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Overpay mortgage vs 403b vs invest in markets

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rated:
So our current situation is listed below, but in short I am looking for the best financial move to make with a few hundred dollars per month. I'm torn between over paying our mortgage (details below), increasing my 403b contribution, opening an IRA, or other investment strategy. A close relative offered advice of "hedging" any extra money between the mortgage and s&p 500. What I have been doing is slowly increasing my 403b contribution and slowly increasing our mortgage over payment. I know historically speaking the s&p 500's returns are much greater than our mortgage rate, but I've been playing it safe with a safe bet vs possibly losing money short term in the markets.

I'm open to any and all suggestions. Thanks all !

Our situation:

Mid 30s, 2 kids, I'm main bread winner, she works a couple days a week and takes care of our kids the rest of the time (has payed dividends in behavior, school grades, etc)

Income: $90-$100k

Pension/Annuity: 5-15% employer funded, 5% guaranteed annual growth
.........................On top of that I put ~ 10-12% pretax towards employer 403b
Plan basically guarantees we will have an income that's more than what my current income is, in our retirement years

Mortgage: 5 years into a 3.50% 30 year fixed, $236k remaining, property worth ~ $420k

Savings: 6 months emergency spending in liquid assets, high interest checking accounts

Other: I have $500k life insurance, only debt is 2 car payments, total $600/month financed at 1.6%, college funds started for both kids


Im open to answering any other questions, and any input, comments, and sly remarks are welcome!
Thanks all !
 

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rated:
One fundamental question is: Would you take out a loan at ~3.50 percent (minus tax deductions on interest) to invest in today's market?

Because that's exactly what you're doing by not paying off your mortgage.  Some people, when hearing it put in this way, say "heck no!"  Others take a more nuanced approach.

Personally, I would start a Roth IRA and maximize my 403b contribution (with the 403b as a priority if there is employer matching). Then I would plug away at the mortgage.

Good luck!

rated:
Do you have any great investment options inside your 403b? If not, go with a Roth IRA (or trad IRA if that makes better sense).

rated:
+1 on fwuser12's comment.  My wife's 403b investment options are pretty expensive, with the most reasonable being an S&P 500 fund with ~0.6% ER.  I would at least put enough in to get any offered employer match, but IRAs for you and your wife would allow you to put away $5500 each annually with potentially much better investment options. 

rated:
Fees are around 0.75% for most of the 18 selections we are offered. Looking through IRAs, some have much lower fees.
So it sounds like mortgage should not be the primary focus.
I will open a Roth IRA tonight, thanks !

rated:
Not enough info about 403 (b). Mine sucks and I chose to put money into Roth ira.

Mightve chosen different if my 403b was a worthwhile choice.

rated:
What info would you like to know? Theres a couple dozen options, through fidelity, including blended funds, bonds, domestic or foreign stock, fees are around 0.7 - 0.85%, there is no company match, as they are providing a pension as outlined above. 

rated:
Those fees suck and with no company match, that should be your last tax-advantaged savings options.

I think I'd still work toward maxing out overall tax-advantaged retirement savings before doing any extra mortgage payments.

rated:
Clarification on the 403b:

We have 3 different "tiers" we can chose from to invest.


Tier 1: Easy choice (choose which year you will retire 2025, 2030, 2035 up to 2060)
With different Vanguard Institutional Target Retirement (YEAR) Fund Institutional Shares - fees 0.09 - 0.1% fees


Tier 2: Guided choice
GMO GLOBAL ASSET R6 (GATRX) - 0.60% fees
JPM DIVRSD RL RT R5 (JRLRX) - 1.62% fees
MFS GLOBAL EQUITY R6 (MWEMX) - 0.88% fee
PIM GL ADV STR BD IS (PSAIX) - 0.74%
VANG VMMR-FED MMKT (VMFXX) - 0.11%


Tier 3: Open Choice
Fidelity BrokerageLink (I haven't looked into this much yet)

rated:
RobInBoston said:   Clarification on the 403b:

We have 3 different "tiers" we can chose from to invest.


Tier 1: Easy choice (choose which year you will retire 2025, 2030, 2035 up to 2060)
With different Vanguard Institutional Target Retirement (YEAR) Fund Institutional Shares - fees 0.09 - 0.1% fees


Tier 2: Guided choice
GMO GLOBAL ASSET R6 (GATRX) - 0.60% fees
JPM DIVRSD RL RT R5 (JRLRX) - 1.62% fees
MFS GLOBAL EQUITY R6 (MWEMX) - 0.88% fee
PIM GL ADV STR BD IS (PSAIX) - 0.74%
VANG VMMR-FED MMKT (VMFXX) - 0.11%


Tier 3: Open Choice
Fidelity BrokerageLink (I haven't looked into this much yet)

  I dont see any useful funds that you cannot easily get in an IRA.
With no match, I will max. out the Roth IRA (e.g., at Vanguard/Fidelity) and then put the rest in the 403b. The Vanguard Target date funds (in your tier 1) would be a good choice for that.

Note that the IRA annual contribution limit is 5.5k for each of you. So 11k between the two of you.

rated:
Due to lack of company match on 403b, I'll second moving the current 403b investment into a Roth IRA. That also adds tax diversification to the portfolio. And you would not be limited to investment options as much and be at the mercy of high expense ratio options. Vanguard or Fidelity have index funds with like 0.1% or less expense ratio.

As long as spouse earns more than $5.5k per year, both OP and spouse can each invest $5.5k into Roth IRA. $11k after tax dollars is a bit more investment than 10-12% of $90-100k in a 403b.

rated:
Shandril said:   As long as spouse earns more than $5.5k per year, both OP and spouse can each invest $5.5k into Roth IRA. $11k after tax dollars is a bit more investment than 10-12% of $90-100k in a 403b.
 

  If they are married and filing MFJ, spouse deosnt need independent earned income to qualify for an IRA contribution. OP's income should suffice (11k income to qualify both for the 5.5k max contribution each).

rated:
Shandril said:   Due to lack of company match on 403b, I'll second moving the current 403b investment into a Roth IRA. That also adds tax diversification to the portfolio. And you would not be limited to investment options as much and be at the mercy of high expense ratio options. Vanguard or Fidelity have index funds with like 0.1% or less expense ratio.

As long as spouse earns more than $5.5k per year, both OP and spouse can each invest $5.5k into Roth IRA. $11k after tax dollars is a bit more investment than 10-12% of $90-100k in a 403b.

  
To clarify, the 403b is divided into ~$22k in traditional ira and ~$8k in Roth IRA. Maybe I misunderstood previous posts, what you are suggesting is I roll over my entire 403b into a Roth IRA? 
I've already:
Opened 2 new Roth IRAs - Vanguard and Betterment, $500 each, plan to max $5500 this year and every year going forward, continue 403b contributions
Began rolling over my wife's Roth from Wells Fargo to Betterment (WF had us paying very high fees, not aggressive enough at all, poor customer service, low return, etc)

Whatever your opinion on robo investors are, I still feel this is a step in the right direction and want to again thank all that contributed to my post. You've all restored my faith in FWF

rated:
RobInBoston said:   To clarify, the 403b is divided into ~$22k in traditional ira and ~$8k in Roth IRA.
  
I don't think you meant to write "IRA" there.
RobInBoston said:   
Shandril said:   Due to lack of company match on 403b, I'll second moving the current 403b investment into a Roth IRA.
  
 Maybe I misunderstood previous posts, what you are suggesting is I roll over my entire 403b into a Roth IRA?

  
I think they're saying to max the IRAs first. Most 403(b) plans do not offer in-service rollovers (though if yours does, definitely look into it).

I take it you don't have an HDHP/HSA? If you did, I'd max that after the IRA and before the 403(b).

And not that you've mentioned anything otherwise, but if you're splitting your investments between Roth and traditional, definitely put the Roth money into the IRA since it has a higher effective contribution limit than a traditional IRA (though the nominal contribution limit is the same, the post-tax contribution in a Roth IRA is equivalent to a larger pre-tax contribution in a traditional IRA).

rated:
doveroftke said:   
RobInBoston said:   To clarify, the 403b is divided into ~$22k in traditional ira and ~$8k in Roth IRA.
  
I don't think you meant to write "IRA" there.
RobInBoston said:   
Shandril said:   Due to lack of company match on 403b, I'll second moving the current 403b investment into a Roth IRA.
  
 Maybe I misunderstood previous posts, what you are suggesting is I roll over my entire 403b into a Roth IRA?

  
I think they're saying to max the IRAs first. Most 403(b) plans do not offer in-service rollovers (though if yours does, definitely look into it).

I take it you don't have an HDHP/HSA? If you did, I'd max that after the IRA and before the 403(b).

And not that you've mentioned anything otherwise, but if you're splitting your investments between Roth and traditional, definitely put the Roth money into the IRA since it has a higher effective contribution limit than a traditional IRA (though the nominal contribution limit is the same, the post-tax contribution in a Roth IRA is equivalent to a larger pre-tax contribution in a traditional IRA).

  

No roll over offered =(
No HDHP/HSA only an FSA offered

rated:
Get a 2nd job or side income if you really want to get ahead. Also, what options does the wife have and how much income there? Most part-time jobs have very little in the way of benefits, but there are some that are very good (Starbucks is my "go to": 401k with match, ESPP w/ discount, annual stock grant, medical/dental/vision/life, PTO, free undergrad tuition, 30% discount, free 1 lb. of coffee per week, free drinks and food while working... they only matter while if you use them. While the hourly rate isn't fantastic, it also isn't horrible for basically a high end fast food job. Also, there are tips!). If you get a 2nd job and it has benefits, use them. This is what I have done... I do at least the minimum to get the full employer match at both jobs. Then, I pick which one I would rather have more money in and increase the contribution that way. That extra match is money that you could contribute if you're maxing out, anyhow. My 2nd jobs have yielded me a nice extra amount of employer contributions... And I always view them as temporary things (must weigh if you will stay long enough to be vested... but it has worked out for me because the first major time that I did this, my 2nd job was my old job where I was already vested... and my current has 100% vesting after just the 1st year).

Another thing to consider... yes the math can give you a different suggestion as to what you SHOULD do... but psychology has a part to play. Paying down your mortgage matters less and less as each month goes by and the realization horizon is way out there. Unless you are going to be very aggressive with paying it down or you are early in your mortgage, I wouldn't do too much. The best years are the first 7 years... so you still have a little bit of time there. Also, saving up cash has an intangible mental benefit... and holding assets in a brokerage outside of your retirement accounts is very nice, too. I started many years ago on Sharebuilder (with the $25 bonus, numerous times, thanks to this forum) and started doing $25/mo in one stock... so many years later, I am up 238% and continue to buy this stock at $30/mo. Every so often, I evaluate another stock and add it to the list, originally doing $25/mo, but then bumped to $30/mo for each. With barely any notice of the money being diverted, I have amassed a decent amount of assets... and I have dividend reinvestment on.

These are all just considerations.

EDIT: Also, don't necessarily go nuts on college savings.  I have been doing $25/mo forever myself because that is the minimum for my state and we get a state tax credit of 20% up to $1k credit per year.  My wife used some of these funds which helped.  But present day, it isn't horribly difficult to just pay for college out of pocket if you plan well otherwise.  My middle child is starting university next year and going to a very reputable state school, living at home.  The annual tuition is $9k and there will be a 1/3 reduction due to have a decent GPA (3.5).  If we would have known better, a 3.8 GPA would have yielded a 2/3 tuition reduction... and a #1 or #2 in graduating class would have yielded free tuition.  So, we have to come up with $6k year in tuition, plus other expenses.  Well, the wife works now and are maxing out our 529 contributions starting this year.  Since we can get a credit of up to $1k on $5k deposited, we are just "rinsing" our money through the 529... deposit it there, then withdraw to pay tuition after it clears... and then using a cash back credit card.  This year gets up a little extra cash to cover the other $1k in tuition and expenses.  What the future holds, we don't know... but this is the reality for us today.  We are hoping that it will take less than 4 years, as well, because of college credit while in high school through dual-credit courses, AP courses, etc... plus, there will probably be some other scholarships out there for us (nothing huge, but another $1-2k a year would be icing on the cake).

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