Review - 34 yr old

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Topic Author
chrismj
Posts: 49
Joined: Thu Feb 09, 2017 2:12 pm

Review - 34 yr old

Post by chrismj » Thu Aug 15, 2019 2:19 pm

Any suggestions/critiques?

Me: 34 yr old - Federal Employee (11 yrs) - $140k salary
Spouse: 33 yr old - teacher - $45k salary (was $100k+ after 10 years when we lived in DC but recently moved to WI)
One child+: 2 yr old (and another due any day now, so pretty much two kids)

TSP traditional: C-fund $119k, S-fund $21k, G-fund $68k
TSP Roth: 0 but I just started contributing this past pay period and will be $2k for the year

Vanguard: Total Stock Market (VTSAX) $141k
Vanguard Roth IRA (me): Real Estate Index Fund (VGSLX) $19k, Total Stock Market (VTSAX) $5800; backdoor contributions
Vanguard Roth IRA (spouse): Real Estate Index Fund (VGSLX) $19k, Total Stock Market (VTSAX) $5800; backdoor contributions

Spouse pension: hard to factor in now, it won't be substantial but still something

DC 529: Stock market index $16k
[WI 529: coming soon ~$8k]

Emergency fund: $35k cash, kind of depleted after a year of home updates but still covers 6 months

Totals: $292,600 in stocks [73%], $68k in bonds (G-fund) [17%], $38k in REIT [10%]; $35k cash (don't count in allocation cuz it's relatively fixed)

Debt
Mortgage: $195k on 30yr@4%
No car payments, student debt is gone, credit cards zeroed each month

Overall
We save about $4k a month between TSP (maxed@$19k) and Vanguard, might drop off a little as two kids go into daycare next year.

Am I using the Roth accounts in an efficient way? Does it matter tax-wise for someone like us who will likely have high retirement earnings with TSP+pensions+SocSec?

If I worked for 40 years at my job I would be more than ok with a 2 fund portfolio (Total Stock + G-fund), but I'm trying to keep options open, e.g. I would like to have the freedom for an early "retirement" career change if I want it.

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FiveK
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Re: Review - 34 yr old

Post by FiveK » Thu Aug 15, 2019 5:00 pm

chrismj wrote:
Thu Aug 15, 2019 2:19 pm
...but I'm trying to keep options open, e.g. I would like to have the freedom for an early "retirement" career change if I want it.
In that case, traditional instead of Roth may be best, due to lower income and thus lower tax rates when you withdraw.

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Watty
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Re: Review - 34 yr old

Post by Watty » Thu Aug 15, 2019 6:00 pm

chrismj wrote:
Thu Aug 15, 2019 2:19 pm
Am I using the Roth accounts in an efficient way? Does it matter tax-wise for someone like us who will likely have high retirement earnings with TSP+pensions+SocSec?
What are your federal and state tax brackets?

I would guess that it is relatively high but you are a 30 years from being in a high retirement tax bracket and a lot can happen between now and then which might result you not being in as high a tax bracket then. If you were in your late 50s using the Roth TSP might make more sense but I would keep using the deductible TSP for now.

Maxing out the Roth IRA makes sense.

I did not see any mention of retirement accounts for you wife. I would think that with her being a teacher she would have access to some through her job.
chrismj wrote:
Thu Aug 15, 2019 2:19 pm
Mortgage: $195k on 30yr@4%
......
We save about $4k a month between TSP (maxed@$19k) and Vanguard, might drop off a little as two kids go into daycare next year.
I've seen some 15 year mortage rates that are below 3% and with other interest rates dropping the last few days they mortage rates might drop some more. I would watch those closely and take a hard look at refinancing with a 15 year mortage so that the house would be paid off by the time your kids are in college.

Olemiss540
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Re: Review - 34 yr old

Post by Olemiss540 » Thu Aug 15, 2019 6:38 pm

I would listen to watty. 15 yr low interest note on the house and yall keep the retirement saving up. Will be on pace for retirement when the youngest goes to college!
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

Topic Author
chrismj
Posts: 49
Joined: Thu Feb 09, 2017 2:12 pm

Re: Review - 34 yr old

Post by chrismj » Thu Aug 15, 2019 8:38 pm

FiveK wrote:
Thu Aug 15, 2019 5:00 pm
chrismj wrote:
Thu Aug 15, 2019 2:19 pm
...but I'm trying to keep options open, e.g. I would like to have the freedom for an early "retirement" career change if I want it.
In that case, traditional instead of Roth may be best, due to lower income and thus lower tax rates when you withdraw.
Is a 75/25 split between TSP Traditional/Roth reasonable then? It's sort of like if I knew I was going to work 40 years at the same federal job I would do one thing and if I knew I'd be done after only 9 more years I'd do another. But since it's either/or and anything in between I feel like I should use both buckets.

I think I may start another thread about how people in retirement feel paying taxes.

Topic Author
chrismj
Posts: 49
Joined: Thu Feb 09, 2017 2:12 pm

Re: Review - 34 yr old

Post by chrismj » Thu Aug 15, 2019 8:43 pm

Watty wrote:
Thu Aug 15, 2019 6:00 pm
chrismj wrote:
Thu Aug 15, 2019 2:19 pm
Am I using the Roth accounts in an efficient way? Does it matter tax-wise for someone like us who will likely have high retirement earnings with TSP+pensions+SocSec?
What are your federal and state tax brackets?
Federal in 2019 will be 24%, State will be 6.27%
Watty wrote:
Thu Aug 15, 2019 6:00 pm
I did not see any mention of retirement accounts for you wife. I would think that with her being a teacher she would have access to some through her job.
She has a pension with 10 years of service in DC, and has one year of service in the Wisconsin system now. No 403b's or anything.
Last edited by chrismj on Thu Aug 15, 2019 8:46 pm, edited 1 time in total.

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FiveK
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Re: Review - 34 yr old

Post by FiveK » Thu Aug 15, 2019 9:01 pm

chrismj wrote:
Thu Aug 15, 2019 8:38 pm
Is a 75/25 split between TSP Traditional/Roth reasonable then?
Yes it's reasonable.

So are 100/0, 50/50, and 0/100 - all depending on what one assumes.

If you want to minimize your maximum error, choose 50/50 so you can't be more than half wrong. ;)

The earlier you do retire, the more likely traditional will have been better; the later, the more likely Roth.

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Watty
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Re: Review - 34 yr old

Post by Watty » Thu Aug 15, 2019 9:34 pm

chrismj wrote:
Thu Aug 15, 2019 8:43 pm
Federal in 2019 will be 24%, State will be 6.27%
In those tax brackets maxing out your deductible retirement accounts first is an easy choice unless you have some very unusual situation.

After that putting money in a Roth is still better than a taxable account.

LittleMaggieMae
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Re: Review - 34 yr old

Post by LittleMaggieMae » Thu Aug 15, 2019 10:28 pm

I might lean more towards a ROTH... I'm 55 and looking at Financial Independence (retire) in 3 to 4 years. The bulk of my money is in a Traditional 401K. My pension kicks in at 65. I will have a lot of taxable retirement income - my IRA, my pension, SS. I will be in a high-ish tax bracket. This is a good problem to have. If I could go back and whisper in my 40 year old ear when I started taking retirement savings serious (with a goal of NOT having to work til 65) I would be saying put more in a Roth. I have always been single with no kids - so the 401K was the only tax advantage I had for most of my career.

fujiters
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Re: Review - 34 yr old

Post by fujiters » Fri Aug 16, 2019 12:51 am

LittleMaggieMae wrote:
Thu Aug 15, 2019 10:28 pm
I might lean more towards a ROTH... I'm 55 and looking at Financial Independence (retire) in 3 to 4 years. The bulk of my money is in a Traditional 401K. My pension kicks in at 65. I will have a lot of taxable retirement income - my IRA, my pension, SS. I will be in a high-ish tax bracket. This is a good problem to have. If I could go back and whisper in my 40 year old ear when I started taking retirement savings serious (with a goal of NOT having to work til 65) I would be saying put more in a Roth. I have always been single with no kids - so the 401K was the only tax advantage I had for most of my career.
Traditional is typically better when you have a decent window between retiring and drawing other taxable funds. You have 6 years after retiring before your pension kicks in and 11 before you have to draw social security. At current tax rates, you could convert $51675 (as a single person using the standard deduction) each year and stay in the 12% tax bracket. That's at least $310050 converted from traditional to Roth before your pension kicks in. How large is your pension and have you already saved significantly more than $300K in pre-tax accounts?
Last edited by fujiters on Fri Aug 16, 2019 1:12 am, edited 1 time in total.
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham

fujiters
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Re: Review - 34 yr old

Post by fujiters » Fri Aug 16, 2019 1:09 am

chrismj wrote:
Thu Aug 15, 2019 2:19 pm
Overall
We save about $4k a month between TSP (maxed@$19k) and Vanguard, might drop off a little as two kids go into daycare next year.

Am I using the Roth accounts in an efficient way? Does it matter tax-wise for someone like us who will likely have high retirement earnings with TSP+pensions+SocSec?
Looks fine to me.

I just wanted to chime in to recommend that you funnel money to pay for day care through the dependent care FSA (https://www.benefits.gov/benefit/5885) when your kids start going to daycare.

Seeing you're in the 24% federal tax bracket, I would go 100% traditional in TSP. Traditional contributions would only be a mistake if you ended up withdrawing at a higher tax bracket in retirement. If you are on track to being above the 24% bracket in retirement, this means you can probably just retire earlier (so not above 24%).

You may also be interested in enrolling in a HDHP during the next open enrollment, which would allow you to put an additional tax-free $7k into an HSA.
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham

CnC
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Re: Review - 34 yr old

Post by CnC » Fri Aug 16, 2019 10:17 am

FiveK wrote:
Thu Aug 15, 2019 9:01 pm
chrismj wrote:
Thu Aug 15, 2019 8:38 pm
Is a 75/25 split between TSP Traditional/Roth reasonable then?
Yes it's reasonable.

So are 100/0, 50/50, and 0/100 - all depending on what one assumes.

If you want to minimize your maximum error, choose 50/50 so you can't be more than half wrong. ;)

The earlier you do retire, the more likely traditional will have been better; the later, the more likely Roth.

How is this correct? A Roth contributions can be withdrawn prior to 60. A traditional can not without jumping through hoops.

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FiveK
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Joined: Sun Mar 16, 2014 2:43 pm

Re: Review - 34 yr old

Post by FiveK » Fri Aug 16, 2019 10:21 am

CnC wrote:
Fri Aug 16, 2019 10:17 am
FiveK wrote:
Thu Aug 15, 2019 9:01 pm
chrismj wrote:
Thu Aug 15, 2019 8:38 pm
Is a 75/25 split between TSP Traditional/Roth reasonable then?
Yes it's reasonable.

So are 100/0, 50/50, and 0/100 - all depending on what one assumes.

If you want to minimize your maximum error, choose 50/50 so you can't be more than half wrong. ;)

The earlier you do retire, the more likely traditional will have been better; the later, the more likely Roth.

How is this correct? A Roth contributions can be withdrawn prior to 60. A traditional can not without jumping through hoops.
The earlier one retires, the more likely the withdrawal marginal tax rate (e.g., when doing traditional to Roth conversions) will be lower than the contribution marginal tax rate.

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

Re: Review - 34 yr old

Post by ExitStageLeft » Fri Aug 16, 2019 5:39 pm

CnC wrote:
Fri Aug 16, 2019 10:17 am
...
How is this correct? A Roth contributions can be withdrawn prior to 60. A traditional can not without jumping through hoops.
If the OP stays federal and retires under FERS at minimum age (57) then he'll have full access to the TSP. If he's planning on retiring at 30 years then a higher proportion of Roth in the TSP might make sense. It makes more sense to me to max TSP traditional and save $12k per year in Roth IRAs.

Topic Author
chrismj
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Joined: Thu Feb 09, 2017 2:12 pm

Re: Review - 34 yr old

Post by chrismj » Fri Aug 16, 2019 8:10 pm

ExitStageLeft wrote:
Fri Aug 16, 2019 5:39 pm

If the OP stays federal and retires under FERS at minimum age (57) then he'll have full access to the TSP. If he's planning on retiring at 30 years then a higher proportion of Roth in the TSP might make sense. It makes more sense to me to max TSP traditional and save $12k per year in Roth IRAs.
Hmmm, so maxing out our backdoor Roths are enough diversification that it’s not worth giving up any tax advantage of the traditional TSP? Or said differently, I should take all the tax advantaged space I can since we’re able to max both Roth IRAs and traditional TSP.

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FiveK
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Re: Review - 34 yr old

Post by FiveK » Fri Aug 16, 2019 8:23 pm

chrismj wrote:
Fri Aug 16, 2019 8:10 pm
Hmmm, so maxing out our backdoor Roths are enough diversification that it’s not worth giving up any tax advantage of the traditional TSP? Or said differently, I should take all the tax advantaged space I can since we’re able to max both Roth IRAs and traditional TSP.
The choice of traditional vs. Roth depends on comparing the marginal rate you would save on traditional contributions now vs. the marginal rate you expect to pay on traditional withdrawals later. See Traditional versus Roth - Bogleheads.

See also Investment Order (towards the bottom of that post) for one way to estimate your future marginal rate.

ExitStageLeft
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Re: Review - 34 yr old

Post by ExitStageLeft » Sat Aug 17, 2019 10:27 am

Definitely max out the Roth IRAs and the TSP as long as you can. I would stick with all tax-deferred in the TSP, which assuming a 5% match gives you about $26k saved each year tax-deferred and $12k in Roth savings. You've still got many years of accumulation ahead of you and you can dial back the TSP tax-deferred later if you think you'll be wanting to retire early.

Fishing50
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Re: Review - 34 yr old

Post by Fishing50 » Sun Aug 18, 2019 9:18 am

We're 2yrs from a military pension. Our TSP has traditional, Roth, and tax exempt money from the combat zone.

A mix of Roth and traditional TSP contributions is best for you, but I'd recommend more Roth now because:
1. You are young. Tax free, compound growth in Roth will work to your advantage for decades.
2. Current tax rates expire in 2025, so you will likely see a tax increase in the future.
3. 02x pensions will fill the lowest tax brackets in retirement, eliminating the most beneficial space for traditional withdrawals. https://thefinancebuff.com/most-tsp-par ... h-tsp.html
It's perfectly legal, go ask the IRS, they'll say the same thing. I actually feel stupid telling you this, I'm sure you would've investigated the matter yourself. Andy Dufresne

LittleMaggieMae
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Re: Review - 34 yr old

Post by LittleMaggieMae » Sun Aug 18, 2019 12:36 pm

fujiters wrote:
Fri Aug 16, 2019 12:51 am
LittleMaggieMae wrote:
Thu Aug 15, 2019 10:28 pm
I might lean more towards a ROTH... I'm 55 and looking at Financial Independence (retire) in 3 to 4 years. The bulk of my money is in a Traditional 401K. My pension kicks in at 65. I will have a lot of taxable retirement income - my IRA, my pension, SS. I will be in a high-ish tax bracket. This is a good problem to have. If I could go back and whisper in my 40 year old ear when I started taking retirement savings serious (with a goal of NOT having to work til 65) I would be saying put more in a Roth. I have always been single with no kids - so the 401K was the only tax advantage I had for most of my career.
Traditional is typically better when you have a decent window between retiring and drawing other taxable funds. You have 6 years after retiring before your pension kicks in and 11 before you have to draw social security. At current tax rates, you could convert $51675 (as a single person using the standard deduction) each year and stay in the 12% tax bracket. That's at least $310050 converted from traditional to Roth before your pension kicks in. How large is your pension and have you already saved significantly more than $300K in pre-tax accounts?
Yes! You've confirmed kinda what I expected to do between 59.5 and 65. The sticky wicket is that I will need 401K money for atleast some daily living expenses during that time frame. I do not have enough outside of retirement accounts to cover my daily expenses for those years at this time. (it is something I am working on).

I do currently have way more than 300K in pre-tax accounts. My pension is a bit of moving target - as it depends on when I stop working. If I quit today - it will about 40K per year at 65. My 'estimate' if I stay with my employer 'til I'm 59.5 is about 55K at 65.

I have an enjoyable beer lifestyle on a champagne budget. I expect my "beer lifestyle" to continue in retirement.

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