Retirement Planning

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Topic Author
BusterB
Posts: 8
Joined: Mon Nov 22, 2021 9:31 am

Retirement Planning

Post by BusterB »

Situation:
51M (~$120k salary) + wife 49F (~$40k salary)
Reading the books and trying to learn more about smarter investing to plan for retirement. Thanks to everyone who contributes. Wish I would have learned more about Bogleheads when I was younger but better late than never.

Current investments to date:
  • Traditional 401K (~$190k) matches 50% of 6% and has some good low cost Index funds available
  • Traditional IRA (~$10k) rolled over from wife's previous employer
  • ~3 month emergency fund (currently in savings but will bump this up and move it soon to something more optimal - my next project)
  • Recently paid off the mortgage (update: in Southern California so I can move and use equity in retirement if needed) and no other debt

Plans: Now that our mortgage is paid off, we are ready to start investing at least ~25% of our salary going forward. We are still helping kids get through college (update: just a bit here and there to help and and get them home for holidays) so we'll be able to increase some more in a few years.
  • 401K to match. Still not sure if this should be Regular 401K or ROTH 401K going forward at my age going forward?
  • Max out HSA
  • Max 2 x ROTH IRAs
  • Then go back with the rest to 401K until max
  • Then taxable brokerage account if I can
Looking to retire in 11-14 years (update: no pension, just regular SS).

(updated:) 401K allocation:
SS S&P 500 INDEX K (SSSYX) 0.013%
FID INTL INDEX (FSPSX) 0.035%
SS US BOND INDEX K (SSFEX) 0.04%

Questions:
  • Does this look right given my age in 22% tax bracket and likely to move down to 12% in retirement (we don't have too high. a cost of living in general) though who knows where taxes/inflation/investments will be at next decade)?
  • 50% US/20% Intl/30% Bonds Asset Allocation. As far as Asset Location, Should I do the same AA in all accounts? Or should most of bonds be in the 401K? Does it matter that much?
(update: will keep Bonds in 401k seems to be majority of feedback)
  • Any other things I should be doing or looking at?
Last edited by BusterB on Sat Nov 27, 2021 1:21 am, edited 6 times in total.
User avatar
Wiggums
Posts: 4484
Joined: Thu Jan 31, 2019 8:02 am

Re: Retirement Planning

Post by Wiggums »

Helpful to read:

Funding Priority (what do I do first?)
https://www.bogleheads.org/wiki/Priori ... vestments

Tax Efficient Fund Placement
https://www.bogleheads.org/wiki/Tax-ef ... _placement
Investors need to be better informed about the costs they pay. “High fund fees can be hazardous to your wealth in the same way that high calories can be hazardous for your health.”
OhBoyUhoh
Posts: 59
Joined: Wed Feb 10, 2016 2:16 pm
Location: SW Ohio

Re: Retirement Planning

Post by OhBoyUhoh »

Hi Buster8

Good job paying off the mortgage. I'll throw some things out there that others will expand upon (or possibly refute). Two things jump out to me. 1) The 401k/Roth 401k is a key question to understanding. You need to maximize from here on out. 2) In theory bonds in pretax is recommended but when the 401k is where most of the $ goes I think you need to try and grow that with equities. Your allocation across accounts is taken as a whole not within each.

I think your order of investing is correct. Some will say skip international and do 80/20. Your call, just don't pay high fees to get 50/20/30.

But I think you need to fund your retirements FIRST. Then help the kids if possible. They can thank you later when you are less of a burden to them because your finances are in good shape.

Good luck!
Topic Author
BusterB
Posts: 8
Joined: Mon Nov 22, 2021 9:31 am

Re: Retirement Planning

Post by BusterB »

Wiggums wrote: Tue Nov 23, 2021 5:55 am Helpful to read:
Tax Efficient Fund Placement
https://www.bogleheads.org/wiki/Tax-ef ... _placement
Thanks. Hadn't seen that one.
Topic Author
BusterB
Posts: 8
Joined: Mon Nov 22, 2021 9:31 am

Re: Retirement Planning

Post by BusterB »

OhBoyUhoh wrote: Tue Nov 23, 2021 6:11 am Some will say skip international and do 80/20.
Thanks very much for your feedback. Will keep researching the asset allocation.
sycamore
Posts: 3129
Joined: Tue May 08, 2018 12:06 pm

Re: Retirement Planning

Post by sycamore »

BusterB wrote: Tue Nov 23, 2021 3:51 am ...
  • 401K to match. Still not sure if this should be Regular 401K or ROTH 401K going forward at my age going forward?
BusterB wrote: Tue Nov 23, 2021 3:51 am
  • Does this look right given my age in 22% tax bracket and likely to move down to 12% in retirement (though who knows where taxes/inflation/investments will be at next decade)?
It does look right. And this helps answer your above question about regular versus Roth 401k -- you should contribute to the regular 401k. This lets you avoid the 22% taxation now and get taxed only at 12% later. As you noted, tax rates can change but for many/most people, tax rates are lower during retirement than employment.
BusterB wrote: Tue Nov 23, 2021 3:51 am
  • Planning on 50% US/20% Intl/30% Bonds Asset Allocation in Index Mutual Funds. As far as Asset Location, Should I do the same AA in all accounts? Or should most of bonds be in the 401K? Does it matter that much?
Yes, it can make a difference but whether it matters is up to you. Frame the question in terms of what you want to prioritize. Some people prioritize simplicity, and might choose a mirrored AA (same AA in all accounts). Others prefer to prioritize the minimization of taxes, so they use a Tax-efficient fund placement. Some people do a little of both, for example, an all-in-one Target fund in 401k and/or IRAs, and passive index stock funds in taxable.
BusterB wrote: Tue Nov 23, 2021 3:51 am
  • Any other things I should be doing or looking at?
For your 60's and 70's retirement planning, think about when it's best to start claiming Social Security. The Open Social Security tool (written by Boglehead Mike Piper) is very helpful: https://opensocialsecurity.com/
User avatar
CyclingDuo
Posts: 4593
Joined: Fri Jan 06, 2017 9:07 am

Re: Retirement Planning

Post by CyclingDuo »

BusterB wrote: Tue Nov 23, 2021 3:51 am Situation:
51M (~$120k salary) + wife 49F (~$40k salary)
Reading the books and trying to learn more about smarter investing to plan for retirement. Thanks to everyone who contributes. Wish I would have learned more about Bogleheads when I was younger but better late than never.

Current investments to date:
  • Traditional 401K (~$190k) matches 50% of 6% and has some good low cost Index funds available
  • Traditional IRA (~$10k) rolled over from wife's previous employer
  • ~3 month emergency fund (currently in savings but will bump this up and move it soon to something more optimal - my next project)
  • Recently paid off the mortgage and no other debt

Plans: Now that our mortgage is paid off, we are ready to start investing at least ~25% of our salary going forward. We are still helping kids get through college so we'll be able to increase some more in a few years.
  • 401K to match. Still not sure if this should be Regular 401K or ROTH 401K going forward at my age going forward?
  • Max out HSA
  • Max 2 x ROTH IRAs
  • Then go back with the rest to 401K until max
  • Then taxable brokerage account if I can
Looking to retire in 11-14 years.

Questions:
  • Does this look right given my age in 22% tax bracket and likely to move down to 12% in retirement (though who knows where taxes/inflation/investments will be at next decade)?
  • Planning on 50% US/20% Intl/30% Bonds Asset Allocation in Index Mutual Funds. As far as Asset Location, Should I do the same AA in all accounts? Or should most of bonds be in the 401K? Does it matter that much?
  • Any other things I should be doing or looking at?
Congrats on getting the mortgage retired!

Our suggestion would be that you tap your income from your dual income household to really boost your rate of savings to play some catch up over the next decade. This might mean cutting way back on lifestyle a bit, but at your ages and level of assets accumulated to this point, the need appears to exist for you to play catch up. Most benchmarks say you should have a multiple of around 5X or 6X your household income saved by age 50 (Fidelity, T.Rowe Price, TD Ameritrade, etc...). Based on what you posted above, looks like you are only at 1.25X.

Now that you have knocked out the PI- portion of the PITI on your mortgage, how tight can you fasten your belt and shoot for the Super Saver, Advanced Super Saver, and Extreme Super Saver categories to increase your investments/savings?

Image

It's a good time to review all of the expenses in your household and see if you can dial things back to free up cash flow for investing and saving. Many of us have been there and gone through the child rearing years, and the college tuition years - yet we were able to tap our human capital in the the red zone known as the empty nest years to live on half and save the other half of income to play catch up. It's your path to boosting your nest egg.

Michael Kitces writes about it here: https://www.kitces.com/blog/empty-nest- ... etirement/

Image

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
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Alto Astral
Posts: 871
Joined: Thu Oct 08, 2009 10:47 am

Re: Retirement Planning

Post by Alto Astral »

Is there an option for kids to take student loans? I recommend this to boost your savings now so they can grow (savings, not kids. ha ha).

25% savings on $160k (120+40) is 40k. Assuming no salary change in 11 years, you will contribute 440k towards your retirement accounts. If the initial $200k and the following investments are in a Total Stock Market Index fund, in 11 years it could yield 1.3m at 6% growth (source)

If both of you have access to 401k, you should each be able to contribution 20,500 starting next year towards it. This maxes out the $40k you have annually to invest.

If only one of you has access to a 401k, max it out, then HSA, then Roth IRA. This will be 20,500 + 12k + 7.3k and maxes out the $40k you have annually to invest.

Replace your emergency funds with i bonds as they are very versatile and have a high interest rate right now.
BusterB wrote: Tue Nov 23, 2021 3:51 am
  • Planning on 50% US/20% Intl/30% Bonds Asset Allocation in Index Mutual Funds. As far as Asset Location, Should I do the same AA in all accounts? Or should most of bonds be in the 401K? Does it matter that much?
Bonds in 401k but not in taxable as they are less tax-efficient. Skip bonds in Roth IRA so you can maximize the tax-free growth with equities.
Last edited by Alto Astral on Tue Nov 23, 2021 10:03 pm, edited 3 times in total.
DIYtrixie
Posts: 101
Joined: Sun Sep 13, 2020 12:11 pm

Re: Retirement Planning

Post by DIYtrixie »

BusterB wrote: Tue Nov 23, 2021 3:51 am Looking to retire in 11-14 years.

Questions:
  • Does this look right given my age in 22% tax bracket and likely to move down to 12% in retirement (though who knows where taxes/inflation/investments will be at next decade)?
This is impossible to determine without a solid estimate of your annual expenses in retirement. But in the absence of that information, I am concerned that, given your relatively modest savings to date, your current standard of living may not be supportable by this level of savings. But then again, I could be wrong: maybe you’ve been living on a modest budget in order to pay off a real whopper of a mortgage.

Please supply information on current and projected future expenses.
SuperTrooper87
Posts: 178
Joined: Tue Jan 26, 2021 6:42 am

Re: Retirement Planning

Post by SuperTrooper87 »

OhBoyUhoh wrote: Tue Nov 23, 2021 6:11 am Hi Buster8

Good job paying off the mortgage. I'll throw some things out there that others will expand upon (or possibly refute). Two things jump out to me. 1) The 401k/Roth 401k is a key question to understanding. You need to maximize from here on out. 2) In theory bonds in pretax is recommended but when the 401k is where most of the $ goes I think you need to try and grow that with equities. Your allocation across accounts is taken as a whole not within each.

I think your order of investing is correct. Some will say skip international and do 80/20. Your call, just don't pay high fees to get 50/20/30.

But I think you need to fund your retirements FIRST. Then help the kids if possible. They can thank you later when you are less of a burden to them because your finances are in good shape.

Good luck!
+1 about kids. Remember, they will very likely make much more than you. Instill the same foundation with them and they will be years ahead of you in this process when they reach your age.
Topic Author
BusterB
Posts: 8
Joined: Mon Nov 22, 2021 9:31 am

Re: Retirement Planning

Post by BusterB »

Thanks to all who posted.

Home is in Southern California so I can always move and use equity in retirement if/when we need to.
Yes, not flowing a lot of cash to kids. Just a bit here and there to help them get through and help them get them for holidays here and there.

Will update original post with this additional info.
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ruralavalon
Posts: 22667
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Retirement Planning

Post by ruralavalon »

Welcome to the forum :) .

Congratulations on paying off the mortgage note, and being almost done with college expenses for your children.


BusterB wrote: Tue Nov 23, 2021 3:51 am Situation:
51M (~$120k salary) + wife 49F (~$40k salary)
Reading the books and trying to learn more about smarter investing to plan for retirement. Thanks to everyone who contributes. Wish I would have learned more about Bogleheads when I was younger but better late than never.

Current investments to date:
  • Traditional 401K (~$190k) matches 50% of 6% and has some good low cost Index funds available
  • Traditional IRA (~$10k) rolled over from wife's previous employer
  • ~3 month emergency fund (currently in savings but will bump this up and move it soon to something more optimal - my next project)
  • Recently paid off the mortgage (update: in Southern California so I can move and use equity in retirement if needed) and no other debt

Plans: Now that our mortgage is paid off, we are ready to start investing at least ~25% of our salary going forward. We are still helping kids get through college (update: just a bit here and there to help and get them home for holidays) so we'll be able to increase some more in a few years.
  • 401K to match. . . . . . .
    • Max out HSA
    • Max 2 x ROTH IRAs
    • Then go back with the rest to 401K until max
    • Then taxable brokerage account if I can
    Looking to retire in 11-14 years.

25% contributions on $160k salary = $40k annually.

If the 401k is his (age 51) then the maximum annual employee contribution limit is $27k including catch-up contributions. Two Roth IRAs = $12k annually. Then $1k for taxable = total $40k annually.

If any decent funds are offered in the 401k then I suggest making the maximum annual employee contribution to the 401k plan.

If very good funds with very low expense ratios are offered in your employer's 401k plan then 401k contributions can be better than using the Health Savings Account, contributions to the HSA reduce your contributions to Social Security and so reduce your Social Security benefits.

What funds are offered in the 401k plan? Please give fund names, tickers and expense ratios.

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

Wiki article "Prioritizing investments".


BusterB wrote: Tue Nov 23, 2021 3:51 amStill not sure if this should be Regular 401K or ROTH 401K going forward at my age going forward?[/list]
. . . . .
Questions:
  • Does this look right given my age in 22% tax bracket and likely to move down to 12% in retirement (we don't have too high. a cost of living in general) though who knows where taxes/inflation/investments will be at next decade)?
Continuing traditional tax-deferred contributions is probably better.

You state that you will probably begin a lower tax bracket in retirement, and you currently have just $200k in traditional tax-deferred accounts.

Will you be eligible for both a substantial pension and Social Security benefits? That could change my opinion.


BusterB wrote: Tue Nov 23, 2021 3:51 am
  • Planning on 50% US/20% Intl/30% Bonds Asset Allocation in Index Mutual Funds. As far as Asset Location, Should I do the same AA in all accounts? Or should most of bonds be in the 401K? Does it matter that much?
  • Any other things I should be doing or looking at?
In my opinion at ages 51 and 49, retiring in 11-14 years, an asset allocation of 70% stocks/30% fixed income is within the range of what is reasonable. Likewise 29% of stocks in international stocks is within the range of what is reasonable in my opinion.

It is not necessary, or even desirable. to have the same allocation in each account.

In the taxable account used only very tax-efficient stock index funds. Examples could Vanguard Total Market Index Fund (VTSAX) ER 0.04% or Vanguard Total International Stock Index Fund (VTIAX) ER 0.11%.

Stock Index funds are also suitable In any type of account.

In general it's better to place your fixed income allocation in traditional tax-deferred accounts, like a traditional 401k. or traditional IRA.

Wiki article, "Tax-efficient fund placement" .
Last edited by ruralavalon on Wed Nov 24, 2021 4:13 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
BusterB
Posts: 8
Joined: Mon Nov 22, 2021 9:31 am

Re: Retirement Planning

Post by BusterB »

ruralavalon wrote: Wed Nov 24, 2021 12:10 pm Welcome to the forum :) .
Congratulations on paying off the mortgage note, and being almost done with college expenses for your children.
Thanks very much or all of your feedback. Really appreciated.
ruralavalon wrote: Wed Nov 24, 2021 12:10 pm What funds are offered in the 401k plan? Please give fund names, tickers and expense ratios.
Updated with 401K available funds and the funds I am currently invested in.
ruralavalon wrote: Wed Nov 24, 2021 12:10 pm You state that you will probably begin a lower tax bracket in retirement, and you currently have just $200k in traditional tax-deferred accounts.

Will you be eligible for both a substantial pension and Social Security benefits? That could change my opinion.
No pension. Standard Social Security. I updated my post.
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ruralavalon
Posts: 22667
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Retirement Planning

Post by ruralavalon »

There are excellent very diversified index funds with very low expense ratios offered in your employer's 401k plan. You are fortunate.

In my opinion these are the better funds to use in your employer's 401k plan:
1) State Street Equity 500 Index Fund K (SSSYX) 0.013%;
2) Fidelity International Index Fund (FSPSX) 0.035%; and
3) State Street Aggregate Bond Index Fund K (SSFEX) 0.04%.

"If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA, . . ." Wiki article, "Prioritizing investments".

I suggest that you make the maximum annual employee contributions to your 401k account ($27k if age 50 or more).

. . . . .

You state that you will probably be in a lower tax bracket in retirement, that you currently have just $200k in traditional tax-deferred accounts, and that you will not be eligible for a pension.


In my opinion it's likely better to continue traditional tax-deductible contributions to your employer's 401k plan.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
BusterB
Posts: 8
Joined: Mon Nov 22, 2021 9:31 am

Re: Retirement Planning

Post by BusterB »

Thanks again for your feedback.
ruralavalon wrote: Wed Nov 24, 2021 4:25 pm There are excellent very diversified index funds with very low expense ratios offered in your employer's 401k plan. You are fortunate.

In my opinion these are the better funds to use in your employer's 401k plan:
1) State Street Equity 500 Index Fund K (SSSYX) 0.013%;
2) Fidelity International Index Fund (FSPSX) 0.035%; and
3) State Street Aggregate Bond Index Fund K (SSFEX) 0.04%.
Yes, it was my first Boglehead move and what I am currently invested in.
ruralavalon wrote: Wed Nov 24, 2021 4:25 pm "If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA, . . ." Wiki article, "Prioritizing investments".

I suggest that you make the maximum annual employee contributions to your 401k account ($27k if age 50 or more).

. . . . .

You state that you will probably be in a lower tax bracket in retirement, that you currently have just $200k in traditional tax-deferred accounts, and that you will not be eligible for a pension.


In my opinion it's likely better to continue traditional tax-deductible contributions to your employer's 401k plan.
OK. Thanks again for all the feedback. Yes, I will max out my 401K. I have read the wiki for prioritizing and still not clear. Looking at my taxable income and needs now vs retirement perhaps I should I just max out my wife's IRA (account is already open) instead of doing ROTH IRA for hers and max out a ROTH IRA for me? I should be able to afford to max all three $27k 401k +$6k her IRA ($7k next year when she turns 50) +$7k my ROTH IRA. Just not sure if I should do hers as IRA or ROTH IRA. I may be able to max an HSA in addition to all of these if I reduce expenses. Will need to take another look.
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