Where to park the next dollar, beyond 401k?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
haranoth
Posts: 90
Joined: Wed Apr 06, 2016 12:07 pm

Where to park the next dollar, beyond 401k?

Post by haranoth » Sat Apr 20, 2019 9:13 am

Hi folks,
I wanted to get some advice regarding where to park my next dollar.

I believe we have a decent chunk saved up for retirement around 65ish.
According to calculator.net with 3% inflation and 9% annual return and 275k in investments, we would end up in
1.6Mil in today’s dollar, even if we don’t invest a penny from now on.
A rough calculation in mint shows that we are spending roughly 75-80k per year currently, and might be ok with 110k (in today’s dollar) in retirement accounting for taxes etc.
For social security, jointly we would be earning 60k per year. However, in my calculations , I like to use 50k/year with 100% of social security being taxed.
By running those numbers, we should be ok in our retirement at age 65, if we don’t really contribute anymore beyond this year.


I would honestly like to retire (rather be financially independent) far earlier
than that(around age 55ish). However, with a looming wedding, possible house, kids and life, I understand that may not be possible.


Now, here comes the current goals. The best way to put it,

I have long term goal - retire with a decent chunk at 65 or, be financially independent around 55

I have mid term goal - buy a house, I live in HCOL area, so either in MASS(metro west/boston/ NY (if my job moves back to NY)), looking to spend almost 550-570kish house. Possibly kids. We have set aside around 25k for downpayment for now. We won’t be buying for at least another 1.5 years. So we will be shooting to save about 90k for downpayment.

I have short term goal - I am much more frugal than my fiancee. Although, after reading some books with her, showing some J.H collins youtube stuff and running the numbers, she has surprisingly shown an interest in turning her life around and become a bit more frugal. However, I am super frugal and minimalist. So, I don’t think my level of frugality would be achievable for her :). We are meeting half way and decided to splurge on some smaller things (fancy dinner, going for a show, trying out rock climbing etc.) every now and then.
At the same time, I realized if we have money in the bank (not invested in 401k, emergency fund), both of us will have the propensity to spend that money.
So, I want to have some money in checking account say 1k for fun money (after paying bills), and another 500 dollars/month (for special goals) invested into something, that I can pull out whenever I want. This special goals money may get used on some years and may be completely be invested in other years.

So, here comes the questions.
1. Where should I put this “special goals” money?
2. Given our current investments and salary, where should the next dollars go, once we are maxing out 401k?
3. Should we be looking at buying Munis into a taxable account and lower our bond allocation in the 401k?
4. There is enough literature into how you should build up emergency funds and max out 401k. But, there doesn’t seem to be much regarding what to do beyond that. Once, you have achieved those; where should you invest so that the money is easily accessible, for medium term life goals? Where should you invest if your 401k can grow rather large (in retirement RMD might be bigger than what you need), if you keep contributing to max and you should think about tax efficient investments. Can someone point me towards some of this literature. FYI, both our employers allow 401k and Roth 401k, with max contribution limit of 55k/year per person. However, I don’t really see a whole lot of value in maxing out beyond 19k/person given our need and current investment level. I would rather have some money , that is a bit more accessible than 401k/roth 401k , but still earns bigger return rate than what you would get in money market. High yield savings account etc.


Below is my current portfolio situation, if that helps in putting something into perspective.



Portfolio status
=========================


Emergency funds: Three months expense covered
Debt: Helping out parents with apartment another 15k left. Interest rate 6%
Tax Filing Status: Getting Married in 2 months timeframe
Tax Rate: Married filing jointly tax rate 24%, with bonus and salary joint compensation would be hovering around 230k
State of Residence: Mass
Age: 32/ Her(33)
Desired Asset allocation: 81% stocks, 12% bonds, 7% alternative/reit etc.
Desired International allocation: 25% international


Contributions
New annual Contributions 
His traditional 401k 26k annual contribution
Her traditional 401k 26k annual contribution


Summary of assets under investment .
——————————

Total asset under hsa/401k/IRA investments ~273k

Using personal capital current asset allocation with both our accounts
US stocks 61.18%
Intl stocks 21.29%
US bonds 9.38%
Intl Bonds. 0.68%
Alternatives 6.56%

I would need to rebalance; but for now I am ok with allocation slightly off the target.
My portfolio consists entirely of low cost vanguard funds, her portfolio (401k) only has higher ER options. We chose the lowest
ER options from her portfolio that made sense.



** if you need a full breakdown of assets(with tickers) I can do that. However, for the purpose of my questions, it’s probably not necessary atm. **

dbr
Posts: 32811
Joined: Sun Mar 04, 2007 9:50 am

Re: Where to park the next dollar, beyond 401k?

Post by dbr » Sat Apr 20, 2019 9:39 am

Where you put "special goals" money depends on how important it is to you for that money to be reliably available compared to being used for an opportunity to earn greater return at a risk of the outcome being highly volatile, including losses.

Since you distinguish this money from actually investing for the long run it seems self evident to me that you would put this money in a savings account where it would be reliably available at any time.
Last edited by dbr on Sat Apr 20, 2019 9:53 am, edited 1 time in total.

niceguy7376
Posts: 2702
Joined: Wed Jul 10, 2013 2:59 pm
Location: Metro ATL

Re: Where to park the next dollar, beyond 401k?

Post by niceguy7376 » Sat Apr 20, 2019 9:47 am

Since you two are not yet married, i assume you both are filing as Single status. Do you 2 have any IRA Accounts?
If not, are you eligible to contribute to Roth IRA (directly or through Back door Roth)?

I would put my next dollar in Roth IRA.

Topic Author
haranoth
Posts: 90
Joined: Wed Apr 06, 2016 12:07 pm

Re: Where to park the next dollar, beyond 401k?

Post by haranoth » Sat Apr 20, 2019 9:59 am

niceguy7376 wrote:
Sat Apr 20, 2019 9:47 am
Since you two are not yet married, i assume you both are filing as Single status. Do you 2 have any IRA Accounts?
If not, are you eligible to contribute to Roth IRA (directly or through Back door Roth)?

I would put my next dollar in Roth IRA.
Ah yes.. I do have a Roth IRA account. This year we are probably eligible for it, but possibly after next year with my promotion pending, we may not be eligible for Roth IRA anymore.

Flyer24
Moderator
Posts: 1674
Joined: Sun Apr 08, 2018 4:21 pm

Re: Where to park the next dollar, beyond 401k?

Post by Flyer24 » Sat Apr 20, 2019 10:02 am

Bump the emergency fund up to 6 months.

Topic Author
haranoth
Posts: 90
Joined: Wed Apr 06, 2016 12:07 pm

Re: Where to park the next dollar, beyond 401k?

Post by haranoth » Sat Apr 20, 2019 10:07 am

Flyer24 wrote:
Sat Apr 20, 2019 10:02 am
Bump the emergency fund up to 6 months.
Fair assessment. That has been on my radar. I could get up to that, by the end of this year. Where to invest next? I guess, I am looking for long term suggestions for mid term goals.

lakpr
Posts: 5292
Joined: Fri Mar 18, 2011 9:59 am

Re: Where to park the next dollar, beyond 401k?

Post by lakpr » Sat Apr 20, 2019 3:03 pm

Long term, since you asked for it, look if your 401k plan offers the MEGA Backdoor Roth. It is where you contribute to an After-tax 401k, then turnaround and do an In-Plan Roth Rollover of this after-tax amount. Some plans offer the ability to roll this after-tax money to an external Roth IRA instead.

It would allow you shelter an additional $30k per year, give or take. If your fiancée also has access to such a plan, between you you can max out 401k ($38k), Roth IRA ($12k), and Mega Backdoor Roth ($60k), to a cumulative total of $110k per year. If you have the ability to save even more per year, Hurray to you, invest into 529 plans for yourself first with a plan to change the beneficiary to kids when they come along, and lastly in Taxable.

miket29
Posts: 165
Joined: Tue Jun 20, 2017 9:07 pm

Re: Where to park the next dollar, beyond 401k?

Post by miket29 » Sat Apr 20, 2019 3:43 pm

haranoth wrote:
Sat Apr 20, 2019 9:13 am
I have long term goal - retire with a decent chunk at 65 or, be financially independent around 55

I have mid term goal - buy a house, I live in HCOL area, so either in MASS(metro west/boston/ NY (if my job moves back to NY)), looking to spend almost 550-570kish house. Possibly kids. We have set aside around 25k for downpayment for now. We won’t be buying for at least another 1.5 years. So we will be shooting to save about 90k for downpayment.

I have short term goal - I am much more frugal than my fiancee. Although, after reading some books with her, showing some J.H collins youtube stuff and running the numbers, she has surprisingly shown an interest in turning her life around and become a bit more frugal.

So, I want to have some money in checking account say 1k for fun money (after paying bills), and another 500 dollars/month (for special goals) invested into something, that I can pull out whenever I want. This special goals money may get used on some years and may be completely be invested in other years.

So, here comes the questions.
1. Where should I put this “special goals” money?
2. Given our current investments and salary, where should the next dollars go, once we are maxing out 401k?

both our employers allow 401k and Roth 401k, with max contribution limit of 55k/year per person. However, I don’t really see a whole lot of value in maxing out beyond 19k/person given our need and current investment level. I would rather have some money , that is a bit more accessible than 401k/roth 401
A few scattered pieces of advice...

Do you think you can save 65K in 1.5 or so years to hit your 90K goal? Do you plan on not saving for retirement during this time period? Some people do this, some don't

Money problems are one of the main reasons couples fight and sometime divorce. It might be an investment in your future to meet with a marriage counselor now to talk about this; not so that you settle it for all time but so that you come up with an initial plan and then a framework on how to renegotiate as life goes on and one/both of you are chafing at the initial agreement. An ounce of prevention...

Your special goals money needs to be in a money market or short term bond fund. It's a tradeoff; it won't grow much, but it won't get cut in half either the way it might if it is in equities

The value in maxing out beyond 19K is that you can contribute after-tax dollars and immediately convert them to a Roth. This gives several benefits. If you put those same dollars into a regular account you owe tax on any distributions over the years and capital gains when you eventually sell. In a Roth 41K there are no further taxes. This also means no taxes owed when you rebalance within the account. One problem as people get close to retirement have is they have sizeable holdings in regular accounts such as the S&P500 index that they'd like to start shifting to bonds but they will owe tax when they do so. There is no RMD for a Roth IRA (there is for a 401K Roth) so many people roll the 401K Roth over when they retire. And you can take money out of the account with no penalty on the pro-rated share due to your contributions (see https://www.investopedia.com/ask/answer ... -rules.asp)

dacalo
Posts: 123
Joined: Mon Mar 28, 2016 11:09 pm

Re: Where to park the next dollar, beyond 401k?

Post by dacalo » Sat Apr 20, 2019 6:04 pm

haranoth wrote:
Sat Apr 20, 2019 9:59 am
niceguy7376 wrote:
Sat Apr 20, 2019 9:47 am
Since you two are not yet married, i assume you both are filing as Single status. Do you 2 have any IRA Accounts?
If not, are you eligible to contribute to Roth IRA (directly or through Back door Roth)?

I would put my next dollar in Roth IRA.
Ah yes.. I do have a Roth IRA account. This year we are probably eligible for it, but possibly after next year with my promotion pending, we may not be eligible for Roth IRA anymore.
You can do backdoor Roth. We just did this even though our income is above the limit.

User avatar
Watty
Posts: 19630
Joined: Wed Oct 10, 2007 3:55 pm

Re: Where to park the next dollar, beyond 401k?

Post by Watty » Sat Apr 20, 2019 6:55 pm

haranoth wrote:
Sat Apr 20, 2019 9:13 am
....looking to spend almost 550-570kish house. Possibly kids. We have set aside around 25k for downpayment for now. We won’t be buying for at least another 1.5 years. So we will be shooting to save about 90k for downpayment.
In addition to the downpayment there are LOTS of other costs when you buy your first home like;

1) Closing costs.
2) Moving costs.
3) Remodeling costs and things like paint and new carpets.
4) Drapes(more than you might think)
5) Buying things like lawnmowers, rakes, leaf blowers, snowblowers, etc.
6) Furniture
7) Patio Furniture
8) When you own a home you also need a larger emergency fund.

Etc.

You should plan on saving up more for when you buy a house.

You should also have car funds to be able to pay cash for future cars.

wootwoot
Posts: 526
Joined: Tue Jan 27, 2009 7:37 pm

Re: Where to park the next dollar, beyond 401k?

Post by wootwoot » Sat Apr 20, 2019 8:03 pm

OP did you run the calculation with a lower annual return? 9% year after year paints a very rosy and unrealistic picture.

Topic Author
haranoth
Posts: 90
Joined: Wed Apr 06, 2016 12:07 pm

Re: Where to park the next dollar, beyond 401k?

Post by haranoth » Sun Apr 21, 2019 9:47 am

wootwoot wrote:
Sat Apr 20, 2019 8:03 pm
OP did you run the calculation with a lower annual return? 9% year after year paints a very rosy and unrealistic picture.
The 9% return that I mentioned, accounts for 3% inflation rate. So the inflation-adjusted return is really 6%.
The current portfolio closely follows that of Rick Ferrihttps://portfoliocharts.com/portfolio/r ... core-four/, for which the inflation-adjusted return is 6.6%. So my current calculation is infact a bit more cautious.

I do think the next decade would be rather muted returns( as per John bogle, Larry Swedore etc. ), But I am hopeful that a 30 year timeline will end up seeing 6% inflation-adjusted return, given the equity heavy portfolio.

I am not sure , whether you thought the 9% was not accounting for inflation, i.e. 6% inflation-adjusted. If you feel like 6% inflation-adjusted is not possible in 30 year time frame, I would be interested in knowing your thoughts.

Topic Author
haranoth
Posts: 90
Joined: Wed Apr 06, 2016 12:07 pm

Re: Where to park the next dollar, beyond 401k?

Post by haranoth » Sun Apr 21, 2019 9:51 am

Watty wrote:
Sat Apr 20, 2019 6:55 pm
haranoth wrote:
Sat Apr 20, 2019 9:13 am
....looking to spend almost 550-570kish house. Possibly kids. We have set aside around 25k for downpayment for now. We won’t be buying for at least another 1.5 years. So we will be shooting to save about 90k for downpayment.
In addition to the downpayment there are LOTS of other costs when you buy your first home like;

1) Closing costs.
2) Moving costs.
3) Remodeling costs and things like paint and new carpets.
4) Drapes(more than you might think)
5) Buying things like lawnmowers, rakes, leaf blowers, snowblowers, etc.
6) Furniture
7) Patio Furniture
8) When you own a home you also need a larger emergency fund.

Etc.

You should plan on saving up more for when you buy a house.

You should also have car funds to be able to pay cash for future cars.
I concur, i really dont have much clue in terms of house maintenance cost. Both my SO and me are willing to buy a smaller/maintainable newer/finished house , rather than spend time fixing and sprucing up the place. That being said, how much would you recommend that we save up beyond downpayment , for house maintenance/new furniture?10k- 15k?
Thanks for your comments

Post Reply