New to investing, am I on the right track?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Invested31
Posts: 9
Joined: Mon Jan 15, 2018 1:16 pm

New to investing, am I on the right track?

Post by Invested31 » Mon Jan 15, 2018 4:18 pm

Hello all,

After being turned on to this board from a coworker I learned that I really knew nothing about investing and should get smarter. We went to a financial planner when we first started our careers and they literally laughed at us and just told us we need to make more money. So I am going to do without them. I have been reading almost non stop for the last couple of weeks educating myself about investing, and I really like and agree with the Bogleheads principles. So after much reading, I started a Goal worksheet following Emerdocs guide as well as an IPS that I modified for my family's needs.

Our goals are to retire at 55 and to save for a downpayment on a house in the next 5 years.

Background: We have been saving as much as our budget allows, but we are not near maximum yet. We are both in the same career fields. This presents some very interesting problems as our career is very low income in the beginning and finishes at a high income just before retirement with a steep curve upwards towards the end. To help with planning, I chose to run multiple FV functions based one will retire with much higher salaries than we currently have. So I made some educated guesses on both how much we need for retirement planning purposes and how we can achieve our housing goal. We both have 401(k) through employers, but we let them choose how to allocate in each. That left me with a hodge podge portfolio and hers is all in one fund(target date) and everything has a very high ER as you will see. What I would like help with is confirming I am building my portfolio correctly. Here are all the required details.

Emergency Funds (6 month): Yes Earning 1.2%
Debt: Student loans: $54,000 4.5% Variable
House: 2.9% Fixed
Cars: 0%
Tax Filing Status: Married Filing Joint
Tax Rate: Fed 22% State 5% (2018)
State of Residence: Illinois
Age: 32, 31
Current Portfolio Size: Very low 6 figures
Desired Asset Allocation: 80/20,90/10?
Desired International Allocation: 20-25%?

Current Portfolio:
Taxable
7% cash (for investing)
3% JPMorgan Investor Growth A (ONGAX) (1.02)


His 401k (ROTH)
7% T. Rowe Price Retirement 2050 (TRRMX) (.74)
7% MFS Value R3 (MEIHX) (.84)
6% T. ROWE PRICE BLUE CHIP GROWTH TRUST T2 (TRBCX) (.72)
2% T. Rowe Price Mid-Cap Growth (RPMGX) (.77)
1% T. Rowe Price New Horizons (PRNHX) (.79)
4% Vanguard Extended Market Index (VIEIX) (.06)
7% Vanguard Institutional Index (VINIX) (.04)
7% American Funds EuroPacific Growth R6 (RERGX) (.50)
4% MFS International Value R3 (MINGX) (1.01)
2% Company Stock (1 time purchase)

Company match? Yes

Her 401k (ROTH)
41% SmartRetirement DRE 2050 Fund-CF10 (JPMCB) (.77)

Company match? Yes


Contributions

New Monthly Contributions
$1,067 his 401(k) (Including 3%Match)
$1,133 her 401(k) (Including 5.25% Match)
$0 taxable (for retirement, not short term goals)
Starting $700 taxable (non retirement)

Available funds

Funds available in his 401(k)
VTIAX Vanguard Information Technology IDX ADM (.1)
VEMAX Vanguard Emerging Markets Stock Index ADM (.14)
VINIX Vanguard Institutional Index (.04)
VIEIX Vanguard Extended Market Index (.06)
Other funds all above ER .6

Funds available in her 401(k)
VBTIX Vanguard Total Bond Market Index I (.04)
VSCIX Vanguard Small Cap Index I (.05)
VTSNX Vanguard Total International Stock Index I (.09)
Other funds above ER .7

There are more funds in each of our 401's but they all have high ER and think I would like to stick to vanguard funds as they are easy to keep track of and have lowest ER's. I was also planning on moving my taxable account from its current home that hasn't been helping and has limited funds to a vanguard account. I am still trying to figure tax implications of that. We don't have any IRA's but will have to open them as contribution's will warrant them. We are not opposed to risk to help get caught up and as far as the new house down payment, I think the only way to get close is high risk. 90/10. As for the retirement funds I planned on 80/20 until age 37 then changing to 70/30 until age 45 and then 60/40 to 55. Contributions are planned to increase greatly following increases in salaries as well. 401's contribution planned on being maxed out in 4 years. Then I plan on opening IRA's. That brings up the question of the taxable account. Should I only use this for the short term goal and not for retirement, leaving only 401's for retirement? Then as we contribute more towards retirement, we can start contributing some to the taxable account after 401's and IRA's are maxed out. I am also not sure what to use for ROR % on the 5 year goal. Do you use the 5 year mark of a fund minus 4% inflation or use the long range numbers like for retirement planning. Lastly, I must admit I am not sure how to prioritize contributions to a 401 vs an IRA. We both are planning to be at different companies within 3 years. We will definitely continue to max out our employers' company matching in our 401's, but after that is maxed out, is it ok to continue contributing to our 401's or should we open IRA's for the remainder of our retirement contributions? Again, I am open to any suggestions you may have.
I know this is a lot and, I appreciate any help I can get. Based on your responses I plan on following up with my intended allocations.

Thank you
Edit: Added student loan amount, fixed contribution to monthly, added fund names and info in available funds.1/16
Edit: Corrected miscalculated tax bracket.
Last edited by Invested31 on Wed Jan 17, 2018 1:21 am, edited 2 times in total.

User avatar
FiveK
Posts: 3839
Joined: Sun Mar 16, 2014 2:43 pm

Re: New to investing, am I on the right track?

Post by FiveK » Mon Jan 15, 2018 6:19 pm

Invested31 wrote:
Mon Jan 15, 2018 4:18 pm
...I would like to stick to vanguard funds as they are easy to keep track of and have lowest ER's. I was also planning on moving my taxable account from its current home that hasn't been helping and has limited funds to a vanguard account.
Invested31, welcome to the forum. It seems you have determined a fine strategy as summarized above.

See also Investment Order for thoughts on several of your questions.

Vitalspark
Posts: 7
Joined: Mon Apr 07, 2014 12:00 am

Re: New to investing, am I on the right track?

Post by Vitalspark » Mon Jan 15, 2018 6:28 pm

Just one comment - with a 30 year time horizon Vanguards Wellington & Wellesley are perfect funds. Favor Wellington more than Wellesley until nearer retirement since its around 60/40 stocks to bonds whereas Wellesley is the opposite so switch when time horizon is say 5 years. Personal experience with these 2 funds has been nothing short of fantastic in the past 20 years for us. At first we reinvested dividends then about 8 years ago began taking dividends as income. Worked out great!

overthought
Posts: 199
Joined: Tue Oct 17, 2017 3:44 am

Re: New to investing, am I on the right track?

Post by overthought » Mon Jan 15, 2018 10:32 pm

Invested31 wrote:
Mon Jan 15, 2018 4:18 pm
Current Portfolio:
Taxable
7% cash (for investing)
3% JPMorgan Investor Growth A (ONGAX) (1.02)

His 401k (ROTH)
7% T. Rowe Price Retirement 2050 (TRRMX) (.74)
7% MFS Value R3 (MEIHX) (.84)
6% T. ROWE PRICE BLUE CHIP GROWTH TRUST T2 (TRBCX) (.72)
2% T. Rowe Price Mid-Cap Growth (RPMGX) (.77)
1% T. Rowe Price New Horizons (PRNHX) (.79)
4% Vanguard Extended Market Index (VIEIX) (.06)
7% Vanguard Institutional Index (VINIX) (.04)
7% American Funds EuroPacific Growth R6 (RERGX) (.50)
4% MFS International Value R3 (MINGX) (1.01)
2% Company Stock (1 time purchase)

Her 401k (ROTH)
41% SmartRetirement DRE 2050 Fund-CF10 (JPMCB) (.77)
The ONGAX in taxable, and many of his 401(k) funds have really high ER. I would rebalance the 401(k) to all VIEIX/VINIX (since apparently there are no bond funds available there?). Her 401(k) also has really high ER, but that may be the only investment option she has? With 35 year horizons the ER penalty could really add up, to the tune of 25% lost opportunity for 1% ER vs .15%.

With 35 year horizons you don't necessarily need any bonds at all (other than to sleep well). That said, if saving for a down payment, a bunch of bonds in taxable might not be a bad idea: you actually *want* the income they provide so you can spend it, and the bonds are unlikely to do worse than savings, CDs, etc. on an after tax basis while also not losing too much value if the economy were to stutter right as you're trying to buy (which could be a good thing for you if it depressed housing prices).

Invested31
Posts: 9
Joined: Mon Jan 15, 2018 1:16 pm

Re: New to investing, am I on the right track?

Post by Invested31 » Tue Jan 16, 2018 7:22 pm

Thanks Everyone,

The Investment order was a good read. I completely forgot to include the HSA in my information so will be doing that in my allocation post soon to come. There are other funds available in each 401 but they all have high fees that I want to avoid. My HSA has Vanguard as well and I intend to use those. Overthought, I am not sure I understand what you mean by holding bonds for the "income". I realize that it would be smart for a 5 year time frame but the only way I think we can meet the down payment goal is using 90/10 assets and even that I am not sure if its just a pipe dream. Is it very unwise to hold that mix for a 5 year time frame.

User avatar
ruralavalon
Posts: 12392
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: New to investing, am I on the right track?

Post by ruralavalon » Tue Jan 16, 2018 9:40 pm

Welcome to the forum :) .

Some additional information is necessary.

How much is the student loan debt?

What are the 3-4 bond funds in his 401k with the lowest expense ratios?

What are the 3-4 large cap or total market domestic stock funds in her 401k with the lowest expense ratios?

(It's important to be diversified, that's just as important as low expense ratios.)

In identifying funds please always give fund names, tickers and expense ratios.

Why is it you contribute only $2,200 annually, including employer match, to the 401ks?

(Keeping your contributions as high as practical is the most important step you can take for portfolio growth, when you are starting.)

Will either or both of you be eligible for a significant pension?

(For most people traditional 401k contributions will likely be better than Roth 401k contributions, in the absence of a significant pension.)

Please simply add this to your original post using the edit button, it helps a lot if all of your information is in one place.

. . . . .

When accumulating funds for a home purchase in 5 years a high risk investment is not a good idea. Instead consider safe savings vehicles like a federally insured savings account, federally insured short-term CDs, good credit quality short-term bond funds or money market funds.
Last edited by ruralavalon on Tue Jan 16, 2018 9:56 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Agggm
Posts: 170
Joined: Mon Dec 25, 2017 6:18 pm

Re: New to investing, am I on the right track?

Post by Agggm » Tue Jan 16, 2018 9:53 pm

Invested31 wrote:
Mon Jan 15, 2018 4:18 pm
Hello all,

After being turned on to this board from a coworker I learned that I really knew nothing about investing and should get smarter. We went to a financial planner when we first started our careers and they literally laughed at us and just told us we need to make more money. So I am going to do without them. I have been reading almost non stop for the last couple of weeks educating myself about investing, and I really like and agree with the Bogleheads principles. So after much reading, I started a Goal worksheet following Emerdocs guide as well as an IPS that I modified for my family's needs.

Our goals are to retire at 55 and to save for a downpayment on a house in the next 5 years.

Background: We have been saving as much as our budget allows, but we are not near maximum yet. We are both in the same career fields. This presents some very interesting problems as our career is very low income in the beginning and finishes at a high income just before retirement with a steep curve upwards towards the end. To help with planning, I chose to run multiple FV functions based one will retire with much higher salaries than we currently have. So I made some educated guesses on both how much we need for retirement planning purposes and how we can achieve our housing goal. We both have 401(k) through employers, but we let them choose how to allocate in each. That left me with a hodge podge portfolio and hers is all in one fund(target date) and everything has a very high ER as you will see. What I would like help with is confirming I am building my portfolio correctly. Here are all the required details.

Emergency Funds (6 month): Yes Earning 1.2%
Debt: Student loans: 4.5% Variable
House: 2.9% Fixed
Cars: 0%
Tax Filing Status: Married Filing Joint
Tax Rate: Fed 24% State 5%
State of Residence: Illinois
Age: 32, 31
Current Portfolio Size: Very low 6 figures
Desired Asset Allocation: 80/20,90/10?
Desired International Allocation: 20-25%?

Current Portfolio:
Taxable
7% cash (for investing)
3% JPMorgan Investor Growth A (ONGAX) (1.02)


His 401k (ROTH)
7% T. Rowe Price Retirement 2050 (TRRMX) (.74)
7% MFS Value R3 (MEIHX) (.84)
6% T. ROWE PRICE BLUE CHIP GROWTH TRUST T2 (TRBCX) (.72)
2% T. Rowe Price Mid-Cap Growth (RPMGX) (.77)
1% T. Rowe Price New Horizons (PRNHX) (.79)
4% Vanguard Extended Market Index (VIEIX) (.06)
7% Vanguard Institutional Index (VINIX) (.04)
7% American Funds EuroPacific Growth R6 (RERGX) (.50)
4% MFS International Value R3 (MINGX) (1.01)
2% Company Stock (1 time purchase)

Company match? Yes

Her 401k (ROTH)
41% SmartRetirement DRE 2050 Fund-CF10 (JPMCB) (.77)

Company match? Yes


Contributions

New annual Contributions
$1,067 his 401(k) (Including 3%Match)
$1,133 her 401(k) (Including 5.25% Match)
$0 taxable (for retirement, not short term goals)
Starting $700 taxable (non retirement)

Available funds

Funds available in his 401(k)
VTIAX
VEMAX
VINIX
VIEIX

Funds available in her 401(k)
VBTIX
VSCIX
VTSNX

There are more funds in each of our 401's but they all have high ER and think I would like to stick to vanguard funds as they are easy to keep track of and have lowest ER's. I was also planning on moving my taxable account from its current home that hasn't been helping and has limited funds to a vanguard account. I am still trying to figure tax implications of that. We don't have any IRA's but will have to open them as contribution's will warrant them. We are not opposed to risk to help get caught up and as far as the new house down payment, I think the only way to get close is high risk. 90/10. As for the retirement funds I planned on 80/20 until age 37 then changing to 70/30 until age 45 and then 60/40 to 55. Contributions are planned to increase greatly following increases in salaries as well. 401's contribution planned on being maxed out in 4 years. Then I plan on opening IRA's. That brings up the question of the taxable account. Should I only use this for the short term goal and not for retirement, leaving only 401's for retirement? Then as we contribute more towards retirement, we can start contributing some to the taxable account after 401's and IRA's are maxed out. I am also not sure what to use for ROR % on the 5 year goal. Do you use the 5 year mark of a fund minus 4% inflation or use the long range numbers like for retirement planning. Lastly, I must admit I am not sure how to prioritize contributions to a 401 vs an IRA. We both are planning to be at different companies within 3 years. We will definitely continue to max out our employers' company matching in our 401's, but after that is maxed out, is it ok to continue contributing to our 401's or should we open IRA's for the remainder of our retirement contributions? Again, I am open to any suggestions you may have.
I know this is a lot and, I appreciate any help I can get. Based on your responses I plan on following up with my intended allocations.

Thank you
I'm sure others will comment on other items. So I'll just pick one.
Starting at 30 and planning on retiring by 55 is probably over ambitious.

User avatar
FiveK
Posts: 3839
Joined: Sun Mar 16, 2014 2:43 pm

Re: New to investing, am I on the right track?

Post by FiveK » Tue Jan 16, 2018 10:08 pm

Agggm wrote:
Tue Jan 16, 2018 9:53 pm
Starting at 30 and planning on retiring by 55 is probably over ambitious.
Well, $37K/yr into 401ks and $11K/yr into Roth IRAs for 25 years at 4% real return per year gives $1541K in traditional accounts and $458K in Roth accounts.

Withdrawing at 4%/yr is ~$80K/yr in today's dollars. This ignores any taxable investments, taking SS at some point, etc.

May not work out, but "not unrealistic" seems more apt than "over ambitious". YMMV.

Agggm
Posts: 170
Joined: Mon Dec 25, 2017 6:18 pm

Re: New to investing, am I on the right track?

Post by Agggm » Tue Jan 16, 2018 10:41 pm

FiveK wrote:
Tue Jan 16, 2018 10:08 pm
Agggm wrote:
Tue Jan 16, 2018 9:53 pm
Starting at 30 and planning on retiring by 55 is probably over ambitious.
Well, $37K/yr into 401ks and $11K/yr into Roth IRAs for 25 years at 4% real return per year gives $1541K in traditional accounts and $458K in Roth accounts.

Withdrawing at 4%/yr is ~$80K/yr in today's dollars. This ignores any taxable investments, taking SS at some point, etc.

May not work out, but "not unrealistic" seems more apt than "over ambitious". YMMV.
4% withdrawal inflation adjusted starting at 55? Don't sign me up for that.

MrPotatoHead
Posts: 138
Joined: Sat Oct 14, 2017 10:41 pm

Re: New to investing, am I on the right track?

Post by MrPotatoHead » Tue Jan 16, 2018 11:08 pm

A few comments. First of all I do not find starting at 30 and retiring at 55 an unreachable goal. in fact it is very reachable as I more or less did it myself. I started saving in 1994 at and as of today am at 70x expenses, so 24 years and I did that on one income. I am just not sure I am going to retire yet or not. So be heartened.

That aside the biggest impediment I see to your plan that may be easily remediated is your state of residence. I suspect you do not grasp how severe IL public sector pension and retiree obligations are. But in short, there is no practically feasible way to address the public sector retiree crisis. Community after community is starting to see mandated property tax increases that not only impacts your pocket book directly but also indirectly dampens the appreciation value of any home you purchase.

I would suggest you spend some time researching the depth of the public sector retiree debt crisis before purchasing a home. The taxes will only get worse. IL is in a death spiral due to the public sector retiree debt (among other issues). Like many others you will find it hard to keep pace with you investment program when your property taxes keep rising greater than the rate of inflation. And the push in property tax increases is just starting. I would really think very carefully about settling in IL at such a young age and IMO, buying a home in IL is simply foolish.

I cannot state strongly enough how much emphasize you should give the state's overall fiscal health.

Here are a few links to help you get your feet wet:

https://www.illinoispolicy.org/reports/ ... on-crisis/
https://rebootillinois.com/2017/05/24/f ... on-crisis/
http://money.cnn.com/2017/06/29/investi ... downgrade/
Last edited by MrPotatoHead on Tue Jan 16, 2018 11:15 pm, edited 3 times in total.

User avatar
FiveK
Posts: 3839
Joined: Sun Mar 16, 2014 2:43 pm

Re: New to investing, am I on the right track?

Post by FiveK » Tue Jan 16, 2018 11:13 pm

Agggm wrote:
Tue Jan 16, 2018 10:41 pm
FiveK wrote:
Tue Jan 16, 2018 10:08 pm
Withdrawing at 4%/yr is ~$80K/yr in today's dollars. This ignores any taxable investments, taking SS at some point, etc.
May not work out, but "not unrealistic" seems more apt than "over ambitious". YMMV.
4% withdrawal inflation adjusted starting at 55? Don't sign me up for that.
If that's too much,
- $60K/yr would be 3%
- SS benefits for two people with 25 years of high income will be significant, reducing withdrawal rate even further.
- assuming $0 in taxable investments is very conservative.

Again, no guarantees when projecting 25 years ahead, but very doable even with conservative assumptions.

Agggm
Posts: 170
Joined: Mon Dec 25, 2017 6:18 pm

Re: New to investing, am I on the right track?

Post by Agggm » Tue Jan 16, 2018 11:19 pm

FiveK wrote:
Tue Jan 16, 2018 11:13 pm
Agggm wrote:
Tue Jan 16, 2018 10:41 pm
FiveK wrote:
Tue Jan 16, 2018 10:08 pm
Withdrawing at 4%/yr is ~$80K/yr in today's dollars. This ignores any taxable investments, taking SS at some point, etc.
May not work out, but "not unrealistic" seems more apt than "over ambitious". YMMV.
4% withdrawal inflation adjusted starting at 55? Don't sign me up for that.
If that's too much,
- $60K/yr would be 3%
- SS benefits for two people with 25 years of high income will be significant, reducing withdrawal rate even further.
- assuming $0 in taxable investments is very conservative.

Again, no guarantees when projecting 25 years ahead, but very doable even with conservative assumptions.
30 year olds shouldn't expect SS as a prudent actuarial assumption.

User avatar
FiveK
Posts: 3839
Joined: Sun Mar 16, 2014 2:43 pm

Re: New to investing, am I on the right track?

Post by FiveK » Tue Jan 16, 2018 11:44 pm

Agggm wrote:
Tue Jan 16, 2018 11:19 pm
FiveK wrote:
Tue Jan 16, 2018 11:13 pm
Agggm wrote:
Tue Jan 16, 2018 10:41 pm
FiveK wrote:
Tue Jan 16, 2018 10:08 pm
Withdrawing at 4%/yr is ~$80K/yr in today's dollars. This ignores any taxable investments, taking SS at some point, etc.
May not work out, but "not unrealistic" seems more apt than "over ambitious". YMMV.
4% withdrawal inflation adjusted starting at 55? Don't sign me up for that.
If that's too much,
- $60K/yr would be 3%
- SS benefits for two people with 25 years of high income will be significant, reducing withdrawal rate even further.
- assuming $0 in taxable investments is very conservative.

Again, no guarantees when projecting 25 years ahead, but very doable even with conservative assumptions.
30 year olds shouldn't expect SS as a prudent actuarial assumption.
At this point, letting Invested31 and spouse weigh the various perspectives and make their own choice seems best. We can check back in 25 years....

Invested31
Posts: 9
Joined: Mon Jan 15, 2018 1:16 pm

Re: New to investing, am I on the right track?

Post by Invested31 » Wed Jan 17, 2018 12:20 am

I know retiring at 55 is a bit ambitious. However, I think it is possible given the potential large contribution increases we should be able to make based on salary increases over the next 5 years, and significant increases further down the road, as well. If we aren't able to meet this goal, the back up plan would be to continue working a few more years, till we are financially able to retire. The early retirement goal is also why we are willing to take a little risk for the first few years planning a 80/20 split.

Mr. Potatohead, we are not sure where the next house will be but that is all good to keep in mind. Did you do it (the ability to retire early) by starting aggressively as we are planning?

All numbers I use do not include SS as I don't think I can count on it.

So for Asset Allocation Changes, this is how I think it should look:

Taxable- Going to be moved to Vanguard
Fund TBD looking for 90/10 allocation with $700/mo (Non Retirement- 5 years house fund)

Retirement:
His 401(k) 100% Vanguard Institutional Index (VINIX) (.04)
(This is 54% of our retirement portfolio)
Her 401(k) 43% VBTIX Vanguard Total Bond Market Index I (.04)
(This is 20% of our retirement portfolio)
43% VTSNX Vanguard Total International Stock Index I (.09)
(This is 20% of our retirement portfolio)
14% VSCIX Vanguard Small Cap Index I (.05)
(This is 6% of our retirement portfolio)

This Yields 80/20 with 25% international. We have no way of covering the mid caps without very high ER.
We also plan on increasing HSA contribution to max by decreasing his 401(k) contribution. I will keep his 401(k) contributions high enough to take advantage of all available company match.
Once HSA has enough to invest we will re allocate with its fund choices and should get a better total market portfolio.
We will also decrease her 401(k) contributions to the company match amount and open IRA's with the remainder of her current contributions, in order to further increase fund choices. Any amount currently going to his 401(k) that is above company match and exceeds HSA max will also go to an IRA.
After maxing out the HSA and IRA's, we will increase our 401(k) contributions till they are at their max, as our income allows.
We plan to keep an 80/20 balance as we open and contribute to the new retirement accounts.
The long term plan is to switch the taxable account to be included with the retirement portfolio after it is no longer needed for the short term goal.
We will change the asset allocations balance to 70/30 as this takes place to stay inline with the IPS we made.

User avatar
FiveK
Posts: 3839
Joined: Sun Mar 16, 2014 2:43 pm

Re: New to investing, am I on the right track?

Post by FiveK » Wed Jan 17, 2018 12:45 am

Invested31 wrote:
Wed Jan 17, 2018 12:20 am
We also plan on increasing HSA contribution to max by decreasing his 401(k) contribution.
...
We will also decrease her 401(k) contributions to the company match amount....
Based on "Tax Rate: Fed 24%" in the OP, gross income must be at least $189,000/yr. If so, living expenses must be very high if you cannot each contribute $18,500/yr to 401k plans...?

Invested31
Posts: 9
Joined: Mon Jan 15, 2018 1:16 pm

Re: New to investing, am I on the right track?

Post by Invested31 » Wed Jan 17, 2018 1:24 am

I submitted a correction to the tax rate.
FiveK, I am not sure how you came up with 189K, I wish it was but it is not close.

User avatar
FiveK
Posts: 3839
Joined: Sun Mar 16, 2014 2:43 pm

Re: New to investing, am I on the right track?

Post by FiveK » Wed Jan 17, 2018 1:45 am

Invested31 wrote:
Wed Jan 17, 2018 1:24 am
I submitted a correction to the tax rate.
FiveK, I am not sure how you came up with 189K, I wish it was but it is not close.
Ok, being in the 22% bracket makes more sense.

$165,000 is the divide between the 22% and 24% brackets for MFJ. Add $24,000 standard deduction and one gets $189,000.

Just thinking out loud: perhaps we should change the Asking Portfolio Questions template to ask for gross income instead of bracket.....

Anyway, you might find the cash flow 'Calculations' tab in the personal finance toolbox spreadsheet useful for showing the effects of various HSA/410k/IRA choices.

Agggm
Posts: 170
Joined: Mon Dec 25, 2017 6:18 pm

Re: New to investing, am I on the right track?

Post by Agggm » Wed Jan 17, 2018 10:27 am

FiveK wrote:
Tue Jan 16, 2018 11:44 pm
Agggm wrote:
Tue Jan 16, 2018 11:19 pm
FiveK wrote:
Tue Jan 16, 2018 11:13 pm
Agggm wrote:
Tue Jan 16, 2018 10:41 pm
FiveK wrote:
Tue Jan 16, 2018 10:08 pm
Withdrawing at 4%/yr is ~$80K/yr in today's dollars. This ignores any taxable investments, taking SS at some point, etc.
May not work out, but "not unrealistic" seems more apt than "over ambitious". YMMV.
4% withdrawal inflation adjusted starting at 55? Don't sign me up for that.
If that's too much,
- $60K/yr would be 3%
- SS benefits for two people with 25 years of high income will be significant, reducing withdrawal rate even further.
- assuming $0 in taxable investments is very conservative.

Again, no guarantees when projecting 25 years ahead, but very doable even with conservative assumptions.
30 year olds shouldn't expect SS as a prudent actuarial assumption.
At this point, letting Invested31 and spouse weigh the various perspectives and make their own choice seems best. We can check back in 25 years....
:sharebeer

Invested31
Posts: 9
Joined: Mon Jan 15, 2018 1:16 pm

Re: New to investing, am I on the right track?

Post by Invested31 » Wed Jan 17, 2018 1:39 pm

I really appreciate everyone's input thus far.

Other than maybe being to ambitious with a 55 goal, for which the plan b would be to delay retirement a few years, are we on the right track to getting a long term portfolio up and running. Are there any major flaws that you guys can see that would be setting us up for failure. Would you suggest a different way to meet our allocation or to get started on the new accounts.

I am having a hard time wrapping my head around traditional vs roth for 401's, ira's and then on top of that backdoor ira. Currently both 401's are roth. Can any one suggest a good reading that discusses a portfolio as a whole? I have always thought that you choose roth if you don't need traditional to lower you income and if you think taxes will be higher at retirement. We couldn't contribute enough to 401's to get us down to the next bracket so that's why we chose roth's to get started. Again looking for any suggestions in the way we are setting up the portfolio(fund, account types, allocation) and how to choose types of retirement accounts.

Thanks Again :beer

User avatar
ruralavalon
Posts: 12392
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: New to investing, am I on the right track?

Post by ruralavalon » Wed Jan 17, 2018 3:19 pm

Invested31 wrote:
Wed Jan 17, 2018 1:39 pm
I really appreciate everyone's input thus far.

Other than maybe being to ambitious with a 55 goal, for which the plan b would be to delay retirement a few years, are we on the right track to getting a long term portfolio up and running. Are there any major flaws that you guys can see that would be setting us up for failure. Would you suggest a different way to meet our allocation or to get started on the new accounts.
Keep your contributions as high as practical, keep your expenses low,be diversified nd make full use of tax-advantaged accounts. These are the factors under your control, so concentrated on them. You already seem to have these points in your plans.

You can not control what the markets will do, or inflation.

Here is a calculator that can help you assets the what you might expect by your hoped-for retirement age. www.firecalc.com. Be flexible in the retirement age, I see that is already your plan B.


Invested31 wrote:I am having a hard time wrapping my head around traditional vs roth for 401's, ira's and then on top of that backdoor ira. Currently both 401's are roth. Can any one suggest a good reading that discusses a portfolio as a whole? I have always thought that you choose roth if you don't need traditional to lower you income and if you think taxes will be higher at retirement. We couldn't contribute enough to 401's to get us down to the next bracket so that's why we chose roth's to get started. Again looking for any suggestions in the way we are setting up the portfolio(fund, account types, allocation) and how to choose types of retirement accounts.

Thanks Again :beer
For most people traditional contributions are likely better than Roth contributions. Most people will be in a lower tax bracket during retirement. After all, by definition employment income will have stopped or been greatly reduced because of retirement.

One key factor is the effect of the progressive tax code, and a second key factor is whether the investor will have significant pension income in retirement.

I would not be as pessimistic as you about Social Security being available.

I suggest reading the TFB blog post "The Case Against Roth 401k", the TFB blog post "Most TSP Participants Should Switch to the Roth TSP", and the wiki article "traditional vs Roth".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Invested31
Posts: 9
Joined: Mon Jan 15, 2018 1:16 pm

Re: New to investing, am I on the right track?

Post by Invested31 » Thu Jan 18, 2018 12:11 am

Again, I want to thank everyone.

Those are good reads and the concept is starting to make sense. I have used the firecalc before and it is a very interesting tool. Again we might not attain the 55 goal or the short term saving for the house goal(at least to the amount I would like), but unless some says I have done something wrong in my planning or can suggest a better way to start off it is time to set the wheels in motion. :happy

Invested31
Posts: 9
Joined: Mon Jan 15, 2018 1:16 pm

Re: New to investing, am I on the right track?

Post by Invested31 » Thu Jan 18, 2018 3:36 pm

I'm starting to get the a handle on traditional vs roth. I do think traditional 401 is better for us. So I could use the experts opinion on how to get to that.

Option 1 Proceed with plan from above, Fund each of the Roth IRA's with funds currently being contributed to Roth 401(k)'s. Leaving current 401's in tack with new AA. New 401(k) contributions go to traditional 401's.

Option 2 Convert current 401's to Roth IRA and restart 401's as traditional.

I am not sure of other options so suggestions are appreciated.

User avatar
FiveK
Posts: 3839
Joined: Sun Mar 16, 2014 2:43 pm

Re: New to investing, am I on the right track?

Post by FiveK » Thu Jan 18, 2018 4:01 pm

Option 1, leaving the money in the 401k, and using the institutional funds with lower fees than you can get in an IRA, seems best. Should be no problem having both traditional and Roth sub-accounts within the 401k.

Invested31
Posts: 9
Joined: Mon Jan 15, 2018 1:16 pm

Re: New to investing, am I on the right track?

Post by Invested31 » Thu Jan 18, 2018 5:56 pm

I think I understand, should we still lower the 401k contributions to start and fund a IRA for each of use or just get closer to maxing out the HSA and current 401's

User avatar
FiveK
Posts: 3839
Joined: Sun Mar 16, 2014 2:43 pm

Re: New to investing, am I on the right track?

Post by FiveK » Thu Jan 18, 2018 6:07 pm

Invested31 wrote:
Thu Jan 18, 2018 5:56 pm
I think I understand, should we still lower the 401k contributions to start and fund a IRA for each of use or just get closer to maxing out the HSA and current 401's
If both the 401k and IRA money is intended for long term investments, favor the one with the lower fees for your desired asset allocation first. Many people have relatively high cost 401k plans, so the "usual" advice is to favor IRAs (after any 401k match). Because you have institutional funds (with very low fees) in the 401k, you could favor the 401k.

See that Investment Order post for more.

Invested31
Posts: 9
Joined: Mon Jan 15, 2018 1:16 pm

Re: New to investing, am I on the right track?

Post by Invested31 » Thu Jan 18, 2018 6:23 pm

I understand now, I did read that however I wasn't taking fees into account. I was just going with the order of company match, hsa, irs then 401k. Forgot the the other part's. :oops:

Thanks again

Post Reply