Critique my Finances Please

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uconnlj
Posts: 6
Joined: Fri Feb 05, 2016 7:15 am

Critique my Finances Please

Post by uconnlj » Sat Oct 06, 2018 2:35 pm

I'm new here and and curious if you can critique how I'm doing, what I can do to improve, etc. Here's a summary:

My wife and I are 39. We have 4 kids: 7,5,3,2.
Household income has been around $225,000-$270,000 for the past 6 years. It will be going to $500,000 in a few months and then $575,000 about 3 years after that. Here's what we have now:

1. $144 in Roth IRAs at Vanguard in the Total Stock Market Index Fund Admiral shares (.04 ER). We've both been doing backdoor Roths since 2010ish.
2. $40,000 in an old 401k at Vanguard in the Retirement 2040 fund (ER of .15)
3. $275,000 in another 401k in the Vanguard Institutional Target Retirement 2040 (ER of .09)
4. $40,000 in an old 401k with ING

We are a one income family. We max out that 401k and get a match and some other contributions from the employer for a total of about $37,000 a year in the 401k. We both do backdoor roths for $11,000 total. My wife was a teacher and may go back at some point so she'll have a small pension when we retire of around $45,000 a year before taxes.

For College Savings, we have: $49,000 for the 7 year old, $24,000 for the 5 year old, $12,000 for the 3 year old, and $8,000 for the 2 year old. We use the Connecticut CHET 529 plan to get the state tax benefits and then we move the money to the UTAH 529 plan. We have their money in target date funds with UTAH 529. Right now we are contributing $300 per child (that number has been higher in the past), per month ($1200 total per month) but plan to up that to $1000 per month, per child for a total of $4,000 month once income goes to $500,000.

When our income jumps to $500,000 in a few months, We plan on opening a taxable account with Vanguard and contributing $2,500 a month to the Total Stock Market Index fund. We do not have an HSA at work but there is talk we may next year. If so, I will max that out.

Thoughts on how I'm doing, what I can do to improve?

I really appreciate your time and thoughts.

Thanks!

justsomeguy2018
Posts: 59
Joined: Wed Oct 03, 2018 8:11 pm

Re: Critique my Finances Please

Post by justsomeguy2018 » Sat Oct 06, 2018 2:53 pm

Congrats on the upcoming raise. Sounds like you are doing well for yourself.

I am new to all this, so take what I say with grain of salt. These aren't recommendations, just observations/thoughts.

My immediate thoughts go to taxes. If you aren't already subject to it, keep in mind that after $250k MAGI you will pay the additional 3.8% surcharge on all net investment income in non-tax deferred accounts. So I would probably max those out (which it sounds like you are doing), including an HSA (which will require you to be in a high-deductible health plan - if your employer doesn't offer an "HSA" perhaps they still offer HDHPs so that you can open an HSA on your own?) Then there is also the 0.9% medicare tax on income over $250k which you may already be paying or be aware of (maybe something to keep in mind in regards to cash flows).

I found the below Wiki useful in terms possible allocations between different types of tax accounts (e.g. apparently ETFs may be slightly more tax efficient than index funds, something to keep in mind).

https://www.bogleheads.org/wiki/Tax-eff ... _placement

lessismoreinvestor
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Joined: Thu Sep 27, 2018 1:05 pm
Location: MIdwest
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Re: Critique my Finances Please

Post by lessismoreinvestor » Sat Oct 06, 2018 7:43 pm

You are doing awesome! Keep up the great work!

Order for accounts to max out if you have them.

401k
HSA
IRA
529
Taxable.

You are doing just that! My recommendations are:

1. Consolidate your old 401k into your current one for simplicity.
2. Where do you stand on your mortgage? Paid off yet?
3. Keep in mind with your taxable account that all your accounts are viewed as one for your asset allocation. Investing solely in total stock market index might start to tilt you more aggressive than you want to be. Maybe consider some total bond market as well. or perhaps just invest it in 2040 as well.
4. Great job with college savings

You will be saving almost 80k per year (37l 401k, 11k backdoor Roth, 30k taxable). You will be multi-millionaires before you know it.

Nissanzx1
Posts: 303
Joined: Wed Jul 18, 2018 11:13 pm

Re: Critique my Finances Please

Post by Nissanzx1 » Sat Oct 06, 2018 11:17 pm

Let get the debt list if any please. Certainly could change some recommendations.

Congrats on an incredible income.

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Watty
Posts: 14364
Joined: Wed Oct 10, 2007 3:55 pm

Re: Critique my Finances Please

Post by Watty » Sat Oct 06, 2018 11:51 pm

There isn't any information on your situation with student loans, mortgages, and expenses which is very important.
uconnlj wrote:
Sat Oct 06, 2018 2:35 pm
Thoughts on how I'm doing, what I can do to improve?
The big thing is to not let your expenses increase a lot when your income does.

runner540
Posts: 754
Joined: Sun Feb 26, 2017 5:43 pm

Re: Critique my Finances Please

Post by runner540 » Sun Oct 07, 2018 8:05 am

uconnlj wrote:
Sat Oct 06, 2018 2:35 pm
My wife was a teacher and may go back at some point so she'll have a small pension when we retire of around $45,000 a year before taxes.

....

When our income jumps to $500,000 in a few months, We plan on opening a taxable account with Vanguard and contributing $2,500 a month to the Total Stock Market Index fund. We do not have an HSA at work but there is talk we may next year. If so, I will max that out.


Thanks!
Congrats on such a great income. How stable is the $500-575k? Is it salary or is a large part variable bonuses/stock? If you are becoming a physician or audit partner at a Big 4 firm, that is one kind of stability; if you are a salesperson who just took on a new territory, that's less stable.

I selected the two parts of your OP that concern me a little:
1. "She'll have a small pension .......of $45k" - that's a big assumption to make in retirement planning, and seems high for having been out of the workforce years already. If it were my family, I wouldn't base retirement plans on a generous pension tied to someone returning to work.
2. $2500 taxable/month is $30k/year - only 12% of your $250k annual increase. It's incredibly important that you and your spouse create a short and long term game plan, including a monthly/annual budget to allocate that huge increase responsibly, intentionally and in line with your values:
Charitable giving? What budget categories do you want to spend more in? (It can be easy without a plan to increase spending in everything, but I'd recommend a more targeted approach, particularly if the increase is not as stable.)

If you can post some details of any debts and major budget items, that would help.

ExitStageLeft
Posts: 981
Joined: Sat Jan 20, 2018 4:02 pm

Re: Critique my Finances Please

Post by ExitStageLeft » Sun Oct 07, 2018 11:26 am

With the addition of a taxable account you'll likely find it much easier to track your asset allocation if you shift to a three-fund portfolio. As it looks now, you may be holding only 10% or so of bonds. A more typical allocation for someone your age would be 20% to 40% bonds. If you were to adopt a 70/30 portfolio with 30% of stocks in international markets, that would give you 49/21/30 in US stocks / intl. stocks / bonds.

A three-fund portfolio could be implemented like the following:

Taxable account
0% VTSAX
0% VTIAX

Roth IRAs at Vanguard 29%
21% VTIAX
8% VTSAX

Old 401k at Vanguard 8%
8% VTSAX

401k 55%
33% total market (VTSAX) or blend of S&P500 and Extended market
22% total bond

Old 401k with ING 8%
8% bond fund

uconnlj
Posts: 6
Joined: Fri Feb 05, 2016 7:15 am

Re: Critique my Finances Please

Post by uconnlj » Tue Oct 16, 2018 9:02 pm

Thank you for all of your thoughts. Sorry for not including our debt scenario. Obviously, that is an important part of the picture.

our debt:

-We owe $550,000 on our mortgage at 3.5%. When we bought, we put down 20% so we are not paying PMI.
-We owe $10,000 on one car at 4.5%.
-We owe $82,500 at 3.5% fixed for student loans.

I would say the salary will be stable. I appreciate any critiques or suggestions you may have.

Thanks.

uconnlj
Posts: 6
Joined: Fri Feb 05, 2016 7:15 am

Re: Critique my Finances Please

Post by uconnlj » Tue Oct 16, 2018 9:07 pm

Also: I just finished the 3 fund book by bogleheads and plan on employing that investment strategy with my retirement accounts.

Thanks

Grt2bOutdoors
Posts: 19310
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Critique my Finances Please

Post by Grt2bOutdoors » Wed Oct 17, 2018 6:47 am

Get rid of the car loan.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

bloom2708
Posts: 4907
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Critique my Finances Please

Post by bloom2708 » Wed Oct 17, 2018 8:03 am

I would chop at the car loans and student loans before funding the taxable account. You do not want student loans still living with you at age 50.

You are doing just fine. Great salary. Probably below average investments for someone with such salary and an above average mortgage/debt.

You have to determine if "just fine" is good enough. With your salary you have a window of opportunity to do some special things. But, you can also increase your standard of living and keep doing "just fine".

Do you want to work until 67? Are you thinking private college or state U for the kids? If private, I'd figure out a way to get about $200k saved for each kid. 50% 529, 50% taxable for each. If state school, then $80k to $100k should cover it.

Spend time here and you will get all sorts of good advice how to tweak your finances and life to optimize and have a shot at retiring early.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

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