Personal finance planning

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Suman
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Joined: Sun Jan 01, 2017 1:59 pm

Personal finance planning

Postby Suman » Sun Mar 19, 2017 11:02 am

Hi,

Will appreciate everyone's advice about our financial plan:

35M/31F
No kids- planning to have kids soon
Annual income: $300K- might go up to $400K in a year or two, physician, have calculated all based on 300K base with no future increase in income
Marginal tax rate: 33% federal, 6.5% state (expected tax+FICA, SS in 2017- $106K)
Current expenses: $70K yearly including rental housing
Total retirement savings (403, 457, Roth)- $65K, started in 2016
Planned annual retirement savings: $54K (18%)
EF: $50K
Discretionary fund: $10K
Vanguard brokerage account savings: $25K
Annual brokerage account investment: $12K
planned savings for house: $75K per year- expected cost $800k to 1 million, HCOL, NJ, in 2-3 years with a downpayment between 15-25%, not trying to buy the largest house but good quality house in desirable location and school district will cost this much
Kids education: no 529 yet, planning to use brokerage savings for 529 contribution, any extra savings will go here
Investment strategy: passive, 3 fund portfolio, current allocation 80:20

Planned retirement age: 67
Retirement duration: 30 years
Retirement income: 50% of current income, $150K (not including SS)
Expected rate of return until retirement: 5%
Expected rate of return in retirement: 3%

My calculation shows asset at the time of retirement: $4 million which will cover 30 years in retirement (without including SS)

Any thoughts, advice or suggestions?

Thank you.

Grt2bOutdoors
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Location: New York

Re: Personal finance planning

Postby Grt2bOutdoors » Sun Mar 19, 2017 11:17 am

Use firecalc, or i-orp, planners, then re-run your calculations. Is it $150k in today's dollars or tomorrow's? Big difference. I think you will need to save more to get there and it's too early to tell right now.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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gasdoc
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Re: Personal finance planning

Postby gasdoc » Sun Mar 19, 2017 11:24 am

First off, I'd move to GA, where you can get a very nice house for $400-$500K. :D Then, I'd be sure to have 20% down. If you struggle to get 20% down, you will need to pay the additional PMI, and may struggle to save what you need to with the high mortgage payments.

gasdoc

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Peter Foley
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Re: Personal finance planning

Postby Peter Foley » Sun Mar 19, 2017 11:26 am

I don't have specific advice about investing, but would direct you to the following short Vanguard article regarding portfolio asset allocation:

https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-risk

My reason for doing so is that you have both a long term goal, retirement, and a short term goal, housing purchase. This mix of goals requires a mix of strategies - one for tax deferred accounts and another for taxable accounts. You have taken the first step - being savers and living below your means - the second step is to establish an appropriate asset allocation for each of your goals. Picking specific investments, such as low cost broadly diversified mutual funds in your retirement accounts, would follow.

Perhaps you are already aware of the sequence of these decisions. Regardless, I found the Vanguard article to be interesting and persuasive.

shanghaista
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Joined: Sun Mar 19, 2017 8:50 am

Re: Personal finance planning

Postby shanghaista » Sun Mar 19, 2017 12:35 pm

"Planned annual retirement savings: $54K (18%)"

Where's this total from? Is it a combo of 403, 457 and non-deductible IRAs?

As for your house, do your damnedest to get at least 20% down. PMI, especially on a house pushing $1M, will be an unnecessary drag. Interest is deductible (and at 33%+ is significant) whereas PMI is just cash out the door for you.

Otherwise, you're on a great track. I strongly agree with calculating how much you need in retirement without SS - the 75% of expected benefits we'll get is just gravy.

blueman457
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Re: Personal finance planning

Postby blueman457 » Sun Mar 19, 2017 12:38 pm

-Is the 457 gov't or non-gov't? If non-gov't, I'd pass on it until the rest of your short/immediate term goals are met.
-Does your significant other work as well? What tax-advantaged options does he/she have?

Blue man

Grt2bOutdoors
Posts: 15841
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Location: New York

Re: Personal finance planning

Postby Grt2bOutdoors » Sun Mar 19, 2017 12:55 pm

You buy that house in NJ, given your income, you will pay AMT. You likely did not include that in your calculations. Wait, it gets better, you have kids, and now they will not only increase your AMT liability (did you know that AMT thinks you are having kids for a tax shelter exemption? :oops: ) but your exemptions might be somewhat limited courtesy of Pease limitations on exemptions due to income. What fun! :shock: :oops: and your property taxes? Well, the state of NJ does two things to limit your ability to prosper - 1) it limits the amount of your property tax deduction on your state income taxes to a maximum of $10K, be assured that any property you look at with the price tag you indicate will have taxes in excess of $10K per year and 2) mortgage interest is NOT deductible on your state income tax return.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Suman
Posts: 45
Joined: Sun Jan 01, 2017 1:59 pm

Re: Personal finance planning

Postby Suman » Sun Mar 19, 2017 2:00 pm

Thanks for your replies.
Is it $150k in today's dollars or tomorrow's?

Not sure. I think during retirement. I used bankrate retirement calculator with inflation of 3%.

First off, I'd move to GA...Then, I'd be sure to have 20% down.

Family, friends, career wise- have to be in NY/NJ area. Retirement could be different. Definitely 20%.

and a short term goal, housing purchase.

These savings will stay in bank account, likely Ally.

Is it a combo of 403, 457 and non-deductible IRAs?

403, 457 and rest in taxable VG account.

Is the 457 gov't or non-gov't?

Non-govt: Will not have a 457 from next month..moving to NY (rental house in NJ)

Does your significant other work as well? What tax-advantaged options does he/she have?

DW does not work. We do contribute to her spousal backdoor Roth for $5500 each year.

You buy that house in NJ, given your income, you will pay AMT.

That's another think we are looking into. Housing in NY (outside city limits) or NJ.

IngognitoUSA
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Joined: Sat Mar 11, 2017 7:54 am

Re: Personal finance planning

Postby IngognitoUSA » Sun Mar 19, 2017 4:53 pm

Having lived in this area 30 plus years, I would recommend NJ over NY Burbs. The burbs in NY have higher property tax than comparable NJ towns.

livesoft
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Re: Personal finance planning

Postby livesoft » Sun Mar 19, 2017 5:11 pm

My initial reaction is that this family should be able to save/invest quite a lot more money and be able to retire a lot sooner if they wanted to. I think that's an important choice. Were there some student loans or some other huge expenses not mentioned?
Last edited by livesoft on Sun Mar 19, 2017 6:03 pm, edited 1 time in total.
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Meg77
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Re: Personal finance planning

Postby Meg77 » Sun Mar 19, 2017 6:01 pm

livesoft wrote:My initial reaction is that this family should be able to save/invest quite a lot more money and be able to retire a lot sooner if they wanted to. I think that's an important choice. Were their some student loans or some other huge expense not mentioned?


Agreed. If your annual expenses are only $75K per year, you don't need $4M to retire (though of course expenses will rise if you buy a $1M home - and with children). I think it's great if you love your job and want to work until age 67, but that certainly is not mandatory given your starting point and savings rate - even if you don't assume income increases.

I do think it's odd that your wife/SO isn't working given that you don't have any kids, but I guess if you're willing to support her fully that's your business. A divorce is your single biggest financial risk given this situation.
"An investment in knowledge pays the best interest." - Benjamin Franklin

Suman
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Re: Personal finance planning

Postby Suman » Sun Mar 19, 2017 6:07 pm

Yes. 75K minus extra mortgage+property tax expenses will be added to retirement savings once we purchase the house. Any additional income will also go towards retirement. Is there anything else we can do to save more? Are our current expenses too high?

There are no additional debts or major expenses currently. 67 is an average what I see in my field. If our retirement goals are met and I feel like it, can definitely retire earlier than that.

livesoft
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Re: Personal finance planning

Postby livesoft » Sun Mar 19, 2017 6:09 pm

You can save more by doing the usual things that everyone does. Do you need to save more? I don't know. I think you will get to $10 MM in today's dollars by age 67 without a problem.

Here is a thread on what one family did to save more:
viewtopic.php?t=79510

The main thing is to watch your taxes and don't do stupid things like pay 1% to a financial advisor nor to buy whole life insurance. You must've started reading whitecoatinvestor.com, too.
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Suman
Posts: 45
Joined: Sun Jan 01, 2017 1:59 pm

Re: Personal finance planning

Postby Suman » Sun Mar 19, 2017 6:23 pm

Everything I am doing is based on my learnings on this amazing forum. I did come here via whitecoatinvestor. Already fended off one sales pitch for whole life policy. Have never met a financial advisor. My only regret- did not start financial planning until age 34.


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