What would you do if you were me?

[disneysteve]

CDs tie the money up for 30 days, so any "emergency" has a 30 day waiting period, or penalty to get the money. Forced discipline, more or less.

That makes sense depending on the individual. Personally, I don't have a problem controlling my spending, so I don't feel the need to put the money where I can't get to it. But I understand that others need that "forced discipline." As always, no one plan works for everyone.

[MonkeyMama]

Do you both have 401ks now???

I just wanted to say the max 401k contribution is $15.5k each now for 2007. The benefit of this is that this reduces your taxable income considerably. If you both contributed the max the taxes saved should be equivalent to $8k or a full ROTH contribution for the following year. If you already contribute significantly it won't make a huge difference. But frankly $5k home take home means either you are already putting a lot in or you are getting slammed with taxes. Maybe both.

Just FYI.

I am so impressed with all the advice I think I am going to make a similar post. Just curious what all the opinions are out there.

[jIM_Ohio]

That makes sense depending on the individual. Personally, I don't have a problem controlling my spending, so I don't feel the need to put the money where I can't get to it. But I understand that others need that "forced discipline." As always, no one plan works for everyone.

A person could chase yield with EF. At this point in time money markets do yield more, but there is no guarantee that trend will continue for 1 month, 1 year or 1 decade.

We agree the EF should be in cash (money markets, CDs, regular savings account). Savings will give lowest interest rates of the 3, CDs and money markets may move in and out to which one has a higher yield.

[disneysteve]

A person could chase yield with EF. At this point in time money markets do yield more, but there is no guarantee that trend will continue for 1 month, 1 year or 1 decade.

We agree the EF should be in cash (money markets, CDs, regular savings account). Savings will give lowest interest rates of the 3, CDs and money markets may move in and out to which one has a higher yield.

I agree with you. In fact, I've got part of my EF in a 9-month CD right now. I chose 9 months because when I took it out, that seemed to be the sweet spot on interest rates - shorter was less, longer was less. And just the other day, I put my mom in a 10-month CD because that was the highest rate I could find. I've got other more liquid accounts for more immediate needs so that I could cover everything until the CD came due.

[jIM_Ohio]

One thing I am trying to figure out is how to transition from a triple "months income" CD ladder to a triple "year's income" CD ladder.

When in retirement, 3 years income needs to be in CDs. Because this is not taxed (only the interest), I can see advantages to a large withdraw from a 401k (capping 25% bracket for example), then stashing in "3 years worth of CD's"... then being able to cash out 401k to 15% bracket the next 3 years. (Lower taxes)... then repeating (large, followed by 3 smaller withdraw years).

Issue is getting the 3 years income in CDs to begin with.

[disneysteve]

When in retirement, 3 years income needs to be in CDs.

I know a lot of retirees keep the bulk of their money in CDs and collect the monthly interest to live on, but I never heard the specific advice of keeping 3 years worth of income.

[jIM_Ohio]

For me, my strategy plans to be "7 years income in cash" from day 1.

Most reading I have done suggests the biggest risk to retirement savings lasting "forever", or for 30 years, is a down market within first 3-5 years of retirement. Drawing down in a negative early retirement year has many compounding effects which will ripple throughout portfolio.

My hedge to that risk is 7 years cash the day before I retire. 3 years spending in CDs, 1 year in savings, the other 3 in inflation indexed securities.

The primary problem with this strategy is that it's "cash heavy". Actually requires me to "oversave" relative to "income/.04".

But income/.04 strategy has the risk of "early down year", so I am looking to protect that.

[MoneyTard]

Our taxes are like 30%, it's rediculous. But we usually get between 4-7k back every year.

Steve, I said dh and I don't have life insurance but we want to get it.

Not sure what healthcare proxie is. We don't have wills.

If we set aside 20k as an emergency fund, we'd have no problem NOT touching it. I like the CD idea if it meant we'd get more returns from them.

We both have 401k's and we contribute 6% our income to them which is what our company matches. They're with Charles Schwab "aggressive model" whatever those are.

I feel like we need to play catch-up with our retirement funds now. I had "planned on" openning a roth for 5 years and just never did it.

Are there any retirement funds that double as education funds? if our kids dont' want to go to college, I'd like to have the option of keeping the money for retirement.

[jIM_Ohio]

One thing to look at with EF- is some banks will give you advanced features on checking accounts if you have 50k or 100k in other accounts.

So 20-50k in CDs might get you something out of a checking account you don't have now. Overdraft protection, higher interest rates, free online bill pay... something.

[disneysteve]

Are there any retirement funds that double as education funds? if our kids dont' want to go to college, I'd like to have the option of keeping the money for retirement.

Yes, though some would disagree (and I happen to be one of them). Contributions made to a Roth can be withdrawn at any time for any reason without penalty. So you can fund a Roth each year and decide to take the money out to pay for college. I happen to oppose that idea because I believe retirement accounts are for retirement and shouldn't be touched for anything else, but others feel differently.

[tinapbeana]

which begs the question: why haven't they created something like a roth but specifically for education? or not even for education, but 'child development' or something. it could be an 'individual development account', so we'd have IRA and IDA like frannie and freddie...

[disneysteve]

why haven't they created something like a roth but specifically for education?

That's pretty much what a 529 is: a tax-sheltered account specifically for education.

The drawback to the 529 is if you don't use the money for educational purposes, there is a penalty.

[Scanner]

My question would be how much home equity do you have? 130K of debt on a ??? appraised house?

I think having $44,000 sitting around in cash is a little too conservative for my taste.

I'd maybe have 10K and just keep a home equity line of credit open that is free to maintain. Invest the other 34K.

With that amount of money sitting in cash, you are going to have nearly 50% of your portfolio sitting in very conservative investments at 35 y.o.

[disneysteve]

I think having $44,000 sitting around in cash is a little too conservative for my taste.

I'd maybe have 10K and just keep a home equity line of credit open that is free to maintain.

Here is where personal risk tolerance comes into play. Neither answer is right or wrong.

I happen to feel that my emergency funds should be actual funds, not available lines of credit. My thinking is that if an emergency were to arise such as a job loss, taking on new debt such as a HELOC would require me to make monthly payments. Having a new bill to pay while I am out of work is exactly the situation I'm trying to avoid by having an EF.

As they continue to contribute to their 401K and Roth accounts, the percentage of assets in stock will gradually drop so within a few years they will have a more appropriately aggressive portfolio.

[MoneyTard]

The house hasn't been appraised currently. But judging from the sale price of houses behind us and accross the street (all with much smaller lots than ours), our house should be worth ~350k. And we're making repairs to ours.

I finally looked at our mortgage statement. We Actually owe 145k with an interest rate of 6.1%. We'll be eligable for refinancing it in November if we choose.

I decided (for the time being) to set aside 20k for EF into my ING account. Possibly opening a 9mth CD with half of that. Speaking of ING, I (we) have 8k of the 50k in an ing savings account and it makes more in interest than the other 42k combined. Wamu mm accounts pretty much useless.

We paid off our car today. The other was already paid in full.

For education, I'm liking 529's less and less. Although I want to be able to pay for college, I want to make our kids work a little for it too. I had everything handed to me growing up and I didn't learn much from the experience except that I'm good at being lazy.

Perhaps I can open a single college fund for both girls? I still need to research the options more before making a decision with this.

It seems we have too many bank accounts. 3 savings and 1 checking at 3 credit unions, 3 checking and 1 mm at wamu, and 1 savings at ing. LOL! It's rediculous.

I'm closing the mm and one checking at wamu. But can't decide on the credit union accounts. For loans, the credit unions have the lowest rates. One is ibm, one is post office (or something) another is where dh's mother works and she set it up for the grandkids and deposits $5 per pay period.