadministrators.info/vanguard-funds-list


I agree with Ranger, HSA's are so good that they're likely to be worthwhile, even in the face of political uncertainty. Also, note that you aren't forced to go through your employer's choice of HSA custodian. You only have to do that if you want to contribute through your paycheck, which has the advantage that the amount is deducted before FICA taxes. However, if your employer's choice of HSA provider is so bad that it's still not worth it, you can open up your own account with whomever you want, contribute directly, and deduct the contributions on your federal income taxes.

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Re: No non-mortgage debt, full e-fund - where to focus now?

Postby slamjam » Thu Mar 28, 2013 10:45 am

Haven't decided either way on paying off mortgage early vs. not -- at this point it's pretty far down my list so I've got time to consider all options before I'm actually in a position to put money there.

Stannius, the response from my employer was that the deductible in our HDHP was not high enough to qualify for an HSA. However, I had a Wells Fargo HSA with my previous employer that I didn't really consider. Went and checked and it's still there, with a small amount sitting in the account.

I know there are obvious tax advantages to contributing to it, so I guess my only question is regarding the above. If my employer says the HDHP I'm on doesn't have a high enough deductible to enroll in an HSA, will I get penalized at all for shoveling money into an HSA I already have?

(edit: based on this IRS doc, looks like I can't - bummer :()

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Re: No non-mortgage debt, full e-fund - where to focus now?

Postby stannius » Fri Mar 29, 2013 11:16 am

slamjam wrote:I know there are obvious tax advantages to contributing to it, so I guess my only question is regarding the above. If my employer says the HDHP I'm on doesn't have a high enough deductible to enroll in an HSA, will I get penalized at all for shoveling money into an HSA I already have?


Yes, as you found: to contribute to an HSA, you have to be under an eligible HDHP in the year of your contribution. Also you cannot be covered by any other insurance, which includes health care FSAs and HRAs (though there are special "limited purpose" versions of both types of accounts that preserve eligibility). That's true, I found out, even if the FSA is empty.


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