Pay down house or Invest?

[noppenbd]

Diversification does not mean more funds. You could theoretically own just one fund (a Target retirement fund for instance) and be fully diversified. Diversification means owning more than one asset class.

A good mix for someone 14 years from retirement is probably 70% equities (stocks) and 30% bonds. Breaking down the equities further, the 70% could be composed of 30% large cap US stocks (S&P 500), 15% small cap US stocks, and 15% international stocks. You can adjust this mix to be heavier in large cap US stocks if you want less risk. You may also want to increase your bond percentage by a point or 2 every year going forward.

Picking the individual funds to get this risk is where the art comes in. I go for the lowest cost option, which is usually an index fund if available. If you have multiple accounts, the simplest route is to make each account self-balanced (so each account has 30% bonds, for example). If one of the asset classes is not available in one account you can overweight that class in another account to compensate. Most 401ks will have all the above asset classes available. In a Roth IRA I would use Vanguard mutual funds or ETFs because they have rock bottom expense ratios (the amount you pay each year to be in the fund). Choose mutual funds if you dollar cost average throughout the year because a no-load fund will not have a commission to purchase. If you buy in lump sums a few times a year, ETFs will probably be cheaper than mutual funds.

If you use Vanguard mutual funds, for LC US stocks I would use VFINX, small caps NAESX, international VFWIX, and bonds VBMFX. For ETFs, LC US stocks I would use SPY, small caps VB, international EFA, and bonds BND.

[jIM_Ohio]

Originally Posted by jIM_Ohio

You did not mention if the pension is inflation adjusted. If it is not, then I would strongly advise a more aggressive savings plan than what I will illustrate below.
Yes, the pension does receive an annual adjustment for inflation.


2,952.70 is the expenses you listed per month. Allow me to round this up to 3k monthly POST tax, which is 36k per year (post tax). A good asumption to work with


Traditional planning suggests to target 4% of savings per year for retirement (meaning if you have 100k saved, you can spend 4% of that 100k each year and adjust the 4% upward for inflation each year).
36k/4%=900k. You need 900k to retire on and maintain current spending.
Probably the best information ever as now I have a number to shoot for.


The pension is "valued" at 24k per year or 24/4%=600k

Meaning you need to accumulate another 300k (900k-600k) to retire and leave NOTHING. If you want to leave an additional 500k in todays dollars, you need to set aside 800k to retire on (you will spend 300k of this, the other 500k will be left to others).
As I understand it, your saying I need 800k not countin the pension. So my this should be my target for my portfolio?

YES use 800k as your target

3) The conventional plan followed by people like me (non military and non pension earners) is to set aside a given percentage of their paycheck every month. For example my wife and I make around 100k per year, and we set aside 20% of this (20k) per year. This means we live on less than we earn (80k gross, much less net) and invest the 20k aggressively so it grows to cover around the 65k of yearly expenses we have now.
Before this deployment I was putting 1,000 per month, I'm not sure what percentage that was at this point.

I would calculate the percentage and use the total amount per year as the ultimate goal. If you make 40k now, 20% of this is 8k, so you need to make sure 8k (minimum) is set aside per year. How you set it aside (lump sum, monthly contributions, wife's income or other) is not the issue. Concentrate on the WHAT (what you need to do). Keep in mind if you make 40k and wife makes 20k, your total is 60k and 20% of that is 12k. Maybe wife sets aside 10k of her check and your pension is the other 2k, but look at this as total household GROSS income and make sure you save AT LEAST 20% of gross. More on this later.

We could discuss how to invest, but I don't think that discussion is appropriate now, unless you are looking into that now.
I am VERY interested in hearing opinions on this, I want to do enough research to make good decisions when I am done this deployment. I am leaning towards maximizing my our ROTH IRAs at 10,000 per year and hopefully investing another 5,000 in other investments. I will pick a number for the mortgage and shoot for that number before I retire, say 40,000 or so and I will just ride this balance into retirement, again, leaning towards but have not fully decided.

Start another thread or make another post and I will elaborate. More on this below.

.
Person A starts with 35k and wants 300k and is age 40
Person B starts with 35k and wants 300k and is age 40

Person A starts investing 5k per year at age 40
Person B starts investing 5k per year at age 50
I am hoping to start investing 10,000 per year at the age of 36 (A few more years of compounding)

10k input into same calculations above with age 36 as starting age:

Person A has 400k at age 50
Person A has 800k at age 58
Person A has

Person B (starts investing at age 46) has 175k at age 50
Person B has 437k at age 58
Person B has 800k at age 65

Assume both choose same investment which averages 8% returns per year.
I think 8% is a good number, I will shoot for 10 (A little more aggression but will be happy with 8%

Plan for 8%. Use this to see amounts and dates (years). If you do better, it means things happen younger.

But if you are risk averse (meaning you would see -20% returns and bail on the invest early plan) then you should not let me tell you how much risk to take.
I have been investing since I was 23 (Currently 35, 36 next month) I have made only one withdrawl from my investments to cover a cc( Bought the new house needed furniture, cc adjusted my % from fixed to veriable and I do not do veriable, withdrew enough to pay off cc, havn't carried a balance since)




I love hearing success stories like this, congratulations on your accomplishments and thank you for sharing your knowledge. I have been investing for many years but really havn't been focused, I am thankfull to day that I do have something saved up and I have lived out of debt most of my life (Save for the planned debt like my two vehicles, house and the one time charge up to furnish my house)

Thank you all for your help, I have learned so much from this thread alone.
Ray

Your number one influencing factor will be how much you set aside per year. You mention 10k above, if you make 60k, this is a 16% savings rate. Can you squeeze this up to 20% or even 25%.

Every little percent matters. You have about 15 years to reach a goal and it is doable, the single highest contributing factor will be YOU setting aside enough money. Measure this as a percentage of household gross pay.

How to invest for the 8% returns is up for debate. I use 8% in all my planning.

My allocation is
42% large cap equity
15% mid cap
15% small cap
15% International large cap
10% international small cap/ emerging markets
3% bonds

I increase bonds by 1% every 6 months as I slowly rebalance to a 90-10 or 80-20 allocation. In a market like this I don't expect to sell anything to gain the 1% I need Dec 31.