"Upper Middle" Class - ditch WLI or ride it?

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bsigmund90
Posts: 9
Joined: Thu Aug 10, 2017 11:31 am

"Upper Middle" Class - ditch WLI or ride it?

Post by bsigmund90 » Thu Aug 10, 2017 12:59 pm

Currently working with:

27 years old
5+ years at current job and don't plan on leaving currently
15,000 bank (cash) savings
52,000 in 401k (39k is vested, i would dispute the vestment if i left/was terminated, closer to 45k)
- Allocation is as follows (American Funds aggressive portfolio):
- Vanguard Small Cap Value Index Admiral 5%
- American Funds Capital World G/I R5 9%
- American Funds EuroPacific Gr R5 9%
- American Funds New World Fund R5 7%
- Vanguard Explorer Adm 5%
- Hartford Midcap R5 7%
- Vanguard Selected Value Inv 8%
- American Funds Growth Fund of Amer R5 20%
- American Funds Washington Mutual R5 20%
- Federated Instl High Yield Bond Instl 5%
- T. Rowe Price New Income 5%
16,650 in Roth (through Northwestern - American Funds AGTHX)
31,000 in Mutual Fund (through Northwestern - American Funds BALCX) - thought of as fund for house down payment
10,400 in debt (car payment)
No house, i rent. Would like to get married (ring, wedding), and get a comfortable house (250-300k gets me nice options in the area)
No other debts, no student loans.
I've got a 1,500 limit bank credit card but I don't even have an adult credit card persay.

Yearly Income / Allocation:
93,600 guaranteed gross income
5,000-7,000 performance bonus (non-guaranteed)
1,000-2,000 christmas bonus (non-guaranteed)
will have a 3,000 gross stipend next year for a part time job

5,500 into Roth
5,500 into 401k
Employer gives 5-7% of salary in profit sharing, regardless if I contribute or not. Not guaranteed.
7,200 into Mutual fund
6,600 into Whole Life Insurance (through Northwestern - 2 policies (i got a big pay bump and opened a 2nd one) 498k base coverage paid up 65)
4,560 goes to the car payment
6,900 goes to rent

I'm struggling with why I feel squeezed.

Also questioning whether i should ditch the WLI and invest it, Get term when i get married and get a house. I feel awful because my grandfather gave me 10k when i turned 25 and i felt like i wasn't being responsibly with my money (had 30k in bank cash savings sitting earning practically nothing) so i went to a FA - used the FA my friends used, she immediately sold me on the WLI and i shouldn't have invested before i fully understood the product. I've dumped 10k total into it and my surrender values i would probably get less than 2.5k back. I know it's a crap investment compared to the market. I feel like i've massively squandered my grandfathers gift, even though that went into the mutual fund which is performing decently right now.

I make nearly 100k and i feel like i'm drowning in liabilites/ I have no cushion/comfort in my day to day life (mostly to paying that NM WLI policy/all the investments i'm making). It feels very paycheck to paycheck even though i'm dumping more on investments/insurance than anything else. I know duration in the market = great returns later on is why i'm hesitant to change anything.

On a monthly basis (assuming 4 paychecks), my money goes to the following:
27.3% Taxes/Entitlements
05.9% 401K
08.3% Mutual Fund Inv
01.8% Health Insurance
08.0% Rent Payment
05.3% Car Payment
01.8% Auto / Rent Ins. Policies
07.6% Life. Ins. Policy
01.2% Disab Ins. Policy
06.4% Roth IRA Inv
00.4% YMCA Payment
02.2% Cable/Internet Payment
01.5% Electric Bill
19.4% Food; Fuel; Disc Spending (this is literally, lunch, dinner, gas, and doing stuff with my girlfriend on the weekends. I'm not a buyer)
02.9% Theoretical Cash Savings
100%

Am I on a good plan, or should I ditch that WLI and up my 401k investment/ find a direct-invest post-tax?
Should i take the 15k in cash savings to pay off the car & invest that yearly difference?
Should I move my mutual funds / Roth to a broker-dealer that's less costly?
If you had my resources, how would you play with it to get the most bang for the buck?

mw1739
Posts: 425
Joined: Mon Mar 21, 2011 5:44 pm

Re: "Upper Middle" Class - ditch WLI or ride it?

Post by mw1739 » Thu Aug 10, 2017 4:23 pm

Ditch the whole life. It's questionable whether you need life insurance at all, but if you do want it, you should be able to get a dirt cheap term life policy. Redirect those funds to the 401k and/or your house down payment fund. Move the mutual funds to Vanguard, Fidelity, Schwab etc. to save on fees and expenses. At that income level and with your expenses, you shouldn't feel like you're living paycheck to paycheck. Try staying in one extra night a week to save a couple hundred each month.

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greg24
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by greg24 » Thu Aug 10, 2017 4:36 pm

bsigmund90 wrote:I feel like i've massively squandered my grandfathers gift.
Your grandfather's gift was a financial lesson that will pay dividends for the rest of your life. Dump the WLI without guilt.

Your financial picture is in good health, keep it up.

Nate79
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Location: Portland, OR

Re: "Upper Middle" Class - ditch WLI or ride it?

Post by Nate79 » Thu Aug 10, 2017 5:03 pm

Sounds like you enjoy making some Northwestern salesman's boat payment.

Suggestion:

Get rid of all Northwestern products (Roth, WL, mutual fund, etc). Transfer the Roth to a respectable low cost brokerage (Vanguard, Fidelity, Schwab, etc.) Invest in low cost mutual funds.
You have no need for life insurance. If you need life insurance buy term. WL is a junk high expense product.
Increase your 401k contribution and stop contributing to taxable account
Clean up the mess of a 401k portfolio by simplifying it to only a few funds (lowest cost if possible)
Get on a written budget

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: "Upper Middle" Class - ditch WLI or ride it?

Post by livesoft » Thu Aug 10, 2017 5:38 pm

Definitely, ditch all relationships with Northwestern ML. I would get term insurance from someplace else only if I needed it. I've never bought life insurance because I never needed it.
This signature message sponsored by sscritic: Learn to fish.

FullYellowJacket
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by FullYellowJacket » Thu Aug 10, 2017 5:47 pm

Term life (if you needed it, I don't think it makes any sense to get it before starting a family) is much cheaper for much more coverage. 1/10th of the cost per year will provide double the death payout. Invest the difference and your net worth will thank you.

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Ged
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by Ged » Thu Aug 10, 2017 6:26 pm

Yes ditch the WLI. With prejudice.

Also simplify the 401K. All those fancy pants actively managed funds are ripping you off. Put your money into whatever the lowest fee broad index fund in the plan is.

Move the money you are putting into Northwestern/American to Vanguard or Fidelity and put it into 20% total bond market and 80% total stock market index funds.

Otherwise you are doing way better than most people your age.

Grats!

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BL
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by BL » Thu Aug 10, 2017 6:37 pm

https://www.etf.com/docs/IfYouCan.pdf
is a pdf written just for new investors. It is a great short read of most of the things you need to know. Be sure to read the last Hurdle about advisors.

There is lots of good reading in the Wiki here, along with recommended books. Bogleheads guide to Investing is a good start.

Look for the 3-fund portfolio.

TravelforFun
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Joined: Tue Dec 04, 2012 11:05 pm

Re: "Upper Middle" Class - ditch WLI or ride it?

Post by TravelforFun » Thu Aug 10, 2017 6:51 pm

Stop contributing to the 401K (you still get employer's contribution) and pay off the car ASAP.

KevinIA
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Joined: Sat Mar 04, 2017 8:37 pm

Re: "Upper Middle" Class - ditch WLI or ride it?

Post by KevinIA » Thu Aug 10, 2017 7:40 pm

Cancel Whole life, cash in policy. Get a term policy in place before doing this if you want to have life insurance. Not sure if you need it at this point in your life, but if you are young and healthy this might be the time to lock in a 20 year term policy for not much money. Pay off car. Emergency fund of 3 to 6 months expenses. Save for house down payment of at least 20% if you want to buy at some point, or keep increasing the 401k to $18,000 per year if you can fit it in the budget. Live life and be glad you are asking these questions at such a young age, you will be very financially well off when you get older. I was in my mid 30's before starting to make solid financial choices like you are now. :D

Grt2bOutdoors
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Location: New York

Re: "Upper Middle" Class - ditch WLI or ride it?

Post by Grt2bOutdoors » Thu Aug 10, 2017 7:57 pm

Ditch it. Take the money, pay off your debts, then take payment money and invest it!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

clutchied
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by clutchied » Fri Aug 11, 2017 9:00 am

1. I would cancel the whole life.
2. Stop investing into a mutual fund that doesn't offer tax advantaged status. Either stop completely or bump that into your 401k.

You make too much money but not enough to do taxable without first maximizing your tax savings.

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CyclingDuo
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Joined: Fri Jan 06, 2017 9:07 am

Re: "Upper Middle" Class - ditch WLI or ride it?

Post by CyclingDuo » Fri Aug 11, 2017 9:18 am

bsigmund90 wrote:Currently working with:

27 years old
5+ years at current job and don't plan on leaving currently
15,000 bank (cash) savings - Good
52,000 in 401k (39k is vested, i would dispute the vestment if i left/was terminated, closer to 45k)
- Allocation is as follows (American Funds aggressive portfolio):
- Vanguard Small Cap Value Index Admiral 5%
- American Funds Capital World G/I R5 9%
- American Funds EuroPacific Gr R5 9%
- American Funds New World Fund R5 7%
- Vanguard Explorer Adm 5%
- Hartford Midcap R5 7%
- Vanguard Selected Value Inv 8%
- American Funds Growth Fund of Amer R5 20%
- American Funds Washington Mutual R5 20%
- Federated Instl High Yield Bond Instl 5%
- T. Rowe Price New Income 5%

Best to simplify all of those funds into either a lower cost target fund, or something akin to the Three Fund Portfolio using the lowest cost ER funds available in your 401K plan. Can you list the ER fees of the funds above, and list some of the lower cost funds available? Are there more Vanguard funds in your plan available? (Total Stock Market, Institutional 500, Total International, Extended Market, etc....?)

16,650 in Roth (through Northwestern - American Funds AGTHX)

Would sell this fund, and have the Roth account transferred to a lower cost provider with better low cost funds such as Vanguard or Fidelity.

31,000 in Mutual Fund (through Northwestern - American Funds BALCX) - thought of as fund for house down payment

What's the ER fee of that fund? 1.38%!!!! Ouch!

This one is going to be a tax consequence to sell, but again - you would be better off in lower cost ER fee funds. Vanguard Total Stock Market, Vanguard Total International, and since it is in taxable you could go with a Municipal Bond Fund as it is more tax efficient than the Total Bond Fund. Those fees of 1.38% you are currently paying per year will lower your returns over the years, so making the adjustment now would be well worth your while in spite of the cap gains tax you would owe for 2017.


10,400 in debt (car payment)

Perhaps when you sell the mutual fund to move it to lower cost options, you should pay off this debt to free up your monthly cash flow. Contribute the same amount to savings/investments in lieu of the loan.

No house, i rent. Would like to get married (ring, wedding), and get a comfortable house (250-300k gets me nice options in the area)

Continue saving to work towards a handsome down payment when that day eventually arrives. Nothing wrong with renting in the meantime.

No other debts, no student loans. Good
I've got a 1,500 limit bank credit card but I don't even have an adult credit card persay. No doubt offers will be filling your mailbox as time goes on. Consider a 2% back credit card.

Yearly Income / Allocation:
93,600 guaranteed gross income
5,000-7,000 performance bonus (non-guaranteed)
1,000-2,000 christmas bonus (non-guaranteed)
will have a 3,000 gross stipend next year for a part time job

5,500 into Roth
5,500 into 401k
Employer gives 5-7% of salary in profit sharing, regardless if I contribute or not. Not guaranteed.
7,200 into Mutual fund
6,600 into Whole Life Insurance (through Northwestern - 2 policies (i got a big pay bump and opened a 2nd one) 498k base coverage paid up 65) As everyone has yelled: Big mistake! Take the lumps and get out of this high expense cost, bad insurance/investment product. You are young, have no heirs, and your debt is covered. You do not need life insurance right now. Hold off on insurance - and only consider low cost term life insurance at the time - until you have home ownership debt, a wife and heirs. Again, you have no need for it right now, and Whole Life as an investment vehicle is very expensive with all of the fees. There are much better ways to grow your wealth (and to get insured: term life).

4,560 goes to the car payment You didn't mention the interest rate, but it really doesn't matter. You have the assets in the mutual fund to pay this off and free up your monthly cash flow.
6,900 goes to rent Good, it's low and will allow you to accumulate at this low percentage of your income.

I'm struggling with why I feel squeezed. Cash flow every month would pick up namely by dropping the Whole Life Insurance product as those are high, costly payments. Ditch the car loan as well and your cash flow picks up considerably between the two. 12.9% to be exact.


Also questioning whether i should ditch the WLI and invest it, Get term when i get married and get a house. I feel awful because my grandfather gave me 10k when i turned 25 and i felt like i wasn't being responsibly with my money (had 30k in bank cash savings sitting earning practically nothing) so i went to a FA - used the FA my friends used, she immediately sold me on the WLI and i shouldn't have invested before i fully understood the product. I've dumped 10k total into it and my surrender values i would probably get less than 2.5k back. I know it's a crap investment compared to the market. I feel like i've massively squandered my grandfathers gift, even though that went into the mutual fund which is performing decently right now.

Read up on the high costs of certain investment products and how they rob you of returns (but certainly provide commissions to the FA's and the companies that sell you the products). Turning that ship around right now to get you into lower cost investments to lower your fees, and improve your lifelong returns is something that needs to be done sooner, rather than later. Don't worry about burning any bridges with a current FA that got you into this mess. Part ways and pat yourself on the back for tacking control of your investing the Bogleheads way.

I make nearly 100k and i feel like i'm drowning in liabilites/ I have no cushion/comfort in my day to day life (mostly to paying that NM WLI policy/all the investments i'm making). It feels very paycheck to paycheck even though i'm dumping more on investments/insurance than anything else. I know duration in the market = great returns later on is why i'm hesitant to change anything.

Freeing up your cash flow of the car payment and Whole Life Insurance policy will give you an immediate 12.9% increase in cash flow. You can do a lot with that amount to your benefit. If you lowered the 8% you are sending to a very high ER cost mutual fund (you need to get rid of that fund ASAP, use the proceeds to pay off your car loan, and use the rest to begin lower cost investments), you could up the monthly cash available to perhaps even 15%+. In terms of the investing, as others have said, it would be better to contribute more to your 401K to take advantage of the pre-tax deduction - just need to simplify and choose some lower cost funds in that plan.

On a monthly basis (assuming 4 paychecks), my money goes to the following:
27.3% Taxes/Entitlements
05.9% 401K
08.3% Mutual Fund Inv
01.8% Health Insurance
08.0% Rent Payment
05.3% Car Payment
01.8% Auto / Rent Ins. Policies
07.6% Life. Ins. Policy
01.2% Disab Ins. Policy
06.4% Roth IRA Inv
00.4% YMCA Payment
02.2% Cable/Internet Payment
01.5% Electric Bill
19.4% Food; Fuel; Disc Spending (this is literally, lunch, dinner, gas, and doing stuff with my girlfriend on the weekends. I'm not a buyer)
02.9% Theoretical Cash Savings
100%

Am I on a good plan, or should I ditch that WLI and up my 401k investment/ find a direct-invest post-tax?
Should i take the 15k in cash savings to pay off the car & invest that yearly difference?
Should I move my mutual funds / Roth to a broker-dealer that's less costly?
If you had my resources, how would you play with it to get the most bang for the buck?

You are on a good plan with your saving, but you are paying way to much in fees/costs for that plan. Dump the Whole Life. Dump the high cost mutual fund and pay off your car. Get lower cost funds in your 401K, and simplify it down to 3 or 4 funds that mimic the Three Fund Portfolio.

Look up all of your funds, and go back to the original post to plug in the ER fees. True, that not all 401K plans offer low cost funds, but the employer match is worth it - but you can still pick the lowest cost funds available. List some of the low cost funds available for us to see within your 401K plan.

Hang in there. You are doing well, and catching things this early in your investing career will benefit you for decades to come.


OnTrack2020
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by OnTrack2020 » Fri Aug 11, 2017 10:26 am

No husband or children yet, plus your savings covers your debt on your car....there really is no reason for it. We purchased term life insurance once we were married and had children. Also, once the insurance served its purpose (15 years later), we didn't need it any more.

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jimb_fromATL
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Location: Atlanta area & Piedmont Triad NC and Interstate 85 in between.

Re: "Upper Middle" Class - ditch WLI or ride it?

Post by jimb_fromATL » Fri Aug 11, 2017 10:50 am

Grt2bOutdoors wrote:Ditch it. Take the money, pay off your debts, then take payment money and invest it!
IMO it's not good use of the money to postpone any tax-deferred or tax-advantage retirement space to pay down manageable debts, matched or not.

The OP is in the 25% tax bracket for the feds, plus probably paying state income tax too. That's at least 25% or more of income that will not be paying bills, buying necessities, saving for the down payment, paying down the debt, or earning compound interest for the rest if his life either.

The taxes alone will be several times more than the interest that the after-tax money will save in interest on the debt.

Even in the best case of reinvesting the freed-up payments after this relatively small loan is paid off, it could result in a loss of probably more the $12,000 in life-time interest earnings in the 401(k) in exchange for saving perhaps $200 to 300 interest on the debt. If the freed-up payments are not reinvested, the loss could run into a couple hundred thousand dollars or more.

To illustrate the problem:
  • A car loan balance of $10,400 at perhaps 3.% can be paid off in 36 months (3 years) with a payment of $302.44 per month for P&I. The total interest will be $488.

    Let's look at two choices: (1) Investing $5,500 ...$458.33 per month... in the 401(k) and paying $302 per month to pay off a loan balance of $10,400 at 3.% in 36 months.

    Or (2) Don't do the extra $458.33 per month contributions and pay an extra $114.58 per month in taxes (25.% total for 25% federal and %0 state) then use the remaining $343.75 per month to pay off the loan faster.

    If we stop the 401(k) contributions:
    • The extra amount will pay it off in 16.4 months and save $260 interest. However, that is in exchange for paying $1,885 more in taxes that you won't be investing during that time.

      Once the debt is paid off we can resume the $458.33 per month pre-tax contributions for the remaining 19.6 months of the original loan period. If it is resumed with no delay, the remaining 19.6 contributions of $458 averaging 7.% will grow to $9,463 by the end of the original loan period.

      At that point we're short by $8,838. At an average APY of 7.% that could have compounded to $101,690 at retirement time 420 months (35 years) later. We're short by that much for saving $260 on the car loan.

      At retirement time that $101,690 earning a more conservative 4.% could pay about $339 per month interest without even reducing the balance. So if we lived 30 more years, we'd stand to lose the $101,690 we won't have at retirement time plus the $122,028 in interest that it won't earn for the rest of our life, for a total loss of $223,717 of potential retirement income -- in exchange for saving $260 on the short-term debt.
    While I've never known anybody who actually did it, we can also invest the freed-up payments for the remaining 19.6 months until the end of the original loan period. In this case the original $458 plus the $403 pretax would be $862 per month ($10,339 per year) which is less than the $18,000 yearly limit for one person for a 401(k) ... so it is possible to reinvest freed-up payments in the 401(k) and get some more tax deferral.
    • The $458.33 per month invested for the entire 36 months of the original loan earning an average APY of 7.% would grow to $18,301.

      If the 19.6 freed-up pre-tax payments of $403.26 were reinvested at the same 7.% APY they'd grow to $8,326 by the end of the original 36 month loan period.

      Added to the $9,463 from the delayed contributions, that would give a total of $17,790 after 36 months. That's only short by $512 in 36 months ... for saving $260 interest.

      However, earning the same rate with no more contributions, that $512 could have grown to $5,886 by retirement time. So we've still lost that amount at retirement ... for saving $260 interest on the loan.

      The deficit at retirement time earning 4% could pay an extra $20 per month in interest without touching the balance. So if you lived 30 more years you would still lose the $5,886 you won't have plus the $7,063 interest it won't earn in the next 30 years for a potential total loss of $12,949 of income during your life.

That's not as bad as the losses shown in the threads linked below, but $12K+ is still a lot to lose in the long run just to feel good about saving two or three hundred dollars in interest on a short term debt.


More examples:

viewtopic.php?f=2&t=136151&p=2011928#p2011928 Student Loans and Retirement help
viewtopic.php?t=136385 Paying student loans vs Losing compounding interest
viewtopic.php?f=2&t=128788 Swamped In Debt - Thoughts?
viewtopic.php?t=131027 Advice when to start investing considering Student Loan Debt
viewtopic.php?f=2&t=129906 Mortgage PMI or Student Loan?
viewtopic.php?f=1&t=180529 Pay down mortgage or stuff retirement accounts?
viewtopic.php?f=1&t=178566 Mortgage or 401k[/list]


jimb

bsigmund90
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by bsigmund90 » Fri Aug 11, 2017 11:57 am

401k Options:
American Funds EuroPacific Gr R5 Growth RERFX 0.54%
American Funds Growth Fund of Amer R5 Growth RGAFX 0.39%
American Funds New World Fund R5 Growth RNWFX 0.80%
Hartford Midcap R5 Growth HFMTX 0.86%
Vanguard Explorer Adm Growth VEXRX 0.34%
Vanguard Selected Value Inv Growth VASVX 0.35%
Vanguard Small Cap Value Index Admiral Growth VSIAX 0.35%
American Funds Capital World G/I R5 Growth-and-income RWIFX 0.50%
American Funds Fundamental Investors R5 Growth-and-income RFNFX .35%
American Funds Intl Gr And Inc R5 Growth-and-income RIGFX .63%
American Funds Washington Mutual R5 Growth-and-income RWMFX 0.35%
American Funds Capital Inc Bldr R5 Equity-income RIRFX 0.37%
American Funds American Balanced R5 Balanced RLBFX 0.34%
Federated Instl High Yield Bond Instl Bond FIHBX 0.50%
T. Rowe Price New Income Bond PRCIX 0.60%
Vanguard Short-Term Bond Index Adm Bond VBIRX 0.07%
American Funds US Govt Money Market R5 Cash-equivalent RAEXX 0.40%
American Funds 2010 Target Date Fund R5 Target Date REATX 0.41%
American Funds 2015 Target Date Fund R5 Target Date REJTX 0.40%
American Funds 2020 Target Date Fund R5 Target Date RECTX 0.42%
American Funds 2025 Target Date Fund R5 Target Date REDTX 0.44%
American Funds 2030 Target Date Fund R5 Target Date REETX 0.46%
American Funds 2035 Target Date Fund R5 Target Date REFTX 0.47%
American Funds 2040 Target Date Fund R5 Target Date REGTX 0.48%
American Funds 2045 Target Date Fund R5 Target Date REHTX 0.49%
American Funds 2050 Target Date Fund R5 Target Date REITX 0.49%
American Funds 2055 Target Date Fund R5 Target Date REKTX 0.50%
American Funds 2060 Target Date Fund R5 Target Date REMTX 0.51%

Roth's currently in:
AGTHX: 0.66%

House fund's currently in:
BALCX: 1.38%

jalbert
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by jalbert » Fri Aug 11, 2017 12:51 pm

If you direct the funds you are currently contributing to after-tax mutual fund and WLI to your 401K instead, you will lower your taxes and have additional disposable income. Max out your 401K before you contribute to an after-tax investment.

Agree with others that 401K investments should be simplified. Given the choices, the American Funds Target Retirement fund for your expected retirement year would be an excellent choice.

Would suggest moving your Roth IRA to Vanguard and investing in a Target Retirement fund there as well. By simplifying both investments in this way, you can focus more on the big picture.

If the tax consequences of the embedded capital gain in your BALCX holding are manageable, get out of it while you can without much consequence. 1.38% is a ridiculous expense level. For comparison, the Vanguard Balanced Index fund has an expense ratio of .07%. Maybe maxing out your 401k next year will free up enough marginal income space for the gain to be mostly federally tax-free.

However, if this is a savings account for a down payment on a house, I don't think the investment should include stocks. If the market tanks when you get ready to make the purchase, it will derail the plan. A high yield internet-based FDIC-insured money market account would be appropriate.

Liquidate WLI and payoff the car loan, putting the residual after any taxes into your house down payment savings.

The savings in taxes from maxing out your 401K and the funds that no longer go to a car payment can go into your house down payment savings account.
Risk is not a guarantor of return.

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HomerJ
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by HomerJ » Fri Aug 11, 2017 1:22 pm

livesoft wrote:I've never bought life insurance because I never needed it.
Had kids late in life?

Grt2bOutdoors
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Location: New York

Re: "Upper Middle" Class - ditch WLI or ride it?

Post by Grt2bOutdoors » Fri Aug 11, 2017 1:34 pm

jimb_fromATL wrote:
Grt2bOutdoors wrote:Ditch it. Take the money, pay off your debts, then take payment money and invest it!
IMO it's not good use of the money to postpone any tax-deferred or tax-advantage retirement space to pay down manageable debts, matched or not.

The OP is in the 25% tax bracket for the feds, plus probably paying state income tax too. That's at least 25% or more of income that will not be paying bills, buying necessities, saving for the down payment, paying down the debt, or earning compound interest for the rest if his life either.

The taxes alone will be several times more than the interest that the after-tax money will save in interest on the debt.

Even in the best case of reinvesting the freed-up payments after this relatively small loan is paid off, it could result in a loss of probably more the $12,000 in life-time interest earnings in the 401(k) in exchange for saving perhaps $200 to 300 interest on the debt. If the freed-up payments are not reinvested, the loss could run into a couple hundred thousand dollars or more.

To illustrate the problem:
  • A car loan balance of $10,400 at perhaps 3.% can be paid off in 36 months (3 years) with a payment of $302.44 per month for P&I. The total interest will be $488.

    Let's look at two choices: (1) Investing $5,500 ...$458.33 per month... in the 401(k) and paying $302 per month to pay off a loan balance of $10,400 at 3.% in 36 months.

    Or (2) Don't do the extra $458.33 per month contributions and pay an extra $114.58 per month in taxes (25.% total for 25% federal and %0 state) then use the remaining $343.75 per month to pay off the loan faster.

    If we stop the 401(k) contributions:
    • The extra amount will pay it off in 16.4 months and save $260 interest. However, that is in exchange for paying $1,885 more in taxes that you won't be investing during that time.

      Once the debt is paid off we can resume the $458.33 per month pre-tax contributions for the remaining 19.6 months of the original loan period. If it is resumed with no delay, the remaining 19.6 contributions of $458 averaging 7.% will grow to $9,463 by the end of the original loan period.

      At that point we're short by $8,838. At an average APY of 7.% that could have compounded to $101,690 at retirement time 420 months (35 years) later. We're short by that much for saving $260 on the car loan.

      At retirement time that $101,690 earning a more conservative 4.% could pay about $339 per month interest without even reducing the balance. So if we lived 30 more years, we'd stand to lose the $101,690 we won't have at retirement time plus the $122,028 in interest that it won't earn for the rest of our life, for a total loss of $223,717 of potential retirement income -- in exchange for saving $260 on the short-term debt.
    While I've never known anybody who actually did it, we can also invest the freed-up payments for the remaining 19.6 months until the end of the original loan period. In this case the original $458 plus the $403 pretax would be $862 per month ($10,339 per year) which is less than the $18,000 yearly limit for one person for a 401(k) ... so it is possible to reinvest freed-up payments in the 401(k) and get some more tax deferral.
    • The $458.33 per month invested for the entire 36 months of the original loan earning an average APY of 7.% would grow to $18,301.

      If the 19.6 freed-up pre-tax payments of $403.26 were reinvested at the same 7.% APY they'd grow to $8,326 by the end of the original 36 month loan period.

      Added to the $9,463 from the delayed contributions, that would give a total of $17,790 after 36 months. That's only short by $512 in 36 months ... for saving $260 interest.

      However, earning the same rate with no more contributions, that $512 could have grown to $5,886 by retirement time. So we've still lost that amount at retirement ... for saving $260 interest on the loan.

      The deficit at retirement time earning 4% could pay an extra $20 per month in interest without touching the balance. So if you lived 30 more years you would still lose the $5,886 you won't have plus the $7,063 interest it won't earn in the next 30 years for a potential total loss of $12,949 of income during your life.

That's not as bad as the losses shown in the threads linked below, but $12K+ is still a lot to lose in the long run just to feel good about saving two or three hundred dollars in interest on a short term debt.


More examples:

viewtopic.php?f=2&t=136151&p=2011928#p2011928 Student Loans and Retirement help
viewtopic.php?t=136385 Paying student loans vs Losing compounding interest
viewtopic.php?f=2&t=128788 Swamped In Debt - Thoughts?
viewtopic.php?t=131027 Advice when to start investing considering Student Loan Debt
viewtopic.php?f=2&t=129906 Mortgage PMI or Student Loan?
viewtopic.php?f=1&t=180529 Pay down mortgage or stuff retirement accounts?
viewtopic.php?f=1&t=178566 Mortgage or 401k[/list]


jimb
Agree with all of above. I missed the part where he disclosed his gross income and what he was saving in 401K plan. A 5.9% savings rate is much too low in the 401K plan.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by LarryAllen » Fri Aug 11, 2017 1:39 pm

Dump the whole.

bsigmund90
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by bsigmund90 » Fri Aug 11, 2017 2:32 pm

Grt2bOutdoors wrote:
jimb_fromATL wrote:
Agree with all of above. I missed the part where he disclosed his gross income and what he was saving in 401K plan. A 5.9% savings rate is much too low in the 401K plan.
RE 401k:
I am relocating the 6600 from the WLI into the 401k first thing. well, whatever pre-tax 401k addition would net me the same annual pay less the WLI payment (should be a few $$ above the 6600/year making it in).

I've read anywhere from 15-20% of income into retirement savings. The argument (when i was even more illiterate than I am now) was that the WLI was a retirement bucket. So i would immediately reallocate the WLI into a retirement fund that gets a better return.

I crunched the number and i can max it and still be very close to equal in after tax net income. that puts 25% into retirement savings - a lot of things i've seen say 15% is good. what are the advantages of maxing something i can't touch till 59-1/2 without penalty vs other vehicles? just getting it in market in a tax advantaged status?

RE Roth / Mutual Fund:

forgive the financial illiteracy, but is NM getting a cut of the % fee whenever i am putting the cash into my mutual funds and roth? how do they make the money on the investment portion of my portfolio? I know they take a $100 fee / year on the Roth.

AGTHX: sales charged 5.75% on the going in, 1% deferred contingent on the way out - i'm assuming that is because it's semi liquid and i can pull the shares at any point? why would i put this in A shares?

BALCX: sales charged 1% on the BALCX and it's deferred. So i'm assuming when i go to pull it out american funds takes 1% of the top?

trying to learn, the good lesson is that i've done more reading on this stuff in the last 6 months than i did the first 26 years. if it took getting fleeced on a crappy product (WLI) to learn to be VERY discerning on every financial move I make regarding investments & insurance, so be it :happy

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David Jay
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by David Jay » Fri Aug 11, 2017 2:42 pm

bsigmund90 wrote:if it took getting fleeced on a crappy product (WLI) to learn to be VERY discerning on every financial move I make regarding investments & insurance, so be it
Around here, we call that "education tax". :(

The goal is to front-load the education tax - like you. Unfortunately, more than a few of us didn't figure things out until we were 20 years older than you.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by Grt2bOutdoors » Fri Aug 11, 2017 3:07 pm

bsigmund90 wrote:
Grt2bOutdoors wrote:
jimb_fromATL wrote:
Agree with all of above. I missed the part where he disclosed his gross income and what he was saving in 401K plan. A 5.9% savings rate is much too low in the 401K plan.
RE 401k:
I am relocating the 6600 from the WLI into the 401k first thing. well, whatever pre-tax 401k addition would net me the same annual pay less the WLI payment (should be a few $$ above the 6600/year making it in).

I've read anywhere from 15-20% of income into retirement savings. The argument (when i was even more illiterate than I am now) was that the WLI was a retirement bucket. So i would immediately reallocate the WLI into a retirement fund that gets a better return.

I crunched the number and i can max it and still be very close to equal in after tax net income. that puts 25% into retirement savings - a lot of things i've seen say 15% is good. what are the advantages of maxing something i can't touch till 59-1/2 without penalty vs other vehicles? just getting it in market in a tax advantaged status?

RE Roth / Mutual Fund:

forgive the financial illiteracy, but is NM getting a cut of the % fee whenever i am putting the cash into my mutual funds and roth? how do they make the money on the investment portion of my portfolio? I know they take a $100 fee / year on the Roth.

AGTHX: sales charged 5.75% on the going in, 1% deferred contingent on the way out - i'm assuming that is because it's semi liquid and i can pull the shares at any point? why would i put this in A shares?

BALCX: sales charged 1% on the BALCX and it's deferred. So i'm assuming when i go to pull it out american funds takes 1% of the top?

trying to learn, the good lesson is that i've done more reading on this stuff in the last 6 months than i did the first 26 years. if it took getting fleeced on a crappy product (WLI) to learn to be VERY discerning on every financial move I make regarding investments & insurance, so be it :happy
The sales charge that is deferred is paid to NM. American Funds collects investment management fees from day one of you owning one of their funds. The key determinant of what you accumulate in your accounts is rate of savings. Not market returns, the more you put in the higher the likelihood of compounding more gains in your account, the sooner you do it, the faster they will accumulate. You can put in less, but you will accumulate less compared to person who puts in more. The one lever you control is rate of savings. Obviously the more you put in today, the less you can consume today, the effect is two fold - delayed gratification and reduced spending. Upon retirement you will likely keep same level of pre-retirement consumption but even if you increase it, the more you have saved, the higher the likelihood that your portfolio does not fail.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by jalbert » Fri Aug 11, 2017 9:29 pm

what are the advantages of maxing something i can't touch till 59-1/2 without penalty vs other vehicles? just getting it in market in a tax advantaged status?
You only get so much total available tax-advantaged space, and if you don't take advantage of all of it in a given year, the part you ignore gets lost forever.

The tax drag on distributions from investments in taxable space reduces compounding of return, and the tax drag on withdrawing from a 401k is likely to be lower than the marginal rate of tax on deposits, so any tax-qualified space you can claim is likely to be a significant win.

Also, in retirement, a Roth account can be used for withdrawals in your marginal bracket tax free so the remaining taxable 401K withdrawals are taxed in lower brackets including quite possibly some in the tax free lowest bracket.

In the words of Warren Buffett, "The longer you can defer paying a tax, the greater the chance that you may never have to pay it."
Risk is not a guarantor of return.

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CyclingDuo
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by CyclingDuo » Fri Aug 11, 2017 10:02 pm

jalbert wrote:
what are the advantages of maxing something i can't touch till 59-1/2 without penalty vs other vehicles? just getting it in market in a tax advantaged status?
You only get so much total available tax-advantaged space, and if you don't take advantage of all of it in a given year, the part you ignore gets lost forever.

The tax drag on distributions from investments in taxable space reduces compounding of return, and the tax drag on withdrawing from a 401k is likely to be lower than the marginal rate of tax on deposits, so any tax-qualified space you can claim is likely to be a significant win.

Also, in retirement, a Roth account can be used for withdrawals in your marginal bracket tax free so the remaining taxable 401K withdrawals are taxed in lower brackets including quite possibly some in the tax free lowest bracket.

In the words of Warren Buffett, "The longer you can defer paying a tax, the greater the chance that you may never have to pay it."
The caveat for the sentence above appearing in bold is that not everyone can "afford" to max out the full $18K 401K contribution prior to age 50, or $24K after age 50 based on their salary level, household income, and number of dependents. We certainly were not able to in our 20's. That doesn't mean one cannot accumulate and build wealth if they are not able to contribute the full $18K whatsoever. Plenty of Bogleheads who have earned lower salaries than the OP have done quite well.

The OP, on the other hand with a gross income of around $100K+ (depending on bonus amounts) should easily be able to get close provided the Whole Life and Car Payment both go away. They account for 12.9%. If those were both dropped, and the funds were instead then added to his 5.9% of gross income already going to his 401K contribution, that would be up to the full max.

The OP will have to decide if he can "afford" that with his current budget. If he is socking away 10-15% into retirement at this age with that kind of income, he should be fine. 15-20% even better. 20-25% overall savings (tax deferred and taxable) is a good benchmark. He's currently saving 23.5% (401K, Roth, Whole Life, Cash Savings) plus getting the employer match. So that qualifies as excellent savings. It's just that everyone is suggesting a better direction and lower cost vehicle for those savings by dumping the Whole Life, and increasing the pre-tax deductions into the 401K with the lowest cost funds available from his plan.

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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by ddurrett896 » Sat Aug 12, 2017 7:36 am

bsigmund90 wrote: 6,600 into Whole Life Insurance (through Northwestern - 2 policies (i got a big pay bump and opened a 2nd one) 498k base coverage paid up 65)

I feel awful because my grandfather gave me 10k when i turned 25 and i felt like i wasn't being responsibly with my money (had 30k in bank cash savings sitting earning practically nothing) so i went to a FA - used the FA my friends used, she immediately sold me on the WLI and i shouldn't have invested before i fully understood the product. I've dumped 10k total into it and my surrender values i would probably get less than 2.5k back. I know it's a crap investment compared to the market. I feel like i've massively squandered my grandfathers gift, even though that went into the mutual fund which is performing decently right now.
The $7,500 loss is nothing in the scheme of things. We're talking the next 40-50 years!

Hey in 2007 I was in my early 20's and stopped contributing to my Roth because the balance was less than what I've contributed and I didn't want to lose. Looking back now, I missed a huge opportunity to buy low. All you can do now is move forward. You're realizing it's a bad investment at 27 yo - imagine those who have been doing something similar that are in their 50's and spend hundreds of thousands....

Dump it - cut your losses and move on.

jalbert
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by jalbert » Sat Aug 12, 2017 3:35 pm

The caveat for the sentence above appearing in bold is that not everyone can "afford" to max out the full $18K 401K contribution prior to age 50, or $24K after age 50 based on their salary level, household income, and number of dependents. We certainly were not able to in our 20's. That doesn't mean one cannot accumulate and build wealth if they are not able to contribute the full $18K whatsoever. Plenty of Bogleheads who have earned lower salaries than the OP have done quite well.
Sure. Taking max benefit of tax-advantaged space can be defined as hitting the contribution limit or as utilizing the maximum one's budget allows.
Risk is not a guarantor of return.

mhalley
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by mhalley » Sat Aug 12, 2017 6:21 pm

There are 3 things that can happen in retirement:
1. You saved exactly the right amount, and will die with a zero balance in your accounts. (Seems pretty unlikely)
2. You saved too much for retirement. You die, and your heirs remember you fondly. :beer
3. You saved too little for retirement. You move in with your children and cost them money they can ill afford, and they are glad when you die and they don't have that financial drain. :oops:
I suppose we could add a fourth thing: you save so much and the market does so well, that instead of retiring at 65, you retire at 50 and spend many years traveling and enjoying a life of leisure.
When you can potentially retire depends on your savings rate, asset allocation,stock market returns and inflation. The only thing you have control over is your savings rate and aa.
Mr Money Mustache does some calculations on how soon you can retire based on your savings rate here:

http://www.mrmoneymustache.com/2012/01/ ... etirement/

There are many ways to get to your retirement money before 59.5.
http://www.madfientist.com/how-to-acces ... nds-early/

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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by drk » Sat Aug 12, 2017 6:44 pm

TravelforFun wrote:
Thu Aug 10, 2017 6:51 pm
Stop contributing to the 401K (you still get employer's contribution) and pay off the car ASAP.
Without knowing the interest rate on the car loan, this is not good advice.

bsigmund90
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by bsigmund90 » Mon Aug 14, 2017 8:34 am

I can't find the initial statement on the car loan but it's a 72 month and the online calculators say it's 4.655% interest.

I'm 44 months in. I'm still right-side up about 8,500 on the cars value.

Ditched the WLI & reallocated to the target date in the 401k. Once the deposit comes in, probably going to dump the car loan. Then its 401k maxing time 8-)

Benton Bair
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by Benton Bair » Mon Aug 14, 2017 1:39 pm

Your paid up at age 65 Northwestern Mutual policy is not an investment. It is a risk management contract offered by a top notch insurance company. It is a level priced term policy from the date it was issued until you die. Could be desirable for 40 or 50 plus years. No wife or children now, but what about parents who may need your help. They made a substantial investment in you and you may want to repay their favor if one needs financial help when the other dies. If you're lost what will happen to them then? Are your parents current beneficiaries of your contract? Insurance needs evolve as your life circumstances change. You've already incurred the acquisition costs up front. Many Bogleheads will say it's a lousy offering now but as it ages it becomes valuable asset at a future date. I don't know how they think you can get from early ownership to later without maintaining it in place. Your contract will pay dividends that will allow the benefit to grow beyond the current $498k and help to offset the effect of inflation. It might be desirable to have an estimated $750k plus tax free asset to supplement all the rest of your wealth later in life.

I don't know all the possible risks you're going to face in the future. I do know your mortality rate is 100%, just don't know when. It's nice to know you have a contract/bond that will mature at a future date when cash could be extra useful.

Best wishes.

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djpeteski
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by djpeteski » Mon Aug 14, 2017 2:18 pm

bsigmund90 wrote:
Thu Aug 10, 2017 12:59 pm
15,000 bank (cash) savings
10,400 in debt (car payment)

Yearly Income / Allocation:
93,600 guaranteed gross income
Great income for someone so young. I would be done with the car tomorrow, or even today if possible. Take your savings and make that car paid for. Then work hard to get that back up to 15K. The left over, 4600, is enough to cover 98% (estimate) of emergencies.
bsigmund90 wrote:
Thu Aug 10, 2017 12:59 pm

6,600 into Whole Life Insurance (through Northwestern - 2 policies (i got a big pay bump and opened a 2nd one) 498k base coverage paid up 65)

Also questioning whether i should ditch the WLI and invest it, Get term when i get married and get a house. I feel awful because of my grandfather...
As a whole, your grandfather would be proud. For the most part, you did very well for yourself. Sure perhaps a few minor adjustments are needed. One is already mentioned. The second is to dump the whole life. It is a terrible investment and the sooner you can get out of it the better. Don't argue with the agent, just call the company and cancel. The surrender charge does not matter, only stopping to pay for it matters. It's okay, you made a small mistake in comparison with some really great decisions. Learning to forgive yourself for making mistakes is something to work on.

If no one is dependent upon your income, you do not need life insurance. The 15K in the bank is enough to provide a very nice funeral in the case of your untimely demise. If someone is dependent upon you than level term life, from a low-cost provider, is what you need.

After you are done paying back the 15K, I would budget more money for fun. You are sky rocketing your net worth and it is okay to enjoy a little bit now. At your age having a ~125K net worth is impressive, but more impressive is where you are heading. I would take the savings from the ULI, and use most of it for fun, but try to find things that you really enjoy. Without the enjoyment, you will likely feel even more guilt. IMHO, the answer is not eating out more.

bsigmund90
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by bsigmund90 » Tue Aug 15, 2017 9:21 am

I cut the WLI late last week. Once that check shows up I'm gonna pay off the car.

this might be hijacking the thread - but i still have a few "basics" questions:

RE: savings acct:

- why wouldn't I put my bank cash sayings at a minimum into an online HYSA? 1.20% is better than 0.01%

- furthermore, why wouldn't I get a higher limit credit card (my SO, with a 150 point lower credit score, has a 10.5k limit), to cover me for a month, and put the "savings" into the market? I'm assuming the fear is that I have to pull it when values are low, but that's money that would have been dormant/stagnant anyways? And i could start a separate "savings trading" account that has a more conservative risk allocation? like somewhere at 20/80 to 40/60

RE: mutual funds/etc:

- regarding index funds vs actively managed funds, etc a friend had this to say "passive funds have beat active funds lately due to the lack of overall volatility in the market this bull run - I believe the next few years you will see actively managed funds outperform their benchmarks and passive ETFs. Some portfolio managers produce competitive returns, others do not. pick your investments with care and monitor performance quarterly." is this something fair to consider? I'm assuming the worry is that as the portfolio grows that 1.38% represents a greater monthly drag? and the deferred charges hurt really badly at the end (1% of a hypothetical 50k is way worse than an upfront charge on 20k?)

- if this is the case - when you are picking a share class, do you always want the one that represents the bottom line lowest fee? how do you evaluate the lowest fees, looking at your timeline for your investment duration and assessing the charges there? (running your own monte-carlo in excel in a sense?) https://www.kitces.com/blog/variable-an ... fiduciary/

bsigmund90
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by bsigmund90 » Sat Sep 16, 2017 10:16 am

So i have paid off my car, after the WLI check have 9k in cash savings, and have set my retirement contributions so that beginning in FY 2018, i will be maxing my 401k (346.16 weekly contribution). I can't really do more in the short term without presenting a cash flow problem to "catch up" FY 2017. I am putting the 346.16 in weekly as of last week.

I ledgered and budgeted my money for FY 2018 at my current level of investment and i am still substantially ahead (~10k / year) after ALL expenses & investments now that I don't have the WLI & car payment, just on my full time employment's after tax salary.

I received the contract for my part time gig (stipend of 3k per year, 1500 in 4 payments starting in september 2017, 1500 in 4 payments starting in march 2018). In it it had an interesting note: as the work is for a college, I'm eligible for their 403b plan.

Considering I'm substantially ahead at my current full time salary, does it make sense to look at dumping my entire stipend into the 403b? Am i even eligible to contribute to a 403b if i am maxing my 401k at my full time job?

Part of me says compared to my full time paycheck its such an inconsequential amount of after tax money it wouldn't really matter to me if i saw it or not. I do not know what investment options i have in their 403b.

lhl12
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by lhl12 » Sat Sep 16, 2017 12:15 pm

Doesn't it feel great to have that car fully paid for and to be debt free? Remember that feeling when you are thinking about trading in for a new car (if you're not able to pay cash for it at that time).

bsigmund90
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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by bsigmund90 » Thu Oct 19, 2017 11:06 am

Figured I would post my latest back-and-forth with my FA... I know i want to get out, but I'm not sure how to roll the accounts over...
ME:
What investment options are available to me through NMIS? Is there a list you can provide me?

RE: my Roth (AGTHX) - In a bull market my actively managed, high load, average ER fund (subtracting NM's annual fees) is doing pretty well, but if this is a buy-and-hold investment that I plan on keeping long term, I need to get it into a no load, low ER index family or an index fund-of-fund. the sales load & fee drag will significantly damage my portfolio as over time the actively manage fund gets closer and closer to the index. 5.75% load + .66 ER is nuts. Additionally, I'm not sure i feel comfortable about having a fund that's only 2.5% bonds be my only holding in my tax-advantaged retirement account.

RE: my taxable (BALCX) - if i compare it historically to the vanguard balanced index (VBIAX), VBIAX has beaten the return delta (usually .8 in favor of BALCX, less differential to the index the further back you go) if you take into account the fee delta (1.31% in favor of VBIAX!) and if i ever cash it i'm paying a 1% CDSC on any shares i've bought in the last 12 months.

Why am I paying such high fees for funds that can barely beat (in the short term) and don't beat (in the long term buy-and-hold) the index options?

Do i have access to Vanguard Indexes, Schwab Indexes, or Fidelity Indexes? What about Target Date Indexes at the above families?

Please provide me with the list of options that I can invest through you guys.
FA:
It is my fiduciary responsibility to have you invest in share classes that that appropriate for your time horizon. If you are going to leverage the dollars that you are investing in 7 years or less, it is in your best interest to invest into C shares. It you are going to leverage the dollars in 7 years or more (Roth IRA), it is in your best interest to invest into A shares. I actually have to recommend you invest this way because of compliance and it being in your best interest.

It makes sense to do brokerage at first which you are when your accounts are below $25,000. Once your accounts are above $25,000, we can look into an advisory portfolio for you. There are not up front sales charges or 1% penalties for an advisory portfolio that I would recommend for you. You will be there soon with your Roth IRA. You are over the $25,000 mark with your individual mutual fund account. You expressed to me though that you plan on using this for a house, wedding, ext. Therefore, this number would drop in the near future. That is why I have not recommended you moving this account from brokerage to advisory. An advisory portfolio will give you access to a combination of passive and active investing. You will have access to index funds, vanguard, American funds, fidelity, ect. The best of the best. I cannot send you a list because there are 1,000s of options. They are picked and determined on a daily basis by our wealth management department. An advisory account is too high in fee right now though for where you are, and it would not be in your best interest to put you in an investment strategy like that yet.
ME:
Thank you for the info.

For the future - is there still a 1.65% AUM fee for the advisory portfolio?
FA:
Also, in regards to investing in Vanguard, we do not broker out Vanguard for brokerage accounts like you are in. Only in advisory portfolios. American Funds is a little higher from a fee perspective but, pay for what you get. Meaning that you have me reviewing with you every six months, and servicing you as my client. If you were to invest with Vanguard, you have no one helping you, and you’d be calling into a customer service line. If there is a different fund through American Funds that you would like to invest in for your Roth IRA and individual account we can make that change for you.
The second half of the last email, she literally copied and pasted from another email she must have been dealing with another client (the font and text size changed). Basically my gist is: we only stick you in Vanguard/Fidelity/Schwab (and don't get paid the nice sales loads) when we can charge you 1.65% AUM to do so.

If i wanted to "DIY instead of paying for a 6 month review" :P , and transfer my existing investments to vanguard, how would i complete the transfer? initiate the transfer online? I realize that for the Roth i can roll it right into what I want with no tax consequences, but the taxable if i sell off its a taxable event and i'm subject to capital gains.

will NM take their 95 dollar closing fees and their 100 / year roth custodial fee from my funds before they transfer them? or am I going to get smacked with those fees in my checking account?

has anyone else ever gotten out of the NM black hole before or have experience doing so? obviously my financial adviser isn't going to help me transfer my investments away from her...

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Re: "Upper Middle" Class - ditch WLI or ride it?

Post by Nate79 » Thu Oct 19, 2017 6:51 pm

bsigmund90 wrote:
Thu Oct 19, 2017 11:06 am
Figured I would post my latest back-and-forth with my FA... I know i want to get out, but I'm not sure how to roll the accounts over...
ME:
What investment options are available to me through NMIS? Is there a list you can provide me?

RE: my Roth (AGTHX) - In a bull market my actively managed, high load, average ER fund (subtracting NM's annual fees) is doing pretty well, but if this is a buy-and-hold investment that I plan on keeping long term, I need to get it into a no load, low ER index family or an index fund-of-fund. the sales load & fee drag will significantly damage my portfolio as over time the actively manage fund gets closer and closer to the index. 5.75% load + .66 ER is nuts. Additionally, I'm not sure i feel comfortable about having a fund that's only 2.5% bonds be my only holding in my tax-advantaged retirement account.

RE: my taxable (BALCX) - if i compare it historically to the vanguard balanced index (VBIAX), VBIAX has beaten the return delta (usually .8 in favor of BALCX, less differential to the index the further back you go) if you take into account the fee delta (1.31% in favor of VBIAX!) and if i ever cash it i'm paying a 1% CDSC on any shares i've bought in the last 12 months.

Why am I paying such high fees for funds that can barely beat (in the short term) and don't beat (in the long term buy-and-hold) the index options?

Do i have access to Vanguard Indexes, Schwab Indexes, or Fidelity Indexes? What about Target Date Indexes at the above families?

Please provide me with the list of options that I can invest through you guys.
FA:
It is my fiduciary responsibility to have you invest in share classes that that appropriate for your time horizon. If you are going to leverage the dollars that you are investing in 7 years or less, it is in your best interest to invest into C shares. It you are going to leverage the dollars in 7 years or more (Roth IRA), it is in your best interest to invest into A shares. I actually have to recommend you invest this way because of compliance and it being in your best interest.

It makes sense to do brokerage at first which you are when your accounts are below $25,000. Once your accounts are above $25,000, we can look into an advisory portfolio for you. There are not up front sales charges or 1% penalties for an advisory portfolio that I would recommend for you. You will be there soon with your Roth IRA. You are over the $25,000 mark with your individual mutual fund account. You expressed to me though that you plan on using this for a house, wedding, ext. Therefore, this number would drop in the near future. That is why I have not recommended you moving this account from brokerage to advisory. An advisory portfolio will give you access to a combination of passive and active investing. You will have access to index funds, vanguard, American funds, fidelity, ect. The best of the best. I cannot send you a list because there are 1,000s of options. They are picked and determined on a daily basis by our wealth management department. An advisory account is too high in fee right now though for where you are, and it would not be in your best interest to put you in an investment strategy like that yet.
ME:
Thank you for the info.

For the future - is there still a 1.65% AUM fee for the advisory portfolio?
FA:
Also, in regards to investing in Vanguard, we do not broker out Vanguard for brokerage accounts like you are in. Only in advisory portfolios. American Funds is a little higher from a fee perspective but, pay for what you get. Meaning that you have me reviewing with you every six months, and servicing you as my client. If you were to invest with Vanguard, you have no one helping you, and you’d be calling into a customer service line. If there is a different fund through American Funds that you would like to invest in for your Roth IRA and individual account we can make that change for you.
The second half of the last email, she literally copied and pasted from another email she must have been dealing with another client (the font and text size changed). Basically my gist is: we only stick you in Vanguard/Fidelity/Schwab (and don't get paid the nice sales loads) when we can charge you 1.65% AUM to do so.

If i wanted to "DIY instead of paying for a 6 month review" :P , and transfer my existing investments to vanguard, how would i complete the transfer? initiate the transfer online? I realize that for the Roth i can roll it right into what I want with no tax consequences, but the taxable if i sell off its a taxable event and i'm subject to capital gains.

will NM take their 95 dollar closing fees and their 100 / year roth custodial fee from my funds before they transfer them? or am I going to get smacked with those fees in my checking account?

has anyone else ever gotten out of the NM black hole before or have experience doing so? obviously my financial adviser isn't going to help me transfer my investments away from her...
What a load of garbage. I wonder if the advisor had to duck when the bolt of lightning came down when the word fiduciary came out of their mouth?

You can try to initiate a transfer online. If you haven't already open the appropriate account at Vanguard and then initiate a transfer. Or you can call them. Start at Vanguard first.

Erwin007
Posts: 176
Joined: Tue Aug 19, 2008 8:29 am
Location: Intermountain West

Re: "Upper Middle" Class - ditch WLI or ride it?

Post by Erwin007 » Thu Oct 19, 2017 9:35 pm

bsigmund90 wrote:
Thu Oct 19, 2017 11:06 am
Figured I would post my latest back-and-forth with my FA... I know i want to get out, but I'm not sure how to roll the accounts over...
ME:
What investment options are available to me through NMIS? Is there a list you can provide me?

RE: my Roth (AGTHX) - In a bull market my actively managed, high load, average ER fund (subtracting NM's annual fees) is doing pretty well, but if this is a buy-and-hold investment that I plan on keeping long term, I need to get it into a no load, low ER index family or an index fund-of-fund. the sales load & fee drag will significantly damage my portfolio as over time the actively manage fund gets closer and closer to the index. 5.75% load + .66 ER is nuts. Additionally, I'm not sure i feel comfortable about having a fund that's only 2.5% bonds be my only holding in my tax-advantaged retirement account.

RE: my taxable (BALCX) - if i compare it historically to the vanguard balanced index (VBIAX), VBIAX has beaten the return delta (usually .8 in favor of BALCX, less differential to the index the further back you go) if you take into account the fee delta (1.31% in favor of VBIAX!) and if i ever cash it i'm paying a 1% CDSC on any shares i've bought in the last 12 months.

Why am I paying such high fees for funds that can barely beat (in the short term) and don't beat (in the long term buy-and-hold) the index options?

Do i have access to Vanguard Indexes, Schwab Indexes, or Fidelity Indexes? What about Target Date Indexes at the above families?

Please provide me with the list of options that I can invest through you guys.
FA:
It is my fiduciary responsibility to have you invest in share classes that that appropriate for your time horizon. If you are going to leverage the dollars that you are investing in 7 years or less, it is in your best interest to invest into C shares. It you are going to leverage the dollars in 7 years or more (Roth IRA), it is in your best interest to invest into A shares. I actually have to recommend you invest this way because of compliance and it being in your best interest.

It makes sense to do brokerage at first which you are when your accounts are below $25,000. Once your accounts are above $25,000, we can look into an advisory portfolio for you. There are not up front sales charges or 1% penalties for an advisory portfolio that I would recommend for you. You will be there soon with your Roth IRA. You are over the $25,000 mark with your individual mutual fund account. You expressed to me though that you plan on using this for a house, wedding, ext. Therefore, this number would drop in the near future. That is why I have not recommended you moving this account from brokerage to advisory. An advisory portfolio will give you access to a combination of passive and active investing. You will have access to index funds, vanguard, American funds, fidelity, ect. The best of the best. I cannot send you a list because there are 1,000s of options. They are picked and determined on a daily basis by our wealth management department. An advisory account is too high in fee right now though for where you are, and it would not be in your best interest to put you in an investment strategy like that yet.
ME:
Thank you for the info.

For the future - is there still a 1.65% AUM fee for the advisory portfolio?
FA:
Also, in regards to investing in Vanguard, we do not broker out Vanguard for brokerage accounts like you are in. Only in advisory portfolios. American Funds is a little higher from a fee perspective but, pay for what you get. Meaning that you have me reviewing with you every six months, and servicing you as my client. If you were to invest with Vanguard, you have no one helping you, and you’d be calling into a customer service line. If there is a different fund through American Funds that you would like to invest in for your Roth IRA and individual account we can make that change for you.
The second half of the last email, she literally copied and pasted from another email she must have been dealing with another client (the font and text size changed). Basically my gist is: we only stick you in Vanguard/Fidelity/Schwab (and don't get paid the nice sales loads) when we can charge you 1.65% AUM to do so.

If i wanted to "DIY instead of paying for a 6 month review" :P , and transfer my existing investments to vanguard, how would i complete the transfer? initiate the transfer online? I realize that for the Roth i can roll it right into what I want with no tax consequences, but the taxable if i sell off its a taxable event and i'm subject to capital gains.

will NM take their 95 dollar closing fees and their 100 / year roth custodial fee from my funds before they transfer them? or am I going to get smacked with those fees in my checking account?

has anyone else ever gotten out of the NM black hole before or have experience doing so? obviously my financial adviser isn't going to help me transfer my investments away from her...
This is highway robbery. It’s so bad it should be criminal. The best thing I think I’ve ever done financially was getting out of my NWM life insurance policy and “losing” the advisor’s number when I moved across the country after my fellowship was over. I honestly don’t know how these people can sleep at night.

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