Allocation for Those Late to the Party

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thatbrian
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Allocation for Those Late to the Party

Post by thatbrian »

Newly minted Boglehead here. Just got converted today. (Thanks to Taylor: The Bogleheads' Guide to the Three-Fund Portfolio)

Here's my issue: I am 54, have 10k in an IRA — that's it, unfortunately. So. . . I need to play catchup.

If I allocate 54% in bonds, I fear I'll never make any headway. If I don't, I fear I'll risk too much.

Do I do the book move, or do I allocate more like 80% in stocks?
Better late than later.
magicrat
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Re: Allocation for Those Late to the Party

Post by magicrat »

What are your goals? Is this for retirement? What sources of income do you have now and in retirement?
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vineviz
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Re: Allocation for Those Late to the Party

Post by vineviz »

thatbrian wrote: Thu Mar 28, 2019 6:09 pm Newly minted Boglehead here. Just got converted today. (Thanks to Taylor: The Bogleheads' Guide to the Three-Fund Portfolio)

Here's my issue: I am 54, have 10k in an IRA — that's it, unfortunately. So. . . I need to play catchup.

If I allocate 54% in bonds, I fear I'll never make any headway. If I don't, I fear I'll risk too much.

Do I do the book move, or do I allocate more like 80% in stocks?
Age in bonds is a myth, for starters.

It’s recklessly conservative for the average investor, and you’re not average. Your chronological age may be 54, but your financial age is possibly more like 34.

The main thing you can do is save. Can you contribute 20% or more of your gross income to retirement savings every paycheck? That’s a start.

We don’t know much about you, but I’m guessing you are NOT going to retire at 65 given your savings.

My advice is to invest in a Target Retirement Date 2040 fund, or at least mimic its asset allocation.

And save, save, save.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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thatbrian
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Re: Allocation for Those Late to the Party

Post by thatbrian »

I am self-employed and currently make about 150k, and my wife has great benefits and about40kin salary. We live in a very affluent town, so our home should give us about 700-800k in 12-15 years.

If I am able (no reason to think I won't be, ATM) I will work until I'm about 70, so I have 16ish years.

I can put 25k per year into IRAs (Roth & SEP)
Better late than later.
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thatbrian
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Re: Allocation for Those Late to the Party

Post by thatbrian »

magicrat wrote: Thu Mar 28, 2019 6:15 pm What are your goals? Is this for retirement? What sources of income do you have now and in retirement?
Semi-retirement, at 70 is the goal. I hope to work until I physically can't.

I am self-employed, and make about 150k, with another 40k from my wife.
Better late than later.
delamer
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Re: Allocation for Those Late to the Party

Post by delamer »

Are your total family retirement savings $10K?

Will your wife have a pension?
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thatbrian
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Re: Allocation for Those Late to the Party

Post by thatbrian »

10k is total, plus equity in our house.

No. She will not.
Last edited by thatbrian on Thu Mar 28, 2019 6:40 pm, edited 1 time in total.
Better late than later.
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tennisplyr
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Re: Allocation for Those Late to the Party

Post by tennisplyr »

Control what you can...save as much as possible, spend within your means. I essentially had $0 at age forty....now retired, late sixties, livin' the life :happy
Those who move forward with a happy spirit will find that things always work out.
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whodidntante
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Re: Allocation for Those Late to the Party

Post by whodidntante »

Asset allocation doesn't matter if you don't save anything. Focus on that first. And second. And third.

Asset allocation matters a great deal once you have a large portfolio.
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thatbrian
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Re: Allocation for Those Late to the Party

Post by thatbrian »

whodidntante wrote: Thu Mar 28, 2019 6:41 pm Asset allocation doesn't matter if you don't save anything. Focus on that first. And second. And third.

Asset allocation matters a great deal once you have a large portfolio.

Thanks. Very good point. However, I' trying to start off on the right foot, especially because I'm so late in doing this.

*Also, I'm preparing to drop 14k in our 2019 IRA accounts
Last edited by thatbrian on Thu Mar 28, 2019 6:53 pm, edited 1 time in total.
Better late than later.
guitarman555
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Re: Allocation for Those Late to the Party

Post by guitarman555 »

I'm in a similar boat, starting late too. I'm using the Fidelity Target 2035 Funds for my SEP, Roth and HSA. I also save in CIT Bank money market and have a Vanguard taxable brokerage and am filling VTSAX. Just trying to save, save and save, like other posters said to do. I also have a small student loan debt remaining, and once I have that paid off (either late this year or early next year) my only remaining debt is mortgage. I'm also fortunate to have a couple sources of income other than SS (when I take that, I'm 56 now). That takes a lot of the "edge" off.
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thatbrian
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Re: Allocation for Those Late to the Party

Post by thatbrian »

guitarman555 wrote: Thu Mar 28, 2019 6:51 pm I'm in a similar boat, starting late too. I'm using the Fidelity Target 2035 Funds for my SEP, Roth and HSA. I also save in CIT Bank money market and have a Vanguard taxable brokerage and am filling VTSAX. Just trying to save, save and save, like other posters said to do. I also have a small student loan debt remaining, and once I have that paid off (either late this year or early next year) my only remaining debt is mortgage. I'm also fortunate to have a couple sources of income other than SS (when I take that, I'm 56 now). That takes a lot of the "edge" off.
Thanks for advice.
Better late than later.
Flyer24
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Re: Allocation for Those Late to the Party

Post by Flyer24 »

Your asset allocation doesn’t matter so much at this point. You won’t make us for lost time by having an aggressive allocation. More aggression equals more risk. Your savings rate should be your main focus. I would cut things to a bear minimum. Is there any possibility of cutting home cost? You need at least a 20% savings rate to try to catch up. Where is all your money going? You have a 190K family income which great so there so be plenty to start saving more.
delamer
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Re: Allocation for Those Late to the Party

Post by delamer »

thatbrian wrote: Thu Mar 28, 2019 6:39 pm 10k is total, plus equity in our house.

No. She will not.
I’d be aggressive with your allocation, and possibly dial back once you have a better handle on your Social Security income and expenses closer to retirement.

But only if you do make the substantial deposits into your IRAs that you’ve mentioned. If you don’t fund the IRAs annually until 70, then you need to stay conservative because you won’t be able to handle the risk.
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Re: Allocation for Those Late to the Party

Post by CrazyCatLady »

People on this board (myself included), freak out and think you can't retire with less than $2m. Then I remember my mom is retired on less than $100k in CDs and less than $2k per month in SS and pension (decent retirement including occasional travel), yet still saves at least $300 per month, so it is possible.

You probably need to figure out your expenses. If you can save $25k on a $190k salary, that means you are saving about 13%. It also means you are spending over $100k per year. It would probably help if there was any way to cut expenses and save a little more, but sometimes that is easier said than done. Will you have the same expenses when you retire? It sounds like your house will be paid off in a few years, so hopefully that helps to lower expenses. I find that once I know my estimated expenses it makes it easier to figure how much risk I'm willing to take. As others have said, it's generally easier to handle risk with a smaller portfolio, but on the flip side it's hard to watch your money go down no matter how much you have.

Hopefully some of the more experienced posters jump in with some good advice. I'm the meantime, welcome to bogleheads, good luck with your investments, and don't give up! :sharebeer
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thatbrian
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Re: Allocation for Those Late to the Party

Post by thatbrian »

Thanks for the welcome, and advice.

We are going to save 15% because we are also doubling our mortgage payment at the same time, so we can't afford 20% savings on top of that.

Once we retire, we will move to a less costly state, as we are in the north east now, and it's tax and spend.
Better late than later.
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Re: Allocation for Those Late to the Party

Post by Wiggums »

You got really good advice.

Save as much as you can
Know your expenses and see if you can trim anywhere

I’m concern that if something happens to you, do you have life insurance to help you wife with expenses?

When you stop working, can you sell the business as a source of $$$?
Flyer24
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Re: Allocation for Those Late to the Party

Post by Flyer24 »

thatbrian wrote: Thu Mar 28, 2019 7:29 pm Thanks for the welcome, and advice.

We are going to save 15% because we are also doubling our mortgage payment at the same time, so we can't afford 20% savings on top of that.

Once we retire, we will move to a less costly state, as we are in the north east now, and it's tax and spend.
You should stop the extra mortgage payment so you can max out retirement.
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ruralavalon
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Re: Allocation for Those Late to the Party

Post by ruralavalon »

Welcome to the forum :) .

thatbrian wrote: Thu Mar 28, 2019 6:09 pm Newly minted Boglehead here. Just got converted today. (Thanks to Taylor: The Bogleheads' Guide to the Three-Fund Portfolio)

Here's my issue: I am 54, have 10k in an IRA — that's it, unfortunately. So. . . I need to play catchup.

If I allocate 54% in bonds, I fear I'll never make any headway. If I don't, I fear I'll risk too much.

Do I do the book move, or do I allocate more like 80% in stocks?
thatbrian wrote: Thu Mar 28, 2019 6:39 pm 10k is total, plus equity in our house.

No. She will not [have a pension].
There is no "book move". It's "roughly your age in bonds" as a "crude starting point" adjusted for your personal circumstances. Wiki article Bogleheads Investment Philosophy, "Never bear too much or too little risk".

Asset allocation is a very personal decision which you must make based on your own ability, willingness and need to take risk. In my opinion an asset allocation in the range 60/40 - 80/20 equity/fixed income might be reasonable at age 59, possibly working until age 70, with just $10k retirement savings so far and no pension.

A willingness to work until age 70 is fine, but about half of people find that they have to retire earlier than they hoped.

In my opinion the preferred strategy for a late start is a high savings rate.

thatbrian wrote: Thu Mar 28, 2019 6:33 pm I am self-employed and currently make about 150k, and my wife has great benefits and about40kin salary. We live in a very affluent town, so our home should give us about 700-800k in 12-15 years.

If I am able (no reason to think I won't be, ATM) I will work until I'm about 70, so I have 16ish years.

I can put 25k per year into IRAs (Roth & SEP)
Contributions of $25k annually will probably not be sufficient. With combined annual earnings of $190k, the savings rate is just 13%. That rate could be fine for someone much younger.

Here are some calculators you could use to assess your retirement prospects at different savings rates, years of work, etc:
1) www.firecalc.com; and
3) www.i-orp.com.

What are your annual living expenses currently? What are your estimated Social Security benefits?

Is your business something you can sell on retirement?

I do not believe that an aggressive asset allocation will be able to make up for having almost no savings at age 59, a better savings rate is necessary in my opinion.
Last edited by ruralavalon on Thu Mar 28, 2019 7:45 pm, edited 2 times in total.
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thatbrian
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Re: Allocation for Those Late to the Party

Post by thatbrian »

Flyer24 wrote: Thu Mar 28, 2019 7:36 pm
thatbrian wrote: Thu Mar 28, 2019 7:29 pm Thanks for the welcome, and advice.

We are going to save 15% because we are also doubling our mortgage payment at the same time, so we can't afford 20% savings on top of that.

Once we retire, we will move to a less costly state, as we are in the north east now, and it's tax and spend.
You should stop the extra mortgage payment so you can max out retirement.
Why?
Better late than later.
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thatbrian
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Re: Allocation for Those Late to the Party

Post by thatbrian »

ruralavalon wrote: Thu Mar 28, 2019 7:38 pm Welcome to the forum :) .

Thank you!

thatbrian wrote: Thu Mar 28, 2019 6:09 pm Newly minted Boglehead here. Just got converted today. (Thanks to Taylor: The Bogleheads' Guide to the Three-Fund Portfolio)

Here's my issue: I am 54, have 10k in an IRA — that's it, unfortunately. So. . . I need to play catchup.

If I allocate 54% in bonds, I fear I'll never make any headway. If I don't, I fear I'll risk too much.

Do I do the book move, or do I allocate more like 80% in stocks?
thatbrian wrote: Thu Mar 28, 2019 6:39 pm 10k is total, plus equity in our house.

No. She will not [have a pension].
There is no "book move". It's "roughly your age in bonds" as a "crude starting point" adjusted for your personal circumstances. Wiki article Bogleheads Investment Philosophy, "Never bear too much or too little risk".

Asset allocation is a very personal decision which you must make based on your own ability, willingness and need to take risk. In my opinion an asset allocation in the range 60/40 - 80/20 equity/fixed income might be reasonable at age 59, possibly working until age 70, with just $10k retirement savings so far and no pension.

A willingness to work until age 70 is fine, but about half of people find that they have to retire earlier than they hoped.

In my opinion the preferred strategy for a late start is a high savings rate.

thatbrian wrote: Thu Mar 28, 2019 6:33 pm I am self-employed and currently make about 150k, and my wife has great benefits and about40kin salary. We live in a very affluent town, so our home should give us about 700-800k in 12-15 years.

If I am able (no reason to think I won't be, ATM) I will work until I'm about 70, so I have 16ish years.

I can put 25k per year into IRAs (Roth & SEP)
Contributions of $25k annually will probably not be sufficient. With combined annual earnings of $190k, the savings rate is just 13%. That rate could be fine for someone much younger.

Here are some calculators you could use to assess your retirement prospects at different savings rates, years of work, etc:
1) www.firecalc.com; and
3) www.i-orp.com.

What are yourannual living expenses currently? What carryout estimated Social Security benefits?
1) After tax, 190k is not much in the state of CT, and self-employment tax.

2) We give 12k per year to charity

3) Part of the plan is to pay off the mortgage 15 years early, which is a $1750 per month outlay, on top of $2,500 mortgage payment.

4) With charitable giving, we have about a $6,500 budget, not including fun-money, gifts, misc. Our take-home is about 11k
Better late than later.
Flyer24
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Re: Allocation for Those Late to the Party

Post by Flyer24 »

thatbrian wrote: Thu Mar 28, 2019 7:42 pm
Flyer24 wrote: Thu Mar 28, 2019 7:36 pm
thatbrian wrote: Thu Mar 28, 2019 7:29 pm Thanks for the welcome, and advice.

We are going to save 15% because we are also doubling our mortgage payment at the same time, so we can't afford 20% savings on top of that.

Once we retire, we will move to a less costly state, as we are in the north east now, and it's tax and spend.
You should stop the extra mortgage payment so you can max out retirement.
Why?
Because you have virtually no retirement savings. You need to be saving at least 20 percent to try to start catching up.
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better late than never

Post by Socrates »

I would skip bonds for now and invest in something like Total Stock Market. You want to accumulate money.

Remember the rule of 72: and 8% return doubles your money in 9 years.......bonds return about 2-3% and are for preserving income. 72 divided by 2 says in 36 years you will double your money or by 3 is 24 years to double.

:sharebeer
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thatbrian
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Re: Allocation for Those Late to the Party

Post by thatbrian »

Paying off the mortgage 15 years early saves $100k in interest, which is a guarantee, unlike markets — and then frees up cash for future investing.
Better late than later.
KlangFool
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Re: Allocation for Those Late to the Party

Post by KlangFool »

thatbrian wrote: Thu Mar 28, 2019 7:29 pm Thanks for the welcome, and advice.

We are going to save 15% because we are also doubling our mortgage payment at the same time, so we can't afford 20% savings on top of that.

Once we retire, we will move to a less costly state, as we are in the north east now, and it's tax and spend.
thatbrian,

Why are you doing that? Do you know that you are paying 20% to 30% tax for every extra dollar that you pay into the mortgage? Why are you paying 20% to 30% taxes in order to save 4% to 5% mortgage interest? Do you like paying a lot of taxes instead of spending your own money?

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Re: Allocation for Those Late to the Party

Post by KlangFool »

thatbrian wrote: Thu Mar 28, 2019 8:11 pm Paying off the mortgage 15 years early saves $100k in interest, which is a guarantee, unlike markets — and then frees up cash for future investing.
thatbrian,

1) You are paying 300K to 400K taxes in order to save that 100K in interest. Why is that a win?

2) Who says you must invest in your retirement account? You can put the money into the money market fund and you still save taxes.

KlangFool
Last edited by KlangFool on Thu Mar 28, 2019 8:26 pm, edited 2 times in total.
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vineviz
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Re: Allocation for Those Late to the Party

Post by vineviz »

thatbrian wrote: Thu Mar 28, 2019 7:52 pm 2) We give 12k per year to charity

3) Part of the plan is to pay off the mortgage 15 years early, which is a $1750 per month outlay, on top of $2,500 mortgage payment.
These are both behaviors that you can, and should, consider changing.

To the $25k you mentioned earlier as potentially going to an IRA you can add $12k that used to go to charity and $21k that used to go extra payments on the mortgage. That amount, $58k/year, is what I'd say you should save for YOUR retirement. By my calculations, you're going to need every penny of it.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
delamer
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Re: Allocation for Those Late to the Party

Post by delamer »

Flyer24 wrote: Thu Mar 28, 2019 8:02 pm
thatbrian wrote: Thu Mar 28, 2019 7:42 pm
Flyer24 wrote: Thu Mar 28, 2019 7:36 pm
thatbrian wrote: Thu Mar 28, 2019 7:29 pm Thanks for the welcome, and advice.

We are going to save 15% because we are also doubling our mortgage payment at the same time, so we can't afford 20% savings on top of that.

Once we retire, we will move to a less costly state, as we are in the north east now, and it's tax and spend.
You should stop the extra mortgage payment so you can max out retirement.
Why?
Because you have virtually no retirement savings. You need to be saving at least 20 percent to try to start catching up.
This is good advice. The exception might be if you have an unusually high interest rate on your mortgage and can’t do a refi.

But since you expect to move to a lower tax area once you retire, better to reduce today’s taxes by contributing to tax deferred now.
Last edited by delamer on Thu Mar 28, 2019 8:23 pm, edited 1 time in total.
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camillus
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Re: Allocation for Those Late to the Party

Post by camillus »

thatbrian wrote: Thu Mar 28, 2019 7:42 pm
Flyer24 wrote: Thu Mar 28, 2019 7:36 pm
thatbrian wrote: Thu Mar 28, 2019 7:29 pm Thanks for the welcome, and advice.

We are going to save 15% because we are also doubling our mortgage payment at the same time, so we can't afford 20% savings on top of that.

Once we retire, we will move to a less costly state, as we are in the north east now, and it's tax and spend.
You should stop the extra mortgage payment so you can max out retirement.
Why?
The reasoning is why would you reduce a liability (mortgage) at 4% when you could earn 6, 7, 8% in the stock market? I get it that you want to reduce the length of your mortgage to free up cash flow in the future, but you said you were going to move anyways.

Why would you contribute to something earning you 4% when you could earn 6% elsewhere? I understand "paying off the mortgage early" is a convenient goal, but what if you could achieve a higher goal - financial wellbeing - by doing something else?

Honestly, paying off the mortgage early might not be that bad - contrary to boglehead opinion - it ensures a good savings rate and protects you from the downside of investing with a relatively short time horizon.

This changes if you can get yourself a self employed 401k. You will avoid federal income tax on those contributions. That's your best deal right now. Look into a SEP 401k or SOLO 401k. I don't know much about either.
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Re: Allocation for Those Late to the Party

Post by KlangFool »

thatbrian wrote: Thu Mar 28, 2019 7:52 pm
1) After tax, 190k is not much in the state of CT, and self-employment tax.
thatbrian,

You choose to pay a lot of taxes. You could take your extra money from the mortgage to the retirement account and avoid paying the taxes. But, you choose to pay 20% to 30% of taxes in order save 4% to 5% of mortgage interest.

You choose to do this.

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Re: Allocation for Those Late to the Party

Post by Living Free »

If a year passes in which you did not take advantage of the opportunity to put money into a tax advantaged retirement account, that opportunity has been lost forever. One can only work so many years, so take advantage if it's at all feasible.

also you might get some tax arbitrage if you defer taxes from high tax state while working and then withdraw while living in a low/no tax state in retirement.
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Re: Allocation for Those Late to the Party

Post by Flyer24 »

thatbrian wrote: Thu Mar 28, 2019 8:11 pm Paying off the mortgage 15 years early saves $100k in interest, which is a guarantee, unlike markets — and then frees up cash for future investing.
I know it saves interest. However, it ties all your net worth in your house. That is not diversification.
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thatbrian
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Re: Allocation for Those Late to the Party

Post by thatbrian »

Flyer24 wrote: Thu Mar 28, 2019 8:29 pm
thatbrian wrote: Thu Mar 28, 2019 8:11 pm Paying off the mortgage 15 years early saves $100k in interest, which is a guarantee, unlike markets — and then frees up cash for future investing.
I know it saves interest. However, it ties all your net worth in your house. That is not diversification.
I would also have money index funds. How much more diversified would you like me to be?
Better late than later.
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thatbrian
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Re: Allocation for Those Late to the Party

Post by thatbrian »

KlangFool wrote: Thu Mar 28, 2019 8:25 pm
thatbrian wrote: Thu Mar 28, 2019 7:52 pm
1) After tax, 190k is not much in the state of CT, and self-employment tax.
thatbrian,

You choose to pay a lot of taxes. You could take your extra money from the mortgage to the retirement account and avoid paying the taxes. But, you choose to pay 20% to 30% of taxes in order save 4% to 5% of mortgage interest.

You choose to do this.

KlangFool
Mortgage interest is $12,000 per year. At a 32% rate rate, what are you saving me as I SPEND $1,000 per month in interest.

You are advising me to spend a dollar to save a quarter. No thank you.
Better late than later.
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Re: Allocation for Those Late to the Party

Post by KlangFool »

thatbrian wrote: Thu Mar 28, 2019 8:32 pm
Flyer24 wrote: Thu Mar 28, 2019 8:29 pm
thatbrian wrote: Thu Mar 28, 2019 8:11 pm Paying off the mortgage 15 years early saves $100k in interest, which is a guarantee, unlike markets — and then frees up cash for future investing.
I know it saves interest. However, it ties all your net worth in your house. That is not diversification.
I would also have money index funds. How much more diversified would you like me to be?
thatbrian,

1) How does paying a few times in taxes in order to save a dollar in the interest helps you?

<<I would also have money index funds. How much more diversified would you like me to be?>>

2) How big is that as compared to the equity in the house? A few times? If it is 2 to 3 times, you are diversified.

KlangFool
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Re: Allocation for Those Late to the Party

Post by EddyB »

Flyer24 wrote: Thu Mar 28, 2019 8:02 pm
thatbrian wrote: Thu Mar 28, 2019 7:42 pm
Flyer24 wrote: Thu Mar 28, 2019 7:36 pm
thatbrian wrote: Thu Mar 28, 2019 7:29 pm Thanks for the welcome, and advice.

We are going to save 15% because we are also doubling our mortgage payment at the same time, so we can't afford 20% savings on top of that.

Once we retire, we will move to a less costly state, as we are in the north east now, and it's tax and spend.
You should stop the extra mortgage payment so you can max out retirement.
Why?
Because you have virtually no retirement savings. You need to be saving at least 20 percent to try to start catching up.
I agree with Flyer24. The tax-advantaged space is limited annually—once it’s gone, it’s gone.
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Re: Allocation for Those Late to the Party

Post by EddyB »

thatbrian wrote: Thu Mar 28, 2019 8:35 pm
KlangFool wrote: Thu Mar 28, 2019 8:25 pm
thatbrian wrote: Thu Mar 28, 2019 7:52 pm
1) After tax, 190k is not much in the state of CT, and self-employment tax.
thatbrian,

You choose to pay a lot of taxes. You could take your extra money from the mortgage to the retirement account and avoid paying the taxes. But, you choose to pay 20% to 30% of taxes in order save 4% to 5% of mortgage interest.

You choose to do this.

KlangFool
Mortgage interest is $12,000 per year. At a 32% rate rate, what are you saving me as I SPEND $1,000 per month in interest.

You are advising me to spend a dollar to save a quarter. No thank you.
What’s your interest rate? Is it more than you expect to earn on retirement savings?
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Re: Allocation for Those Late to the Party

Post by KlangFool »

thatbrian wrote: Thu Mar 28, 2019 8:35 pm
KlangFool wrote: Thu Mar 28, 2019 8:25 pm
thatbrian wrote: Thu Mar 28, 2019 7:52 pm
1) After tax, 190k is not much in the state of CT, and self-employment tax.
thatbrian,

You choose to pay a lot of taxes. You could take your extra money from the mortgage to the retirement account and avoid paying the taxes. But, you choose to pay 20% to 30% of taxes in order save 4% to 5% of mortgage interest.

You choose to do this.

KlangFool
Mortgage interest is $12,000 per year. At a 32% rate rate, what are you saving me as I SPEND $1,000 per month in interest.

You are advising me to spend a dollar to save a quarter. No thank you.
thatbrian,

How much taxes do you pay on the extra $1,750 per month that you pay into the mortgage? They are 20% to 30%. They are after-tax money. If you put that money into your retirement account, you do not have to pay that 20% to 30% taxes.

KlangFool
Topic Author
thatbrian
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Re: Allocation for Those Late to the Party

Post by thatbrian »

I'm already maxing out IRA contributions.
Better late than later.
onourway
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Re: Allocation for Those Late to the Party

Post by onourway »

thatbrian wrote: Thu Mar 28, 2019 8:32 pm
Flyer24 wrote: Thu Mar 28, 2019 8:29 pm
thatbrian wrote: Thu Mar 28, 2019 8:11 pm Paying off the mortgage 15 years early saves $100k in interest, which is a guarantee, unlike markets — and then frees up cash for future investing.
I know it saves interest. However, it ties all your net worth in your house. That is not diversification.
I would also have money index funds. How much more diversified would you like me to be?
Currently it sounds like you have hundreds of thousands in your house and $10k in investments. That balance isn’t going to change any time soon at the savings rate you propose.
onourway
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Re: Allocation for Those Late to the Party

Post by onourway »

thatbrian wrote: Thu Mar 28, 2019 8:35 pm
KlangFool wrote: Thu Mar 28, 2019 8:25 pm
thatbrian wrote: Thu Mar 28, 2019 7:52 pm
1) After tax, 190k is not much in the state of CT, and self-employment tax.
thatbrian,

You choose to pay a lot of taxes. You could take your extra money from the mortgage to the retirement account and avoid paying the taxes. But, you choose to pay 20% to 30% of taxes in order save 4% to 5% of mortgage interest.

You choose to do this.

KlangFool
Mortgage interest is $12,000 per year. At a 32% rate rate, what are you saving me as I SPEND $1,000 per month in interest.

You are advising me to spend a dollar to save a quarter. No thank you.
In order to pay extra on the mortgage you first need to pay all your taxes on that money. If you instead put it in a retirement account, you’d save all of that tax now, and likely pay considerably lower taxes on that money in retirement. Possibly as low as zero tax. On top of that, you are paying off mortgage interest likely at a return of less than 4% when you could be investing those dollars and earning 6-8%. It is lose-lose to pay a dime more than you are required on the mortgage.
KlangFool
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Re: Allocation for Those Late to the Party

Post by KlangFool »

thatbrian wrote: Thu Mar 28, 2019 8:41 pm I'm already maxing out IRA contributions.
thatbrian,

https://www.bogleheads.org/wiki/Solo_401%28k%29_plan

A) You are self-employed. You could open a Solo 401K and contribute a lot more than the IRA. You are above 50 years old. You could contribute at least 24K to Individual 401K at the employee side. You could contribute even more on the employer side.

<<I'm already maxing out IRA contributions.>>

B) No, you are not. You could contribute 7K to IRA and your wife could contribute another 7K. The max is 14K.

KlangFool
Topic Author
thatbrian
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Joined: Thu Mar 28, 2019 3:27 pm

Re: Allocation for Those Late to the Party

Post by thatbrian »

I just transferred $14,0000 to Fidelity for our IRAs. That's the max.

*Not all of my compensation is salary. More than 1/2 is in the form of distributions, which don't qualify as "wages"
Better late than later.
EddyB
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Re: Allocation for Those Late to the Party

Post by EddyB »

thatbrian wrote: Thu Mar 28, 2019 8:55 pm I just transferred $14,0000 to Fidelity for our IRAs. That's the max.

*Not all of my compensation is salary. More than 1/2 is in the form of distributions, which don't qualify as "wages"
But can you use a 401(k) to get more tax-deferred space?
delamer
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Re: Allocation for Those Late to the Party

Post by delamer »

thatbrian wrote: Thu Mar 28, 2019 8:41 pm I'm already maxing out IRA contributions.
Could you outline how much you plan to put into each type of account for you and your wife?

Do you have a SEP 401(k)?
onourway
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Re: Allocation for Those Late to the Party

Post by onourway »

thatbrian wrote: Thu Mar 28, 2019 8:55 pm I just transferred $14,0000 to Fidelity for our IRAs. That's the max.

*Not all of my compensation is salary. More than 1/2 is in the form of distributions, which don't qualify as "wages"
Have you contributed for the 2018 year yet? That’s another $13k in space and you have until April 15 to get it done.
KlangFool
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Re: Allocation for Those Late to the Party

Post by KlangFool »

thatbrian wrote: Thu Mar 28, 2019 8:55 pm I just transferred $14,0000 to Fidelity for our IRAs. That's the max.

*Not all of my compensation is salary. More than 1/2 is in the form of distributions, which don't qualify as "wages"
thatbrian,

You are self-employed. You get to decide whether it is wage or distribution. And, how much wage versus distribution.

KlangFool
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stemikger
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Re: Allocation for Those Late to the Party

Post by stemikger »

thatbrian wrote: Thu Mar 28, 2019 6:09 pm Newly minted Boglehead here. Just got converted today. (Thanks to Taylor: The Bogleheads' Guide to the Three-Fund Portfolio)

Here's my issue: I am 54, have 10k in an IRA — that's it, unfortunately. So. . . I need to play catchup.

If I allocate 54% in bonds, I fear I'll never make any headway. If I don't, I fear I'll risk too much.

Do I do the book move, or do I allocate more like 80% in stocks?
I would go 100% in stocks (Total Stock Market Index). At this point, there is not a large amount in there. Once you reach around 100K, maybe 80/20 and leave it there until retirement. When you hit retirement, stay at 60/40 or a Target Date or Lifestyle Fund.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
DesertDiva
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Re: Allocation for Those Late to the Party

Post by DesertDiva »

thatbrian wrote: Thu Mar 28, 2019 8:11 pm Paying off the mortgage 15 years early saves $100k in interest, which is a guarantee, unlike markets — and then frees up cash for future investing.
If you pay off the house early, you lose the opportunity to invest. You said you were going to relocate anyway. The time factor is the crux of the issue. You simply can’t make up for it with other strategies.

Another thought: you are giving a lot to charity. You give more in charity each year than you have in your IRA. Would you consider pulling back in that and investing the difference?
KlangFool
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Re: Allocation for Those Late to the Party

Post by KlangFool »

thatbrian wrote: Thu Mar 28, 2019 8:55 pm I just transferred $14,0000 to Fidelity for our IRAs. That's the max.

*Not all of my compensation is salary. More than 1/2 is in the form of distributions, which don't qualify as "wages"
thatbrian,

That means you have at least 75K of wages and you can contribute 24K of that into the employee side of the individual 401K.

KlangFool
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