Starting from SCRATCH at 40 yrs old! Portfolio questions!

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Topic Author
Hazlesac
Posts: 35
Joined: Fri Jun 10, 2022 2:29 pm

Re: Starting from SCRATCH at 40 yrs old! Portfolio questions!

Post by Hazlesac »

ruralavalon wrote: Wed Aug 03, 2022 2:53 pm
Hazlesac wrote: Mon Aug 01, 2022 6:41 pm70,000 ytd (keep in mind I get paid weekly and I don't know what each week's paycheck will be since I rely on how many sales I will make and some weeks my paychecks are zero. Also, I project that when I am 55-70 my income will be under $50,000 due to the business I'm in and being older won't help)

Current contributions to Roth 401k
15% to Roth 401k (contributions made every week on Friday's)
-I would like to retire by 65-70. 70 to get full social security if it's still around.
I think you can count on Social Security being around in some form.

Age 40 is not too late to make a big difference in your retirement, with a reasonable plan and a good rate of contributions. I did not start serious investing until my late 30s, and am now comfortably retired.

I suggest making traditional tax-deductible contributions to your 401k, rather than Roth contributions.

You said "70,000 ytd". Is your annual income going to be $70,000, or has it been $70,000 so far this year? If the former then it looks like you may currently be in the 22% federal tax bracket. Most people, without a pension or very large traditional tax-deferred accounts, will likely be in a lower tax bracket in retirement.

TFB, "The Case Against Roth 401(k): Still True After All These Years", link. "I think for most people the majority, if not 100% of the contribution should go to a Traditional 401(k)."

The savings from the tax deduction every year will enable you to make a higher level of contributions to your 401k.

Likewise I suggest stopping contributions to the 529 for now, and using that $800 to make higher contributions to your 401k account.

Establishing a high rate of contributions is the most important investing decision you can make, forum discussion. The maximum annual employee contribution to a 401k is $20.5k. Strive to get as close to that you as possible.

In my opinion making maximum contributions to your 401k should be your top priority.

Ruthlessly cut your spending. I suggest a budgeting app like YNAB or Mint.

My income was also very volatile, it varied enormously from month to month. I made a practice of contributing every month everything not needed for the next month's expenses.

I suggest continuing to use the target date fund (YourPath Passive 2055 AggressiveAllocation) in your employer's 401k plan. Using an allocation fund seems to insulate the investor against behavioral errors, and so produce higher investor returns. Morningstar, Mind the Gap, 2019.

If you don't use The target date fund (YourPath Passive 2055 Aggressive Allocation) then I suggest a combination of these funds:
1) Vanguard 500 Index SACG,;
2) VG Dev Markets Idx Admrl SACH; and
3) VG Dev Markets Idx Admrl SACH or Guarantee Stable Value.

What interest rate is currently being paid on the Guarantee Stable Value fund, and what rate if any is guaranteed?

What are the expense ratios charged for in your employer's plan those funds? In selecting funds to use strive a combination of both broad diversification (to reduce your risk) and low expense ratios (to increase your net returns).

Hazlesac wrote: Mon Aug 01, 2022 6:41 pm . . .I have a profit sharing plan from my previous employer worth $23,000 and I need your advice on if I should rollover to my 401k or should i open an ira or brokeage account?
I suggest a rollover into an IRA at a low cost fund provider like Vanguard, Fidelity or Schwab.

Finally I suggest buying a low cost term life insurance policy

Thanks for all of your advice and information you listed.

I’m going to stick with the target date fund. I chose 2055 to stay more aggressive but if I want to retire at 65 should I switch to 2050? I’m between wanting to hopefully retire at 65 but I also want full social security so makes me think I should retire at 70. But then comes am I going to be healthy and aggressive enough to be able to produce the way I am now in the business I’m in. So makes me nervous to not know how well I’ll be able to perform when this business it’s mostly 55-60 and under.

Also some people on here say to take the profit sharing money of $23,000 and send it right to my 401k. Do you mean you believe I should move it to an ira and just leave it there or you want me to start funding it too? If so that means I am funding my 401k and the ira right? And should it be a Roth IRA? I’ve read a lot about vanguard Rino advisor and they use low cost etfs in the Roth IRA roboadvisor. What’s your advice on that since I’m not an expert on what funds to pick. Unless I do what you and others say to use. Or even fidgety Robo too? That is if your saying to start funding the ira along with my 401k. And I’m assuming you will say to max out 401k and the ira? Will I still be okay if I moved it to my 401k if I felt I could only fund the 401k and not an ira too? What’s the advantages of me sending it to ira?

I’m using mint and it’s great but I still don’t understand how I’m spending so much money when I’m living with my parents due to a setback I had a few years ago with depression. So I’m literally starting everything back over and I feel the pressure on a lot of things right now. Like saving enough to my 401k which is working out good right now. But also I have items I need to save up for or I’ll never get out of the house so for now I’m trying to save what I believe rent payments would be each month if I rented and I have a goal to save at least a years worth before I actually move out. Then I have to save for me furniture. Then I have very personal goals as a single dad to be able to pay cash for a car when my son turns 18. Something that is just priority to me and I know not most people. Also a priority goal to save $40,000 by when he turns 18 so I have money I can give him whenever he needs it so he’s never without money or a bad situation and as he gets more mature and understandss money I would transfer the remaining to him.
Then I have a goal for myself to save 40-50 k to pay cash for a car so I don’t have payments anymore and keep the car as long as I can. Then I need other money liquid so I can pay bills etc. or what about saving for a house if I don’t want to rent anymore. How am I supposed to reach these goals and I’m putting money away to each goal every week that will make the goals I put out there at the intervals it should be filled by but I’m concerned if I can keep it going steady. And then we’ll all of these savings accounts I have are for very important things in my life and my sons. It’s the way i feel is the way to be the best dad I can be no matter who disagrees with my goals on what’s important and what’s not. I know retirement savings cannot go down bc im struggling with these other goals and I’ll never change that but these are real life things that I will need money for and it’s like if I don’t make it on these goals then I’ll never move out or ever have a chance of owning a house etc. so just your thoughts on cash flow and savings for other things other than retirement. Thank you!!!
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FiveK
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Joined: Sun Mar 16, 2014 2:43 pm

Re: Starting from SCRATCH at 40 yrs old! Portfolio questions!

Post by FiveK »

Hazlesac wrote: Wed Aug 03, 2022 7:14 pm 1. My profession is all based on the market and how many sales I make and I get paid weekly. The business I’m in there’s no way to predict what I’ll make each week no less try and track what I’ll make for the given year. We could have a string of great months and a string of no income. So what am I supposed to input for annual salary when asked since it’s going to base it off the amount I put in and use it as that’s the income for every year for the next 25-30 whichever I choose? Doemst it mess everything up?
You can make things easier on yourself by not trying to project income beyond the current year, because there is no real need to do so. One can simply look at one's current traditional balance and estimate how much that will grow between now and retirement without any more contributions, and thus how much annual income one might get from it in retirement. In your specific case, it's easy: zero, and that leads to all the suggestions you have received "use traditional now".
2. Is there any tools out there that would say let me input what I believe I’ll make for each year while I work? Because I know my income will be higher now than when I’m 55-70. And I’d like to base it off what I believe will be my income ranges for all these years to get a better outlook.
Those in the opposite situation of expecting higher income in the future, e.g., doctors just starting, might want to do some future income projections, but your case is straightforward and there really isn't a need to estimate your income in all those future years. Just do this one year at a time.
3. Also I am putting in 15% into my 401k and I’m at $70k year to date as if today but again I’m not sure what I’ll end up at at year end and I can’t say since I’m at 70 now that means I’ll be close to 130k like people in salary positions can do.

4. This brings me to how am I supposed to find out what percentage of my weekly income I’m supposed to be saving towards my 401k since I don’t know how my yearly income will add up? Meaning if I would like to max the 401k out if I don’t know what I’m going to make yearly how do I know what percentage to put in? So I’m so confused on what I should be using as a percentage to try and max out my 401k. Is anybody else in this position?
Again, one year at a time - or maybe even one quarter (or more frequently) at a time, if your employer will let you change your 401k contribution rate during the year.
Any help on how I am supposed to get around this and how I can get a more realistic look on what my 401k will be in 25-30 years plus what percentage I should be using to save to try to max out even though I don’t have a basis of what my yearly income will amount to until the last 2 months of the year where I can make a better prediction obviously.
Your situation may be a little more uncertain than most, but nobody can be guaranteed a "realistic" look 25-30 years into the future.

In summary (and apologies if this has already been mentioned and you have commented on it), following the Prioritizing investments suggestions should be helpful for you. Having an emergency fund that is "to your satisfaction" would provide capacitance to absorb your income ups and downs while your retirement contributions remain fairly steady.

All anyone can do is "contribute as much to retirement as one can, while still having enough cash flow to enjoy life before retirement."
Last edited by FiveK on Wed Aug 03, 2022 8:53 pm, edited 1 time in total.
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Wiggums
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Re: Starting from SCRATCH at 40 yrs old! Portfolio questions!

Post by Wiggums »

Tracking your spending is a good thing. We have an accurate list of everything we spend for over 20 years. We also have a budget and we can generate a report of budgeted amount vs amount spent. Your goals are important to you. You need a “plan” and then monitor the progress on your goals.

Your goals:
Add to emergency fund
Contribute to retirement fund
Save for college
Save for car
Save for house?

Make sure you saving as much as possible, because you said you are behind and you may not be able to work until 65/70. Whatever you spend, make sure your money is spent wisely. For example: a $50k car is an option, but a less expensive vehicle would help you reach your goal faster. The choice is yours.

Saving for college is important to you and that’s fine. I see people recommending that you build an emergency fund, get insurance and save for retirement because those will provide for your son in an emergency. All good suggestions. Your savings rate is more important now. Don’t get caught up on fund A vs fund B, or Roth vs pre-tax. Pre-tax is likely better for having more money to invest now. If you go Roth 401k, so be it. You asked how to maximize your portfolio. I wouldn’t put too much effort on debating on how something will turn out 25-30 years from now. Too many unknowns.

I hope this response helps.
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.”
Big Heart
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Joined: Mon Apr 26, 2021 8:42 pm

Re: Starting from SCRATCH at 40 yrs old! Portfolio questions!

Post by Big Heart »

Hazlesac wrote: Wed Aug 03, 2022 7:51 pm I’m using mint and it’s great but I still don’t understand how I’m spending so much money when I’m living with my parents due to a setback I had a few years ago with depression. So I’m literally starting everything back over and I feel the pressure on a lot of things right now. Like saving enough to my 401k which is working out good right now. But also I have items I need to save up for or I’ll never get out of the house so for now I’m trying to save what I believe rent payments would be each month if I rented and I have a goal to save at least a years worth before I actually move out. Then I have to save for me furniture. Then I have very personal goals as a single dad to be able to pay cash for a car when my son turns 18. Something that is just priority to me and I know not most people. Also a priority goal to save $40,000 by when he turns 18 so I have money I can give him whenever he needs it so he’s never without money or a bad situation and as he gets more mature and understandss money I would transfer the remaining to him.
Then I have a goal for myself to save 40-50 k to pay cash for a car so I don’t have payments anymore and keep the car as long as I can. Then I need other money liquid so I can pay bills etc. or what about saving for a house if I don’t want to rent anymore. How am I supposed to reach these goals and I’m putting money away to each goal every week that will make the goals I put out there at the intervals it should be filled by but I’m concerned if I can keep it going steady. And then we’ll all of these savings accounts I have are for very important things in my life and my sons. It’s the way i feel is the way to be the best dad I can be no matter who disagrees with my goals on what’s important and what’s not. I know retirement savings cannot go down bc im struggling with these other goals and I’ll never change that but these are real life things that I will need money for and it’s like if I don’t make it on these goals then I’ll never move out or ever have a chance of owning a house etc. so just your thoughts on cash flow and savings for other things other than retirement. Thank you!!!
YNAB is really different from Mint. It is designed to bring ongoing clarity and focus to situations like yours. The point isn't whether anyone else agrees or disagrees with your goals, the point is understanding how your goals relate to each other and prioritizing according to your own version of happiness , not anyone else's.

https://www.youneedabudget.com/money-stories/
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ruralavalon
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Location: Illinois

Re: Starting from SCRATCH at 40 yrs old! Portfolio questions!

Post by ruralavalon »

Hazlesac wrote: Wed Aug 03, 2022 7:14 pm1. My profession is all based on the market and how many sales I make and I get paid weekly. The business I’m in there’s no way to predict what I’ll make each week no less try and track what I’ll make for the given year. We could have a string of great months and a string of no income. So what am I supposed to input for annual salary when asked since it’s going to base it off the amount I put in and use it as that’s the income for every year for the next 25-30 whichever I choose? Doemst it mess everything up?
As I mentioned like you my income was always very volatile. Like you I was not on a salary. Sometimes my distribution was $4k per month just enough to get by on that month, sometimes $20-25k per month.

This makes planning more difficult. You need to be flexible.

All you can do is make a reasonable estimate of what your income might be, and plan on that basis. As mentioned the maximum annual employee contribution limit for a 401k is $20.5k.

Try to reach that limit every year. Toward the end of the year you need to adjust your contributions to avoid missing that target.

Hazlesac wrote: Wed Aug 03, 2022 7:14 pm 2. Is there any tools out there that would say let me input what I believe I’ll make for each year while I work? Because I know my income will be higher now than when I’m 55-70. And I’d like to base it off what I believe will be my income ranges for all these years to get a better outlook.
Here are two calculators you can use:
1) Firecalc; and
2) i-orp.

A calculator can only give you an estimated range of possible outcomes based on the estimates you give and based on assumptions built into the calculator for very important but unknowable factors like future stock market returns and inflation.

No calculator can give you a precise percentage of contributions that you need to reach a particular goal.


Hazlesac wrote: Wed Aug 03, 2022 7:14 pm3. Also I am putting in 15% into my 401k and I’m at $70k year to date as if today but again I’m not sure what I’ll end up at at year end and I can’t say since I’m at 70 now that means I’ll be close to 130k like people in salary positions can do.
If your income is around $130k annually, then it seems that you are likely in the 24% tax bracket for the head of a household. Tax Foundation, "2022 Tax Brackets", link.

This just reinforces my view that traditional tax-deductible 401k contributions are likely better for you than Roth contributions. The savings in taxes every year will enable you to have a higher dollar amount of contributions to the 401k each year.

This also reinforces my idea that you should prioritize 401k contributions over contributions to an IRA. At an annual income around $130k you cannot deduct contributions to an IRA. IRS, "IRA Deduction if You ARE Covered by a Retirement Plan at Work - 2022", link

I don't know where you live and or the cost of living in your area. Median household income in the U.S. Is around $78k, link, so you have good earnings. If your income is around $130k annually, in you should be able to make the maximum annual employee contribution of $20.5k unless in a high cost of living area. That's a rate of about 16% of income.

In a year that you have extra you can toward the end of the year you can consider a contribution to a Roth IRA (limit of $6k annually), or to that 529 plan, or for saving to enable you to move out to your own apartment.



Hazlesac wrote: Wed Aug 03, 2022 7:14 pm4. This brings me to how am I supposed to find out what percentage of my weekly income I’m supposed to be saving towards my 401k since I don’t know how my yearly income will add up? Meaning if I would like to max the 401k out if I don’t know what I’m going to make yearly how do I know what percentage to put in? So I’m so confused on what I should be using as a percentage to try and max out my 401k. Is anybody else in this position?

Any help on how I am supposed to get around this and how I can get a more realistic look on what my 401k will be in 25-30 years plus what percentage I should be using to save to try to max out even though I don’t have a basis of what my yearly income will amount to until the last 2 months of the year where I can make a better prediction obviously.
Each pay period make the largest 401k contributions you can afford.

What I did was determine how much we needed for expenses the next month, and contributed everything else to my 401k. So keep on good terms with the bookkeeper so that they will change the dollar amount deferred from each paycheck. This is extra work for the bookkeeping personnel.

Toward the end of the year keep an eye on how much you have contributed so far, so that you don't go over the $20.5k annual limit for the 401k.

In a year that you have extra you can toward the end of the year consider a contribution to a Roth IRA (limit of $6k annually), or to that 529 plan, or for saving to enable you to move out to your own apartment.


Hazlesac wrote: Wed Aug 03, 2022 7:51 pmAlso some people on here say to take the profit sharing money of $23,000 and send it right to my 401k. Do you mean you believe I should move it to an ira and just leave it there or you want me to start funding it too?
I mean rollover the $23k into a traditional IRA, and just leave it with no additional contributions.

As I mentioned above at an annual income of about $130k you are not eligible to deduct contributions to a traditional IRA.

For simplicity just invest the $23k in a target date fund. If your IRA is at Vanguard use Vanguard Target Retirement 2055 Fund (VFFVX) ER 0.08%.

The advantage of rollover to an IRA is funds with lower expense ratios.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
Hazlesac
Posts: 35
Joined: Fri Jun 10, 2022 2:29 pm

Re: Starting from SCRATCH at 40 yrs old! Portfolio questions!

Post by Hazlesac »

ruralavalon wrote: Thu Aug 04, 2022 8:47 am
Hazlesac wrote: Wed Aug 03, 2022 7:14 pm1. My profession is all based on the market and how many sales I make and I get paid weekly. The business I’m in there’s no way to predict what I’ll make each week no less try and track what I’ll make for the given year. We could have a string of great months and a string of no income. So what am I supposed to input for annual salary when asked since it’s going to base it off the amount I put in and use it as that’s the income for every year for the next 25-30 whichever I choose? Doemst it mess everything up?
As I mentioned like you my income was always very volatile. Like you I was not on a salary. Sometimes my distribution was $4k per month just enough to get by on that month, sometimes $20-25k per month.

This makes planning more difficult. You need to be flexible.

All you can do is make a reasonable estimate of what your income might be, and plan on that basis. As mentioned the maximum annual employee contribution limit for a 401k is $20.5k.

Try to reach that limit every year. Toward the end of the year you need to adjust your contributions to avoid missing that target.

Hazlesac wrote: Wed Aug 03, 2022 7:14 pm 2. Is there any tools out there that would say let me input what I believe I’ll make for each year while I work? Because I know my income will be higher now than when I’m 55-70. And I’d like to base it off what I believe will be my income ranges for all these years to get a better outlook.
Here are two calculators you can use:
1) Firecalc; and
2) i-orp.

A calculator can only give you an estimated range of possible outcomes based on the estimates you give and based on assumptions built into the calculator for very important but unknowable factors like future stock market returns and inflation.

No calculator can give you a precise percentage of contributions that you need to reach a particular goal.


Hazlesac wrote: Wed Aug 03, 2022 7:14 pm3. Also I am putting in 15% into my 401k and I’m at $70k year to date as if today but again I’m not sure what I’ll end up at at year end and I can’t say since I’m at 70 now that means I’ll be close to 130k like people in salary positions can do.
If your income is around $130k annually, then it seems that you are likely in the 24% tax bracket for the head of a household. Tax Foundation, "2022 Tax Brackets", link.

This just reinforces my view that traditional tax-deductible 401k contributions are likely better for you than Roth contributions. The savings in taxes every year will enable you to have a higher dollar amount of contributions to the 401k each year.

This also reinforces my idea that you should prioritize 401k contributions over contributions to an IRA. At an annual income around $130k you cannot deduct contributions to an IRA. IRS, "IRA Deduction if You ARE Covered by a Retirement Plan at Work - 2022", link

I don't know where you live and or the cost of living in your area. Median household income in the U.S. Is around $78k, link, so you have good earnings. If your income is around $130k annually, in you should be able to make the maximum annual employee contribution of $20.5k unless in a high cost of living area. That's a rate of about 16% of income.

In a year that you have extra you can toward the end of the year you can consider a contribution to a Roth IRA (limit of $6k annually), or to that 529 plan, or for saving to enable you to move out to your own apartment.



Hazlesac wrote: Wed Aug 03, 2022 7:14 pm4. This brings me to how am I supposed to find out what percentage of my weekly income I’m supposed to be saving towards my 401k since I don’t know how my yearly income will add up? Meaning if I would like to max the 401k out if I don’t know what I’m going to make yearly how do I know what percentage to put in? So I’m so confused on what I should be using as a percentage to try and max out my 401k. Is anybody else in this position?

Any help on how I am supposed to get around this and how I can get a more realistic look on what my 401k will be in 25-30 years plus what percentage I should be using to save to try to max out even though I don’t have a basis of what my yearly income will amount to until the last 2 months of the year where I can make a better prediction obviously.
Each pay period make the largest 401k contributions you can afford.

What I did was determine how much we needed for expenses the next month, and contributed everything else to my 401k. So keep on good terms with the bookkeeper so that they will change the dollar amount deferred from each paycheck. This is extra work for the bookkeeping personnel.

Toward the end of the year keep an eye on how much you have contributed so far, so that you don't go over the $20.5k annual limit for the 401k.

In a year that you have extra you can toward the end of the year consider a contribution to a Roth IRA (limit of $6k annually), or to that 529 plan, or for saving to enable you to move out to your own apartment.


Hazlesac wrote: Wed Aug 03, 2022 7:51 pmAlso some people on here say to take the profit sharing money of $23,000 and send it right to my 401k. Do you mean you believe I should move it to an ira and just leave it there or you want me to start funding it too?
I mean rollover the $23k into a traditional IRA, and just leave it with no additional contributions.

As I mentioned above at an annual income of about $130k you are not eligible to deduct contributions to a traditional IRA.

For simplicity just invest the $23k in a target date fund. If your IRA is at Vanguard use Vanguard Target Retirement 2055 Fund (VFFVX) ER 0.08%.

The advantage of rollover to an IRA is funds with lower expense ratios.

Thanks for all that great info.

How am I to determine what to tell the bookkeeper to put in weekly as a percentage? I’m not even sure they will do that here but if I get paid every Friday I find out my paycheck the Monday before Fridays pay. Is that when I decide what percentage and if so how do I determine what the percentage is. Or do you think to make things easier for me is just to keep my savings rate at 17%? But then when I don’t know what my pay will be each week or month or year how do I know what percentage will get me on track to hit the max?

Also if I put the $23k in a traditional ira target date fund and just leave it there wouldn’t it be doing not much for me as if I put it towards my 401k it would make my balance that much higher meaning more money working for me especially when I only have $7,000 in it now. I’m not understanding the benefits to just leaving it there and I can’t see it helping my money make more money than if I added it to my 401k balance.

Ok thanks for everything. Sorry for all the questions. Just thinking why these solutions would work since I don’t have the answers and need help.
petulant
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Joined: Thu Sep 22, 2016 1:09 pm

Re: Starting from SCRATCH at 40 yrs old! Portfolio questions!

Post by petulant »

For retirement, the simplest thing to do that would be reasonable for you would be to leave your money in the target date fund in the 401(k), change future contributions to traditional, rollover the old employer money to the 401(k), and set something like a 20% contribution amount for your 401(k). If that calculation ends up going over the contribution limit during a year, any normal company running payroll should max out the contributions at $20,500 and stop you from contributing excess money. People can argue on here for hours about making these steps more optimal, but I think it's clear these are all simple enough steps that will set you up well for the start of your journey.

For the 529, I think there is a consensus on this thread that you should not be committing money to that kind of account right now. It would be better to put your extra savings in something like a taxable brokerage account, conservatively invested, so that you can have it available for college with 100% flexibility to not use it for college. I previously suggested simple multi-asset funds from iShares, like AOM.

Follow some plan like the above for 5 years and come back with an update.
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FiveK
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Re: Starting from SCRATCH at 40 yrs old! Portfolio questions!

Post by FiveK »

Hazlesac wrote: Thu Aug 04, 2022 11:41 amAlso if I put the $23k in a traditional ira target date fund and just leave it there wouldn’t it be doing not much for me as if I put it towards my 401k it would make my balance that much higher meaning more money working for me especially when I only have $7,000 in it now. I’m not understanding the benefits to just leaving it there and I can’t see it helping my money make more money than if I added it to my 401k balance.
For the same investment fund, you get the same growth regardless of whether you have the investment all in one place, or scattered across many places.

In other words, a 5% increase on $20K in one place ($1K) is the same as a 5% increase on $10K in two places ($0.5K + $0.5K = $1K).
Katietsu
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Joined: Sun Sep 22, 2013 1:48 am

Re: Starting from SCRATCH at 40 yrs old! Portfolio questions!

Post by Katietsu »

Deep Breathe. You are trying to think too far ahead and have too many goals. The problem with this is that you hurt your chances to achieve those goals. Simplify. The best thing for your son right now is a stable father, financially and emotionally.

Stop doing projections for 25 years from now. Stop thinking about buying your son a car at 18 or saving for his college. Being financially stable is the best way to make those things come true.

1. Work on living below your means. Keep working on the budget and expense tracking. Post here about expenses and get some advice.
2. Work on establishing a strong bank balance both for emergencies and to handle the ups and downs of your income. As a single parent this is even more important. This should be your priority.
3. Stop the 529 savings for now. If you address the other important issues, you can come back and revisit this decision in a year or two. FYI, if most of your savings is in retirement accounts and your income has fallen in your 50’s, your son might get sufficient financial aid. And there are a lot of other considerations such as using money from a Roth IRA to help with college. But this can all wait.
4. Can you put $200 a week into your traditional 401k? This will reduce your take home pay by less than the $200 because of tax savings. Stop using the Roth 401k. Best guess is that the tax savings right now is more of a benefit to you than it will be later. Again, you can revisit this in a few years. Just start here for now.
5. Plan on taking some of your savings in Spring 2023 and putting it in a Roth IRA for tax year 2022. If your income is low enough, you can put it in the Roth directly. You have until April 18, 2023 to make a 2022 contribution. If your income is too high, you might still be able to make a partial contribution. Or you can either use a back door method or just skip it for the year.
5. It seems that you like your current 401k plan. If this is true, go ahead and do a rollover from your old employer plan to your current one. It will just be one less thing to worry about.

I suggest you just work on these steps for the next 6 months. Focus your reading and learning on just these things that you are currently working on. Raising a 5 year old and getting your life on solid footing is hard work alone. Remember the question:How do you eat an elephant? Answer: One bite at a time.
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ruralavalon
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Re: Starting from SCRATCH at 40 yrs old! Portfolio questions!

Post by ruralavalon »

Hazlesac wrote: Thu Aug 04, 2022 11:41 amThanks for all that great info.

How am I to determine what to tell the bookkeeper to put in weekly as a percentage? I’m not even sure they will do that here but if I get paid every Friday I find out my paycheck the Monday before Fridays pay. Is that when I decide what percentage and if so how do I determine what the percentage is. Or do you think to make things easier for me is just to keep my savings rate at 17%? But then when I don’t know what my pay will be each week or month or year how do I know what percentage will get me on track to hit the max?
Talk to bookkeeping to find out what they will let you do in setting different contributions each pay period.

They are not required to let you do different amounts every pay period, so you have to ask.

Do they require that you specify a percentage amount or the will they let you specify a dollar amount?

If bookkeeping will not let you change contributions every pay period then a uniform 17% deferral may be the best you can do. At an income of $130k that will get you to $20.5k for the year.

As mentioned before keep track of your total contributions for the year, and then later in the year adjust your contributions up or down to hit the $20.5k target for the year.

In a year that you have extra toward the end of the year you can consider a contribution to a Roth IRA (limit of $6k annually), or to that 529 plan, or for saving to enable you to move out to your own apartment.


Hazlesac wrote: Thu Aug 04, 2022 11:41 amAlso if I put the $23k in a traditional ira target date fund and just leave it there wouldn’t it be doing not much for me as if I put it towards my 401k it would make my balance that much higher meaning more money working for me especially when I only have $7,000 in it now. I’m not understanding the benefits to just leaving it there and I can’t see it helping my money make more money than if I added it to my 401k balance.
But a 2055 target date fund will do just add much for you in an IRA as in a 401k. I don't see a problem with a 2055 target date fund in both accounts.


Hazlesac wrote: Thu Aug 04, 2022 11:41 amOk thanks for everything. Sorry for all the questions. Just thinking why these solutions would work since I don’t have the answers and need help.
Don't be afraid to ask questions.

Katietsu wrote: Thu Aug 04, 2022 1:26 pmDeep Breathe. You are trying to think too far ahead and have too many goals. The problem with this is that you hurt your chances to achieve those goals. Simplify. The best thing for your son right now is a stable father, financially and emotionally.

Stop doing projections for 25 years from now. Stop thinking about buying your son a car at 18 or saving for his college. Being financially stable is the best way to make those things come true.
+ 1.

Take it easy. Concentrate on what you can do now, rather than project years or decades into the future.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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LilyFleur
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Re: Starting from SCRATCH at 40 yrs old! Portfolio questions!

Post by LilyFleur »

I was a single parent with a mid five-figure income when my children were in college.

I live in California, and both of them qualified for Cal grants. They were my dependents, and we applied based on my income. A Cal grant is need-based financial aid designed exactly to help students like my children and your son be able to go to college and become productive taxpayers in the future.

I don't know if Utah has that kind of financial aid.

Most of my assets at that time were in my home and in my 401k. I had no emergency fund, no 529, and my checking account balance was quite low by the end of the month. My children did not have significant balances in savings or checking accounts then, either.

I would advise you to focus on saving in your 401k. That will reduce your taxes now, while you need money to raise your son. And, one of the best gifts you can give your son is the ability to take care of yourself financially for the rest of your life. My kids took out school loans during college, and then later I was able to help them pay them off (an inheritance from my parents after they had graduated from college), so it all worked out.

Hopefully he will get financial aid for college. For now, be sure to encourage homework before TV, and all of those good academic habits so that he will be able to get into college. Getting in and then getting financial aid are both important. In my state, it is very competitive to get into the good state universities, which are much more affordable than the private universities. One of my children went to a prestigious university straight out of high school, and my other child lived at home and went to community college and then a good state university close to home. The one who decided to live at home took longer to get through school but had less debt.

Read to him every night, and ask him interesting questions about what you read. Ask factual as well as higher-level questions (ie, "why did George bicycle home so quickly from school?" "What do you think George could have done differently at school that day?" "Do you ever feel like George?" "Why or why not?") The questions will increase your son's reading comprehension very effectively. Studies show that this habit makes a huge difference in a child's academic success. Visit your local library every other week or so, and chat with the librarian; you'll be guided to the right level of books. Let your son select books that he is interested in.

And, be sure to take care of yourself, both your physical and mental health. There's no shame in a multi-generational household. And, remember, watching a parent get through difficult circumstances with courage is a huge life lesson for a child.
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Hazlesac
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Re: Starting from SCRATCH at 40 yrs old! Portfolio questions!

Post by Hazlesac »

LilyFleur wrote: Thu Aug 04, 2022 2:22 pm I was a single parent with a mid five-figure income when my children were in college.

I live in California, and both of them qualified for Cal grants. They were my dependents, and we applied based on my income. A Cal grant is need-based financial aid designed exactly to help students like my children and your son be able to go to college and become productive taxpayers in the future.

I don't know if Utah has that kind of financial aid.

Most of my assets at that time were in my home and in my 401k. I had no emergency fund, no 529, and my checking account balance was quite low by the end of the month. My children did not have significant balances in savings or checking accounts then, either.

I would advise you to focus on saving in your 401k. That will reduce your taxes now, while you need money to raise your son. And, one of the best gifts you can give your son is the ability to take care of yourself financially for the rest of your life. My kids took out school loans during college, and then later I was able to help them pay them off (an inheritance from my parents after they had graduated from college), so it all worked out.

Hopefully he will get financial aid for college. For now, be sure to encourage homework before TV, and all of those good academic habits so that he will be able to get into college. Getting in and then getting financial aid are both important. In my state, it is very competitive to get into the good state universities, which are much more affordable than the private universities. One of my children went to a prestigious university straight out of high school, and my other child lived at home and went to community college and then a good state university close to home. The one who decided to live at home took longer to get through school but had less debt.

Read to him every night, and ask him interesting questions about what you read. Ask factual as well as higher-level questions (ie, "why did George bicycle home so quickly from school?" "What do you think George could have done differently at school that day?" "Do you ever feel like George?" "Why or why not?") The questions will increase your son's reading comprehension very effectively. Studies show that this habit makes a huge difference in a child's academic success. Visit your local library every other week or so, and chat with the librarian; you'll be guided to the right level of books. Let your son select books that he is interested in.

And, be sure to take care of yourself, both your physical and mental health. There's no shame in a multi-generational household. And, remember, watching a parent get through difficult circumstances with courage is a huge life lesson for a child.

I appreciate your kind words and advice as I’m on this long path of building my retirement from scratch at 40 to making sure I give my son the best life chance or at least set him up better than the way I set myself up. I don’t want him going through early struggles like I did bc it just prolongs his ability to go though life’s struggles. I mean I had 100k in student loan debt. My parents couldn’t afford to pay for all 3 of us and I get it. But its been a huge dent in how I was strapped with these payments until my late 30’s. I won’t feel like I did good for my son if I put him in that position. And by taking everyone’s advice to not worry about a 529 now scares me that when the time comes it’s going to be student loans all the way and I’ll feel like a failure.

I know the rule is to focus on myself and my retirement but if I’m saving 17% of my income and staying the course and if I’m able to save $600-$800 per month without me being strapped every month to pay bills then why is it not a good idea to save for him in a 529? I know he could possibly get grants or scholarships but I’d rather be ready then none of that happening when he’s 18. Then I can say ok I have the funds to send him. I can’t even imagine having him have $100k or even $50k of debt before he even gets his first real job. This is a priority to me and I know some here say it def should not be. I guess I’m all over with my money that I’m not really seeing how much I spend every month and how much I have to save other than me knowing that 17% is going to 401k automatically and $400 per month twice a month is going to 529 then I pay my bills when their due. So far since December 2021 I have not had an issue doing this. I do always have less than $2,000 in my checking most of the time.

And like I said I’m earlier post I had a major setback a few years ago with depression and I made a lot of financial mistakes I drained my 401k that I built up over 13 + years and I was forced to move back to my parents where I currently live. So the negative part of my life is if I wanted to move out and rent well rent is about $3,000 in NJ for something decent where if I met a woman I’d be okay bringing her back to my place. So I haven’t been able to save enough money since December 2021 to move out. I don’t know if it’s my expenses plus other items I spend my money on but I feel like I haven’t bought anything other than necessities.

I used mint and it’s saying I’m spending $3,000 per month and that’s with living at home. I read thru every expense and I couldn’t find anything other than $100 per month on coffee and lunch stuff that I could lower them by. How is my expenses $3,000 per month??? So then I’m like well add another 3000 to that I’ll need at the minimum just to get by $6,000 per month. So is this $800 per month affecting my ability to move out? Also let’s say I was able to save $1000 per month to move out how many months of saving $1000 per month would I need to save for to feel safe enough to move out? Or how much do you think I need to save each month to move out? It feels like I would need to save at least a years worth of potential rent payments so if I moved out I know I would be ahead of the game and have that money to pay a years worth of rent while I keep saving for an emergency fund if anything should happen to my income or needed money for rent.

It scares me to think what if something happens. All I’m trying to do is be off on my own and stable. I’m so far making decent money even though it could stop like that at anytime with the business I’m in. So what do you suggest I do to be able to move out and save money for other items I need in short term like furniture, child support payments of $70 per week, personal goals of saving $40,000 in 13 years so I can pay cash for a car for my son and make sure he’s in something safe. I know you won’t agree but I’m asking how you would structure these goals of mine to achieve them regardless of you maybe feeling like it shouldn’t be priority. I also have another one that I want to save $40,000 in 13 years so when he turns 18 I can help him pay for things when he is in need of it. Not for him to know he’s got a way out for everything but something I control and when he is mature enough I give him the remainder to help get his life in the right direction. These goals are important to me and I wish I started before he was born. I know there’s a way to accomplish these goals I have but I’m not clever enough to figure out a plan I can stick to that won’t affect the way I live or affect my ability to move out and be stable enough to not be paychecks to paycheck.

What if I posted what exact monies I have liquid, the savings accounts I have set up for these goals, my ytd, the amounts I’m saving for my 401k, and the amounts I calculated to save each week for each goal, plus the amount for what rent payments would be if I moved out, and also a list of my expenses that I know I need to pay for each month. Plus I’ll list what mint says is my average income per month? Would you be able to skim through it and see if what I want to do is possible and if so maybe give me a better plan on how to do it? Or maybe you’ll tell me that with my average income that’s coming in that I can’t do certain things with my money or I’ll be in trouble.

Again my target is to be able to keep saving each week with the amounts I calculated I have to put in each account to hit its goal by the date I set forth plus move out in a year, still save 17% to my 401k, and try to keep saving for the 529 even if I have to lower it?

If you saw all the information above that I will list out for you is it possible you will see the whole picture and tell me if this is going to last or if I keep doing this I won’t have a chance to have enough money to move out in a year?

This would be a huge help if I could get an idea if my plan is doable or has it just worked by luck so far. Again what I’m not achieving right now is enough money on me in my checking that’s available to put a deposit down and money for emergencies.
Big Heart
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Re: Starting from SCRATCH at 40 yrs old! Portfolio questions!

Post by Big Heart »

Hazlesac wrote: Thu Aug 04, 2022 4:16 pm I know the rule is to focus on myself and my retirement but if I’m saving 17% of my income and staying the course and if I’m able to save $600-$800 per month without me being strapped every month to pay bills then why is it not a good idea to save for him in a 529? I know he could possibly get grants or scholarships but I’d rather be ready then none of that happening when he’s 18. Then I can say ok I have the funds to send him. I can’t even imagine having him have $100k or even $50k of debt before he even gets his first real job. This is a priority to me and I know some here say it def should not be. I guess I’m all over with my money that I’m not really seeing how much I spend every month and how much I have to save other than me knowing that 17% is going to 401k automatically and $400 per month twice a month is going to 529 then I pay my bills when their due. So far since December 2021 I have not had an issue doing this. I do always have less than $2,000 in my checking most of the time.

And like I said I’m earlier post I had a major setback a few years ago with depression and I made a lot of financial mistakes I drained my 401k that I built up over 13 + years and I was forced to move back to my parents where I currently live. So the negative part of my life is if I wanted to move out and rent well rent is about $3,000 in NJ for something decent where if I met a woman I’d be okay bringing her back to my place. So I haven’t been able to save enough money since December 2021 to move out. I don’t know if it’s my expenses plus other items I spend my money on but I feel like I haven’t bought anything other than necessities.

I used mint and it’s saying I’m spending $3,000 per month and that’s with living at home. I read thru every expense and I couldn’t find anything other than $100 per month on coffee and lunch stuff that I could lower them by. How is my expenses $3,000 per month??? So then I’m like well add another 3000 to that I’ll need at the minimum just to get by $6,000 per month. So is this $800 per month affecting my ability to move out? Also let’s say I was able to save $1000 per month to move out how many months of saving $1000 per month would I need to save for to feel safe enough to move out? Or how much do you think I need to save each month to move out? It feels like I would need to save at least a years worth of potential rent payments so if I moved out I know I would be ahead of the game and have that money to pay a years worth of rent while I keep saving for an emergency fund if anything should happen to my income or needed money for rent.
Answering these questions is what the YNAB app I have twice recommended to you is designed to do. You can run all those calculations for yourself very easily. You can set goals and then look at how funding those goals relates to your daily spending. You would easily know exactly where your $3000 goes. I have pie charts for every month, year, 2 years of spending. I can compare how much I spent on christmas in 2020, 2021, and so far in 2022. I can easily list ten different ways my budget could be changed to let me fully fund my Roth IRA this year. I can easily decide which of those changes work the best for me & my son.

If you have a budgeting software and you can't tell where your money is going then that budgeting software is not working for you so that is why I recommended one that works.

You can be ready to pay for college for him without money in a 529. 529 is just the name of an account. What pays for college isn't a 529 account. What pays for college is money. People are telling you how to maximize the amount of money available to you.
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ruralavalon
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Re: Starting from SCRATCH at 40 yrs old! Portfolio questions!

Post by ruralavalon »

How old is your son, how many years until college?

Hazlesac wrote: Thu Aug 04, 2022 4:16 pmI know the rule is to focus on myself and my retirement but if I’m saving 17% of my income and staying the course and if I’m able to save $600-$800 per month without me being strapped every month to pay bills then why is it not a good idea to save for him in a 529? I know he could possibly get grants or scholarships but I’d rather be ready then none of that happening when he’s 18. Then I can say ok I have the funds to send him. I can’t even imagine having him have $100k or even $50k of debt before he even gets his first real job. This is a priority to me and I know some here say it def should not be. I guess I’m all over with my money that I’m not really seeing how much I spend every month and how much I have to save other than me knowing that 17% is going to 401k automatically and $400 per month twice a month is going to 529 then I pay my bills when their due. So far since December 2021 I have not had an issue doing this. I do always have less than $2,000 in my checking most of the time.
I don't think anyone has said to not save in the Utah 529, or not to save for moving out on your own again. What I am saying is to make it a priority to fully fund your retirement account every year.

The annual employee contribution limit is on a use-it-or-lose-it basis. If you don't fully contribute in one year then you cannot make it up in a later year.

If your estimate of $130k annual income is correct then 401k contributions of 17% ($22.1k) will be a little more ($1.6k annually) than necessary for the maximum annual employee contribution of $20.5k.

You have also said that in addition to the 17% you have been "able to save $600-$800 per month" (that is about $8.4k annually).

So that is a total of $10k annually beyond what is necessary to fully fund your 401k account.

As I said before, when you have extra (beyond fully funding your 401k account) then toward the end of the year you can consider a contribution to a Roth IRA (limit of $6k annually), or to that Utah 529 plan, or for saving to enable you to move out to your own apartment. Based on what you have posted you should be able to do this.

Also if your retirement savings are in order by the time that college expenses start, then you will probably be able to help pay college expenses out of income in addition to the help from what you then have in the 529 plan.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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