I think I am in trouble...way behind where I should be

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Topic Author
Retrospective
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Joined: Fri Jun 22, 2018 4:49 am

I think I am in trouble...way behind where I should be

Post by Retrospective » Fri Jun 22, 2018 5:13 am

Hi there. I recently found this forum (2 days ago) and have been avidly reading. There is a lot of wisdom here, and I need to keep reading. In the meantime, I have some decisions to make, and I'd appreciate your input.

I am pretty (very, very) concerned about my retirement situation. I have had my head in the sand, basically because I didn't think I could do anything about it. I have been digging my way out of debt. For years.

My story:
After college, I spent my 20s working in various low-paying jobs and was not concerned about investing. (The biggest problem was that I was never taught the value of investing.)

I went back to grad school for 5 years, out at 31 with massive, massive debts. Sallie Mae (and my stupidity) almost ruined my life. Some of the interest rates were 10%. I consolidated but interest rates / payments were still high. Got laid off, had to defer payments...loan grew... I have paid back on the order of $400k+, including interest. Nightmare.

Anyway, finally free and clear and but missed out on the years and years of contributions / compounding. I was not investing because I was busy prioritizing getting rid of these high-interest loans.

The other thing to note is that for the past 12 years or so, I have worked abroad. This means that I have not been paying into SS, a 401k, and was making too much to contribute to a Roth.

I left my old job 1.5 years ago and had been working on a startup. It's not doing much, and I've now taken a "real job" at New Company.


My stats:
Age: 45, M
Single, no dependents
Base salary is a hair over $300k. (CA- high COLA)
Renting (can't afford to buy) ~4k/month

Roth $3,513
100% SPDR S&P 500 ETF TRUST


401k from previous employer 15 years ago (at Vanguard) $26,174

Dreyfus Opportunistic Midcap Value Fund Class I 31.31%
Vanguard Institutional 500 Index Trust 31.75%
Vanguard PRIMECAP Fund Admiral Shares 36.93%

These funds are showing with de minimus quantities, no idea where they came from (I didn't choose them.... they just showed up in my account)
Vanguard Target Retirement 2035 Trust Select .00%
Vanguard Mid-Cap Index Fund Institutional Plus Shares .00%

Individual Stocks $17,683 up 12.5% (LTCG)

Cash USD $12k
Cash Foreign Currency $57K USD equivalent
I can access this as an emergency fund. Hesitant to move it right now because of currency fluctuations/cost.

Stock in Private Company
exercised at total cost of $65k +paid AMT @ 30k
I exercised my options when I knew I was leaving previous employer because I didn't want to lose them. Could be worth $0 if company goes bust (unlikely but possible). I think they are doing well, though. If IPO / sale, I think we are looking at value of $450k-$1m. This is a total wild card. (And yes, I was also thinking LTCG on this.)

I have a brokerage account (just need to use it)

At some point, I will inherit a home, plus about $300-500k in assets.
(Edited to add that sooner rather than later, this house is going to need 20-30k of deferred maintenance)

Asset Allocation Risk: I am actually probably fine with 100% equity (maybe my appetite for risk is too high. I don't even know what sorts of bonds /CDs I should be looking at...that's another learning curve.)

My plan is to max my 401k contributions at New Company (they don't match)
I don't think I can contribute to a Roth because I make too much (even if you consider my 2018 earnings are going to be 150k total)
This is Vanguard also. (Do all Vanguard offer same funds? )

Checking on the SSA situation.

I think overall, I can probably save (including 401k contributions) about 9k a month.

FWIW, I work in a pretty ageist industry. I am not sure how long my time at the trough is going to last, long term. Again. A wildcard.



Questions:
Should I roll over the old 401k? (I need to do more reading to understand why one does this)
I am signing up for New Employer 401k - go bolder / risky? Any suggestions on particular funds?
I need to investigate Backdoor IRAs (just learned of this today)
I will keep about $40k in cash as an emergency fund
All other available cash will go to investments (suggestions?)


I feel like given my situation, I am going to have to take some measured risks to get to a better place.

Also, I am already pretty frugal. As someone mentioned, I am going to carve out some income for hobby/travel (because I want to enjoy my life on this planet), but generally speaking, I am pretty mindful of what I spend. I am not a frivolous spender, could care less about clothes, no cable, no tv, big DIYer, etc. But I am not living totally like a monk. Just very mindful of where I spend.

Thoughts?

Thank you.
Last edited by Retrospective on Fri Jun 22, 2018 9:08 am, edited 1 time in total.

NightFall
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Re: I think I am in trouble...way behind where I should be

Post by NightFall » Fri Jun 22, 2018 7:19 am

First, calm down. You have plenty of time and income to fix the situation. Don't take dumb risks to try and fix the situation. The most important thing is to become a saver. The fact that you don't have much in retirement accounts for your age is irrelevant. You are not required to use retirement accounts to save for retirement (although they can help).

1. Prioritize traditional contributions to your 401K.
2. Read about backdoor Roths
3. Reduce expenses if possible
4. Don't rely on a possible IPO to save your retirement

It sounds like you're already doing all 4. You say you can save $9K/month. That's great. Do that and you should be more than fine. You'll be saving more than most people make in a year. As to what to invest in, check out the 3 fund portfolio mentioned so many times here. Alternatively, you might consider something like an all-in-one fund like a lifestrategy or target date fund for simplicity.

3funder
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Re: I think I am in trouble...way behind where I should be

Post by 3funder » Fri Jun 22, 2018 7:28 am

NightFall wrote:
Fri Jun 22, 2018 7:19 am
First, calm down. You have plenty of time and income to fix the situation. Don't take dumb risks to try and fix the situation. The most important thing is to become a saver. The fact that you don't have much in retirement accounts for your age is irrelevant. You are not required to use retirement accounts to save for retirement (although they can help).

1. Prioritize traditional contributions to your 401K.
2. Read about backdoor Roths
3. Reduce expenses if possible
4. Don't rely on a possible IPO to save your retirement

It sounds like you're already doing all 4. You say you can save $9K/month. That's great. Do that and you should be more than fine. You'll be saving more than most people make in a year. As to what to invest in, check out the 3 fund portfolio mentioned so many times here. Alternatively, you might consider something like an all-in-one fund like a lifestrategy or target date fund for simplicity.
+1. Take advantage of your high salary (I know you live in a high COLA, though). Make a list of your expenses and post it here. Perhaps we can help you lower your cost of living by a hair or two. Just a thought.

ausmatt
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Re: I think I am in trouble...way behind where I should be

Post by ausmatt » Fri Jun 22, 2018 7:31 am

Much like Silicon Valley RIGBE, all of this is predicated with IMHO —

I agree that you will be fine. Definitely don’t count on private company shares in your planning - if they liquidate then that’s just gravy.

Am I reading that right that you paid $30k AMT on the iso option exercise? It’s probanly going to be hard to recoup that so hopefully those shares do liquidate at some point - the good news is they will be LTCG now.

Focus on saving and don’t deviate from that plan. In addition to the 401(k) and Backdoor Roth, consider maxing an HSA (either through your new employer or private).

Carve out some portion of your income for a hobby or travel so that you don’t feel like you can’t do anything but save.

niceguy7376
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Re: I think I am in trouble...way behind where I should be

Post by niceguy7376 » Fri Jun 22, 2018 7:35 am

Welcome to the forum.
It is NEVER LATE, just some roadblocks to reach the destination.

Time might have passed but you are now seeing the sunlight and your income is your friend to guide you.

Roth IRA - 3500
old 401k - 26K
Individual stock -17K
Cash - 12K
Ignoring the foreign currency and stock in private company for now.

First and foremost, what is your cost basis on that individual stock of 17K? If not much gains, then convert that stock and cash into emergency fund and invest in a good savings account.

1. Start contributing the max to 401k to reach limit. List out the options in your 401k so that fine folks here can recommend which ones to invest in.
2. Since you dont have trad IRAs, you are good in ability to do backdoor roth for full benefit. Read on that.
3. If your current 401k has good options and they accept incoming old 401k balances, I would move the old 401k into your new 401k and have one less account.
4. Decide on your Asset Allocation risk. You dont need to take extra risks just because you got a delayed start
5. Open a brokerage account to start investing the (9k per month - 401k contributions) in a good total stock fund
6. Create account and check on ssa.gov to see if you have reached the 40 credit limit or not (to be eligible for ss later in life)

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BeBH65
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Re: I think I am in trouble...way behind where I should be

Post by BeBH65 » Fri Jun 22, 2018 7:39 am

We need just a bit more info to be able to give you the most comprehensive feedback.
Please consider updating your opening post according to the format mentioned in the signature of Niceguy above.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

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BeBH65
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Re: I think I am in trouble...way behind where I should be

Post by BeBH65 » Fri Jun 22, 2018 7:42 am

Your savings rate, as a percentage of your take-home pay is the ratio that is important.

Have a look at this article of MMM the-shockingly-simple-math-behind-early-retirement/
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

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dwickenh
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Re: I think I am in trouble...way behind where I should be

Post by dwickenh » Fri Jun 22, 2018 7:43 am

niceguy7376 wrote:
Fri Jun 22, 2018 7:35 am
Welcome to the forum.
It is NEVER LATE, just some roadblocks to reach the destination.

Time might have passed but you are now seeing the sunlight and your income is your friend to guide you.

Roth IRA - 3500
old 401k - 26K
Individual stock -17K
Cash - 12K
Ignoring the foreign currency and stock in private company for now.

First and foremost, what is your cost basis on that individual stock of 17K? If not much gains, then convert that stock and cash into emergency fund and invest in a good savings account.

1. Start contributing the max to 401k to reach limit. List out the options in your 401k so that fine folks here can recommend which ones to invest in.
2. Since you dont have trad IRAs, you are good in ability to do backdoor roth for full benefit. Read on that.
3. If your current 401k has good options and they accept incoming old 401k balances, I would move the old 401k into your new 401k and have one less account.
4. Decide on your Asset Allocation risk. You dont need to take extra risks just because you got a delayed start
5. Open a brokerage account to start investing the (9k per month - 401k contributions) in a good total stock fund
6. Create account and check on ssa.gov to see if you have reached the 40 credit limit or not (to be eligible for ss later in life)
+1 on this post. It is never too late. The best time to start was 20 years ago. The next best time to start is now!!
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

Rus In Urbe
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Re: I think I am in trouble...way behind where I should be

Post by Rus In Urbe » Fri Jun 22, 2018 7:47 am

+1. Take advantage of your high salary (I know you live in a high COLA, though). Make a list of your expenses and post it here. Perhaps we can help you lower your cost of living by a hair or two. Just a thought.
Once you get into the habit of frugality, you will feel a sense of control about your financial life. As a side benefit, you'll feel a greater sense of control overall.

If it is any consolation, my SO and I came through bad first marriages and expensive divorces, landing us in my 40s in a spot worse than yours and with not nearly so high a salary. Twenty years on, we're in great shape, with more capital than we can spend in retirement. While getting educated on investments was a big part of that success, the major component was frugality, frugality, frugality, which we accomplished together as a team. For the past two decades, we have lived a very rich life on very little. I recommend it.
I'd like to live as a poor man with lots of money. ~Pablo Picasso

Topic Author
Retrospective
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Re: I think I am in trouble...way behind where I should be

Post by Retrospective » Fri Jun 22, 2018 9:10 am

Thank you all for your thoughtful replies.

You've made me feel better. I do feel like I am way, way behind my peer group.

I have edited my original post to address some of the questions / requests for more information. Hopefully I didn't miss anything.

Thank you very much.

jharkin
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Re: I think I am in trouble...way behind where I should be

Post by jharkin » Fri Jun 22, 2018 9:17 am

I would like to echo the comments above - you will be fine. Yes on this board you see a lot of people with high incomes that did everything right and have large resources - but there are a LOT of us out there that made mistakes. In my case I started investing early, but also had to support older family members in financial trouble for most of my 20s (to the tune of about 1/3 of my income in those years) and that put me a decade behind. And I only make a bit under half what you do now. I recovered. You will too.

Don't discount the value of having paid off that 400k student debt. That was not easy and some people carry loads like that much later in life. Your 300k income gives you huge opportunities to catch up. Even in a VHCOL area you can probably start saving large % of income and get on track pretty quick. 20 years of high savings rates and retiring to a LCOL area should work out quite well.

#1 - Max that 401k
#2 - Read the wiki on "backdoor roth" and use that
#3 Look for any other options you have to sneak in tax deferred. If you are healthy and your employer offers an HDHP sign up and max an HSA. See if the company allows after tax 401k and Roth conversions.
#4 Then invest whatever else you can after tax

I would not go overboard on risky investments to help catch up, as that could backfire. Read the articles on asset allocation, pick a mix you are comfortable with and stick to it.


**IF** either the startup equity or inheritance materialize, treat it as a windfall and celebrate. But don't count on either in your base plan.

mhalley
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Re: I think I am in trouble...way behind where I should be

Post by mhalley » Fri Jun 22, 2018 10:04 am

One tip on implimenting the 3 fund portfolio, if you decide you want to have some bonds in taxable, substitute an intermediate term muni fund for total bond fund if tax bracket above 28%.

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eye.surgeon
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Re: I think I am in trouble...way behind where I should be

Post by eye.surgeon » Fri Jun 22, 2018 10:38 am

You come to the game late but you have a high income. Aggressive saving and earning will get you there but you won't be FIREing at 60.
"I would rather be certain of a good return than hopeful of a great one" | Warren Buffett

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mhadden1
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Re: I think I am in trouble...way behind where I should be

Post by mhadden1 » Fri Jun 22, 2018 10:46 am

Retrospective wrote:
Fri Jun 22, 2018 5:13 am
My stats:
Age: 45, M
Single, no dependents
Base salary is a hair over $300k. (CA- high COLA)
The most important way to catch up is to save a LOT from your good income.

With your high income, reinforced by your single tax filing status, you are in a high tax bracket. This may provide some low-hanging fruit for saving on taxes. Get a very good understanding of your tax situation, so you can make the best financial decisions that take your taxes into account.
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.

Topic Author
Retrospective
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Re: I think I am in trouble...way behind where I should be

Post by Retrospective » Fri Jun 22, 2018 10:48 am

Re the HSA -I need to go read up on this ASAP. Knock wood, I am perfectly healthy. Never really go to the dr except for an annual checkup. My work plan has me paying nothing monthly and I think my deductible is $500.

Re eye.surgeon. That is a depressing thought....

michaeljc70
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Re: I think I am in trouble...way behind where I should be

Post by michaeljc70 » Fri Jun 22, 2018 1:16 pm

It sounds like you have a good plan and you've received good advice here. I would definitely consider retiring to an area with a lower cost of living than where you are now. That can make a big difference. My biggest concerns would be your career being cut short (due to what you mentioned) and lack of social security credits. Save as much as you can for as long as you can with your current salary and then see where you are. You may be in a position to retire or at least take a lower paying job if needed.

youngpleb
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Re: I think I am in trouble...way behind where I should be

Post by youngpleb » Fri Jun 22, 2018 1:31 pm

First off, congrats on paying off that massive debt. I can see why you'd be nervous about your situation, but you aren't a lost cause :mrgreen: Stashing away $9k/month is very good. Try to take advantage of all tax-advantaged space, like your 401k, IRAs (look up backdoor Roths and even more importantly, see if you are capable of a Mega Backdoor Roth through your 401k!), and HSA accounts. After those, start investing in taxable accounts. You have the right mindset to succeed, now you just have to stick to the plan and continue to invest no matter what happens regarding the market. Don't rely on inheriting anything...pretend it doesn't exist and won't happen. You are definitely "behind" (who can say to what though) but the good part is that you are now firing on all cylinders and are going to make up a lot of ground over the next decade.

bloom2708
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Re: I think I am in trouble...way behind where I should be

Post by bloom2708 » Fri Jun 22, 2018 1:34 pm

Even in CA is $4,000/month rent for a single person with no kids a lot?

Is that a 1-2 bedroom with a parking spot?

Pre-tax 401k, Back door Roth IRA. At 45, I would still be 70/30. Taking excessive risk and being 90 or 100% stocks won't catch you up.

Saving more and cutting expenses are the two magic bullets that will get you caught up. At 50 you can do catch up contributions.

Track your net worth, track spending closely. Using Personal Capital and tracking your spending and investment progress will give you great perspective and data.

Hopefully you can make some progress and see that you can catch up.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words. Whole food, plant based. Bing it.

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Darth Xanadu
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Re: I think I am in trouble...way behind where I should be

Post by Darth Xanadu » Fri Jun 22, 2018 1:38 pm

Retrospective wrote:
Fri Jun 22, 2018 10:48 am
Re the HSA -I need to go read up on this ASAP. Knock wood, I am perfectly healthy. Never really go to the dr except for an annual checkup. My work plan has me paying nothing monthly and I think my deductible is $500.
I could be wrong, but I don't believe you will be eligible for an HSA if your annual deductible is only $500.
"A courageous teacher, failure is."

TravelforFun
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Re: I think I am in trouble...way behind where I should be

Post by TravelforFun » Fri Jun 22, 2018 1:41 pm

OP, the main obstacle to your achieving a comfortable retirement is your lifestyle. If you could live on half of your income and put $150K a year into a variety of 401K, backdoor Roth, HSA ( if eligible) and taxable, if wouldn't take you long to build up a substantial net worth.

Do a monthly budget and stick to it. Stop the wants and keep your eyes on the goal.

TravelforFun

MI_bogle
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Re: I think I am in trouble...way behind where I should be

Post by MI_bogle » Fri Jun 22, 2018 1:56 pm

Retrospective wrote:
Fri Jun 22, 2018 9:10 am
Thank you all for your thoughtful replies.

You've made me feel better. I do feel like I am way, way behind my peer group.

I have edited my original post to address some of the questions / requests for more information. Hopefully I didn't miss anything.

Thank you very much.
One thing not mentioned yet is that you shouldn't be comparing yourself to your peer group.

1) appearances can be deceiving. There are all sorts of anecdotes of people appearing to be rich, but yet they are in debt up to their eyeballs

2) It is generally negative to compare yourself to others. Particularly, (following Point 1) since you don't usually know all their details, but you know your situation

3) If you must compare yourself to others. You are in the Top 3% of annual income of ALL residents of the USA. You are incredibly fortunate/have earned it/way to go!. You are going to be inheriting a bunch of stuff, AND have paid back a monumental amount of debt. You are in a great situation going forward. You are planning on saving 9K a month, or 108,000 per year. For perspective, that is TWICE the median household income in the US. You are incredibly fortunate! Well done.

4) It may not seem like it, but there are plenty of people on this board that do not yet have a net work of 100K, or even make 100K in a year, much less save that much in a year

michaeljc70
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Re: I think I am in trouble...way behind where I should be

Post by michaeljc70 » Fri Jun 22, 2018 1:59 pm

TravelforFun wrote:
Fri Jun 22, 2018 1:41 pm
OP, the main obstacle to your achieving a comfortable retirement is your lifestyle. If you could live on half of your income and put $150K a year into a variety of 401K, backdoor Roth, HSA ( if eligible) and taxable, if wouldn't take you long to build up a substantial net worth.

Do a monthly budget and stick to it. Stop the wants and keep your eyes on the goal.

TravelforFun
Isn't he really only living on 1/3 (or less) of his income then after taxes?

BostonButterfly
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Re: I think I am in trouble...way behind where I should be

Post by BostonButterfly » Fri Jun 22, 2018 2:03 pm

Retrospective wrote:
Fri Jun 22, 2018 5:13 am
... I have paid back on the order of $400k+, including interest. Nightmare.
:shock: OMG! But holy cow, congrats on paying that off!!!

You've come to the right place. Stick around here and you'll be glad you did. The folks here are amazing!

If it makes you feel better, I spoke with someone just last night who is 55 years old with ZERO saved for retirement and just refinanced her mortgage back up to a 30 year. :oops: Although sometimes it feels like everyone is doing so much better than you are, there are always people doing worse.

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