Increase my funding to 403b or start my wife's 401k?

In My Humble Opinion (IMHO)
#1

I am the primary breadwinner in the family. I am a teacher and have a 403b. We are paying off our house this month and are ready to increase contributions to retirement. I already contribute pretty well to my 403b, but am planning to increase now we don’t have a mortgage to pay monthly.

We also have no debt. No credit card, student loans, or other stuff.

Her company does offer a 401k. We are not sure if she should start contributing to it or if I should just figure out how much she would have contributed to it and just add that to my 403b. She has not contributed to her 401k at all. I am relying on my investment + my teacher pension(Michigan).

Her company offers one reason to go with the 401k. They do a small matching. Once per year. 50 cents on the dollar. Maximum from them is $1000. So, if she contributes $2000 per year, she’d get $1000 from them. It’s based on profits, but we think they’ll offer it most years.

Is it worth that or should I just add $2000(or something close) to my 403b, which has been rolling along for 10+years. (I’m talking $2000 in addition to what I was already planning to increase).

#2

Always contribute up to the match on your wife’s 401k, it is free money.

After contributing up to the match, put all contributions into whichever of your plans has funds with the lowest expense ratios, until you hit the contribution limit for that plan (if you can contribute that much). If you have enough money to do that and still contribute to the other spouses plan, then do that too.
Make sure you are invested in the lowest cost investments possible in each plan. That is, those with the lowest fees for the investment type you want, IE stocks or bonds. The forums at bogleheads.org are a good place to talk about the options there if you are confused. Many 403b and 401k plans are absolutely awful and have either no low cost funds or just one or two - if they have just a few put all your money into, for example, the single S&P 500 fund at .5% expense ratio and none into crap funds at over 1%.

If all stock funds in both of your plans have expense ratios over .5%. Look at your combined income. If less than $189,000, you make under the cap to contribute to a roth IRA, so you should open a Roth IRA at a low cost provider like Vanguard and contribute up to $5500 for each of you into that instead of your 401k/403b after the minimum you need to put in to get the match.

Edit to add. I can’t stress enough that fees eat you alive - a “1%” fee, if your stocks earn 5%, is really a 20% fee on your earnings and you will wind up with literally hundreds of thousands of dollars less in retirement if you don’t pay attention to them.

#3

Let me put it in different terms. That’s a 50% rate of return on the first day of investment. That’s not small even if it is capped.

#4

Let’s say she puts 2000 in per year and gets 1000 from the company. She does this for 12 to 14 years. Will that add up to much if she takes a safe level of risk?

I could add 2000 to my already established 403b and am wondering if that would be better.

#5

As Dino noted - she gets an immediate return of 50%. Nothing with a safe level of risk can beat that.

She is investing $250/month (including match) you would be investing $166.66 in your 403b.

With a 5% return, after 12 years, she has $47,751.38. You have $31,832.98.

Numbers from here - https://www.investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator

#6

Obviously, you should take the match up to the max with a couple of caveats. The first is if you have a difference in your ages. If she’s 30 and you’re 50, putting it in her account effectively locks you off from it for longer. The second is if you have a pre-nup that protects retirement assets, there may be implications to putting it in one place or the other in the event of divorce. Even without a prenup, while the money is technically hers, dividing retirement assets is a very messy thing, so putting it in yours will likely benefit you more. Of course, putting it in your account with the intent of screwing over your spouse should you divorce makes you a morally suspect person IMHO, but you were asking for the practically wise thing to do and not necessarily the morally right thing to do.

#7

Hmmm…

I may have her set this up.

#8

Yep

#9

Nicely done and illustrated. I used to use similar illustrations and logic to try and hammer home the basic idea of not leaving free money on the table. Always amazed me how many people couldn’t be bothered.

#10

Thanks.

Here is a link to a fact I try to hammer into my kids heads. Ten years of Investing $5k/year from age 25-35 will beat waiting and investing for thirty years from 35-65.

Thanks to compounding - investing $50,000 early beats $150,000 later.

#11

I invested heavily into my 403b since 2006(age 28-40). I am sitting on a reasonable amount of money now, but plan to up that even further.

400k-500k is my expected amount at 52-53, not including anything my wife now does with her 401k.

I’m a teacher, and receive a pension from the state(and health care) in addition.

#12

Well done. You are ahead of where I was at 40 - I only had 60k and no pension.

I spent the next 20 years saving at least 15% of my gross, plus every bonus & raise went to maxing out my retirement accounts. I invested agressively in index funds.

I made it to comfortable retirement in the two-comma club.

#13

We’re trying. I know nothing in life is guaranteed, including future life itself. I just want to have a plan for retirement. And if I die, I have life insurance, work life insurance(not much), the house my wife could sell at pure profit now, and all my investment.

#14

My denseness is showing. My wife and I discussed this tonight again I have to re-state my question in different terms to here your answers. I appreciate your help.

The current situation: I contribute 400 pre-tax to my 403b. Wife contributes zero.

New plan: I was going to up mine to 800 pre-tax per month to 403b. Wife contributes zero.

NEW NEW plan: I increase to 620 per month pretax tom y 403b. Wife contributes 180 per month to 401k. (this gets her to the max. matching per year).

We are not rich and I think that for now, $800 total pre-tax is all we can afford even without our mortgage. Is our NEW NEW plan the best one of our plans?

(should we worry about 401k management costs vs 403b??)

We super appreciate your help/advice.

#15

Your $620/180 plan sounds good and takes advantage of matching funds. Increase it as you can - like when you get a raise (I know).

The only thing you can do to minimize fees is to pick index funds or target date funds. Target date funds are easiest, they automatically shift to a more conservative mix as you age. With index funds you have to do that. Pick a target date that matches when you expect to start withdrawals.

Vanguard funds, if available, are best.

#16

NEW NEW plan sounds reasonable.

One thing you don’t seem to consider is which of you has better investment options. You might want that person to increase their contributions more. As jasg commented, low-cost index funds and low-cost target date funds can both be good ways to invest. Without knowing your particular investment options, it’s hard to know whether the NEW NEW plan is also the BEST BEST plan but it seems pretty good. Good luck.