The boring accumulation phase with an average salary

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Topic Author
Turk_February
Posts: 10
Joined: Sat Jul 04, 2020 11:06 am

The boring accumulation phase with an average salary

Post by Turk_February »

Greetings everyone, brand new account after lurking for a few months. Figured I'd give this a shot to see what I could possibly do differently with my situation. Apologies for any formatting issues as I'm new.

Emergency funds: One month expenses (~$5000) in checking, 4 months in a HYSA

Debt: $170,000 mortgage @ 3.00% just refinanced. Home value $255,000, payoff July 2050

Tax Filing Status: MFJ with a young child

Tax Rate: 12% Federal, 3% State

State of Residence: Pennsylvania

Age: Early 40s

Desired Asset allocation: 85% stocks / 15% bonds (too risky with 15-20 years left working?)
Desired International allocation: 30% of stocks (too high?)

Current Portfolio: $415,000

Current retirement assets

My 401k
4.7% Vanguard Institutional Index Instl (VINIX) (ER 0.04%)
Company match? Normally 50% on the first 8%, due to COVID was lowered to 50% on first 2% for the rest of 2020

My tIRA at Vanguard
4.9% Vanguard Total Bond Market Index Fund (VBTLX) (ER 0.05%)
10.4% Vanguard Total International Stock Index (VTIAX) (ER 0.11%)
18.7% Vanguard Total Stock Market Index Fund (VTSAX) (ER 0.04%)

My Roth IRA at Vanguard
3.3% Vanguard Total Bond Market Index Fund (VBTLX) (ER 0.05%)
7.0% Vanguard Total International Stock Index (VTIAX) (ER 0.11%)
11.0% Vanguard Total Stock Market Index Fund (VTSAX) (ER 0.04%)

My HSA
0.5% $2,000 Cash account needed to invest any additional funds
2.7% VANGUARD 500 INDEX ADMIRAL (VFIAX) (ER 0.04%)
0.8% VANGUARD TTL INTL STK IND ADM (VTIAX) (ER 0.11%)
1.7% VANGUARD TTL BND MRKT IDX ADM (VBTLX) (ER 0.05%)

Spouse 403b
2.5% Mutual of America 2045 Target Date fund (ER 1.69%, one of the lowest they offer)
Company match? 50% of the first 3%. Due to the outrageous expense ratios, we only contribute enough to get the full match.

Spouse tIRA at Vanguard
5.0% Vanguard Total Bond Market Index Fund (VBTLX) (ER 0.05%)
10.3% Vanguard Total International Stock Index (VTIAX) (ER 0.11%)
16.5% Vanguard Total Stock Market Index Fund (VTSAX) (ER 0.04%)
_______________________________________________________________

Contributions

New annual Contributions
$5,000 his 401k + $2,000 normal match (lowered to $500 in 2020 due to COVID)
$1,500 her 403b + $750 match
$6,000 his tIRA
$6,000 her tIRA
$5,900 his HSA + $1,100 company auto match
$1,200 + $200 Employer match into a 529 Plan which I don't consider part of my retirement income/portfolio at all (~$11,000 balance)

Some additional background information
Spouse and I are both make very similar (~$50,000) salaries. I work for a 401k/HSA provider which allows for very low-cost investment options. Spouse works for a non-profit and their 403b plan is awful, but we still contribute 3% to get the full match.


Questions:
1. We just closed on our refinance, which lowered our payments ~$200/month. I'd like retire in about 15 years if possible, but I'm not super keen on pulling the plug with 15 more years of payments. However, chances of market outperforming 3% in the next 15 years is pretty good. We have about $500/month extra that we could either:
  • Put towards principal to pay off mortgage in 14 years
  • Add to my 401k contributions
  • Bump HYSA up to 6+ months
  • Something else?
2. Should I switch over any future contributions (401k or IRA) to Roth? I was reading about the Roth conversion ladder and it's something I think we could do from our late 50s to early 60s until we start pulling SS. I believe about $40k of the current assets in my Roth IRA are contributions that I could pull out. If I switch to Roth contributions now, that would give us more we could pull to live on while converting our traditional accounts. Is that correct?

3. Chances of us retiring in 15 years with our current assets and contributions?

4. Regarding asset allocation, is 85/15 too risky for someone with a 15-20 horizon? Is 30% international too high? I know you're not supposed to chase past performance, but I hate the returns we've gotten from VTIAX in the past 10 years compared to VTSAX.

Thanks in advance for any insight!
Last edited by Turk_February on Sat Jul 04, 2020 10:21 pm, edited 1 time in total.
User avatar
CAsage
Posts: 1866
Joined: Sun Mar 27, 2016 6:25 pm

Re: The boring accumulation phase with an average salary

Post by CAsage »

Recalculate your mortgage payment and pretend that you have a 15~20 year loan; make that payment (helps ensure retirement). At your tax bracket, consider maximizing your Roth accounts first, and put into your 401K only what gets matched. More 401k is ok, but I would look into converting any of the T-IRA into Roth accounts over time because of your tax bracket. Read the Wiki here on efficient fund placement - Roth should be only stock, 401k should hold all your bonds. You could hold a little less in International stock, there are ranges which are good enough. And your "timeline" is really more like your lifespan - one doesn't cash out at retirement!
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
02nz
Posts: 5562
Joined: Wed Feb 21, 2018 3:17 pm

Re: The boring accumulation phase with an average salary

Post by 02nz »

1. Depending on job security, you could do a mix of increasing the emergency fund and upping 401k contributions. You could also put some toward extra toward the mortgage. The earlier you anticipate retiring, the bigger of a tax-deferred (traditional) portfolio you would need/want.

2. Once you leave an employer and transfer its Roth 401k to a Roth IRA, the contributions can be withdrawn at any time without penalty, provided you had a Roth IRA (any Roth IRA!) open at least 5 years. In your situation, I would probably NOT switch 401k contributions to Roth, but rather consider switching some or all IRA contributions from traditional to Roth.

3. Assuming continued $25K/year in contributions and 4% real returns, you'll have about $1.2 M (in today's dollars) in 15 years. Whether that's enough depends a lot on your expenses.

4. If you are aiming to retire in 15 years, I'd say 85/15 is probably too aggressive; I'd be more comfortable at around 70/30, but there's no one right or wrong answer here. Same with international; I think 30% is appropriate and would caution against chasing performance and recency bias.

Two other thoughts:

- Your wife's 403b is ouch, I agree on only contributing enough to get the match. But it's bad enough that you should consider advocating for a better plan (https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan)

- You have bonds placed in a Roth IRA, which is probably not optimal. Generally you should have the investments with highest expected returns, i.e. stock funds, in Roth accounts. See https://www.bogleheads.org/wiki/Tax-eff ... _placement
02nz
Posts: 5562
Joined: Wed Feb 21, 2018 3:17 pm

Re: The boring accumulation phase with an average salary

Post by 02nz »

CAsage wrote: Sat Jul 04, 2020 4:26 pm Recalculate your mortgage payment and pretend that you have a 15~20 year loan; make that payment (helps ensure retirement).
Or just refinance to a 15-year. Look for a no-cost refinance where a lender credit covers the closing costs, in exchange for a slightly higher rate. If rates fall again, just refinance again.
CAsage wrote: Sat Jul 04, 2020 4:26 pm I would look into converting any of the T-IRA into Roth accounts over time because of your tax bracket.
I doubt this makes sense while both OP and spouse are working. OP's income is around $100K, just a few grand short of the 22% bracket. If one or both retire early or income decreases, then filling up the 12% bracket with Roth conversions can make sense.
Money_Badger
Posts: 42
Joined: Thu Jul 02, 2020 11:05 pm
Location: Raleigh NC

Re: The boring accumulation phase with an average salary

Post by Money_Badger »

Turk_February wrote: Sat Jul 04, 2020 4:06 pm Greetings everyone, brand new account after lurking for a few months. Figured I'd give this a shot to see what I could possibly do differently with my situation. Apologies for any formatting issues as I'm new.

Emergency funds: One month expenses (~$5000) in checking, 4 months in a HYSA

Debt: $170,000 mortgage @ 3.00% just refinanced. Home value $255,000, payoff July 2050

Tax Filing Status: MFJ with a young child

Tax Rate: 12% Federal, 3% State

State of Residence: Pennsylvania

Age: Early 40s

Desired Asset allocation: 85% stocks / 15% bonds (too risky with 15-20 years left working?)
Desired International allocation: 30% of stocks (too high?)

Current Portfolio: $415,000

Current retirement assets

My 401k
4.7% Vanguard Institutional Index Instl (VINIX) (ER 0.04%)
Company match? Normally 50% on the first 8%, due to COVID was lowered to 50% on first 2% for the rest of 2020

My tIRA at Vanguard
4.9% Vanguard Total Bond Market Index Fund (VBTLX) (ER 0.05%)
10.4% Vanguard Total International Stock Index (VTIAX) (ER 0.11%)
18.7% Vanguard Total Stock Market Index Fund (VTSAX) (ER 0.04%)

My Roth IRA at Vanguard
3.3% Vanguard Total Bond Market Index Fund (VBTLX) (ER 0.05%)
7.0% Vanguard Total International Stock Index (VTIAX) (ER 0.11%)
11.0% Vanguard Total Stock Market Index Fund (VTSAX) (ER 0.04%)

My HSA
0.5% $2,000 Cash account needed to invest any additional funds
2.7% VANGUARD 500 INDEX ADMIRAL (VFIAX) (ER 0.04%)
0.8% VANGUARD TTL INTL STK IND ADM (VTIAX) (ER 0.11%)
1.7% VANGUARD TTL BND MRKT IDX ADM (VBTLX) (ER 0.05%)

Spouse 403b
2.5% Mutual of America 2045 Target Date fund (ER 1.69%, one of the lowest they offer)
Company match? 50% of the first 3%. Due to the outrageous expense ratios, we only contribute enough to get the full match.

Spouse tIRA at Vanguard
5.0% Vanguard Total Bond Market Index Fund (VBTLX) (ER 0.05%)
10.3% Vanguard Total International Stock Index (VTIAX) (ER 0.11%)
16.5% Vanguard Total Stock Market Index Fund (VTSAX) (ER 0.04%)
_______________________________________________________________

Contributions

New annual Contributions
$5,000 his 401k + $2,000 normal match (lowered to $500 in 2020 due to COVID)
$1,500 her 403b + $750 match
$6,000 his tIRA
$6,000 her tIRA
$5,900 his HSA + $1,100 company auto match

Some additional background information
Spouse and I are both make very similar (~$50,000) salaries. I work for a 401k/HSA provider which allows for very low-cost investment options. Spouse works for a non-profit and their 403b plan is awful, but we still contribute 3% to get the full match.


Questions:
1. We just closed on our refinance, which lowered our payments ~$200/month. I'd like retire in about 15 years if possible, but I'm not super keen on pulling the plug with 15 more years of payments. However, chances of market outperforming 3% in the next 15 years is pretty good. We have about $500/month extra that we could either:
  • Put towards principal to pay off mortgage in 14 years
  • Add to my 401k contributions
  • Bump HYSA up to 6+ months
  • Something else?
2. Should I switch over any future contributions (401k or IRA) to Roth? I was reading about the Roth conversion ladder and it's something I think we could do from our late 50s to early 60s until we start pulling SS. I believe about $40k of the current assets in my Roth IRA are contributions that I could pull out. If I switch to Roth contributions now, that would give us more we could pull to live on while converting our traditional accounts. Is that correct?

3. Chances of us retiring in 15 years with our current assets and contributions?

4. Regarding asset allocation, is 85/15 too risky for someone with a 15-20 horizon? Is 30% international too high? I know you're not supposed to chase past performance, but I hate the returns we've gotten from VTIAX in the past 10 years compared to VTSAX.

Thanks in advance for any insight!
Not much to add, I`m a newbie here; but I just wanted to say kudos to you. Your situation is very similar to mine, except I'm a bit older and have a slightly higher income (which kinda goes hand I hand). Still, you have a little more money socked away and are able to save more yearly. Our time frames are similar yet you will be much younger.

It`s a slog but you are killing it!
User avatar
White Coat Investor
Posts: 14848
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: The boring accumulation phase with an average salary

Post by White Coat Investor »

Turk_February wrote: Sat Jul 04, 2020 4:06 pm Greetings everyone, brand new account after lurking for a few months. Figured I'd give this a shot to see what I could possibly do differently with my situation. Apologies for any formatting issues as I'm new.

Emergency funds: One month expenses (~$5000) in checking, 4 months in a HYSA

Debt: $170,000 mortgage @ 3.00% just refinanced. Home value $255,000, payoff July 2050

Tax Filing Status: MFJ with a young child

Tax Rate: 12% Federal, 3% State

State of Residence: Pennsylvania

Age: Early 40s

Desired Asset allocation: 85% stocks / 15% bonds (too risky with 15-20 years left working?)
Desired International allocation: 30% of stocks (too high?)

Current Portfolio: $415,000

Current retirement assets

My 401k
4.7% Vanguard Institutional Index Instl (VINIX) (ER 0.04%)
Company match? Normally 50% on the first 8%, due to COVID was lowered to 50% on first 2% for the rest of 2020

My tIRA at Vanguard
4.9% Vanguard Total Bond Market Index Fund (VBTLX) (ER 0.05%)
10.4% Vanguard Total International Stock Index (VTIAX) (ER 0.11%)
18.7% Vanguard Total Stock Market Index Fund (VTSAX) (ER 0.04%)

My Roth IRA at Vanguard
3.3% Vanguard Total Bond Market Index Fund (VBTLX) (ER 0.05%)
7.0% Vanguard Total International Stock Index (VTIAX) (ER 0.11%)
11.0% Vanguard Total Stock Market Index Fund (VTSAX) (ER 0.04%)

My HSA
0.5% $2,000 Cash account needed to invest any additional funds
2.7% VANGUARD 500 INDEX ADMIRAL (VFIAX) (ER 0.04%)
0.8% VANGUARD TTL INTL STK IND ADM (VTIAX) (ER 0.11%)
1.7% VANGUARD TTL BND MRKT IDX ADM (VBTLX) (ER 0.05%)

Spouse 403b
2.5% Mutual of America 2045 Target Date fund (ER 1.69%, one of the lowest they offer)
Company match? 50% of the first 3%. Due to the outrageous expense ratios, we only contribute enough to get the full match.

Spouse tIRA at Vanguard
5.0% Vanguard Total Bond Market Index Fund (VBTLX) (ER 0.05%)
10.3% Vanguard Total International Stock Index (VTIAX) (ER 0.11%)
16.5% Vanguard Total Stock Market Index Fund (VTSAX) (ER 0.04%)
_______________________________________________________________

Contributions

New annual Contributions
$5,000 his 401k + $2,000 normal match (lowered to $500 in 2020 due to COVID)
$1,500 her 403b + $750 match
$6,000 his tIRA
$6,000 her tIRA
$5,900 his HSA + $1,100 company auto match

Some additional background information
Spouse and I are both make very similar (~$50,000) salaries. I work for a 401k/HSA provider which allows for very low-cost investment options. Spouse works for a non-profit and their 403b plan is awful, but we still contribute 3% to get the full match.


Questions:
1. We just closed on our refinance, which lowered our payments ~$200/month. I'd like retire in about 15 years if possible, but I'm not super keen on pulling the plug with 15 more years of payments. However, chances of market outperforming 3% in the next 15 years is pretty good. We have about $500/month extra that we could either:
  • Put towards principal to pay off mortgage in 14 years
  • Add to my 401k contributions
  • Bump HYSA up to 6+ months
  • Something else?
2. Should I switch over any future contributions (401k or IRA) to Roth? I was reading about the Roth conversion ladder and it's something I think we could do from our late 50s to early 60s until we start pulling SS. I believe about $40k of the current assets in my Roth IRA are contributions that I could pull out. If I switch to Roth contributions now, that would give us more we could pull to live on while converting our traditional accounts. Is that correct?

3. Chances of us retiring in 15 years with our current assets and contributions?

4. Regarding asset allocation, is 85/15 too risky for someone with a 15-20 horizon? Is 30% international too high? I know you're not supposed to chase past performance, but I hate the returns we've gotten from VTIAX in the past 10 years compared to VTSAX.

Thanks in advance for any insight!
This is the boring phase. You're doing great obviously. Little tweeks won't help much because you're doing so well already. If you really want to spice it up and/or speed it up, I'd suggest an entrepreneurial venture on the side.

1. I max out my HSA first every year, so if I had extra I'd put it there.
2. You might be a good candidate for Roth contributions now given your relatively low tax bracket
3. Depends on what you spend.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
babystep
Posts: 244
Joined: Tue Apr 09, 2019 9:44 am

Re: The boring accumulation phase with an average salary

Post by babystep »

Turk_February wrote: Sat Jul 04, 2020 4:06 pm Greetings everyone, brand new account after lurking for a few months. Figured I'd give this a shot to see what I could possibly do differently with my situation. Apologies for any formatting issues as I'm new.

Emergency funds: One month expenses (~$5000) in checking, 4 months in a HYSA

Debt: $170,000 mortgage @ 3.00% just refinanced. Home value $255,000, payoff July 2050

Tax Filing Status: MFJ with a young child

Tax Rate: 12% Federal, 3% State

State of Residence: Pennsylvania

Age: Early 40s

Desired Asset allocation: 85% stocks / 15% bonds (too risky with 15-20 years left working?)
Desired International allocation: 30% of stocks (too high?)

Current Portfolio: $415,000

Current retirement assets

My 401k
4.7% Vanguard Institutional Index Instl (VINIX) (ER 0.04%)
Company match? Normally 50% on the first 8%, due to COVID was lowered to 50% on first 2% for the rest of 2020

My tIRA at Vanguard
4.9% Vanguard Total Bond Market Index Fund (VBTLX) (ER 0.05%)
10.4% Vanguard Total International Stock Index (VTIAX) (ER 0.11%)
18.7% Vanguard Total Stock Market Index Fund (VTSAX) (ER 0.04%)

My Roth IRA at Vanguard
3.3% Vanguard Total Bond Market Index Fund (VBTLX) (ER 0.05%)
7.0% Vanguard Total International Stock Index (VTIAX) (ER 0.11%)
11.0% Vanguard Total Stock Market Index Fund (VTSAX) (ER 0.04%)

My HSA
0.5% $2,000 Cash account needed to invest any additional funds
2.7% VANGUARD 500 INDEX ADMIRAL (VFIAX) (ER 0.04%)
0.8% VANGUARD TTL INTL STK IND ADM (VTIAX) (ER 0.11%)
1.7% VANGUARD TTL BND MRKT IDX ADM (VBTLX) (ER 0.05%)

Spouse 403b
2.5% Mutual of America 2045 Target Date fund (ER 1.69%, one of the lowest they offer)
Company match? 50% of the first 3%. Due to the outrageous expense ratios, we only contribute enough to get the full match.

Spouse tIRA at Vanguard
5.0% Vanguard Total Bond Market Index Fund (VBTLX) (ER 0.05%)
10.3% Vanguard Total International Stock Index (VTIAX) (ER 0.11%)
16.5% Vanguard Total Stock Market Index Fund (VTSAX) (ER 0.04%)
_______________________________________________________________

Contributions

New annual Contributions
$5,000 his 401k + $2,000 normal match (lowered to $500 in 2020 due to COVID)
$1,500 her 403b + $750 match
$6,000 his tIRA
$6,000 her tIRA
$5,900 his HSA + $1,100 company auto match

Some additional background information
Spouse and I are both make very similar (~$50,000) salaries. I work for a 401k/HSA provider which allows for very low-cost investment options. Spouse works for a non-profit and their 403b plan is awful, but we still contribute 3% to get the full match.


Questions:
1. We just closed on our refinance, which lowered our payments ~$200/month. I'd like retire in about 15 years if possible, but I'm not super keen on pulling the plug with 15 more years of payments. However, chances of market outperforming 3% in the next 15 years is pretty good. We have about $500/month extra that we could either:
  • Put towards principal to pay off mortgage in 14 years
  • Add to my 401k contributions
  • Bump HYSA up to 6+ months
  • Something else?
2. Should I switch over any future contributions (401k or IRA) to Roth? I was reading about the Roth conversion ladder and it's something I think we could do from our late 50s to early 60s until we start pulling SS. I believe about $40k of the current assets in my Roth IRA are contributions that I could pull out. If I switch to Roth contributions now, that would give us more we could pull to live on while converting our traditional accounts. Is that correct?

3. Chances of us retiring in 15 years with our current assets and contributions?

4. Regarding asset allocation, is 85/15 too risky for someone with a 15-20 horizon? Is 30% international too high? I know you're not supposed to chase past performance, but I hate the returns we've gotten from VTIAX in the past 10 years compared to VTSAX.

Thanks in advance for any insight!

One odd thing with 401k is that it converts qualified dividends into earned income to be withdrawn later. You are in a unique tax bracket that long-term capital gains tax rate is zero percent for you rather than 15% or 20% for others.

If MFJ income is greater than 78k then 15% capital gains tax rate applies but you have about:

100k-5k-1.5k-6k-6k-24.8k=57k

I would suggest using that $500 per month to buy high yield dividend ETF in a taxable account and enjoy about 3.5% dividends tax-free.
https://investor.vanguard.com/etf/profile/overview/vym

You have about 21k of extra margin before you reach the 15% long-term capital gains tax rate. I think this is better than increasing the HYSA or paying extra for the mortgage at 3%.
Topic Author
Turk_February
Posts: 10
Joined: Sat Jul 04, 2020 11:06 am

Re: The boring accumulation phase with an average salary

Post by Turk_February »

CAsage wrote: Sat Jul 04, 2020 4:26 pm At your tax bracket, consider maximizing your Roth accounts first, and put into your 401K only what gets matched.....Read the Wiki here on efficient fund placement - Roth should be only stock, 401k should hold all your bonds. You could hold a little less in International stock, there are ranges which are good enough
Great points! I will probably switch both of our future IRA contributions over to Roth (with only stocks), and leave bonds in the traditional portion, while keeping the correct asset allocation across both accounts.

02nz wrote: Sat Jul 04, 2020 4:33 pm 2. Once you leave an employer and transfer its Roth 401k to a Roth IRA, the contributions can be withdrawn at any time without penalty, provided you had a Roth IRA (any Roth IRA!) open at least 5 years. In your situation, I would probably NOT switch 401k contributions to Roth, but rather consider switching some or all IRA contributions from traditional to Roth.

Two other thoughts:

- Your wife's 403b is ouch, I agree on only contributing enough to get the match. But it's bad enough that you should consider advocating for a better plan (https://www.bogleheads.org/wiki/How_to_ ... 01(k)_plan)

- You have bonds placed in a Roth IRA, which is probably not optimal. Generally you should have the investments with highest expected returns, i.e. stock funds, in Roth accounts. See https://www.bogleheads.org/wiki/Tax-eff ... _placement
Regarding #2, I believe that's what I'm going to do, although I'll miss the little tax break from our $12k yearly contributions :)
I will absolutely look into the wife's 403b plan, I didn't even know it was something I could do.
Will absolutely switch my Roth portion over to all stocks, another thing I didn't know.


02nz wrote: Sat Jul 04, 2020 4:37 pm Or just refinance to a 15-year. Look for a no-cost refinance where a lender credit covers the closing costs, in exchange for a slightly higher rate. If rates fall again, just refinance again.
I like the flexibility of the 30-year just in case one of us loses our job. I like to think they're recession-proof but I bet a lot of people think that before they get laid off.


Money_Badger wrote: Sat Jul 04, 2020 5:41 pm Not much to add, I`m a newbie here; but I just wanted to say kudos to you. Your situation is very similar to mine, except I'm a bit older and have a slightly higher income (which kinda goes hand I hand). Still, you have a little more money socked away and are able to save more yearly. Our time frames are similar yet you will be much younger.

It`s a slog but you are killing it!
Thanks, it's tough sometimes reading these boards when it seems everyone makes $800k/year and can't decide whether to pull the trigger with retiring with only $60,000,000 saved.
User avatar
CAsage
Posts: 1866
Joined: Sun Mar 27, 2016 6:25 pm

Re: The boring accumulation phase with an average salary

Post by CAsage »

02nz wrote: Sat Jul 04, 2020 4:37 pm
CAsage wrote: Sat Jul 04, 2020 4:26 pm I would look into converting any of the T-IRA into Roth accounts over time because of your tax bracket.
I doubt this makes sense while both OP and spouse are working. OP's income is around $100K, just a few grand short of the 22% bracket. If one or both retire early or income decreases, then filling up the 12% bracket with Roth conversions can make sense.
With 100K of income, standard deduction of $24,800, less HSA and 401K deductions..... Yes you are right it may not make sense to break into the 22% bracket, but I would not leave a dollar of the 12% bracket empty (which tips at 80,250 for 2020). Even a modest conversion annually will add up over the years.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
Topic Author
Turk_February
Posts: 10
Joined: Sat Jul 04, 2020 11:06 am

Re: The boring accumulation phase with an average salary

Post by Turk_February »

White Coat Investor wrote: Sat Jul 04, 2020 5:44 pm
1. I max out my HSA first every year, so if I had extra I'd put it there.
2. You might be a good candidate for Roth contributions now given your relatively low tax bracket
3. Depends on what you spend.
1. Love the HSA and since my child is under my insurance (wife has her own for pretty cheap but it would cost a lot for either of us to add the other) I can put $7,000 in each year ($5,900 plus my company's free $1,100)

2. I did Roth a long time ago at a previous employer, which is where my current Roth IRA came from. I'll probably switch back to Roth contributions in our IRAs, at least for a while.

3. Monthly spend is around $4,500 now. Biggest question mark is possible healthcare costs in early retirement.



babystep wrote: Sat Jul 04, 2020 6:04 pm One odd thing with 401k is that it converts qualified dividends into earned income to be withdrawn later. You are in a unique tax bracket that long-term capital gains tax rate is zero percent for you rather than 15% or 20% for others.

If MFJ income is greater than 78k then 15% capital gains tax rate applies but you have about:

100k-5k-1.5k-6k-6k-24.8k=57k

I would suggest using that $500 per month to buy high yield dividend ETF in a taxable account and enjoy about 3.5% dividends tax-free.
https://investor.vanguard.com/etf/profile/overview/vym

You have about 21k of extra margin before you reach the 15% long-term capital gains tax rate. I think this is better than increasing the HYSA or paying extra for the mortgage at 3%.
Not sure if it applies, but I contribute to an Dependent Care FSA ($5,000/year) which could push my "income" down to $52k. I'll look into this High Yield Dividend ETF as I've never heard of them. Is it a guaranteed return like TIPS?


Also, does this board have a "multi-quote" feature to easily quote multiple people? I couldn't find it and did it more manually.
Last edited by Turk_February on Sat Jul 04, 2020 6:53 pm, edited 1 time in total.
Topic Author
Turk_February
Posts: 10
Joined: Sat Jul 04, 2020 11:06 am

Re: The boring accumulation phase with an average salary

Post by Turk_February »

CAsage wrote: Sat Jul 04, 2020 6:39 pm
02nz wrote: Sat Jul 04, 2020 4:37 pm
CAsage wrote: Sat Jul 04, 2020 4:26 pm I would look into converting any of the T-IRA into Roth accounts over time because of your tax bracket.
I doubt this makes sense while both OP and spouse are working. OP's income is around $100K, just a few grand short of the 22% bracket. If one or both retire early or income decreases, then filling up the 12% bracket with Roth conversions can make sense.
With 100K of income, standard deduction of $24,800, less HSA and 401K deductions..... Yes you are right it may not make sense to break into the 22% bracket, but I would not leave a dollar of the 12% bracket empty (which tips at 80,250 for 2020). Even a modest conversion annually will add up over the years.

In retirement though, can't you pull up to around $77k of income and pay no taxes? Wouldn't it be better to pay $0 in the future instead of 12% today?
cherijoh
Posts: 6591
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: The boring accumulation phase with an average salary

Post by cherijoh »

Turk_February wrote: Sat Jul 04, 2020 4:06 pm Emergency funds: One month expenses (~$5000) in checking, 4 months in a HYSA <-- I would aim to beef this up a bit

Debt: $170,000 mortgage @ 3.00% just refinanced. Home value $255,000, payoff July 2050

Tax Filing Status: MFJ with a young child

Tax Rate: 12% Federal, 3% State

State of Residence: Pennsylvania

Age: Early 40s

Desired Asset allocation: 85% stocks / 15% bonds (too risky with 15-20 years left working?)
Desired International allocation: 30% of stocks (too high?)

Current Portfolio: $415,000

Current retirement assets

My 401k
4.7% Vanguard Institutional Index Instl (VINIX) (ER 0.04%)
Company match? Normally 50% on the first 8%, due to COVID was lowered to 50% on first 2% for the rest of 2020

My tIRA at Vanguard
4.9% Vanguard Total Bond Market Index Fund (VBTLX) (ER 0.05%)
10.4% Vanguard Total International Stock Index (VTIAX) (ER 0.11%)
18.7% Vanguard Total Stock Market Index Fund (VTSAX) (ER 0.04%)

My Roth IRA at Vanguard
3.3% Vanguard Total Bond Market Index Fund (VBTLX) (ER 0.05%) <-- I would get rid of bonds in Roth and up % bonds in tIRA
7.0% Vanguard Total International Stock Index (VTIAX) (ER 0.11%)
11.0% Vanguard Total Stock Market Index Fund (VTSAX) (ER 0.04%)

My HSA
0.5% $2,000 Cash account needed to invest any additional funds
2.7% VANGUARD 500 INDEX ADMIRAL (VFIAX) (ER 0.04%)
0.8% VANGUARD TTL INTL STK IND ADM (VTIAX) (ER 0.11%)
1.7% VANGUARD TTL BND MRKT IDX ADM (VBTLX) (ER 0.05%)

Spouse 403b
2.5% Mutual of America 2045 Target Date fund (ER 1.69%, one of the lowest they offer) <--- YIKES!
Company match? 50% of the first 3%. Due to the outrageous expense ratios, we only contribute enough to get the full match.

Spouse tIRA at Vanguard
5.0% Vanguard Total Bond Market Index Fund (VBTLX) (ER 0.05%)
10.3% Vanguard Total International Stock Index (VTIAX) (ER 0.11%)
16.5% Vanguard Total Stock Market Index Fund (VTSAX) (ER 0.04%)
_______________________________________________________________

Contributions

New annual Contributions
$5,000 his 401k + $2,000 normal match (lowered to $500 in 2020 due to COVID)
$1,500 her 403b + $750 match
$6,000 his tIRA
$6,000 her tIRA
$5,900 his HSA + $1,100 company auto match

Some additional background information
Spouse and I are both make very similar (~$50,000) salaries. I work for a 401k/HSA provider which allows for very low-cost investment options. Spouse works for a non-profit and their 403b plan is awful, but we still contribute 3% to get the full match.


Questions:
1. We just closed on our refinance, which lowered our payments ~$200/month. I'd like retire in about 15 years if possible, but I'm not super keen on pulling the plug with 15 more years of payments. However, chances of market outperforming 3% in the next 15 years is pretty good. We have about $500/month extra that we could either:
  • Put towards principal to pay off mortgage in 14 years <-- I'm not keen on making extra mortgage payments while leaving tax-advantaged space on the table
  • Add to my 401k contributions <-- I'd split the extra cash flow between HYSA and 401k
  • Bump HYSA up to 6+ months
  • Something else?
2. Should I switch over any future contributions (401k or IRA) to Roth? I was reading about the Roth conversion ladder and it's something I think we could do from our late 50s to early 60s until we start pulling SS. I believe about $40k of the current assets in my Roth IRA are contributions that I could pull out. If I switch to Roth contributions now, that would give us more we could pull to live on while converting our traditional accounts. Is that correct? <-- I would consider current Roth contributions to the extent that switching from traditional to Roth didn't push you into a higher tax bracket. It is quite a jump from 12% to 22%. If you do take this approach then I would wait to top up my IRA until I was getting ready to file taxes. This means doing it as a Roth IRA since 401k contributions are made in the calendar year by payroll withholding.

3. Chances of us retiring in 15 years with our current assets and contributions? <-- I certainly wouldn't rule it out, but I also wouldn't say it is a slam dunk with the mortgage and a child in the picture. Would you be 59.5 at retirement? There is an exception for the 10% early withdrawal penalty from your workplace plan if you retire at 55 or older. However, every workplace plan has different withdrawal scenarios. If your choices are limited, they may negate the age 55 exception. Don't wait until you have put in your retirement papers to find out how flexible your plan is!

My last employer before retirement didn't consider you retired unless you had at least 10 years of service and your age + years of service were at least 60. I left before I hit the 10 year mark, so I was not offered any options for my 401k except leave in place, roll the entire balance over to an IRA (and lose the penalty exception) or withdraw the entire balance (and have a huge tax bill plus lose tax deferral). This wasn't an issue for me though since I had taxable investment accounts. I've been retired 2 years and still haven't touched my 401k and have only taken distributions from my IRA to do Roth conversions (which don't incur the 10% penalty).


4. Regarding asset allocation, is 85/15 too risky for someone with a 15-20 horizon? Is 30% international too high? I know you're not supposed to chase past performance, but I hate the returns we've gotten from VTIAX in the past 10 years compared to VTSAX. <-- It sounds a little agressive to me, but I tend to be conservative. What ever you do, don't decide that you will wait until the last minute and go from 85/15 to 60/40 or you may find yourself underfunded for retirement

Thanks in advance for any insight!
whereskyle
Posts: 1265
Joined: Wed Jan 29, 2020 10:29 am

Re: The boring accumulation phase with an average salary

Post by whereskyle »

Turk_February wrote: Sat Jul 04, 2020 4:06 pm Greetings everyone, brand new account after lurking for a few months. Figured I'd give this a shot to see what I could possibly do differently with my situation. Apologies for any formatting issues as I'm new.

Emergency funds: One month expenses (~$5000) in checking, 4 months in a HYSA

Debt: $170,000 mortgage @ 3.00% just refinanced. Home value $255,000, payoff July 2050

Tax Filing Status: MFJ with a young child

Tax Rate: 12% Federal, 3% State

State of Residence: Pennsylvania

Age: Early 40s

Desired Asset allocation: 85% stocks / 15% bonds (too risky with 15-20 years left working?)
Desired International allocation: 30% of stocks (too high?)

Current Portfolio: $415,000

Current retirement assets

My 401k
4.7% Vanguard Institutional Index Instl (VINIX) (ER 0.04%)
Company match? Normally 50% on the first 8%, due to COVID was lowered to 50% on first 2% for the rest of 2020

My tIRA at Vanguard
4.9% Vanguard Total Bond Market Index Fund (VBTLX) (ER 0.05%)
10.4% Vanguard Total International Stock Index (VTIAX) (ER 0.11%)
18.7% Vanguard Total Stock Market Index Fund (VTSAX) (ER 0.04%)

My Roth IRA at Vanguard
3.3% Vanguard Total Bond Market Index Fund (VBTLX) (ER 0.05%)
7.0% Vanguard Total International Stock Index (VTIAX) (ER 0.11%)
11.0% Vanguard Total Stock Market Index Fund (VTSAX) (ER 0.04%)

My HSA
0.5% $2,000 Cash account needed to invest any additional funds
2.7% VANGUARD 500 INDEX ADMIRAL (VFIAX) (ER 0.04%)
0.8% VANGUARD TTL INTL STK IND ADM (VTIAX) (ER 0.11%)
1.7% VANGUARD TTL BND MRKT IDX ADM (VBTLX) (ER 0.05%)

Spouse 403b
2.5% Mutual of America 2045 Target Date fund (ER 1.69%, one of the lowest they offer)
Company match? 50% of the first 3%. Due to the outrageous expense ratios, we only contribute enough to get the full match.

Spouse tIRA at Vanguard
5.0% Vanguard Total Bond Market Index Fund (VBTLX) (ER 0.05%)
10.3% Vanguard Total International Stock Index (VTIAX) (ER 0.11%)
16.5% Vanguard Total Stock Market Index Fund (VTSAX) (ER 0.04%)
_______________________________________________________________

Contributions

New annual Contributions
$5,000 his 401k + $2,000 normal match (lowered to $500 in 2020 due to COVID)
$1,500 her 403b + $750 match
$6,000 his tIRA
$6,000 her tIRA
$5,900 his HSA + $1,100 company auto match

Some additional background information
Spouse and I are both make very similar (~$50,000) salaries. I work for a 401k/HSA provider which allows for very low-cost investment options. Spouse works for a non-profit and their 403b plan is awful, but we still contribute 3% to get the full match.


Questions:
1. We just closed on our refinance, which lowered our payments ~$200/month. I'd like retire in about 15 years if possible, but I'm not super keen on pulling the plug with 15 more years of payments. However, chances of market outperforming 3% in the next 15 years is pretty good. We have about $500/month extra that we could either:
  • Put towards principal to pay off mortgage in 14 years
  • Add to my 401k contributions
  • Bump HYSA up to 6+ months
  • Something else?
2. Should I switch over any future contributions (401k or IRA) to Roth? I was reading about the Roth conversion ladder and it's something I think we could do from our late 50s to early 60s until we start pulling SS. I believe about $40k of the current assets in my Roth IRA are contributions that I could pull out. If I switch to Roth contributions now, that would give us more we could pull to live on while converting our traditional accounts. Is that correct?

3. Chances of us retiring in 15 years with our current assets and contributions?

4. Regarding asset allocation, is 85/15 too risky for someone with a 15-20 horizon? Is 30% international too high? I know you're not supposed to chase past performance, but I hate the returns we've gotten from VTIAX in the past 10 years compared to VTSAX.

Thanks in advance for any insight!
It all looks good. In my opinion, you should absolutely not sell out of your ex-us position after a decade of underperformance. Ex-us stocks outperformed US stocks in the 80s and 2000s. US stocks outperformed in the 90s and 2010s. That's four consecutive decades where they have changed roles as the driver of growth in a global portfolio. In no way do I think it is guaranteed that ex-us will outperform this decade. In every way I think it is a bad idea to sell your worst performing asset class after a decade of its underperformance. You might be locking in that underperformance just before ex-us comes up gold. Everyone wishes they were 100% US for this most recent bull market. That doesn't mean going 100% US was the smartest choice in 2010! If anyone chose that route, the fact is that they just got lucky after taking more risk by putting all their eggs in the US basket. Stick with your plan. Do not succumb to FOMO. That way you do not need luck in order to do well.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
tibbitts
Posts: 11916
Joined: Tue Feb 27, 2007 6:50 pm

Re: The boring accumulation phase with an average salary

Post by tibbitts »

$100k household income is well above average - everywhere except on Bogleheads.
babystep
Posts: 244
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Re: The boring accumulation phase with an average salary

Post by babystep »

Turk_February wrote: Sat Jul 04, 2020 6:45 pm
White Coat Investor wrote: Sat Jul 04, 2020 5:44 pm
1. I max out my HSA first every year, so if I had extra I'd put it there.
2. You might be a good candidate for Roth contributions now given your relatively low tax bracket
3. Depends on what you spend.
1. Love the HSA and since my child is under my insurance (wife has her own for pretty cheap but it would cost a lot for either of us to add the other) I can put $7,000 in each year ($5,900 plus my company's free $1,100)

2. I did Roth a long time ago at a previous employer, which is where my current Roth IRA came from. I'll probably switch back to Roth contributions in our IRAs, at least for a while.

3. Monthly spend is around $4,500 now. Biggest question mark is possible healthcare costs in early retirement.



babystep wrote: Sat Jul 04, 2020 6:04 pm One odd thing with 401k is that it converts qualified dividends into earned income to be withdrawn later. You are in a unique tax bracket that long-term capital gains tax rate is zero percent for you rather than 15% or 20% for others.

If MFJ income is greater than 78k then 15% capital gains tax rate applies but you have about:

100k-5k-1.5k-6k-6k-24.8k=57k

I would suggest using that $500 per month to buy high yield dividend ETF in a taxable account and enjoy about 3.5% dividends tax-free.
https://investor.vanguard.com/etf/profile/overview/vym

You have about 21k of extra margin before you reach the 15% long-term capital gains tax rate. I think this is better than increasing the HYSA or paying extra for the mortgage at 3%.
Not sure if it applies, but I contribute to an Dependent Care FSA ($5,000/year) which could push my "income" down to $52k. I'll look into this High Yield Dividend ETF as I've never heard of them. Is it a guaranteed return like TIPS?


Also, does this board have a "multi-quote" feature to easily quote multiple people? I couldn't find it and did it more manually.
You can look at the dividend history. You need some diversification for the type of accounts. You are already skewed towards pre-tax. In the long-run when you do Roth conversions, you would need some money in taxable to pay for expenses. It will also act as an additional emergency fund source because you don't want to pull money early from 401k because of 10% fine.
If you are not comfortable with VYM then you could just stick with VTI/VTSAX which still has about 1.8% dividend.
User avatar
Watty
Posts: 20681
Joined: Wed Oct 10, 2007 3:55 pm

Re: The boring accumulation phase with an average salary

Post by Watty »

The boring accumulation phase with an average salary
I am retired now but your situation is roughly similar to what mine was and you are doing fantastic to have over $400K in your portfolio now.

Here is my "Can I retire?" post that I did a few years ago just before I retired when I was about to turn 59.

viewtopic.php?f=1&t=167664

That might give you a perspective on what more middle class retirement numbers might look like.
Turk_February wrote: Sat Jul 04, 2020 4:06 pm Desired Asset allocation: 85% stocks / 15% bonds (too risky with 15-20 years left working?)
Desired International allocation: 30% of stocks (too high?)
For comparison the Vanguard 2035 fund is about 75% stocks and 25 % bonds and the 2040 fund is about 83% stocks.

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

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

It might make sense to go to somewhere around 80% stocks but that is not a huge change. Your 85% would be a bit more aggressive and that is OK as long as you want to be more aggressive. Since you are doing so well I don't see any reason to be more aggressive than average though.

The target date fund asset allocation will change over time so you could just pick a target date fund and mimic that.
Turk_February wrote: Sat Jul 04, 2020 4:06 pm 1. We just closed on our refinance, which lowered our payments ~$200/month. I'd like retire in about 15 years if possible, but I'm not super keen on pulling the plug with 15 more years of payments. However, chances of market outperforming 3% in the next 15 years is pretty good. We have about $500/month extra that we could either:
Put towards principal to pay off mortgage in 14 years
Add to my 401k contributions
Bump HYSA up to 6+ months
Something else?
Two things I did not see were and college savings for your kid and saving up to be able to pay cash for a replacement car when you need one. Somewhere in in your plans you may want to start doing those. You might also want to do something like save a hundred dollars a month into a fun money account that you can use for things like travel while your kid is still young.

You are already contributing almost $25K to your retirement accounts before the employer match. That is basically 25% of your income so I don't think that you need to save more than that.
Turk_February wrote: Sat Jul 04, 2020 4:06 pm 2. Should I switch over any future contributions (401k or IRA) to Roth? I was reading about the Roth conversion ladder and it's something I think we could do from our late 50s to early 60s until we start pulling SS. I believe about $40k of the current assets in my Roth IRA are contributions that I could pull out. If I switch to Roth contributions now, that would give us more we could pull to live on while converting our traditional accounts. Is that correct?
I would just stick with putting more in the deductible retirement accounts for now. The reason is that an over 65 couple can have over $100K in taxable income and still be in the 12% federal tax bracket which is the same as what you are in now. Likewise and over 65 couple can have $40K in Social Security and $20K in taxable income and owe no federal income taxes. That is roughly what I am targeting once we have both started Social Security.

You may also be able to do Roth conversions in a low tax bracket after you retire.

I also saw more people than I would have expected run into unexpected setbacks with careers, health, etc and end up in a lower than expected tax bracket.

When you are maybe five years from retirement you can look at Roth accounts closer since your retirement finances will be more clear then.

In the mean time you are in a combined 15% tax bracket so for every $10,000 you contribute to a deductible IRA or 401k you would have $1,500 in tax savings. You could use that to help pay down your mortgage quicker.


Turk_February wrote: Sat Jul 04, 2020 4:06 pm 3. Chances of us retiring in 15 years with our current assets and contributions?
You can look at retirement calculators but if you keep your expenses low that sounds possible but aggressive. One thing you might look into is to eventually develop some sort of enjoyable side work since if you can each bring in a couple of hundred dollars a month that can really help your numbers in early retirement.

Your Social Security is calculated on your 35 highest year of inflation adjusted earnings. If you would have any zero or unusually low earning years in that 35 years then working a bit longer could also help you get more Social Security eventually.
Turk_February wrote: Sat Jul 04, 2020 4:06 pm Thanks in advance for any insight!
Someone mentioned going to a 15 year mortgage but that is probably too aggressive since you would be in a bind if one of you was sick or lost their job and could not work.

Instead of paying extra on your house each month another option would be to save up the money until you have a good amount, like 10% of the mortgage($17K), then call your lender and ask if they will "recast your mortage"(Google this). They are not required to do this but they usually will for a few hundred dollar processing fee or even for free. The way this works is that if you pay it down by 10%(or whatever makes sense) in a recast then your required mortgage payment will be reduced by the same percentage. The interest rate and length of the mortgage stay the same. If you just prepay it with your normal payment then that just reduces the length of the loan. Doing a recast could be a lot better if something happens like you get laid off or interest rates go up a lot.
RomeoMustDie
Posts: 280
Joined: Sat Mar 14, 2020 6:07 pm

Re: The boring accumulation phase with an average salary

Post by RomeoMustDie »

What are Bogleheads' plans if we enter a low growth high inflation environment where both equities and bonds underperform?

I also hold significant portions of international index, but it would make more sense to me to bet on VWO / FHKCX because they make more sense as a destination for growth from a macro perspective and it's not like there's anything to lose since international index performance has been so bad.
Last edited by RomeoMustDie on Sat Jul 04, 2020 7:36 pm, edited 1 time in total.
whereskyle
Posts: 1265
Joined: Wed Jan 29, 2020 10:29 am

Re: The boring accumulation phase with an average salary

Post by whereskyle »

RomeoMustDie wrote: Sat Jul 04, 2020 7:32 pm What are Bogleheads' plans if we enter a low growth high inflation environment where both equities and bonds underperform?
Stay the course.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
RomeoMustDie
Posts: 280
Joined: Sat Mar 14, 2020 6:07 pm

Re: The boring accumulation phase with an average salary

Post by RomeoMustDie »

whereskyle wrote: Sat Jul 04, 2020 7:36 pm
RomeoMustDie wrote: Sat Jul 04, 2020 7:32 pm What are Bogleheads' plans if we enter a low growth high inflation environment where both equities and bonds underperform?
Stay the course
So if you stay the course in a 15 year time frame and fail your goal because you are victim to a 10 year macro cycle, haven't you just lost the game?
02nz
Posts: 5562
Joined: Wed Feb 21, 2018 3:17 pm

Re: The boring accumulation phase with an average salary

Post by 02nz »

RomeoMustDie wrote: Sat Jul 04, 2020 7:37 pm
whereskyle wrote: Sat Jul 04, 2020 7:36 pm
RomeoMustDie wrote: Sat Jul 04, 2020 7:32 pm What are Bogleheads' plans if we enter a low growth high inflation environment where both equities and bonds underperform?
Stay the course
So if you stay the course in a 15 year time frame and fail your goal because you are victim to a 10 year macro cycle, haven't you just lost the game?
People may have to adjust their plans, whether that means decreasing budgets or working longer. There's nothing new there. Are you asking a question or just trying to make a point?
tibbitts
Posts: 11916
Joined: Tue Feb 27, 2007 6:50 pm

Re: The boring accumulation phase with an average salary

Post by tibbitts »

RomeoMustDie wrote: Sat Jul 04, 2020 7:37 pm
whereskyle wrote: Sat Jul 04, 2020 7:36 pm
RomeoMustDie wrote: Sat Jul 04, 2020 7:32 pm What are Bogleheads' plans if we enter a low growth high inflation environment where both equities and bonds underperform?
Stay the course
So if you stay the course in a 15 year time frame and fail your goal because you are victim to a 10 year macro cycle, haven't you just lost the game?
Yes, you have lost. Losing the game in any number of ways is always a possibility. Bogleheads end to dismiss that, partly because Bogleheads tend to be people who are only here on the forum because they've largely won the game. There is some survivorship bias involved in (still) being on the forum.
RomeoMustDie
Posts: 280
Joined: Sat Mar 14, 2020 6:07 pm

Re: The boring accumulation phase with an average salary

Post by RomeoMustDie »

02nz wrote: Sat Jul 04, 2020 7:48 pm
RomeoMustDie wrote: Sat Jul 04, 2020 7:37 pm
whereskyle wrote: Sat Jul 04, 2020 7:36 pm
RomeoMustDie wrote: Sat Jul 04, 2020 7:32 pm What are Bogleheads' plans if we enter a low growth high inflation environment where both equities and bonds underperform?
Stay the course
So if you stay the course in a 15 year time frame and fail your goal because you are victim to a 10 year macro cycle, haven't you just lost the game?
People may have to adjust their plans, whether that means decreasing budgets or working longer. There's nothing new there. Are you asking a question or just trying to make a point?
Both. Are there any amendments that can be made to the strategy from a diversification perspective to mitigate that risk?
Topic Author
Turk_February
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Re: The boring accumulation phase with an average salary

Post by Turk_February »

Watty wrote: Sat Jul 04, 2020 7:29 pm Here is my "Can I retire?" post that I did a few years ago just before I retired when I was about to turn 59.

viewtopic.php?f=1&t=167664

That might give you a perspective on what more middle class retirement numbers might look like.
Good read! Thanks.

Watty wrote: Sat Jul 04, 2020 7:29 pm For comparison the Vanguard 2035 fund is about 75% stocks and 25 % bonds and the 2040 fund is about 83% stocks.

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

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

It might make sense to go to somewhere around 80% stocks but that is not a huge change. Your 85% would be a bit more aggressive and that is OK as long as you want to be more aggressive. Since you are doing so well I don't see any reason to be more aggressive than average though.

The target date fund asset allocation will change over time so you could just pick a target date fund and mimic that.
I've always found Vanguard TD funds are a little too conservative for me. I didn't worry in 2008 when my portfolio (only $80k? then) dropped 50%, I did get a little nervous in March of this year, and I kept flip flopping between thinking of moving to a more conservative allocation and going 100% stocks to "get them cheap". Of course I ended up doing nothing. I'll probably move to 80/20 in a few years.

Watty wrote: Sat Jul 04, 2020 7:29 pm Two things I did not see were and college savings for your kid and saving up to be able to pay cash for a replacement car when you need one. Somewhere in in your plans you may want to start doing those. You might also want to do something like save a hundred dollars a month into a fun money account that you can use for things like travel while your kid is still young.

You are already contributing almost $25K to your retirement accounts before the employer match. That is basically 25% of your income so I don't think that you need to save more than that.
I'll edit my original post, but we contribute $1,200 year to the 529 + $200 employer match. There's about $11,000 in it (85% stocks) and we have 10 more years of contributions and growth before we use it. I didn't include it because I don't consider it as part of retirement plan. For the car, that's one reason to up my HYSA balance, which is where we would pull it from. Probably "finance" it to get a discount, and then pay it off a couple months. Luckily, we don't drive much anymore, even before we started WFH full-time (I was WFH 2-3 days/week beforehand and spouse commute is short).


Watty wrote: Sat Jul 04, 2020 7:29 pm I would just stick with putting more in the deductible retirement accounts for now. The reason is that an over 65 couple can have over $100K in taxable income and still be in the 12% federal tax bracket which is the same as what you are in now. Likewise and over 65 couple can have $40K in Social Security and $20K in taxable income and owe no federal income taxes. That is roughly what I am targeting once we have both started Social Security.

You may also be able to do Roth conversions in a low tax bracket after you retire.
I'm hoping to have a good mix of Roth and Traditional in our accounts by age 58-60. Then pull the Roth contributions for a few years to use as spending money, while converting as much of the traditional to Roth as I can to fill up the lowest brackets.

Watty wrote: Sat Jul 04, 2020 7:29 pm In the mean time you are in a combined 15% tax bracket so for every $10,000 you contribute to a deductible IRA or 401k you would have $1,500 in tax savings. You could use that to help pay down your mortgage quicker.
12%, no?


Watty wrote: Sat Jul 04, 2020 7:29 pm Your Social Security is calculated on your 35 highest year of inflation adjusted earnings. If you would have any zero or unusually low earning years in that 35 years then working a bit longer could also help you get more Social Security eventually.
I'll have to check the SS website to find out my earnings history. I've read about bend points and know that after the 2nd bend point there's not much of a gain in benefits.
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Watty
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Re: The boring accumulation phase with an average salary

Post by Watty »

Turk_February wrote: Sat Jul 04, 2020 10:19 pm I'm hoping to have a good mix of Roth and Traditional in our accounts by age 58-60. Then pull the Roth contributions for a few years to use as spending money, while converting as much of the traditional to Roth as I can to fill up the lowest brackets.
If the amounts are the same then spending from a Roth while doing Roth conversions would net out to be the same as just spending from a traditional IRA.
Turk_February wrote: Sat Jul 04, 2020 10:19 pm 12%, no?
12% federal + 3% state =15%
Topic Author
Turk_February
Posts: 10
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Re: The boring accumulation phase with an average salary

Post by Turk_February »

Watty wrote: Sat Jul 04, 2020 10:39 pm
Turk_February wrote: Sat Jul 04, 2020 10:19 pm I'm hoping to have a good mix of Roth and Traditional in our accounts by age 58-60. Then pull the Roth contributions for a few years to use as spending money, while converting as much of the traditional to Roth as I can to fill up the lowest brackets.
If the amounts are the same then spending from a Roth while doing Roth conversions would net out to be the same as just spending from a traditional IRA.
Oops, never thought of of it like that :?

Watty wrote: Sat Jul 04, 2020 10:39 pm
Turk_February wrote: Sat Jul 04, 2020 10:19 pm 12%, no?
12% federal + 3% state =15%
Unfortunately tIRA contributions are not tax deductible in the great state of PA.
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market timer
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Re: The boring accumulation phase with an average salary

Post by market timer »

tibbitts wrote: Sat Jul 04, 2020 7:23 pm $100k household income is well above average - everywhere except on Bogleheads.
I used to think the same, but the data says otherwise. Median household income for a married couple with at least one child was $100,115 in 2018 (source ACS: https://data.census.gov/cedsci/table?q= ... 2018.S1903). The US has a large number of non-earning households (retirees, students, etc.) that bring down the averages. Only 55% of American adults actually have a job.

This is just to say a family earning low six figures nowadays really is unquestionably middle class.
Last edited by market timer on Sun Jul 05, 2020 1:22 am, edited 1 time in total.
HomeStretch
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Re: The boring accumulation phase with an average salary

Post by HomeStretch »

Consider opening first Roth IRA for spouse to start the 5 year clock.
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