Playing catch up. Best methods to grow retirement in next 10+years?

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ChinchillaWhiplash
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Playing catch up. Best methods to grow retirement in next 10+years?

Post by ChinchillaWhiplash » Sun Sep 16, 2018 11:59 am

OK, finally got on track with maximum tax deferred investments that are available.

Maxing out individual 401k at $55k. HSA $6900.
Backdoor contribution to Roth IRA at $5500.

Looking at 12-15 years or so to build up more for retirement or partial retirement. Hitting the catch-up contributions in 2 years. Guessing best thing to do is put more into 529 and get a state tax deduction of 4.6%? Won't make much of a dent in tax savings and oldest child plans to study abroad.

Would it be better to just add to taxable or a combo of both?

Debt pay off of mortgage might be better. 4.5% fixed with 27 yrs left. We itemize deductions and would be touching 35% fed bracket on gross income.

Really need to save and have investments grow about 1-1.5 million before FI. Currently have just shy of $500k and have finally got out of drowning in debt this past year, so it is save save save for the next decade. Current savings/retirement rate is at 20% of gross income.
Last edited by ChinchillaWhiplash on Mon Sep 17, 2018 11:06 am, edited 1 time in total.

delamer
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Re: Playing catch up. Best methods to grow retirement in next 10+years?

Post by delamer » Sun Sep 16, 2018 12:06 pm

Lots going in in your post — a little white space would make it easier to sort through.

And we need more information. Your subject line is about saving for retirement, but your real issue seems to be paying for college.

What is your goal in terms of paying for your kids education? How many kids and how old are they? How much do you already have set aside for that purpose? Are you willing to delay retirement to fund kids’ education, or is retirement absolutely top priority.

mhalley
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Re: Playing catch up. Best methods to grow retirement in next 10+years?

Post by mhalley » Sun Sep 16, 2018 12:41 pm

Run the numbers at cfiresim etc. paying off a low interest mortgage might not be the best way to go. Many ways to pay for college, if the numbers don’t add up you might need to forgo the 529.

http://www.cfiresim.com/

ChinchillaWhiplash
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Re: Playing catch up. Best methods to grow retirement in next 10+years?

Post by ChinchillaWhiplash » Sun Sep 16, 2018 1:16 pm

Saving for retirement is the top goal at this point. Like the title says, off to a slow start and need to catch up. Not comfortable with what we have right now. Not too worried about college. Can always borrow for that not retirement. Have some in 529 for 2 kids. Around 20k in each. Could also use our Roth for that too, but this is the 1st year with a backdoor conversion. Will have $11k in there by beginning if 2019. Son has 1 year of HS and daughter still 6 yrs away from HS graduation. With max contributions will probably have a little over 1.5 mil in 10 years assuming a return of around 4-5%. Really would like to have 2-2.5 before retiring. Can have a safe 4% drawdown and live off $120k a year that way. Might move after kids are out of the house to a lower cost of living area. It's pretty high here. But that would be 10 years or more away (post retirement).

GeoffD
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Re: Playing catch up. Best methods to grow retirement in next 10+years?

Post by GeoffD » Sun Sep 16, 2018 1:17 pm

35% tax bracket on a joint return is $400K after deductions. The OP wrote "we" so I presume it's a joint return.

Something is really wrong with life decisions of the OP isn't salting away 6 figures of after tax money into investments of some sort above and beyond maxing out a 401(k). I sense some massive lifestyle creep happened. I'd bet step #1 is a dramatic downsizing of the OP's housing. If the kids are about to be in college, you don't need to live in the town with the gold plated school system for much longer. You don't need 5 bedrooms and the big kid playpen. Maybe defer those expensive vacations for a while. 10 years where you've applied the shrink ray to your lifestyle piles up a huge amount of wealth at that kind of income level.

HEDGEFUNDIE
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Re: Playing catch up. Best methods to grow retirement in next 10+years?

Post by HEDGEFUNDIE » Sun Sep 16, 2018 1:21 pm

GeoffD wrote:
Sun Sep 16, 2018 1:17 pm
35% tax bracket on a joint return is $400K after deductions. The OP wrote "we" so I presume it's a joint return.

Something is really wrong with life decisions of the OP isn't salting away 6 figures of after tax money into investments of some sort above and beyond maxing out a 401(k). I sense some massive lifestyle creep happened. I'd bet step #1 is a dramatic downsizing of the OP's housing. If the kids are about to be in college, you don't need to live in the town with the gold plated school system for much longer. You don't need 5 bedrooms and the big kid playpen. Maybe defer those expensive vacations for a while. 10 years where you've applied the shrink ray to your lifestyle piles up a huge amount of wealth at that kind of income level.

+1. Downsize to a smaller house after the youngest graduates. Then take a sharp knife to your spending. If you're making $400k gross you should be saving at least $200k of that.

delamer
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Re: Playing catch up. Best methods to grow retirement in next 10+years?

Post by delamer » Sun Sep 16, 2018 1:58 pm

ChinchillaWhiplash wrote:
Sun Sep 16, 2018 1:16 pm
Saving for retirement is the top goal at this point. Like the title says, off to a slow start and need to catch up. Not comfortable with what we have right now. Not too worried about college. Can always borrow for that not retirement. Have some in 529 for 2 kids. Around 20k in each. Could also use our Roth for that too, but this is the 1st year with a backdoor conversion. Will have $11k in there by beginning if 2019. Son has 1 year of HS and daughter still 6 yrs away from HS graduation. With max contributions will probably have a little over 1.5 mil in 10 years assuming a return of around 4-5%. Really would like to have 2-2.5 before retiring. Can have a safe 4% drawdown and live off $120k a year that way. Might move after kids are out of the house to a lower cost of living area. It's pretty high here. But that would be 10 years or more away (post retirement).
You say that you “can always borrow” for college. But borrowing for college means loan payments, which means that you’ll need more money to cover those payments in retirement. Your kids won’t be able to borrow enough to cover their college costs on their own (assuming that they won’t be commuters).

My intent isn’t to give you a hard time, but to point out that there are things you haven’t thought through. I understand prioritizing retirement savings, but with an income as high as yours appears to be then maybe you should be worrying about college a bit more rather than relying on loans.

We don’t know anything about your expenses other than your retirement savings; what are your other commitments?

ChinchillaWhiplash
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Re: Playing catch up. Best methods to grow retirement in next 10+years?

Post by ChinchillaWhiplash » Sun Sep 16, 2018 9:57 pm

Other payments include a few big debts, but have planned to pay them off in the next few years.

1) Heloc that we had to get to finance our home when we converted the construction loan to a regular mortgage and the market crashed which left us stuck with our old home. Owe $38k with interest only payment and variable interest at 6%. Will be paid off within a year.

2) student loan from under grad & med school. (DW's) Had to fully pay all college and living expense without parent's help. Still have $60k at 4.875% fixed. Will pay off within 3-4 years max.

Monthly expenses: $10k for taxes, $3900 mortgage, $1969 health insurance, $416 disability, $500 student loan, $110 life ins, $400 car ins, $1k for utilities on average, $3k for gas, groceries, household items, kids lessons, etc, $2k+ going towards heloc, $1542 to Employee 401k, $3042 employer 401k, $583 HSA, $458 for back door Roth contribution, $1500 malpractice ins.

No car payments, no credit cards. No other debt.

All extra going towards knocking out debt and building up more emergency fund. EF is too small and we need to beef it up more. Was thinking the Roth could account for some of this. Before the last couple of years, we were drowning in debt with many bad financial decisions and a lot of medical bills.

GeoffD
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Re: Playing catch up. Best methods to grow retirement in next 10+years?

Post by GeoffD » Sun Sep 16, 2018 10:22 pm

ChinchillaWhiplash wrote:
Sun Sep 16, 2018 9:57 pm
Monthly expenses: $10k for taxes, $3900 mortgage, $1969 health insurance, $416 disability, $500 student loan, $110 life ins, $400 car ins, $1k for utilities on average, $3k for gas, groceries, household items, kids lessons, etc, $2k+ going towards heloc, $1542 to Employee 401k, $3042 employer 401k, $583 HSA, $458 for back door Roth contribution, $1500 malpractice ins.
So massive lifestyle creep. What do you own for cars that you're paying $5K per year in auto insurance? How many square feet of house has $1K per month in utility bills?

Dottie57
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Re: Playing catch up. Best methods to grow retirement in next 10+years?

Post by Dottie57 » Sun Sep 16, 2018 10:37 pm

I think the biggest hinderance to retirement savings is your current lifestyle. You have a large house(3.9k) and 1k in utilities is a lot. Cars must be expensive too for insurance at 400 a month.

Why do you list both employer and employee 401k contributions?

I am not trying to be mean. I would like to be the size I was in high school. However the ice cream , cake and pasta I eat get in the way. I need to make a change if I want to weigh what I did in high school. You will need to make changes in order to ramp up your retirement savings. Good luck.

delamer
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Re: Playing catch up. Best methods to grow retirement in next 10+years?

Post by delamer » Sun Sep 16, 2018 10:55 pm

ChinchillaWhiplash wrote:
Sun Sep 16, 2018 9:57 pm
Other payments include a few big debts, but have planned to pay them off in the next few years.

1) Heloc that we had to get to finance our home when we converted the construction loan to a regular mortgage and the market crashed which left us stuck with our old home. Owe $38k with interest only payment and variable interest at 6%. Will be paid off within a year.

2) student loan from under grad & med school. (DW's) Had to fully pay all college and living expense without parent's help. Still have $60k at 4.875% fixed. Will pay off within 3-4 years max.

Monthly expenses: $10k for taxes, $3900 mortgage, $1969 health insurance, $416 disability, $500 student loan, $110 life ins, $400 car ins, $1k for utilities on average, $3k for gas, groceries, household items, kids lessons, etc, $2k+ going towards heloc, $1542 to Employee 401k, $3042 employer 401k, $583 HSA, $458 for back door Roth contribution, $1500 malpractice ins.

No car payments, no credit cards. No other debt.

All extra going towards knocking out debt and building up more emergency fund. EF is too small and we need to beef it up more. Was thinking the Roth could account for some of this. Before the last couple of years, we were drowning in debt with many bad financial decisions and a lot of medical bills.
Throw all extra money first at the HELOC and then at the student loan until they are both gone.

Then redirect those monthly payments to taxable savings, which can be used for retirement or college since you don’t seem to want to earmark more money specifically for college. I do think that is a mistake, since you get a state tax deduction plus no taxes on earnings with a 529.

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Watty
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Re: Playing catch up. Best methods to grow retirement in next 10+years?

Post by Watty » Sun Sep 16, 2018 11:02 pm

ChinchillaWhiplash wrote:
Sun Sep 16, 2018 11:59 am
Looking at 12-15 years or so to build up more for retirement or partial retirement.
ChinchillaWhiplash wrote:
Sun Sep 16, 2018 11:59 am
Currently have just shy of $500k
ChinchillaWhiplash wrote:
Sun Sep 16, 2018 11:59 am
Really need to save and have investments grow about 1-1.5 million before FI.
There is a good chance that your current $500K will grow to be over a million dollars in 12-15 years.

You are saving over $60K a year now so in 12 years that is another $720K plus any earning on that.

If you get the student loan and HELOC paid off then you can save that money each month too.

The big problem is that if you have $2 million when you retire then that will only provide something like $80,000 a year, before taxes to live on. This is based on the 4% safe withdrawal rate but that is just a guideline. You would eventually have Social Security too but that could be a significant lifestyle reduction.

https://www.bogleheads.org/wiki/Safe_withdrawal_rates

There is not any one right answer as to how much you should save for your kids college but you have seen how student loans can impact a young person(or not so young person). With your income saving enough to pay for your kids to go to a state university would not be unreasonable, at least in my opinion.
ChinchillaWhiplash wrote:
Sun Sep 16, 2018 11:59 am
mortgage might be better. 4.5% fixed with 27 yrs left
It sounds like you are 48 so it would not be paid off until you are 75. There are lots of opinions about having a mortgage in retirement but that would scare me. Having a paid off house when I retired made my numbers work a lot better, but that was just me.

Once you get the other loans paid off I would take a hard look at getting that paid off by the time you retire.

delamer wrote:
Sun Sep 16, 2018 12:06 pm
Lots going in in your post — a little white space would make it easier to sort through.
+1

You will get better responses if it is easier to read. You can edit your post using the icon with the pencil in it.

ChinchillaWhiplash
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Re: Playing catch up. Best methods to grow retirement in next 10+years?

Post by ChinchillaWhiplash » Mon Sep 17, 2018 11:27 am

Have come up with some decisions based on all the recommendation posted. Our income varies from month to month due to corporate profit sharing. Get monthly bonuses that fluctuate. Also not salaried positions and it just depends on how many hours we put in each month. I have to budget each month based on the size of the paychecks. Some monthly expenses are always the same. Others can be adjusted as needed based on how much we have left over. Is a constant juggling act for sure. Some of the fun of being self employed.

1) Will continue to pay max into tax deferred spaces to lower taxable income as much as possible.

2) Once those are maxed, will put $s into 529. Have to decide on how much but will be several thousand a year for both accounts.

3) Will put anything left over to pay off HELOC then Student Loan. Still putting at least $2k month towards this.

4) Once the 2 loans are paid will get aggressive with paying down mortgage just to minimize what we might have to pay once retired.

In the mean time will also put a little into EF each month to build that up a bunch. Have family obligations that will come up soon. My parents are in their 90s and we need to visit them before they are gone. Hope to see them at least once a year. Flights to get there are usually at least $2k for 4 not counting anything else.

Our cars are not expensive. My teen driving is. It doubled our insurance as soon as we put him on the policy. Our house is too big (3700 sq ft). My DW custom dream home. Wish it was 1k sq ft less and the mortgage was $250k less. We would not be in as much of a bind. We also had another home that we couldn't sell because the market was soft for 8 years while we were building the new house with a $1700 a month mortgage. Did get to rent it out for a few years at least but it was a loosing proposition. We were also stupid and had a gap in health insurance. Wife was pregnant and no one would give us an insurance policy. I had to have an emergency surgery and we had to pay for the childbirth. This set us back for years before we paid it all off. Like I said before, lots of bad financial decisions were made. Oh, and we were paying a FA 1% AUM during that time too. Needless to say, we have learned some valuable lessons since then. A lot of help came from this web site. A valuable resource for sure :sharebeer

We are getting a late start but think we are definitly on a better track than a few years ago. Now budget for expenses and don't ever use the credit cards. Took a long time to convince my DW that we needed to really buckle down and tackle the debt. She is finally on board and everything is much better. She figured out that something had to change to ever hope to retire at a decent age.

Grt2bOutdoors
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Re: Playing catch up. Best methods to grow retirement in next 10+years?

Post by Grt2bOutdoors » Mon Sep 17, 2018 11:51 am

Do you have to retire at age 62? If you work to age 65, you are two more years closer to Social Security and you have 3 more years worth of savings in hand?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

ChinchillaWhiplash
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Re: Playing catch up. Best methods to grow retirement in next 10+years?

Post by ChinchillaWhiplash » Mon Sep 17, 2018 12:34 pm

Grt2bOutdoors wrote:
Mon Sep 17, 2018 11:51 am
Do you have to retire at age 62? If you work to age 65, you are two more years closer to Social Security and you have 3 more years worth of savings in hand?
That is a thought. Hopefully scale back to part time around 60 and work to mid 60's or until enough saved for full FI.

delamer
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Re: Playing catch up. Best methods to grow retirement in next 10+years?

Post by delamer » Mon Sep 17, 2018 2:25 pm

ChinchillaWhiplash wrote:
Mon Sep 17, 2018 11:27 am
Have come up with some decisions based on all the recommendation posted. Our income varies from month to month due to corporate profit sharing. Get monthly bonuses that fluctuate. Also not salaried positions and it just depends on how many hours we put in each month. I have to budget each month based on the size of the paychecks. Some monthly expenses are always the same. Others can be adjusted as needed based on how much we have left over. Is a constant juggling act for sure. Some of the fun of being self employed.

1) Will continue to pay max into tax deferred spaces to lower taxable income as much as possible.

2) Once those are maxed, will put $s into 529. Have to decide on how much but will be several thousand a year for both accounts.

3) Will put anything left over to pay off HELOC then Student Loan. Still putting at least $2k month towards this.

4) Once the 2 loans are paid will get aggressive with paying down mortgage just to minimize what we might have to pay once retired.

In the mean time will also put a little into EF each month to build that up a bunch. Have family obligations that will come up soon. My parents are in their 90s and we need to visit them before they are gone. Hope to see them at least once a year. Flights to get there are usually at least $2k for 4 not counting anything else.

Our cars are not expensive. My teen driving is. It doubled our insurance as soon as we put him on the policy. Our house is too big (3700 sq ft). My DW custom dream home. Wish it was 1k sq ft less and the mortgage was $250k less. We would not be in as much of a bind. We also had another home that we couldn't sell because the market was soft for 8 years while we were building the new house with a $1700 a month mortgage. Did get to rent it out for a few years at least but it was a loosing proposition. We were also stupid and had a gap in health insurance. Wife was pregnant and no one would give us an insurance policy. I had to have an emergency surgery and we had to pay for the childbirth. This set us back for years before we paid it all off. Like I said before, lots of bad financial decisions were made. Oh, and we were paying a FA 1% AUM during that time too. Needless to say, we have learned some valuable lessons since then. A lot of help came from this web site. A valuable resource for sure :sharebeer

We are getting a late start but think we are definitly on a better track than a few years ago. Now budget for expenses and don't ever use the credit cards. Took a long time to convince my DW that we needed to really buckle down and tackle the debt. She is finally on board and everything is much better. She figured out that something had to change to ever hope to retire at a decent age.
I give you credit for being willing to confess your financial “sins” and then work your way out of your hole.

But I’d still reverse numbers 2 and 3 above.

Good luck. :happy

ChinchillaWhiplash
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Re: Playing catch up. Best methods to grow retirement in next 10+years?

Post by ChinchillaWhiplash » Mon Sep 17, 2018 3:08 pm

Delamer, did take your advice into consideration. My reasoning is that today a student loan has higher interest than the existing loans and I can reduce taxable income slightly via 529. So in my mind it makes sense. Still planning to be aggressive on paying down the loans though, so should be in good shape. Will just take a little longer to get rid of them.

billfromct
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Re: Playing catch up. Best methods to grow retirement in next 10+years?

Post by billfromct » Mon Sep 17, 2018 3:16 pm

Now may be the time to encourage your kids to think about their financial future especially retirement by contributing to a Roth IRA for your son (over 16 to have an after school or summer job) & daughter when she turns 16.

My kids started after school/summer jobs when they turned 16 & funded their Roth IRAs (actually their SS survivor benefits funded their Roth IRA), now in their mid/late 20s, they have $125k-$150k in their Roth IRA accounts. Granted, a big part was maxing out the Roth accounts during the bear and now bull market over the past 10-12 years.

Hopefully your mistakes/bad luck will help them see what they can do to enhance their financial security.

bill

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