30yo Checking In

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Topic Author
ajg189
Posts: 26
Joined: Tue Mar 26, 2019 3:11 pm

30yo Checking In

Post by ajg189 »

Hi Everyone,

As I recently turned 30 and started a new job, I wanted to check in and see how my wife and me are doing. We have some large student loan debt from our grad degrees, but are trying to tackle them quickly. I look forward to hearing your thoughts.

30yo married couple in a HCOL area (no children yet)
290k combined base annual income + ~10% annual bonus (I expect this to go up 4-5% per year on average as we continue to settle into our careers)

Assets:
12k Checking
20k high yield savings
105k retirement mine
25k retirement hers

Liabilities:
~500k mortgage on a 10/1 arm at 3.75% (about 80-100k equity in the house)
70k in student loans at 5.375% (we have paid down about 130k of this in 1.5 years)
160k in her student loans at 0% (loan from family)
27k left on auto loan at 4.85%

Monthly expenses are about 7k (mortgage, hoa, utilities, dining, travel, etc.). We each put 6% into 401k to maximize employer matches (100% up to this amount for both of us-about $35k in total per year) and pay minimum payments on everything except my student loans. We have been putting $8k per month into the debt each month, plus plan to direct bonus money towards it. My goal has been to put as much as we can toward the student loans and worry about building up savings/investments once we are done.

Is this the correct strategy, or should we be putting more towards retirement or investments? Not sure if we are behind on retirement or savings. Thank you for the help!
bloom2708
Posts: 8592
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: 30yo Checking In

Post by bloom2708 »

Welcome!

You have great salaries and a big pile of debt to go with it.

You are under saving for retirement. (You probably know that). With your salaries, you should be able to both fill your pre-tax 401ks to $19k (defer the tax to 30 years down the road) and 2 x Roth IRAs at $6k via Back Door Roth method.

That should be your floor saving. 6% isn't going to cut it. Making $290k you have to save more. I don't see a mention of Roth IRAs. You make too much to do front door/regular Roth IRA contributions, but back door is quite easy and that $6k each grows tax free for 30+ years.

Do either of you have an HSA? That is another place to stash pre-tax funds. I wouldn't do any taxable investing (after Emergency Fund) until the car and student loans are gone. Could you re-finance with So-Fi or similar and get the rate down?

I think retirement "gets real" in your 30s. It is a great time to maximize tax advantaged savings, pay off all debt except for your mortgage and understand and track your spending and net worth. Use a program like Personal Capital to track all investments and spending. If kids are in the picture, that will change your spending dramatically.

On one hand you are living the American Dream. High incomes, lots of debt, likely doing whatever you want, whenever you want. Don't think of saving for retirement as saving. Think of it as deferred spending for when you don't want to work anymore. That may be at 50, 55, 60, 65, etc. Give yourself options. A lot changes between 30 and 50.

There is no better place to read up and learn than here. Up to 30, anything works. I would make your 30s where you put retirement savings and debt payoff to the forefront. That likely means putting less toward the debt.

Hopefully others add their thoughts. Welcome again!
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
azianbob
Posts: 417
Joined: Tue Jan 15, 2019 6:53 pm

Re: 30yo Checking In

Post by azianbob »

1. You guys should contribute the max to the 401k, not just 6% each. The max is $19,000 each a year. So you can do some math and see what % that would be.

2. If you have no traditional IRAs, you guys should do a Backdoor Roth for $6,000 each every year.

3. Complete paying off the student loan at 5.4%.

4. If the car loan has no early repayment penalty, and you still have this after done with student debt, then pay this off early.

5. Find out if your work 401ks allow additional after tax contributions and in-service distributions, then you can consider doing the mega backdoor Roth too.

6. Depending on what you promised her family, you could take your sweet time paying back the 0% loan. However ethically, you guys should eventually pay them back on it. But if they don't need it you could theoretically wait until youre done with the mortgage.

You guys seem like you are doing really well, but compared to your salary your retirement accounts seem kind of small. Especially the spouse. I am not sure how your salaries break out, but I am guessing its pretty close to each other based on the match calculation. But you guys seem like you are living under your means so thats also a good start.
Topic Author
ajg189
Posts: 26
Joined: Tue Mar 26, 2019 3:11 pm

Re: 30yo Checking In

Post by ajg189 »

Quick background. DW's retirement is smaller because she is from/spent the first part of her career working abroad and paying into her country's pension system rather than saving in a traditional retirement account as we do in the States.

Currently, we have no HSA savings and I believe out of my 105k retirement accounts, about 25k is Roth 401k.

I know the retirement savings is low. We will ramp up the savings rate once all non-mortgage, interest-bearing debt is paid off. My goal is to really push and get this debt out of the way this year.

My question is, is this the right strategy? This should be done within the next year, and then my wife and I can start ramping up the retirement contributions, back door IRA's etc. We will likely repay the non-interest-bearing debt at a slower pace, though I still want to make a good faith effort to knock that out in a short period of time (maybe 4-6k per month instead of the 8-10 we pay currently, while also contributing to our other financial goals).
azianbob
Posts: 417
Joined: Tue Jan 15, 2019 6:53 pm

Re: 30yo Checking In

Post by azianbob »

It depends on how much sleep you are losing over the debt. I asked a similar question recently and the consensous seems to be if the debt is like 4-5% or less you are better off putting money to retirement account first and let it grow at 7-9% a year and just make your regular payments on the loan. Retirement money space is something that you only get a set amount a year, and so if you don't use your space this year you will lose it.

So I would put the max to retirement you can (401k, Backdoor Roth IRA if possible) and then with the remaining leftover money you can choose to pay your debt down faster. I would start with the highest interest one first and move to another one once you finish that off first.
Figuring_it_out
Posts: 160
Joined: Sun Jan 07, 2018 9:54 am

Re: 30yo Checking In

Post by Figuring_it_out »

Dave ramsey style response.

At 290k/year your in the 25% tax bracket. Stuffing that into a 401K boost that income by 25% right off the top.

That reduced your taxable to about 250k. Of which youll take home....~80%. =200k or 16k /month

Bring your emergency fund up to 4 months of expenses.

Then turn an eye towards debt. Attack from smallest to largest. Pay min on the other loans and kill the car loan in 4 months max.

Then attack the 70k with the same vigor. Then you can make decisions on the 0% or the 500k. Give the parents the minimim they would be happy recieving the dump the rest into the mortgage.

If you are determined you could pay that mortgage off in 3-4 years. By determined i mean willing to live cheap even though you have a high income.

Youll be 35 and debt free to turbocharge your ability to save.
Sam1
Posts: 506
Joined: Mon Apr 09, 2018 7:24 am

Re: 30yo Checking In

Post by Sam1 »

Whatever you do, make sure and don’t have kids before you’ve significantly paid down those loans. Childcare costs are extremely steep in a HCOL area and you need to be putting that money towards loans.

Absolutely max out your 401ks starting tomorrow.
siriusblack
Posts: 201
Joined: Mon Dec 24, 2018 3:50 pm

Re: 30yo Checking In

Post by siriusblack »

Many folks have a different posture towards debt on this forum, but I frankly disagree with the comments above suggesting you should max out your 401k contributions immediately. If I were in your shoes I would keep the 6% match and then tackle the debt as aggressively as possible, starting with the car loan.
Flyer24
Moderator
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Joined: Sun Apr 08, 2018 4:21 pm

Re: 30yo Checking In

Post by Flyer24 »

I say to continue paying down the debt as a priority. Pay down both student loans then ramp back up to the max on retirement savings. Even though the family loan is 0%, I would still ethically want to pay it off quickly.
Strayshot
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Location: New Mexico

Re: 30yo Checking In

Post by Strayshot »

You are missing out by not maximizing the 19k/year each of you can contribute to your 401k’s, both because of the reduction of taxes as well as compounding by time in the market. I would take immediate action to remedy this.

I would then make sure you are each fully funding a backdoor Roth IRA at 6k each yearly, once again because you are missing out on time in the market and because there is a finite amount you can contribute to these accounts each year and once you lose access to that contribution space it is gone forever. The yearly amounts increase with a measure of inflation so my math is slightly false, but if you think of a 30 year investment window the most principal contribution space you will ever have access to in an IRA is (30 x 6k = 180k) and the rest will all be growth.

At that point, you are saving more than 15% of your income and can consider yourselves investing an appropriate amount for retirement. What you do next is simple and basic math, money is fungible so start paying off your highest rate debt first.

If the parent loan doesn’t need the money, I would develop a reasonable payment plan and stick to it perhaps targeting a 10 year payoff.

If cash flow were an issue I would say pay off the auto loan first, but if cash flow is not an issue (it shouldn’t be based on your numbers) than the >5% student loan is your first payoff target. Your AGI phases you out of the meager student loan interest deduction, so there is no benefit there.
hightower
Posts: 863
Joined: Mon Dec 12, 2016 2:28 am

Re: 30yo Checking In

Post by hightower »

It's great that you're already paying attention to this stuff at 30. I didn't start until I was like 34 or so, maybe a little earlier.
Anyway, your priority should be to pay off that debt. But, you should be maxing out your tax advantaged retirement accounts each year too. 401ks, HSAs, and consider backdoor Roths for you and your wife. Everything else should continue to go towards debt until gone. And don't buy cars on credit anymore;)
Also, do you plan on moving before that 10/1 ARM is mature? If not, then refinance that to a 15 year fixed mortgage. Rates are still good enough now that it's worth doing if you'll be there for the long haul. If you plan on moving soon, don't worry about it.
Keep up the good work
scubadiver
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Joined: Sun May 04, 2008 9:48 pm

Re: 30yo Checking In

Post by scubadiver »

I agree with others who have stated that you should max out your 401k space, though I see the traditional IRA space as less of an imperative. Based upon your stated income and current contribution levels, this would be another $20K or so to hit the 2019 401k limits. Very doable at your income, particularly when you consider the after tax effect on your take home pay would be less than $15K per year (assuming this would lower both your federal and state tax liability --- either way, you should max out the 401k for both you and your spouse).

Beyond that, I think your emphasis on paying off the debt is well-placed. Yes, you are behind on retirement savings for your income and age, but if you remain focused once you eliminate your non-mortgage debt burden, you'll catch up quickly. I wouldn't lose too much sleep over that. You should be able to wipe out the non-mortgage debt in three years. Make that a goal.

Good luck (and welcome to the forum!),
Scubadiver
crit
Posts: 533
Joined: Mon Jan 05, 2015 12:54 pm

Re: 30yo Checking In

Post by crit »

Agree with increasing retirement. You lose access to that space every year - you can't make up for it later.
Topic Author
ajg189
Posts: 26
Joined: Tue Mar 26, 2019 3:11 pm

Re: 30yo Checking In

Post by ajg189 »

Thanks for the advice everyone. We will bump up the retirement savings some more and I will check back in with progress. My debt is on schedule to be repaid by end of October!
Topic Author
ajg189
Posts: 26
Joined: Tue Mar 26, 2019 3:11 pm

Re: 30yo Checking In

Post by ajg189 »

I have decided to post a one year update here, as a way to track our progress and continue to get advice from this knowledgeable community. Open to thoughts and feedback. We have bumped retirement savings slightly, but continue to focus on paying off the debt.

In the past year, we have cleared 70k of student loans, 50k HELOC, and bolstered our non-retirement savings by about 20k..

income: $315k base, 15-20% bonus potential
Savings: Approx 8% 401k contribution between us (plus retirement matching from both employers), 9k per month toward debt repayment.

Assets:
10k Checking
38k high yield savings
118k retirement mine
40k retirement hers (both of these accounts took a dip given the current market environment).

Liabilities:
440k mortgage on a 10/1 arm at 3.25% (did a rate adjustment with my credit union, bringing the rate down .50%- came out to an 8 month break even. We have about 160k in equity).

In my last post the mortgage balance was much higher (50k of it was a HELOC at 5.5%, which we got when we bought the house for a better mortgage rate and avoiding PMI-PAID OFF).

0 in student loans at 5.375%-PAID OFF!
160k in her student loans at 0% (loan from family)-This will be paid off over the course of the next 1.5-2 years
29k left on auto loan at 3.99%-switched to a newer, more reliable car (I know, I know...avoid car debt)
bayview
Posts: 2331
Joined: Thu Aug 02, 2012 7:05 pm
Location: WNC

Re: 30yo Checking In

Post by bayview »

ajg189 wrote: Sun Apr 19, 2020 11:25 am I have decided to post a one year update here, as a way to track our progress and continue to get advice from this knowledgeable community. Open to thoughts and feedback. We have bumped retirement savings slightly, but continue to focus on paying off the debt.

In the past year, we have cleared 70k of student loans, 50k HELOC, and bolstered our non-retirement savings by about 20k..

income: $315k base, 15-20% bonus potential
Savings: Approx 8% 401k contribution between us (plus retirement matching from both employers), 9k per month toward debt repayment.

Assets:
10k Checking
38k high yield savings
118k retirement mine
40k retirement hers (both of these accounts took a dip given the current market environment).

Liabilities:
440k mortgage on a 10/1 arm at 3.25% (did a rate adjustment with my credit union, bringing the rate down .50%- came out to an 8 month break even. We have about 160k in equity).

In my last post the mortgage balance was much higher (50k of it was a HELOC at 5.5%, which we got when we bought the house for a better mortgage rate and avoiding PMI-PAID OFF).

0 in student loans at 5.375%-PAID OFF!
160k in her student loans at 0% (loan from family)-This will be paid off over the course of the next 1.5-2 years
29k left on auto loan at 3.99%-switched to a newer, more reliable car (I know, I know...avoid car debt)
(bump)

Congratulations! That's a lot of debt reduction PLUS savings!

Are you both still working? Are you pretty comfortable about your employment situations? (I certainly hope so.)

What are your goals for these next twelve months?
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri
Topic Author
ajg189
Posts: 26
Joined: Tue Mar 26, 2019 3:11 pm

Re: 30yo Checking In

Post by ajg189 »

Plans for this year are more of the same. Bolster retirement accounts and continue to pay off debt (target 120k debt reduction for the year). Is it the wisest thing financially to aggressively pay off low/no interest debt? Probably not, but I also hate the idea of owing money, especially to family members.

In q4, we will likely start investing money into taxable brokerage accounts. Our jobs seem secure for now (less sure about bonuses), so hopefully we can stay on track to better our financial footing even during this economic downturn.
daheld
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Location: Midwest US

Re: 30yo Checking In

Post by daheld »

If it were me, I would set automatic 401k investments to max out yearly. That should be your floor for retirement savings. Once you're on track to max these, I'd pay your minimum mortgage payment for now. If you want to attack debt, start with highest interest rates first (you mentioned already doing this above, so good job). Once your loan is paid down, worry about the mortgage and her 0% interest loan.

The bottom line is you should be saving more for retirement with that kind of income. You're here asking questions so you're on the right track!
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gr7070
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Re: 30yo Checking In

Post by gr7070 »

Having little to no debt is important to me. However, I'm in agreement with most that your savings rate is too low.

I would definitely increase my retirement savings to a minimum of 10%, or max the 401ks (tradition, not Roth) 15% is the minimum preferred target.

I would not do Roth IRAs till your debt is gone - you have enough debt at a high enough rate that I'd focus on that over Roth IRAs.

The nice part is you're doing great and any of these choices, plus the above mentioned HSA, are fantastic.

Refinance that car loan. You should easily be able to find something at sub-3%. Might want to get a higher car loan and send the cash-out to the student loan.

Otherwise keep up the great work!

Edit: it seems you had a previously different view on debt, two massive student loans, car loans, massive mortgage, *plus* a HELOC, borrowing from family. Very good that your attitude seems to have changed towards debt. Though maybe not enough since you financed a newer car with still plenty of debt.

Good to be aggressively working to get out of debt. Stay out once you are!

Would still increase your retirement savings some, you get the advantage of *possibly* higher returns (which I think is way overstated here compared to guaranteed, tax-free return of paying off debt), one can't get that lost access to tax-advantaged savings back, lastly you have very high taxes saving on that is a big positive.
Pretsler
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Joined: Sat Jun 28, 2014 10:58 am

Re: 30yo Checking In

Post by Pretsler »

ajg189 wrote: Tue Apr 21, 2020 7:40 am Plans for this year are more of the same. Bolster retirement accounts and continue to pay off debt (target 120k debt reduction for the year). Is it the wisest thing financially to aggressively pay off low/no interest debt? Probably not, but I also hate the idea of owing money, especially to family members.

In q4, we will likely start investing money into taxable brokerage accounts. Our jobs seem secure for now (less sure about bonuses), so hopefully we can stay on track to better our financial footing even during this economic downturn.
OP, I’ll defer to estate planning experts on the forum, but depending on the size of the family loan, you may be required to pay the lender the applicable federal rate in interest in order to avoid some adverse tax consequences.
Topic Author
ajg189
Posts: 26
Joined: Tue Mar 26, 2019 3:11 pm

Re: 30yo Checking In

Post by ajg189 »

gr7070 wrote: Tue Apr 21, 2020 8:31 am
Edit: it seems you had a previously different view on debt, two massive student loans, car loans, massive mortgage, *plus* a HELOC, borrowing from family. Very good that your attitude seems to have changed towards debt. Though maybe not enough since you financed a newer car with still plenty of debt.

Good to be aggressively working to get out of debt. Stay out once you are.
I would say we have gotten much more conservative with debt as we have gotten older. When the decisions were made to go back to school in our mid/late 20s, we couldnt have possibly been in a position to pay for our graduate degrees outright. This is just as much a fundamental problem with our educational system as it is a financial one. That said, I would make the same decision again (albeit do some things differently to lessen my debt burden). I met my wife and the education helped both of us increase our incomes dramatically.

When we bought our home, it was only a stretch given our student loan size, but not even 2x our gross base income at the time. We have set our finances up to live on only one income if we have to, and service debt with the other. I am seeing a common thread to really ramp up retirement savings though, so this is something we will adjust.

As for the car thing, I don’t have a great excuse...that is a sickness (ultimately, this will get paid off though) :happy
Topic Author
ajg189
Posts: 26
Joined: Tue Mar 26, 2019 3:11 pm

Re: 30yo Checking In

Post by ajg189 »

Year 3 of my Bogleheads accountability post (the time really flies-32yo couple now)! In 2020, were able to clear a 65k in debt, do some necessary home improvements (9k) and start saving more aggressively. We had a baby this year, so our expenses will be going up starting end of summer/fall once we begin paying for childcare.

I have started funding dependent care and FSA accounts (I want to say this is 5k per year). Additionally, I plan to open a 529 for the little one (4k lump sum to start). It has been great to climb out of debt and watch our net worth finally start to grow. As always, I welcome feedback from this group. I can’t decide whether to save cash for a house or add to brokerage account. Retirement accounts will be maxed this year.

Combined income: $322k base, 15% bonus (didn’t change much due to no promotions at work and Covid keeping bonuses flat-i believe this will go up by 50-100k in the next year)

Savings: 10% 401k contribution between us (plus retirement matching from both employers), Approx 8k per month leftover to use for savings and student debt repayment.

Assets:
70k Checking-We have started to pile up some cash for emergency fund/saving for next house (still deciding what to do with the excess). That is likely 2-3 years away.
0 high yield savings-I used this money to buy an investment property.
195k retirement mine
105k retirement hers
7k in company stock/small brokerage account

Real estate equity (based on Redfin estimate - 6% selling expenses)
-200k primary residence
-40k investment property. Great tenant in place with 1.5 year lease.

Liabilities:
~428k mortgage on a 10/1 arm at 2.75% (did a rate adjustment with my credit union again, bringing the rate down .50%- came out to an 8 month break even ).
~ 85k investment property mortgage 30Y fixed at 2.875%.
-125k in her student loans at 0% (loan from family)-This will be paid off over the course of the next 1.5 years. We have cleared $35k in the last year
29k auto loan-PAID OFF
kelvan80
Posts: 242
Joined: Sun Jan 12, 2014 10:06 pm

Re: 30yo Checking In

Post by kelvan80 »

So since 2019 you've only paid the family loan down $35k? But you used your high yield savings to make even more money by purchasing a rental property. Are you on any kind of timeline with the family to have this loan paid off within a certain amount of time?
Topic Author
ajg189
Posts: 26
Joined: Tue Mar 26, 2019 3:11 pm

Re: 30yo Checking In

Post by ajg189 »

kelvan80 wrote: Thu Apr 08, 2021 12:15 am So since 2019 you've only paid the family loan down $35k? But you used your high yield savings to make even more money by purchasing a rental property. Are you on any kind of timeline with the family to have this loan paid off within a certain amount of time?
Not really any timeline. I expect we will pay it down over the next couple of years. This is due to the family member insisting we focus on our other financial priorities (though I still don’t want to owe my in laws so we are working our way through it).
bwalling
Posts: 190
Joined: Thu Nov 25, 2010 1:04 pm

Re: 30yo Checking In

Post by bwalling »

crit wrote: Mon Apr 01, 2019 9:01 pm Agree with increasing retirement. You lose access to that space every year - you can't make up for it later.
This is the most important concept. It's tough to face this reality later in life - your early lack of savings/investment becomes apparent, and the amount you need to save to "catch up" all that lost compounding is huge. Get it in early.
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