Allocation advice

[Johnny RN]

We are currently maxing out 403b/457 and putting 11k for roth as well as money in kids 529 as my wife finished fellowship last summer. We just paid off 13k in a higher interest student loan, and owe 78k on wife's med school loans which we just refinanced at 3.25% which is on a 5 year payoff term. Currently owe 148k on mortgage thats at around 4%, which I have been dropping about an extra grand a month towards, and wife seems happy at our house with some renovations in the future. I'm torn on how to attack this, my plan is to be taking out about 3,500 a month for after tax investments, am I better off staying this course or just wiping out the student loan in like 5-6 months?

[WallStreetPhysician]

Johnny RN wrote:

We are currently maxing out 403b/457 and putting 11k for roth as well as money in kids 529 as my wife finished fellowship last summer. We just paid off 13k in a higher interest student loan, and owe 78k on wife’s med school loans which we just refinanced at 3.25% which is on a 5 year payoff term. Currently owe 148k on mortgage thats at around 4%, which I have been dropping about an extra grand a month towards, and wife seems happy at our house with some renovations in the future. I’m torn on how to attack this, my plan is to be taking out about 3,500 a month for after tax investments, am I better off staying this course or just wiping out the student loan in like 5-6 months?

Click to expand...

I actually just wrote a post on this topic went live this morning:

http://www.wallstreetphysician.com/paying-student-loans-versus-investing/

Since you're already maxing out your tax-advantaged accounts, I would wipe out the student loan debt, but mathematically you'd probably be ahead by investing in the stock market.

-WSP

[Johnny RN]

I guess also adding to that, we plan are saving for some home renovations, so whatever we aren't able to come up with in cash would also prob be refinanced into home equity which will most likely be longer and worse term than this student loan dilemma.

[ajm184]

For your home renovation; are you talking like 20k to spruce up a kitchen/bathroom, or is this a 100k second story addition?  In what timeframe is your wife envisioning this 'future'?  Show your wife whatever you calculate and get her input and the potential tradeoffs.  Given what appears to be a high savings rate and aggressive debt repayment, I would tend to save fully towards the renovations versus obtaining a loan.  You may consider being less aggressive in extra debt repayment for some timeframe to get the home renovation resources.  One area would be your existing mortgage as you are probably not running into SALT limitations based upon the interest rate and principle remaining.

[Johnny RN]

Yeah more like the 100k option. Not really a matter of feeling like we are not content, more like wife wants one more child and happy where we live but want an additional bedroom so it doesn't have to be in the next month but ideally a year from this spring. I have kept an eye on houses for a while as we have live d in our house for 7 years and have come to the conclusion I don't think we are gonna find an existing house that makes us want to pay the significant difference for what we got ours for, so that leaves us with this option or building, and building just seems crazy expensive even when we make good money.

[cgossage]

WallStreetPhysician wrote:

Johnny RN wrote:

We are currently maxing out 403b/457 and putting 11k for roth as well as money in kids 529 as my wife finished fellowship last summer. We just paid off 13k in a higher interest student loan, and owe 78k on wife’s med school loans which we just refinanced at 3.25% which is on a 5 year payoff term. Currently owe 148k on mortgage thats at around 4%, which I have been dropping about an extra grand a month towards, and wife seems happy at our house with some renovations in the future. I’m torn on how to attack this, my plan is to be taking out about 3,500 a month for after tax investments, am I better off staying this course or just wiping out the student loan in like 5-6 months?

Click to expand…

I actually just wrote a post on this topic went live this morning:

http://www.wallstreetphysician.com/paying-student-loans-versus-investing/

Since you’re already maxing out your tax-advantaged accounts, I would wipe out the student loan debt, but mathematically you’d probably be ahead by investing in the stock market.

-WSP

Click to expand...

This is where my head is at too.  Max out tax-advantaged accounts and take care of the student loan debt.  Sure, it's only 3.25%, but it's also a guaranteed return.  Long-term, the stock market should outperform, but my return expectations should be relatively muted.

[WallStreetPhysician]

Johnny RN wrote:

I guess also adding to that, we plan are saving for some home renovations, so whatever we aren’t able to come up with in cash would also prob be refinanced into home equity which will most likely be longer and worse term than this student loan dilemma.

Click to expand...

Sounds like you want to put the extra money towards the home renovations instead of the student loans or investing. That's completely reasonable. The student loan debt you currently hold is certainly manageable.

-WSP

[jhwkr542]

From what I gather from your priorities, it sounds like the home renovation is money already earmarked.  I'd do whatever you can to avoid taking out a loan for that and pay the rest towards student loans, but I'm kind of debt averse (I plan to never take out another loan in my life if I can help it).  It'd help if you got a timeline for when to start that home renovation, so you can allocate $X to saving for that and $Y to saving for that.