Should I pay off my car loans?

[Wino]

I have a question: if my employer matches my 401k, is that counted as annual retirement contribution? I put in $17,500 and my employer puts in $12,500, so the total contribution is $30,000 / year. This greatly effects the retirement planners.

You don't count employer contributions when using a percentage of your income into retirement, but of course it counts when you retire. That variable just went from $1.1M to $1.9M at 10% for 20 years. You're now at $5.6M plus your military retainer.

[disneysteve]

I have a question: if my employer matches my 401k, is that counted as annual retirement contribution?

You don't count employer contributions when using a percentage of your income into retirement, but of course it counts when you retire.

I agree with Wino. When we say to save 15% for retirement, that is 15A% of your gross not counting employer match.

The reason for this, in my mind, is that it forces you to live on less than you earn. In turn, that makes retirement easier because you are accustomed to living on a smaller amount.

[Wino]

The reason for this, in my mind, is that it forces you to live on less than you earn. In turn, that makes retirement easier because you are accustomed to living on a smaller amount.

I agree, but I think there is also a secondary reason for this. In times past, it could take up to seven years to be fully vested. Because of this, when you left, you might lose a significant percentage of your employer's match, but you always got your investments. By investing 15%, you're assured of that amount when you depart, at a minimum.

[corn18]

I agree, but I think there is also a secondary reason for this. In times past, it could take up to seven years to be fully vested. Because of this, when you left, you might lose a significant percentage of your employer's match, but you always got your investments. By investing 15%, you're assured of that amount when you depart, at a minimum.

I'm fully vested at this point so would it be ok to count the match? I'm actually adding $30k / year to my 401k. $17,500 + $12,500 (match). Not that I can do the minimum at this point, but I am running simulations to show my wife and I would like it to be realistic. I guess if I switched companies, I would start a new vesting period.

[corn18]

Half way through The Millionaire Next Door. Decided to run a net worth calculator. That was depressing. I'm a cold blooded UAW. Damn.

[Wino]

I'm fully vested at this point so would it be ok to count the match?

No. You invest at least 15% of your gross every year at a minimum. If you did not have the military retainer, you'd want to go even higher. You can ignore the military retainer in your "what is 100% calculations?" Your investment goal should be about $3575 per month (15%*15500 + 15%*100000/12). Annualized, that's right around $42K, so as I said earlier, your entire retainer (before taxes) into retirement investments would just about work for you.

Short answer: Employer match is not included in your calculations.

Caveat: You need to put whatever amount it takes into the employer's account to get 100% of the employer's match. Assuming he matches you 1:1 up to the $12500, you'd put in $12500 at a minimum to that account. In your particular situation, I'd continue to put in the entire $17500, as you still have about $25000 you need to invest elsewhere, such as the mutual fund companies mentioned above (Vanguard.com, Fidelity.com, or TRowePrice.com).

[LivingAlmostLarge]

I'd ask your wife what lifestyle she wants when you officially retire. Does she only want to live on the military pension and not much else or does she want to try and maintain the lifestyle you have now. it'll be harder to go from $15k/month at 65 down to even $8k/month with your expenses and lifestyle.

The reason for the 15% is because you get used to living on less so you have less to save. You are 47, what age do you want to retire? How much do you think you'll need to retire? What income do you want to have in retirement? You could work backwards that way as well and see what you need to live on. If your wife won't cut now then you need to budget that into the savings.

$180k/year "needed" * 25 = $4.5M nest egg.
-$45 pension = $3.4M nest egg.

You have $160k 401k, assume 6% ROI annually, 20 years (till 67), Saving $2500/month or $30k annually(401k + match) = $1.8M.

Just staying on track with your current savings you will have about half of what you need to maintain your lifestyle + pension. So you would be living on $120k I would guess.

Could your wife live on $120k/year now? Would she be happy? The biggest drain you are right is your children. Hopefully you are turning it around now and helping them learn good financial lessons so they won't be asking you for money in 20 years.

[autoxer]

I'm fully vested at this point so would it be ok to count the match? I'm actually adding $30k / year to my 401k. $17,500 + $12,500 (match). Not that I can do the minimum at this point, but I am running simulations to show my wife and I would like it to be realistic. I guess if I switched companies, I would start a new vesting period.

If you are counting the match to determine your percentage of income going to retirement, make sure you also count the match as part of your income. It is actually money that the employer is giving to you, although it doesn't show up directly on your paycheck.

[corn18]

I'd ask your wife what lifestyle she wants when you officially retire. Does she only want to live on the military pension and not much else or does she want to try and maintain the lifestyle you have now. it'll be harder to go from $15k/month at 65 down to even $8k/month with your expenses and lifestyle.

The reason for the 15% is because you get used to living on less so you have less to save. You are 47, what age do you want to retire? How much do you think you'll need to retire? What income do you want to have in retirement? You could work backwards that way as well and see what you need to live on. If your wife won't cut now then you need to budget that into the savings.

$180k/year "needed" * 25 = $4.5M nest egg.
-$45 pension = $3.4M nest egg.

You have $160k 401k, assume 6% ROI annually, 20 years (till 67), Saving $2500/month or $30k annually(401k + match) = $1.8M.

Just staying on track with your current savings you will have about half of what you need to maintain your lifestyle + pension. So you would be living on $120k I would guess.

Could your wife live on $120k/year now? Would she be happy? The biggest drain you are right is your children. Hopefully you are turning it around now and helping them learn good financial lessons so they won't be asking you for money in 20 years.

My wife and I could live off of $120k / year. If you remove all the kid stuff from the current budget, we would be right @ $126k / year. But that does not include any gifts or vacation. But it does include a full house payment. For planning purposes, $120k would be the low target but doable.

[LivingAlmostLarge]

So do you think in 20 years you'll really not help your kids? Will you not vacation? Will the expenses go up or down with medical? It wouldn't be buying a new car or anything fancy. It might even mean cutting things like hair/nails, decorating, etc. The lifestyle at $120k would probably seem pretty bare bones. I wonder if it would be too much of a cut?

[Financeman]

)% Why bother paying it off

There is no point paying off a debt if you are paying 0% interest. You would be far better of placing the money into a short to medium term saving account why not let the bank or other institution pay you some money. The other car loans, well again depends if you can earn a greater return on your money. Why pay off the debt if you can earn a greater return on it... Especially when you are in a situation of having no cash reserve.
Good Luck

[corn18]

So do you think in 20 years you'll really not help your kids? Will you not vacation? Will the expenses go up or down with medical? It wouldn't be buying a new car or anything fancy. It might even mean cutting things like hair/nails, decorating, etc. The lifestyle at $120k would probably seem pretty bare bones. I wonder if it would be too much of a cut?

I think I will plan on having $120k / year without the pension. That will leave the $40k/year pension for vacations/kids/other. That means I have to save $80k / year plus my 401k contribution. Ouch.

[corn18]

There is no point paying off a debt if you are paying 0% interest. You would be far better of placing the money into a short to medium term saving account why not let the bank or other institution pay you some money. The other car loans, well again depends if you can earn a greater return on your money. Why pay off the debt if you can earn a greater return on it... Especially when you are in a situation of having no cash reserve.
Good Luck

I have to pay a couple of them off to get my cash flow positive. I am considering paying off all the interest bearing car loans and keep the 0% loan. It is just so tempting to be debt free for the first time in my life. Even if that isn't the absolute smartest thing to do.

[corn18]

If anyone is still following this, this is how I got into trouble and I am still fighting the old habits.

If I do nothing to the expense side of my budget (keep the horse, don't pay off the cars and spend as I always have), I will have $69,000 extra money over the next year. If I told you nothing else, that would sound pretty awesome, right? Well, that's still how my brain is working and it thinks that is ok. Why should I change my lifestyle when I have a $69,000 buffer? Well, if I do that, I am running a monthly deficit of $4,000. That means my lifestyle is $4,000 / month bigger than my paycheck. Actually, it's much worse than that because I am spending my military pension. So I am actually spending $7,700 more a month than my paycheck. So I am funding my excess with my big bonus. I could find a job that payed me more to cover my stupid spending. That would mean I would need a $136,000+ / year pay raise. And I still don't have any savings or net worth.

Welcome to the world of the UAW (Under Accumulator of Wealth).

I can fix this.

[disneysteve]

If anyone is still following this, this is how I got into trouble and I am still fighting the old habits.

If I do nothing to the expense side of my budget (keep the horse, don't pay off the cars and spend as I always have), I will have $69,000 extra money over the next year. If I told you nothing else, that would sound pretty awesome, right? Well, that's still how my brain is working and it thinks that is ok. Why should I change my lifestyle when I have a $69,000 buffer? Well, if I do that, I am running a monthly deficit of $4,000. That means my lifestyle is $4,000 / month bigger than my paycheck. Actually, it's much worse than that because I am spending my military pension. So I am actually spending $7,700 more a month than my paycheck. So I am funding my excess with my big bonus. I could find a job that payed me more to cover my stupid spending. That would mean I would need a $136,000+ / year pay raise. And I still don't have any savings or net worth.

Welcome to the world of the UAW (Under Accumulator of Wealth).

I can fix this.

I may be misquoting but I think one of Dave Ramsey's sayings is, "You can't outearn stupid."

The fact that you see the problem is really a huge step toward correcting it, and I think you are well on your way. Spending more than you earn isn't a sustainable plan. It works for a while but eventually it catches up with you.

As I said earlier, most people don't have an income problem; they have a spending problem.