Brian, I applaud you and your wife for making many smart financial decisions already- debt free, emergency fund, saving for a down payment and saving for retirement! You ask an excellent, though complex, question. A rule of thumb has been to save 10% of current pay into a retirement account, although in recent years some advisers have bumped that number to 12% or 15%. There are a lot of things to consider in answering this question.
On your own or working with a financial adviser, you might want to consider your lifestyle in retirement and what will be necessary to cover those expenses. Does your employers make matching contributions into your retirement accounts?
Brian, being off to such a great financial start, I would encourage you to meet with a fee-only financial planner who could take a look at the details of your financial situation and help you determine the best places to direct your savings. Keep up the good work!
Chris, here's one for you from Sean
Sean, congratulations for looking into investing. I typically recommend that people have an emergency savings account before they start investing that has 3-6 months of their living expenses. Once that's done, you can start investing in the "stock market" using mutual funds. If you set up an automatic monthly investment plan you can get in for as little as $50 or $100 per month depending on the mutual fund company.
Sam, here's a question for your from Gatsy
Hi Gatsy - You are making all the right moves. If you feel that you are short-changing your current lifestyle to save for the future, then you may wish to cut back on savings. If you are living comfortably, then the savings may well be appropriate. The monthly pension is a great benefit in this day and age and provides some security that most workers no longer enjoy.
Gatsy - You might want to consult with a financial advisor to make sure you are addressing your goals appropriately. The advisor will be able to confirm the appropriate level of saving, and perhaps free up some cash to meet your present goals.
Chris, here's one from HERB
Herb, have you ever taken a risk profile? I would start there and then sit down with an fee-only advisor. Getting this right will make all the difference in your long-term portfolio performance and happiness.
Herb, there are rules of thumb but they are just really starting points and no final decision should be made solely on them.
Herb, I would focus more on your comfort level with risk to determine the appropiate allocation. A more conservative investors should have more in cash and bonds and less in stocks and alts.
Kate, you can take this one from Dan
It is important to keep an eye out for inflation. Some ways to try to cope with it include investing a portion of your assets in things that go up with inflation such as food, gas, and natural resources. This acts as a hedge, so that while your expenses may be increasing, your investments in these areas will, as well. It is also important to be concious of how much you hold in fixed assets, cash and bonds go down as inflation goes up. Overall, this is an argument for staying diversified as we never know what is going to happen next and diversification gives us the strongest overall footing. I hope that helps! Good luck!
Planners, here's one for you from Joseph
A few other planners already weighed in on this one, but it looks like he submitted it again looking for some more advice -- the more, the merrier!
Joseph, do you own a home and have any equity in it? If so, you could switch your credit card debt to a home loan and reduce your interest and payments. With $70k in student loans, I'm not sure taking on more debt is the answer. It sounds like you are an engineer now so that should be a good paying job.
Joseph, late payments should be avoided at all costs because it increases your effective interest rate significantly.
And here's another one from Cynthia
That depends on what type of college are you planning on providing for? Ivy runs about $60k a year right now and some in state schools run about $15k.
Cynthia, You also want to keep in mind that in recent years higher education costs have risen at almost twice the level of inflation.
Bethany, a follow-up for you from Cynthia
Cynthia, that is an excellent question. We assume a 5% increase in cost for private schools and a 6% increase for public schools when doing education planning. However, we cannot predict how costs will continue to rise. We might guess that costs will have to peak at some point and cannot continue at that rate of increase indefinitely.
Cynthia, you are exactly right. But I don't personally have any insight as to how costs will trend over the next 15 years or so.
Cynthia - The Ivy cost of $60k per year would be $144k per year fifeen years from now if the inflation rate for college tuition is 6%
A conservative, though saddening, idea may be to assume an inflation rate of 5-6% for tuition, in an environment of 5-6% rate of return, which ultimately means you need to save ~$6k/year for the equivalent of 4 years of $15k tuition or $24k/year for the equivalent of 4 years of $60k tution.
Chris, here's a question for you from Yuppie
Yuppie, it sounds like you are doing well financially. Congratulations! You bring up a good point about how to properly achieve diversification when you have limited choices in your TSP. If you're not ready to hire an advisor I wouldn't worry about it. But you will have to invest your own time and energy to become an astute investor if you don't hire someone. You may want to use a data aggregator like mint to get a 30,000 foot overview of your accounts....
Yuppie, ...from there you will need to take the best each plan offers to achieve proper diversification. This could mean having one account that is more aggressive or conservative because it offers the best choice.
Yuppie, ...You may want to consider just hiring an advisor by the hour or on an annual basis when something comes up so you have someone to bounce ideas off of.
Another option may be to work with an hourly feeonly planner to set up an investment strategy. For probably less than $500, you can have someone recommend specific investments for your accounts. Best of luck!
Bethany, when you're ready, you can take this one from Leigh
Sounds like you are doing a great job at agressively saving at this point in your life - rough 23% of your income. To add to Bethany's excellent points, I would suggest considering getting a small LTC policy knowing that it will not fully cover your costs, but that will help you with them. It allows you to have smaller premiums now, however, should you ever need it, it will give you more options for how to manage cash flow at that time. Moreover, should you even need to spend down all of your assets, having LTC can help position you in a better facility to start with. I hope that helps!