My quick review & some guidance needed

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Topic Author
Wannaretireearly
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Joined: Wed Mar 31, 2010 4:39 pm

My quick review & some guidance needed

Post by Wannaretireearly » Fri Jul 19, 2019 3:25 pm

Hello BH Friends,

A quick portfolio summary and my 'tax' & 'withdrawal' questions below.

Portfolio summary (spouse & I):
~$1.2M - 401k (Vanguard 2035)
~200k - Roth IRA (via backdoor, Small cap value)
~600k - Taxable (combo of FTSE small cap & FTSE large cap) - give me strength/give intl strength! :twisted:

Own house - on target to pay off in 3 years. Not moving so value doesn't matter for this exercise. However, should mean more $ to invest after the next 3 years...

Age for both of us: roughly 40. HCOL in CA.

Spouse & I contribute max to 401's.

Background & goal:
Goal is to retire early at 50. (Really, given my handle!). Want to start thinking about how i would tap into my funds especially b/w 50 & 60 (early retirement). Seems that tapping into taxable dividends would be the easiest way to get $ out. Just seems 'easy'. Other threads on this currently. I know i can tap into my contributions with the Roth IRA - just doesn't seem like the 'easy' option.

Now to the questions:
Q1: I have after tax $ to invest this year (not enough to do everything!).

Given my background/goal - would you?
a. Do more backdoor Roth? I know this is likely the answer but what about my 'early retirement' phase of getting money out via dividends?
b. Do the after tax contribution to my 401K, and auto conversion? Company just offered this (my last post). Very similar approach and pros/cons as option a.
c. Invest after tax into my taxable account. Seems like I would have 'easy' access to dividends when I'm ~50 . If I build this out now/next few years)

Q2: Related question, if I had $100K to invest after tax next year (just imagine :)), would you still go a. then b. then c. given my goals?

Hope I'm providing color. Feel free to ask questions.

:sharebeer
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steve roy
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Re: My quick review & some guidance needed

Post by steve roy » Fri Jul 19, 2019 3:37 pm

Backdoor Roths are peachy, but given your age ... and when you plan/hope to retire, you have plenty of time to do BRs later, no?

So I guess I would say, maximize investment savings and retirement contributions NOW.

We, too, hail from Cali. We spent our entire working lives there, and despite the HCOL, the state was very, very good to us. (California HELPED our net worth. The higher taxes were scarcely noticed.)

But if tax rates are an issue, move to a low tax state after your early retirement and do you Backdoor Roths then. (You can always move back to the Golden State later for the sand, surf, and mountain skiing.)

Topic Author
Wannaretireearly
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Re: My quick review & some guidance needed

Post by Wannaretireearly » Fri Jul 19, 2019 4:51 pm

steve roy wrote:
Fri Jul 19, 2019 3:37 pm
Backdoor Roths are peachy, but given your age ... and when you plan/hope to retire, you have plenty of time to do BRs later, no?

So I guess I would say, maximize investment savings and retirement contributions NOW.

We, too, hail from Cali. We spent our entire working lives there, and despite the HCOL, the state was very, very good to us. (California HELPED our net worth. The higher taxes were scarcely noticed.)

But if tax rates are an issue, move to a low tax state after your early retirement and do you Backdoor Roths then. (You can always move back to the Golden State later for the sand, surf, and mountain skiing.)
Thanks Steve!
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WoodSpinner
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Re: My quick review & some guidance needed

Post by WoodSpinner » Fri Jul 19, 2019 6:18 pm

OP,

It seems that you are on the right track! Congrats!

Could you give us some more insights? Need this info to help shape answers.

- Current Marginal Tax Bracket?
- Expected Marginal Bracket when retired at 50.
- Expected Expenses in Retirement?
- Expected Income sources in Retirement?

I will say that I personally prefer to think of my Retirement Portfolio as a pot of money and if I need income I can sell shares and/or spend dividends. In general, I would not build a portfolio that targets dividends as the source of my Retirement income. In fact, My portfolio is specifically setup to minimize interest and dividends in my taxable accounts. This works well for me since I have a pension and want to keep room in my Adjusted Gross Income for large Roth Conversions.

Since your situation is likely to be different than mine we encourage everyone to provide some details —see for a guide .

WoodSpinner

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Watty
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Re: My quick review & some guidance needed

Post by Watty » Fri Jul 19, 2019 6:32 pm

Wannaretireearly wrote:
Fri Jul 19, 2019 3:25 pm
Own house - on target to pay off in 3 years. .....

Q2: Related question, if I had $100K to invest after tax next year (just imagine ), would you still go a. then b. then c. given my goals?
You did not give the details on the mortage but I would likely use the money to pay it down and also see if you could free up some money if necessary from your taxable account to completely pay it off. You could then save your "mortage payment" each month.

Topic Author
Wannaretireearly
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Re: My quick review & some guidance needed

Post by Wannaretireearly » Fri Jul 19, 2019 10:03 pm

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Last edited by Wannaretireearly on Fri Jul 19, 2019 10:05 pm, edited 1 time in total.
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Topic Author
Wannaretireearly
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Re: My quick review & some guidance needed

Post by Wannaretireearly » Fri Jul 19, 2019 10:04 pm

Thanks WoodSpinner!

My brief answers below. Looking forward to your response!

- Current Marginal Tax Bracket?
32% Federal. 9% CA (I think)
- Expected Marginal Bracket when retired at 50.
12%? I dont know. Expected expenses around 100k year
- Expected Expenses in Retirement?
100k/year
- Expected Income sources in Retirement?
Only this portfolio. Social security will kick in later for both of us. Estimate 2k per month each? Maybe a bit more
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Topic Author
Wannaretireearly
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Re: My quick review & some guidance needed

Post by Wannaretireearly » Fri Jul 19, 2019 10:07 pm

Watty wrote:
Fri Jul 19, 2019 6:32 pm
Wannaretireearly wrote:
Fri Jul 19, 2019 3:25 pm
Own house - on target to pay off in 3 years. .....

Q2: Related question, if I had $100K to invest after tax next year (just imagine ), would you still go a. then b. then c. given my goals?
You did not give the details on the mortage but I would likely use the money to pay it down and also see if you could free up some money if necessary from your taxable account to completely pay it off. You could then save your "mortage payment" each month.
Hey Watty, mortgage is 2.875%. No rush to pay that off. 3 more years and I'm done. Roughly $130k left on note.
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Watty
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Re: My quick review & some guidance needed

Post by Watty » Fri Jul 19, 2019 10:46 pm

Wannaretireearly wrote:
Fri Jul 19, 2019 10:07 pm
Watty wrote:
Fri Jul 19, 2019 6:32 pm
Wannaretireearly wrote:
Fri Jul 19, 2019 3:25 pm
Own house - on target to pay off in 3 years. .....

Q2: Related question, if I had $100K to invest after tax next year (just imagine ), would you still go a. then b. then c. given my goals?
You did not give the details on the mortage but I would likely use the money to pay it down and also see if you could free up some money if necessary from your taxable account to completely pay it off. You could then save your "mortage payment" each month.
Hey Watty, mortgage is 2.875%. No rush to pay that off. 3 more years and I'm done. Roughly $130k left on note.
That is low so it would not be an easy decision but since you would be investing the money in a taxable account you would need to get around a 4 or 5 % return before taxes to equal that after taxes.

If you had decades left of the mortage then keeping it because of the low interest rate would make a lot more sense because it would be a good inflation hedge but with only three years left there is not a lot of likely upside to keeping it longer.

Paying it off could be mostly a matter of personal preference but having a paid off house would help simplify your overall financial picture.

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emlowe
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Re: My quick review & some guidance needed

Post by emlowe » Fri Jul 19, 2019 11:48 pm

If your company has started offering the Mega Back Door - then for sure you should do that - this lets you save a bunch more into a tax-advantaged account. Eg, if you contribute the max (19k) and there is no company match, you can put another 37k into a Roth vehicle.

Basically, no reason that I can see for you to not max out both the Backdoor and the Mega Backdoor every single year as long as you have the $ to do so.

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emlowe
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Re: My quick review & some guidance needed

Post by emlowe » Fri Jul 19, 2019 11:54 pm

Just to add, for me personally you are pretty light on Bonds - by my calculation ~ 15%. But I suppose this is the asset allocation that is comfortable for you.

Topic Author
Wannaretireearly
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Re: My quick review & some guidance needed

Post by Wannaretireearly » Sat Jul 20, 2019 12:27 am

emlowe wrote:
Fri Jul 19, 2019 11:54 pm
Just to add, for me personally you are pretty light on Bonds - by my calculation ~ 15%. But I suppose this is the asset allocation that is comfortable for you.
Thanks. I have about 60k in Cal muni funds in taxable. Part of the 600k at Vanguard. I missed that.
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Topic Author
Wannaretireearly
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Re: My quick review & some guidance needed

Post by Wannaretireearly » Sat Jul 20, 2019 12:32 am

emlowe wrote:
Fri Jul 19, 2019 11:54 pm
Just to add, for me personally you are pretty light on Bonds - by my calculation ~ 15%. But I suppose this is the asset allocation that is comfortable for you.
How much benefit vs. Investing in the taxable account? Especially when factoring early retirement needs? It's this math (and ease of access during RE) that I'm struggling a bit with. Not just for this year, but next 10 years of expected after tax $. Want to ensure I take the correct/best path given my goals.
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emlowe
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Re: My quick review & some guidance needed

Post by emlowe » Sat Jul 20, 2019 12:51 am

Wannaretireearly wrote:
Sat Jul 20, 2019 12:32 am
emlowe wrote:
Fri Jul 19, 2019 11:54 pm
Just to add, for me personally you are pretty light on Bonds - by my calculation ~ 15%. But I suppose this is the asset allocation that is comfortable for you.
How much benefit vs. Investing in the taxable account? Especially when factoring early retirement needs? It's this math (and ease of access during RE) that I'm struggling a bit with. Not just for this year, but next 10 years of expected after tax $. Want to ensure I take the correct/best path given my goals.
Presumably, you mean investing in either the Roth (backdoor) or the Roth 401(k) (Mega Back Door). That I know of, there is minimal downside to putting after-tax money in either vehicle instead of a regular taxable account. Yes, your earnings you cannot withdraw until 59.5 - but you can withdraw your own contributions anytime. And this is only ~10 years in your case anyway.

So your own contributions you can access in the Roth at any time (well I'll ignore the 5 year holding period).

But there might be some real expert that will chime in on the best drawdown strategy

Topic Author
Wannaretireearly
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Re: My quick review & some guidance needed

Post by Wannaretireearly » Sat Jul 20, 2019 9:28 am

emlowe wrote:
Sat Jul 20, 2019 12:51 am
Wannaretireearly wrote:
Sat Jul 20, 2019 12:32 am
emlowe wrote:
Fri Jul 19, 2019 11:54 pm
Just to add, for me personally you are pretty light on Bonds - by my calculation ~ 15%. But I suppose this is the asset allocation that is comfortable for you.
How much benefit vs. Investing in the taxable account? Especially when factoring early retirement needs? It's this math (and ease of access during RE) that I'm struggling a bit with. Not just for this year, but next 10 years of expected after tax $. Want to ensure I take the correct/best path given my goals.
Presumably, you mean investing in either the Roth (backdoor) or the Roth 401(k) (Mega Back Door). That I know of, there is minimal downside to putting after-tax money in either vehicle instead of a regular taxable account. Yes, your earnings you cannot withdraw until 59.5 - but you can withdraw your own contributions anytime. And this is only ~10 years in your case anyway.

So your own contributions you can access in the Roth at any time (well I'll ignore the 5 year holding period).

But there might be some real expert that will chime in on the best drawdown strategy

Thanks. Yep. Hopefully responses from folks actually withdrawing in early retirement would be ideal (practice vs. Theory)
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emlowe
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Re: My quick review & some guidance needed

Post by emlowe » Sat Jul 20, 2019 4:07 pm

You may find https://www.i-orp.com/apenalty/index.html

Helps with your planning.

I've not that familiar with the tool myself but I think it will show you some things you are trying to figure out

Topic Author
Wannaretireearly
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Joined: Wed Mar 31, 2010 4:39 pm

Re: My quick review & some guidance needed

Post by Wannaretireearly » Sat Jul 20, 2019 5:04 pm

emlowe wrote:
Sat Jul 20, 2019 4:07 pm
You may find https://www.i-orp.com/apenalty/index.html

Helps with your planning.

I've not that familiar with the tool myself but I think it will show you some things you are trying to figure out
Thank you! Will check this out
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Topic Author
Wannaretireearly
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Joined: Wed Mar 31, 2010 4:39 pm

Re: My quick review & some guidance needed

Post by Wannaretireearly » Wed Jul 24, 2019 1:23 pm

Quick update:
I've started the Vanguard process for a. back door roths for me/spouse.
I feel good about this. Done this before (however, had to skip last year). Know that I can take out contributions tax free anytime.

Next decision point for 'spare' after tax $:
b. Do the after tax contribution to my 401K, and auto conversion? Company just offered this (my last post). Very similar approach and pros/cons as option a.

OR

c. Invest after tax into my taxable account. Seems like I would have 'easy' access to dividends when I'm ~50 . If I build this out now/next few years).

Any opinions/thoughts given my goals? I did go thru the link emlowe provided. (and will do again - good tool). It generally seemed to guide me to use my taxable account from age 50 to ~60. Should this push me to c. taxable account investing rather than b. 'Mega' back door roth with employer?

Love to hear some thoughts. Especially from folks who may be close, or in, early retirement phase.
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Topic Author
Wannaretireearly
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Re: My quick review & some guidance needed

Post by Wannaretireearly » Sun Jul 28, 2019 10:34 am

Bumping to try and get more thoughts/responses!
Appreciate all inputs. :sharebeer
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