Are we saving enough?

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Are we saving enough?

Postby mamarachel » Mon Jul 01, 2013 4:46 pm

As the question asks, "are we saving enough"?

We are "late" to the savings game, after a lot of being beat-down from the economic circumstances (and a lot of poor choices) in the last 15 years. I won't make excuses, 50% of our beat-down was self-inflicted. Throw in student loans for 25K, 4 long-term layoffs, and poorly timed and financed house decision, + medical issues and we are just now to the point where we can be serious about saving. Our income has not always been great, but we feel now that we are "in a good place" in that regard. We have all but doubled our income in the last 3 years.

We are 36/34 now.
We are debt free except the mortgage (135K, 30 year, 4%, paying as if on 15 year note for last 12 months).

We have a current 401K/TIRA balance of about 75K, depending on the day.
Our income is between 180-210 gross (salaried + commissions & bonuses). 110 is salary only.

For FY 2014 an onward our plan is (in today's money, of course as income grows, contributions will grow to match):
401K 27,090 pretax
+ match 6,500
+ 5,500 ROTH IRA
$39,090

We will not meet that this year due to debt payoffs but are on-target and withholding / budgeting to meet the 40K for 2014. We will probably end up in the 20K range FY 2013 to 401K only.

Is this "enough". I can't imagine pinching any more pennies from our budget. We may be able to seek some tax advice to lower our FIT / SIT situation to squeeze out a little more, but day to day living expenses are requiring the rest (we have 2 young children in FT daycare at 25K per year + living expenses in a MCOLA).

One of us has a TIRA balance of about 15K, which we could slowly convert to a ROTH if that makes sense over several years. We may be limited on this conversion with income spikes, and I'm not sure it makes sense now as we are firmly at 28% FIT. It might be a better plan to dump it into the 401K that is not fully funded. I'll run scenarios at tax time.

What I'm wondering is if this is "enough" to make up for what we are behind.

We will do everything possible to save in addition to this for college, but right now, our budget only allows one or the other. Retirement OR college. Worst case scenario we have to reduce contributions in the future and help cash-flow college or take small loans - extra jobs, gap year, etc. We've discussed this and feel it is the best case for everyone. We have one in-state university within easy commuting distance and they could live at home. We are hopeful to have no house-payment by our mid-50s.

There is no other income planned for retirement. We are not pensioned, and are not counting on SS to be much by 2045.

Thoughts or ideas on how to analyze this are welcome. Should we seek the advise of a CPA for tax planning (it's free, but has "strings attached" as it is a family member).
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Re: Are we saving enough?

Postby LadyGeek » Mon Jul 01, 2013 5:02 pm

FYI - The OP is asking about an Investment Policy Statement in this thread: Starting our IPS - a little feedback?

(It's best to keep all the information in one spot, but these are 2 different topics.)
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Re: Are we saving enough?

Postby mhc » Mon Jul 01, 2013 5:08 pm

You are saving enough assuming you contribute for another 30 years and then withdraw from the portfolio for 30 years.

A real simple back of the envelop says if you take the money you invest any given year and then use it exactly 30 years later for living expenses, you can have:
$39K*(1.03^30) = $95k/yr in today dollars for 30 years of retirement.

Add in SS, and you are in good shape. This assumes a real return of 3%.

You can play with firecalc.com to get a better idea.
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Re: Are we saving enough?

Postby damjam » Mon Jul 01, 2013 5:17 pm

I like the table in this post. It gives a good starting point. Read the paper it is based on as well.

The quick rule of thumb I see here is you need 25-30 times expenses saved by the time you retire. That seems to be for a ~30 year draw down and not counting on SS.
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Re: Are we saving enough?

Postby Watty » Mon Jul 01, 2013 5:31 pm

Our income is between 180-210 gross (salaried + commissions & bonuses). 110 is salary only.
Thoughts or ideas on how to analyze this are welcome


You need to figure out where all the money will be going to next year when the debt you mentioned is paid off;

You will be paying maybe;
$12,000 a year towards the mortgage,
$25K in daycare
Maybe $60K in taxes.

That leaves in the ballpark of $100K in after tax dollars unaccounted for.

This isn't so much about your current spending(which is important) but if you are living a lifestyle that will cost $150K a year in retirement then that will require a huge retirement nest egg.

Until you have at least a rough retirement savings goal there is no way to know if you are likely saving enough.
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Re: Are we saving enough?

Postby Majormajor78 » Mon Jul 01, 2013 5:56 pm

damjam wrote:I like the table in this post. It gives a good starting point. Read the paper it is based on as well.

The quick rule of thumb I see here is you need 25-30 times expenses saved by the time you retire. That seems to be for a ~30 year draw down and not counting on SS.

Beat me to it. This is my favorite economic paper because it directly addresses one of the most important investing questions (savings rate) and attempts to place actionable figures in the hands of the general public.
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Re: Are we saving enough?

Postby mamarachel » Mon Jul 01, 2013 6:40 pm

Thank you for the above links. I will check them out.

the TRP calculator I used said we'd need 10K per month, but it didn't take into account that of our $8100 fixed expense budget today, $3500 is related to the children and mortgage, and thus those payments "go away".
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Re: Are we saving enough?

Postby mamarachel » Mon Jul 01, 2013 7:11 pm

Watty wrote:
Our income is between 180-210 gross (salaried + commissions & bonuses). 110 is salary only.
Thoughts or ideas on how to analyze this are welcome


You need to figure out where all the money will be going to next year when the debt you mentioned is paid off;

You will be paying maybe;
$12,000 a year towards the mortgage,
$25K in daycare
Maybe $60K in taxes.

That leaves in the ballpark of $100K in after tax dollars unaccounted for.

This isn't so much about your current spending(which is important) but if you are living a lifestyle that will cost $150K a year in retirement then that will require a huge retirement nest egg.

Until you have at least a rough retirement savings goal there is no way to know if you are likely saving enough.


This may inspire me to look at our withholdings, because I hadn't thought in these terms. Our monthly expenses are about $8K cash (not including savings). I suspect due to our bumped up deferrals that we would be way over-withholding for taxes (at least I hope so) which should leave a lot more room for saving.

8Kx12 = 96K cash
+ 40K deferred retirement
+ 8K SIT
+ 5K Sales Tax
leaves the rest for FIT. I don't think we'd be anywhere NEAR 50K in FIT. No way. Gosh if that is true I'll just quit my job and we'll live off of one income.

Last year we paid 23K in FIT, 8K in State. I can't imagine our federal doubled.

My "dream budget" with living the lifestyle we want requires 10K in income per month after tax and deferred savings. That is for a bump up in house, and maintaining just about everything else as-is. Near 45% of that would "go away" in retirement because it would be the house payment and kids-savings. We'd increase our cost by 1/2 of that again, meaning we could be VERY well off on 75% of our income in retirement (before taxes).
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Re: Are we saving enough?

Postby spotty_dog » Mon Jul 01, 2013 7:27 pm

mamarachel wrote:Last year we paid 23K in FIT, 8K in State. I can't imagine our federal doubled.


You made $200k, didn't even max your 401k, and paid under 12% effective?? Dang! What's your secret?
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Re: Are we saving enough?

Postby mamarachel » Mon Jul 01, 2013 7:40 pm

spotty_dog wrote:
mamarachel wrote:Last year we paid 23K in FIT, 8K in State. I can't imagine our federal doubled.


You made $200k, didn't even max your 401k, and paid under 12% effective?? Dang! What's your secret?


Last year our AGI was 149.9K. Commission sales is variable, I got a promotion as well. Our income is up this year. No secret. Our deductions were barely more than the standard.
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Re: Are we saving enough?

Postby sambb » Mon Jul 01, 2013 8:13 pm

Whether or not you are saving enough will depend on future lifestyle inflation
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Re: Are we saving enough?

Postby damjam » Mon Jul 01, 2013 8:26 pm

mamarachel wrote:the TRP calculator I used said we'd need 10K per month, but it didn't take into account that of our $8100 fixed expense budget today, $3500 is related to the children and mortgage, and thus those payments "go away".

Don't forget to add back in increased health care costs and perhaps additional travel or other desired activities. Also you may wish to purchase LTC insurance at some point if it is a good value. Given your young age I would seek to err on the side of caution and not reduce expenses by too much.
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Re: Are we saving enough?

Postby spotty_dog » Mon Jul 01, 2013 8:55 pm

mamarachel wrote:
spotty_dog wrote:
mamarachel wrote:Last year we paid 23K in FIT, 8K in State. I can't imagine our federal doubled.


You made $200k, didn't even max your 401k, and paid under 12% effective?? Dang! What's your secret?


Last year our AGI was 149.9K. Commission sales is variable, I got a promotion as well. Our income is up this year. No secret. Our deductions were barely more than the standard.


Ah, gotcha. Our household income is in the $200 range, and it feels like we pay a lot more despite maxing a solo 401k and other deductions, but it's independent contractor income so it's not really comparing apples with apples.
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Re: Are we saving enough?

Postby NorCalDad » Tue Jul 02, 2013 2:30 am

I'd stop prepaying your mortgage and devote as much extra to your 401ks. With income hovering around $200k and that small a mortgage, it seems to me you should be able to get closer to maxing out IRAs and 401ks.
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Re: Are we saving enough?

Postby Bob's not my name » Tue Jul 02, 2013 6:26 am

mamarachel wrote:FIT solid 28%
SIT 9%
I don't think you're in the 28% bracket.

$210,000 max gross income
- $5,000 dependent care FSA
- $2,500 health FSA
- $27,000 401k contributions (could be $35,000)
- $3,500 pre-tax health, dental, and disability insurance premiums withheld from your pay (guess)
---------------
$172,000 AGI --> eligible for direct Roth IRA conributions (phaseout starts at $178,000)
- $15,600 personal exemptions
- $15,400 itemized deductions (guess -- your state income tax deduction will be bigger this year)
---------------
$141,000 taxable income --> in the 25% bracket with about $5,000 of headroom

Unfortunately, you're in the 30% bracket because you're in the child tax credit phaseout, which adds 5%. Given your high marginal rate -- what, about 37% with deductible 9% state tax? -- you should prioritize 401k contributions over Roth contributions, and Roth contributions over accelerating mortgage pay down, and of course converting the existing TIRA would be nuts. You might find this useful regarding why a TIRA is a useful emergency fund for a young family: http://thefinancebuff.com/your-traditio ... -fund.html

These might also be useful:
http://thefinancebuff.com/how-to-build- ... art-1.html
http://thefinancebuff.com/how-to-build- ... art-2.html
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Re: Are we saving enough?

Postby mamarachel » Tue Jul 02, 2013 12:45 pm

Bob's not my name wrote:
mamarachel wrote:FIT solid 28%
SIT 9%
I don't think you're in the 28% bracket.

$210,000 max gross income
- $5,000 dependent care FSA
- $2,500 health FSA
- $27,000 401k contributions (could be $35,000)
- $3,500 pre-tax health, dental, and disability insurance premiums withheld from your pay (guess)
---------------
$172,000 AGI --> eligible for direct Roth IRA conributions (phaseout starts at $178,000)
- $15,600 personal exemptions
- $15,400 itemized deductions (guess -- your state income tax deduction will be bigger this year)
---------------
$141,000 taxable income --> in the 25% bracket with about $5,000 of headroom

Unfortunately, you're in the 30% bracket because you're in the child tax credit phaseout, which adds 5%. Given your high marginal rate -- what, about 37% with deductible 9% state tax? -- you should prioritize 401k contributions over Roth contributions, and Roth contributions over accelerating mortgage pay down, and of course converting the existing TIRA would be nuts. You might find this useful regarding why a TIRA is a useful emergency fund for a young family: http://thefinancebuff.com/your-traditio ... -fund.html

These might also be useful:
http://thefinancebuff.com/how-to-build- ... art-1.html
http://thefinancebuff.com/how-to-build- ... art-2.html


You may be right with with the deferred contributions. Last year we had an taxable of ~120, which is 25%, so ASSumed that we would be 28% with the 40-60K increase in expected gross pay.
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Re: Are we saving enough?

Postby mamarachel » Tue Jul 02, 2013 12:47 pm

Only 60% of our income is subject to SIT of 9%. We are non-residents of the taxing state.
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Re: Are we saving enough?

Postby Bob's not my name » Tue Jul 02, 2013 1:01 pm

mamarachel wrote:Last year we had taxable income ~120, which is 25%
25% bracket, but 30% marginal rate due to the child tax credit phaseout.
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Re: Are we saving enough?

Postby Bob's not my name » Tue Jul 02, 2013 1:03 pm

mamarachel wrote:Only 60% of our income is subject to SIT of 9%. We are non-residents of the taxing state.
How is that calculated at the margin? If you earn an extra $1,000, is only $600 taxed? If so, your state marginal rate would be 5.4%. If you itemize, that's effectively 4%, so your total marginal rate is 34%.
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Re: Are we saving enough?

Postby mamarachel » Tue Jul 02, 2013 1:54 pm

I honestly have no idea how the basis works. That is something I need to look into. We are non-residents. I'll add it to my pile to research.
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