25yo financial check-in

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Topic Author
Linux
Posts: 2
Joined: Sat Sep 21, 2019 6:14 pm

25yo financial check-in

Post by Linux » Sat Nov 02, 2019 8:31 am

I’m 25yo and work at a healthcare company as a financial data analyst. My salary is $70K and I live on approximately $30K per year, for a 65% after tax savings rate or a 50% gross savings rate. I’ve maxed my 401K for two years and my Roth IRA for three years. I plan to continue maxing those accounts out until I make about $75K in income per year, at which point I plan to contribute to a Traditional IRA instead of Roth. The idea would be to keep my taxable income limited to $40k to aim to pay nor more than 12% in marginal federal income tax. I understand the tax rate is marginal and not applied to total taxable income. My employer doesn’t offer a HDHP, and so I can’t contribute to an HSA.

My retirement portfolio target allocation is 90/10. The below figures include my emergency fund and either the beginnings of a down payment for a house or a full cash car purchase.

Taxable


$17K - Money Market funds
$10K - Online HY checking accounts
$8K - Global bond index fund
$3K - Global equity index fund
$38K - Subtotal

Roth IRA

$10K - Total Stock Market index fund
$8K - Extended Duration Treasury index ETF (EDV)
$6K - Total International Stock index fund
$24K - Subtotal

401K

$10K - Extended US Stock Market index fund
$27K - International Stock Market index fund
$30K - S&P 500 index fund
$67K - Subtotal
______
$129K Grand Total


I have about $7.5K remaining in federal student loans that have interest rates between 3.1% and 3.6%. These are very low interest rates and I don’t plan on paying them off early.

The extended duration treasuries are probably the most controversial part of my portfolio. I’m convinced of the diversification benefits and I’m comfortable with the volatility. I’m considering a 80/20 Equity/EDV allocation for my taxable investments. I plan on being a true Boglehead with the remainder of my investments.

I think I’m doing moderately well for my age, but I’m interested to hear your thoughts on improvements I can make to my portfolio, financial planning, career planning etc.

StrangePenguin
Posts: 109
Joined: Tue Mar 27, 2018 11:35 am

Re: 25yo financial check-in

Post by StrangePenguin » Sat Nov 02, 2019 1:07 pm

It sounds like you are doing enviably well at living below your means and saving impressive amounts of money at a young age.

One thing that got my attention -- your 401k is all stocks, while you are keeping bonds in your taxable portfolio. Bond distributions are treated as income for tax purposes while qualified dividends (from stock funds) are treated preferentially. (See: https://www.bogleheads.org/wiki/Tax-eff ... _placement ). Do you have access to a good bond fund in your 401k? If so you might wish to keep your taxable space as 100% stocks and keep all of your bonds in your 401k. (Some people also prefer to keep their Roth as 100% stocks because it is a "most valuable" space and thus they want to keep holdings with the highest growth potential there.)

Living Free
Posts: 350
Joined: Thu Jul 19, 2018 7:31 pm

Re: 25yo financial check-in

Post by Living Free » Sat Nov 02, 2019 1:18 pm

I'd get rid of those student loans. Get that out of your life.

Financial picture overall looks pretty solid in terms of your net worth, savings rate, and plans for a simple and diversified portfolio.

Olemiss540
Posts: 1135
Joined: Fri Aug 18, 2017 8:46 pm

Re: 25yo financial check-in

Post by Olemiss540 » Sat Nov 02, 2019 7:50 pm

You are KILLING it at 25. Personally, I would payoff the loans tomorrow, hold 12k in bond in your 401k, hold 10k in cash in a money market account, and then ROCK and ROLL with all total stock market/intl market.

You can always buy a cheap replacement car if the market is down and buy a few years until it recovers if need be. I would keep this up until 30 or 32 and then reasses with hopefully around 650k or 700k in investments.

Worry about a house downpayment at that time. P.S. have fun and enjoy the journey a bit.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

HomeStretch
Posts: 2931
Joined: Thu Dec 27, 2018 3:06 pm

Re: 25yo financial check-in

Post by HomeStretch » Sat Nov 02, 2019 8:15 pm

Olemiss540 wrote:
Sat Nov 02, 2019 7:50 pm
You are KILLING it at 25. Personally, I would payoff the loans tomorrow, hold 12k in bond in your 401k, hold 10k in cash in a money market account, and then ROCK and ROLL with all total stock market/intl market.
+1.

Your student loans have a 3%+ rate and you are earning maybe 1/2 that after tax on your Taxable money market fund. Makes more sense to pay off the loans now.

JD2775
Posts: 309
Joined: Thu Jul 09, 2015 10:47 pm

Re: 25yo financial check-in

Post by JD2775 » Sat Nov 02, 2019 8:22 pm

when i was 25 I had zero retirement savings (or any investments of any kind), and 18k in student loan debt. I had maybe $350 in a savings account. I didnt start saving for retirement until 32 or so.

You are killing it, keep up the good work

Yukon
Posts: 257
Joined: Wed Jan 23, 2008 8:10 am

Re: 25yo financial check-in

Post by Yukon » Sat Nov 02, 2019 8:26 pm

Congrats! Amazing job. How are the career prospects at your current job vs. elsewhere? Any chance of a trajectory north of 100k in income?
Don't Work Forever.

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StormShadow
Posts: 751
Joined: Thu Feb 09, 2012 6:20 pm

Re: 25yo financial check-in

Post by StormShadow » Sat Nov 02, 2019 9:00 pm

I think you’re doing great.

Personally, I’d rather max out a Roth as long as possible.

Also, only thing not mentioned is insurance. Consider an umbrella policy. Particularly if you decide to buy a property.

Compound
Posts: 715
Joined: Mon May 26, 2014 1:32 pm

Re: 25yo financial check-in

Post by Compound » Sun Nov 03, 2019 6:33 am

You’re doing really well! Keep up the good habit of saving and years later you will see a huge payoff.

Consider paying off the student loans. While the interest rates are low, they aren’t that low. I suspect your money market account pays 1-1.5% lower than the rate on the loans, and the situation for the money in checking is even worse. In essence you are losing money unnecessarily right now by holding on to the loans.

User avatar
CyclingDuo
Posts: 2711
Joined: Fri Jan 06, 2017 9:07 am

Re: 25yo financial check-in

Post by CyclingDuo » Sun Nov 03, 2019 6:53 am

Linux wrote:
Sat Nov 02, 2019 8:31 am
I’m 25yo and work at a healthcare company as a financial data analyst. My salary is $70K and I live on approximately $30K per year, for a 65% after tax savings rate or a 50% gross savings rate. I’ve maxed my 401K for two years and my Roth IRA for three years. I plan to continue maxing those accounts out until I make about $75K in income per year, at which point I plan to contribute to a Traditional IRA instead of Roth. The idea would be to keep my taxable income limited to $40k to aim to pay nor more than 12% in marginal federal income tax. I understand the tax rate is marginal and not applied to total taxable income. My employer doesn’t offer a HDHP, and so I can’t contribute to an HSA.

My retirement portfolio target allocation is 90/10. The below figures include my emergency fund and either the beginnings of a down payment for a house or a full cash car purchase.

Taxable


$17K - Money Market funds
$10K - Online HY checking accounts
$8K - Global bond index fund
$3K - Global equity index fund
$38K - Subtotal

Roth IRA

$10K - Total Stock Market index fund
$8K - Extended Duration Treasury index ETF (EDV)
$6K - Total International Stock index fund
$24K - Subtotal

401K

$10K - Extended US Stock Market index fund
$27K - International Stock Market index fund
$30K - S&P 500 index fund
$67K - Subtotal
______
$129K Grand Total


I have about $7.5K remaining in federal student loans that have interest rates between 3.1% and 3.6%. These are very low interest rates and I don’t plan on paying them off early.

The extended duration treasuries are probably the most controversial part of my portfolio. I’m convinced of the diversification benefits and I’m comfortable with the volatility. I’m considering a 80/20 Equity/EDV allocation for my taxable investments. I plan on being a true Boglehead with the remainder of my investments.

I think I’m doing moderately well for my age, but I’m interested to hear your thoughts on improvements I can make to my portfolio, financial planning, career planning etc.
Great job thus far!

As others have mentioned upthread - take on those student loans head on and pay them off ASAP to rid the debt monkey off of your back! You've got plenty in taxable, so just write a check and be done with it.

:sharebeer
"Everywhere is within walking distance if you have the time." ~ Steven Wright

dcd72
Posts: 34
Joined: Fri Apr 10, 2015 7:45 am

Re: 25yo financial check-in

Post by dcd72 » Sun Nov 03, 2019 8:25 am

As others have said, you are doing exceptionally well. However, I'm not sure I understand the fascination with keeping your taxable income below $40k. Early in your career, those Roth contributions are far more advantageous than the minimal tax implications of breaking the $40k threshhold.

David Althaus
Posts: 119
Joined: Wed Feb 14, 2018 8:05 pm

Re: 25yo financial check-in

Post by David Althaus » Sun Nov 03, 2019 8:40 am

You obviously enjoy life skills to be envied. You will do the right things on the specifics. If I could do it over (at 72) I would set my investments 90/10 total stock market plus any of the broad bond indexes. Then forget them for a number of years. Concentrate on becoming indispensable at your work, concentrate on improving the NPV of your human capital, and concentrate on (should you choose to do so) finding the right life partner.

With young people like you I'm confident about our country's future.

All the best

RobLyons
Posts: 491
Joined: Tue Oct 31, 2017 12:55 pm

Re: 25yo financial check-in

Post by RobLyons » Sun Nov 03, 2019 9:31 am

You're doing better than probably 99.999% of 25 year olds in the world. As I read I was wondering if this was a humble brag since you are doing so well, but either way, here's my advice..
I agree you do not need to be in a hurry to pay off those loans, 3% is moderately low and the balance is pretty low for your age.
Try to move up in your career. Pursue further education?
Enjoy life a bit, don't be afraid to spend a little more money. Some of my favorite adult memories (before kids) were had in my 20s. I made some financial mis steps but it was worth the memories.
Continue on!
"Great parenting sets the foundation for a better world"

babystep
Posts: 40
Joined: Tue Apr 09, 2019 9:44 am

Re: 25yo financial check-in

Post by babystep » Sun Nov 03, 2019 12:03 pm

Linux wrote:
Sat Nov 02, 2019 8:31 am
I think I’m doing moderately well for my age, but I’m interested to hear your thoughts on improvements I can make to my portfolio, financial planning, career planning etc.
I would strongly disagree with you. You are doing great. :happy

You already got the suggestion that tax drag of bonds can be avoid by moving them to tax advantage accounts.

Another suggestion would be to consider moving $27K - International Stock Market index fund from 401k to Taxable. You pay foreign taxes on these but in 401k one can't get any tax credit for the taxes paid.

Please see the wiki about how to place international.
https://www.bogleheads.org/wiki/Tax-ef ... e_account .

Topic Author
Linux
Posts: 2
Joined: Sat Sep 21, 2019 6:14 pm

Re: 25yo financial check-in

Post by Linux » Sat Nov 16, 2019 9:01 pm

Thanks for the responses everyone! I greatly appreciate the words of support. I'm grateful for my parents, they made a lot of sacrifices to raise and educate me. Certainly hope my post didn't come across as a humblebrag - I just like personal finance as a subject and tinkering with such things.

Interesting to see so many votes for paying off the student loans! I'm coming from Reddit where they're less keen on paying off <5% interest rate debt, but I absolutely like to see new perspectives. I'll pay off the 3.6% loans in 2020.
StrangePenguin wrote:
Sat Nov 02, 2019 1:07 pm
It sounds like you are doing enviably well at living below your means and saving impressive amounts of money at a young age.

One thing that got my attention -- your 401k is all stocks, while you are keeping bonds in your taxable portfolio. Bond distributions are treated as income for tax purposes while qualified dividends (from stock funds) are treated preferentially. (See: https://www.bogleheads.org/wiki/Tax-eff ... _placement ). Do you have access to a good bond fund in your 401k? If so you might wish to keep your taxable space as 100% stocks and keep all of your bonds in your 401k. (Some people also prefer to keep their Roth as 100% stocks because it is a "most valuable" space and thus they want to keep holdings with the highest growth potential there.)
I can double check, but I don't think I have a low cost index fund for fixed income in my 401K. With the tax drag in mind, I'll sell the bonds in my taxable account and put those funds in either equities or put them toward the student loans.
dcd72 wrote:
Sun Nov 03, 2019 8:25 am
As others have said, you are doing exceptionally well. However, I'm not sure I understand the fascination with keeping your taxable income below $40k. Early in your career, those Roth contributions are far more advantageous than the minimal tax implications of breaking the $40k threshhold.
Regarding the self imposed $40K taxable income limit: I figure I can live moderately well on $50K per year in retirement (adding in ~$10K for the standard deduction), and so my taxes wouldn't hit the 22% bracket. I heard the deciding factor between Traditional/Roth is whether one expects their income to be higher or lower in retirement. Thoughts?
StormShadow wrote:
Sat Nov 02, 2019 9:00 pm
I think you’re doing great.

Personally, I’d rather max out a Roth as long as possible.

Also, only thing not mentioned is insurance. Consider an umbrella policy. Particularly if you decide to buy a property.
I only have health and dental insurance, nothing else. I don't have a car (I'm cycling a fair amount), so I don't have car insurance.

HomeStretch
Posts: 2931
Joined: Thu Dec 27, 2018 3:06 pm

Re: 25yo financial check-in

Post by HomeStretch » Sat Nov 16, 2019 9:36 pm

Linux wrote:
Sat Nov 16, 2019 9:01 pm
I only have health and dental insurance, nothing else.
Consider adding short-term and long-term disability insurance which replaces your income if you are unable to work.

In the future:
-when you have people depending on you financially, add level-premium term life insurance.
- when you have property, auto and assets to protect, add home, car and umbrella insurance, respectively.

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