Bogleheads.org

We invest 15% of our monthly income to employer 401K and Roth IRA. We save an additional 15% towards a house-fund. Our house fund has grown to about $240k. Ideally, I'd like to use some (or all) of that money towards a home at some point, and then max out Roth/401K moving forward. PNWpilot, 1) If you believe that buying a house is a lousy financial deal, why do you choose to pay a lot of taxes by putting 15% into the house fund? Max the Roth/401K now. Why do you need 240K in the 20% down payment fund? Do you plan to buy a 1.2m house? 2) It is very simple. Do not buy the house until the PITI is significantly lowered than $2,000 per month. So, buy the house in the coming housing crash. Only buy the house when it is cheap enough. KlangFool I ...

We invest 15% of our monthly income to employer 401K and Roth IRA. We save an additional 15% towards a house-fund. Our house fund has grown to about $240k. Ideally, I'd like to use some (or all) of that money towards a home at some point, and then max out Roth/401K moving forward. PNWpilot, 1) If you believe that buying a house is a lousy financial deal, why do you choose to pay a lot of taxes by putting 15% into the house fund? Max the Roth/401K now. Why do you need 240K in the 20% down payment fund? Do you plan to buy a 1.2m house? 2) It is very simple. Do not buy the house until the PITI is significantly lowered than $2,000 per month. So, buy the house in the coming housing crash. Only buy the house when it is cheap enough. KlangFool

TheTimeLord wrote: ↑Mon Mar 20, 2023 11:03 am

KlangFool wrote: ↑Mon Mar 20, 2023 10:57 am OP,

1) It does lose it's nominal value. Aka, you know exactly the dollar value.

2) Accessibility, you can get at it when you want it. It is not subject to someone's else decision. Aka, HELOC does not qualify since it can be cancelled.

3) It does not cost you to use the money. For example, you have to pay interest in order to use it.

4) Cash or cash equivalent.

KlangFool

I am going to be honest, I couldn't to save my life come up with a consistent BH definition for cash. People use the term all the time and I get the gist but to me it is a term without definition in the BH universe.

If the nominal value can change, it is not cash. Physical cash, checking and saving account, MMF. It is not that hard.

KlangFool

OP,

1) It does lose it's nominal value. Aka, you know exactly the dollar value.

2) Accessibility, you can get at it when you want it. It is not subject to someone's else decision. Aka, HELOC does not qualify since it can be cancelled.

3) It does not cost you to use the money. For example, you have to pay interest in order to use it.

4) Cash or cash equivalent.

KlangFool

TheTimeLord wrote: ↑Mon Mar 20, 2023 9:57 am I often hear having an Emergency Fund discussed here and I maintained one my entire working career but now that I am "retired" I didn't think I had one anymore. Then I started thinking about some of the assets I was holding and it seems like a distinction without a difference. So is an emergency fund just an acceptable mental accounting device to allow you to group or allocate short term accessible liquid assets or is it something else? So please tell me what counts as an emergency fund and is a rose by any other name just as sweet?

As a courtesy, why don't you start by telling us what is your definition of the emergency fund?

KlangFool

OP,

What is the price of your house?

What is the median price of the house in your neighborhood?

KlangFool

Don't necessarily "want" to do this and certainly not part of core investment. Was just asking. How would one screen for something legitimate. OldSport, And, why would that matters? What is the different between a legitimate way of losing money versus a non-legitimate way to losing money? Nothing as far as the investor is concerned. If you enjoy losing money in a new interesting way that you have no idea what it is. Go right ahead. KlangFool I was asking an honest question. No, I don't enjoy losing money. That is not a joke and really don't appreciate being judged/ridiculed for asking an honest personal investing question. OldSport, My family member worked at the Wall Street. He was paid 7 figures in annual salary and bonuses. He...

OldSport wrote: ↑Sun Mar 19, 2023 6:07 pm
Don't necessarily "want" to do this and certainly not part of core investment. Was just asking. How would one screen for something legitimate.

OldSport,

And, why would that matters? What is the different between a legitimate way of losing money versus a non-legitimate way to losing money? Nothing as far as the investor is concerned.

If you enjoy losing money in a new interesting way that you have no idea what it is. Go right ahead.

KlangFool

anon_investor wrote: ↑Sun Mar 19, 2023 5:57 pm

TomatoTomahto wrote: ↑Sun Mar 19, 2023 5:53 pm We meet the criteria, but don't do anything beyond BH approved investments. It's mostly a marketing scam to convince investors they're special.

+1.

+2.

KlangFool

mnsportsgeek wrote: ↑Sun Mar 19, 2023 4:19 pm

KlangFool wrote: ↑Sun Mar 19, 2023 4:18 pm OP,

Are they doing it for free? If not, it is cheaper and better to get a Iphone chase with battery.

KlangFool

OP might not want to turn their phone into a brick that is a pain to carry around.

Or, it is not a brick even with the battery phone case.

KlangFool

OP,

Are they doing it for free? If not, it is cheaper and better to get a Iphone chase with battery.

KlangFool

lakpr wrote: ↑Sun Mar 19, 2023 4:13 pm Of the three, my vote would be for UMn. Higher ranked CS program.

+1.

KlangFool

getmoneygetpaid wrote: ↑Sun Mar 19, 2023 10:28 am
I get it though, better safe than sorry and perhaps that's the course I should steer. If it ends up costing me an extra 100k, well at least my wife didn't have to go back to work. At least I didn't have to sell my land. At least I wasn't stressed.

getmoneygetpaid,

If everything went well, you won't mind paying the 100K interest.

If it goes bad, this may break you.

You have to survive long enough in order to succeed.

KlangFool

daum wrote: ↑Sun Mar 19, 2023 9:34 am
Curious with why 3M is the breakpoint for this?



Thanks everyone for all the feedback/view points so far, very very valuable.

Daum

daum,

Because even if you pay off the house, your still have a 2m portfolio. Your house is probably around 1.2m to 1.5m. Your house will not be bigger than your portfolio of 2m.

KlangFool

Looking to purchase my family a new home. I have 130k equity in current home, and another 130k in savings. Bank is willing to finance 600k, but I still need to put 20% down. Either take 5.875% interest fixed for 36 months (30 yr am.), or 6.5% fixed 30 yr. Considering a 700k purchase, there are two scenarios that come to mind. What thoughts/considerations would you all explore: Scenario 1 - Accelerate Amortization: Finance 560k at 6.5%. 3.5/k mo payment. Immediately dump an additional 120k from savings to accelerate my amortization schedule 12.5 years. Now $1,200 of my payment is going toward principal rather than $500. Scenario 2 - Lower Financing: Finance 440k at 6.5%. 2.6k/mo payment. Scenario one gives you benefit of acquiring equity at...

If you are trying to get ACA tax credits, you are presumably in withdrawal mode. Where is the 3 months of cash coming from as you spend? Whatever that is can just as easily be used to fund the expenses directly. The 3 months of cash just acts as FIFO buffer, and does little to lower "income" for ACA purposes. Being unemployed for a period is nothing like managing ACA income for years of early retirement. You can't have a buffer and spend it, too. But, you are an engineer, I am sure you know this. marcopolo, 1) Instead of 3 months buffer, imagine a 24 months buffer. "You can't have a buffer and spend it, too. But, you are an engineer, I am sure you know this." 2) I am a network engineer. The goal of the buffer is to smoo...

OP, I keep 3 months of expense in the checking account for bill paying. The rest of my emergency fund is in a MMF. Would that work for you? KlangFool Klang, Do you keep this in tax deferred or taxable? Taxable. It would be pointless to be in the tax deferred. You're right. It would be pointless. Unless you wanted to pay less taxes. 8-) I'm not going down KlangFool Avenue tonight, so go ahead and just say what you need to say and I'll leave it at that. But taxes on a 4.5% MMF are meaningful. If I move my MMF to tax deferred, selling stocks there to buy it, and sell my MMF to buy more stocks in taxable, I can then do the reverse when I need cash. But you know that already. :moneybag :moneybag Charles Joseph, "It depends". A) If sel...

Charles Joseph wrote: ↑Sat Mar 18, 2023 5:18 pm

KlangFool wrote: ↑Mon Jan 16, 2023 4:10 pm OP,

I keep 3 months of expense in the checking account for bill paying. The rest of my emergency fund is in a MMF. Would that work for you?

KlangFool

Klang,

Do you keep this in tax deferred or taxable?

Taxable. It would be pointless to be in the tax deferred.

KlangFool

I don't hold cash in my portfolio. Cash is my emergency fund. I don't rebalance away my cash. KlangFool If you maintain 120K at all times, you are rebalancing it. It's just that your allocation target is fixed, rather than a percentage. A) I am not maintaining 120K all the time. B) It is not part of my portfolio. Hence, there is no rebalancing. KlangFool All assets you own are by definition part of your portfolio. You are entitled to your own opinions but not your own facts, i.e. you're not entitled to your own definition of words. If you don't rebalance your cash, why keep it in the portfolio? You can call whatever you want to make your own life more difficult. That doesn't mean someone else has to make the same decision. Personal finance...

OP,

Unless your portfolio is at 3M, why does it makes any sense to put that much eggs into your house basket?

KlangFool

I can only post my experience. I lived in Tennessee for 4 years due to work. During that time I saved every receipt because the IRS allowed you at that time. I don't know if you still can to deduct sales taxes if your state did not have an income tax. Or you could take the standard deduction that the IRS allowed via your income. In other words, if you made $200,000 they said you probably spent this amount. That's what you got. I came out way better taking the standard amount then what the IRS said I should get based on my spending. I guess I just don't spend as much as my income says I should. However, my overall tax burden there was infinitely better than my previous state of Kentucky which had a 6% income tax plus a 2.2% city tax at the ...

petej wrote: ↑Thu Mar 16, 2023 4:22 pm 50 bps. 7.3 today for 30 year, 6.8 for 5/6 ARM.

Why is this worthwhile?

KlangFool

OP,

FYI. I telecommuted my USA job from Asia for many years. I did not save taxes because I was not out of the USA for more than 330 days. But, the cost of living and quality of life was great!

If Ohio is heaven on earth for you, then, don't bother with my post. Or else, why won't you live in some sunny beaches elsewhere in the world for some part of the year?

KlangFool

OP,

https://www.irs.gov/individuals/interna ... -exclusion

Why aim so low? Why can't you live outside of the USA for 330 days and qualify for foreign earned income exclusion?

In summary, saving 20+K per year of taxes is nothing compared to your income and annual savings. If you really want to save a lot of taxes, live outside of the USA.

KlangFool

BizarroJerry wrote: ↑Wed Mar 15, 2023 8:07 am

Good luck to you! I hope that it work out for you. If not, it will be too late for you. I had seen too many people financially destroyed by their houses.

The home equity cannot feed your family in the coming recessions.

KlangFool

OP,

A) Why renting a house is not a viable option?

B) If not, be prepared to overpay for a house. And, it can be a very costly mistake.

KlangFool

BizarroJerry wrote: ↑Wed Mar 15, 2023 6:31 am
So, using the rule of mortgage never being more than 25% of your take home pay, we could theoretically afford a mortgage of up to 1375 a month (including prop taxes and insurance.

BizarroJerry,

You are using previously saved money to pay a big down payment to hide the fact that you cannot afford the house with your current income.

Good luck to you.

KlangFool

Admiral wrote: ↑Tue Mar 14, 2023 10:31 am
I believe you've now predicted seven of the last two recessions.

Admiral,

Are you predicting that there will be zero recession over the next 30 years? If not, there will be one or more recessions over the next 30 years. And, millions will be unemployed in the coming recession.

KlangFool

Retirement calculators tell me that if we invest $1600 a month with modest assumptions on returns, inflation, etc, never increasing this amount, we could expect to retire at 65 with $1.7 million, live to nearly 100 while withdrawing 100k, with money left over when we die. These calculations don’t include my wife’s pension of $2400 a month. So on one hand I see all over BH I should be saving 15-20% of our income, even 50% in some cases like yours (incredibly admirable!), but this is telling me we’re ok on 10%, despite our “late” start. How can this be? What am I missing? Turnerb, "Current ages 31/35" "we could expect to retire at 65 with $1.7 million," Are you that lucky? Counting on luck is not a good strategy. There is...

OP, You are paying 27 percent taxes now to save 15-17% taxes later. You would need a joint TAXABLE income of around 120000 give or take in retirement to reach the same tax bracket. This will come from pensions, SS and 401k pretax withdrawals. This is why it is recommended to utilize pretax until you have a solid 7 figures in your pretax 401k I apologize but I’m not following. I don’t have seven figures anywhere. But doesn’t this go against conventional wisdom to prioritize a pretax over a Roth or hsa? No one seems to say go for the traditional (or other similar). Why? "I apologize but I’m not following. I don’t have seven figures anywhere. " Then, why are you paying 27% taxes and doing after-tax contribution to Roth IRA? HSA is f...

OP, You are paying 27 percent taxes now to save 15-17% taxes later. You would need a joint TAXABLE income of around 120000 give or take in retirement to reach the same tax bracket. This will come from pensions, SS and 401k pretax withdrawals. This is why it is recommended to utilize pretax until you have a solid 7 figures in your pretax 401k I apologize but I’m not following. I don’t have seven figures anywhere. But doesn’t this go against conventional wisdom to prioritize a pretax over a Roth or hsa? No one seems to say go for the traditional (or other similar). Why? "I apologize but I’m not following. I don’t have seven figures anywhere. " Then, why are you paying 27% taxes and doing after-tax contribution to Roth IRA? HSA is f...

I do file our taxes. Off the top of my head I think we are around the 22% federal and 5-6% state. If you file your own taxes, please explain the following to me. Why do you think you will pay more taxes with 100K income at retirement than 200K income now? I’m a little confused by this. I don’t think we will. Especially if we have most of our retirement in Roths/HSA (and cover our health related expenses using HSA- tax free). This is one of the main reasons I think we would be comfortable on less than half of our income now in retirement. Taxes should be less, no mortgage, no student loans, etc. All of our biggest expenses either gone or reduced. KlangFool Turnerb, However if you have most of your retirement in Trad IRA and generate 100K of...

Turnerb wrote: ↑Mon Mar 13, 2023 8:38 pm
I do file our taxes. Off the top of my head I think we are around the 22% federal and 5-6% state.

If you file your own taxes, please explain the following to me.

Why do you think you will pay more taxes with 100K income at retirement than 200K income now?

KlangFool

OP,

"Taxes: 3650
Housing: 3090 (mortgage/property tax"

Your #1 expense are the taxes. Your #2 expense is the mortgage. Just think about that for a moment. What can you do about your #1 expense?

KlangFool

OP, 1) Do you file your own taxes? 2) What is your federal marginal tax rate? 3) What is your state income tax rate? 4) How much taxes would you pay if your income is 100K per year? 5) Why do you choose to pay a lot more taxes now instead of paying a lot less taxes at retirement? 6) Do you know that the tax bracket is adjusted upward by inflation rate every year? 7) Why do you choose to pay a lot of taxes on those budgeted items that you are not spending now? For example, money for the new car. 8) Won't you mind paying a lot less taxes and keep more of your money into your own pocket? 9) How much taxes do you save by contributing to Trad IRA instead of Roth IRA? KlangFool I think some good starting questions might bet like this..... - Your...

OP,

1) Do you file your own taxes?

2) What is your federal marginal tax rate?

3) What is your state income tax rate?

4) How much taxes would you pay if your income is 100K per year?

5) Why do you choose to pay a lot more taxes now instead of paying a lot less taxes at retirement?

6) Do you know that the tax bracket is adjusted upward by inflation rate every year?

7) Why do you choose to pay a lot of taxes on those budgeted items that you are not spending now? For example, money for the new car.

8) Won't you mind paying a lot less taxes and keep more of your money into your own pocket?

9) How much taxes do you save by contributing to Trad IRA instead of Roth IRA?

KlangFool

Retirement calculators tell me that if we invest $1600 a month with modest assumptions on returns, inflation, etc, never increasing this amount, we could expect to retire at 65 with $1.7 million, live to nearly 100 while withdrawing 100k, with money left over when we die. These calculations don’t include my wife’s pension of $2400 a month. So on one hand I see all over BH I should be saving 15-20% of our income, even 50% in some cases like yours (incredibly admirable!), but this is telling me we’re ok on 10%, despite our “late” start. How can this be? What am I missing? Turnerb, "Current ages 31/35" "we could expect to retire at 65 with $1.7 million," Are you that lucky? Counting on luck is not a good strategy. There is...

OP,

A) Your monthly expense is about 13K per month. How much of that is housing expense?

B) Do you max up all your tax-advantaged accounts?

C) If not, why not? Why do you choose to pay more taxes?

KlangFool

Thanks for sharing your budget. My wife and I have roughly the same annual income as you (maybe slightly higher). We also have 2 kids (age 6 and 3). We save about $5000 a month is HSA, SEP IRA, Roth IRAs, and 529s. There's not much leftover after that. We've looked at our budget every which way and can't really figure out ways to trim the budget without sacrificing luxuries such as camps for the kids, vacations to see family, etc. It's just expensive to live right now, and amazingly, $200,000 doesn't go all that far. bevodive, The answer is very simple and straight forward. How much is your housing expense? What is the price of your house? If you spend less on your house, you have plenty of money for everything else. If not, you don't. Kla...

OP,

When you asked the wrong question, you would never get the right answer!

A) How much do you need at retirement?

B) How much do you need to save to reach that goal?

C) "Save first and spend later" aka "Pay Yourself First".

D) If you cannot afford to retire, how can you afford to pay for college education?

E) If you are still paying for student loan, how can you afford to pay for the college education?

Start answering those big questions first before deciding how much you can spend.

If you spend first and save later, how could you save anything? Saving is your lowest priority. You pay everyone else first.

KlangFool

JDSwim3 wrote: ↑Mon Mar 13, 2023 6:46 am

exodusNH wrote: ↑Mon Mar 13, 2023 6:41 am

When will you need the money?

Assuming a hopefully-modest net 2% ROI on the equity side, not for at least 10 years.
[/quote]

Hope is not a strategy.

KlangFool

OP,

Cash is not trash. How much cash are you keeping? How many months of expenses is in cash?
I keep 2 years of expenses in cash. I "Sleep Well At Night" (SWAN) through period like this.

KlangFool

The main point is that the banks shouldn’t even be trying to ‘predict rates’. They should invest only in short duration securities to closely match possible deposit volatility. I don't know why banks would purchase very long term bonds at 1.5% or so. That's so far below the average inflation rate of around 4%. What did they think was going to happen? JenniferW, 1) Why do you think anyone knows how to predict interest rate movement correctly? 2) This is another example of showing predicting interest rate movement is very hard. Folks that are paid millions to do this can still do it wrong. KlangFool Many folks make the same assumptions as per their personal finance. They believe cash is not necessary. Deposits volatility is not predictable. ...

JenniferW wrote: ↑Sun Mar 12, 2023 8:49 pm I don't know why banks would purchase very long term bonds at 1.5% or so. That's so far below the average inflation rate of around 4%. What did they think was going to happen?

JenniferW,

1) Why do you think anyone knows how to predict interest rate movement correctly?

2) This is another example of showing predicting interest rate movement is very hard. Folks that are paid millions to do this can still do it wrong.

KlangFool

ActiveIndexer wrote: ↑Sun Mar 12, 2023 6:13 pm Similar risk? That they face liquidity issues and are forced to sell balance sheet holdings at a loss in a higher rate enviro? Would most banks be in the same position?

Lesson to be learned here. Liquidity matters.

Please apply the same lesson to your "cash versus mortgage" decision.

KlangFool

6) as of now we max one (whether 401k or TSP) and then we also max one roth IRA, but we dont max both 401k/TSP and both IRA’s BizarroJerry, Why won't it make sense for you to max out both Roth IRAs? KlangFool I suppose it could eventually, we just dont have enough income to max both roth IRA’s as well as roth tsp and fiance’s traditional 401k. We want to get there in the future though as soon as we can. Most of our previous investments are actually in traditional from prev employers (80k of the 100k with the other 20k being in roth). I also wanted to clear up a few things from above commenters: we are not planning to drop to a single income anytime soon. I was moreso saying if/when we plan to have kids or if one becomes a “surprise” which ...

BizarroJerry wrote: ↑Sun Mar 12, 2023 10:25 am

6) as of now we max one (whether 401k or TSP) and then we also max one roth IRA, but we dont max both 401k/TSP and both IRA’s

BizarroJerry,

Why won't it make sense for you to max out both Roth IRAs?

KlangFool

Ah so you are saying use the 100k to live on and then max out both our 401k accounts for 2 years to get to the “extra 100k invested?” I have read a lot of your previous advice on posts with regard to maxing traditional 401k to lower taxable income. It seems you are a fan of traditional over roth as a result of this in most/all scenarios. Let me ask just as an aside due to curiosity: the state I live in does not let you deduct retirement contributions into my TSP (government version of 401k) at the state level, offsetting a little benefit of the traditional. Plus you then need to track basis and everything to make sure you dont get double taxed when withdrawing in retirement (since you pay state tax on the way in). Also, I will have a gover...

OP, Have you considered how much taxes would you save by keeping that 100K in the 401K? Instead of the house down payment? KlangFool I plan to keep the 100k in the 401k and use the 200k cash for the downpayment. I was saying that by the time we are ready to buy we will have 300k cash (200k downpayment 100k saved in cash for emergency fund, etc. I would not be taking from 401k for house. Sorry if I did not clarify BizarroJerry, How much taxes do you save if instead of 300K cash, you take that 100K of that 300K cash and put into the 401K? KlangFool Would it make sense for me to run the numbers on that considering I would have no means of being able to add that extra 100k into 401k in reality? I cannot do a self directed or any other method t...

BizarroJerry wrote: ↑Sun Mar 12, 2023 8:48 am

KlangFool wrote: ↑Sun Mar 12, 2023 6:38 am OP,

Have you considered how much taxes would you save by keeping that 100K in the 401K? Instead of the house down payment?

KlangFool

I plan to keep the 100k in the 401k and use the 200k cash for the downpayment. I was saying that by the time we are ready to buy we will have 300k cash (200k downpayment 100k saved in cash for emergency fund, etc. I would not be taking from 401k for house. Sorry if I did not clarify

BizarroJerry,

How much taxes do you save if instead of 300K cash, you take that 100K of that 300K cash and put into the 401K?

KlangFool