Saving for a house & re-structuring my retirement

Concerning the house, how long do you think it will be before you have enough saved up for a down payment on a home?

Concerning your retirement, if there is no match for the 457(b), I'd forgo it, open a Roth IRA with Vanguard, and max it out if you can. The reason is Vanguard is an ultra-low cost brokerage. The more money you save in fees, the more you have to spend at retirement.

Concerning which fund, if you're wanting a hands-off, set-it-and-forget-it approach then Vanguard's target retirement funds are for you. Simply pick the date closest to when you expect to retire and put all your money into that one fund. It is a well-diversified fund that automatically reallocates itself through the years to become more and more conservative as you approach retirement.

Agreed with Brian1

What I might suggest is that you work for a higher percentage than 3% into your retirement. I'd try to at least do the $5,000 max contribution to a Roth and work from there. If you can do more than $5,000, contribute that extra amount into the 457(b) after maxing the Roth.

I'm 23 and am closing on my house in two weeks. We're in similar places. You have additional "disposable" income above mine, but we're likely in different markets and you may not have the student debt load that I have. I try to focus on my retirement savings more than anything. I did pay off about 30% of my student debt since graduation (1.5 years ago), but have only done so after maxing out my Roth for each year and doing 10% into my 401k as well (taking advantage of 5% match as well as wanting to do more than 5,000 per year).

As Brian has said in other threads, the moves you make now will work for you much harder than those you make in the future. Saving as much now as possible gives you the most time for compounding and the most time in the market. Learning to be disciplined early will allow you to grow your net worth tremendously over time. It isn't about timing the market, it is about time in the market.

Brian and I differ on our opinions of the target date funds, but I understand that many others might not commit the time that I do to managing my retirement savings and allocating how I think is best. If you're not comfortable spending a decent amount of time picking an asset allocation that fits your age, pick the TDF that meets your estimated retirement age.

I estimate I'll have about $18,000 saved by the end of my current lease in April 2013, if I stay there another year, I can have conservatively $36,000 for a down payment. I'd probably be looking at a house in the $125,000 - $175,000 range. I'm open to buying as early as next summer if I find the right house, I'm not too concerned about having to pay PMI since I plan on paying down to <80% within a year or two anyway.

I've considered buying a $75,000 condo where I'm renting right now to save on rent, then turn it around as a rental unit later on, but I haven't gone past mentally tossing around the idea. 2/2 garage condos where I'm renting go for $1,000-$1,100 a month as rentals, whereas I could own with a 15-yr mortage payment of around $900-950 with everything included.

Retirement-wise, a Vanguard target-date fund sounds like a good "set it and forget it" option for me since while I have the education and knowledge to customize it more, I just don't have time. Since my 457(b) is pre-tax, is there any way to minimize my tax hit when rolling it into a target date fund at Vanguard?

Careful with the PMI. If you do an FHA loan, you'll pay PMI for at least 5 years even if your equity is 78% or less. You'd need to refinance to get rid of the PMI (and thus pay some new closing costs) before the end of 5 years.

Since the balance of your 457(b) is only $1800, your tax hit won't be huge in the conversion. Which tax bracket will you be in this year? You'll pay that percentage on these funds through the conversion.

If you think income will be lower next year, wait to do it then. Otherwise, with the low amount I would just roll it over and convert now before your income goes up in the future thus increasing your tax liability on the conversion. If you're in the 25% bracket, you'll need to pay an additional $450 in taxes for 2012 if you do the conversion now.

Quote from Ancalagon : I estimate I'll have about $18,000 saved by the end of my current lease in April 2013, if I stay there another year, I can have conservatively $36,000 for a down payment. I'd probably be looking at a house in the $125,000 - $175,000 range. I'm open to buying as early as next summer if I find the right house, I'm not too concerned about having to pay PMI since I plan on paying down to <80% within a year or two anyway. I've considered buying a $75,000 condo where I'm renting right now to save on rent, then turn it around as a rental unit later on, but I haven't gone past mentally tossing around the idea. 2/2 garage condos where I'm renting go for $1,000-$1,100 a month as rentals, whereas I could own with a 15-yr mortage payment of around $900-950 with everything included. Retirement-wise, a Vanguard target-date fund sounds like a good "set it and forget it" option for me since while I have the education and knowledge to customize it more, I just don't have time. Since my 457(b) is pre-tax, is there any way to minimize my tax hit when rolling it into a target date fund at Vanguard?

Quote from Formless : Careful with the PMI. If you do an FHA loan, you'll pay PMI for at least 5 years even if your equity is 78% or less. You'd need to refinance to get rid of the PMI (and thus pay some new closing costs) before the end of 5 years.

Conventional PMI typically has a minimum requirement of 2 years (decided by lender) and then until you get 78% LTV (based on a lender's assessment). FHA MI has the minimum of 5 years, but if he's looking at houses in that price range with that much of a DP, it will be a conventional loan.

OP- with regards to getting a condo and possibly renting it out in the future...just make sure you're willing to be a landlord in the future. Not every tenant is a good/easy tenant.

Also, if it were me, I would just keep my house savings in the .25% savings account...nice and safe. As a word of advise, keep track (with documentation if applicable) of any large deposits/withdrawals(anything greater than $500) within 6 months of buying the house. The underwriters will ask for that documentation and it can be a headache.

As far as PMI goes, do some research on how to get rid of conventional PMI. Some additional options besides the additional monthly payment include rolling it into your interest rate (permanent until you refi), or rolling it into the closing costs (pay it upfront, generally cheaper than 2+ years of monthly pmi payments depending on the size of your DP, but more $$ up front...get the seller to pay it!!! )

Quote from Ancalagon : I estimate I'll have about $18,000 saved by the end of my current lease in April 2013, if I stay there another year, I can have conservatively $36,000 for a down payment. I'd probably be looking at a house in the $125,000 - $175,000 range. I'm open to buying as early as next summer if I find the right house, I'm not too concerned about having to pay PMI since I plan on paying down to <80% within a year or two anyway. I've considered buying a $75,000 condo where I'm renting right now to save on rent, then turn it around as a rental unit later on, but I haven't gone past mentally tossing around the idea. 2/2 garage condos where I'm renting go for $1,000-$1,100 a month as rentals, whereas I could own with a 15-yr mortage payment of around $900-950 with everything included. Retirement-wise, a Vanguard target-date fund sounds like a good "set it and forget it" option for me since while I have the education and knowledge to customize it more, I just don't have time. Since my 457(b) is pre-tax, is there any way to minimize my tax hit when rolling it into a target date fund at Vanguard?

Concerning where to keep your savings for your down payment, I'd look for a higher interest savings account somewhere else. The highest paying one I know of is TIAA Direct [tiaadirect.com] who pays 1.25%. However, they're not taking any new customers right now. Just keep checking back to see when they begin accepting new customers again.

Concerning buying a condo as an investment property, while I admire your long-term vision, a condo is an ultra-high risk endeavor with potentially high reward. There is much more predictability in plain, old single family houses not in a second home community. Also, condo associations often times have a cap on how many of their units can be rented out. If they're already at that cap and you buy with the intention of turning it into a rental, you can't - you're stuck. And, today, this is happening to people with the best of intentions more often than you'd believe.

On another note, how's your credit score? You have plenty of time to work on it if need be.

Quote from Brian1 : On another note, how's your credit score? You have plenty of time to work on it if need be.

According to CreditKarma, mine is 724 and my wife's is 752. I have about $10,500 in student loan debt left from my MBA which is our only outstanding debt. Both cars are paid off, etc.

Quote from Ancalagon : According to CreditKarma, mine is 724 and my wife's is 752. I have about $10,500 in student loan debt left from my MBA which is our only outstanding debt. Both cars are paid off, etc.

Do either of you have any credit cards?

Quote from Ancalagon : Retirement-wise, a Vanguard target-date fund sounds like a good "set it and forget it" option for me since while I have the education and knowledge to customize it more, I just don't have time. Since my 457(b) is pre-tax, is there any way to minimize my tax hit when rolling it into a target date fund at Vanguard?

Know the risk, accept the opportunity cost(s) and don't trust anyone with your money.

Quote from Brian1 : Do either of you have any credit cards?

She has a Discover through Wells Fargo, I have a credit union Visa, then I have an Amex Blue and Chase Sapphire Preferred that she's an AU on.

Back on the retirement topic, our Hartford rep was in the office today and I got some time to talk about plan options in my existing 457(b). Turns out that I can make Roth contributions into the 457. I'm seriously considering this for a few reasons:

- Roth into a 457 means I can contribute $17,000 / year instead of the typical Roth cap ($5,000/$6,000?)
- Withdrawals from a 457 don't have age related penalties

The fees, however, are 0.92%, which is clearly higher than something at Vanguard. Hartford has a fixed fund option that returns somewhere around 4%, minus fees of course. Considering how much higher the contribution cap is for a Roth 457, even considering the fees, is this an option I should be looking at?

Quote from Ancalagon : She has a Discover through Wells Fargo, I have a credit union Visa, then I have an Amex Blue and Chase Sapphire Preferred that she's an AU on. Back on the retirement topic, our Hartford rep was in the office today and I got some time to talk about plan options in my existing 457(b). Turns out that I can make Roth contributions into the 457. I'm seriously considering this for a few reasons: - Roth into a 457 means I can contribute $17,000 / year instead of the typical Roth cap ($5,000/$6,000?) - Withdrawals from a 457 don't have age related penalties The fees, however, are 0.92%, which is clearly higher than something at Vanguard. Hartford has a fixed fund option that returns somewhere around 4%, minus fees of course. Considering how much higher the contribution cap is for a Roth 457, even considering the fees, is this an option I should be looking at?

Yes, if you'd like to contribute more than $5,000 per year.

Concerning the credit cards, if you'll keep your utilization ratio under 7%, you'll be well on your way to higher credit scores.

Crap, how are the houses where you guys live so cheap! Houses in Brooklyn, NY are like 700K+!