30 YO. Am I saving enough?

[wezekes]

My wife and I are 30 YO. We both recently got new jobs. We have not been making this kind of money in the past (we lived on my $63,000 income for a couple years). I make $116k and she makes $97k and live in a MCOL area. We owe $415k on our home (payment is $2792) worth about $460k. We have a rental home we owe $149k on that is worth about $230k. My BIL is our tenant and is paying us $200 on top of the mortgage for the rental, even though the market rate is $700 above our mortgage. He takes care of all the maintenance and is a good renter, though.

We have $95,000 in retirement accounts… that includes a Roth IRA, IRA, and two 401k’s.

My wife puts in 9% and her company matches 5.25%. I put in 6% and my company matches 3%.

My wife will receive the match this year. I haven’t been employed for a year yet so my match will start next year. Our company’s also give us an ESOP worth 3% of our salary. My wife will receive her first ESOP payment next month. I have to wait until the end of next year.

Once the 401k match and ESOP kick in, we will be contributing a total of ($116k x 0.12) + ($97k x 0.175) = $30,895 annually toward retirement. Is this enough or do we need to add extra in the Roth IRA or IRA, or something different altogether?

 

[aviso]

@wezekes One thing you could do is try to pay down on the home loan until you owe about $368k. This will make the PMI drop off of the loan. It will also give your home a buffer in case of a downturn in home prices.

 

[resjudicata]

@aviso To piggy back off of this comment you don’t need to pay down 20% if it appraises for whatever you have payed down plus market value is more then 20%. Me and my wife got the PMI taken off after 2 years because we bought at 320 and had owed 290 but it apprised at 370 so the bank removed the PMI. Call the mortgage company and ask what is needed to remove the PMI. We save 3k a year for the next 6 years not paying PMI

 

[robbkaat]

@resjudicata Does this affect your property tax? I’ve heard advice that if you appraise your property you will then need to start paying property taxes (~2% in my area) on the new value. An additional $50k value now becomes an additional $1k each year moving forward.

 

[resjudicata]

@robbkaat Negitive. It’s not a hard appraisal. What they do is basically the bank will hire an independent real estate agent to come through and she what they would list it for and what the comps are in the area. No there is not an appraisal sent to the county just to the bank so the bank can determine that if we were to foreclose they would get the 20% over the value of the loan. Pretty neat that they do this. Also my bank told me that the PMI doesn’t actually come off after 20% of the loans payed down. Unless you go through this process the PMI insurance has to be paid for 8 years regardless of what the loan value is.

 

[specedteach88]

@robbkaat I'm my experience, mortgage companies appraisals have nothing to do with how your state or local municipalities determine the taxable value of your home.

My wife and I just did the same thing to remove our PMI. Took us 2 attempts, tried back in March and home appraised about 10k lower than what we needed.

We painted a few rooms and spent about 5k on blinds and our value came in about 4k higher than what we needed to remove the PMI in October. We were told the blinds wouldn't count towards the value but theyre listed in the appraisal report so we'll take it.

Home value has gone up from 220k in December 2020 to 264k in Oct 2023. Our property taxes have actually gone down $10 a month since we purchased.

Keep in mind for this method to work. Your remaining loan balance has to be under 75% loan to value ratio to remove the PMI based off of an increased value of your home.

 

[allroads]

@wezekes If you have access to an HSA, max that out every year and treat it like a retirement account: invest it in the S&P 500 or similar and don’t touch it until you’re retired. (ie pay for your healthcare OOP costs out of current, after-tax funds if you can.)

 

[wezekes]

@allroads Never thought about this. I honestly didn’t know you could invest $$$ sitting in your HSA. I contribute $1300 a year into the HSA but that is primarily to pay for a $3,000 surgery I had done since the HSA isn’t taxed

 

[jmartian143]

@wezekes If you can afford it, it is probably better to keep HSA growing until retirement. You WILL have medical expenses in retirement, but in the mean time all of that money will grow 100% tax free.

 

[iliikeipe]

@allroads Huh? I thought you could only use HSA funds for medical related costs.

 

[allroads]

@iliikeipe To avoid taxes on gains, yes. (After 65 there’s no penalty.)

So, worst case scenario, it’s as good as a 401k plan.

But there’s no time limit on when you can reimburse yourself for healthcare expenditures from your HSA. So save all your receipts from healthcare spend, and reimburse yourself in the future.

Of course, you’ll surely have healthcare expenses for many, many years after you retire,

 

[evooirer]

@wezekes You seem to be in good shape. I personally aim for a 20% savings rate. So at 213k you should be looking to be investing/savings 42-43k annually.

But you’re also young enough where 15% might get you to your goals. I’m 37. My wife and I started investing at 27 but started taking it seriously and hitting that 20% rate at 34yo.

Edit: if you don’t have kids you should definitely aim to invest more now. This way when you have kids you can pull back to pay for child care

 

[kcorneli]

@wezekes You should both be at very least contributing 15% to retirement, 6% is pretty low.