Portfolio Review with focus on saving for House vs Retirement?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
TexMexIndex
Posts: 34
Joined: Wed Mar 28, 2018 12:38 pm

Portfolio Review with focus on saving for House vs Retirement?

Post by TexMexIndex » Wed Mar 28, 2018 12:47 pm

Longtime listener, first time caller. Wanted some good advice.

I bring in about the equivalent of 130k annually if you count housing and other non-taxable allowances from work. Taxable income is 71 K a year,
But in 2022 will change to 95K taxable, no allowances. Wife not working right now but likely will in the next 3-5, makes about $40K-110K. Unsure if she will work part or full time.
Married, 3 kids, not looking to buy a house for about 4 years. We move frequently for work, don't own a home, but plan to settle down on the next move.

Emergency funds: Three to six months of expenses
Debt: none
Tax Filing Status: Married Filing Jointly
Tax Rate: 15% Marginal 5% effective Federal, 0% State
State of Residence: WA
Age: 40s

Current Taxable Assets (Not including Emergency Fund):
$78 K in Vanguard Target 2020 Retirement Fund. I'm Ok with the risk, will use all of this towards a home, likely around 2022.
Hope is to pay for about half of a house and do a 15 year loan after that so I can own a house by 60. Looking for a house that costs around
300K currently. My main question involves the $13K I am putting into this annually.

New annual taxable Contributions
$13,000 into Vanguard Target 2020 Retirement Fund

Retirement assets:

$90 K in 401K in a Target 2040 fund
$45K in Rollover IRA in a Target 2045 fund
$85K in Roth IRA in a Target 2045

Contributions

New annual retirement Contributions
$12,100 into 401k (11% of income, 5%employer matching contributions)


In addition will get a pension that gives me about $33K a year in today's dollars when I turn 62.

When we turn 67 mine and my wife's Social Security should add about $30K pretax

Retirement Goal:I want to retire at 62 to serve a mission with my wife, have a house paid for and
bring in 100K pretax annually in today's dollars and hope for enough in retirement that the source beats inflation
with a 4% annual output. So I''ll need about $70K in today's dollars from 62-67 and $40K from 67 onward

Kids College:
$27 K combined in 529 plans. No planning to contribute more till later. Kids should be out of the house and on to
careers by the time we are 60.


Questions:
1. I am getting more worried about retirement and toy with the idea of trying to get to 1 million in retirement assets by 50 (401K and Roths).
To do this I would have to save less for a house, my wife might start working again and I would have an increase in salary. I could get up
to 18,500 in the 401K and 5,500 in a traditional IRA annually, but that would mean I could only save about $3K a year for a house.

So at age 44 is it better to have $155 K for a house and around $360K ( both projected) in Retirement (mostly taxable but some nontaxable assets)
or at 44: $105 K for a house and $420K in retirement? Should I be looking at his in another way?

2. Hows my Portfolio look? Any tips? Is my focus and strategy good for my desired outcomes? Thanks in advance.

User avatar
Tyler Aspect
Posts: 1568
Joined: Mon Mar 20, 2017 10:27 pm
Location: California
Contact:

Re: Portfolio Review with focus on saving for House vs Retirement?

Post by Tyler Aspect » Wed Mar 28, 2018 6:54 pm

A house is a cost center that will make you to have higher expenses than without a house. This is something to keep in mind particularly your job has a frequent moving aspect. If you are worried about not making your number, then going for a house-less strategy could be a realistic plan.

This would have you to max out Roth IRA while your tax rates are low. Bump up your 401k contribution, and have a smaller taxable contribution. Keep taxable funds all stock.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

mega317
Posts: 3060
Joined: Tue Apr 19, 2016 10:55 am

Re: Portfolio Review with focus on saving for House vs Retirement?

Post by mega317 » Thu Mar 29, 2018 2:07 am

You're basically asking if you should invest more at the expense of putting a smaller down payment on the house ei taking out a bigger mortgage. Read about investing vs paying down loans.
https://www.bogleheads.org/wiki/Paying_ ... _investing
Or any of hundreds of threads on the topic.

gotester2000
Posts: 620
Joined: Sun Nov 12, 2017 1:59 am

Re: Portfolio Review with focus on saving for House vs Retirement?

Post by gotester2000 » Thu Mar 29, 2018 3:09 am

You are projecting things which may or may not happen.
Current situation is your income is 71k + allowances and networth is around 250k and you want to retire with a house and a million while raising 3 kids.
Realistically pay only 20% down on the house with a 15 year mortgage.

User avatar
mhadden1
Posts: 697
Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

Re: Portfolio Review with focus on saving for House vs Retirement?

Post by mhadden1 » Thu Mar 29, 2018 4:50 am

If buying a house is a real solid goal, I would put the down payment that you want in a very safe place well beforehand. If it's a squishy goal where you might buy sometime with whatever you have, saving with a TD fund is fine I guess.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

Grt2bOutdoors
Posts: 21469
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Portfolio Review with focus on saving for House vs Retirement?

Post by Grt2bOutdoors » Thu Mar 29, 2018 7:49 am

Solve for Rate:

Years of Saving: 10
Present Value of Current Account: $220,000
Annual Savings: $13,000
Future Value Needed: $1,000,000

Rate= 19.75%

Even if you did not purchase the home, your target goal of $1 million by age 50 is not feasible.
Current expectations are 4-5%, maybe 6% at current valuations.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Topic Author
TexMexIndex
Posts: 34
Joined: Wed Mar 28, 2018 12:38 pm

Re: Portfolio Review with focus on saving for House vs Retirement?

Post by TexMexIndex » Thu Mar 29, 2018 8:36 am

Thanks for the feedback so far including the when to pay down vs when to invest link.

Of course cant expect 1 mil in retirement with the current amount, but I could reallocate annual savings up to
24K annually and if/when my partner works, add even more. Also salary will be increasing. Of course a nice annual return would have to help.

I'm just trying to figure out, is it nicer to have a small house payment that I am closer to owning, or a nicer growing
retirement. I think I have to pick between the two strategy wise now...

Jags4186
Posts: 3910
Joined: Wed Jun 18, 2014 7:12 pm

Re: Portfolio Review with focus on saving for House vs Retirement?

Post by Jags4186 » Thu Mar 29, 2018 8:45 am

Agree with the above. There's too much "gonna be, will likely be, probably will be, it depends" in your post regarding your income. As others have pointed out you will likely not be able to get to $1 million in 10 years at your current savings rate.

That said, I wonder why you think you need $100,000 in income in retirement while on a mission, which I assume won't be a glamorous event, when you currently live on $71k?

Grt2bOutdoors
Posts: 21469
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Portfolio Review with focus on saving for House vs Retirement?

Post by Grt2bOutdoors » Thu Mar 29, 2018 8:47 am

TexMexIndex wrote:
Thu Mar 29, 2018 8:36 am
Thanks for the feedback so far including the when to pay down vs when to invest link.

Of course cant expect 1 mil in retirement with the current amount, but I could reallocate annual savings up to
24K annually and if/when my partner works, add even more. Also salary will be increasing. Of course a nice annual return would have to help.

I'm just trying to figure out, is it nicer to have a small house payment that I am closer to owning, or a nicer growing
retirement. I think I have to pick between the two strategy wise now...
If you save $24K, the rate required drops to 13.8%. My point is everything in moderation, you should enjoy life with your family now, tomorrow is not promised to anyone. Sacrifice yes, we all make them from time to time, but do not live a life of poverty or severe deprivation to say to oneself self - "pot o gold, I have a pot o gold". Riches come in many forms, "lucky the fellow who values the most dear of them". You can have both, but you can not have everything - $1 million (unless in Zimbabwe - which you don't want).

Do not follow Dave Ramsey's 12% return on investing - it can happen, but don't bank on it.
Last edited by Grt2bOutdoors on Thu Mar 29, 2018 8:52 am, edited 1 time in total.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

KlangFool
Posts: 14126
Joined: Sat Oct 11, 2008 12:35 pm

Re: Portfolio Review with focus on saving for House vs Retirement?

Post by KlangFool » Thu Mar 29, 2018 8:51 am

TexMexIndex wrote:
Thu Mar 29, 2018 8:36 am
Thanks for the feedback so far including the when to pay down vs when to invest link.

Of course cant expect 1 mil in retirement with the current amount, but I could reallocate annual savings up to
24K annually and if/when my partner works, even more. Of course a nice annual return would have to help.

I'm just trying to figure out, is it nicer to have a small house payment that I am closer to owning, or a nicer growing
retirement. I think I have to pick between the two...
TexMexIndex,

<< Of course cant expect 1 mil in retirement with the current amount, but I could reallocate annual savings up to 24K annually and if/when my partner works, even more. Of course a nice annual return would have to help.>>

1) https://www.bogleheads.org/wiki/Saver%27s_credit

You should evaluate whether you should contribute up to 18.5K to your Trad. 401K now. Check whether you qualify for saver's credit if you do that.

2) Even if that is true, it is a few years later and you have less time for the money to grow.

3) What is your current annual expense?

<< My main question involves the $13K I am putting into this annually.
New annual taxable Contributions
$13,000 into Vanguard Target 2020 Retirement Fund>>

4) You are paying 20% tax on that 13K. Why are you doing this? You can withdraw the Roth IRA contribution to buy the house in 4 years.

5) Max up your Trad. 401K to 18.5K now. Put 5.5K into your Roth IRA and 5.5K into your wife's Roth IRA.

6) You only need 20% downpayment = 60K for a 300K house. You have the money in the Roth IRA.

Unless you like paying taxes instead of spending your own money, you should not keep your house down payment money in your taxable account.

KlangFool

Topic Author
TexMexIndex
Posts: 34
Joined: Wed Mar 28, 2018 12:38 pm

Re: Portfolio Review with focus on saving for House vs Retirement?

Post by TexMexIndex » Thu Mar 29, 2018 10:47 am

All

Enjoying the advice it does look like I need to put more into retirement and IRAs for tax purposes.

Klangfool
1) Never thought of the savers credit. Does it make more sense to do a Traditional IRA for this to get more of a savers credit?
I can get my contribution up to 18.5 for my 401K annually.
3) monthly expenses for the family is around 2K
4-5) Can I put money into a Roth for my wife the years she doesn't bring in income? Is that legal?
6) Isnt the limit for withdrawal from a Roth 20K if married for a couple? Do many of you uses a roth to keep a down payment bigger than that in

GRT2B
Thankfully my current setup allows for a lot of savings and a lot of travel-I'm posted overseas for my work-home state is WA though. We have a seperate 10k a year vacation fund we don't count for investing. trying to balance between ant and grasshopper. I'm hoping for 10% return for retirement funds for the next decade, but know the risk. 12% would be amazing.

Jags
only plan to do the mission for a few years then get back to traveling and family. The 71k I live on now also gets a free house, utilities, and some other nontaxable funds.

enjoy all your perspectives, keep em coming.

KlangFool
Posts: 14126
Joined: Sat Oct 11, 2008 12:35 pm

Re: Portfolio Review with focus on saving for House vs Retirement?

Post by KlangFool » Thu Mar 29, 2018 1:18 pm

TexMexIndex wrote:
Thu Mar 29, 2018 10:47 am


Klangfool
1) Never thought of the savers credit. Does it make more sense to do a Traditional IRA for this to get more of a savers credit?
I can get my contribution up to 18.5 for my 401K annually.
3) monthly expenses for the family is around 2K
4-5) Can I put money into a Roth for my wife the years she doesn't bring in income? Is that legal?
6) Isnt the limit for withdrawal from a Roth 20K if married for a couple? Do many of you uses a roth to keep a down payment bigger than that in
TexMexIndex,

<<1) Never thought of the savers credit. Does it make more sense to do a Traditional IRA for this to get more of a savers credit?>>

No idea. You should use your tax software and check.

<<4-5) Can I put money into a Roth for my wife the years she doesn't bring in income? Is that legal?>>

Google "Spousal IRA". It is perfectly legal as long as you filed tax under married filed jointly. It could be Trad. IRA too.

<<6) Isnt the limit for withdrawal from a Roth 20K if married for a couple? Do many of you uses a roth to keep a down payment bigger than that in>>

What limit? You can withdraw your Roth IRA contribution tax-free and penalty-free any time. You should have enough Roth IRA contribution for 60K downpayment in 4 years.

Roth IRA could be used to park Emergency fund too.

https://www.bogleheads.org/wiki/Roth_IR ... gency_fund

KlangFool

JBTX
Posts: 5536
Joined: Wed Jul 26, 2017 12:46 pm

Re: Portfolio Review with focus on saving for House vs Retirement?

Post by JBTX » Thu Mar 29, 2018 2:20 pm

Op

You won’t get to $1 million by 50. Not even close. Maybe half that if you are lucky.

Getting to $1 million by 62 is a more achievable goal.

Post Reply