Will I make it? (Another "evaluate my financials" post..)

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
BogleMelon
Posts: 812
Joined: Mon Feb 01, 2016 11:49 am

Will I make it? (Another "evaluate my financials" post..)

Post by BogleMelon » Wed Dec 06, 2017 1:37 pm

I have posted before my financial situation to get a criticism/evaluation. Since 2018 is almost here, I would like to post again and get your opinions on whether I am saving enough for retirement or not.

I am a renter, 15% tax bracket after contributing to the 401K.
Family of 2, no kids, 38 and 40 yrs old.
My income: $88K
DW's: $21K
New comers to US, started literally from zero here (Thanks to the currency exchange rate that depleted our home country savings). Started to save for retirement in 2014.
Now have in Roth IRA's: $40K
401K's (no matching): $3K

Starting 2018, I will continue maximizing our Roth's in addition to 401K's. Total expected savings in 2018: $19K

Current AA: 85% stocks 15% bonds to be reduced as we age according to our IPS..

In addition to retirement savings: I am saving around $1400~$2000/mo in cash for various short terms goals in addition to one long term goal (buying a home). I am not saying I will buy a home when I reach the 20% down payment, but i just would like to have the money ready in case I needed to..

My question is, will I be able to retire at reasonable age (with dignity)? Or I will be way behind?
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

KlangFool
Posts: 7204
Joined: Sat Oct 11, 2008 12:35 pm

Re: Will I make it? (Another "evaluate my financials" post..)

Post by KlangFool » Wed Dec 06, 2017 1:44 pm

OP,

1) What is your current annual expense?

2) What is your targeted retirement expense?

<<In addition to retirement savings: I am saving around $1400~$2000/mo in cash for various short terms goals in addition to one long term goal (buying a home). >>

3) My gut feeling tells me if you save that money for your retirement, you have a fighting chance. Or else, the answer will be no.

KlangFool

User avatar
Meg77
Posts: 2129
Joined: Fri May 22, 2009 1:09 pm
Location: Dallas, TX
Contact:

Re: Will I make it? (Another "evaluate my financials" post..)

Post by Meg77 » Wed Dec 06, 2017 1:46 pm

If you keep investing $18,000 a year for retirement, your portfolio should hit $1,000,000 the year you turn 60 assuming a 7% annual rate of return. Five years after that it should exceed $1,500,000. That doesn't factor in inflation, but presumably you'd increase annual contributions over time as well (not to mention increase your income in general). In any event it should be enough to retire with dignity. Particularly if you buy and pay off a home during that time period as well.
"An investment in knowledge pays the best interest." - Benjamin Franklin

chartcab3785
Posts: 92
Joined: Fri Jul 11, 2014 12:30 am

Re: Will I make it? (Another "evaluate my financials" post..)

Post by chartcab3785 » Wed Dec 06, 2017 1:51 pm

401K's (no matching): $3K
Is there a typo?

DW and I are Dual Income No Kids and similar ages as you. Had a bit of an earlier start than you and bought a home 13 yrs ago. I'm a worrier and thus don't feel over confident with our retirement savings. With retirement ~20+ yrs away, a lot can and will likely change in the world and personally.

aristotelian
Posts: 3164
Joined: Wed Jan 11, 2017 8:05 pm

Re: Will I make it? (Another "evaluate my financials" post..)

Post by aristotelian » Wed Dec 06, 2017 1:52 pm

No kids helps and you certainly have sufficient income. You do need to increase your savings rate. A general rule of thumb is 15% will provide a comfortable retirement. Since you are getting a late start, I would target at least 25%.

User avatar
BogleMelon
Posts: 812
Joined: Mon Feb 01, 2016 11:49 am

Re: Will I make it? (Another "evaluate my financials" post..)

Post by BogleMelon » Wed Dec 06, 2017 1:55 pm

chartcab3785 wrote:
Wed Dec 06, 2017 1:51 pm
401K's (no matching): $3K
Is there a typo?
No, I rolled over my previous company 401K to my Roth. I just started 3 years ago! Before that my net worth was close to $0!
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

bloom2708
Posts: 2939
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Will I make it? (Another "evaluate my financials" post..)

Post by bloom2708 » Wed Dec 06, 2017 2:54 pm

Deferring pre-tax $18k into your 401k would likely get you down to closer to staying in the 15% tax bracket.

You would pay tax down the road and save 25% now. Did you do Roth 401k and then roll that to your Roth or did you pay the tax when you rolled it over?

Does your wife have a 401k type plan where she works? Moving some % of her income pre-tax into a 401k would also help.

I know buying a house is the "American Dream", but it isn't always the best use of your money when you are behind on savings.

You are doing great to have a positive net worth. Maybe split the difference between pre-tax 401k and house down payment for a few years.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

User avatar
BogleMelon
Posts: 812
Joined: Mon Feb 01, 2016 11:49 am

Re: Will I make it? (Another "evaluate my financials" post..)

Post by BogleMelon » Wed Dec 06, 2017 2:59 pm

bloom2708 wrote:
Wed Dec 06, 2017 2:54 pm
Deferring pre-tax $18k into your 401k would likely get you down to closer to staying in the 15% tax bracket.

You would pay tax down the road and save 25% now. Did you do Roth 401k and then roll that to your Roth or did you pay the tax when you rolled it over?

Does your wife have a 401k type plan where she works? Moving some % of her income pre-tax into a 401k would also help.

I know buying a house is the "American Dream", but it isn't always the best use of your money when you are behind on savings.

You are doing great to have a positive net worth. Maybe split the difference between pre-tax 401k and house down payment for a few years.
I paid the tax to roll over from traditional 401K to Roth IRA
I will still be in the 15% bracket for the next year given the above numbers..
Yes my wife has a 401K, we using it, we don't use mine cause hers is slightly better. About 34% of her gross income goes there actually :D
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

bloom2708
Posts: 2939
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Will I make it? (Another "evaluate my financials" post..)

Post by bloom2708 » Wed Dec 06, 2017 3:13 pm

BogleMelon wrote:
Wed Dec 06, 2017 2:59 pm
I paid the tax to roll over from traditional 401K to Roth IRA
I will still be in the 15% bracket for the next year given the above numbers..
Yes my wife has a 401K, we using it, we don't use mine cause hers is slightly better. About 34% of her gross income goes there actually :D
Makes sense. Even if your expense ratios are 1.0%, deferring the tax will allow you to front load saving now and giving those dollars a longer run at growth. If you have an S&P 500 index and that is the only reasonable fund, use it.

We don't have a mortgage, but we max my 401k, 2 x Roth and HSA on a similar income. I guess my advice is to pre-load your savings and get ahead and then think about a house. Build a base of pre-tax and Roth savings. If that means reducing your 401k some to save after a few years, then that might have to happen.

The only way to not be behind is to jump start the things that will get you ahead.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

User avatar
BogleMelon
Posts: 812
Joined: Mon Feb 01, 2016 11:49 am

Re: Will I make it? (Another "evaluate my financials" post..)

Post by BogleMelon » Wed Dec 06, 2017 3:20 pm

bloom2708 wrote:
Wed Dec 06, 2017 3:13 pm
BogleMelon wrote:
Wed Dec 06, 2017 2:59 pm
I paid the tax to roll over from traditional 401K to Roth IRA
I will still be in the 15% bracket for the next year given the above numbers..
Yes my wife has a 401K, we using it, we don't use mine cause hers is slightly better. About 34% of her gross income goes there actually :D
Makes sense. Even if your expense ratios are 1.0%, deferring the tax will allow you to front load saving now and giving those dollars a longer run at growth. If you have an S&P 500 index and that is the only reasonable fund, use it.
That is exactly what she has, S&P 500 with ER 0.12% (I complement this by Vanguard Extended Fund through Roth)
bloom2708 wrote:
Wed Dec 06, 2017 3:13 pm
We don't have a mortgage, but we max my 401k, 2 x Roth and HSA on a similar income. I guess my advice is to pre-load your savings and get ahead and then think about a house. Build a base of pre-tax and Roth savings. If that means reducing your 401k some to save after a few years, then that might have to happen.

The only way to not be behind is to jump start the things that will get you ahead.
How can I define: "I have reached the jump start, and OK to save for a house"?! Saving for retirement as a goal, seems like never gets enough! The more I increase my saving rate, the more I feel I should be saving more!!
And believe me, buying a home is not about "American dream", it is about, to get into any "dream" without being interrupted by my upstairs neighbors! I don't remember when was the last time i got a good night sleep without interruptions! Moving from a place to another didn't work either. There is always a neighbor who loves midnight noise.. :( Or may be I am simply a light sleeper
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

SimplicityNow
Posts: 286
Joined: Fri Aug 05, 2016 10:31 am

Re: Will I make it? (Another "evaluate my financials" post..)

Post by SimplicityNow » Wed Dec 06, 2017 3:41 pm

BogleMelon wrote:
Wed Dec 06, 2017 3:20 pm
bloom2708 wrote:
Wed Dec 06, 2017 3:13 pm
BogleMelon wrote:
Wed Dec 06, 2017 2:59 pm
I paid the tax to roll over from traditional 401K to Roth IRA
I will still be in the 15% bracket for the next year given the above numbers..
Yes my wife has a 401K, we using it, we don't use mine cause hers is slightly better. About 34% of her gross income goes there actually :D
Makes sense. Even if your expense ratios are 1.0%, deferring the tax will allow you to front load saving now and giving those dollars a longer run at growth. If you have an S&P 500 index and that is the only reasonable fund, use it.
That is exactly what she has, S&P 500 with ER 0.12% (I complement this by Vanguard Extended Fund through Roth)
bloom2708 wrote:
Wed Dec 06, 2017 3:13 pm
We don't have a mortgage, but we max my 401k, 2 x Roth and HSA on a similar income. I guess my advice is to pre-load your savings and get ahead and then think about a house. Build a base of pre-tax and Roth savings. If that means reducing your 401k some to save after a few years, then that might have to happen.

The only way to not be behind is to jump start the things that will get you ahead.
How can I define: "I have reached the jump start, and OK to save for a house"?! Saving for retirement as a goal, seems like never gets enough! The more I increase my saving rate, the more I feel I should be saving more!!
And believe me, buying a home is not about "American dream", it is about, to get into any "dream" without being interrupted by my upstairs neighbors! I don't remember when was the last time i got a good night sleep without interruptions! Moving from a place to another didn't work either. There is always a neighbor who loves midnight noise.. :( Or may be I am simply a light sleeper
Congratulations on understanding the importance of saving for retirement. You might consider you got a late start but many others started later. You have a good income and are pursing your goals. Good for you.

What percentage of your income is being saved for a house?

There are advantages to home ownership as you said, no noisy upstairs neighbors. Perhaps instead of renting an apartment or condo renting an entire house would be a solution?
With the advantages of owning a house also come the expenses of owning a house. Mortgage payments. property taxes, repairs and maintenance and utility payments may be higher. Hopefully you are considering these as well and examining how they may affect your savings rate.

KlangFool
Posts: 7204
Joined: Sat Oct 11, 2008 12:35 pm

Re: Will I make it? (Another "evaluate my financials" post..)

Post by KlangFool » Wed Dec 06, 2017 3:46 pm

BogleMelon wrote:
Wed Dec 06, 2017 3:20 pm

How can I define: "I have reached the jump start, and OK to save for a house"?! Saving for retirement as a goal, seems like never gets enough! The more I increase my saving rate, the more I feel I should be saving more!!
And believe me, buying a home is not about "American dream", it is about, to get into any "dream" without being interrupted by my upstairs neighbors! I don't remember when was the last time i got a good night sleep without interruptions! Moving from a place to another didn't work either. There is always a neighbor who loves midnight noise.. :( Or may be I am simply a light sleeper
BogleMelon,

Why bother to save for a house when you cannot afford to buy a house? Unless your income went up substantially, you cannot afford to buy a house even when you have the down payment. Meanwhile, you are paying tax and deferring investing that money and get further behind for your retirement saving.

<< it is about, to get into any "dream" without being interrupted by my upstairs neighbors! I don't remember when was the last time i got a good night sleep without interruptions! >>

You can rent the top floor of an apartment instead.

KlangFool

User avatar
BogleMelon
Posts: 812
Joined: Mon Feb 01, 2016 11:49 am

Re: Will I make it? (Another "evaluate my financials" post..)

Post by BogleMelon » Wed Dec 06, 2017 3:52 pm

KlangFool wrote:
Wed Dec 06, 2017 3:46 pm
BogleMelon wrote:
Wed Dec 06, 2017 3:20 pm

How can I define: "I have reached the jump start, and OK to save for a house"?! Saving for retirement as a goal, seems like never gets enough! The more I increase my saving rate, the more I feel I should be saving more!!
And believe me, buying a home is not about "American dream", it is about, to get into any "dream" without being interrupted by my upstairs neighbors! I don't remember when was the last time i got a good night sleep without interruptions! Moving from a place to another didn't work either. There is always a neighbor who loves midnight noise.. :( Or may be I am simply a light sleeper
BogleMelon,

Why bother to save for a house when you cannot afford to buy a house? Unless your income went up substantially, you cannot afford to buy a house even when you have the down payment. Meanwhile, you are paying tax and deferring investing that money and get further behind for your retirement saving.

<< it is about, to get into any "dream" without being interrupted by my upstairs neighbors! I don't remember when was the last time i got a good night sleep without interruptions! >>

You can rent the top floor of an apartment instead.

KlangFool
"Unless your income went up substantially"
Exactly.. I want to have a ready downpayment so that when the income is up substantially (DW gets a full time career job for example), I don't start from scratch saving..
I used to be on the top floor before. Thanks to the wooden construction apartments. I was almost living inside the neighbors bedroom! It is not the appropriate place to tell what kind of noise I was hearing, but you can imagine!
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

KlangFool
Posts: 7204
Joined: Sat Oct 11, 2008 12:35 pm

Re: Will I make it? (Another "evaluate my financials" post..)

Post by KlangFool » Wed Dec 06, 2017 4:05 pm

BogleMelon wrote:
Wed Dec 06, 2017 3:52 pm
KlangFool wrote:
Wed Dec 06, 2017 3:46 pm
BogleMelon wrote:
Wed Dec 06, 2017 3:20 pm

How can I define: "I have reached the jump start, and OK to save for a house"?! Saving for retirement as a goal, seems like never gets enough! The more I increase my saving rate, the more I feel I should be saving more!!
And believe me, buying a home is not about "American dream", it is about, to get into any "dream" without being interrupted by my upstairs neighbors! I don't remember when was the last time i got a good night sleep without interruptions! Moving from a place to another didn't work either. There is always a neighbor who loves midnight noise.. :( Or may be I am simply a light sleeper
BogleMelon,

Why bother to save for a house when you cannot afford to buy a house? Unless your income went up substantially, you cannot afford to buy a house even when you have the down payment. Meanwhile, you are paying tax and deferring investing that money and get further behind for your retirement saving.

<< it is about, to get into any "dream" without being interrupted by my upstairs neighbors! I don't remember when was the last time i got a good night sleep without interruptions! >>

You can rent the top floor of an apartment instead.

KlangFool
"Unless your income went up substantially"
Exactly.. I want to have a ready downpayment so that when the income is up substantially (DW gets a full time career job for example), I don't start from scratch saving..
I used to be on the top floor before. Thanks to the wooden construction apartments. I was almost living inside the neighbors bedroom! It is not the appropriate place to tell what kind of noise I was hearing, but you can imagine!
BogleMelon,

Show us the numbers. You only need 20% down payment. And, it could come from your Roth IRA account. You might be aiming for a house that you could never afford to buy.

KlangFool

User avatar
BogleMelon
Posts: 812
Joined: Mon Feb 01, 2016 11:49 am

Re: Will I make it? (Another "evaluate my financials" post..)

Post by BogleMelon » Wed Dec 06, 2017 4:09 pm

KlangFool wrote:
Wed Dec 06, 2017 4:05 pm

BogleMelon,

You might be aiming for a house that you could never afford to buy.

KlangFool
I know. The numbers is in your inbox. We had this discussion before. But currently I need some insight from the people in here about my retirement saving rate, and how good/bad it is.
If it happened that my retirement rate is really bad, then I will consider shifting the house savings to retirement instead. If my retirement was found to be OK, then I will keep saving in cash for a potential home while wishing for a pump in salary or a crash in real estate or both together :D
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

KlangFool
Posts: 7204
Joined: Sat Oct 11, 2008 12:35 pm

Re: Will I make it? (Another "evaluate my financials" post..)

Post by KlangFool » Wed Dec 06, 2017 4:21 pm

BogleMelon wrote:
Wed Dec 06, 2017 4:09 pm
KlangFool wrote:
Wed Dec 06, 2017 4:05 pm

BogleMelon,

You might be aiming for a house that you could never afford to buy.

KlangFool
I know. The numbers is in your inbox. We had this discussion before. But currently I need some insight from the people in here about my retirement saving rate, and how good/bad it is.
If it happened that my retirement rate is really bad, then I will consider shifting the house savings to retirement instead. If my retirement was found to be OK, then I will keep saving in cash for a potential home while wishing for a pump in salary or a crash in real estate or both together :D
BogleMelon,

There is a fundamental flaw in your thinking. That money is not "retirement" savings. They are your asset/money.

You choose not to invest 50% of your annual savings for the next 5 to 10 years in the order of hoping to buy a house. You are 40 years old and you have only saved for 3 years. You cannot afford to do this. A better strategy is to invest that money for the next 5 to 10 years.

A) If your income and portfolio goes up, you have the money to buy the house.

B) If your income does not go up, you do not waste that 5 to 10 years of having 50% of your money sitting around doing nothing.

This is 18K to 24K of your money over the next 5 years = 90K to 120K of your money. It is a significant amount of your money.

IMHO, this is a big mistake no matter whether you choose to buy a house in 5 years.

KlangFool

User avatar
BogleMelon
Posts: 812
Joined: Mon Feb 01, 2016 11:49 am

Re: Will I make it? (Another "evaluate my financials" post..)

Post by BogleMelon » Wed Dec 06, 2017 4:54 pm

KlangFool wrote:
Wed Dec 06, 2017 4:21 pm

This is 18K to 24K of your money over the next 5 years = 90K to 120K of your money. It is a significant amount of your money.

IMHO, this is a big mistake no matter whether you choose to buy a house in 5 years.

KlangFool
Interesting thought, but I crunched some numbers..
Saving $18K/yr in a 1.25% saving account for 4 years = $74,278.30 (My target down payment amount including closing costs)
Investing $18K/yr returning 5.50% avg a year (which is 1.5% higher than Mr. Bogle prediction) = $81,500
(For simplicity let's skip the tax drag for now, I can use I-bonds for me and wife's account instead of saving account to reduce the tax drag)
Opportunity cost due to not investing during these 4 years = $7300 (or loosing $1775 annually for 4 years).
$7300 is good amount of money, but I think the cost of opportunity lost here wouldn't make that difference in terms of "retiring with dignity" vs "retiring poor".
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

KlangFool
Posts: 7204
Joined: Sat Oct 11, 2008 12:35 pm

Re: Will I make it? (Another "evaluate my financials" post..)

Post by KlangFool » Wed Dec 06, 2017 5:21 pm

BogleMelon wrote:
Wed Dec 06, 2017 4:54 pm
KlangFool wrote:
Wed Dec 06, 2017 4:21 pm

This is 18K to 24K of your money over the next 5 years = 90K to 120K of your money. It is a significant amount of your money.

IMHO, this is a big mistake no matter whether you choose to buy a house in 5 years.

KlangFool
Interesting thought, but I crunched some numbers..
Saving $18K/yr in a 1.25% saving account for 4 years = $74,278.30 (My target down payment amount including closing costs)
Investing $18K/yr returning 5.50% avg a year (which is 1.5% higher than Mr. Bogle prediction) = $81,500
(For simplicity let's skip the tax drag for now, I can use I-bonds for me and wife's account instead of saving account to reduce the tax drag)
Opportunity cost due to not investing during these 4 years = $7300 (or loosing $1775 annually for 4 years).
$7300 is good amount of money, but I think the cost of opportunity lost here wouldn't make that difference in terms of "retiring with dignity" vs "retiring poor".
BogleMelon,

Come on.

A) You are a financial person. You should use $1,500 per month instead.

B) You are paying at least 15% tax on that $18,000

The difference is a lot bigger.

KlangFool

Olemiss540
Posts: 229
Joined: Fri Aug 18, 2017 8:46 pm

Re: Will I make it? (Another "evaluate my financials" post..)

Post by Olemiss540 » Wed Dec 06, 2017 5:49 pm

KlangFool wrote:
Wed Dec 06, 2017 5:21 pm
BogleMelon wrote:
Wed Dec 06, 2017 4:54 pm
KlangFool wrote:
Wed Dec 06, 2017 4:21 pm

This is 18K to 24K of your money over the next 5 years = 90K to 120K of your money. It is a significant amount of your money.

IMHO, this is a big mistake no matter whether you choose to buy a house in 5 years.

KlangFool
Interesting thought, but I crunched some numbers..
Saving $18K/yr in a 1.25% saving account for 4 years = $74,278.30 (My target down payment amount including closing costs)
Investing $18K/yr returning 5.50% avg a year (which is 1.5% higher than Mr. Bogle prediction) = $81,500
(For simplicity let's skip the tax drag for now, I can use I-bonds for me and wife's account instead of saving account to reduce the tax drag)
Opportunity cost due to not investing during these 4 years = $7300 (or loosing $1775 annually for 4 years).
$7300 is good amount of money, but I think the cost of opportunity lost here wouldn't make that difference in terms of "retiring with dignity" vs "retiring poor".
BogleMelon,

Come on.

A) You are a financial person. You should use $1,500 per month instead.

B) You are paying at least 15% tax on that $18,000

The difference is a lot bigger.

KlangFool
Most likely marginal rate is higher considering state and local tax rate. At a 20% marginal rate, 18k for 4 years (at 5.5%) returns right around 100k....

smitcat
Posts: 790
Joined: Mon Nov 07, 2016 10:51 am

Re: Will I make it? (Another "evaluate my financials" post..)

Post by smitcat » Wed Dec 06, 2017 5:57 pm

Perhaps consider buying a smaller two family home and renting out one side - it worked for us.

Post Reply