Portfolio Review for 35 year old; Early Retirement at age 55

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Topic Author
Rb555
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Joined: Sun Jul 07, 2019 8:42 am

Portfolio Review for 35 year old; Early Retirement at age 55

Post by Rb555 » Sun Jul 07, 2019 9:23 am

Emergency funds: $60k (40k HYSA; 20k I Bonds) - 10/12 Months

Debt: $400k remaining (Mortgage, 3.9%); House: $520k
Car: $39k, 1.9%
No other debt (CC paid fully every month)

Tax Filing Status: Married Filing Jointly

Tax Rate: 24% Federal, 7% State

State of Residence: NJ

Age: 35

Desired Asset allocation: 90% stocks / 10% bonds
Desired International allocation: 30% of stocks

Current retirement assets ($420k; Excluding $32k 529)

Taxable: $120k (Just moved from betterment to Fidelity)
I have 10+ funds here but allocation remains same as defined above.

Tax Advantage Accounts: $300k

His 401k
24.52% TDF 2045 (0.09%) - Ex employer
57.62% TDF 2050 (0.07%) ; Company match: 6.5%

His Roth IRA at Fidelity
7.86% TDF 2050 (FIPFX) (0.12%)

Her Roth IRA at Fidelity
6.01% TDF 2050 (FIPFX) (0.12%)

HSA at Fidelity
3.98% TDF 2050 (FIPFX) (0.12%)
_______________________________________________________________

Contributions

New annual Contributions (84k per year)
$56k his 401k ($19k Pre Tax, $13k Employer match, $24k After Tax contributions)
$6k his IRA/Roth IRA
$6k her IRA/Roth IRA
$6k HSA
$10k taxable (for retirement, not short term goals)

$10k 529 (Not including in retirement but just like to mention in case if it is relevant)
----------------------------------------------------------------------------------


Questions:
1. I like to keep things simple and hence use of TDF in my tax advantage accounts wherever possible provided ER is not too high. I can theoretically move to 3 fund portfolio if there is a significance advantage. Any suggestions if that would benefit?

2. With my current savings of $420k and $84k savings rate, I would like to retire early at the age 55 with $4M to keep SWR around 3%. Any concerns reaching that goal with this target allocation?

3. I have read a lot of small cap value incentives etc through this forum and via many Paul Merrimans podcast. Any benefits in moving my IRAs/HSAs to small cap value fund like IJS for 15% tilt? Again, this would require little bit of rebalancing on my side but would like to know the feedback.

4. I will start contributing to after 401k starting this month for mega back door roth but the only catch is that my plan only allows to take withdrawals provided the contribution is in account for at least 24 months. My plan would be to wait for that period and 2-3 times in a year move contributions to Roth and earnings to TIRA->401k. Please share your thoughts. I like the flexibility of keeping the money in taxable but this seems more sense to me.

Thank you. This is my first time posting here so if there is anything i need to provide more, please let me know.

Best
RB
Last edited by Rb555 on Sun Jul 07, 2019 11:28 am, edited 1 time in total.

KingRiggs
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Location: Indiana

Re: Portfolio Review for 35M; Early Retirement at age 55

Post by KingRiggs » Sun Jul 07, 2019 10:56 am

Might want to change title of post. Around here, 35M often means $35,000,000!
Advice = noun | Advise = verb | | Roth, not ROTH

bradinsky
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Re: Portfolio Review for 35M; Early Retirement at age 55

Post by bradinsky » Sun Jul 07, 2019 11:01 am

That’s what I thought. Why would a guy with 35 mil need any advice?

Topic Author
Rb555
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Joined: Sun Jul 07, 2019 8:42 am

Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by Rb555 » Sun Jul 07, 2019 11:29 am

Done. Thanks. Any feedback on the portfolio?

drk
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by drk » Sun Jul 07, 2019 2:50 pm

Rb555 wrote:
Sun Jul 07, 2019 9:23 am
1. I like to keep things simple and hence use of TDF in my tax advantage accounts wherever possible provided ER is not too high. I can theoretically move to 3 fund portfolio if there is a significance advantage. Any suggestions if that would benefit?
That’s fine and makes sense: your high savings rate is what matters. However, you have a relatively high marginal tax rate because of state income taxes, so you may want to eliminate any taxable bonds from your taxable account.
Rb555 wrote:
Sun Jul 07, 2019 9:23 am
3. I have read a lot of small cap value incentives etc through this forum and via many Paul Merrimans podcast. Any benefits in moving my IRAs/HSAs to small cap value fund like IJS for 15% tilt? Again, this would require little bit of rebalancing on my side but would like to know the feedback.
There’s no need to do this. Keep things simple, as you said you like to do. Your savings rate is what matters, and the tilt will have at best a small marginal effect.
Rb555 wrote:
Sun Jul 07, 2019 9:23 am
4. I will start contributing to after 401k starting this month for mega back door roth but the only catch is that my plan only allows to take withdrawals provided the contribution is in account for at least 24 months. My plan would be to wait for that period and 2-3 times in a year move contributions to Roth and earnings to TIRA->401k. Please share your thoughts. I like the flexibility of keeping the money in taxable but this seems more sense to me.
You’ll still be saving in taxable, so you’re not really losing flexibility. Given that you’ll be building up two years of pre-tax earnings, that makes the Mega Backdoor a little less appealing relative to a taxable account with current LTCG rates, but early retirement should give you some good time for low-tax Roth conversions.

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Watty
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by Watty » Sun Jul 07, 2019 3:34 pm

Rb555 wrote:
Sun Jul 07, 2019 9:23 am
Debt: $400k remaining (Mortgage, 3.9%); House: $520k
You should look at refinancing that to a 15 year loan with a much lower interest rate.

That way you could have the house paid off by the time you retire. Having a paid off house will reduce your monthly income needs and your sequence of returns risk.

aristotelian
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by aristotelian » Sun Jul 07, 2019 4:15 pm

Not really an issue now, but as you get closer to retirement the target date funds are not the best for tax efficiency. By holding bonds in Roth, you will be under-utilizing the tax free growth benefit, while holding stock in 401k will cause higher tax on tax deferred accounts. Better to concentrate stocks in Roth and taxable and bonds in pre-tax accounts.

fallingeggs
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by fallingeggs » Sun Jul 07, 2019 6:35 pm

I'm actually about where you are, with a similar savings rate and a similar goal (in age and number). I think we're both doing just fine. Even under a very conservative growth rate, we make it. Keep on, keeping on. Cheers!

smitcat
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by smitcat » Sun Jul 07, 2019 7:15 pm

Your doing very well - my only comment or area of thought would be what that 3% return on 4MM ($120K) may be worth in 20 years relative to todays dollars.

Topic Author
Rb555
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Joined: Sun Jul 07, 2019 8:42 am

Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by Rb555 » Sun Jul 07, 2019 8:05 pm

smitcat wrote:
Sun Jul 07, 2019 7:15 pm
Your doing very well - my only comment or area of thought would be what that 3% return on 4MM ($120K) may be worth in 20 years relative to todays dollars.
Thank you. $120k is on today’s dollars. I used 5% real returns. May be too optimistic?

Topic Author
Rb555
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Joined: Sun Jul 07, 2019 8:42 am

Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by Rb555 » Sun Jul 07, 2019 8:06 pm

fallingeggs wrote:
Sun Jul 07, 2019 6:35 pm
I'm actually about where you are, with a similar savings rate and a similar goal (in age and number). I think we're both doing just fine. Even under a very conservative growth rate, we make it. Keep on, keeping on. Cheers!
Great to hear. Good luck!

Topic Author
Rb555
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by Rb555 » Sun Jul 07, 2019 8:09 pm

Watty wrote:
Sun Jul 07, 2019 3:34 pm
Rb555 wrote:
Sun Jul 07, 2019 9:23 am
Debt: $400k remaining (Mortgage, 3.9%); House: $520k
You should look at refinancing that to a 15 year loan with a much lower interest rate.

That way you could have the house paid off by the time you retire. Having a paid off house will reduce your monthly income needs and your sequence of returns risk.
I thought about that but still 20 years from retirement, i feel like putting money to work. I will definitely pay off my mortgage at the tail end before i retire.

smitcat
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by smitcat » Mon Jul 08, 2019 7:43 am

Rb555 wrote:
Sun Jul 07, 2019 8:05 pm
smitcat wrote:
Sun Jul 07, 2019 7:15 pm
Your doing very well - my only comment or area of thought would be what that 3% return on 4MM ($120K) may be worth in 20 years relative to todays dollars.
Thank you. $120k is on today’s dollars. I used 5% real returns. May be too optimistic?
$84K per year for 20 years at 5% would be less than you figured.
5% real might be more than I would figure dependent upon my AA and my background but YMMV.
Your $400K saved is just about equal to your $400k owed at this point, unless your are counting on liquidating the house when you retire.

CnC
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by CnC » Mon Jul 08, 2019 7:54 am

Rb555 wrote:
Sun Jul 07, 2019 11:29 am
Done. Thanks. Any feedback on the portfolio?
84k a year and 450k starting you are going to struggle a bit to hit 4m if the market slows down.

450k +1680k = ±2m you will need 2m in profits over the next 20 years.


You will likely need an average market over the next 20 years to reach 4m.

I am assuming you mean 4m nominal not 4m inflation adjusted right? Because 4m inflation adjusted may be out of reach.

Otherwise you are looking pretty good. Just be prepared to bump up savings a bit if you want to reach 4m in 20 years.

CnC
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by CnC » Mon Jul 08, 2019 8:04 am

Rb555 wrote:
Sun Jul 07, 2019 8:05 pm
smitcat wrote:
Sun Jul 07, 2019 7:15 pm
Your doing very well - my only comment or area of thought would be what that 3% return on 4MM ($120K) may be worth in 20 years relative to todays dollars.
Thank you. $120k is on today’s dollars. I used 5% real returns. May be too optimistic?
5% is a bit optimistic I would say ±4% real returns. That is around 75% of average returns.

Figure 100% of an average market is around 5.5% achievable real returns. 75% of that is likely the best we will see over the next 20 years is 4.1% real.

For planning purposes I personally would figure 3-5% real.

Figure the worst you will likely do is 3% real and the best will be 5% real. See where you are under each circumstance and judge from there.

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CyclingDuo
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by CyclingDuo » Mon Jul 08, 2019 8:20 am

Rb555 wrote:
Sun Jul 07, 2019 9:23 am

Debt: $400k remaining (Mortgage, 3.9%)
Car Debt: $39k, 1.9%

Current retirement assets ($420k; $32k 529)
Emergency funds: $60k
You have $512K in savings including the ER and 529.
You have $439K in debt.

You are saving $84K per year which will help to build your assets and is the most important part of the equation over allocation. :beer

In addition to your excellent savings rate, we would dump that car debt ASAP (the car is a depreciating asset), and pay a little more towards principal on your mortgage every month to trim that debt - even if it means adjusting your savings rate slightly to accomplish one or both.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

Topic Author
Rb555
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by Rb555 » Mon Jul 08, 2019 12:13 pm

Thank you all. Two points:
1. I haven't accounted any future raises. My plan would be to use any future raises to knock down my debt in next 20 years by keeping the same investing/savings rate ($84k)
2. With inflation adjusted, 4% real return, takes me to $3.5-4M at 55 hopefully with house paid off and no other major debt.

CnC
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by CnC » Mon Jul 08, 2019 12:54 pm

Rb555 wrote:
Mon Jul 08, 2019 12:13 pm
Thank you all. Two points:
1. I haven't accounted any future raises. My plan would be to use any future raises to knock down my debt in next 20 years by keeping the same investing/savings rate ($84k)
2. With inflation adjusted, 4% real return, takes me to $3.5-4M at 55 hopefully with house paid off and no other major debt.

Yes that is about right. In my opinion the most important part is to make sure that you put your raises towards savings or at least more than inflation. I personally pair off my entire house before I started investing, but if I were to do it again I would have invested more and paid down less. While being debt free is nice, having an extra +100k invested would have been better for me.

That helps with lifestyle creep I ran into the same situation myself when over the past five years our wages went from 120 to $220,000.

We have kept our expenses reasonable in that time frame. This has greatly boosted our savings rate.

I think you are in very good shape. Very similar to my finances and I'm in pretty good shape.

Topic Author
Rb555
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by Rb555 » Mon Jul 08, 2019 8:36 pm

CyclingDuo wrote:
Mon Jul 08, 2019 8:20 am
Rb555 wrote:
Sun Jul 07, 2019 9:23 am

Debt: $400k remaining (Mortgage, 3.9%)
Car Debt: $39k, 1.9%

Current retirement assets ($420k; $32k 529)
Emergency funds: $60k
You have $512K in savings including the ER and 529.
You have $439K in debt.

You are saving $84K per year which will help to build your assets and is the most important part of the equation over allocation. :beer

In addition to your excellent savings rate, we would dump that car debt ASAP (the car is a depreciating asset), and pay a little more towards principal on your mortgage every month to trim that debt - even if it means adjusting your savings rate slightly to accomplish one or both.
Curious, what’s the benefit of paying low interest (1.9%) debt vs investing long term regardless if it is for depreciating asset?

alibaba123
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by alibaba123 » Mon Jul 08, 2019 10:15 pm

Hi guys i have 2 questions:

When you calulate real returns, do you a) project the nominal growth % and project how much it would be worth x years from now based on x% inflation separately? Or do you base it on real returns only. If it's the latter? Isn't 84k in saving worth less compared to 10 years ago and thus subject to inflation as well?

When speaking about SWR of 3%, is this including or excluding fees? My fees as a non US citizen investor is a whopping 0.58%. Does that mean i can only withdraw 2.42% in reality?

MotoTrojan
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by MotoTrojan » Mon Jul 08, 2019 10:32 pm

alibaba123 wrote:
Mon Jul 08, 2019 10:15 pm
Hi guys i have 2 questions:

When you calulate real returns, do you a) project the nominal growth % and project how much it would be worth x years from now based on x% inflation separately? Or do you base it on real returns only. If it's the latter? Isn't 84k in saving worth less compared to 10 years ago and thus subject to inflation as well?

When speaking about SWR of 3%, is this including or excluding fees? My fees as a non US citizen investor is a whopping 0.58%. Does that mean i can only withdraw 2.42% in reality?
It is easiest to think in today's dollars and just use estimated real returns. Because your returns are real, you can keep $84K in your projection, but in reality that $84K should be adjusted up annually to match inflation, otherwise you need to calculate things differently.

Yes that fee would be part of your withdrawal but 3% is very conservative so you may not need only 2.42%.

rascott
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by rascott » Mon Jul 08, 2019 11:29 pm

Rb555 wrote:
Mon Jul 08, 2019 8:36 pm
CyclingDuo wrote:
Mon Jul 08, 2019 8:20 am
Rb555 wrote:
Sun Jul 07, 2019 9:23 am

Debt: $400k remaining (Mortgage, 3.9%)
Car Debt: $39k, 1.9%

Current retirement assets ($420k; $32k 529)
Emergency funds: $60k
You have $512K in savings including the ER and 529.
You have $439K in debt.

You are saving $84K per year which will help to build your assets and is the most important part of the equation over allocation. :beer

In addition to your excellent savings rate, we would dump that car debt ASAP (the car is a depreciating asset), and pay a little more towards principal on your mortgage every month to trim that debt - even if it means adjusting your savings rate slightly to accomplish one or both.
Curious, what’s the benefit of paying low interest (1.9%) debt vs investing long term regardless if it is for depreciating asset?

No benefit. I'd personally borrow as much as possible at 1.9% to invest over 20 years. (Not that is what your car loan term is).

The depreciation cost of a car is the same regardless how it's paid for.

rascott
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by rascott » Mon Jul 08, 2019 11:45 pm

CnC wrote:
Mon Jul 08, 2019 8:04 am
Rb555 wrote:
Sun Jul 07, 2019 8:05 pm
smitcat wrote:
Sun Jul 07, 2019 7:15 pm
Your doing very well - my only comment or area of thought would be what that 3% return on 4MM ($120K) may be worth in 20 years relative to todays dollars.
Thank you. $120k is on today’s dollars. I used 5% real returns. May be too optimistic?
5% is a bit optimistic I would say ±4% real returns. That is around 75% of average returns.

Figure 100% of an average market is around 5.5% achievable real returns. 75% of that is likely the best we will see over the next 20 years is 4.1% real.

For planning purposes I personally would figure 3-5% real.

Figure the worst you will likely do is 3% real and the best will be 5% real. See where you are under each circumstance and judge from there.

The data I've reviewed shows a 6-8% inflation adjusted returns are the "norm". What are you basing 3-5% off of?

https://fourpillarfreedom.com/heres-how ... ince-1928/

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CyclingDuo
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by CyclingDuo » Tue Jul 09, 2019 10:13 am

Rb555 wrote:
Mon Jul 08, 2019 8:36 pm
CyclingDuo wrote:
Mon Jul 08, 2019 8:20 am
Rb555 wrote:
Sun Jul 07, 2019 9:23 am

Debt: $400k remaining (Mortgage, 3.9%)
Car Debt: $39k, 1.9%

Current retirement assets ($420k; $32k 529)
Emergency funds: $60k
You have $512K in savings including the ER and 529.
You have $439K in debt.

You are saving $84K per year which will help to build your assets and is the most important part of the equation over allocation. :beer

In addition to your excellent savings rate, we would dump that car debt ASAP (the car is a depreciating asset), and pay a little more towards principal on your mortgage every month to trim that debt - even if it means adjusting your savings rate slightly to accomplish one or both.
Curious, what’s the benefit of paying low interest (1.9%) debt vs investing long term regardless if it is for depreciating asset?
Then one has to ask the question if they would borrow $39K to invest in the stock market for the time frame of your car loan (be it 36 or 48 months)? Even at 1.9% interest rate, it initiates a level of risk in investing for a 36-48 month time frame that we would personally prefer to cash flow from our income stream(s) instead when it comes to investing.

It's all grand in a bull market, but during a bear market contraction - hmmmm......

We flipped the equation around from day one and saved money for our next car purchase (so we had that money working for us in investments for all the years leading up to the next car purchase).

Again - you are doing well with your rate of savings. The debt just jumped off the page a bit to me when I read your post, so I was pointing it out. I believe another poster (smitcat) pointed it out upthread as well.

We've always paid cash for cars over the past 40 years. There was never any financing of a vehicle purchase. There was always discussion about vehicles and the cost of owning and maintaining them as I was growing up. Needless to say, I wasn't driving anything that was very impressive.

My first new car was purchased at the age of 31 (and I paid cash for it to the tune of 3% of net worth at the time). Perhaps our thought on household car buying habits got colored even more years ago when we read The Millionaire Next Door with the data presented about average cost of vehicles that the typical millionaire purchases. The "average" didn't pay more than 1% of their net worth for a car (Table 4-2 on page 114). Obviously, some paid more than others, and some paid less. However, in the aggregate the typical millionaire was not driving much of anything considered a special car based on the data that book presented. The data then compared what millionaires were paying for cars and the percent of their net worth to the average car buyer (non-millionaire) who, the data shows, paid on average 30% of their net worth for a car. Fortunately, the latter is not your situation at all. :beer

The cost of transportation is what it is and remains an annual expense for all of us. Just pointing out that you are carrying a total of $439K in debt. The additional $39K of debt being in your transportation expense costs just so happens that it would be high on our list of reducing, then using the cash flow of what was going to cover those debt payments for saving and investing (for the next car purchase years down the road). I would take that risk of opportunity cost during the shorter term time frame of a car loan and cash flow the investments out of our income stream instead over borrowing money to invest.

Factoring in risk for an investment vs. a shorter term car loan (be it a 3 or 4 year car loan) may or may not turn out in your favor. The use of margin, leverage, low interest rate debt to invest more for fear of the loss of opportunity cost can work well during a bull market. It's the inverse that introduces risk.

Plenty of interesting thoughts from Ramsey on auto loans as well. Here's one of his typical responses...

https://www.youtube.com/watch?v=_O0MrVKGcWo

Other thoughts as well out there...

https://www.doughroller.net/personal-fi ... for-a-car/

The good new is you have a decent rate of savings. Enough so that you would still have a decent rate of savings going even if you used some of your current cash flow that is going into investments to pay off more of your debt.

What if the money working for you in investments that could have gone to purchase the car goes down 25-45% in upcoming years during the life of the car loan (even if the interest rate on the money borrowed was 1.9% or 0%)?

Always good to look at it from several angles.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

Topic Author
Rb555
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by Rb555 » Tue Jul 09, 2019 11:52 am

CyclingDuo wrote:
Tue Jul 09, 2019 10:13 am
Rb555 wrote:
Mon Jul 08, 2019 8:36 pm
CyclingDuo wrote:
Mon Jul 08, 2019 8:20 am
Rb555 wrote:
Sun Jul 07, 2019 9:23 am

Debt: $400k remaining (Mortgage, 3.9%)
Car Debt: $39k, 1.9%

Current retirement assets ($420k; $32k 529)
Emergency funds: $60k
You have $512K in savings including the ER and 529.
You have $439K in debt.

You are saving $84K per year which will help to build your assets and is the most important part of the equation over allocation. :beer

In addition to your excellent savings rate, we would dump that car debt ASAP (the car is a depreciating asset), and pay a little more towards principal on your mortgage every month to trim that debt - even if it means adjusting your savings rate slightly to accomplish one or both.
Curious, what’s the benefit of paying low interest (1.9%) debt vs investing long term regardless if it is for depreciating asset?
Then one has to ask the question if they would borrow $39K to invest in the stock market for the time frame of your car loan (be it 36 or 48 months)? Even at 1.9% interest rate, it initiates a level of risk in investing for a 36-48 month time frame that we would personally prefer to cash flow from our income stream(s) instead when it comes to investing.

It's all grand in a bull market, but during a bear market contraction - hmmmm......

We flipped the equation around from day one and saved money for our next car purchase (so we had that money working for us in investments for all the years leading up to the next car purchase).

Again - you are doing well with your rate of savings. The debt just jumped off the page a bit to me when I read your post, so I was pointing it out. I believe another poster (smitcat) pointed it out upthread as well.

We've always paid cash for cars over the past 40 years. There was never any financing of a vehicle purchase. There was always discussion about vehicles and the cost of owning and maintaining them as I was growing up. Needless to say, I wasn't driving anything that was very impressive.

My first new car was purchased at the age of 31 (and I paid cash for it to the tune of 3% of net worth at the time). Perhaps our thought on household car buying habits got colored even more years ago when we read The Millionaire Next Door with the data presented about average cost of vehicles that the typical millionaire purchases. The "average" didn't pay more than 1% of their net worth for a car (Table 4-2 on page 114). Obviously, some paid more than others, and some paid less. However, in the aggregate the typical millionaire was not driving much of anything considered a special car based on the data that book presented. The data then compared what millionaires were paying for cars and the percent of their net worth to the average car buyer (non-millionaire) who, the data shows, paid on average 30% of their net worth for a car. Fortunately, the latter is not your situation at all. :beer

The cost of transportation is what it is and remains an annual expense for all of us. Just pointing out that you are carrying a total of $439K in debt. The additional $39K of debt being in your transportation expense costs just so happens that it would be high on our list of reducing, then using the cash flow of what was going to cover those debt payments for saving and investing (for the next car purchase years down the road). I would take that risk of opportunity cost during the shorter term time frame of a car loan and cash flow the investments out of our income stream instead over borrowing money to invest.

Factoring in risk for an investment vs. a shorter term car loan (be it a 3 or 4 year car loan) may or may not turn out in your favor. The use of margin, leverage, low interest rate debt to invest more for fear of the loss of opportunity cost can work well during a bull market. It's the inverse that introduces risk.

Plenty of interesting thoughts from Ramsey on auto loans as well. Here's one of his typical responses...

https://www.youtube.com/watch?v=_O0MrVKGcWo

Other thoughts as well out there...

https://www.doughroller.net/personal-fi ... for-a-car/

The good new is you have a decent rate of savings. Enough so that you would still have a decent rate of savings going even if you used some of your current cash flow that is going into investments to pay off more of your debt.

What if the money working for you in investments that could have gone to purchase the car goes down 25-45% in upcoming years during the life of the car loan (even if the interest rate on the money borrowed was 1.9% or 0%)?

Always good to look at it from several angles.
Interesting points and honeslty, i have thought about few. Following up on your comments, would you pay off 1.9% short term loan first vs 3.9% long term or vice versa.

majiaknight
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by majiaknight » Tue Jul 09, 2019 1:04 pm

Rb555 wrote:
Sun Jul 07, 2019 9:23 am

Questions:
1. I like to keep things simple and hence use of TDF in my tax advantage accounts wherever possible provided ER is not too high. I can theoretically move to 3 fund portfolio if there is a significance advantage. Any suggestions if that would benefit?

I'd suggest 3-fund portfolio. Will you still use TDF in taxable accounts? When your portfolio grows, it will be more difficult to rebalance to your desired AA combining both taxable and retirement acc as the TDF2050/2045 will also change it's AA when approaching the target retirement dates. The ER is still high relatively compared to the index funds when you could easily buy zero ER funds in your Fidelity IRA.

2. With my current savings of $420k and $84k savings rate, I would like to retire early at the age 55 with $4M to keep SWR around 3%. Any concerns reaching that goal with this target allocation?

I personally wouldn't stick to 90%/10% AA in my 40s/50s. My current AA is 80%/20% and I'm in mid-30s. You didn't mention whether your spouse was working and whether you plan to have kids. These two factors could significantly affect your risk tolerance and spending especially on kids' edu.

4. I will start contributing to after 401k starting this month for mega back door roth but the only catch is that my plan only allows to take withdrawals provided the contribution is in account for at least 24 months. My plan would be to wait for that period and 2-3 times in a year move contributions to Roth and earnings to TIRA->401k. Please share your thoughts. I like the flexibility of keeping the money in taxable but this seems more sense to me.

I'd suggest convert after-tax 401K and its earnings to out-of-plan Roth IRA or in-plan Roth 401K, and just pay the taxes if there are earnings which could be small (e.g. you could direct the after-tax 401K to purchase the bond index fund). In most cases I'd prefer out-of-plan Roth IRA due to more flexibility in low-cost funds selection and avoiding RMD of 401K. I always keep my TIRA balance to zero which makes it easier to do back-door Roth IRA every year and no need to worry about the pro-rata rules.

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CyclingDuo
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by CyclingDuo » Tue Jul 09, 2019 4:30 pm

Rb555 wrote:
Tue Jul 09, 2019 11:52 am
CyclingDuo wrote:
Tue Jul 09, 2019 10:13 am
Rb555 wrote:
Mon Jul 08, 2019 8:36 pm
CyclingDuo wrote:
Mon Jul 08, 2019 8:20 am
Rb555 wrote:
Sun Jul 07, 2019 9:23 am

Debt: $400k remaining (Mortgage, 3.9%)
Car Debt: $39k, 1.9%

Current retirement assets ($420k; $32k 529)
Emergency funds: $60k
You have $512K in savings including the ER and 529.
You have $439K in debt.

You are saving $84K per year which will help to build your assets and is the most important part of the equation over allocation. :beer

In addition to your excellent savings rate, we would dump that car debt ASAP (the car is a depreciating asset), and pay a little more towards principal on your mortgage every month to trim that debt - even if it means adjusting your savings rate slightly to accomplish one or both.
Curious, what’s the benefit of paying low interest (1.9%) debt vs investing long term regardless if it is for depreciating asset?
Then one has to ask the question if they would borrow $39K to invest in the stock market for the time frame of your car loan (be it 36 or 48 months)? Even at 1.9% interest rate, it initiates a level of risk in investing for a 36-48 month time frame that we would personally prefer to cash flow from our income stream(s) instead when it comes to investing.

It's all grand in a bull market, but during a bear market contraction - hmmmm......

We flipped the equation around from day one and saved money for our next car purchase (so we had that money working for us in investments for all the years leading up to the next car purchase).

Again - you are doing well with your rate of savings. The debt just jumped off the page a bit to me when I read your post, so I was pointing it out. I believe another poster (smitcat) pointed it out upthread as well.

We've always paid cash for cars over the past 40 years. There was never any financing of a vehicle purchase. There was always discussion about vehicles and the cost of owning and maintaining them as I was growing up. Needless to say, I wasn't driving anything that was very impressive.

My first new car was purchased at the age of 31 (and I paid cash for it to the tune of 3% of net worth at the time). Perhaps our thought on household car buying habits got colored even more years ago when we read The Millionaire Next Door with the data presented about average cost of vehicles that the typical millionaire purchases. The "average" didn't pay more than 1% of their net worth for a car (Table 4-2 on page 114). Obviously, some paid more than others, and some paid less. However, in the aggregate the typical millionaire was not driving much of anything considered a special car based on the data that book presented. The data then compared what millionaires were paying for cars and the percent of their net worth to the average car buyer (non-millionaire) who, the data shows, paid on average 30% of their net worth for a car. Fortunately, the latter is not your situation at all. :beer

The cost of transportation is what it is and remains an annual expense for all of us. Just pointing out that you are carrying a total of $439K in debt. The additional $39K of debt being in your transportation expense costs just so happens that it would be high on our list of reducing, then using the cash flow of what was going to cover those debt payments for saving and investing (for the next car purchase years down the road). I would take that risk of opportunity cost during the shorter term time frame of a car loan and cash flow the investments out of our income stream instead over borrowing money to invest.

Factoring in risk for an investment vs. a shorter term car loan (be it a 3 or 4 year car loan) may or may not turn out in your favor. The use of margin, leverage, low interest rate debt to invest more for fear of the loss of opportunity cost can work well during a bull market. It's the inverse that introduces risk.

Plenty of interesting thoughts from Ramsey on auto loans as well. Here's one of his typical responses...

https://www.youtube.com/watch?v=_O0MrVKGcWo

Other thoughts as well out there...

https://www.doughroller.net/personal-fi ... for-a-car/

The good new is you have a decent rate of savings. Enough so that you would still have a decent rate of savings going even if you used some of your current cash flow that is going into investments to pay off more of your debt.

What if the money working for you in investments that could have gone to purchase the car goes down 25-45% in upcoming years during the life of the car loan (even if the interest rate on the money borrowed was 1.9% or 0%)?

Always good to look at it from several angles.
Interesting points and honeslty, i have thought about few. Following up on your comments, would you pay off 1.9% short term loan first vs 3.9% long term or vice versa.
Yes. Tackle the smallest debt first (car loan). Once that is complete, you could move on with additional principal payments on the mortgage.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

Bacchus01
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Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by Bacchus01 » Tue Jul 09, 2019 5:18 pm

Your biggest ROI will be to focus on your career and save/spend ratios.

You’ll blow past that number.

chicagoan23
Posts: 356
Joined: Thu Jan 29, 2015 4:34 pm

Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by chicagoan23 » Tue Jul 09, 2019 5:36 pm

Rb555 wrote:
Sun Jul 07, 2019 9:23 am

New annual Contributions (84k per year)
$56k his 401k ($19k Pre Tax, $13k Employer match, $24k After Tax contributions)
$6k his IRA/Roth IRA
$6k her IRA/Roth IRA
$6k HSA
$10k taxable (for retirement, not short term goals)
This all looks great to me. Your contributions are maximized for the most tax-advantaged savings possible. Keep an eye out for the income limits on making IRA contributions though. And why are you not making a $7k contribution to the HSA?
Questions:
1. I like to keep things simple and hence use of TDF in my tax advantage accounts wherever possible provided ER is not too high. I can theoretically move to 3 fund portfolio if there is a significance advantage. Any suggestions if that would benefit?
You are knowledgeable enough and pay attention enough to not need target date funds. I'd go with the three fund portfolio so that you can easily reallocate on your own. There may be times when you want to ease off on the 90/10 split for a while and move to, say 70/30. You should control your own allocation.
2. With my current savings of $420k and $84k savings rate, I would like to retire early at the age 55 with $4M to keep SWR around 3%. Any concerns reaching that goal with this target allocation?
The big concern is that you would be taking on too much risk at the wrong time, and that a big market decline in your late forties or early fifties will ruin it for you. It's hard to assume a steady rate of return. What you may want to do is take sample rates of return over the past 20 years with your asset allocation, and run simulations mixing those up. It will show you how it looks based on sequence of returns, and can be an eye opener if you are looking at a 30% decline when you're 53.

Regardless, this is a really good exercise. I keep a spreadsheet with my savings/investment projections and started at a similar level as you. It is fun for me to see that at 44 I am a few years ahead of pace; now looking at $4 million by age 53. I hope it will continue.....But the spreadsheet is a great representation of the power of compound interest. Keep up the good work!

CnC
Posts: 840
Joined: Thu May 11, 2017 12:41 pm

Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by CnC » Tue Jul 09, 2019 9:41 pm

rascott wrote:
Mon Jul 08, 2019 11:45 pm
CnC wrote:
Mon Jul 08, 2019 8:04 am
Rb555 wrote:
Sun Jul 07, 2019 8:05 pm
smitcat wrote:
Sun Jul 07, 2019 7:15 pm
Your doing very well - my only comment or area of thought would be what that 3% return on 4MM ($120K) may be worth in 20 years relative to todays dollars.
Thank you. $120k is on today’s dollars. I used 5% real returns. May be too optimistic?
5% is a bit optimistic I would say ±4% real returns. That is around 75% of average returns.

Figure 100% of an average market is around 5.5% achievable real returns. 75% of that is likely the best we will see over the next 20 years is 4.1% real.

For planning purposes I personally would figure 3-5% real.

Figure the worst you will likely do is 3% real and the best will be 5% real. See where you are under each circumstance and judge from there.

The data I've reviewed shows a 6-8% inflation adjusted returns are the "norm". What are you basing 3-5% off of?

https://fourpillarfreedom.com/heres-how ... ince-1928/

First of all you are reviewing the s&p 500. It's pretty well impossible to achieve the same returns as the s&p500 due to timing and taxes. Secondly the op is talking about 90/10 with 30% in international. That is NOT the s&p 500 and it's foolish to use the S&p 500 as the bench mark.

I said figure 3-5 because 5% real returns is close to the norm for that allocation and 1-2% less than that for a less than average case scenario.


Also any chart that skips to after the great depression is pretty well useless for forecasting what can happen.

rascott
Posts: 1114
Joined: Wed Apr 15, 2015 10:53 am

Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by rascott » Wed Jul 10, 2019 7:23 am

CnC wrote:
Tue Jul 09, 2019 9:41 pm
rascott wrote:
Mon Jul 08, 2019 11:45 pm
CnC wrote:
Mon Jul 08, 2019 8:04 am
Rb555 wrote:
Sun Jul 07, 2019 8:05 pm
smitcat wrote:
Sun Jul 07, 2019 7:15 pm
Your doing very well - my only comment or area of thought would be what that 3% return on 4MM ($120K) may be worth in 20 years relative to todays dollars.
Thank you. $120k is on today’s dollars. I used 5% real returns. May be too optimistic?
5% is a bit optimistic I would say ±4% real returns. That is around 75% of average returns.

Figure 100% of an average market is around 5.5% achievable real returns. 75% of that is likely the best we will see over the next 20 years is 4.1% real.

For planning purposes I personally would figure 3-5% real.

Figure the worst you will likely do is 3% real and the best will be 5% real. See where you are under each circumstance and judge from there.

The data I've reviewed shows a 6-8% inflation adjusted returns are the "norm". What are you basing 3-5% off of?

https://fourpillarfreedom.com/heres-how ... ince-1928/

First of all you are reviewing the s&p 500. It's pretty well impossible to achieve the same returns as the s&p500 due to timing and taxes. Secondly the op is talking about 90/10 with 30% in international. That is NOT the s&p 500 and it's foolish to use the S&p 500 as the bench mark.

I said figure 3-5 because 5% real returns is close to the norm for that allocation and 1-2% less than that for a less than average case scenario.


Also any chart that skips to after the great depression is pretty well useless for forecasting what can happen.
Those were returns since 1928.....so not sure what you are talking about skipping the GD.


The median 20 year real return was 7.3%. The worst 20 year period was 0.6% real, the best was 13.2% real.

The most recent 20 years has been 4.9% real....and that's been a historically poor return period, that included two huge bear markets with near 50% draw down.

I'm assuming most of posters money is in tax advantaged accounts....so taxes shouldn't impact his return. And a 10% bond allocation isn't going to make but a few tenths difference. And in theory diversifying should increase returns, not decrease it....otherwise nobody would do it.

Right or wrong....the SP500 (or TSMI, which has almost identical returns) is the benchmark for equity returns.

Find to be conservative though and over-save. Good insurance policy.
Last edited by rascott on Wed Jul 10, 2019 7:43 am, edited 2 times in total.

renue74
Posts: 1777
Joined: Tue Apr 07, 2015 7:24 pm

Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by renue74 » Wed Jul 10, 2019 7:38 am

Rb555 wrote:
Sun Jul 07, 2019 8:05 pm
smitcat wrote:
Sun Jul 07, 2019 7:15 pm
Your doing very well - my only comment or area of thought would be what that 3% return on 4MM ($120K) may be worth in 20 years relative to todays dollars.
Thank you. $120k is on today’s dollars. I used 5% real returns. May be too optimistic?
You sorta remind me of me when I was 35. I have been targeting 55 as a retirement time...or at least a "gear down to part time."

I typically use 3% real returns in my retirement projections. The market is not slated to grow super fast in the next decade or so.

There are a couple of things to think about:

• You live in a fairly HCOL of area. At the time of your retirement, you may want to think about downsizing your home and moving south. :) . I live near Charlotte, NC and see it all the time. Folks from up north move down and buy McMansions at discounts vs. northern costs. So part of your portfolio could possibly be increased by cashing out some of your home value.

• Parents....you may need to be involved in their elder care. Think about whether that will require some of your assets.

• Kids....I see you have set up a 529 plan. At 35, you're either done with more kids or doing the last ditch effort to decide whether you want more. Make sure to add that into your projections. Also...kids..when they become teenagers are like money suckers. (car insurance, cars, school trips, band instruments, OMG...I can go on and on.)

• Healthcare at 55. Big question mark. Things will definitely change in 20 years.

CnC
Posts: 840
Joined: Thu May 11, 2017 12:41 pm

Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by CnC » Wed Jul 10, 2019 1:48 pm

rascott wrote:
Wed Jul 10, 2019 7:23 am
CnC wrote:
Tue Jul 09, 2019 9:41 pm
rascott wrote:
Mon Jul 08, 2019 11:45 pm
CnC wrote:
Mon Jul 08, 2019 8:04 am
Rb555 wrote:
Sun Jul 07, 2019 8:05 pm

Thank you. $120k is on today’s dollars. I used 5% real returns. May be too optimistic?
5% is a bit optimistic I would say ±4% real returns. That is around 75% of average returns.

Figure 100% of an average market is around 5.5% achievable real returns. 75% of that is likely the best we will see over the next 20 years is 4.1% real.

For planning purposes I personally would figure 3-5% real.

Figure the worst you will likely do is 3% real and the best will be 5% real. See where you are under each circumstance and judge from there.

The data I've reviewed shows a 6-8% inflation adjusted returns are the "norm". What are you basing 3-5% off of?

https://fourpillarfreedom.com/heres-how ... ince-1928/

First of all you are reviewing the s&p 500. It's pretty well impossible to achieve the same returns as the s&p500 due to timing and taxes. Secondly the op is talking about 90/10 with 30% in international. That is NOT the s&p 500 and it's foolish to use the S&p 500 as the bench mark.

I said figure 3-5 because 5% real returns is close to the norm for that allocation and 1-2% less than that for a less than average case scenario.


Also any chart that skips to after the great depression is pretty well useless for forecasting what can happen.
Those were returns since 1928.....so not sure what you are talking about skipping the GD.


The median 20 year real return was 7.3%. The worst 20 year period was 0.6% real, the best was 13.2% real.

The most recent 20 years has been 4.9% real....and that's been a historically poor return period, that included two huge bear markets with near 50% draw down.

I'm assuming most of posters money is in tax advantaged accounts....so taxes shouldn't impact his return. And a 10% bond allocation isn't going to make but a few tenths difference. And in theory diversifying should increase returns, not decrease it....otherwise nobody would do it.

Right or wrong....the SP500 (or TSMI, which has almost identical returns) is the benchmark for equity returns.

Find to be conservative though and over-save. Good insurance policy.
Did you look at the chart? In included the 43% bounce back but none of the actual crash. That's like only counting the gains since the low in 2008 rather than including the peak from 2007. Is skews the data. By picking and choosing starting dates you can make the data back up anything.

If you chart growth from 1999 we have has poor returns.
If you chart growth from 2000 we have had great returns.

If you chart growth from 2007 we have had an ok bull market not as good as normal historical returns.
If you chart growth from 2008 we have had one of the best in history.

rascott
Posts: 1114
Joined: Wed Apr 15, 2015 10:53 am

Re: Portfolio Review for 35 year old; Early Retirement at age 55

Post by rascott » Wed Jul 10, 2019 2:53 pm

CnC wrote:
Wed Jul 10, 2019 1:48 pm
rascott wrote:
Wed Jul 10, 2019 7:23 am
CnC wrote:
Tue Jul 09, 2019 9:41 pm
rascott wrote:
Mon Jul 08, 2019 11:45 pm
CnC wrote:
Mon Jul 08, 2019 8:04 am


5% is a bit optimistic I would say ±4% real returns. That is around 75% of average returns.

Figure 100% of an average market is around 5.5% achievable real returns. 75% of that is likely the best we will see over the next 20 years is 4.1% real.

For planning purposes I personally would figure 3-5% real.

Figure the worst you will likely do is 3% real and the best will be 5% real. See where you are under each circumstance and judge from there.

The data I've reviewed shows a 6-8% inflation adjusted returns are the "norm". What are you basing 3-5% off of?

https://fourpillarfreedom.com/heres-how ... ince-1928/

First of all you are reviewing the s&p 500. It's pretty well impossible to achieve the same returns as the s&p500 due to timing and taxes. Secondly the op is talking about 90/10 with 30% in international. That is NOT the s&p 500 and it's foolish to use the S&p 500 as the bench mark.

I said figure 3-5 because 5% real returns is close to the norm for that allocation and 1-2% less than that for a less than average case scenario.


Also any chart that skips to after the great depression is pretty well useless for forecasting what can happen.
Those were returns since 1928.....so not sure what you are talking about skipping the GD.


The median 20 year real return was 7.3%. The worst 20 year period was 0.6% real, the best was 13.2% real.

The most recent 20 years has been 4.9% real....and that's been a historically poor return period, that included two huge bear markets with near 50% draw down.

I'm assuming most of posters money is in tax advantaged accounts....so taxes shouldn't impact his return. And a 10% bond allocation isn't going to make but a few tenths difference. And in theory diversifying should increase returns, not decrease it....otherwise nobody would do it.

Right or wrong....the SP500 (or TSMI, which has almost identical returns) is the benchmark for equity returns.

Find to be conservative though and over-save. Good insurance policy.
Did you look at the chart? In included the 43% bounce back but none of the actual crash. That's like only counting the gains since the low in 2008 rather than including the peak from 2007. Is skews the data. By picking and choosing starting dates you can make the data back up anything.

If you chart growth from 1999 we have has poor returns.
If you chart growth from 2000 we have had great returns.

If you chart growth from 2007 we have had an ok bull market not as good as normal historical returns.
If you chart growth from 2008 we have had one of the best in history.

What year are you talking about and what chart? There are several charts on that link.

The annual returns are there from 1928... That is pre-crash... the 10, 20, 30, 40 year returns all are from 1928,
onward.

The "crash" was 1929...even though that year only ended down 9% .... the huge draw down years were in the early 30s. All of the depression was included in these numbers.

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