How am I doing? What could I DO better? 33yr old

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Topic Author
LabMan87
Posts: 3
Joined: Fri Apr 30, 2021 4:30 pm

How am I doing? What could I DO better? 33yr old

Post by LabMan87 »

I’ve been reading the site for years and am finally posting and looking for advice. I’ve learned tons through the site but feel that I’m still missing something or that I can do better.
Looking to “retire” or be out of the rat race at age 50 with the option of either calling it fully quits or working for fun; depends on where I’m at in life and/or what happens between now and then of course.

Income: $150k + 15% target bonus. Last two years I have been at 180k

Debt:
Single condo owner – thinking this will become an investment property when I decided to leave this HCOL state. Easily can be rented for current payment amount. I put 20% down when purchasing the condo and it has gone up in value ~ it is in a Desired location ~ Condo could easily sell for $505k at this market
$315k mortgage @ 2.75% w/ 20 years remaining (just did a refinance through information I learned on this website – LenderFi – No cost)

Tax Filing Status: Single – (no kids)

State of Residence: CA

Age: 33

Current retirement assets

Maxing out 401k w/ 7% employer match + full contribution to HSA (employer puts in $500)

401k = $412k – (96% stock – 3% bonds)
IRA = $25k
HSA = $25k (fully invested in total stock market and plan to keep it that way)
Pension = $60k (Current lump sum amount – fully vested - Continues to grow)
Taxable investment = $48k (trying to create a bridge fund for early retirement. Will continue to invest here yearly)
Money market = $55k
Cash = $15k


Questions:

1. I don’t think I qualify for a Roth and if I did I don’t think it makes sense right now because of my higher tax bracket. I think that if I can continue the bridge fund when I retire early I could convert this to Roth and wait my 5 years.
2. Do i invest more? Find other sources of income? Stay the course? I can break out living expenses if needed.
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Tamarind
Posts: 2493
Joined: Mon Nov 02, 2015 2:38 pm

Re: How am I doing? What could I DO better? 33yr old

Post by Tamarind »

Welcome!

Good news! You can still get money into a Roth IRA even if you make too much to contribute directly: https://www.bogleheads.org/wiki/Backdoor_Roth

This is a good idea even if your tax bracket is high because it's tax advantaged space - you just save on future taxes instead of current ones.

If the IRA you listed is a traditional IRA, I suggest you find out if you can roll it into your 401k. This would allow you to avoid the impact of the pro-rata rule (which makes the backdoor method cost you taxes). Most employer plans will permit an incoming rollover. If you cannot roll it into your 401k, you could convert it to Roth instead (paying your ordinary income rate in taxes to do so).

The only other thing I would recommend based on your post is to make sure you've got a reasonably good yield for your cash/MM savings. No less than 0.5%. You can get up to 3.5% if you are willing to jump through some hoops.

Otherwise, stay the course and continue to increase taxable bridge fund while maxing out tax advantaged accounts. Don't forget to donate to causes you support - you are extremely fortunate to be in the position you are and it's good to give back once you've paid yourself. Generosity is good for the soul. Ensure you give time to your own non-work hobbies, so that you still have something interesting to do after you don't have to work anymore.

When you leave the area I'd probably recommend you sell rather than keep condo as investment property (absentee landlord is not a fun job for most folks) but that's a decision you don't have to make anytime soon.
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retired@50
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Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: How am I doing? What could I DO better? 33yr old

Post by retired@50 »

Welcome to the forum. :happy

It looks like you're doing all the right stuff, you'll just need to keep at it.

The backdoor Roth is a good idea, but it confuses some people, especially if you're not the type to do your own taxes.
More info:
https://www.whitecoatinvestor.com/backd ... -tutorial/
https://thefinancebuff.com/the-backdoor ... ow-to.html

Adding to my taxable account was what allowed me to retire early, but I was sort of unusual in that I was saving over 50% of my income some years, so the taxable account grew to be my largest account. Make certain you pick tax-efficient investments for your taxable account.
Link:
https://www.bogleheads.org/wiki/Tax-eff ... _placement

Regards,
This is one person's opinion. Nothing more.
ef11
Posts: 316
Joined: Sat Mar 10, 2012 10:39 pm

Re: How am I doing? What could I DO better? 33yr old

Post by ef11 »

You're doing great. I'm 32 and single as well, so similar situation.

100% start doing the backdoor Roth every year. You are maxing the pre-tax available avenues with your 401k, so the only other thing you can do retirement account wise is the backdoor Roth. It grows tax free for life and can also help bridge the retirement account gap as you can take out contributions anytime without penalty. Obviously taxable account would be the first place to pull from though, which you are planning.

If you can find a side job that pays you as a contractor (1099 income), then you can open a Solo 401k and really boost your retirement plan contributions. Finding a side job isn't always an easy task though, but is an option.

Stay the course, you're doing a great job!
50% S&P 500 IDX ER .01% | 10% Ext Mkt ER .04% | 10% Small Cap Value ER .15% | 20% International TM ER .08% | 10% Vang Total Bond Market ER .03%
Topic Author
LabMan87
Posts: 3
Joined: Fri Apr 30, 2021 4:30 pm

Re: How am I doing? What could I DO better? 33yr old

Post by LabMan87 »

Great! I’ll take a look and do some more reading on the backdoor Roth via the link you sent. The only reason why I haven’t rolled the funds over to my current 401k is because its setup through a separate Vanguard account and I like having the option to eventually move money over there as opposed to Fidelity. However, in my opinion Fidelity has a much cleaner and user-friendly interface.

I’ll check on the MM savings rate, but I assume its low; are any money markets doing that great right now given the times? I believe its all in a SPAXX. How can I get 3.5% wow!

Thank you all for the responses!
tashnewbie
Posts: 1555
Joined: Thu Apr 23, 2020 12:44 pm

Re: How am I doing? What could I DO better? 33yr old

Post by tashnewbie »

Welcome to the forum.

Agree with others about backdoor Roth.

Why are you holding $55k cash in the MM account? Is it your "emergency fund"?

I agree with other user that said ensure you're at least making 0.5% on that money (some MMAs don't even have that yield right now).

You could check local credit unions to see if any of them offer low-hassle rewards checking accounts. One of mine offers 5% APY on balance of up to $10k if I have certain direct deposits, no debit transactions required.

I think HM Bradley offers 3% on balances up to $100k (check Google search bar in forum for other threads about this).
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Watty
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Re: How am I doing? What could I DO better? 33yr old

Post by Watty »

LabMan87 wrote: Fri Apr 30, 2021 4:44 pm Taxable investment = $48k (trying to create a bridge fund for early retirement. Will continue to invest here yearly)
There are lots of ways to access retirement accounts early without paying a penalty so I would not pass up any opportunity to contribute to them just to make the money easier to access in early retirment.

https://www.bogleheads.org/wiki/Substan ... c_payments

https://www.madfientist.com/how-to-acce ... nds-early/

In addition when you sell the condo to move to a lower cost of living area you will likely have a lot of home equity that you can use.
LabMan87 wrote: Fri Apr 30, 2021 4:44 pm 1. I don’t think I qualify for a Roth and if I did I don’t think it makes sense right now because of my higher tax bracket. I think that if I can continue the bridge fund when I retire early I could convert this to Roth and wait my 5 years.
I would not pass up the chance to make a deductible retirement account contribution in your situation to fund a Roth but if the alternative to the Roth is a taxable account then the Roth would likely be a better choice.
LabMan87 wrote: Fri Apr 30, 2021 4:44 pm 2. Do i invest more? Find other sources of income? Stay the course? I can break out living expenses if needed
One thing I did when I was around your age was that I committed to myself to save half of any future pay raises that I got. That allowed me to painlessly increase my savings so that after ten years I was saving a high percentage of my income. Savings was not just retirement savings since I had other goals too so you I could also count things like college savings for my kid, saving up to pay cash for my next car in a car fund, building up an emergency fund, etc. You could even count paying down the mortgage as savings.

I also track my net worth each year with a very simple spreadsheet where I add a new column each year with my net worth on January 1st. This allows me to see my progress over the years.

Automatically increasing my savings rate helped me increase my net worth but even more importantly it helped prevent lifestyle creep which would impact my retirement goal if I needed to support a higher lifestyle in retirement. Picking your lifestyle is all about balance and it is important to do things when you are relatively young and budgeting for things like more travel is fine, you just need to make a conscious choice when you want to start spending more.
LabMan87 wrote: Fri Apr 30, 2021 4:44 pm thinking this will become an investment property when I decided to leave this HCOL state.
That rarely makes sense because you would lose the homeowners capital gains exclusion an being a long distance landlord can be difficult even with a property management company. If you really want to be a landlord when you retire then it would probably be best to sell the condo and buy property near where you move to.

Compared to many other people here I don't like the idea of owning rental property instead of buying a REIT. The main reason is that I do not want to be managing a rental when I am 80 years old and in assisted living. Even with a property manager you still need to approve some decisions and you will periodically need to fire and hire property managers.

It may vary with what city you are in but California has a reputation for having laws that are very unfavorable for landlords.
Topic Author
LabMan87
Posts: 3
Joined: Fri Apr 30, 2021 4:30 pm

Re: How am I doing? What could I DO better? 33yr old

Post by LabMan87 »

tashnewbie wrote: Mon May 03, 2021 2:00 pm Why are you holding $55k cash in the MM account? Is it your "emergency fund"?
The reason for holding $55k is for an “emergency fund” and/or for when I move out of here in 2-3 years a down payment on a new home. It seems my cash reserves are growing quickly, and I don’t have anything in the near future that I was looking to buy or pay off. The only loan I have is my mortgage with everything else accounted for in monthly spending/savings. I don’t think fidelity’s money market account - SPAXX isn't paying much right now if at all.
Watty wrote: Mon May 03, 2021 2:31 pm
I also track my net worth each year with a very simple spreadsheet where I add a new column each year with my net worth on January 1st. This allows me to see my progress over the years.
I just started tracking net worth this last year and wow has it got me even more motivated along with reading more posts on the forum. I have always accounted any pay raises to go to savings and paying myself first before taking any leftovers for myself. This led me to being able to start maxing out my 401k many years ago without affecting any other ways of living.

Everyone on this post seems to agree to go for a Roth now rather than later even while at my higher income bracket essentially to avoid future tax brackets. – Still reading into this. I think my employers offers options for the Roth account which would make it easy if that works for the backdoor method. I had assumed that with my AGI being greater than $140k I wasn’t allowed to contribute.

The reasoning for keeping the condo after I move is because of the desired beach town that continues to grow and property values increase at an amazing rate. Again, sunny SoCal weather cant be beat and my condo has increased in value almost by 25% from purchasing 2.5 years ago. If I keep the property for 10 years (currently still living in it) I think I’ll be able to pull out a large chunk of change and roll it over to my future home.
tashnewbie
Posts: 1555
Joined: Thu Apr 23, 2020 12:44 pm

Re: How am I doing? What could I DO better? 33yr old

Post by tashnewbie »

LabMan87 wrote: Mon May 03, 2021 3:20 pm Everyone on this post seems to agree to go for a Roth now rather than later even while at my higher income bracket essentially to avoid future tax brackets. – Still reading into this. I think my employers offers options for the Roth account which would make it easy if that works for the backdoor method. I had assumed that with my AGI being greater than $140k I wasn’t allowed to contribute.
If you're in a high tax bracket and won't have a pension or already have a sizeable tax-deferred balance, use *traditional pretax 401k. Combine that with backdoor Roth IRA.
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