Rookie, looking to assess my investments and my plan..thanks

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Rhizzlebop
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Joined: Tue Feb 17, 2015 4:05 pm

Rookie, looking to assess my investments and my plan..thanks

Post by Rhizzlebop » Tue Feb 17, 2015 4:32 pm

I'm 35, wife is 35.
(A tad late really digging in but i'm diligent with an aggressive plan.

Married 2 years ago. Spent the last two years paying off my wife's student loans, and CCs, and paying for our wedding.
We are savers by nature, but now that I'm married, we have more money to save.

I have 49K in my company 401K. I put 6% comp matches 100%, plus company puts 2% more. so, %14 going in now.
We are actively saving for a house that I will put down a min 20%. (prob will do 60K on a 270K house.
We have about 40K in savings as of my tax refund. (waiting on the checks now.)

My 401K is with schwab, in their "Morningstar Lifetime Moderate 2050" which is called the "Schwab Mngd Ret Trust 2050 Cl III ". Not sure why it has two names.

As soon as we buy a house, I want to start maxing my 401K. My wife is a teacher, and I believe can get a 403B. I'm having her look into this. She also is in the state retirement system with 3 years down so far (spent 8 years in another state where she is vested to buy insurance if we needed to).

My goal is to save and invest 36K a year minimum. I've run the numbers and my budget says we can do this easily. We are looking to have a child now, but my budget (I track every single expense and have for 10 years now) says we can manage this.

If we can average a 9% return (not adjusted for inflation) then in 20 years, we'll have around 2mm.
At that point I'll be 55, and would look to earn about 6-7% from investments and live on 4-5%. Yes, until 59.5 I'll pay a 10% penalty on withdrawls, and I believe I'm ok with this for my "freedom" from the grind.

At 2.2-2.4mm, in 20-21 years, we would take a couple hundred thou and buy out her last few years to state retirement. That would hopefully yield us about 30-35K in state retirement (in today's dollars, 55-60K in 2035 dollars).
That would leave about 2.2mm. At 4.5% that's 99K a year. Adjusted to today's dollars that's about 55K.

That yields then (in today's dollars, about 85-90K. Deduct 10% of the 55K in 401K penalty yields 49.5K. Add that to the 35k state retirement and we earn 85K a year. That should be around 5K a month after taxes. We would have our house paid off within 12 months of implementing this stop work plan. so, after that small squeeze, we would be living on 5K a month, 2% growth to cover inflation, paid off house etc. (this is in TODAY'S dollars by my calculations)

Today we basically live on 4.5K a month, and thats paying 1K a month for a house, plus we are saving almost another 3K a month which includes my 401K at 14% of my pay, and the rest we save straight after taxes because we are saving for a nicer house.

This doesn't include another 7K in tax refund and bonus i get.

Is my plan grossly flawed that we cannot achieve this 9% overall growth? If it is doable, I'd like guidance on getting aligned with the right mutual funds, and index funds to match the market growth which appears to run around 9-10% annually over the last several decades.

I also factored in that I would spend the first roughly 10 year of my plan trying to match the market, and then over the next 10 scale back my risk to where the last couple years I'm only earning around 7% total.

Thanks for any advice and getting me straight.

This also doesn't include future raises beyond COL, but I'm hesitant to factor that as I'm sure I'll also find unexpected expenses along the way. If not, we'll save even more. We are in a low COL state, so we live comfortable now.

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in_reality
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Re: Rookie, looking to assess my investments and my plan..th

Post by in_reality » Wed Feb 18, 2015 8:04 am

First and foremost, congratulations on your marriage.
Rhizzlebop wrote:
My 401K is with schwab, in their "Morningstar Lifetime Moderate 2050" which is called the "Schwab Mngd Ret Trust 2050 Cl III ". Not sure why it has two names.
That is 0.54% ER correct? Do you have other choices? Have you looked though the list of sub-advisors? Some are active, some passive. Personally, I'd prefer a lower cost index fund and do the glide path myself but ...
Rhizzlebop wrote:
If we can average a 9% return (not adjusted for inflation) then in 20 years, we'll have around 2mm.
Is my plan grossly flawed that we cannot achieve this 9% overall growth? If it is doable, I'd like guidance on getting aligned with the right mutual funds, and index funds to match the market growth which appears to run around 9-10% annually over the last several decades.
Returns going forward and widely expected to be lower.

Have a look at http://www.bogleheads.org/wiki/Historic ... ed_returns

Rhizzlebop
Posts: 48
Joined: Tue Feb 17, 2015 4:05 pm

Re: Rookie, looking to assess my investments and my plan..th

Post by Rhizzlebop » Wed Feb 18, 2015 9:06 am

First, Thanks

Second, wow, sad. If those estimates and predictions are accurate, then I can never retire early.

I had what I thought was a solid plan. Historically, I thought it had been around 10.4%. I expected a little lower, so I figured if I could get 9 that would be great.

At 2%, I can never have enough to retire.

ILooking in my 401K I see the following choices.
Title / 5yr / 10 yr / and expense ratio

S&P 500 TR USD It's 5 yr is at 15.6% 10yr 7.61% gross and net expense ratio 0.09%
Schwab S&P 500 Index

Russell 1000 Growth TR USD 5yr 16.49% 10 yr 8.69 ratio 0.90% yes .9
Nuveen Winslow Large-Cap Growth I

Russell 1000 Value TR USD 5yr 15.14% 10yr 7.06% .52% ratio
Dodge & Cox Stock

Russell Mid Cap Growth TR USD 5yr 17.49% 10 yr 9.54% .78% exp ratio
T. Rowe Price Mid-Cap Growth

Russell Mid Cap Value TR USD 5 yr 17.74% 10yr 9.53% 0.44% ratio
Vanguard Selected Value Inv

Russell 2000 Growth TR USD 5yr17.33% 10yr 8.79% 1.13% ratio
American Beacon Stephens Sm Cp Gr Instl

Russell 2000 Value TR USD 5yr 13.97% 10 yr6.86% 1.08% ratio
Columbia Small Cap Value Fund II Z

Russell 2000 TR USD 5yr 15.66% 10 yr7.87%
Enpro Industries Inc

MSCI EM NR USD 5 yr 3.08% 10 yr 8.47% 1.37% ratio
Virtus Emerging Markets Opportunities

MSCI ACWI Ex USA Growth NR USD 5 yr 6.43% 10 yr 5.72% 0.49% ratio
American Funds Europacific Growth R6

Morningstar Global Allocation TR 5 yr 7.99% 10 yr 6.41% 0.88% ratio
BlackRock Global Allocation Instl

Morningstar Moderately Aggr Target Risk 5 yr 10.56% 10 yr 7.10% 0.56% ratio
Invesco Equity and Income Y

Morningstar Lifetime Moderate Income 5 yr 6.89% 10yr 5.82% 0.54% ratio
Schwab Mngd Ret Trust Income Cl III

Morningstar Lifetime Moderate 2010 5 yr 8.33% 10 yr 6.56% 0.54% ratio
Schwab Mngd Ret Trust 2010 Cl III

Morningstar Lifetime Moderate 2020 5 yr 9.81% 10yr 7.11% 0.54% ratio
Schwab Mngd Ret Trust 2020 Cl III

Morningstar Lifetime Moderate 2030 5 yr 11.30% 10 yr 7.49% 0.54% ratio
Schwab Mngd Ret Trust 2030 Cl III

Morningstar Lifetime Moderate 2040 5yr 11.73% 10 yr 7.65% 0.54% ratio
Schwab Mngd Ret Trust 2040 Cl III

Morningstar Lifetime Moderate 2050 5yr 11.52% 10 yr 7.65% 0.54% ratio
Schwab Mngd Ret Trust 2050 Cl III

Barclays US Agg Bond TR USD 5yr 4.57% 10yr 4.86% 0.46% ratio
PIMCO Total Return Instl

USTREAS T-Bill Cnst Mat Rate 3 Yr 5yr 1.06% 10 yr 2.77% 0.35% ratio
Galliard Retirement Income Fund 35


If I could just get into some items that will yeild me 8% there is hope of early retirement, but if its really in the 2-3% range, there is no hope.

If I want more options than this, then I have to open something called a PCRA, that costs me $100 a year.
I have no idea what if anything a 403B my wife's school district might offer. I've asked her to find out and let me know.


Thanks for any advice.

Rhizzlebop
Posts: 48
Joined: Tue Feb 17, 2015 4:05 pm

Re: Rookie, looking to assess my investments and my plan..th

Post by Rhizzlebop » Wed Feb 18, 2015 9:41 am

I'm reading a bunch of information now. Obviously lots of opinions out there with the shiller index as high as it is.

I'm seeing some predicitons of 5% real rate of return. I assume this means the adjusted for inflation net return. If we then assume inflation to run around 2.5%, that would mean a roughly 7.5% overall rate of return.

If I run my calculations at 7.5% at 3000 invested per month, in 20 years that yields me 1.72mil.
Not bad, but not the 2.4 I was looking for. If after 5 years, can get my contributions up to around 3500 a month, at 7.5% that would put me right near that 2 mil mark. Still feasible.

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in_reality
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Re: Rookie, looking to assess my investments and my plan..th

Post by in_reality » Wed Feb 18, 2015 9:56 am

Rhizzlebop wrote:First, Thanks

Second, wow, sad. If those estimates and predictions are accurate, then I can never retire early.

I had what I thought was a solid plan. Historically, I thought it had been around 10.4%. I expected a little lower, so I figured if I could get 9 that would be great.

At 2%, I can never have enough to retire.
Wait, that 2% was real return. So if inflation is 7%, then you hit your desired target :wink:

And nobody, nobody, nobody knows the future right.

What I would do if I were you is:

1) figure out your deisred Asset Allocation (% to stocks, % to bonds).
2) get an idea how much you will be contributing to your 401k (or anything else tax sheltered) and how much to taxable (or is everything going to tax sheltered)
3) figure out your wife's options
4) decide what funds and where considering taxes (i.e. bonds in tax sheltered)

Some people place a high value on simplicity and like retirement funds. I am not saying it's a bad choice only that you should of course consider the options.

As for the PCRA, keep it in mind. For instance, SCHZ has a 0.06%ER and compares to Barclays US Agg Bond 0.46%ER. Actually, I haven't looked that closely to see how they compare but Schwab has some low cost ETFs that will get you market returns. Do depending on how much you have in there, it might make sense to use the PCRA to get into cheaper funds.

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InvestorNewb
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Re: Rookie, looking to assess my investments and my plan..th

Post by InvestorNewb » Wed Feb 18, 2015 10:13 am

Rhizzlebop wrote:Second, wow, sad. If those estimates and predictions are accurate, then I can never retire early.

I had what I thought was a solid plan. Historically, I thought it had been around 10.4%. I expected a little lower, so I figured if I could get 9 that would be great.

At 2%, I can never have enough to retire.
Take those projections with a grain of salt. As Bogle himself would say, "Nobody knows nuthin'".
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)

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SC Hoosier
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Location: South Carolina

Re: Rookie, looking to assess my investments and my plan..th

Post by SC Hoosier » Wed Feb 18, 2015 10:30 am

If you contribute to a Roth IRA, after your house purchase, that would enable you to get money out before 59.5 without paying penalty. You can withdraw contributions at any time, tax free, because you have already paid taxes on that money. That could help you if you need it.

FYI,

Hoosier
I live in No Payment Land. It is wonderful, and I'd love for you to live here too.

Rhizzlebop
Posts: 48
Joined: Tue Feb 17, 2015 4:05 pm

Re: Rookie, looking to assess my investments and my plan..th

Post by Rhizzlebop » Wed Feb 18, 2015 10:57 am

in_reality wrote:
Rhizzlebop wrote:First, Thanks

Second, wow, sad. If those estimates and predictions are accurate, then I can never retire early.

I had what I thought was a solid plan. Historically, I thought it had been around 10.4%. I expected a little lower, so I figured if I could get 9 that would be great.

At 2%, I can never have enough to retire.
Wait, that 2% was real return. So if inflation is 7%, then you hit your desired target :wink:

And nobody, nobody, nobody knows the future right.

What I would do if I were you is:

1) figure out your deisred Asset Allocation (% to stocks, % to bonds).
2) get an idea how much you will be contributing to your 401k (or anything else tax sheltered) and how much to taxable (or is everything going to tax sheltered)
3) figure out your wife's options
4) decide what funds and where considering taxes (i.e. bonds in tax sheltered)

Some people place a high value on simplicity and like retirement funds. I am not saying it's a bad choice only that you should of course consider the options.

As for the PCRA, keep it in mind. For instance, SCHZ has a 0.06%ER and compares to Barclays US Agg Bond 0.46%ER. Actually, I haven't looked that closely to see how they compare but Schwab has some low cost ETFs that will get you market returns. Do depending on how much you have in there, it might make sense to use the PCRA to get into cheaper funds.
1. I need help with this. Not sure how to figure out what I want. I simply know my savings goals at this point. Can you guys offer advice here? aka, I would think stocks are more prone to gains, but more risky. I initially envisioned a very heavy stock bias for around 10-12 years, and then taper some% yearly down towards index funds and bonds until year 20 arrived. I've also read about VTX (I may be missing a letter). Its some vanguard product that I read about here that has shown good market mirror like returns and its an index fund. Generally I think index funds are still "stocks" just a mix of them right?)

2. Right now, we get about 900 a month pretax in my 401K. I'm saving about 2100 a month after taxes to pay down on a house we are saving up for at this time. I've run number scenarios where I estimated the total house mortgage, taxes and insurance with a goal of a 22 year payoff schedule, estimated tax credits and deductions for mortgage interest, child tax credit, child tax deductions, child care (bult in a estimate based on using a pretax child care FSA plus some extra for added food clothing expenses, and estimated our yearly "extra spending in random categories throughout my budget (I have 10 years of data to estimate this from). I even estimated 1 car payment, which I am of the buy new or nearly new and keep 10-12 years. Every 5-6 years buy one car, which would mean a single payment running all the time. This is tweakable but its what I estimated)

All told, all variables calculated into my budget, and I estimate after all month spending if our income stayed the same, we would have about 1900 a month after taxes and after my current 401K cont. (We file zero dependents during the year) I estimate I would then have 1500 of that go in pretax divided between maxing my 401K (if thats the best plan) putting into my wife's 403B (Working to see options and about getting it opened). and a pretax IRA if we still have funds to apply. That would mean that 1500 becomes about 1900 a month pretaxes.

This is then a net of 900 a month currently into 401K, 1900 more going to pretax accounts once we get that all setup, and another 400 saving in after tax. (Once we fully establish this plan, and I build upa post house buy savings account, I could push more of that 400 into growth accounts).
On top of all this, we get about 7K a year back in tax refund and job bonus. Let's say I had to spend 3K of that covering Christmas and a nice vacation, (though most of our vacation costs are factored into my monthly (extra soending), that still yields 4K. Either I would dump it to a late year IRA (not sure the diff roth or regular), or speed up that emergency savings account and allow me to move that 400 noted above to pretax options. Either way, it's a solid 3000-3200 a year I can do pretax.

I hope to continue advancing my career and earn raises above inflation. So i estimated that by 5 years I should be able to push even more into savings, so I bumped my estimates up to 3500 a month. I could get it a bit higher than that.

3. Working on figuring out my wife's options as noted above. Of course if her options are not good, that changes things cause thats 18K I can't put pretax into her account if wont get a fair return for my goals.

4. Don't really understand this or how to figure it out.

I also want to note, that once we get into this "retirement phase" I would expect my wife's state retirement to help cover at least part of ongoing inflation. That may be a poor expectation on my part. So, I may only need to cover 1% or so during retirement time.

I have 10 years left on my current small house mortgage, and I plan to rent it until at LEAST it's paid for, and then decide if its a hassle to sell it and invest that money, or keep it for residual, though I realize the profit wont be as good because I'll have to account for nearly all the rent as profitable income for taxes. Have to figure out how to weigh that.

I've also considered starting to rent it here within this year (when we buy a nicer home) and if that goes well for a couple years, pick up a second rental (not sure if I would do a 15 or 30 yr) and ultimately have that income going forward.

Also, to the guy who said 7% inflation and 9% overall would meet my goals. I know that was a funny joke. My estimates are based in a 2.5% inflation rate which tells me in 20 years, things cost not quite double as they do now. (I just applied rule of 72 into inflation rate and figured things will be double in 28 years. That told me if I have 2mil earning 4% to my pocket, thats 80K to my pocket, which is about 45K-50K in today's dollars. I took that number and said, that gives me 50K from my efforts, and take what I project my wife would see of about 60K (adjusted to 35K in today's dollars, and have about 85K. Tax 22% of that to uncle sam and we live on about 5,400 a month (adjusted to today's dollars)

That more than we live on now, and we ARE paying for a house, and looking to have child expenses. etc. So, it looks pretty good to these eyes. We are living on about 4,500 now and paying 1K for a house a month.

Much appreciate the advice and help.

anonforthis
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Re: Rookie, looking to assess my investments and my plan..th

Post by anonforthis » Wed Feb 18, 2015 11:35 am

If you guys are spending $4500 before kids or kid. Add at least 1k to the budget after kids.

EdLaFave
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Re: Rookie, looking to assess my investments and my plan..th

Post by EdLaFave » Wed Feb 18, 2015 5:02 pm

1. First, read the wiki on Asset Allocation http://www.bogleheads.org/wiki/Asset_allocation. While there are "rules of thumb" there isn't a "right" answer for your stock/bond split. It is all about your ability, willingness, and need to take risk. All of this is discussed in the wiki. When you say "heavy stock bias for 10-12 years and then tapper down towards index funds and bonds", I have to ask are you against being in index funds during your heavy stock bias?
2. Read the wiki on prioritizing investments, http://www.bogleheads.org/wiki/Prioritizing_investments. Honestly, I didn't follow all of your low level budget calculations but I imagine that it isn't particularly helpful for most people to know ahead of time how much money they'll invest in the various accounts. When you have money just follow the priority list. I think you'll find exceptions to that rule when people fall into certain tax circumstances or need the money back "soon" but I'd worry about that as you acquire more knowledge.
3. Can you explain this further? My wife is a teacher as well (Florida) and they choose between a 401k and pension. For her the pension seems to be easily the best choice (although newer employees are getting inferior terms than she is). Are you in a similar scenario?
4. In terms of selecting funds, consider the 3 fund approach http://www.bogleheads.org/wiki/Three-fund_portfolio. In terms of where to put them, the prioritization wiki makes that pretty clear. If you invest more than you can put in retirement accounts then you'll want your international investments in your taxable account (foreign tax credit), you'll want bonds in retirement (avoids them being taxed as ordinary income as they would in a taxable account), and you'll want domestic investments to fill in the gaps. If you don't fill up the retirement accounts then it is a moot point.

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