How should I invest money now that I have pretty much zero debt?

[Submariner100]

My wife and I just paid off our $400K mortgage (value now is $550K) and now I'd like to really focus on building up the retirement fund. How should we be investing now that we have minimal debt? Here is our combined status:

Ages (45, 47)
Total Debt: $15K car loan (0% interest)
Yrly income from jobs: $180K
401K balance: $320K
Emergency fund: $65K
Own half of rental property outright with sister (property value ($400K divided by 2): I receive $500/mo after maintenance fees

I max out my 401K each year, my wife contributes around 8% (higher than what company matches).

What are some solid ideas for investing? Would medium risk mutual funds be a good idea through E-trade or Ameritrade?

Thanks

[dczech09]

You should be investing AT LEAST 15% of your income every year. At $180,000 per year, that would be $27,000 that you need to be investing total. The maxed out 401k would be $17,500, plus whatever is 8% of your wife's income, equals how much?

Depending on how much of your income you are looking to replace when at retirement, you may be a little behind on saving. Don't get me wrong: $320,000 in your 401k at age 45 is fantastic! But if you want to replace a six-figure income in retirement, you may need to save more. In order to replace a $180,000 income in retirement, you would need about $4,500,000 at age 65!

So invest 15% of your income, kill the car loan (should not take long), and then increase your retirement contributions to 20% of income (possibly more if you would).

I know the car loan is at 0%, so me recommending paying it off may sound insane. However, you did not really get 0% on your car. More than likely, you paid a higher price on the car. After all, car dealerships MUST build interest into the price of the car on 0% deals (or they would go out of business). Once you factor in depreciation, you are certainly not getting 0% on the car. So just pay it off and get it over with.

Do you have any kids who would be going to college? You may want to look into college savings.

How much are your monthly expenses? It is recommended that you have 6 months of expenses in savings for emergencies. So your $65,000 emergency fund may or may not be high. You possibly have some "car money" right there!

And finally, congratulations on paying off the mortgage! Very nice job! With a $180,000 income, no mortgage, a $550,000 house, and a rental, you are killing it! Sky is the limit!

[snafu]

Congratulations on paying off your mortgage, thats a huge milestone and puts you in a special group.
I agree you need to increase your savings/investments. What are you currently holding in your and DW's 401k? What are the fees and MER [Management Expense Ratio]? This is also a good time to assess your Risk Tolerance. Just Google these questionnaires. The point is your next step needs to mesh with what you've already invested. We often suggest Vanguard and Fidelity Mutual Funds which can be purchased directly from Vanguard & Fidelity without fees and with a very modest charge [MER]. These companies have a huge selection of funds and an excellent reputation.

Happy to discuss your current holdings and possible additions for allocation.

[Goldy]

You are in a pretty good spot right now with a paid off house. I agree with dczehc09 that you are a little behind in retirement based on your income but the good news is that with no mortgage you should be able to make it up over the next decade.

I would focus on hitting retirement hard by having your wife max out her 401k and then both of you contributing to Roth IRA's. By having her max her IRA it will drop your income down past the limit for Roth contributions and allow you to save that way. I would also recommend that you see if you are eligible for a 2013 contribution based on your 2013 income. You have until April 15th to get that funded but that would be a great way to focus on retirement.

I would not pay extra on the car loan because it does not save you any money now.

[MonkeyMama]

I would focus on hitting retirement hard by having your wife max out her 401k and then both of you contributing to Roth IRA's. By having her max her IRA it will drop your income down past the limit for Roth contributions and allow you to save that way. I would also recommend that you see if you are eligible for a 2013 contribution based on your 2013 income. You have until April 15th to get that funded but that would be a great way to focus on retirement.

Agreed.

I think it's unlikely you need to do anything to be eligible for ROTH IRAs. (Just taking the standard deduction and exemptions and so on). But, you must be getting slayed on the taxes. For that reason I would make it a priority to max out both 401ks. I would then use that tax savings to fund ROTH IRAs. ROTH IRAs are nice because the money is easy to tap before full retirement age. So, if you feel that is way too much to tie up in retirement, I think that's a fair enough opinion. But I would still take advantage of the ROTH space, personally. It does greatly simplify for tax purposes (don't have to track dividends, income, capital gains, yadda yadda). We certainly tap out any ROTH space for simplicity, before putting money in fully taxable accounts.

Do you have a Vanguard account? I like Vanguard for their exceptionally low fees.

[autoxer]

I max out my 401K each year, my wife contributes around 8% (higher than what company matches).

Like some other people have already said, you might want to reduce your tax liability by maxing out both 401k's. And consider maxing out Roth IRA's, then open a taxable brokerage account for additional mutual funds.

What are some solid ideas for investing? Would medium risk mutual funds be a good idea through E-trade or Ameritrade?

I would choose a medium risk asset allocation and fill it with low fee index funds. Keep it simple, adding complexity usually just adds fees, not necessarily helping the returns. You can achieve a nicely diversified portfolio with just two or three index funds. Look at the expense ratios, that is how much the fund managers are siphoning off to administer the mutual fund. I like Vanguard, because I prefer a more passive approach, to just buy and hold index funds. The two brokerages you listed are probably better if you plan to do more active trading.

[LivingAlmostLarge]

Besides maxing out 401k, then doing a backdoor roth ira, what about espp or other savings vehicles you can maximize at work?

[jIM_Ohio]

Maxing out 401k and IRAs is good advice because you have $65k in cash/EF already.

I would focus on savings rate, if you can get to 25% or so into 401k/IRA and taxable accounts, that is where catch up occurs.
I would not consider college savings until you have retirement at 15-20% of gross pay, so by saving 25% to retirement, that could shift to 15% to retirement and 10% to college (which is still saving 25%).

If your savings rate is 20-25%, don't worry about how aggressive mutual funds and investments are, as the savings rate will have a bigger impact on success compared to investment performance.