Some more thoughts on this case:
I really want to focus on the difference of risk tolerance between the couple. This is a matter that really needs addressing - it should be thought of as like a counseling session, and the format of the PFR here online is insufficient to deal with it.
I talk a lot about virtualization (akin database normalization for techies out there) of assets. We name things 'retirement account' 'emergency funds', 'checking' / 'savings' etc but we must also remember first and foremost it is total family wealth, and total asset allocation.
This is important when we consider a family unit that has differences of opinions regarding risk - because the overall financial plan needs to be able to weather external changes. For example, if one person is buying the market and another is selling it during the same event, overall the actions cancel one another out. For cases like this I would propose finding an asset allocation that both people can agree to, and an investment policy based on that that both will follow.
For example. If the spouse here would sell in a bear market - it means that they are already over exposed to equities and should adjust downwards now - to a place where they would see a buying opportunity. Logic dictates that bear markets are buying opportunities, and bull market selling opportunities - the trick is to align emotional reactions to loss so that people can follow that pattern.
I know many will say it is hard to be emotionless with your money, but there is a way. For example, if you look at the $140K 401(k) balance today, and reallocated it to $130K T-Bills and $10K Equities - if the market dropped 50% it's likely that the spouse wouldn't panic and sell - in fact they might want to buy. The key is finding what that mix is today, so that they are comfortable with it in the future.
Going back to what I said about 'virtualization' you might find (for example) that 401(k) allocation becomes 50/50 bonds/equities. However, if the OP has gone on to invest some of that $75K in cash to equities, the spouse might suddenly feel overexposed again, and react emotionally - it is key that there is alignment across accounts for total asset allocation.
Present investible Asset Allocation
Clearly too much money is residing in Savings at this time. As the Spouse is conservative, lets allocated 6 months of Emergency Funds (EF). Note that this is not 6 x $3800 as the $3800 includes a double mortgage payment, savings and fun money. In truth, we should have a better breakdown of actual expenses here in order to spot opportunities. However, going on what we have, the OP can multiply out their actual EF needs, which might ballpark around $2500?
That would give us $60K to invest. I would suggest that both load up 2014 and 2015 Roths (for simplicity, I would just load in everything in the new year, for a $22K investment) this would allow the funds to grow tax free until retirement age.
Other retirement questions - with a 100K salary it would seem odd that there isn't a 401(k) option available? Is it just that the OP didn't want to invest, or some other reason (You can PM me the answer)
- The asset allocation for both the new Roths and the existing 401(k) should be examined and you should find a comfortable place regarding risk.
Goals:
- Pay off house (currently paying a double monthly mortgage payment) - this is an emotional decision - paying off your house when you have no other investments to speak of may not be the wisest use of your money, but if it makes you feel comfortable then go for it. Paying double is a good way to achieve this. You could also throw in the remaining $38K if your really want to pay it down fast.
- Figure out what to invest in - this is very tough. It requires alignment, and I'll elaborate below.
- Plan for retirement - Live on the lesser salary so one person can quit working - I combined these two, as they work against one another. Let's realign the terms: 'quits working = retirement'. Therefore if one of you retires today, the other one will have to work longer in order to build up the total savings for your own retirement. Based on the data you have given one of you certainly could 'retire' today, but it would mean the other would have to work that much longer. If you took that route I would recommend Life insurance on the worker, since the person who leaves the workforce may find it difficult to return in the event of something happening to the breadwinner (harder to employ due to the career gap etc).
What to invest in:
So, here's the thing: very basically speaking more risk = more reward in an efficient market. Therefore perhaps the best way to decide your risk is to model out what that ROR would do to your saving goal. As
@Paul mentioned above, if you were looking for a 3% ROR then:
$200K in assets (401K+$60K) * 3% *12 years = $1MM.
Providing you add $50K per year to that.
The $1MM number may not be what you are seeking, but if you had it, you could withdraw enough to cover your monthly costs for years to come, with a very high success ratio that you would never run out of money. The question of what you actually need in terms of a number comes down to really breaking down your monthly expenses (needs more clarity) and once you have it you have a more accurate goal.
To give perspective, if you were instead to invest at 8% ROR you could achieve the $1MM goal in just 9 years rather than 12.
The goal for you both is to decide what you will really need in terms of income to maintain your retired lifestyle, and then decide how many years you want to work for it. If the answer is that you want to quit (or one of you quit) early then you need more risk to cover that, but of course you need to be comfortable with the risk in bad times, not just in the good times.
