Portfolio Question

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Topic Author
TreBogleHead
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Joined: Sun Jan 22, 2023 5:02 pm

Portfolio Question

Post by TreBogleHead »

Hello Everyone,

Glad to join the forum. I have learned a lot from many members on here and finally decided to ask questions about my portfolio.

Emergency funds: $5k

Debt:

Mortgage - $218k @ 2.75% interest, $213k remaining
Personal Loan - $34k @ 9.75% interest

Tax Filing Status: Single

Income: $84k, taxable portion = $57k

Tax Rate: 22% Federal, 4.75% State

Age: 25

Desired Asset allocation: 100% stocks / 0% bonds
Desired International allocation: 0% of stocks

Taxable
VTSAX - $14k

TSP
C Fund- $6k
Roth: 2%
Traditional: 5%

Roth IRA (Max out every year)
VOO - $25k

Contributions (Monthly)

Roth IRA: $591
Index Fund: $600
TSP: $334

Total: $1525 per month

Retirement (20 years)

Pension ~ $50k/year, $4k/month

Questions:
1. Regarding my TSP (401k equivalent) and pay, should I keep the Roth and traditional contribution percentage or should I invest more into Roth? I already max out my Roth IRA so I feel the balance here is good. I want to make sure I can maximize spending in retirement at age 59, be tax efficient, and not worry about RMD.

2. If I receive a pension in 20 years, and want to spend around 100k in retirement (inflation adjusted to future year and age 59), how will this impact my taxes since I have to worry about RMD? What should be the max traditional assets for me? If I do not receive a pension, what are the calculations? Should I keep the contributions the same if $100k is the goal or do I need to increase?

3. If I were trying to retire early at age 45 and live until age 80, will I have enough funds from how much I contribute now. Do I need to increase contributions? I want to spend around $100k by then.

4. Any tips to reduce my tax burden as I increase salary and go into a higher tax bracket? I’ll be in the 24% bracket next year.

Hope to hear from amazing people. Thank you for your time.
tashnewbie
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Re: Portfolio Question

Post by tashnewbie »

Welcome to the forum.

The one thing that stood out to me is the 9.75% personal loan.

I wouldn’t do any taxable investing before that loan is paid off (or you’re making the TSP).
Topic Author
TreBogleHead
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Re: Portfolio Question

Post by TreBogleHead »

tashnewbie wrote: Sun Jan 22, 2023 6:27 pm Welcome to the forum.

The one thing that stood out to me is the 9.75% personal loan.

I wouldn’t do any taxable investing before that loan is paid off (or you’re making the TSP).
I never had a problem with the loan since I have the funds. I’m afraid of missing out on investing if I stop to fully focus on the debt. If anyone can show me some math to prove me wrong, that would be great.
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retired@50
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Re: Portfolio Question

Post by retired@50 »

I'd suggest you pay off the 9.75% loan as well.

The wiki page on prioritizing investments mentions high interest debt as step 3, after having 1.) an emergency fund and 2.) getting an employer match in a workplace plan.

As for math, do you expect your investments to earn more than 9.75% consistently? Some people (myself included) would characterize that as overly optimistic.

Regards,
This is one person's opinion. Nothing more.
Topic Author
TreBogleHead
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Re: Portfolio Question

Post by TreBogleHead »

retired@50 wrote: Sun Jan 22, 2023 8:19 pm I'd suggest you pay off the 9.75% loan as well.

The wiki page on prioritizing investments mentions high interest debt as step 3, after having 1.) an emergency fund and 2.) getting an employer match in a workplace plan.

As for math, do you expect your investments to earn more than 9.75% consistently? Some people (myself included) would characterize that as overly optimistic.

Regards,
Hey, thanks for the information. I will review that page. I don’t think my investment will be over 9.75%. However, my mind tells me that if I take money out of the market and focus on debt, I would be losing potential gains. Am I wrong here? I feel that if you can do both, it will be okay?
Boglehead1967
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Re: Portfolio Question

Post by Boglehead1967 »

Hi, at 25 you are making all the right decisions except for this 9.75% loan, as everyone else pointed out.
Markets fluctuate especially over long term but this loan is a drag, there is no way around it.
The interest is too high to justify having the loan.

As to the rest of your questions - life has a tendency to introduce changes to your plan. For instance you might get married and your partner may have a very different perspective on retirement. If you are on your own and continue exactly as is now, you will have enough at 45 to pull the plug. Especially since you have access to a pension. If you reach a maximum wage for social security contributions you will earn full 40 credits and will have full SS benefit waiting for you too.

But again, so many things can change between now and then.
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retired@50
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Re: Portfolio Question

Post by retired@50 »

TreBogleHead wrote: Sun Jan 22, 2023 8:43 pm
retired@50 wrote: Sun Jan 22, 2023 8:19 pm I'd suggest you pay off the 9.75% loan as well.

The wiki page on prioritizing investments mentions high interest debt as step 3, after having 1.) an emergency fund and 2.) getting an employer match in a workplace plan.

As for math, do you expect your investments to earn more than 9.75% consistently? Some people (myself included) would characterize that as overly optimistic.

Regards,
Hey, thanks for the information. I will review that page. I don’t think my investment will be over 9.75%. However, my mind tells me that if I take money out of the market and focus on debt, I would be losing potential gains. Am I wrong here? I feel that if you can do both, it will be okay?
I didn't specifically suggest that you sell current investments to pay off debt, although I suppose you could.

Instead, maybe just direct all new contributions to reducing the high interest debt, after satisfying numbers 1 & 2 above. Obviously, this is up to you, but given that the wiki page and forum members are suggesting that you pay off the debt, well, you get it. Forum members don't reach unanimous agreement about many things, but this might be one of them.

Regards,
This is one person's opinion. Nothing more.
Wabbit
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Re: Portfolio Question

Post by Wabbit »

For your question #1, boglehead "thefinancebuff" wrote an article on TSP traditional vs. roth, where he argued most folks expecting a pension should prefer Roth contributions (with no pension he argued for traditional, in a separate article):

https://thefinancebuff.com/most-tsp-par ... h-tsp.html
Topic Author
TreBogleHead
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Joined: Sun Jan 22, 2023 5:02 pm

Re: Portfolio Question

Post by TreBogleHead »

Boglehead1967 wrote: Sun Jan 22, 2023 9:06 pm Hi, at 25 you are making all the right decisions except for this 9.75% loan, as everyone else pointed out.
Markets fluctuate especially over long term but this loan is a drag, there is no way around it.
The interest is too high to justify having the loan.

As to the rest of your questions - life has a tendency to introduce changes to your plan. For instance you might get married and your partner may have a very different perspective on retirement. If you are on your own and continue exactly as is now, you will have enough at 45 to pull the plug. Especially since you have access to a pension. If you reach a maximum wage for social security contributions you will earn full 40 credits and will have full SS benefit waiting for you too.

But again, so many things can change between now and then.
Thank you for the response. It seems everyone is speaking about the loan and paying that off first. I’m just not sure how using my taxable contribution to loans is going to give me the max funds in retirement. Still learning
Topic Author
TreBogleHead
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Re: Portfolio Question

Post by TreBogleHead »

retired@50 wrote: Mon Jan 23, 2023 12:00 am
TreBogleHead wrote: Sun Jan 22, 2023 8:43 pm
retired@50 wrote: Sun Jan 22, 2023 8:19 pm I'd suggest you pay off the 9.75% loan as well.

The wiki page on prioritizing investments mentions high interest debt as step 3, after having 1.) an emergency fund and 2.) getting an employer match in a workplace plan.

As for math, do you expect your investments to earn more than 9.75% consistently? Some people (myself included) would characterize that as overly optimistic.

Regards,
Hey, thanks for the information. I will review that page. I don’t think my investment will be over 9.75%. However, my mind tells me that if I take money out of the market and focus on debt, I would be losing potential gains. Am I wrong here? I feel that if you can do both, it will be okay?
I didn't specifically suggest that you sell current investments to pay off debt, although I suppose you could.

Instead, maybe just direct all new contributions to reducing the high interest debt, after satisfying numbers 1 & 2 above. Obviously, this is up to you, but given that the wiki page and forum members are suggesting that you pay off the debt, well, you get it. Forum members don't reach unanimous agreement about many things, but this might be one of them.

Regards,
Yes, I’m not going to sell my current investments. I meant directing the new contributions. It seems that the common them is that having debt while investing is bad. I thought doing both at the same time will help build wealth since you will still have money in the markets. I always read about the miss opportunities of not having your money in the market during the best days and it costing you a lot in the future
Topic Author
TreBogleHead
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Re: Portfolio Question

Post by TreBogleHead »

Wabbit wrote: Mon Jan 23, 2023 12:29 am For your question #1, boglehead "thefinancebuff" wrote an article on TSP traditional vs. roth, where he argued most folks expecting a pension should prefer Roth contributions (with no pension he argued for traditional, in a separate article):

https://thefinancebuff.com/most-tsp-par ... h-tsp.html
Thanks for the information. I will take a look at the article!
Topic Author
TreBogleHead
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Re: Portfolio Question

Post by TreBogleHead »

retired@50 wrote: Mon Jan 23, 2023 12:00 am
TreBogleHead wrote: Sun Jan 22, 2023 8:43 pm
retired@50 wrote: Sun Jan 22, 2023 8:19 pm I'd suggest you pay off the 9.75% loan as well.

The wiki page on prioritizing investments mentions high interest debt as step 3, after having 1.) an emergency fund and 2.) getting an employer match in a workplace plan.

As for math, do you expect your investments to earn more than 9.75% consistently? Some people (myself included) would characterize that as overly optimistic.

Regards,
Hey, thanks for the information. I will review that page. I don’t think my investment will be over 9.75%. However, my mind tells me that if I take money out of the market and focus on debt, I would be losing potential gains. Am I wrong here? I feel that if you can do both, it will be okay?
I didn't specifically suggest that you sell current investments to pay off debt, although I suppose you could.

Instead, maybe just direct all new contributions to reducing the high interest debt, after satisfying numbers 1 & 2 above. Obviously, this is up to you, but given that the wiki page and forum members are suggesting that you pay off the debt, well, you get it. Forum members don't reach unanimous agreement about many things, but this might be one of them.

Regards,
I am reading the wiki that you suggested. I see that the page says that “Pay off high-interest debt (a guaranteed high return, the next best thing to free money).” How is this an higher return than having your money investing into the market? Do you know any forums that do the math in an example? I know it’s right but I never thought about it
placeholder
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Re: Portfolio Question

Post by placeholder »

Leverage can be useful and I have willingly gone into debt when circumstances were right but 9.75% is rather high and the likelihood of your investments doing better than that isn't very high so I'd agree with the others and focus on removing that.
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TreBogleHead
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Re: Portfolio Question

Post by TreBogleHead »

placeholder wrote: Mon Jan 23, 2023 12:55 am Leverage can be useful and I have willingly gone into debt when circumstances were right but 9.75% is rather high and the likelihood of your investments doing better than that isn't very high so I'd agree with the others and focus on removing that.
Yes, I think I am going to knock off the debt first. However, I’m having a hard time seeing why I should put my taxable contributions to paying it off. If I am paying money towards an investment account now, and finish my debt in 3 years, I would have more money in investments and it will compound nicely, especially with dividends. If I pay down my debt fast in 2 years (1 year early) then start to invest, it would be less returns than the example I gave before? Am I right to believe this?
placeholder
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Re: Portfolio Question

Post by placeholder »

TreBogleHead wrote: Mon Jan 23, 2023 1:33 am Yes, I think I am going to knock off the debt first. However, I’m having a hard time seeing why I should put my taxable contributions to paying it off. If I am paying money towards an investment account now, and finish my debt in 3 years, I would have more money in investments and it will compound nicely, especially with dividends. If I pay down my debt fast in 2 years (1 year early) then start to invest, it would be less returns than the example I gave before? Am I right to believe this?
It's true that you'll have more in the investment account earlier but will those earlier investments outperform the opportunity cost of not paying down the loan early remembering that once you pay it off you begin to catch up because your contributions now will include the former payments that you won't need to make on the loan.
toblerone
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Re: Portfolio Question

Post by toblerone »

Paying down a 9.75% debt is equivalent to a 9.75% guaranteed investment return. There is no investment even close to a guaranteed 9.75%, which is why the advice is unanimous here. Paying the personal loan first is the optimal choice, mathematically.
tashnewbie
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Re: Portfolio Question

Post by tashnewbie »

TreBogleHead wrote: Sun Jan 22, 2023 7:33 pm
tashnewbie wrote: Sun Jan 22, 2023 6:27 pm Welcome to the forum.

The one thing that stood out to me is the 9.75% personal loan.

I wouldn’t do any taxable investing before that loan is paid off (or you’re making the TSP).
I never had a problem with the loan since I have the funds. I’m afraid of missing out on investing if I stop to fully focus on the debt. If anyone can show me some math to prove me wrong, that would be great.
As others have said, it's rare when forum members speak unanimously about something, so I would pay close attention to what we're all saying about this 9.75% personal loan.

I think the long-term return of the stock market (S&P 500) is ~7.5% after tax. Your personal loan is 9.75% after tax. I wouldn't bet on your taxable investments exceeding the loan rate, over the long run. I would take a guaranteed 9.75% after tax return any day. After the loan is paid off, you'll have more that you can contribute each month to the TSP. That'll accelerate your savings.

No one has asked what the personal loan was for, and you don't have to say, but I would caution you to examine why you have that personal loan (it wasn't for a house down payment because you don't have much equity there) so that you don't need to get one in the future for a similar situation.

For your situation, I agree with the steps in the "Prioritizing Investments" wiki page that was linked earlier:
(1) Establish an adequate emergency fund (typical recommendation is 3-6 months' expenses).
(2) Contribute enough into TSP to capture full employer match.
(3) Pay off 9.75% personal loan.
(4) Max Roth IRA.
(5) Max TSP.
novelbogle
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Re: Portfolio Question

Post by novelbogle »

TreBogleHead wrote: Mon Jan 23, 2023 1:33 am
placeholder wrote: Mon Jan 23, 2023 12:55 am Leverage can be useful and I have willingly gone into debt when circumstances were right but 9.75% is rather high and the likelihood of your investments doing better than that isn't very high so I'd agree with the others and focus on removing that.
Yes, I think I am going to knock off the debt first. However, I’m having a hard time seeing why I should put my taxable contributions to paying it off. If I am paying money towards an investment account now, and finish my debt in 3 years, I would have more money in investments and it will compound nicely, especially with dividends. If I pay down my debt fast in 2 years (1 year early) then start to invest, it would be less returns than the example I gave before? Am I right to believe this?
What you're missing is this: every day you have the debt your interest owed is "compounding nicely" against you, meaning that it takes longer to pay off the principal, meaning that you're paying more money in interest in the future than you otherwise would be putting in the market. So if you pay more to the debt now, you'll have more to put in the market later.

It would be, as you say, "less returns" in the market if you pay down the debt. But the amount you save in interest is likely to be more than the amount you do not earn in market returns.
"Exemplary persons cherish their excellence; petty persons cherish their land." - Analects 4.11.
Tridentine
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Re: Portfolio Question

Post by Tridentine »

The quickest way for you to increase your net worth is to pay off that personal loan. It is the glaring issue with your finances.

No more taxable investing until its gone. Just as others have said.
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retired@50
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Re: Portfolio Question

Post by retired@50 »

TreBogleHead wrote: Mon Jan 23, 2023 12:38 am
retired@50 wrote: Mon Jan 23, 2023 12:00 am
TreBogleHead wrote: Sun Jan 22, 2023 8:43 pm
retired@50 wrote: Sun Jan 22, 2023 8:19 pm I'd suggest you pay off the 9.75% loan as well.

The wiki page on prioritizing investments mentions high interest debt as step 3, after having 1.) an emergency fund and 2.) getting an employer match in a workplace plan.

As for math, do you expect your investments to earn more than 9.75% consistently? Some people (myself included) would characterize that as overly optimistic.

Regards,
Hey, thanks for the information. I will review that page. I don’t think my investment will be over 9.75%. However, my mind tells me that if I take money out of the market and focus on debt, I would be losing potential gains. Am I wrong here? I feel that if you can do both, it will be okay?
I didn't specifically suggest that you sell current investments to pay off debt, although I suppose you could.

Instead, maybe just direct all new contributions to reducing the high interest debt, after satisfying numbers 1 & 2 above. Obviously, this is up to you, but given that the wiki page and forum members are suggesting that you pay off the debt, well, you get it. Forum members don't reach unanimous agreement about many things, but this might be one of them.

Regards,
Yes, I’m not going to sell my current investments. I meant directing the new contributions. It seems that the common them is that having debt while investing is bad. I thought doing both at the same time will help build wealth since you will still have money in the markets. I always read about the miss opportunities of not having your money in the market during the best days and it costing you a lot in the future
Consider the interest you'll be paying on that loan as something else that will be costing you a lot in the future. If you pay the $34K right now, then the total amount of money committed to paying off the loan is $34K. However, if you take your time to pay down the loan by making minimum payments, then you'd have to add up all those payments... Which would yield a larger number than $34K.

In other words, you're building wealth by saving money, but then you're handing too much of that wealth to the lender. Stop handing over your "future" wealth to the loan provider.

Regards,
This is one person's opinion. Nothing more.
Topic Author
TreBogleHead
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Re: Portfolio Question

Post by TreBogleHead »

placeholder wrote: Mon Jan 23, 2023 1:41 am
TreBogleHead wrote: Mon Jan 23, 2023 1:33 am Yes, I think I am going to knock off the debt first. However, I’m having a hard time seeing why I should put my taxable contributions to paying it off. If I am paying money towards an investment account now, and finish my debt in 3 years, I would have more money in investments and it will compound nicely, especially with dividends. If I pay down my debt fast in 2 years (1 year early) then start to invest, it would be less returns than the example I gave before? Am I right to believe this?
It's true that you'll have more in the investment account earlier but will those earlier investments outperform the opportunity cost of not paying down the loan early remembering that once you pay it off you begin to catch up because your contributions now will include the former payments that you won't need to make on the loan.
Okay, this is becoming more clear now. The opportunity costs is higher if I pay down. Thank you for explaining
Topic Author
TreBogleHead
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Re: Portfolio Question

Post by TreBogleHead »

toblerone wrote: Mon Jan 23, 2023 1:47 am Paying down a 9.75% debt is equivalent to a 9.75% guaranteed investment return. There is no investment even close to a guaranteed 9.75%, which is why the advice is unanimous here. Paying the personal loan first is the optimal choice, mathematically.
I see what you are saying. I never looked at it like that. That makes since now. Thank you!
sep
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Re: Portfolio Question

Post by sep »

Other forum members have already addressed the personal loan, so I won't go there except to say I agree with them. As far as your current TSP allocation goes, given your age, time horizon, other future asset (pension) I think you are on the right track. (my TSP is set to the same allocation ...100% C and nothing else and I'm 58 years old).

Generally speaking, I would recommend you put as much money as you can afford to in the TSP keeping an investing/life balance you are happy with. When your income goes higher in future years and you are able to, max out the TSP.

As far as a ratio of traditional TSP to Roth TSP, you'll have to run some income and future tax projections to have some idea what tax bracket you think you will be in when you reach the age to start taking Required Minimum Distributions (RMDs) from your traditional TSP. (FYI, your Roth TSP no longer has tax free RMDs required. So, it can grow tax free for the rest of your life thanks to Secure Act 2.0)

That is one mistake I have made, I have most of my money in Traditional TSP which at age 75 will require large RMDs which will most certainly put me in a higher tax bracket. I should have allocated some to a Roth TSP sooner. Good luck...you are on the right track.
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TreBogleHead
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Re: Portfolio Question

Post by TreBogleHead »

tashnewbie wrote: Mon Jan 23, 2023 8:36 am
TreBogleHead wrote: Sun Jan 22, 2023 7:33 pm
tashnewbie wrote: Sun Jan 22, 2023 6:27 pm Welcome to the forum.

The one thing that stood out to me is the 9.75% personal loan.

I wouldn’t do any taxable investing before that loan is paid off (or you’re making the TSP).
I never had a problem with the loan since I have the funds. I’m afraid of missing out on investing if I stop to fully focus on the debt. If anyone can show me some math to prove me wrong, that would be great.
As others have said, it's rare when forum members speak unanimously about something, so I would pay close attention to what we're all saying about this 9.75% personal loan.

I think the long-term return of the stock market (S&P 500) is ~7.5% after tax. Your personal loan is 9.75% after tax. I wouldn't bet on your taxable investments exceeding the loan rate, over the long run. I would take a guaranteed 9.75% after tax return any day. After the loan is paid off, you'll have more that you can contribute each month to the TSP. That'll accelerate your savings.

No one has asked what the personal loan was for, and you don't have to say, but I would caution you to examine why you have that personal loan (it wasn't for a house down payment because you don't have much equity there) so that you don't need to get one in the future for a similar situation.

For your situation, I agree with the steps in the "Prioritizing Investments" wiki page that was linked earlier:
(1) Establish an adequate emergency fund (typical recommendation is 3-6 months' expenses).
(2) Contribute enough into TSP to capture full employer match.
(3) Pay off 9.75% personal loan.
(4) Max Roth IRA.
(5) Max TSP.
Thank you for breaking it down for me! The personal loan was needed unfortunately. I’ll make sure to use the taxable funds towards the loan now to pay it off and start building wealth again.
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TreBogleHead
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Re: Portfolio Question

Post by TreBogleHead »

novelbogle wrote: Mon Jan 23, 2023 8:44 am
TreBogleHead wrote: Mon Jan 23, 2023 1:33 am
placeholder wrote: Mon Jan 23, 2023 12:55 am Leverage can be useful and I have willingly gone into debt when circumstances were right but 9.75% is rather high and the likelihood of your investments doing better than that isn't very high so I'd agree with the others and focus on removing that.
Yes, I think I am going to knock off the debt first. However, I’m having a hard time seeing why I should put my taxable contributions to paying it off. If I am paying money towards an investment account now, and finish my debt in 3 years, I would have more money in investments and it will compound nicely, especially with dividends. If I pay down my debt fast in 2 years (1 year early) then start to invest, it would be less returns than the example I gave before? Am I right to believe this?
What you're missing is this: every day you have the debt your interest owed is "compounding nicely" against you, meaning that it takes longer to pay off the principal, meaning that you're paying more money in interest in the future than you otherwise would be putting in the market. So if you pay more to the debt now, you'll have more to put in the market later.

It would be, as you say, "less returns" in the market if you pay down the debt. But the amount you save in interest is likely to be more than the amount you do not earn in market returns.
Wow that last sentence made me understand completely now what people are saying. That makes a lot of sense now. Thank you for that.
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ruralavalon
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Re: Portfolio Question

Post by ruralavalon »

TreBogleHead wrote: Sun Jan 22, 2023 7:33 pm
tashnewbie wrote: Sun Jan 22, 2023 6:27 pm Welcome to the forum.

The one thing that stood out to me is the 9.75% personal loan.

I wouldn’t do any taxable investing before that loan is paid off (or you’re making the TSP).
I never had a problem with the loan since I have the funds. I’m afraid of missing out on investing if I stop to fully focus on the debt. If anyone can show me some math to prove me wrong, that would be great.
Paying off the debt gives you a guaranteed return of 9.75%. You cannot get a guaranteed return of 9.75% on any investment anywhere.

No one is predicting a 9.75% return on U.S. stocks. Morningstar, "Experts Forecast Stock and Bond Returns: 2023 Edition", link .

I suggest selling the "Taxable VTSAX - $14k" and applying that to the debt. I suggest stopping contributions to the taxable account.

I suggest no more contributions to the taxable brokerage account until the debt is paid and you are making maximum annual contributions ($22.k) to your Thrift Savings Plan (TSP) account.

Is there some reason to believe you will not receive a pension?

To reduce your tax burden increase your traditional contributions to your TSP account.
Last edited by ruralavalon on Mon Jan 23, 2023 10:05 am, 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
TreBogleHead
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Re: Portfolio Question

Post by TreBogleHead »

sep wrote: Mon Jan 23, 2023 9:55 am Other forum members have already addressed the personal loan, so I won't go there except to say I agree with them. As far as your current TSP allocation goes, given your age, time horizon, other future asset (pension) I think you are on the right track. (my TSP is set to the same allocation ...100% C and nothing else and I'm 58 years old).

Generally speaking, I would recommend you put as much money as you can afford to in the TSP keeping an investing/life balance you are happy with. When your income goes higher in future years and you are able to, max out the TSP.

As far as a ratio of traditional TSP to Roth TSP, you'll have to run some income and future tax projections to have some idea what tax bracket you think you will be in when you reach the age to start taking Required Minimum Distributions (RMDs) from your traditional TSP. (FYI, your Roth TSP no longer has tax free RMDs required. So, it can grow tax free for the rest of your life thanks to Secure Act 2.0)

That is one mistake I have made, I have most of my money in Traditional TSP which at age 75 will require large RMDs which will most certainly put me in a higher tax bracket. I should have allocated some to a Roth TSP sooner. Good luck...you are on the right track.
Thank you very much! Can you still contribute to your TSP since you are out of service or did you have to get a 401k when you got out?

Also, do you know any calculator where I can run income and tax projections? I am having a hard time with the math here and do not want to have so much in the traditional tsp where I get hit with RMD and it pushes me into a higher tax bracket. Any math people on here?
Topic Author
TreBogleHead
Posts: 21
Joined: Sun Jan 22, 2023 5:02 pm

Re: Portfolio Question

Post by TreBogleHead »

TreBogleHead wrote: Sun Jan 22, 2023 5:38 pm Hello Everyone,

Glad to join the forum. I have learned a lot from many members on here and finally decided to ask questions about my portfolio.

Emergency funds: $5k

Debt:

Mortgage - $218k @ 2.75% interest, $213k remaining
Personal Loan - $34k @ 9.75% interest

Tax Filing Status: Single

Income: $84k, taxable portion = $57k

Tax Rate: 22% Federal, 4.75% State

Age: 25

Desired Asset allocation: 100% stocks / 0% bonds
Desired International allocation: 0% of stocks

Taxable
VTSAX - $14k

TSP
C Fund- $6k
Roth: 2%
Traditional: 5%

Roth IRA (Max out every year)
VOO - $25k

Contributions (Monthly)

Roth IRA: $591
Index Fund: $600
TSP: $334

Total: $1525 per month

Retirement (20 years)

Pension ~ $50k/year, $4k/month

Questions:
1. Regarding my TSP (401k equivalent) and pay, should I keep the Roth and traditional contribution percentage or should I invest more into Roth? I already max out my Roth IRA so I feel the balance here is good. I want to make sure I can maximize spending in retirement at age 59, be tax efficient, and not worry about RMD.

2. If I receive a pension in 20 years, and want to spend around 100k in retirement (inflation adjusted to future year and age 59), how will this impact my taxes since I have to worry about RMD? What should be the max traditional assets for me? If I do not receive a pension, what are the calculations? Should I keep the contributions the same if $100k is the goal or do I need to increase?

3. If I were trying to retire early at age 45 and live until age 80, will I have enough funds from how much I contribute now. Do I need to increase contributions? I want to spend around $100k by then.

4. Any tips to reduce my tax burden as I increase salary and go into a higher tax bracket? I’ll be in the 24% bracket next year.

Hope to hear from amazing people. Thank you for your time.
Hey everyone, thanks for leading me in the right direction to paying off my loans first and then invest into taxable. I will do that. Can I receive any answers towards these questions here? Is there any one who can do the math for me or point to a calculator?

1. Regarding my TSP (401k equivalent) and pay, should I keep the Roth and traditional contribution percentage or should I invest more into Roth? I already max out my Roth IRA so I feel the balance here is good. I want to make sure I can maximize spending in retirement at age 59, be tax efficient, and not worry about RMD.

2. If I receive a pension in 20 years, and want to spend around 100k in retirement (inflation adjusted to future year and age 59), how will this impact my taxes since I have to worry about RMD? What should be the max traditional assets for me? If I do not receive a pension, what are the calculations? Should I keep the contributions the same if $100k is the goal or do I need to increase?

3. If I were trying to retire early at age 45 and live until age 80, will I have enough funds from how much I contribute now. Do I need to increase contributions? I want to spend around $100k by then.

4. Any tips to reduce my tax burden as I increase salary and go into a higher tax bracket? I’ll be in the 24% bracket next year.
tashnewbie
Posts: 3413
Joined: Thu Apr 23, 2020 12:44 pm

Re: Portfolio Question

Post by tashnewbie »

TreBogleHead wrote: Mon Jan 23, 2023 10:06 am Hey everyone, thanks for leading me in the right direction to paying off my loans first and then invest into taxable. I will do that. Can I receive any answers towards these questions here? Is there any one who can do the math for me or point to a calculator?

1. Regarding my TSP (401k equivalent) and pay, should I keep the Roth and traditional contribution percentage or should I invest more into Roth? I already max out my Roth IRA so I feel the balance here is good. I want to make sure I can maximize spending in retirement at age 59, be tax efficient, and not worry about RMD.

2. If I receive a pension in 20 years, and want to spend around 100k in retirement (inflation adjusted to future year and age 59), how will this impact my taxes since I have to worry about RMD? What should be the max traditional assets for me? If I do not receive a pension, what are the calculations? Should I keep the contributions the same if $100k is the goal or do I need to increase?

3. If I were trying to retire early at age 45 and live until age 80, will I have enough funds from how much I contribute now. Do I need to increase contributions? I want to spend around $100k by then.

4. Any tips to reduce my tax burden as I increase salary and go into a higher tax bracket? I’ll be in the 24% bracket next year.
1. You're young and a long way from being able to collect the pension. Do you plan to stay with your current employer for as long as it takes to be eligible for the full pension?

It does seem that people with pensions don't need as much in tax-deferred accounts. I don't know the exact math you should do, but that process will require making a lot of estimates about your future tax rates and comparing it with your current ones. There's quite a bit of guesswork involved; not an exact science.

2. If you have $100k of income in retirement, your tax liability will depend on several things including your tax filing status (single, married, head of household), how much comes from tax-deferred/tax-free/and taxable accounts, etc.

If you're single in retirement, $50k pension would put you in the current 12% fed tax bracket. You could probably have at least $1 to $1.4 million in tax-deferred assets and stay in the current 22% bracket. Current 22% bracket goes up to $95k taxable income which is ~$108k MAGI because you have to add back in the ~$13k standard deduction. At a 4% withdrawal rate, you'd need ($108k - $50k pension = $58k) / 0.04 = $1.45 million in tax-deferred, combined with the full pension, to get to the top of the 22% bracket.

Current tax brackets are slated to go back to pre-2017 levels in 2026. And tax brackets are adjusted for inflation. A lot of moving pieces, so I don't know that you need to spend a lot of time and effort at this point trying to optimize this. There will be one correct answer but you'll only know that in hindsight. I think the best you can do is do a mix of traditional and Roth and reassess along the way. I don't know what that mix should be right now.

3. Where are you getting this $100k number? What makes you think you'll need that and not something more or less in retirement?

The better question for you is do you have any extra money to be investing right now? As everyone else has mentioned, your top priority right now, after establishing an adequate emergency fund and getting the full TSP match, should probably be retiring that 9.75% personal loan. If you have extra money to save right now, it should go towards loan payoff.

Only after that loan is retired should you think about saving more. At that point, I would increase TSP contributions as much as reasonably possible (so you'd still have adequate cash flow to pay your bills and spend on things important to you).

4. As someone else mentioned earlier, the way to decrease your tax liability would be to increase traditional TSP contributions. It doesn't sound like you have the extra money to do this right now.
invest4
Posts: 1328
Joined: Wed Apr 24, 2019 2:19 am

Re: Portfolio Question

Post by invest4 »

DEBT

* 9.75% loan: glad you are prioritizing it...easy choice with significant benefit.

* Mortgage @ 2.75%: great low rate. People have different opinions, but I would simply continue to pay this loan as agreed and enjoy the benefits.

- Hedge against inflation

- Liquidity

- Leverage for further investments

PORTFOLIO

* 100% stocks: If you can handle the volatility, is a reasonable plan to me as a young accumulator. I was 100% stocks until my late 40s.

* 100% USA: I believe diversification is an important part of your portfolio. Encourage you to revisit whether an allocation to International would be a good move for you. If you decide to do so, the typical recommendation is no less than 20% (that is what I have).

* Roth vs Traditional 401k/TSP:

Asymmetric risk in the Roth vs Traditional question


viewtopic.php?t=318512

This is a long, but informative thread.

Quick summary (credit to Admiral for the synopsis):

* Impossible to know which choice will ultimately be "better" (if better means having more money to spend in retirement) due to all the assumptions needed about the future, one should simply consider the risks


* Saving too much in Roth potentially means not having enough money in retirement.


* Saving too much in Traditional potentially means having too much money, some of which is going to be used to pay higher tax

Most of my own portfolio is in tax deferred (70%) which I have utilized to also provide me with leverage during accumulation (lower taxes now to increase my overall contributions). Roth is 20%, HSA is 3% and rest is cash.

Nothing wrong with what you are doing now. However, many people mistakenly favor Roth (no taxes in the future! Avoid painful RMDs!) without having a broader perspective to help further inform their choices.

FUTURE

The future it unknown, but plan we must.


* Reduce tax burden - most obvious to me is that you would increase your pre-tax contributions


* Retiring early and living until age 80
- I think 80 is not long enough...suggest 90-100 for planning purposes


* Early retirement will require more funds. If the standard is 25X of annual expenses (30 year retirement), early retirement may be 33x or more. If you have a pension of 50K, that makes a significant difference to lower the funding required from your portfolio.


* Do not underestimate the value of simplicity. Often times, people want to "optimize" their portfolio and start tinkering. Resist the temptation and I am confident you will be better off for it.


You have a great start.

Continue to focus on your savings rate and developing a diversified portfolio of assets that enable you to successfully navigate the uncertain future while also enjoying life along the way. If you are doing it well, I strongly believe your investing life should be mostly boring...and thankfully so.

Best wishes
Topic Author
TreBogleHead
Posts: 21
Joined: Sun Jan 22, 2023 5:02 pm

Re: Portfolio Question

Post by TreBogleHead »

ruralavalon wrote: Mon Jan 23, 2023 10:01 am
TreBogleHead wrote: Sun Jan 22, 2023 7:33 pm
tashnewbie wrote: Sun Jan 22, 2023 6:27 pm Welcome to the forum.

The one thing that stood out to me is the 9.75% personal loan.

I wouldn’t do any taxable investing before that loan is paid off (or you’re making the TSP).
I never had a problem with the loan since I have the funds. I’m afraid of missing out on investing if I stop to fully focus on the debt. If anyone can show me some math to prove me wrong, that would be great.
Paying off the debt gives you a guaranteed return of 9.75%. You cannot get a guaranteed return of 9.75% on any investment anywhere.

No one is predicting a 9.75% return on U.S. stocks. Morningstar, "Experts Forecast Stock and Bond Returns: 2023 Edition", link .

I suggest selling the "Taxable VTSAX - $14k" and applying that to the debt. I suggest stopping contributions to the taxable account.

I suggest no more contributions to the taxable brokerage account until the debt is paid and you are making maximum annual contributions ($22.k) to your Thrift Savings Plan (TSP) account.

Is there some reason to believe you will not receive a pension?

To reduce your tax burden increase your traditional contributions to your TSP account.
Thanks for the advice. I am not sure if I would receive a pension because I may leave for another job in the future that has a higher salary or maybe I don’t get promoted high enough to hit the pension mark. Just keeping both options open and wanted to know if I am on an okay path once I pay off the loan.
Topic Author
TreBogleHead
Posts: 21
Joined: Sun Jan 22, 2023 5:02 pm

Re: Portfolio Question

Post by TreBogleHead »

tashnewbie wrote: Mon Jan 23, 2023 10:43 am
TreBogleHead wrote: Mon Jan 23, 2023 10:06 am Hey everyone, thanks for leading me in the right direction to paying off my loans first and then invest into taxable. I will do that. Can I receive any answers towards these questions here? Is there any one who can do the math for me or point to a calculator?

1. Regarding my TSP (401k equivalent) and pay, should I keep the Roth and traditional contribution percentage or should I invest more into Roth? I already max out my Roth IRA so I feel the balance here is good. I want to make sure I can maximize spending in retirement at age 59, be tax efficient, and not worry about RMD.

2. If I receive a pension in 20 years, and want to spend around 100k in retirement (inflation adjusted to future year and age 59), how will this impact my taxes since I have to worry about RMD? What should be the max traditional assets for me? If I do not receive a pension, what are the calculations? Should I keep the contributions the same if $100k is the goal or do I need to increase?

3. If I were trying to retire early at age 45 and live until age 80, will I have enough funds from how much I contribute now. Do I need to increase contributions? I want to spend around $100k by then.

4. Any tips to reduce my tax burden as I increase salary and go into a higher tax bracket? I’ll be in the 24% bracket next year.
1. You're young and a long way from being able to collect the pension. Do you plan to stay with your current employer for as long as it takes to be eligible for the full pension?

It does seem that people with pensions don't need as much in tax-deferred accounts. I don't know the exact math you should do, but that process will require making a lot of estimates about your future tax rates and comparing it with your current ones. There's quite a bit of guesswork involved; not an exact science.

2. If you have $100k of income in retirement, your tax liability will depend on several things including your tax filing status (single, married, head of household), how much comes from tax-deferred/tax-free/and taxable accounts, etc.

If you're single in retirement, $50k pension would put you in the current 12% fed tax bracket. You could probably have at least $1 to $1.4 million in tax-deferred assets and stay in the current 22% bracket. Current 22% bracket goes up to $95k taxable income which is ~$108k MAGI because you have to add back in the ~$13k standard deduction. At a 4% withdrawal rate, you'd need ($108k - $50k pension = $58k) / 0.04 = $1.45 million in tax-deferred, combined with the full pension, to get to the top of the 22% bracket.

Current tax brackets are slated to go back to pre-2017 levels in 2026. And tax brackets are adjusted for inflation. A lot of moving pieces, so I don't know that you need to spend a lot of time and effort at this point trying to optimize this. There will be one correct answer but you'll only know that in hindsight. I think the best you can do is do a mix of traditional and Roth and reassess along the way. I don't know what that mix should be right now.

3. Where are you getting this $100k number? What makes you think you'll need that and not something more or less in retirement?

The better question for you is do you have any extra money to be investing right now? As everyone else has mentioned, your top priority right now, after establishing an adequate emergency fund and getting the full TSP match, should probably be retiring that 9.75% personal loan. If you have extra money to save right now, it should go towards loan payoff.

Only after that loan is retired should you think about saving more. At that point, I would increase TSP contributions as much as reasonably possible (so you'd still have adequate cash flow to pay your bills and spend on things important to you).

4. As someone else mentioned earlier, the way to decrease your tax liability would be to increase traditional TSP contributions. It doesn't sound like you have the extra money to do this right now.
1. Thank you for this information! This was very helpful. I do plan on staying with my current employer but if there is a better pay opportunity in the future, I may leave. Also, if I don’t promote high enough, I want qualify for the pension so there is that.

2. I will see if I can do some math base off the calculations you did. Now I have something to go off. I plan on getting married next year so it will be different calculations then.

3. The $100k is the number I believe that will cover all my expenses if I was to retire. Whatever $100k is in the future due to inflation, I would like that amount and be comfortable. Already comfortable with my current salary.

4. I do have extra money to invest and will put that towards the loan now to pay it off. Also, I would like to retire at 45 if possible. That is why I am not looking to max out my tsp. Just receive the max and place into a taxable account. Not sure how much I need to live off my taxable until the age of 59 when I can touch my tsp and social security at 65.
User avatar
ruralavalon
Posts: 24384
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Portfolio Question

Post by ruralavalon »

TreBogleHead wrote: Mon Jan 23, 2023 10:06 am
TreBogleHead wrote: Sun Jan 22, 2023 5:38 pm Hello Everyone,

Glad to join the forum. I have learned a lot from many members on here and finally decided to ask questions about my portfolio.

Emergency funds: $5k

Debt:

Mortgage - $218k @ 2.75% interest, $213k remaining
Personal Loan - $34k @ 9.75% interest

Tax Filing Status: Single

Income: $84k, taxable portion = $57k

Tax Rate: 22% Federal, 4.75% State

Age: 25

Desired Asset allocation: 100% stocks / 0% bonds
Desired International allocation: 0% of stocks

Taxable
VTSAX - $14k

TSP
C Fund- $6k
Roth: 2%
Traditional: 5%

Roth IRA (Max out every year)
VOO - $25k

Contributions (Monthly)

Roth IRA: $591
Index Fund: $600
TSP: $334

Total: $1525 per month

Retirement (20 years)

Pension ~ $50k/year, $4k/month

Questions:
1. Regarding my TSP (401k equivalent) and pay, should I keep the Roth and traditional contribution percentage or should I invest more into Roth? I already max out my Roth IRA so I feel the balance here is good. I want to make sure I can maximize spending in retirement at age 59, be tax efficient, and not worry about RMD.

2. If I receive a pension in 20 years, and want to spend around 100k in retirement (inflation adjusted to future year and age 59), how will this impact my taxes since I have to worry about RMD? What should be the max traditional assets for me? If I do not receive a pension, what are the calculations? Should I keep the contributions the same if $100k is the goal or do I need to increase?

3. If I were trying to retire early at age 45 and live until age 80, will I have enough funds from how much I contribute now. Do I need to increase contributions? I want to spend around $100k by then.

4. Any tips to reduce my tax burden as I increase salary and go into a higher tax bracket? I’ll be in the 24% bracket next year.

Hope to hear from amazing people. Thank you for your time.
Hey everyone, thanks for leading me in the right direction to paying off my loans first and then invest into taxable. I will do that. Can I receive any answers towards these questions here? Is there any one who can do the math for me or point to a calculator?

1. Regarding my TSP (401k equivalent) and pay, should I keep the Roth and traditional contribution percentage or should I invest more into Roth? I already max out my Roth IRA so I feel the balance here is good. I want to make sure I can maximize spending in retirement at age 59, be tax efficient, and not worry about RMD.

2. If I receive a pension in 20 years, and want to spend around 100k in retirement (inflation adjusted to future year and age 59), how will this impact my taxes since I have to worry about RMD? What should be the max traditional assets for me? If I do not receive a pension, what are the calculations? Should I keep the contributions the same if $100k is the goal or do I need to increase?

3. If I were trying to retire early at age 45 and live until age 80, will I have enough funds from how much I contribute now. Do I need to increase contributions? I want to spend around $100k by then.

4. Any tips to reduce my tax burden as I increase salary and go into a higher tax bracket? I’ll be in the 24% bracket next year.
1) It is not possible to predict the optimum mix of contribution types. It's not possible to know what the tax brackets will be during your retirement 20-60 years from now. We get a new Congress every two years, and we don't know what tax brackets will be established by future Congresses.

2) What is the basis for the $100k you want to spend in retirement? About how much are your current living expenses?

2) Is there some reason to believe that you will not receive your pension?

3) For planning purposes assume that you may live into your 90s.

3) The most important investing decision you can make is to establish a high rate of contributions, forum dison.

4) To reduce your tax burden increase your traditional tax-deductible contributions to your TSP account.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
TreBogleHead
Posts: 21
Joined: Sun Jan 22, 2023 5:02 pm

Re: Portfolio Question

Post by TreBogleHead »

ruralavalon wrote: Mon Jan 23, 2023 12:13 pm
TreBogleHead wrote: Mon Jan 23, 2023 10:06 am
TreBogleHead wrote: Sun Jan 22, 2023 5:38 pm Hello Everyone,

Glad to join the forum. I have learned a lot from many members on here and finally decided to ask questions about my portfolio.

Emergency funds: $5k

Debt:

Mortgage - $218k @ 2.75% interest, $213k remaining
Personal Loan - $34k @ 9.75% interest

Tax Filing Status: Single

Income: $84k, taxable portion = $57k

Tax Rate: 22% Federal, 4.75% State

Age: 25

Desired Asset allocation: 100% stocks / 0% bonds
Desired International allocation: 0% of stocks

Taxable
VTSAX - $14k

TSP
C Fund- $6k
Roth: 2%
Traditional: 5%

Roth IRA (Max out every year)
VOO - $25k

Contributions (Monthly)

Roth IRA: $591
Index Fund: $600
TSP: $334

Total: $1525 per month

Retirement (20 years)

Pension ~ $50k/year, $4k/month

Questions:
1. Regarding my TSP (401k equivalent) and pay, should I keep the Roth and traditional contribution percentage or should I invest more into Roth? I already max out my Roth IRA so I feel the balance here is good. I want to make sure I can maximize spending in retirement at age 59, be tax efficient, and not worry about RMD.

2. If I receive a pension in 20 years, and want to spend around 100k in retirement (inflation adjusted to future year and age 59), how will this impact my taxes since I have to worry about RMD? What should be the max traditional assets for me? If I do not receive a pension, what are the calculations? Should I keep the contributions the same if $100k is the goal or do I need to increase?

3. If I were trying to retire early at age 45 and live until age 80, will I have enough funds from how much I contribute now. Do I need to increase contributions? I want to spend around $100k by then.

4. Any tips to reduce my tax burden as I increase salary and go into a higher tax bracket? I’ll be in the 24% bracket next year.

Hope to hear from amazing people. Thank you for your time.
Hey everyone, thanks for leading me in the right direction to paying off my loans first and then invest into taxable. I will do that. Can I receive any answers towards these questions here? Is there any one who can do the math for me or point to a calculator?

1. Regarding my TSP (401k equivalent) and pay, should I keep the Roth and traditional contribution percentage or should I invest more into Roth? I already max out my Roth IRA so I feel the balance here is good. I want to make sure I can maximize spending in retirement at age 59, be tax efficient, and not worry about RMD.

2. If I receive a pension in 20 years, and want to spend around 100k in retirement (inflation adjusted to future year and age 59), how will this impact my taxes since I have to worry about RMD? What should be the max traditional assets for me? If I do not receive a pension, what are the calculations? Should I keep the contributions the same if $100k is the goal or do I need to increase?

3. If I were trying to retire early at age 45 and live until age 80, will I have enough funds from how much I contribute now. Do I need to increase contributions? I want to spend around $100k by then.

4. Any tips to reduce my tax burden as I increase salary and go into a higher tax bracket? I’ll be in the 24% bracket next year.
1) It is not possible to predict the optimum mix of contribution types. It's not possible to know what the tax brackets will be during your retirement 20-60 years from now. We get a new Congress every two years, and we don't know what tax brackets will be established by future Congresses.

2) What is the basis for the $100k you want to spend in retirement? About how much are your current living expenses?

2) Is there some reason to believe that you will not receive your pension?

3) For planning purposes assume that you may live into your 90s.

3) The most important investing decision you can make is to establish a high rate of contributions, forum dison.

4) To reduce your tax burden increase your traditional tax-deductible contributions to your TSP account.
Thank you for the response and forum page. I will take a look. I thought there would be someway to predict the optimal mix given certain variables such as tax bracket
tashnewbie
Posts: 3413
Joined: Thu Apr 23, 2020 12:44 pm

Re: Portfolio Question

Post by tashnewbie »

TreBogleHead wrote: Mon Jan 23, 2023 12:07 pm 1. Thank you for this information! This was very helpful. I do plan on staying with my current employer but if there is a better pay opportunity in the future, I may leave. Also, if I don’t promote high enough, I want qualify for the pension so there is that.
With this new information, I would err on the side of traditional contributions. As someone else posted, there is asymmetric/uneven risk to the traditional vs. Roth decision. Worst case with traditional is you have more money than you need and have to pay higher taxes. That's a better situation than having all Roth and not having enough to pay your bills.

And if you retire early, that weighs more in favor of traditional too because you'll have a longer time before RMDs start to get money out of the tax-deferred account.

Sounds like there are a few unknown variables for you at this point, including whether you'll even qualify for the pension or a big one, because you don't yet know if you'll become eligible for the pension and if you do, you don't know how long you'll be with this employer. That's all okay and completely normal for a 25 year old.

The fact that you're even thinking about saving for retirement puts you ahead of a lot of your peers (and people who are much older). So give yourself a pat on the back for that. Truly!
3. The $100k is the number I believe that will cover all my expenses if I was to retire. Whatever $100k is in the future due to inflation, I would like that amount and be comfortable. Already comfortable with my current salary.
As you get closer to retirement, you'll have a better sense of your retirement expenses. Nothing you need to worry about now. You can of course have a target portfolio size before you retire, but I would just view that as a far-off goal at this point.
4. I do have extra money to invest and will put that towards the loan now to pay it off. Also, I would like to retire at 45 if possible. That is why I am not looking to max out my tsp. Just receive the max and place into a taxable account. Not sure how much I need to live off my taxable until the age of 59 when I can touch my tsp and social security at 65.
Even if you want to retire before traditional retirement ages, I would still max TSP before putting money in taxable. There are ways to access money in TSP/401k before standard retirement age, such as Roth conversions.

See this Mad Fientist blogpost for more information on such strategies: https://www.madfientist.com/how-to-acce ... nds-early/
Topic Author
TreBogleHead
Posts: 21
Joined: Sun Jan 22, 2023 5:02 pm

Re: Portfolio Question

Post by TreBogleHead »

tashnewbie wrote: Mon Jan 23, 2023 12:21 pm
TreBogleHead wrote: Mon Jan 23, 2023 12:07 pm 1. Thank you for this information! This was very helpful. I do plan on staying with my current employer but if there is a better pay opportunity in the future, I may leave. Also, if I don’t promote high enough, I want qualify for the pension so there is that.
With this new information, I would err on the side of traditional contributions. As someone else posted, there is asymmetric/uneven risk to the traditional vs. Roth decision. Worst case with traditional is you have more money than you need and have to pay higher taxes. That's a better situation than having all Roth and not having enough to pay your bills.

And if you retire early, that weighs more in favor of traditional too because you'll have a longer time before RMDs start to get money out of the tax-deferred account.

Sounds like there are a few unknown variables for you at this point, including whether you'll even qualify for the pension or a big one, because you don't yet know if you'll become eligible for the pension and if you do, you don't know how long you'll be with this employer. That's all okay and completely normal for a 25 year old.

The fact that you're even thinking about saving for retirement puts you ahead of a lot of your peers (and people who are much older). So give yourself a pat on the back for that. Truly!
3. The $100k is the number I believe that will cover all my expenses if I was to retire. Whatever $100k is in the future due to inflation, I would like that amount and be comfortable. Already comfortable with my current salary.
As you get closer to retirement, you'll have a better sense of your retirement expenses. Nothing you need to worry about now. You can of course have a target portfolio size before you retire, but I would just view that as a far-off goal at this point.
4. I do have extra money to invest and will put that towards the loan now to pay it off. Also, I would like to retire at 45 if possible. That is why I am not looking to max out my tsp. Just receive the max and place into a taxable account. Not sure how much I need to live off my taxable until the age of 59 when I can touch my tsp and social security at 65.
Even if you want to retire before traditional retirement ages, I would still max TSP before putting money in taxable. There are ways to access money in TSP/401k before standard retirement age, such as Roth conversions.

See this Mad Fientist blogpost for more information on such strategies: https://www.madfientist.com/how-to-acce ... nds-early/
Thanks for all the resources. I am still confused about maxing out TSP if you want to retire early. Also, I don’t ever think I’ll be able to max TSP. What does one mean when they say you have less money with Roth? I thought it all depends on your taxes? If you stay in the same tax bracket, Roth and Traditional will be the same
tashnewbie
Posts: 3413
Joined: Thu Apr 23, 2020 12:44 pm

Re: Portfolio Question

Post by tashnewbie »

TreBogleHead wrote: Mon Jan 23, 2023 2:24 pm
tashnewbie wrote: Mon Jan 23, 2023 12:21 pm Even if you want to retire before traditional retirement ages, I would still max TSP before putting money in taxable. There are ways to access money in TSP/401k before standard retirement age, such as Roth conversions.

See this Mad Fientist blogpost for more information on such strategies: https://www.madfientist.com/how-to-acce ... nds-early/
Thanks for all the resources. I am still confused about maxing out TSP if you want to retire early. Also, I don’t ever think I’ll be able to max TSP. What does one mean when they say you have less money with Roth? I thought it all depends on your taxes? If you stay in the same tax bracket, Roth and Traditional will be the same
It is true that if your tax rate when you contribute is the same when you withdraw, Roth and Traditional are a wash. But it sounds like there's uncertainty for you about whether that's true, and that's probably true for a lot of people. In the midst of that uncertainty, traditional can be better because if you run into the issue of having high RMDs, that means you have a lot of money saved in traditional which is a good problem to have.

Read up on the asymmetric thread that was posted earlier if you want to learn more about that dynamic.

Read the Mad Fiendist blogpost I linked above for information about strategies to withdraw money from an account such as TSP before 59.5.
Topic Author
TreBogleHead
Posts: 21
Joined: Sun Jan 22, 2023 5:02 pm

Re: Portfolio Question

Post by TreBogleHead »

tashnewbie wrote: Mon Jan 23, 2023 2:54 pm
TreBogleHead wrote: Mon Jan 23, 2023 2:24 pm
tashnewbie wrote: Mon Jan 23, 2023 12:21 pm Even if you want to retire before traditional retirement ages, I would still max TSP before putting money in taxable. There are ways to access money in TSP/401k before standard retirement age, such as Roth conversions.

See this Mad Fientist blogpost for more information on such strategies: https://www.madfientist.com/how-to-acce ... nds-early/
Thanks for all the resources. I am still confused about maxing out TSP if you want to retire early. Also, I don’t ever think I’ll be able to max TSP. What does one mean when they say you have less money with Roth? I thought it all depends on your taxes? If you stay in the same tax bracket, Roth and Traditional will be the same
It is true that if your tax rate when you contribute is the same when you withdraw, Roth and Traditional are a wash. But it sounds like there's uncertainty for you about whether that's true, and that's probably true for a lot of people. In the midst of that uncertainty, traditional can be better because if you run into the issue of having high RMDs, that means you have a lot of money saved in traditional which is a good problem to have.

Read up on the asymmetric thread that was posted earlier if you want to learn more about that dynamic.

Read the Mad Fiendist blogpost I linked above for information about strategies to withdraw money from an account such as TSP before 59.5.
Thank you for the explanation. I will take a look. If I read that withdrawing money from TSP before 59.5 gives me the same tax rate or better than a taxable account, I’m going to switch up my contributions.
Topic Author
TreBogleHead
Posts: 21
Joined: Sun Jan 22, 2023 5:02 pm

Re: Portfolio Question

Post by TreBogleHead »

invest4 wrote: Mon Jan 23, 2023 11:43 am DEBT

* 9.75% loan: glad you are prioritizing it...easy choice with significant benefit.

* Mortgage @ 2.75%: great low rate. People have different opinions, but I would simply continue to pay this loan as agreed and enjoy the benefits.

- Hedge against inflation

- Liquidity

- Leverage for further investments

PORTFOLIO

* 100% stocks: If you can handle the volatility, is a reasonable plan to me as a young accumulator. I was 100% stocks until my late 40s.

* 100% USA: I believe diversification is an important part of your portfolio. Encourage you to revisit whether an allocation to International would be a good move for you. If you decide to do so, the typical recommendation is no less than 20% (that is what I have).

* Roth vs Traditional 401k/TSP:

Asymmetric risk in the Roth vs Traditional question


viewtopic.php?t=318512

This is a long, but informative thread.

Quick summary (credit to Admiral for the synopsis):

* Impossible to know which choice will ultimately be "better" (if better means having more money to spend in retirement) due to all the assumptions needed about the future, one should simply consider the risks


* Saving too much in Roth potentially means not having enough money in retirement.


* Saving too much in Traditional potentially means having too much money, some of which is going to be used to pay higher tax

Most of my own portfolio is in tax deferred (70%) which I have utilized to also provide me with leverage during accumulation (lower taxes now to increase my overall contributions). Roth is 20%, HSA is 3% and rest is cash.

Nothing wrong with what you are doing now. However, many people mistakenly favor Roth (no taxes in the future! Avoid painful RMDs!) without having a broader perspective to help further inform their choices.

FUTURE

The future it unknown, but plan we must.


* Reduce tax burden - most obvious to me is that you would increase your pre-tax contributions


* Retiring early and living until age 80
- I think 80 is not long enough...suggest 90-100 for planning purposes


* Early retirement will require more funds. If the standard is 25X of annual expenses (30 year retirement), early retirement may be 33x or more. If you have a pension of 50K, that makes a significant difference to lower the funding required from your portfolio.


* Do not underestimate the value of simplicity. Often times, people want to "optimize" their portfolio and start tinkering. Resist the temptation and I am confident you will be better off for it.


You have a great start.

Continue to focus on your savings rate and developing a diversified portfolio of assets that enable you to successfully navigate the uncertain future while also enjoying life along the way. If you are doing it well, I strongly believe your investing life should be mostly boring...and thankfully so.

Best wishes
I’m not sure if my post went through to you. But thank you again if it did.

1. How do you hedge again inflation and what are you doing to leverage for more investments besides real estate?

2. What made you go away from 100% at age 40? What calculation did you do to make stocks 70% and not 60% or 80%?

I will try 33x for expenses if I plan on retiring early. Thank you
invest4
Posts: 1328
Joined: Wed Apr 24, 2019 2:19 am

Re: Portfolio Question

Post by invest4 »

TreBogleHead wrote: Mon Jan 23, 2023 3:23 pm
1. How do you hedge again inflation and what are you doing to leverage for more investments besides real estate?
* Your 30 year home mortgage has a fixed rate. As long as you pay the mortgage as agreed, you are insulated against rising rates for this asset which is most often your largest debt.

* Your 30 year fixed rate mortgage provides you with a relatively low payment (versus a 15 year mortgage for example). Depending upon your expenses, you may be able to leverage the mortgage to direct more monies toward retirement savings than would have been possible otherwise.

* Contributions to your 401k provide tax savings now. You can leverage this to utilize the tax savings for more contributions toward retirement now. More money growing for a longer period of time.

You are very focused on Roth and RMDs. While prioritizing Roth may still be your preferred choice now, do not underestimate the benefits of the 401k and diversification of asset location in your portfolio (monies in 401k, Roth IRA, HSA, taxable, etc.) to create an enduring portfolio with options to navigate an uncertain future.


TreBogleHead wrote: Mon Jan 23, 2023 3:23 pm
2. What made you go away from 100% at age 40? What calculation did you do to make stocks 70% and not 60% or 80%?
I began investing in bonds at age 47. My investing life before retirement is getting shorter and I thought it prudent to start having bond as part of my portfolio to manage risk and also provide diversification.

There are a number of ways to achieve the % you want. More slowly with new contributions or faster by selling other investments in your portfolio in exchange for bonds.

My initial target allocation is 60/40. However, I am flexible and invested more heavily in stocks during the recent volatility which has caused my asset allocation to drift to 70/30…and I am fine with that for now at age 50.

I have found understanding bonds is more challenging than stocks. I would encourage you to start educating yourself sooner versus later which will benefit you over the long run.
Topic Author
TreBogleHead
Posts: 21
Joined: Sun Jan 22, 2023 5:02 pm

Re: Portfolio Question

Post by TreBogleHead »

invest4 wrote: Tue Jan 24, 2023 1:52 am
TreBogleHead wrote: Mon Jan 23, 2023 3:23 pm
1. How do you hedge again inflation and what are you doing to leverage for more investments besides real estate?
* Your 30 year home mortgage has a fixed rate. As long as you pay the mortgage as agreed, you are insulated against rising rates for this asset which is most often your largest debt.

* Your 30 year fixed rate mortgage provides you with a relatively low payment (versus a 15 year mortgage for example). Depending upon your expenses, you may be able to leverage the mortgage to direct more monies toward retirement savings than would have been possible otherwise.

* Contributions to your 401k provide tax savings now. You can leverage this to utilize the tax savings for more contributions toward retirement now. More money growing for a longer period of time.

You are very focused on Roth and RMDs. While prioritizing Roth may still be your preferred choice now, do not underestimate the benefits of the 401k and diversification of asset location in your portfolio (monies in 401k, Roth IRA, HSA, taxable, etc.) to create an enduring portfolio with options to navigate an uncertain future.


TreBogleHead wrote: Mon Jan 23, 2023 3:23 pm
2. What made you go away from 100% at age 40? What calculation did you do to make stocks 70% and not 60% or 80%?
I began investing in bonds at age 47. My investing life before retirement is getting shorter and I thought it prudent to start having bond as part of my portfolio to manage risk and also provide diversification.

There are a number of ways to achieve the % you want. More slowly with new contributions or faster by selling other investments in your portfolio in exchange for bonds.

My initial target allocation is 60/40. However, I am flexible and invested more heavily in stocks during the recent volatility which has caused my asset allocation to drift to 70/30…and I am fine with that for now at age 50.

I have found understanding bonds is more challenging than stocks. I would encourage you to start educating yourself sooner versus later which will benefit you over the long run.
Wow, thank you for the in-depth post. I will save this post for in the future. I’m sure I will come across the same problems.
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