Feedback on my mid-term plan

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Topic Author
STVCT
Posts: 32
Joined: Mon Sep 28, 2020 4:59 pm

Feedback on my mid-term plan

Post by STVCT »

Hey Everyone,

This is my first post, I will try to adhere to the guidelines, go easy on me :D

Current State:
34 year old male, two young kids, wife, single income household, filing jointly. We are good about a budget and save about 20% of my income, but we're not super frugal either. I'm living below my means and investing, but we also treat ourselves to things we want and make sure we're giving our kids a fun childhood.

Live in CT w/ 6% tax, 22% federal income tax that will cross to 24% if my annual bonus pays out.

Emergency Fund - A cushy 3 months, could be spread further if we needed it to.

Debt - Car loan 24K (unsure of %, 6 year term, we make triple payments monthly and will pay it off in less than 2 years)
Mortgage - 240K @ 2.9% 15 year. Just refinanced, don't plan to overpay.

Assets - IRA low six figures (VTSAX), two ROTH IRAs (90% VTI w/ 10% International index VTXUS) that we started this year, employer 401K approaching six figures (S&P index).


Contributions:
4% into 401K, plus 4% match and 2% "core contribution incentive" - total 10% of salary, all traditional
ROTH IRAs - Just started them this year, plan to max out mine and my spouse's until I cross the income threshold
Taxable - Haven't started it yet, but plan to invest another $6K per year (also in VTSAX), and move the ROTH IRA contributions to taxable when we exceed the income limit.

Strategy - This is where I need the feedback!

I'm not a die hard FIRE person, but I think I will semi-retire early. In 15 years (age 49) the last kid will be 18 and the mortgage will be paid, that seems like a reasonable time period to aim for. But, I'm not married to the date, I just plan to save as much as I can and evaluate again when I'm much closer. No firm date, no firm dollar goal, I can't be sure what my annual expenses will be like 15 years from now. I have a good corporate career, have won some awards, and have gotten some big speaking slots at industry conferences so think I can make a decent living consulting. Eventually I want to do that, partially retire and enjoy myself, using the taxable to supplement anything that income from consulting does not.

Counting my employer 401k match, we put away about $36K per year, and I will up that a bit when the car payment goes away next year. After that, I'm eyeing a promotion February of 2022, and I will probably increase my contribution amount again, but also let us live a little bigger.

Contribution Strategy:

I have everything aggressive now, all stocks (I plan to increase the international to ~10%). I will mix in more bonds in ten years or so, and probably take an even higher bond mix (40%?) right when I semi-retire, and continue to contribute to stocks, which will move my allocation closer to 70/30 as I go.

I want to fill the ROTH while I can. I feel like 34 is a late start, and I like the availability of the principle if I need to bridge a few years before I can access the retirement money. In a perfect world, I don't need to do that. I think I will exceed the income limit in '22, again depending on corporate performance and if we get a large bonus.

I don't plan to do much more with the 401K. As I get annual merit increases I plan to increase 1% a year just to prevent lifestyle creep, but I'm thinking the taxable is a better bet here? Long term gains could come out cheaper than the income tax rate if my consulting business goes well. If everything goes well I could leave corporate and start consulting part-time much earlier, but I'm not in a rush to do that. I'm fairly compensated, getting good career opportunities, and don't hate my job.

So - is this a decent plan? A slow creep up on the 401K contributions, fill those ROTHs to the brim while I can, put the rest in taxable, and maybe start some 529s for the kids. At some point much further down the road I plan to start doing ROTH conversions, but it will depend on the income situation in my partial retirement stage.

Please feel free to just react to that - I'd rather get the community's broad opinion on the validity or foolishness of my plan than ask too many specific questions. Feedback welcome.
catlady
Posts: 143
Joined: Sat Mar 26, 2016 8:31 pm

Re: Feedback on my mid-term plan

Post by catlady »

The Prioritizing Investments wiki page may be of interest to you.
ExitStageLeft
Posts: 1973
Joined: Sat Jan 20, 2018 4:02 pm

Re: Feedback on my mid-term plan

Post by ExitStageLeft »

Welcome to the forum!

You've got a great plan. As long as you're hitting 20% savings per year you should do great. I also like the mindset of considering you options once you've hit financial independence (FI). There's another way to describe that, when you have FU money (coarse language https://www.youtube.com/watch?v=qGC9FY65HBo)

One thing you didn't mention is whether the 401k has the features that allow the mega backdoor Roth. Something to look into if you get to where you are maxing out the 401k and the Roth IRA contributions. If not then there is always taxable.
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Watty
Posts: 21379
Joined: Wed Oct 10, 2007 3:55 pm

Re: Feedback on my mid-term plan

Post by Watty »

STVCT wrote: Mon Sep 28, 2020 8:16 pm Live in CT w/ 6% tax, 22% federal income tax that will cross to 24% if my annual bonus pays out.
If you get into the 24% federal tax bracket then you will be in a combined 30% tax bracket with your state taxes.

It would be very very difficult to justify contributing to a Roth before you have maxed out all deductible retirement accounts even if you are only in the 22% federal tax bracket this year.

Based on your tax bracket I would guess that your income is in the ballpark of $200K and you have a reasonable size mortgage. From what you have said it should be really easy to max out your 401k contributions. Unless there is something going on that you didn't mention like major medical expenses then not maxing out your 401k looks like a mistake to me.
Topic Author
STVCT
Posts: 32
Joined: Mon Sep 28, 2020 4:59 pm

Re: Feedback on my mid-term plan

Post by STVCT »

Watty wrote: Mon Sep 28, 2020 11:22 pm
STVCT wrote: Mon Sep 28, 2020 8:16 pm Live in CT w/ 6% tax, 22% federal income tax that will cross to 24% if my annual bonus pays out.
If you get into the 24% federal tax bracket then you will be in a combined 30% tax bracket with your state taxes.

It would be very very difficult to justify contributing to a Roth before you have maxed out all deductible retirement accounts even if you are only in the 22% federal tax bracket this year.

Based on your tax bracket I would guess that your income is in the ballpark of $200K and you have a reasonable size mortgage. From what you have said it should be really easy to max out your 401k contributions. Unless there is something going on that you didn't mention like major medical expenses then not maxing out your 401k looks like a mistake to me.


This is - and the other comments are- good advice. I like having the ROTH as a shelter for potential tax-monsters like REITs, and have general 'fear of missing out' about not contributing while I'm still able. I also like the idea of tax diversity and being able to withdraw if I had to, but I can see that it's not doing me as many net worth favors as I thought.

Your comment got me doing some quick math, and you're right. I had imagined paying higher taxes now but letting it double several times would be better than letting it double several times and paying lower taxes later, but I believe this is wrong. Additionally, maxing out the 401K may keep me below the MAGI for another year or two and actually let me contribute to the ROTH IRAs for longer. I will turn up the 401K contributions to max allowed as soon as the car payment is gone next year.
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