Newcomer Portfolio Questions

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Topic Author
jbogler
Posts: 38
Joined: Wed Jul 06, 2022 6:59 pm
Location: Colorado

Newcomer Portfolio Questions

Post by jbogler »

Emergency funds: 3 months funded.

Debt: Only Mortgage (right now) 323K @ 3%

Tax Filing Status: Married Filing Jointly, 2 Dependents

Tax Rate:
22%.00% Federal (correction)
4.55% State

State of Residence: Colorado

Age: 48yo

Current Asset Allocation: 85% stocks / 15% bonds
Desired Asset allocation: 70% stocks / 30% bonds
Desired International allocation: 10% of stocks

Please provide an approximate size of your total portfolio:
262K Tax Sheltered Accounts
312K Home equity (635-323)
= 594.5K


Current retirement assets:
His 401k:
- 42.32%: Vanguard Institutional Index Trust (N/A)(0.02%)
- 10.46%: Vanguard Extended Market Trust (N/A)(0.04%)
- 6.97%: Vanguard Instl Ttl Intl Stck Mkt Idx Tr (N/A)(0.07%)
- 10.74%: BlackRock US Debt Index Fund (N/A)(0.03%)


His Rollover IRA at Vanguard:
- 8.98%: Vanguard Total Stock Market Index Fund (VTSAX)(0.04%)
- 1.53%: Vanguard Total Bond Market Index Fund (VBTLX)(0.05%)


Her Rollover IRA at Vanguard:
- 16.37: Vanguard Total Stock Market Index Fund (VTSAX)(0.04%)
- 2.63%: Vanguard Total Bond Market Index Fund (VBTLX)(0.05%)

- 0.00% denotes percent of total portfolio. asset value/total assets value


Contributions
His 401k:
Company match: 3% ($3450)
Company bonus: 10% ($11500)
My contribution: 8% ($9200)


Funds available in his 401(k):
T. Rowe Price Stable Value Common Tr-Q
BlackRock US Treasury Inf Prot Sec M
TCW MetWest Total Return Bond C
BlackRock US Debt Index Fund M
Eaton Vance Income Fund of Boston I
BNY Mellon Global Fixed Income - I
PIMCO All Asset Instl
Wealth Preservation Strategy - Cnsrv I
Wealth Preservation Strategy - Mod I
Wealth Preservation Strategy - Growth I
Vanguard Institutional Index Trust
DWS RREEF Global Infrastructure Inst
Vanguard Extended Market Trust
Vanguard Instl Ttl Intl Stck Mkt Idx Tr
American Funds Europacific Growth R6
DFA Global Real Estate Securities Por
Harding Loevner Emerging Markets Advisor

-----

When I want to retire seems irrelevant, because I would retire now if I could. It is only when/how can I retire.

Starting Questions:
1. Should I max out my rollover IRA VBTLX, VTSAX before maxing out my 401k contributions?
2. Based on Bogleheaders feedback, I feel my 401k tracks very close to a 3 fund portfolio. Agree?
3. I am 48 and want to allocate at 70/30. Common consensus, too aggressive?
4. I don't know how much I need to retire? 1,250,000 @ 4% withdrawal rate? Our core expenses are approx. 4000k/month and we can probably shave some off that if we had to, we have kids at home (11yr, and 14yr). There college funds are funded by grandparents.
5. Maybe a stupid question, but since I cant go more aggressive than 70/30. Only other way to build enough nest egg is to make huge sacrifices in spending and divert to saving.
6. Where can I do better in building nest egg? I will take SS at 70, I have no pension, Even if I saved 2500/mo for 10 years it only amounts to 300k.
7. I started late -- floundered around when young, didn't get a real job until I was about 38yo, didn't start really saving in 401k until 40. I dont know how to tell when I can stop working. Seems like a long way off.....
Last edited by jbogler on Mon Jul 18, 2022 12:07 pm, edited 1 time in total.
chassis
Posts: 902
Joined: Tue Mar 24, 2020 4:28 pm

Re: Newcomer Portfolio Questions

Post by chassis »

jbogler wrote: Sun Jul 17, 2022 7:16 pm Emergency funds: 3 months funded.

Debt: Only Mortgage (right now) 323K @ 3%

Tax Filing Status: Married Filing Jointly, 2 Dependents

Tax Rate:
24.00% Federal
4.55% State

State of Residence: Colorado

Age: 48yo

Current Asset Allocation: 85% stocks / 15% bonds
Desired Asset allocation: 70% stocks / 30% bonds
Desired International allocation: 10% of stocks

Please provide an approximate size of your total portfolio:
262K Tax Sheltered Accounts
312K Home equity (635-323)
= 594.5K


Current retirement assets:
His 401k:
- 42.32%: Vanguard Institutional Index Trust (N/A)(0.02%)
- 10.46%: Vanguard Extended Market Trust (N/A)(0.04%)
- 6.97%: Vanguard Instl Ttl Intl Stck Mkt Idx Tr (N/A)(0.07%)
- 10.74%: BlackRock US Debt Index Fund (N/A)(0.03%)


His Rollover IRA at Vanguard:
- 8.98%: Vanguard Total Stock Market Index Fund (VTSAX)(0.04%)
- 1.53%: Vanguard Total Bond Market Index Fund (VBTLX)(0.05%)


Her Rollover IRA at Vanguard:
- 16.37: Vanguard Total Stock Market Index Fund (VTSAX)(0.04%)
- 2.63%: Vanguard Total Bond Market Index Fund (VBTLX)(0.05%)

- 0.00% denotes percent of total portfolio. asset value/total assets value


Contributions
His 401k:
Company match: 3% ($3450)
Company bonus: 10% ($11500)
My contribution: 8% ($9200)


Funds available in his 401(k):
T. Rowe Price Stable Value Common Tr-Q
BlackRock US Treasury Inf Prot Sec M
TCW MetWest Total Return Bond C
BlackRock US Debt Index Fund M
Eaton Vance Income Fund of Boston I
BNY Mellon Global Fixed Income - I
PIMCO All Asset Instl
Wealth Preservation Strategy - Cnsrv I
Wealth Preservation Strategy - Mod I
Wealth Preservation Strategy - Growth I
Vanguard Institutional Index Trust
DWS RREEF Global Infrastructure Inst
Vanguard Extended Market Trust
Vanguard Instl Ttl Intl Stck Mkt Idx Tr
American Funds Europacific Growth R6
DFA Global Real Estate Securities Por
Harding Loevner Emerging Markets Advisor

-----

When I want to retire seems irrelevant, because I would retire now if I could. It is only when/how can I retire.

Starting Questions:
1. Should I max out my rollover IRA VBTLX, VTSAX before maxing out my 401k contributions?
2. Based on Bogleheaders feedback, I feel my 401k tracks very close to a 3 fund portfolio. Agree?
3. I am 48 and want to allocate at 70/30. Common consensus, too aggressive?
4. I don't know how much I need to retire? 1,250,000 @ 4% withdrawal rate? Our core expenses are approx. 4000k/month and we can probably shave some off that if we had to, we have kids at home (11yr, and 14yr). There college funds are funded by grandparents.
5. Maybe a stupid question, but since I cant go more aggressive than 70/30. Only other way to build enough nest egg is to make huge sacrifices in spending and divert to saving.
6. Where can I do better in building nest egg? I will take SS at 70, I have no pension, Even if I saved 2500/mo for 10 years it only amounts to 300k.
7. I started late -- floundered around when young, didn't get a real job until I was about 38yo, didn't start really saving in 401k until 40. I dont know how to tell when I can stop working. Seems like a long way off.....
1. Max the capture of employer matching contributions. Then max tax advantaged accounts.
3. Not too aggressive in my view. Too aggressive for many on this site. 85% equities is about right in my view.
4. The 4% "rule" is a good planning tool, as good as any.
5. You can't, or you don't want to?
6. SS is actuarially neutral, so to generate cash flow and deploy it in the market to gain a better return, take SS at 62. This relies on the view, which I hold, that the investor can earn a better return than the SS custodians. With higher volatility than the SS custodians.
7. Refer to the 4% rule. Live below your means and save as much as possible. Equities are on sale now and it is to your benefit given your time horizon.
invest4
Posts: 1145
Joined: Wed Apr 24, 2019 2:19 am

Re: Newcomer Portfolio Questions

Post by invest4 »

jbogler wrote: Sun Jul 17, 2022 7:16 pm When I want to retire seems irrelevant, because I would retire now if I could. It is only when/how can I retire.

Starting Questions:
1. Should I max out my rollover IRA VBTLX, VTSAX before maxing out my 401k contributions?
2. Based on Bogleheaders feedback, I feel my 401k tracks very close to a 3 fund portfolio. Agree?
3. I am 48 and want to allocate at 70/30. Common consensus, too aggressive?
4. I don't know how much I need to retire? 1,250,000 @ 4% withdrawal rate? Our core expenses are approx. 4000k/month and we can probably shave some off that if we had to, we have kids at home (11yr, and 14yr). There college funds are funded by grandparents.
5. Maybe a stupid question, but since I cant go more aggressive than 70/30. Only other way to build enough nest egg is to make huge sacrifices in spending and divert to saving.
6. Where can I do better in building nest egg? I will take SS at 70, I have no pension, Even if I saved 2500/mo for 10 years it only amounts to 300k.
7. I started late -- floundered around when young, didn't get a real job until I was about 38yo, didn't start really saving in 401k until 40. I dont know how to tell when I can stop working. Seems like a long way off.....
Welcome to the forum and congratulations on only have mortgage debt.

1. 401k.

2, It's 'good enough'.

3. 70/30 is fine. I am currently 70/30 (turn age 50 this year).

4. You need to:
* Have a reasonably good sense for your expected expenses in retirement

* As a starting point, one common rule of thumb is to then multiply your expenses by 25 to arrive at your "number" to support retirement at a withdrawal rate at 4%. For myself, I only have a vague idea of what my expenses will be in retirement. I simply came up with an income number I would aspire to in retirement (100K per year) and thus my current target is $2.5M. It's a guide to help me figure out if I am generally saving enough or need to take some action...reducing expenses for example. Ultimately, you need to be living beneath your means, saving diligently at a level to meet your goal, and be sure to enjoy life along the way.

5. "Huge" sacrifices are in the eye of the beholder...but yes, if you are not on track to retire when you like with the income you want, you will likely have to make some changes in spending and / or working longer.

6. Your investments and allocation are fine. For someone in the 24% tax bracket, your savings rate seems very low to me. How much are you spending and where?

7. A wealth of info. on the WIki and on the web.

Fundamentally, spend the time and start getting into it. No one cares about your retirement more than you.

* Have a clear sense of your expenses

* Identify opportunities where you can save more (and start doing it)

* Define your income needs in retirement (does not have to be perfect) and multiply by 25

* Assess your savings rate, expected returns, etc. in the upcoming years and you will start to get a sense for when you may be able to retire with what you are doing now and what type / size of changes you may need to make.
billfromct
Posts: 1522
Joined: Tue Dec 03, 2013 9:05 am

Re: Newcomer Portfolio Questions

Post by billfromct »

You probably earn too much to contribute to a tax deductible IRA.

I believe if “you are covered” by a retirement plan at work (contribute or have an employer retirement plan) & have a MAGI of over $109k for MFJ, you can’t contribute to a tax deductible IRA.

But you may want to open & contribute to a Roth IRA for both you & your spouse to build some “tax diversity” in your retirement accounts. The ability to contribute to a Roth IRA starts to phase out when your MAGI hits $214k if MFJ in 2022 (just added).

I started to contribute to a Roth IRA (maxed out each year) when they came out in 1998 & when I left my job & started SS & RMDs at age 70, I was bumped up 1 tax bracket & several IRMAA (Medicare earnings penalty) brackets.

If I was still married, I probably wouldn’t have been “bumped up” to higher income tax & Medicare brackets when I started SS & RMDs, but no one knows what the future will bring.

Was it Albert Einstein that that said, “Roth IRAs are the 8th wonder of the world.” Or was he talking about compound interest? I always get that mixed up.

bill
Last edited by billfromct on Mon Jul 18, 2022 8:20 am, edited 3 times in total.
HomeStretch
Posts: 8151
Joined: Thu Dec 27, 2018 3:06 pm

Re: Newcomer Portfolio Questions

Post by HomeStretch »

Welcome to the forum!

As noted by billfromct, your MAGI is likely too high for you and spouse to make deductible IRA contributions. It is a good idea to open and contribute (even a small amount) to Roth IRAs to start the 5-year clock on initial Roth IRAs. But with a marginal tax rate of 24%, your MAGI may be too high for you and spouse to make direct Roth IRA contributions. If MAGI is too high, small Roth conversions or a backdoor Roth are options (see BH wiki page link, below). But in order to do a backdoor Roth and not be not subject to pro-rated taxes, you could not have a pretax IRA balance at 12/31. One way to achieve this is by rolling over your Rollover IRA into an employer plan such as a 401k (if the plan accepts rollovers in). In your case, an IRA rollover into your 401k would be beneficial as your 401k funds have lower ERs than your IRA. Does your spouse have an employer retirement plan?

BH backdoor Roth wiki page link (pay attention to the section on the need to file Form 8606):
https://www.bogleheads.org/wiki/Backdoor_Roth
jbogler wrote: Sun Jul 17, 2022 7:16 pm … 5. Maybe a stupid question, but since I cant go more aggressive than 70/30. Only other way to build enough nest egg is to make huge sacrifices in spending and divert to saving. …
You are right - an overly-aggressive equity allocation isn’t the way to “catch-up” and build a higher retirement portfolio balance. The best way is to save more by cutting expenses and/or you/spouse earning more income.

At a minimum, target to save 15-20% of your gross income per year for retirement, more if you need to catch-up. If your annual contributions are only $9,200 then you may only be saving 5% annually for retirement.

Have you done a breakdown of how your annual Gross Income is allocated among Savings, Spending and Payroll/Income Taxes? If you are grossing > $200k (24% marginal tax rate) and from that you are Saving 5% to 401k, Spending $48k/yr (maybe 25% gross) and paying maybe 30% for Taxes, your % don’t add up to 100%. Try figuring out the “big picture” as to where your gross income is going as it may be enlightening.

Once the kids are grown and self-supporting, your expenses will likely be lower enabling you to save more. You may also be able to downsize and use the freed up equity to invest.
tashnewbie
Posts: 3083
Joined: Thu Apr 23, 2020 12:44 pm

Re: Newcomer Portfolio Questions

Post by tashnewbie »

jbogler wrote: Sun Jul 17, 2022 7:16 pm 1. Should I max out my rollover IRA VBTLX, VTSAX before maxing out my 401k contributions?
You should max your 401k ($20.5k this year).

As others have mentioned, in your tax bracket, you make too much money to make deductible Traditional IRA contributions. You shouldn't make non-deductible TIRA contributions (i.e., contributions that won't reduce your taxable income).

Depending on your Modified AGI, you may even make too much to make direct Roth IRA contributions.

If you want to do easy backdoor Roth maneuvers (mentioned by someone else above), you'd need to move your Rollover IRA into your 401k, and she would not be able to do easy backdoor Roth maneuvers (because she apparently doesn't have access to a plan like a 401k). If you elect to use the backdoor, make doubly sure you know how to complete the associated tax paperwork (IRS Form 4606), because even a lot of professionals don't know how to do it. Your situation may be complicated by the fact that the Rollover IRAs may contain a mix of pretax and after-tax money (from non-deductible contributions). You'll need to get clarity on that.

Check the wiki page for more info, White Coat Investor's blog tutorial about it, and ask questions on the forum about it, before you decide to do it.
2. Based on Bogleheaders feedback, I feel my 401k tracks very close to a 3 fund portfolio. Agree?
I think it's fine.
3. I am 48 and want to allocate at 70/30. Common consensus, too aggressive?
If that's what you want, then that's what you should go with. You need to be comfortable with your AA. No one can tell you what yours should be. It's a personal decision.
4. I don't know how much I need to retire? 1,250,000 @ 4% withdrawal rate? Our core expenses are approx. 4000k/month and we can probably shave some off that if we had to, we have kids at home (11yr, and 14yr). There college funds are funded by grandparents.
5. Maybe a stupid question, but since I cant go more aggressive than 70/30. Only other way to build enough nest egg is to make huge sacrifices in spending and divert to saving.
6. Where can I do better in building nest egg? I will take SS at 70, I have no pension, Even if I saved 2500/mo for 10 years it only amounts to 300k.
I agree with someone above that your savings rate seems low compared to your income (you only listed $9200 of personal contributions). Are you sure your stated annual spending ($48k) is accurate? Seems like you may be spending more money than you think or you're not accounting for some savings.

Does your spouse work outside the home? If so, does she have access to a workplace retirement plan such as a 401k? If she does, then she should start contributing to it.

If you want to increase your savings, then you need to reduce spending and/or increase income. If your spouse doesn't work outside the home but has the ability to do so and has marketable skills, then a potentially easy target to increase savings is for her to earn income.
TLC
Posts: 81
Joined: Mon Feb 18, 2008 5:20 pm

Re: Newcomer Portfolio Questions

Post by TLC »

Is your spouse covered by a workplace retirement plan too? If not and depending on your MAGI (phaseout thresholds from $204k to $214k for 2022), you may be able to deduct contributions to their IRA even if your spouse doesn't have any earned wages.
User avatar
retiredjg
Posts: 48768
Joined: Thu Jan 10, 2008 12:56 pm

Re: Newcomer Portfolio Questions

Post by retiredjg »

jbogler wrote: Sun Jul 17, 2022 7:16 pm
1. Should I max out my rollover IRA VBTLX, VTSAX before maxing out my 401k contributions?
You should not contribute to IRA at all because it is not deductible (your income is too high).

2. Based on Bogleheaders feedback, I feel my 401k tracks very close to a 3 fund portfolio. Agree?
Yes. Good choices, looks fine.

3. I am 48 and want to allocate at 70/30. Common consensus, too aggressive?
I think 70/30 is fine. I consider 85/15 a little too aggressive.

4. I don't know how much I need to retire? 1,250,000 @ 4% withdrawal rate? Our core expenses are approx. 4000k/month and we can probably shave some off that if we had to, we have kids at home (11yr, and 14yr). There college funds are funded by grandparents.
Could be enough. I think you need to be closer to retirement to come up with a "number" because expenses can change so much. But that's a reasonable number to start with.

5. Maybe a stupid question, but since I cant go more aggressive than 70/30. Only other way to build enough nest egg is to make huge sacrifices in spending and divert to saving.
What's the question? If you are actually in the 24% tax bracket, I think you should be able so save a bit more than $9,200 a year. Is there something special about your situation? Or are you just spending a lot? Or maybe you are not actually in the 24% tax bracket?

6. Where can I do better in building nest egg? I will take SS at 70, I have no pension, Even if I saved 2500/mo for 10 years it only amounts to 300k.
You can do better by saving more than $9,200 a year.

7. I started late -- floundered around when young, didn't get a real job until I was about 38yo, didn't start really saving in 401k until 40. I dont know how to tell when I can stop working. Seems like a long way off.....
It may be a long way off. The only way to overcome starting late is to save more. Or earn more. But earning does not seem to be the problem here.
User avatar
retiredjg
Posts: 48768
Joined: Thu Jan 10, 2008 12:56 pm

Re: Newcomer Portfolio Questions

Post by retiredjg »

Just a comment on spending. If you are in the 24% tax bracket, your income is at least $200k. Most people need to save at least 15%, but since you are starting late, you might need to save 20% of your income a year. $40k each year and rising with income.

I'm just pointing this out because you don't yet seem to realize you are not saving enough and that might be because you have no reference point for what "saving enough" actually means.

You have done well so far, considering a late start. And your employer is quite generous in match and bonus. You just need to re-evaluate abd change your understanding of how much you need to be putting in for this to work out well.

Edited to add....if your core expenses are $48k a year, where is the rest of the money going?
Topic Author
jbogler
Posts: 38
Joined: Wed Jul 06, 2022 6:59 pm
Location: Colorado

Re: Newcomer Portfolio Questions

Post by jbogler »

invest4 wrote: Sun Jul 17, 2022 10:34 pm
jbogler wrote: Sun Jul 17, 2022 7:16 pm When I want to retire seems irrelevant, because I would retire now if I could. It is only when/how can I retire.

Starting Questions:
1. Should I max out my rollover IRA VBTLX, VTSAX before maxing out my 401k contributions?
2. Based on Bogleheaders feedback, I feel my 401k tracks very close to a 3 fund portfolio. Agree?
3. I am 48 and want to allocate at 70/30. Common consensus, too aggressive?
4. I don't know how much I need to retire? 1,250,000 @ 4% withdrawal rate? Our core expenses are approx. 4000k/month and we can probably shave some off that if we had to, we have kids at home (11yr, and 14yr). There college funds are funded by grandparents.
5. Maybe a stupid question, but since I cant go more aggressive than 70/30. Only other way to build enough nest egg is to make huge sacrifices in spending and divert to saving.
6. Where can I do better in building nest egg? I will take SS at 70, I have no pension, Even if I saved 2500/mo for 10 years it only amounts to 300k.
7. I started late -- floundered around when young, didn't get a real job until I was about 38yo, didn't start really saving in 401k until 40. I dont know how to tell when I can stop working. Seems like a long way off.....
Welcome to the forum and congratulations on only have mortgage debt.

1. 401k.

2, It's 'good enough'.

3. 70/30 is fine. I am currently 70/30 (turn age 50 this year).

4. You need to:
* Have a reasonably good sense for your expected expenses in retirement

* As a starting point, one common rule of thumb is to then multiply your expenses by 25 to arrive at your "number" to support retirement at a withdrawal rate at 4%. For myself, I only have a vague idea of what my expenses will be in retirement. I simply came up with an income number I would aspire to in retirement (100K per year) and thus my current target is $2.5M. It's a guide to help me figure out if I am generally saving enough or need to take some action...reducing expenses for example. Ultimately, you need to be living beneath your means, saving diligently at a level to meet your goal, and be sure to enjoy life along the way.

5. "Huge" sacrifices are in the eye of the beholder...but yes, if you are not on track to retire when you like with the income you want, you will likely have to make some changes in spending and / or working longer.

6. Your investments and allocation are fine. For someone in the 24% tax bracket, your savings rate seems very low to me. How much are you spending and where?

7. A wealth of info. on the WIki and on the web.

Fundamentally, spend the time and start getting into it. No one cares about your retirement more than you.

* Have a clear sense of your expenses

* Identify opportunities where you can save more (and start doing it)

* Define your income needs in retirement (does not have to be perfect) and multiply by 25

* Assess your savings rate, expected returns, etc. in the upcoming years and you will start to get a sense for when you may be able to retire with what you are doing now and what type / size of changes you may need to make.
Thanks for your input.

Sorry I am in the 22% tax bracket, Married Filing Jointly. I fixed this in the original post, I had it in the single bracket by mistake. My savings to my 401k is 8% my contribution, 3% employer match, and then annual 10% employer bonus direct to my 401k. So all together I am saving 21% of my gross income per year. Does this sound like a better number to you? Still "feels" low given the size of my portfolio. Is there a good savings calculator that is recommended for projecting amount saved along with stock/bond allocation and market growth?
Topic Author
jbogler
Posts: 38
Joined: Wed Jul 06, 2022 6:59 pm
Location: Colorado

Re: Newcomer Portfolio Questions

Post by jbogler »

Sorry all, I am in the 22% tax bracket, Married Filing Jointly. I fixed this in the original post, I had it in the single bracket by mistake.

Income is 115k
Annual bonus: ~ 25K (before taxes)
Annual 10% bonus direct to 401k -> 11.5k
3% employer match
I contribute 8% to 401k

Entire annual 401k contribution is 21%.
MattB
Posts: 649
Joined: Fri May 28, 2021 12:27 am

Re: Newcomer Portfolio Questions

Post by MattB »

jbogler wrote: Mon Jul 18, 2022 12:41 pm Is there a good savings calculator that is recommended for projecting amount saved along with stock/bond allocation and market growth?
You might try firecalc (https://firecalc.com/). It will show you the range of historic returns given whatever allocation you select.

You might also use a compound interest calculator (https://www.investor.gov/financial-tool ... calculator) to project where you might be in 15 or 20 years. 3.5 or 4.0 percent are reasonable estimates to use for future returns.

I second others' concerns that you don't yet realize you might not be saving enough for retirement. But you're asking the right questions, and you can figure out where you want to be and what it's going to take, savings wise, to get there.
User avatar
retiredjg
Posts: 48768
Joined: Thu Jan 10, 2008 12:56 pm

Re: Newcomer Portfolio Questions

Post by retiredjg »

jbogler wrote: Mon Jul 18, 2022 12:46 pm Sorry all, I am in the 22% tax bracket, Married Filing Jointly. I fixed this in the original post, I had it in the single bracket by mistake.

Income is 115k
Annual bonus: ~ 25K (before taxes)
Annual 10% bonus direct to 401k -> 11.5k
3% employer match
I contribute 8% to 401k

Entire annual 401k contribution is 21%.
Ok. This puts things in a very different light.

It appears you would be eligible for at least a partial deduction if you contributed to IRA and maybe your wife could make a full deductible contribution if she is not covered by a plan at work. However, there is no point in doing that because putting money in the 401k accomplishes the same thing and reducing your contribution at work might reduce the match.

Having said that, some people would choose to put some in His 401k and some in Her tIRA just so there is money in both names.

If your core expenses are $48k and your income is either $115k or $140k, where is the rest of the money going? Yes, some is going into the 401k and some is going to taxes, but it still seems like a there is a lot that is falling between the cracks. You need to look into this more and see if you can save more.
Colorado13
Posts: 1475
Joined: Thu Apr 07, 2011 4:58 pm
Location: Colorado

Re: Newcomer Portfolio Questions

Post by Colorado13 »

I agree with others that you need to play catch up with retirement savings. Possibly the easiest way to do this would be for your spouse to get a job. Your situation doesn't appear to be dire. The current job market is strong, so it's likely ideal for your spouse to get a job soon (rather than in a few months if the job market starts to take a turn.)
User avatar
retiredjg
Posts: 48768
Joined: Thu Jan 10, 2008 12:56 pm

Re: Newcomer Portfolio Questions

Post by retiredjg »

Colorado13 wrote: Mon Jul 18, 2022 2:28 pm I agree with others that you need to play catch up with retirement savings. Possibly the easiest way to do this would be for your spouse to get a job. Your situation doesn't appear to be dire. The current job market is strong, so it's likely ideal for your spouse to get a job soon (rather than in a few months if the job market starts to take a turn.)
Probably should be considered, but I think many families have found that child care completely eats up the second spouse's income. Sometimes it just makes more sense for one to stay home.

Tough decision for many.
tashnewbie
Posts: 3083
Joined: Thu Apr 23, 2020 12:44 pm

Re: Newcomer Portfolio Questions

Post by tashnewbie »

retiredjg wrote: Mon Jul 18, 2022 2:42 pm
Colorado13 wrote: Mon Jul 18, 2022 2:28 pm I agree with others that you need to play catch up with retirement savings. Possibly the easiest way to do this would be for your spouse to get a job. Your situation doesn't appear to be dire. The current job market is strong, so it's likely ideal for your spouse to get a job soon (rather than in a few months if the job market starts to take a turn.)
Probably should be considered, but I think many families have found that child care completely eats up the second spouse's income. Sometimes it just makes more sense for one to stay home.

Tough decision for many.
The OP said his kids are 11 and 14, so they're probably in school most of the day (unless they're homeschooled or doing virtual instruction) and unless there are some unique circumstances, most kids that age are capable of being at home by themselves for a few hours in the afternoon.
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retiredjg
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Re: Newcomer Portfolio Questions

Post by retiredjg »

That is a good point, but I thought the original post said a 3rd is on the way, in Feb. That is not in the original post now so I might have this confused with a different thread entirely. :(

But if both parents work, how do the kinds get to band, soccer, piano, art, tutoring, cheerleading, violin, football, and all the other activities that the younger generations seem to be doing these days? :happy
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Re: Newcomer Portfolio Questions

Post by jbogler »

retiredjg wrote: Mon Jul 18, 2022 6:06 pm That is a good point, but I thought the original post said a 3rd is on the way, in Feb. That is not in the original post now so I might have this confused with a different thread entirely. :(

But if both parents work, how do the kinds get to band, soccer, piano, art, tutoring, cheerleading, violin, football, and all the other activities that the younger generations seem to be doing these days? :happy
No just the 2, no third. I work from home so that has given us some flexibility on getting kids where they need to be.
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Re: Newcomer Portfolio Questions

Post by jbogler »

retiredjg wrote: Mon Jul 18, 2022 2:42 pm
Colorado13 wrote: Mon Jul 18, 2022 2:28 pm I agree with others that you need to play catch up with retirement savings. Possibly the easiest way to do this would be for your spouse to get a job. Your situation doesn't appear to be dire. The current job market is strong, so it's likely ideal for your spouse to get a job soon (rather than in a few months if the job market starts to take a turn.)
Probably should be considered, but I think many families have found that child care completely eats up the second spouse's income. Sometimes it just makes more sense for one to stay home.

Tough decision for many.
I do not feel that we will need child care as I work from home. I may not be able to get any work done though :)
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Re: Newcomer Portfolio Questions

Post by retiredjg »

That showed up in a thread earlier today. I thought it was you. :( Sorry.
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Re: Newcomer Portfolio Questions

Post by jbogler »

Colorado13 wrote: Mon Jul 18, 2022 2:28 pm I agree with others that you need to play catch up with retirement savings. Possibly the easiest way to do this would be for your spouse to get a job. Your situation doesn't appear to be dire. The current job market is strong, so it's likely ideal for your spouse to get a job soon (rather than in a few months if the job market starts to take a turn.)
She works part time now, and is looking for full time work in a library. She doesn't have her masters, so school would become another consideration.
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Re: Newcomer Portfolio Questions

Post by sawhorse »

One thing that jumped out at me was how small your emergency fund is. With 2 kids and a wife, it really should be more than 3 months. I second the suggestion to open a Roth IRA. One great thing about Roth IRAs is that they can be used as a backup emergency fund.

https://www.investopedia.com/articles/p ... y-fund.asp
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Re: Newcomer Portfolio Questions

Post by Outer Marker »

jbogler wrote: Sun Jul 17, 2022 7:16 pm 6. Where can I do better in building nest egg? I will take SS at 70, I have no pension, Even if I saved 2500/mo for 10 years it only amounts to 300k.
7. I started late -- floundered around when young, didn't get a real job until I was about 38yo, didn't start really saving in 401k until 40. I dont know how to tell when I can stop working. Seems like a long way off.....
Congrats on finding your footing and getting going. You're on the right path, but there's no easy way to make up for lost time. The only solutions are to spend less, earn more, or work longer. Your investments look fine, but there's no magic bullet.

Cutting spending might not be as painful as you think. I don't believe in budgets and find them too cumbersome, but start by getting a really good grip on exactly where your money is going. One tip from a good book, "Your Money or Your Life" is to start by writing down each and every expense on paper for a couple of months, down to the penny. After you have some data, really scrutinize where you can trim expenses without impacting quality of life. Eating out was a huge one for me (and I like to cook), so that was easy. "The Millionaire Next Door" is also a good read on saving and being a bit more frugal.

Cut back to where it hurts "a little" , not a lot. If you can reduce expenses and learn to live on less, you have the dual benefit of saving more, and needing less to retire on.
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Re: Newcomer Portfolio Questions

Post by jbogler »

When I want to retire seems irrelevant, because I would retire now if I could. It is only when/how can I retire.

Starting Questions:
1. Should I max out my rollover IRA VBTLX, VTSAX before maxing out my 401k contributions?
2. Based on Bogleheaders feedback, I feel my 401k tracks very close to a 3 fund portfolio. Agree?
3. I am 48 and want to allocate at 70/30. Common consensus, too aggressive?
4. I don't know how much I need to retire? 1,250,000 @ 4% withdrawal rate? Our core expenses are approx. 4000k/month and we can probably shave some off that if we had to, we have kids at home (11yr, and 14yr). There college funds are funded by grandparents.
5. Maybe a stupid question, but since I cant go more aggressive than 70/30. Only other way to build enough nest egg is to make huge sacrifices in spending and divert to saving.
6. Where can I do better in building nest egg? I will take SS at 70, I have no pension, Even if I saved 2500/mo for 10 years it only amounts to 300k.
7. I started late -- floundered around when young, didn't get a real job until I was about 38yo, didn't start really saving in 401k until 40. I dont know how to tell when I can stop working. Seems like a long way off.....
[/quote]

Welcome to the forum and congratulations on only have mortgage debt.

1. 401k.

2, It's 'good enough'.

3. 70/30 is fine. I am currently 70/30 (turn age 50 this year).

4. You need to:
* Have a reasonably good sense for your expected expenses in retirement
* As a starting point, one common rule of thumb is to then multiply your expenses by 25 to arrive at your "number" to support retirement at a withdrawal rate at 4%. For myself, I only have a vague idea of what my expenses will be in retirement. I simply came up with an income number I would aspire to in retirement (100K per year) and thus my current target is $2.5M. It's a guide to help me figure out if I am generally saving enough or need to take some action...reducing expenses for example. Ultimately, you need to be living beneath your means, saving diligently at a level to meet your goal, and be sure to enjoy life along the way.
Sounds like a good starting point. I use quicken so I have a good idea of where my money goes.

5. "Huge" sacrifices are in the eye of the beholder...but yes, if you are not on track to retire when you like with the income you want, you will likely have to make some changes in spending and / or working longer.
6. Your investments and allocation are fine. For someone in the 24% tax bracket, your savings rate seems very low to me. How much are you spending and where?
Sorry I am in the 22% tax bracket. I incorrectly used the single bracket.

7. A wealth of info. on the WIki and on the web.

Fundamentally, spend the time and start getting into it. No one cares about your retirement more than you.

* Have a clear sense of your expenses
* Identify opportunities where you can save more (and start doing it)
This appears to be the common consensus

* Define your income needs in retirement (does not have to be perfect) and multiply by 25

* Assess your savings rate, expected returns, etc. in the upcoming years and you will start to get a sense for when you may be able to retire with what you are doing now and what type / size of changes you may need to make.
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Re: Newcomer Portfolio Questions

Post by jbogler »

chassis wrote: Sun Jul 17, 2022 8:57 pm
jbogler wrote: Sun Jul 17, 2022 7:16 pm Emergency funds: 3 months funded.

Debt: Only Mortgage (right now) 323K @ 3%

Tax Filing Status: Married Filing Jointly, 2 Dependents

Tax Rate:
24.00% Federal
4.55% State

State of Residence: Colorado

Age: 48yo

Current Asset Allocation: 85% stocks / 15% bonds
Desired Asset allocation: 70% stocks / 30% bonds
Desired International allocation: 10% of stocks

Please provide an approximate size of your total portfolio:
262K Tax Sheltered Accounts
312K Home equity (635-323)
= 594.5K


Current retirement assets:
His 401k:
- 42.32%: Vanguard Institutional Index Trust (N/A)(0.02%)
- 10.46%: Vanguard Extended Market Trust (N/A)(0.04%)
- 6.97%: Vanguard Instl Ttl Intl Stck Mkt Idx Tr (N/A)(0.07%)
- 10.74%: BlackRock US Debt Index Fund (N/A)(0.03%)


His Rollover IRA at Vanguard:
- 8.98%: Vanguard Total Stock Market Index Fund (VTSAX)(0.04%)
- 1.53%: Vanguard Total Bond Market Index Fund (VBTLX)(0.05%)


Her Rollover IRA at Vanguard:
- 16.37: Vanguard Total Stock Market Index Fund (VTSAX)(0.04%)
- 2.63%: Vanguard Total Bond Market Index Fund (VBTLX)(0.05%)

- 0.00% denotes percent of total portfolio. asset value/total assets value


Contributions
His 401k:
Company match: 3% ($3450)
Company bonus: 10% ($11500)
My contribution: 8% ($9200)


Funds available in his 401(k):
T. Rowe Price Stable Value Common Tr-Q
BlackRock US Treasury Inf Prot Sec M
TCW MetWest Total Return Bond C
BlackRock US Debt Index Fund M
Eaton Vance Income Fund of Boston I
BNY Mellon Global Fixed Income - I
PIMCO All Asset Instl
Wealth Preservation Strategy - Cnsrv I
Wealth Preservation Strategy - Mod I
Wealth Preservation Strategy - Growth I
Vanguard Institutional Index Trust
DWS RREEF Global Infrastructure Inst
Vanguard Extended Market Trust
Vanguard Instl Ttl Intl Stck Mkt Idx Tr
American Funds Europacific Growth R6
DFA Global Real Estate Securities Por
Harding Loevner Emerging Markets Advisor

-----

When I want to retire seems irrelevant, because I would retire now if I could. It is only when/how can I retire.

Starting Questions:
1. Should I max out my rollover IRA VBTLX, VTSAX before maxing out my 401k contributions?
2. Based on Bogleheaders feedback, I feel my 401k tracks very close to a 3 fund portfolio. Agree?
3. I am 48 and want to allocate at 70/30. Common consensus, too aggressive?
4. I don't know how much I need to retire? 1,250,000 @ 4% withdrawal rate? Our core expenses are approx. 4000k/month and we can probably shave some off that if we had to, we have kids at home (11yr, and 14yr). There college funds are funded by grandparents.
5. Maybe a stupid question, but since I cant go more aggressive than 70/30. Only other way to build enough nest egg is to make huge sacrifices in spending and divert to saving.
6. Where can I do better in building nest egg? I will take SS at 70, I have no pension, Even if I saved 2500/mo for 10 years it only amounts to 300k.
7. I started late -- floundered around when young, didn't get a real job until I was about 38yo, didn't start really saving in 401k until 40. I dont know how to tell when I can stop working. Seems like a long way off.....
1. Max the capture of employer matching contributions. Then max tax advantaged accounts.
3. Not too aggressive in my view. Too aggressive for many on this site. 85% equities is about right in my view.
4. The 4% "rule" is a good planning tool, as good as any.
5. You can't, or you don't want to?
Dont want to
6. SS is actuarially neutral, so to generate cash flow and deploy it in the market to gain a better return, take SS at 62. This relies on the view, which I hold, that the investor can earn a better return than the SS custodians. With higher volatility than the SS custodians.
I dont understand what you mean by actuarially neutral, when it adds to your purchasing power in retirement. My initial research into this was that you get a bigger monthly check if you wait until your 70. I need to do more research on this.
7. Refer to the 4% rule. Live below your means and save as much as possible. Equities are on sale now and it is to your benefit given your time horizon.
Yes i like looking at it that way: "equities are on sale"
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Re: Newcomer Portfolio Questions

Post by jbogler »

You probably earn too much to contribute to a tax deductible IRA.
I made a mistake, I am in the 22% bracket. Is a tax deductible IRA, still possible?
I believe if “you are covered” by a retirement plan at work (contribute or have an employer retirement plan) & have a MAGI of over $109k for MFJ, you can’t contribute to a tax deductible IRA.
My AGI is 136K. I couldnt find the MAGI in the turbo tax generated return. Another thing to research.

But you may want to open & contribute to a Roth IRA for both you & your spouse to build some “tax diversity” in your retirement accounts. The ability to contribute to a Roth IRA starts to phase out when your MAGI hits $214k if MFJ in 2022 (just added).
I started to contribute to a Roth IRA (maxed out each year) when they came out in 1998 & when I left my job & started SS & RMDs at age 70, I was bumped up 1 tax bracket & several IRMAA (Medicare earnings penalty) brackets.

If I was still married, I probably wouldn’t have been “bumped up” to higher income tax & Medicare brackets when I started SS & RMDs, but no one knows what the future will bring.
I dont have enough research under my belt to tackle this one quite yet. Don't know the consequences yet of contributing to Roth.

Was it Albert Einstein that that said, “Roth IRAs are the 8th wonder of the world.” Or was he talking about compound interest? I always get that mixed up.

bill
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Re: Newcomer Portfolio Questions

Post by jbogler »

Welcome to the forum!

As noted by billfromct, your MAGI is likely too high for you and spouse to make deductible IRA contributions. It is a good idea to open and contribute (even a small amount) to Roth IRAs to start the 5-year clock on initial Roth IRAs. But with a marginal tax rate of 24%, your MAGI may be too high for you and spouse to make direct Roth IRA contributions. If MAGI is too high, small Roth conversions or a backdoor Roth are options (see BH wiki page link, below). But in order to do a backdoor Roth and not be not subject to pro-rated taxes, you could not have a pretax IRA balance at 12/31. One way to achieve this is by rolling over your Rollover IRA into an employer plan such as a 401k (if the plan accepts rollovers in). In your case, an IRA rollover into your 401k would be beneficial as your 401k funds have lower ERs than your IRA. Does your spouse have an employer retirement plan?

BH backdoor Roth wiki page link (pay attention to the section on the need to file Form 8606):
https://www.bogleheads.org/wiki/Backdoor_Roth
jbogler wrote: Sun Jul 17, 2022 7:16 pm … 5. Maybe a stupid question, but since I cant go more aggressive than 70/30. Only other way to build enough nest egg is to make huge sacrifices in spending and divert to saving. …
HomeStretch wrote: Mon Jul 18, 2022 5:26 am You are right - an overly-aggressive equity allocation isn’t the way to “catch-up” and build a higher retirement portfolio balance. The best way is to save more by cutting expenses and/or you/spouse earning more income.
That is what I was afraid of, the stock market is not magic -- only when 20% of your value drops overnight :)
At a minimum, target to save 15-20% of your gross income per year for retirement, more if you need to catch-up. If your annual contributions are only $9,200 then you may only be saving 5% annually for retirement.
I am actually saving 21% in my 401k -> 8% mine, 3% match, 10% profit sharing, however I can save more and will be working on what that amount is.
Have you done a breakdown of how your annual Gross Income is allocated among Savings, Spending and Payroll/Income Taxes? If you are grossing > $200k (24% marginal tax rate) and from that you are Saving 5% to 401k, Spending $48k/yr (maybe 25% gross) and paying maybe 30% for Taxes, your % don’t add up to 100%. Try figuring out the “big picture” as to where your gross income is going as it may be enlightening
I use quicken and know what my core expenses are, our usual discretionary spending, and then the excess. I will run an analysis on those 3 groups you identified. With 2 kids we always seem to gobble up that extra cash by months end. We will have to make saving the priority.

Once the kids are grown and self-supporting, your expenses will likely be lower enabling you to save more. You may also be able to downsize and use the freed up equity to invest.
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Re: Newcomer Portfolio Questions

Post by Outer Marker »

The good news is, since you’re not going to be retiring early and have already made the wise decision to begin SS benefits at 70, you won’t need 25x spending to retire comfortably. You only need enough to cover the gap years from when you stop working until 70 (in very safe assets) and then enough to cover the difference in SS benefits and your actual spend at a conservative withdrawal rate, say, 4%. That won’t be such an ominous number.

I think 70/30 is the optimal point on the risk/reward curve. Have been there since my 30s and will remain there until I depart the planet, leaving the remainder tomorrow my girls.

As noted previously, if you can find ways to reduce spending without materially impacting your quality of life, that will help you a great deal in making up for lost time.
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Re: Newcomer Portfolio Questions

Post by jbogler »

Outer Marker wrote: Tue Jul 19, 2022 6:49 pm The good news is, since you’re not going to be retiring early and have already made the wise decision to begin SS benefits at 70, you won’t need 25x spending to retire comfortably. You only need enough to cover the gap years from when you stop working until 70 (in very safe assets) and then enough to cover the difference in SS benefits and your actual spend at a conservative withdrawal rate, say, 4%. That won’t be such an ominous number.

I think 70/30 is the optimal point on the risk/reward curve. Have been there since my 30s and will remain there until I depart the planet, leaving the remainder tomorrow my girls.

As noted previously, if you can find ways to reduce spending without materially impacting your quality of life, that will help you a great deal in making up for lost time.
You only need enough to cover the gap years from when you stop working until 70 (in very safe assets) and then enough to cover the difference in SS benefits and your actual spend at a conservative withdrawal rate, say, 4%. That won’t be such an ominous number.
I like the sound of that, will investigate more into this strategy. 2 questions that come up: is Social Security still speculated to run out of money by the time I retire? I am 48. The other is, at 70/30 how do you weather severe market downturns when you are reliant on the money you have saved and dont want to cash in shares at reduced value?
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Re: Newcomer Portfolio Questions

Post by jbogler »

retiredjg wrote: Mon Jul 18, 2022 6:54 pm That showed up in a thread earlier today. I thought it was you. :( Sorry.
no worries
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Re: Newcomer Portfolio Questions

Post by jbogler »

sawhorse wrote: Mon Jul 18, 2022 7:43 pm One thing that jumped out at me was how small your emergency fund is. With 2 kids and a wife, it really should be more than 3 months. I second the suggestion to open a Roth IRA. One great thing about Roth IRAs is that they can be used as a backup emergency fund.

https://www.investopedia.com/articles/p ... y-fund.asp
Noted.
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Re: Newcomer Portfolio Questions

Post by Outer Marker »

jbogler wrote: Tue Jul 19, 2022 7:36 pm 2 questions that come up: is Social Security still speculated to run out of money by the time I retire? I am 48. The other is, at 70/30 how do you weather severe market downturns when you are reliant on the money you have saved and dont want to cash in shares at reduced value?
Social security is not going to run out of money. There might be a "haircut" in benefits, but I think even that is unlikely. We're not allowed to speculate on future law changes, so I'll leave it at that. But I think it's safe to assume SSI will play a major role in your retirement and it should be part of your planning.

When I retire, I plan to keep a 3-year "evergreen" cash reserve in spending money, so that I don't have to cash out money if the market is in short term upheaval. I suppose that will make AA more more like 65/35 overall, but whatever. It's just mental accounting. The other alternative is to tighten your belt and spend less when the market is down.
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Re: Newcomer Portfolio Questions

Post by jbogler »

jbogler wrote: Mon Jul 18, 2022 12:41 pm Is there a good savings calculator that is recommended for projecting amount saved along with stock/bond allocation and market growth?
MattB wrote: Mon Jul 18, 2022 12:55 pm You might try firecalc (https://firecalc.com/). It will show you the range of historic returns given whatever allocation you select.

You might also use a compound interest calculator (https://www.investor.gov/financial-tool ... calculator) to project where you might be in 15 or 20 years. 3.5 or 4.0 percent are reasonable estimates to use for future returns.

I second others' concerns that you don't yet realize you might not be saving enough for retirement. But you're asking the right questions, and you can figure out where you want to be and what it's going to take, savings wise, to get there.
Thanks for the calculators, I will be trying them. I am sorry if i wasnt clear, I am actually saving 21% to my 401k. However, only 8% of it is my contribution, I get 3% match, and 10% profit sharing contribution. Based on feedback and my account balance, it is still not enough.
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Re: Newcomer Portfolio Questions

Post by jbogler »

Thank you all for your insight.

I goofed the initial post by saying i was in the 24% bracket when I am really in the 22% bracket. Sorry about that as it led to discussions going in different directions.

My take away from everyone's comments are:
  • Identify my expenses: now and in retirement.
  • Save More.
  • An aggressive asset allocation is not a good way to make up for lost time, I need to save more.
  • Max out my 401k first.
  • Look into whether a back door roth conversion makes sense for my situation.
  • Determine my MAGI
  • Determine whether I am eligible for Tax-Exempt IRA contributions and/or Roth contributions.
  • See what the pundits say as to whether SS will be around in 22 years.
  • Take SS at 70, find how much I need to fill in the gap years and then to supplement my SS payments.
  • 85/15 is too much risk, 70/30 is "ok" risk exposure at my age.
  • The 4% rule is a good guide for a withdrawal rate.
  • My wife needs to look at boosting income, as the kids are more independent now.
  • Use firecalc and a compound interest calculator to project savings targets.
  • Research a good place to park 3 years of cash to weather out a down market.
  • Research if my wife is eligible to contribute to tax-deferred accounts as she does not have a retirement plan.
I will be looking for solutions in the wiki and/or posting more questions on these individual topics.
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Re: Newcomer Portfolio Questions

Post by retiredjg »

Here are a few easy answers.
Look into whether a back door roth conversion makes sense for my situation.
With the income correction, you do not need the back door. You can contribute to Roth IRA directly.

Determine whether I am eligible for Tax-Exempt IRA contributions and/or Roth contributions.
With the bonus added to the $115, you cannot deduct an IRA contribution. You can contribute to Roth IRA directly.

Research if my wife is eligible to contribute to tax-deferred accounts as she does not have a retirement plan.
She is. However, I still suggest Roth IRA. It is good to have both tax deferred and after tax accounts.
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Re: Newcomer Portfolio Questions

Post by retiredjg »

jbogler wrote: Tue Jul 19, 2022 6:35 pm My AGI is 136K. I couldnt find the MAGI in the turbo tax generated return. Another thing to research.
AGI is easily found on your tax form but MAGIs are not there. There are a lot of modified AGIs and each one is different and must be calculated from your own date. See this Wiki entry.

https://www.bogleheads.org/wiki/Modifie ... oss_Income

I dont have enough research under my belt to tackle this one quite yet. Don't know the consequences yet of contributing to Roth.
https://www.bogleheads.org/wiki/Roth_IRA
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Re: Newcomer Portfolio Questions

Post by Outer Marker »

jbogler wrote: Tue Jul 19, 2022 8:18 pm
  • An aggressive asset allocation is not a good way to make up for lost time, I need to save more.
<snip>
  • 85/15 is too much risk, 70/30 is "ok" risk exposure at my age.
Wow. You're really thrown yourself into financial bootcamp. I'm impressed.

Determining your right AA is your single most important investment decision, apart form how much you're able to save.

Take some time pondering the returns of the various portfolio AA's modeled by Vanguard over the last 100 years. https://investor.vanguard.com/investor- ... allocation

Take the Vanguard assets allocation questionnaire and let us know your results. I'd a simple 5 minute quiz. I've found it to be spot on with my own chosen allocation over the years. https://retirementplans.vanguard.com/VG ... Step=start
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Re: Newcomer Portfolio Questions

Post by jbogler »

jbogler wrote: Tue Jul 19, 2022 8:18 pm
  • An aggressive asset allocation is not a good way to make up for lost time, I need to save more.
<snip>
  • 85/15 is too much risk, 70/30 is "ok" risk exposure at my age.
Outer Marker wrote: Wed Jul 20, 2022 11:06 am Wow. You're really thrown yourself into financial bootcamp. I'm impressed.

Determining your right AA is your single most important investment decision, apart form how much you're able to save.

Take some time pondering the returns of the various portfolio AA's modeled by Vanguard over the last 100 years. https://investor.vanguard.com/investor- ... allocation
This is a neat summary. 70/30 -> 80/20. 3.3% more risk for the 0.6% more return. On 1M that is risking 43K to gain 6K. Doesnt sound like a good move when no longer working. Also interesting that the bump up in reward per 10% of stock allocation is only about 0.5% in reward. Does beg the question is it worth it? How long has it taken on average historically to regain what you lost in a down market if you left AA alone?
Outer Marker wrote: Wed Jul 20, 2022 11:06 am Take the Vanguard assets allocation questionnaire and let us know your results. I'd a simple 5 minute quiz. I've found it to be spot on with my own chosen allocation over the years. https://retirementplans.vanguard.com/VG ... Step=start
Investor Questionnaire results
Based on your answers, here's your suggested asset mix:

Bonds 20.0%

Stocks 80.0%

I answered the questions on the assumption that I will have a 3 year reserve in cash to ride out market downturns. I dont have this yet, but it is going to be a priority when I am no longer working.
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Re: Newcomer Portfolio Questions

Post by jbogler »

jbogler wrote: Tue Jul 19, 2022 6:35 pm My AGI is 136K. I couldnt find the MAGI in the turbo tax generated return. Another thing to research.
retiredjg wrote: Wed Jul 20, 2022 7:43 am AGI is easily found on your tax form but MAGIs are not there. There are a lot of modified AGIs and each one is different and must be calculated from your own date. See this Wiki entry.

https://www.bogleheads.org/wiki/Modifie ... oss_Income
I dont think i need to anymore because my AGI is already too high to contribute to a traditional IRA. I base this on the fact that MAGI is generally the same or higher. Does make me wonder if it is better financially to change filing status to "married filing separately" to modify AGI or other factors of eligibility?
I dont have enough research under my belt to tackle this one quite yet. Don't know the consequences yet of contributing to Roth.
Thanks.
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Re: Newcomer Portfolio Questions

Post by retiredjg »

jbogler wrote: Wed Jul 20, 2022 11:40 am Investor Questionnaire results
Based on your answers, here's your suggested asset mix:

Bonds 20.0%

Stocks 80.0%

I answered the questions on the assumption that I will have a 3 year reserve in cash to ride out market downturns. I dont have this yet, but it is going to be a priority when I am no longer working.
Well, since you are still working, answer it again without the assumption of a 3 year cash reserve.
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retiredjg
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Re: Newcomer Portfolio Questions

Post by retiredjg »

jbogler wrote: Wed Jul 20, 2022 11:43 am I dont think i need to anymore because my AGI is already too high to contribute to a traditional IRA. I base this on the fact that MAGI is generally the same or higher. Does make me wonder if it is better financially to change filing status to "married filing separately" to modify AGI or other factors of eligibility?
Nobody makes too much to contribute to a traditional IRA. But you do make too much to deduct a contribution to tIRA. Common misunderstanding.

No, changing your filing status will not do anything you want.

Just put your money into Roth IRA instead of tIRA.
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Re: Newcomer Portfolio Questions

Post by Outer Marker »

jbogler wrote: Wed Jul 20, 2022 11:40 am Investor Questionnaire results
Based on your answers, here's your suggested asset mix:

Bonds 20.0%
Stocks 80.0%

I answered the questions on the assumption that I will have a 3 year reserve in cash to ride out market downturns. I dont have this yet, but it is going to be a priority when I am no longer working.
Based on this, I'd say no more than 70/30. As noted by retiredjg, you're not retired yet and don't have that large cash cushion of spending reserves. It's effectively the same thing as having a lower AA.

It's much more dangerous to over-estimate your risk tolerance on the high side, than to underestimate it on the conservative side. And, as you can see from the Vanguard charts, it won't gain you that much in expected returns.
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jbogler
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Re: Newcomer Portfolio Questions

Post by jbogler »

retiredjg wrote: Wed Jul 20, 2022 11:54 am
jbogler wrote: Wed Jul 20, 2022 11:40 am Investor Questionnaire results
Based on your answers, here's your suggested asset mix:

Bonds 20.0%

Stocks 80.0%

I answered the questions on the assumption that I will have a 3 year reserve in cash to ride out market downturns. I dont have this yet, but it is going to be a priority when I am no longer working.
Well, since you are still working, answer it again without the assumption of a 3 year cash reserve.
I got 80/20 again. dont know how to post screenshot of my answers. However, I plan to go 70/30. then re-evaluate going to 60/40 in 5-10 years.
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Re: Newcomer Portfolio Questions

Post by jbogler »

retiredjg wrote: Wed Jul 20, 2022 11:56 am Just put your money into Roth IRA instead of tIRA.
Not sure how I could even put pre-tax dollars into a tIRA if it wasnt coordinated with my employer? Do folks advocate for the roth since i will not be able to deduct contributions on my taxes, thereby there is no advantage to the tIRA? My past research was that you will be in a lower tax bracket later so you should focus on tIRA. Would you please explain why income taxes bracket now vs later is not an issue in this case? Thanks.
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Re: Newcomer Portfolio Questions

Post by jbogler »

Outer Marker wrote: Wed Jul 20, 2022 12:04 pm Based on this, I'd say no more than 70/30. As noted by retiredjg, you're not retired yet and don't have that large cash cushion of spending reserves. It's effectively the same thing as having a lower AA.
What do folks recommend for holding large amounts of cash (3yrs expenses)? Money Market, High interest savings account, bonds?

I dont like the idea of using any vehicle for this where I could lose principal (bonds). In the fine print of money market accounts it says that they never have gone below principal, but they potentially could. Is it safe to ignore this and know that your value will not ever go below principal in a money market account?
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Re: Newcomer Portfolio Questions

Post by retiredjg »

jbogler wrote: Wed Jul 20, 2022 12:25 pm
retiredjg wrote: Wed Jul 20, 2022 11:56 am Just put your money into Roth IRA instead of tIRA.
Not sure how I could even put pre-tax dollars into a tIRA if it wasnt coordinated with my employer? Do folks advocate for the roth since i will not be able to deduct contributions on my taxes, thereby there is no advantage to the tIRA? My past research was that you will be in a lower tax bracket later so you should focus on tIRA. Would you please explain why income taxes bracket now vs later is not an issue in this case? Thanks.
With some exceptions, a tiRA is something you set up yourself, at a brokerage house or a bank. It has nothing to do with your employer other than your employer may allow you to direct them to send money to your IRA.

Or you can send money to your tIRA or Roth IRA yourself. You can do this the old fashioned way (send them a check) or you can link your tIRA or Roth IRA to your checking account and send money whenever you want.

Your employer offers a 401k. That is where you would put your pre-tax contributions - money would be taken out by your employer and put into your 401k account. It can always be pre-tax - there is no income limit that determines if your 401k contribution is deductible or not.

I think you are confusing "t-IRA" with tax-deferred. Contributions to a tIRA may or may not be tax-deferred. Your income and whether you are covered by a retirement plan at work determine that.
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Re: Newcomer Portfolio Questions

Post by MattB »

jbogler wrote: Wed Jul 20, 2022 12:30 pm
Outer Marker wrote: Wed Jul 20, 2022 12:04 pm Based on this, I'd say no more than 70/30. As noted by retiredjg, you're not retired yet and don't have that large cash cushion of spending reserves. It's effectively the same thing as having a lower AA.
What do folks recommend for holding large amounts of cash (3yrs expenses)? Money Market, High interest savings account, bonds?

I dont like the idea of using any vehicle for this where I could lose principal (bonds). In the fine print of money market accounts it says that they never have gone below principal, but they potentially could. Is it safe to ignore this and know that your value will not ever go below principal in a money market account?
To your question, where to hold cash, I would suggest using some combination of i-bonds, t-bills, and tips. Bond funds, including short term bond funds, are fine for fixed income. But the more I learn about them the less I want to use them for what could be emergency cash.

On a more general note, I saw you were going back and forth between asset allocations of 80/20, 70/30, and maybe in the future 60/40. I think it is important for your to realize, as I think you are beginning to, that your savings rate is orders of magnitude more important than the difference between those allocations in terms of investment results. This is especially true when you start saving more later in life. That, to say, your savings rate is much more likely to determine your retirement success than your asset allocation. Save accordingly.
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Re: Newcomer Portfolio Questions

Post by chassis »

jbogler wrote: Wed Jul 20, 2022 12:30 pm
Outer Marker wrote: Wed Jul 20, 2022 12:04 pm Based on this, I'd say no more than 70/30. As noted by retiredjg, you're not retired yet and don't have that large cash cushion of spending reserves. It's effectively the same thing as having a lower AA.
What do folks recommend for holding large amounts of cash (3yrs expenses)? Money Market, High interest savings account, bonds?

I dont like the idea of using any vehicle for this where I could lose principal (bonds). In the fine print of money market accounts it says that they never have gone below principal, but they potentially could. Is it safe to ignore this and know that your value will not ever go below principal in a money market account?
"Cash" holdings: checking account, ibonds, high yield savings account, dividend stocks.
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Re: Newcomer Portfolio Questions

Post by jbogler »

MattB wrote: Wed Jul 20, 2022 12:52 pm On a more general note, I saw you were going back and forth between asset allocations of 80/20, 70/30, and maybe in the future 60/40. I think it is important for your to realize, as I think you are beginning to, that your savings rate is orders of magnitude more important than the difference between those allocations in terms of investment results. This is especially true when you start saving more later in life. That, to say, your savings rate is much more likely to determine your retirement success than your asset allocation. Save accordingly.
I want to be at 70/30 and yes in a few years going to 60/40. I have seen that the reward of increased stock exposure is minimal, as based on this summary:
https://investor.vanguard.com/investor- ... allocation

I understand that I need to save more and am in process of doing the analysis on what that new number is.
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Re: Newcomer Portfolio Questions

Post by MattB »

jbogler wrote: Fri Jul 22, 2022 2:15 pm I understand that I need to save more and am in process of doing the analysis on what that new number is.
One good way to baseline your savings number is to pick a target, say having $x more dollars in 10 years, and then figure out how much you'll need to save on an annual basis to get there with zero real return. So, e.g., if you want another $1m in 10 years, you would need to save $100k/year for the next ten years.

This estimation process tends to work well for periods of 5 to 10 years, while being conservative over longer time frames. It also avoids the tendency for people to make plans using unusually rosy returns.
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