Analysis Paralysis - Help me break it

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Topic Author
DukaConLitch
Posts: 6
Joined: Fri Jan 10, 2020 10:58 pm

Analysis Paralysis - Help me break it

Post by DukaConLitch » Sat Jan 11, 2020 12:07 am

I am feeling completely scattered:

Cash:$470K
  • $20K - Checking Accounts
    $330K - Other taxable account (after selling all my vested stock options a few weeks ago). I already paid a lot of taxes when they vested, sold them almost immediately when they vested, so I don’t think tax consequences will be large.
    $120K - Incoming Cash - Cash proceeds I will receive from sale of house later this month (this is net of paying off mortgage, agent fees and closing costs). We are under contract and closing before end of month, so there is obv some risk of this falling through, but I hope not.

Tax-advantaged retirement-focused accounts: $630K

Post-Tax: $80K
  • $40K - My roth - Funded in 2020. At fidelity - 100% FZROX. Plan to keep maxing this out via backdoor.
    $40K - Wife roth - Will fund in 2020 (using cash above) At fidelity - 100% FZROX. Plan to keep maxing this out via backdoor.
Pre-Tax: $550K
  • $250K - My current 401K - At fidlity - 70% FID 500 Index, 30% FID small cap index. Both low expense ratios. I max this out.
    $30K - My current executive deferred comp plan. In a total market fund with a decent expense ratio. I contribute 10% of my income to this. I understand there is some risk here, if company went insolvent, but I am hoping to only be with the company for 1-2 years more maximum.
    $190K - Wife’s 457(b) - She just “retired.” This is in a stock index that replicates S&P 500 with a bad expense ratio.
    $80K - My old 401K - Vanguard funds with low expense ratios.
Potential future income:
  • Bonus of $50K-$60K at end of Q1 - This is a pre-tax amount
    $150K worth of stock (as of now) that will vest in December of 2020. Hard to know what will happen to value of stock between now and then. When stock sells, shares are automatically sold for tax withholding, so the $150K is also a pre-tax amount.
    $100K worth of stock that will vest in December 2021. I don’t want to stick around for this, so I will probably lose out on this amount.
    Current salary is $220K/yr

Student loans are finally wiped out (it was a lot……). We own two cars with no loans. Once house closes, I will have no mortgage. We are renting a house now.

I’m 37. Wife 36. Kids aged 5 and 4. We both got a late start on our careers, but I have been fortunate to land somewhere where I was able to make a big impact, and I have been and still am compensated well.

Goals:

I want to feel financially secure with little debt. This is important to us. I would like to have a very low mortgage or none. I know this is probably silly in today’s market of low interest mortgages, but I’ve lived with a big mortgage and big student loans for last 10 years, and I couldn’t stand it.

I want to save for my children’s undergrad education at state school (tuition currently 11K/year) at best state school in our state. I would love to take a certain amount of cash from vested stock sale and invest it in a target fund (all in a 529?) and know I have this more or less covered.

I don’t have a strong desire to retire super early, but I would flexibility to retire at 60 if possible. We do not see ourselves living extravagantly in retirement. I am okay with 100% equities in retirement funds for next 7-10 years.

I would like to quit my job in December 2020 (after stock vest) and find a less stressful one OR find one I am passionate about, perhaps with high upside, but starting over in a new industry.

These are things I know. But I don’t really know what to do next, which is embarrassing because I’m good with financial math and time value of money. What should I do with all this cash? Do I have enough saved in retirement accounts if I keep maxing them? Should I worry about over-funding a 529K if I open on? My problem is that I load all this stuff in a spreadsheet, and get way way too granular with modeling and then I never make any decisions. (I was proud of myself for rounding to nearest 10K in above.) I feel like I am good at giving other people advice, but am lost right now on how I should proceed. How do I break out of analysis paralysis? Should I consider a financial adviser if I know I have this tendency?

sycamore
Posts: 118
Joined: Tue May 08, 2018 12:06 pm

Re: Analysis Paralysis - Help me break it

Post by sycamore » Sat Jan 11, 2020 9:30 am

You've done really well at saving and investing so far. Keep doing that!

You've identified your main goals (I assume you and your wife are in agreement) so that's good too.

Next step is take action toward those goals. Given there are a million actions you could take and it's impossible to know which one is best, it's reasonable to choose a good action. Don't worry if it turns out to be sub-optimal. Don't worry that there might be another better option. "Don't let the perfect be the enemy of the good."

Suggest opening a 529 for each of your kids. Contribute $11k * 4 = $44k per kid using your available cash. (There are limits on how much you can contribute per year or five year period, read up on it.). There are arguments for and against investing college funds in 529 versus taxable account but I think a 529 will be fine for your situation. You'll be covering a huge chunk of in-state college costs which is really good. Will you be over or under funding the 529s? No way to know for sure but feel good about meeting a huge chunk of their college costs.

As for your other goals, I suggest taking a small step toward each and see how it goes. No need to solve all problems at this time. Take an action, see what happens, adjust course if necessary.

stan1
Posts: 7985
Joined: Mon Oct 08, 2007 4:35 pm

Re: Analysis Paralysis - Help me break it

Post by stan1 » Sat Jan 11, 2020 9:40 am

I'll give you a little bump on the thread but I don't have much to offer. It sounds like you have a large unrealized gain in your largest asset class: your future earnings potential which could be well over $5M in inflation adjusted dollars. Sounds like you don't like your current position for whatever reasons but don't have a different plan to turn your earnings potential into actual income. You need a "business plan" for yourself that balances your intellectual assets with work life balance, location you want to live, etc. Treat yourself as a business. One way of looking at it that will help separate your earning potential from the other emotions of life.

Tamarack
Posts: 12
Joined: Sun Nov 17, 2019 3:09 pm

Re: Analysis Paralysis - Help me break it

Post by Tamarack » Sat Jan 11, 2020 9:47 am

Welcome!
A few questions. One is you didn’t mention how much you want to reserve as emergency funds? You also were not clear about your desired overall asset allocation, or international allocation. You said you were okay with holding 100% equities in your retirement funds. You also stated a goal of feeling financially secure and you are holding about 42% of your portfolio in cash. I wonder if some of your resistance to investing any of the cash is because you haven’t explicitly worked through what you want/need to hold for emergency funds and what overall AA will allow you to sleep at night and stay the course?

Jablean
Posts: 442
Joined: Sat Jun 02, 2018 2:38 pm

Re: Analysis Paralysis - Help me break it

Post by Jablean » Sat Jan 11, 2020 9:57 am

What are your goals for your cash? Are you saving to purchase another home, if so what is the time frame? If soon these funds probably need to be in easy accessible hi-yield checking, CDs, or maybe bonds. And, don't buy more house than you need because "it's an investment".

What have you done regarding life insurance? I worry about your "ok 100% in stock". It's ok but realize that it's actually a relationship to your overall allocation. I use to think I was fine with being super aggressive regarding stock funds and thought that meant I was that type of personality. Until I came here and put everything together and discovered that's not really what I am. I like cash and looking back over my spreadsheets with a view to overall allocation I found I was actually a lot more hesitant to go all in than I thought. I think I did pretty good - I didn't update my spreadsheet for a year during 2009, probably didn't even crack open my statements. I had a low mortgage but my DH was full on mid-life crisis. Be prepared to weather something like that.

You might look at threads or the wiki regarding receiving a large windfall. That actually seems to be where you are with the stock vesting.

Topic Author
DukaConLitch
Posts: 6
Joined: Fri Jan 10, 2020 10:58 pm

Re: Analysis Paralysis - Help me break it

Post by DukaConLitch » Sat Jan 11, 2020 10:18 am

Thanks for all the replies!

@sycamore - Thanks. I like "Do the next best action." For my next best action........ after my house sells, I will fund 90K in 529s at Fidelity. I have spent hours and hours researching the most optimal 529 strategies and servicers, but I have done nothing. And then when I finally come close to deciding, I run out of time to get my act together on transferring money to Vanguard or Wealthfront or some other fund. So I will just stick with Fidelity. Should be good enough.

@stan1 - Interesting take. I will give this some thought.

@Tamarack
One is you didn’t mention how much you want to reserve as emergency funds?
On emergency fund question, I would like to have 60K to 80K. This is what I had in that cash account before I liquidated my stock options and put the resulting cash in with my emergency fund.
You also were not clear about your desired overall asset allocation, or international allocation. You said you were okay with holding 100% equities in your retirement funds.
I know that I am comfortable being 100% equities in retirement funds, but I waver back and forth between total US market and Total US plus X% in total international.
You also stated a goal of feeling financially secure and you are holding about 42% of your portfolio in cash.
Good questions. You are making me think, which is good. On the 42% portfolio, until a few months ago, I had most of that 42% in the stock of my own company. Glad I'm not in that position now, and I am very uneasy about holding that much cash. I would like to invest it, and am unsure what to do (although I am now sure I will put 90K in 529). You are also making me rethink my definition of financially secure. Here is my new shot at definition there. To feel financially secure, I want:
  • Have a big chunk of money in tax-advantage retirement accounts invested in 100% equities, and keep maxing those out.
  • Be close to having kids college tuition covered. I would feel "covered" by taking current amount of 4-years in-state college tuition for two kids and putting into a 2040 target fund.
  • Zero-debt or close to it (in case I lose my job). So I am there on getting rid of student loans and car loans. My next housing decision will be key.
    After my house sells, I will fund 529s with 90K. I will set aside 80K for emergency fund. That leaves me with 300K. That is not enough to buy a house I want. So either I will have to live with mortgage (with goal to pay off very early using future income) or find a way to change my housing preferences.
  • Have emergency fund for 1 year of expenses. I thnk 80K would cover it. Backup emergency fund (if things go really bad) would be 529 contributions and then Roth contributions. My understanding is that I could withdraw contributions (not earnings) penalty-free.
I wonder if some of your resistance to investing any of the cash is because you haven’t explicitly worked through what you want/need to hold for emergency funds and what overall AA will allow you to sleep at night and stay the course?
I think you are right. Some of your questions above and my answers are helping me get closer to this state you mention of sleeping at night.

Topic Author
DukaConLitch
Posts: 6
Joined: Fri Jan 10, 2020 10:58 pm

Re: Analysis Paralysis - Help me break it

Post by DukaConLitch » Sat Jan 11, 2020 10:56 am

Jablean wrote:
Sat Jan 11, 2020 9:57 am
What have you done regarding life insurance?
I have about 750K in term through work. It costs me on the paycheck, but I feel good knowing I have it. Good question.
Jablean wrote:
Sat Jan 11, 2020 9:57 am
I had a low mortgage but my DH was full on mid-life crisis. Be prepared to weather something like that.
I think I am perhaps the one in mid-life crisis? :-). As in, I am considering such things as throwing away a high-paying job in the name of work-life balance. But, I'm telling myself I can't do it until December. Gives me a cool-off period and allows me to collect bonus and more stock. I am hoping that having a low-mortgage can help make that more attainable?

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Watty
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Re: Analysis Paralysis - Help me break it

Post by Watty » Sat Jan 11, 2020 11:50 am

There is a lot of unknown information like;

1) What are your federal and state tax brackets?

2) What does housing cost in your area?

3) If you are in a high cost of living area then are you open to moving to a lower cost area?

DukaConLitch wrote:
Sat Jan 11, 2020 12:07 am
I want to feel financially secure with little debt. This is important to us. I would like to have a very low mortgage or none. I know this is probably silly in today’s market of low interest mortgages, but I’ve lived with a big mortgage and big student loans for last 10 years, and I couldn’t stand it.
Not silly at all, especially since it sounds like your wife is not working outside the home now.

A huge amount of your income also comes from stock and bonuses and those could dry up even if you have a secure job.

The last time I looked it up about a third of homes are owned without a mortgage or even a home equity loan so it is not like you would be a freak if you had a paid off house. Most people with a paid off house just don't talk about it much because it can make other people feel awkward.

You are not quite middle age yet but at 37 you are at the point where if you took out a new 30 year mortgage it would not be paid off until you are 67 and getting medicare. Some senior discounts start at 55 and that will be an eye opener the first time you get one of those and that is not too far away.

In probably 80% of the country you can buy a McMansion for $400K and you could pay cash for that. If you can find your next job in a few years in an area with a reasonable cost of living you could be really secure financially.

One huge advantage of living in a lower cost of living area is that when your kids grow up they may be able to afford to live near you. I live in a moderate cost of living area and my adult son is doing well in his career and he was easily able to afford to buy a nice home about ten minutes from us which is nice since it also means that we frequently get to see our grandkids. I have lived in areas where it can be difficult for people in their 20s to even afford an apartment, much less a house.

Moving from a high cost of living area to a low to medium cost of living area was one of the best decisions that I ever made.
DukaConLitch wrote:
Sat Jan 11, 2020 12:07 am
I am okay with 100% equities in retirement funds for next 7-10 years.
That is a very bad idea and you likely know it.

The market is at an all time high after a record bull market and you are looking at cutting back in a year or so. In addition next year's stock option is also risky so depending on how your count that your risk is more like you have over 100% in stocks since if the market drops your investments will go done and your future compensation will also go down.

Have at least 15 to 20 percent in bond in your retirement accounts.

Just in case it was not clear a lot of your money is not really retirement money it is money to buy a house some day or for the kids college so that would be invested with a much more conservative asset allocation.

Your house money should be invested in something like a high interest savings account or CDs that have a low cost to access the money early.

Topic Author
DukaConLitch
Posts: 6
Joined: Fri Jan 10, 2020 10:58 pm

Re: Analysis Paralysis - Help me break it

Post by DukaConLitch » Sat Jan 11, 2020 12:08 pm

Watty wrote:
Sat Jan 11, 2020 11:50 am
There is a lot of unknown information like;
1) What are your federal and state tax brackets?
2) What does housing cost in your area?
3) If you are in a high cost of living area then are you open to moving to a lower cost area?
1. 32% fed. State 6%
2. $350K to $450K for one we want in area we now live in.
3. Just moved from high-cost to low-cost. Currently renting.
Watty wrote:
Sat Jan 11, 2020 11:50 am
A huge amount of your income also comes from stock and bonuses and those could dry up even if you have a secure job.
Yup, understood. Starting in 2021, I would like to be flexible enough to be comfortable making 150K/year total. I think with a good start on retirement and college, and having most of debt wiped out, we could be okay.
Watty wrote:
Sat Jan 11, 2020 11:50 am
Have at least 15 to 20 percent in bond in your retirement accounts.
Got it. Even if I don't plan on retiring until 65?
Watty wrote:
Sat Jan 11, 2020 11:50 am
Just in case it was not clear a lot of your money is not really retirement money it is money to buy a house some day or for the kids college so that would be invested with a much more conservative asset allocation.
I'm confused by your statement, but perhaps I wasn't clear enough in earlier posts. I'm only considering $630K as retirement money. I don't plan to spend any of that on a house or college....... I replied to another post with my plan for what I have in cash now. (80K emergency, 90K to the 529, rest to spend on house)
Watty wrote:
Sat Jan 11, 2020 11:50 am
Your house money should be invested in something like a high interest savings account or CDs that have a low cost to access the money early.
Got it. I have most of it in something called FCASH now, which earns about 0.82%. Fidelity recommends that I move it into SPAXX or FZFXX. You think that is a good idea?

Tamarack
Posts: 12
Joined: Sun Nov 17, 2019 3:09 pm

Re: Analysis Paralysis - Help me break it

Post by Tamarack » Sat Jan 11, 2020 1:08 pm

DukaConLitch,
You’re doing great! Consider editing your original post with the information you have provided in replies, in this format: http://www.bogleheads.org/forum/viewtop ... f=1&t=6212

You’ve posted a couple of times about wanting to keep your taxes advantaged accounts at 100% equities. I can understand that thinking. However, as you are evaluating your desired asset allocation, read this wiki page on tax-efficient fund placement: https://www.bogleheads.org/wiki/Tax-eff ... _placement It is better to think about your portfolio for long-term investing as a whole across your retirement and taxable accounts. Hypothetically, if you need to sell equities in your taxable account and it is not a good time to sell equities, one: there is an opportunity for tax loss harvesting and two: you could then simply exchange the same amount of bonds/ fixed income for equities in your retirement accounts so that the overall net result is that you have sold fixed income instead of equities. But be careful to avoid generating a wash sale.

Also, in case this factors into your sense of financial security, are you aware that there are ways to access your retirement funds before age 59.5 if you really need to? This isn’t an endorsement, but I am projecting that you might be leaning towards putting fixed income in your taxable account when you could be/ should be using your pre-tax space for that.
https://www.bogleheads.org/wiki/Early_retirement
https://www.madfientist.com/how-to-acce ... nds-early/

Topic Author
DukaConLitch
Posts: 6
Joined: Fri Jan 10, 2020 10:58 pm

Re: Analysis Paralysis - Help me break it

Post by DukaConLitch » Sat Jan 11, 2020 1:20 pm

Thanks Tamarack. I will read info you provided and try to edit original post when I get back near a computer.

User avatar
Watty
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Re: Analysis Paralysis - Help me break it

Post by Watty » Sat Jan 11, 2020 1:20 pm

DukaConLitch wrote:
Sat Jan 11, 2020 12:08 pm
Watty wrote: ↑Sat Jan 11, 2020 11:50 am
There is a lot of unknown information like;
1) What are your federal and state tax brackets?
2) What does housing cost in your area?
3) If you are in a high cost of living area then are you open to moving to a lower cost area?
1. 32% fed. State 6%
2. $350K to $450K for one we want in area we now live in.
3. Just moved from high-cost to low-cost. Currently renting.
Sounds ideal for paying cash for a house once you figure out where your next job will be.

The 6% state tax and home prices are about what it is here in Georgia. If you are in Georgia be sure to understand the Georgia HOPE scholarship and the Retirement income exclusion.
DukaConLitch wrote:
Sat Jan 11, 2020 12:08 pm
Watty wrote: ↑Sat Jan 11, 2020 11:50 am
Have at least 15 to 20 percent in bond in your retirement accounts.
Got it. Even if I don't plan on retiring until 65?
With a paid off house, your current retirement savings, and modest future retirement savings you should be able to retire long before that.

Your youngest kid should be finished with college in about 20 years which would be 2040. You would be 57 and getting your youngest kid through college could be a logical age to choose to retire if you are able to.

For comparison the Vanguard 2040 fund is about 17% bonds and 83% stocks.

https://investor.vanguard.com/mutual-fu ... olio/vforx

20% may have been a bit conservative you will sometimes see the recommendation to never go below 20% in bonds.

There is no magic "right number" but 100% stocks is too much and you do not have any clear reason to be super aggressive.

Just speculating but you mentioned some sort of executive deferred compensation plan. I never worked at that level but many executives have a "type A" personality which serves them well in their day job but can be an issue when setting up their investing plans if that makes them too aggressive so be sure to watch out for that.

Also make sure that your spouse is on board with investing in a way that is different than what a textbook target date fund would use. In the 2008 stock market crash a lot of investors found out that their spouses did not realize the risks that were being taken and that caused more than one divorce.

In fact since all your retirement money is in tax advantaged accounts using a target date fund could be a good idea. The main reasons not to use them are if you do not have a good low cost one in your 401k or if you have a lot of retirement money in taxable accounts so that you need to worry about the tax efficiency.
DukaConLitch wrote:
Sat Jan 11, 2020 12:08 pm
I'm confused by your statement, but perhaps I wasn't clear enough in earlier posts. I'm only considering $630K as retirement money. I don't plan to spend any of that on a house or college....... I replied to another post with my plan for what I have in cash now. (80K emergency, 90K to the 529, rest to spend on house)
That is what I intended to say.
DukaConLitch wrote:
Sat Jan 11, 2020 12:08 pm
Watty wrote: ↑Sat Jan 11, 2020 11:50 am
Your house money should be invested in something like a high interest savings account or CDs that have a low cost to access the money early.
Got it. I have most of it in something called FCASH now, which earns about 0.82%. Fidelity recommends that I move it into SPAXX or FZFXX. You think that is a good idea?
I did not look up those ticker symbols but you can easily find FDIC insured savings accounts that pay between 1.5 and 2 percent.

Jablean
Posts: 442
Joined: Sat Jun 02, 2018 2:38 pm

Re: Analysis Paralysis - Help me break it

Post by Jablean » Sat Jan 11, 2020 1:57 pm

Yes to changing your Fidelity cash over to the new accounts as suggested. Either works perfectly fine and their percentages are really close. I haven't seen the FCash lately so maybe you've had it for several years? Anyway to change over just look at your balances, expand the cash one and you should have a button to change your core position.

On your house - you have $300,000 cash and purchasing a max $500,000 home with another bonus coming next December that ought to pay it off completely. As far as life insurance, I'd look at getting your own term life, 20 year policy at 250 or 500k, and get it plugged in now before you get things like diabetes which raises your rates. Every year you wait tends to raise those costs.

Topic Author
DukaConLitch
Posts: 6
Joined: Fri Jan 10, 2020 10:58 pm

Re: Analysis Paralysis - Help me break it

Post by DukaConLitch » Mon Jan 13, 2020 11:55 am

Hi all. Thanks again for the help. My first problem was analysis paralysis, and this thread has already helped me out of it. I ended up opening a 529 for each kid (two), using age-based index fund target funds. 45K a piece. I decided to do it all at once for simplicity. It looks like I will have to work with the CPA on filing a form to spread this out over multiple years for gift-tax purposes. I thought about stairstepping it so I could get max state-income tax relief each year, but I then sensed myself heading into an analysis paralysis trap ending with no action, so I went for it. I used Fidelity's NH 529 plan.
Tamarack wrote:
Sat Jan 11, 2020 1:08 pm
... read this wiki page on tax-efficient fund placement: https://www.bogleheads.org/wiki/Tax-eff ... _placement It is better to think about your portfolio for long-term investing as a whole across your retirement and taxable accounts. Hypothetically, if you need to sell equities in your taxable account and it is not a good time to sell equities, one: there is an opportunity for tax loss harvesting and two: you could then simply exchange the same amount of bonds/ fixed income for equities in your retirement accounts so that the overall net result is that you have sold fixed income instead of equities. But be careful to avoid generating a wash sale.
Wow. I am embarrassed for not being aware that I should think like this. Your comment and the wiki made a lightbulb go off for me. Now I still need to think more about what my desired asset allocation is. I will do some thinking. I may start a new post later this week (with better formatting per your request), asking for some advice on this area.
Watty wrote:
Sat Jan 11, 2020 1:20 pm
The 6% state tax and home prices are about what it is here in Georgia. If you are in Georgia be sure to understand the Georgia HOPE scholarship and the Retirement income exclusion.
Close! I'm in KS. After further research, looks like I can pick any 529 plan at still get in-state tax benefit. I ended on picking the NH option since I want to stay with Fidelity.
Watty wrote:
Sat Jan 11, 2020 1:20 pm
Just speculating but you mentioned some sort of executive deferred compensation plan. I never worked at that level but many executives have a "type A" personality which serves them well in their day job but can be an issue when setting up their investing plans if that makes them too aggressive so be sure to watch out for that.
Ha! This is a great point. I am probably 60% type A. I say only 60% because I am open to advice. :-)
Watty wrote:
Sat Jan 11, 2020 1:20 pm
In fact since all your retirement money is in tax advantaged accounts using a target date fund could be a good idea. The main reasons not to use them are if you do not have a good low cost one in your 401k or if you have a lot of retirement money in taxable accounts so that you need to worry about the tax efficiency.
Thanks. I will consider this.
Jablean wrote:
Sat Jan 11, 2020 1:57 pm
Yes to changing your Fidelity cash over to the new accounts as suggested. Either works perfectly fine and their percentages are really close. I haven't seen the FCash lately so maybe you've had it for several years? Anyway to change over just look at your balances, expand the cash one and you should have a button to change your core position.

On your house - you have $300,000 cash and purchasing a max $500,000 home with another bonus coming next December that ought to pay it off completely. As far as life insurance, I'd look at getting your own term life, 20 year policy at 250 or 500k, and get it plugged in now before you get things like diabetes which raises your rates. Every year you wait tends to raise those costs.
Changed all my core positions to FZFXX possible and SPAXX where it wouldn't let me choose FZFXX. Good call on life insurance.

Thanks again all. I will try to clean up some things, think a few things over and may post again later this week or next asking for advice on a few more next steps (namely, asset allocation).

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