| Saving for "later" - Starting too late |
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csmum
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Joined: 13 May 2011
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| Saving for "later" - Starting too late |
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My situation in brief:
40 years old, female, married
husband 51
5 year old son
We got married 5 years ago, and my husband and I have nothing in retirement. He had a 401 k that he got cashed out a while ago during his divorce. The money is gone now. We bought a home 2 years ago. Our combined income is about 100k. House payments incl. insurance, taxes etc. is around 1400 a month (30 year loan). All we have in savings is about 30k. Husband has term life insurance (100k) that expires in 8 yrs.
What would my best bet be in order to supplement social security, or build up some savings for later (I am not even talking about my child's college education, as I've already given up on the idea that I can afford to pay any of it, even though I would like to)? Is it advisable to get mortgage protection insurance (25 years left on the mortgage), since he is the main bread winner and I only work part-time? He has some health issues (coronary artery disease), so it won't be possible to get reasonably priced life insurance in addition to the one he already has.
Can I invest my savings (30k) as a lump sum in some retirement program and then add monthly payments to that? Or would it be better to increase the monthly mortgage payments in order to pay off the house early instead of investing the money otherwise?
Thanks for all your input. I really appreciate it. I am also willing to meet with a financial expert in person in order to work out a solution that decreases the risk of ending up poor later in life, when my husband is too old to work. But for now I am thankful for any advice given in this forum, in order to get a general idea of the situation. I am aware of the fact that I have to do something FAST.
Thanks again!
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Fri May 13, 2011 12:52 pm |
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oldguy
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I would avoid prepaying your home loan, if you lock your money into home equity you will not be able to get to it in an emergency. Remember, if you lose your jobs a lender cannot give you a loan because you have no visible way to repay it - so you could starve while sitting in a paid-for house. Besides, home loan interest rates are at a lifetime low.
Don't get mortgage insurance - that is a form of life insurance, it pays the mortgage in the event of a death. But it is an expensive way to buy life insurance, it would cost more than straight life insurance on your husband.
You could invest your $30,000 into an SP500 Index Fund at a no-load company such as vanguard of Fidelity. Put $11,000/yr of it in Roth IRAs so that it will be tax-free when you sell it. ($11,000 is the annual limit, $5000 for you, $6000 for your husband). You can out the rest in a taxable SP500 Index and then move $11,000 of it to the Roths each yr.
I would consider increasing your work to a full-time job, not because you need more income, but becasue you will need more income at some point in the future. The odds are that you will be a widow one day (that's true for most of us, I'm 7 yrs older than wife, even if I live to be a 100 it is likely that she will outlive me.) The full-time job does 2 things - it increases your SS pension and it gives you more to invest now while you are young - those two things will make it easier 25 years from now.
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Fri May 13, 2011 3:25 pm |
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csmum
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Thanks for your valuable input, oldguy.
The thing with paying back the house faster is that I don't want to lose the house in case something happens to my H and his income is gone. With a 100000 life insurance that only gives me 5 years to cover those expenses. And that only happens if he passes away before the age of 60. I hope that won't happen.
What is that SP500 system? Do I invest a lump sum, yield interest and take 5000 out annually to finance my Roth IRA?
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Sat May 14, 2011 8:39 am |
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oldguy
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quote:
The thing with paying back the house faster is that I don't want to lose the house in case something happens to my H and his income is gone.
Yes, that is what you must guard against. But your thinking is backwards - if you pay off the house early that money had to come from somewhere. Eg, if you owe $150,000 and you prepay the $150,000, that means that you no longer have that $150,000 in the bank anymore. In case something happens, you will be much better off with the $150,000 and the mortgage. (Your house payment is about $16,000/yr, you can make house payments for years with $150,000 - and you can eat, buy gasoline, pay the utilities, etc).
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Sat May 14, 2011 2:43 pm |
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csmum
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Thanks again. I understand. And with the full-time job you're of course right on the money, too. I'm working on that.
Can you please explain (for dummies) once again how that idea of yours would work - SP 500 combined with an IRA? I'm not too familiar with those systems. Thanks.
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Sat May 14, 2011 2:59 pm |
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coaster
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quote:
Originally posted by csmum
Can you please explain (for dummies) once again how that idea of yours would work - SP 500 combined with an IRA? I'm not too familiar with those systems. Thanks.
He's talking about an S&P 500 Index mutual fund held in an IRA. IRA is the account; the fund is the asset held in the account. In lieu of a mutual fund, you can do the same thing with an S&P 500 ETF. An ETF is pretty much the same as a fund, except it's bought and sold like a stock. Check out this link for more info:
https://personal.vanguard.com/jumppage/index/
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Sat May 14, 2011 4:41 pm |
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oldguy
Senior Member
Cash: $ 309.30
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Location: arizona
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quote:
Can you please explain (for dummies) once again how that idea of yours would work - SP 500 combined with an IRA?
The IRA is the name of an account that you open, it stands for Individual Retirement Account. After the account is open you can put whatever you want in it - CDs, savings, bonds, stocks, mutual funds, etc. I like the SP500 Index Fund, it is a general market index made up of the 500 major US corporations. It is easy to watch, it is continually on the TV, it is in the lower right corner of FOX - and also on CNBC - so you can see how you are doing at any time.
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Sat May 14, 2011 4:42 pm |
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coaster
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| Re: Saving for "later" - Starting too late |
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quote:
Originally posted by csmum
I am aware of the fact that I have to do something FAST.!
I think that what you really need to be aware of is that successful investing never happens FAST. Successful investing is disciplined application of long-term accumulation. Anything that offers the possibility of FAST also presents the likelihood of a very large RISK.
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Sat May 14, 2011 4:44 pm |
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coaster
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Hah, oldguy .... 
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Sat May 14, 2011 4:45 pm |
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csmum
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By fast I don't mean to get rich fast or solve my dilemma fast, but to put a plan in action asap, as I should have done that 10-15 yrs ago. Now I feel like it's almost too late. But thanks for all the input! Very much appreciated. I will definitely look into the IRA option.
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Sun May 15, 2011 12:19 am |
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littleroc02us
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quote:
Originally posted by csmum
By fast I don't mean to get rich fast or solve my dilemma fast, but to put a plan in action asap, as I should have done that 10-15 yrs ago. Now I feel like it's almost too late. But thanks for all the input! Very much appreciated. I will definitely look into the IRA option.
I'm 40 years old and still feel like my wife and I have a world of time to invest. We still have at least 25 years to invest before I have to start touching the money, by then if you max out your Roth IRA's you have easily over a million.
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Mon May 16, 2011 4:04 pm |
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littleroc02us
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As for the mortgage, I would make sure your first maxing out your Roth's and then have an EF fund of at least 6 months expenses, the rest can go towards the mortgage. As for the term, why not have him do an additional after the 8 years is up for more coverage, say 500k?
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Mon May 16, 2011 4:06 pm |
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csmum
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When the 8 yrs are up, he will be 60 and at that age with coronary artery disease, that would be quite expensive I would think. If he should be able to buy senior term life insurance, a coverage of 500k would amount to a monthly payment of several hundred dollars. IF he gets it.
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Mon May 16, 2011 6:00 pm |
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littleroc02us
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quote:
Originally posted by csmum
When the 8 yrs are up, he will be 60 and at that age with coronary artery disease, that would be quite expensive I would think. If he should be able to buy senior term life insurance, a coverage of 500k would amount to a monthly payment of several hundred dollars. IF he gets it.
Start stocking away money then in Roth's as fast as possible then.
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Mon May 16, 2011 6:53 pm |
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csmum
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Cash: $ 1.85
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So, let's say I open a Vanguard IRA online, do they invest the money for me or do I have to tell them how I want them to I vest my money? What are the fees? What about Fidelity or one of those discount online brokers?
Decisions decisions.
I guess the good thing is that the IRA account can just as well serve as an emergency fund that I can withdraw my contributions from in case of an emergency, before I'm 59.5. That's good.
What if I open one for my husband and something happens to him?
Am I as a widow going to be able to inherit the annuity tax-free?
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Mon May 16, 2011 7:14 pm |
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