Newbie Working Mom needs advice

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LAGirl2018
Posts: 3
Joined: Thu Jan 11, 2018 6:51 pm

Newbie Working Mom needs advice

Post by LAGirl2018 » Thu Jan 11, 2018 7:18 pm

Hi, I am a new poster here. My situation is that I am a self-employed attorney (with two employees and one independent contractor), with a husband and two children (ages 3 & 5). We live in Los Angeles and the cost of living is very high. My husband is also self-employed (earns approx 250k), but this post is more focused about my finances/retirement planning. My annual income depends on the year, but average around 70k net. I expect that figure to increase (hopefully double) over next few years as kids get older.

Emergency funds: 8 months
Debt: 1.1 mil on mortgage at 4% w/400k equity
Tax Filing Status: MFJ
Tax Rate: 28% Federal, 9.3% State
State of Residence: CA
Age: 41 & 39

Current retirement assets - $116k (Oppenheimer Class C Funds: IRA $7,571 & SEP-IRA $108,923)

I have been with Oppenheimer for 10 years. I realize now that I probably paid more in fees than I've earned which is why I am ready to make the move to another investment firm. I decided I would like to go with Vanguard (Vanguard Target Retirement 2040 Fund (VFORX)), after researching Betterment. Do you think this is a good choice?

My retirement funds are C-Class so to liquidate would only occur nominal fees ($150). Is it bad to move at this point considering I probably bought a lot of shares at low prices over the last 10 years, even though they haven't done well?

With two W-2 employees, I realize that I will need to start contributing to their SEP-IRA after three years. I'm unsure if I'll be able to afford to do this.

I usually max out my SEP-IRA every year and given our high mortgage and two kids in schools, we don't have much after that for additional investments, let alone vacations. I do however have college savings plan for them through Franklin Templeton and we contribute $100/month per child. I don't even know the fees on those, but they are probably high. Where should I switch these to?

Wondering if I'm doing everything I should be doing or if anybody has any suggestions for me. Should I have HSA account? Thank you so much in advance for you time and opinions.
Last edited by LAGirl2018 on Fri Jan 12, 2018 1:12 pm, edited 3 times in total.

TheAncientOne
Posts: 140
Joined: Wed Jul 19, 2017 8:53 pm

Re: Newbie Working Mom needs advice

Post by TheAncientOne » Thu Jan 11, 2018 7:40 pm

having done my taxes for my daughter last year here in CA, I was shocked to find that her marginal state tax rate for a taxable income of $65K (she's a physical therapist) was 9.3% Assuming your husband makes around the same as you, I'd bet that you're paying a similar marginal rate, even though your average state tax rate is only 5%. I know you're stretched with small kids and a large mortgage which is a fact of life in this state but I would do whatever you can to max out on your retirement accounts.

runner540
Posts: 723
Joined: Sun Feb 26, 2017 5:43 pm

Re: Newbie Working Mom needs advice

Post by runner540 » Thu Jan 11, 2018 10:34 pm

It's challenging to ignore your husband's income and presumably savings, but here goes:

You make $70k/year and need $x to live on. Let's say you'll need $60k. (all calculations in today's dollars and real return rates, to remove the distraction of inflation)

If you work until Social Security Full Retirement Age (66 or 67?), you could get $YY/year in Social Security. $60-$YY = what you need from your own savings.

Let's say you'll get $20k/year from Social Security. So you'll need $40k/year from your portfolio. A 4% withdrawal is reasonable at age 67, so:
$40k = 4% of $1 million. By age 67, you need $1 million in today's dollars.

You have $116k, and ~25 years to save and let your savings compound to reach $1 million.

If investments return 3% real every year, you need to save $20k/year for the next 25 years, starting now. (using a simple Excel PMT calculation)
If investments return 4% real every year, you need to save $16k/year.

Hope this is a helpful starting point. Of course, I strongly suggest you and your husband team up and create a joint retirement plan.
Edit: I recommend reading "The Millionaire Next Door". You and your husband are high earners, but in HCOL and with high expenses (mortgage, schools). It will help you think about setting savings goals and lifestyle to match.

Katietsu
Posts: 1543
Joined: Sun Sep 22, 2013 1:48 am

Re: Newbie Working Mom needs advice

Post by Katietsu » Thu Jan 11, 2018 10:42 pm

Move the retirement money. It is in IRA’s of one type or another so there is no tax consequences to changing investments. As far as where to move it to, you can pick from any of the low cost advisors. My personal experience has been that Fidelity has the best customer service. I am sure you will get other opinions here as well. I don’t think any are truly bad.

LAGirl2018
Posts: 3
Joined: Thu Jan 11, 2018 6:51 pm

Re: Newbie Working Mom needs advice

Post by LAGirl2018 » Fri Jan 12, 2018 12:26 am

Thanks for all the posts so far. My husband has his own retirement account with approx 200k in it as well as a separate stock account with approx 80k in it. We all have joint savings with 80k approx. Our biggest investment is our home, since that is where a big portion of our money is going. We are hoping to buy another house (once we save enough) and rent out our current house since we will be able to rent it for about 2k/month over our mortgage.

In any case, I just want to ensure:
- it's a good time to move from Oppenheimer to Vanguard, considering the length of time I've been with Oppenheimer, does that matter?
- Vanguard Target Retirement 2040 Fund (VFORX) would be a good choice for me?
- Should I stick with SEP-IRA given I have two employees and I may need to start contributing for them in two years, or is there a better option?
- Should I keep my College Savings 529 at Franklin Templeton or is there another provider that is a market leader with low fees?
- Do I need an HSA account?
- Should my husband and I have some sort of joint retirement account?
- Should I put everything into SEP-IRA when I switch to Vanguard, am I allowed to move the regular IRA funds to the SEP-IRA?

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BL
Posts: 8237
Joined: Sun Mar 01, 2009 2:28 pm

Re: Newbie Working Mom needs advice

Post by BL » Fri Jan 12, 2018 1:13 am

LAGirl2018 wrote:
Fri Jan 12, 2018 12:26 am
Thanks for all the posts so far. My husband has his own retirement account with approx 200k in it as well as a separate stock account with approx 80k in it. We all have joint savings with 80k approx. Our biggest investment is our home, since that is where a big portion of our money is going. We are hoping to buy another house (once we save enough) and rent out our current house since we will be able to rent it for about 2k/month over our mortgage.

In any case, I just want to ensure:
- it's a good time to move from Oppenheimer to Vanguard, considering the length of time I've been with Oppenheimer, does that matter? Get it moved. High costs steal (a lot) from your retirement.
- Vanguard Target Retirement 2040 Fund (VFORX) would be a good choice for me?That should work fine.
- Should I stick with SEP-IRA given I have two employees and I may need to start contributing for them in two years, or is there a better option?
- Should I keep my College Savings 529 at Franklin Templeton or is there another provider that is a market leader with low fees? I think there may be lower cost 529s- Do I need an HSA account?
- Should my husband and I have some sort of joint retirement account? If you have filled all tax-advantaged funds, (individual), then maybe a joint brokerage (regular) account that is saved for retirement.
- Should I put everything into SEP-IRA when I switch to Vanguard, am I allowed to move the regular IRA funds to the SEP-IRA? Not sure Vanguard allows it. Fidelity does, I believe.

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luminous
Posts: 89
Joined: Sat Dec 30, 2017 10:28 pm

Re: Newbie Working Mom needs advice

Post by luminous » Fri Jan 12, 2018 1:29 am

Hello!
- Vanguard Target Retirement 2040 Fund (VFORX) would be a good choice for me?
VFORX is a nice fund, but it is unclear what your need and appetite for risk in your retirement portfolio is. When do you hope to retire, how confident are you feeling about your savings rate, how risk tolerant are you? I personally use target date funds, but have also done a lot of analysis and tinkering over time to come to that conclusion.
- Should I keep my College Savings 529 at Franklin Templeton or is there another provider that is a market leader with low fees?
I'm not familiar with Franklin Templeton. I also live in California and I have Scholar Share accounts for my kids. I use the Passive Age Based funds and the fees are low, between .11% and .17%. https://www.scholarshare.com/research/fees.shtml
- Do I need an HSA account?
For health care payments, or for investment/retirement purposes? You haven't mentioned your health insurance situation.
- Should my husband and I have some sort of joint retirement account?
That sounds like a personal decision between the two of you, you keep your financial lives far more separate than my spouse and I do.
45/25/30 US stock/international stock/bonds. Target date funds. Hope to semi-retire in 2026.

runner540
Posts: 723
Joined: Sun Feb 26, 2017 5:43 pm

Re: Newbie Working Mom needs advice

Post by runner540 » Fri Jan 12, 2018 8:11 am

LAGirl2018 wrote:
Fri Jan 12, 2018 12:26 am
Thanks for all the posts so far. My husband has his own retirement account with approx 200k in it as well as a separate stock account with approx 80k in it. We all have joint savings with 80k approx. Our biggest investment is our home, since that is where a big portion of our money is going. We are hoping to buy another house (once we save enough) and rent out our current house since we will be able to rent it for about 2k/month over our mortgage.

In any case, I just want to ensure:

- Should my husband and I have some sort of joint retirement account?
Tax advantaged retirement accounts can only be titled individually. Fill those up before saving in a joint taxable account. But you and your husband DO need a joint plan to save for retirement. Right now you have ~$316k combined, or one year of income, and that is behind where you should be with your income at age 40/41. You need to work together to find more money to save. You mention that your home is part of your "investments". Before buying another property, please consider whether you want so much of your networth concentrated in LA real estate.

Good luck!

LAGirl2018
Posts: 3
Joined: Thu Jan 11, 2018 6:51 pm

Re: Newbie Working Mom needs advice

Post by LAGirl2018 » Fri Jan 12, 2018 1:11 pm

My husband and I have joint checking, joint savings, file jointly, joint health insurance, etc. Everything is joint. However, because we are both self-employed and have our own SEP-IRAs I thought it's better for me to ensure that I have enough in my personal one. Maybe I'm looking at this wrong? Really our financial lives are very much intertwined.

We live in Santa Monica and the property values here are stable, even when the real estate market elsewhere is not. So I am not too concerned with eventually buying another property because then our first property (where we currently live), will be passive rental income and eventually contribute to our retirement fund when we are ready to sell, likely over $2.2 million. Current value is $1.7 million.

I really don't know when I plan to retire. I suppose I would like to prepare for 65 and see how I feel in 20 years. I've invested in higher risk funds at Oppenheimer and that has got me nowhere. I invested 112k over last 10 years and my account is only worth 116k. This means I've only earned 4k in all that time! The fees paid have been higher than what I've earned. It is very depressing and wish I wouldn't have taken such a backseat with my retirement planning. I don't want to make the same mistake again.

My health insurance situation is that we have a family plan and pay $1,300/month for the whole family. We are healthy and really only have doctor's visits for annual checkups. I am not too familiar with HSA and unsure if this is something I should consider? I don't think I can use it for health care payments since the premiums are deductible already.

Should I consider Solo 401k instead of SEP-IRA? I'm not really sure (despite my research) the benefits of one over the other, especially given I have two employees.

I will read the "The Millionaire Next Door" thank you.

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