Best strategies, you have a lot of questions on this and the only way to get a comprehensive answer on what is best for you is to consult with an advisor. Several things. 1. It seems like you have all of your money equities and you might want to include a fixed income allocation to reduce the risk. 2. You have a lot in company stock. You might consider diversifying that as well. Now to your bullet points a. Know that you can contribute to an IRA for your wife to even things up. I hope you will be in a high tax bracket when you retire so you might choose to put half in an IRA and half in a taxable account. Having different buckets of money in retirement gives some valuable flexibility. b. ROTH, this might be good for the half I suggested under a. You can always go get the contributions back but you can't take any of the earnings before 59.5 without a penalty. c. I love 529 plans and your kids are still young enough to have some significant increases in their holdings before you need the cash for college. I like the low cost Utah plan but beware of broker sold plans. I wouldn't fund the 529 for more than half the needed amount...to include room and board... as one child may not go to college or may get a scholarship (you can use anything left over for you or grandchildren who go to school). d. Waiting for the market to drop? Well I have been waiting since Jan of 2014. Such thinking humbles me, which is a good thing:-) Why don't you dollar cost average into the market over the next 12 months?
@Beststrategy - (D) - Waiting until the market drops to make a lump sum investment is really tough. Is a 10% drop enough, 15%, more? I'd recommend averaging into the markets in a relatively systematic way. Perhaps you'll choose to invest $25k each month for the next 10/11 months. If the markets do correct (and you have the stomach), you can accelerate the investing. I'm a big fan of Vanguard's LifeStrategy funds. Have a look and pick the risk/reward level that you can stick with.
Julie C, do not cosign please as this usually ends up being problematic. Now as for the loan, if he can't afford the higher payment how is he going to be able to repay the loan? Go into this with eyes wide open and if you do a loan, make it official by writing it up.
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@beststrategy: I will echo a lot of what's been said. The odds are very high that you will not be able to accurately predict the bottom of a market dip. And even if you could, you might not make enough back to make up for the time that you sat things out in cash. I would consider investing the $270,000 systematically along the lines of Mark's suggestion. I also like using 529's for sonly a portion of education expense in case things don't go as planned.
@Beststrategy - At that AGI level, you AND your wife can make deductible IRA contributions if you are looking to save the maximum. Running some numbers makes sense, but I'd probably stick with the traditional IRA.
@Julie: If you can afford to, I would loan or give the $ for the down payment. I do not recommend co-signing, but if you do decide to do so, be sure to get and maintain life insurance on your son. This would allow you to pay off the mortgage if he were to die prematurely. This would still do nothing to help you if he were to, for example, become disabled which may be a higher statistical likelihood.
@Rick - You are completely correct, income levels do not determine spending needs. Rules of thumb should be used as rules of thumb. My favorite way to determine a good number for retirement estimates is what you are recommending: have a look at where money is going before retirement and adjust for the things that change in retirement (ie. more golf might add to expenses, less auto related expenses would reduce expenses). For a shortcut, look at your net income (take home pay), subtract additional savings (if any) and that is what you are spending. For many, that number is pretty close.
@rick: Setting your retirement spending goal as percentage of your total pre-retirement income is a shortcut that gets used a lot. This is probably because it's easy and you don't need to figure out your expenses (which most people don't know or perhaps don't even want to know). That approach is better than nothing, but yes, estimating what your actual costs might be in retirement in today's dollars and then trying to inflate appropriately is often a better approach. Some things to think about. Your healthcare costs may be higher. You may spend less when you aren't working or you may spend more because you have more time. Most spending usually tapers off later in retirement although healthcare spending may increase.
Beststrategy: I suggest a diversified fixed income allocation. I usually use something like Vanguard Bond Fund or ETF as the core holding. Then I might include some TIPS (inflation protected but not exciting performance) if my clients are concerned with inflation. I also use a high dividend yield fund (Vanguard has a good one) or bank loans (we use BKLN)....for a small portion I also like the Vanguard GNMA fund. We also include foreign bonds. Vanguard has a lot of low cost options and I like some of the Metropolitan West offerings. I suggest that initially to keep it simple you could just go with a total bond fund. You may even want to look at what Vanguard uses for fixed income in their target date funds. REMEMBER THIS IS A GENERAL COMMENT AND IS NOT NECESSARILY WHAT IS RIGHT FOR YOU!
@ Rick, I tell clients there are 3 phases of retirement, go go, slow go, and no go. During that go go phase we often include extra funds for travel and other exciting things. But after about 10-15 years in retirement, those funds are usually not needed. So as others have said, I would take a look at my current spending an make allowances for what will change (if the mtg will be paid, reduce the needed income--but allow for taxes and insurance, if additional insurance or long term care premiums will be paid, increase the needed income). Of course, you can also reduce the needed amount for job related expenses like clothing, dry cleaning, commuting expenses. Be SURE to include money for "what if" expenses like car or home maintenance, a child's plea for financial assistance. I usually have clients fund a separate account on a monthly basis for this kind of thing.
@Hassan Dannawi - I typically recommend Vanguard's LifeStrategy series (LifeStrategy Growth, Moderate, Conservative or Income). That way I can control the timing and level of risk I'd like to take. Target date funds shift on their own schedule that may not match my schedule.
Ah beststrategy, I think I was detailed in my last reply and unfortunately this is not a good forum for very specific recommendations. Why don't you schedule a visit with an hourly planner? One that works with investments of course.
@ Hassan, remember that target date fund have varied allocations depending on the company that is offering them. One company's 2035 fund might not look much like another company's 2035 fund. Figure out what allocation you want and then find the Vanguard fund that best fits that allocation. The Vanguard Target Retirement funds are a good, simple, low cost choice.
@Beststrategy - Specific investment recommendations are difficult. Think about using a low cost broad based "all in one" approach (mentioned in several other posts here) OR consider chatting with or hiring an advisor (I'd say a fee-only advisor with a respected financial designation) to help guide you.
@Hassan Dannawi: Target Date funds may eventually shift your allocation to be too conservative. Allocation funds with a more static approach might leave you too aggressively invested at some future point. Both types of products can be very valuable tools, but neither approach strikes me as ideal with an overall strategy, regular monitoring, and tweaking if/when needed.
@ Almost, one thing I know is that if you don't take this time with your husband, you might regret it. That said, I think it would be wise to work through this with a planner. For instance, does the pension inflate (very important as those dollars will not spend the same in 10-20 years if it doesn't). Would you downsize if you survived him? Do you work in the kind of job (like a consultant) where it would be easy to re-enter the workforce after a year or so, giving you more time to feather your nest egg? It is a puzzle. Get all the pieces on the table and get a planner to help you solve it.
@Almost - Lots of issues here. You are a prime candidate to work through these questions with an advisor. I have several comments: (1) It is really difficult to retire when you are young and healthy. You have a solid chance that you could live for 40 years so $640k in a 401(k) is probably not enough once inflation and taxes are taken into account. (2) Not every decision is a financial one. Time with your husband cannot be replaced. Tradeoffs may be necessary (taping home equity is a possibility). (3) You still have a long investment time horizon - do not invest too conservatively. I would not be hesitant to have 40-60% in equities as long as you can ride through the inevitable bumps.
Ah Victor, I hope they can't collect as the only benefit available is a survivor benefit:-)
@Almost: I don't think it's crazy to retire so that you can spend time with a loved one whose health may not be the best. Having said that, with only very rough info I'm concerned that covering your planned expenses could get dicey or worse, especially if your husband were to pass away relatively soon and you were to to live a fairly long time. I would strongly recommend hiring a planner to go over your situation in great detail. Armed with a much clearer picture of what various scenarios and options might look like, you would then be able to make a much better informed decision. There may be some in-between options to explore too.
Almost,, a comprehensive plan now, before you retire, is even more important if you don't want to go back to work later. The fact that the pension doesn't inflate (and most don't) will put an even bigger strain on your resources. To even out the spending power throughout retirement, most people have to save some of the pension income for later years when inflation makes it spend like it is less money).
@Almost - Let me clarify my statement. I'm comfortable if you had between 40% and 60% in equities. I think you would be too conservative if you are 30% in equities today.