32, married now, saving hard

[dsp0725]

Hey guys... stoping by for a quick update. 32 years old now & married. We've been using Mint and Quicken religiously now and it's great for seeing the big picture of cash, assets, and investments.

Here's an update on our situation:

Cash $56,146
Retirement $102,255 (solo401k & Roth)
Home Value ~$400,000
Cars ~$22,238

Home Mortgage $300,375

The mortgage is our only "debt". We'll be maxing our mine and the wife's Roth IRA soon as well. Trying to be as aggressive as possible with putting money into retirement accounts.

Any advice or suggestions.... Thanks!

 

[dsp0725]

My old thread is here if you want to see the debts we paid off... http://www.early-retirement.org/forums/f26/31-years-old-need-advice-78856.html

It wouldn't let me reply to the thread above because it's old.

 

[exnavynuke]

I'm assuming you're currently maxing out your tax-advantaged account contributions, but are you investing elsewhere? Also, why so much in cash sitting around losing buying power?

Personally, I think that beyond a few month's worth of expenses (emergency fund) and current spending money, the rest of "savings" should generally be invested. I prefer low-fee/expense, commission free index funds myself.

 

[dsp0725]

Our annual investments are as following:
Roth - 5500
Wife's Roth - 5500
solo401k - 18000
employer (my LLC) contribution to solo401k - 35000

 

[DrRoy]

I think that beyond a few month's worth of expenses (emergency fund) and current spending money, the rest of "savings" should generally be invested. I prefer low-fee/expense, commission free index funds myself.

+1 Put the cash to work. Also, what % of your income are you saving?

 

[dsp0725]

When you say put the cash to work, do you just mean continue to invest in my retirement accounts? If so, we do that annually.

We're investing about 35% of our income... maxing roth's and solo401k's.

 

[exnavynuke]

When you say put the cash to work, do you just mean continue to invest in my retirement accounts? If so, we do that annually.

We're investing about 35% of our income... maxing roth's and solo401k's.

Your cash is outside your retirement accounts. As you list it as "cash", I assume it's in a checking/saving/money market account earning probably <1% interest. Assuming you want that money to be available without penalty before you're nearing normal retirement age, you wouldn't want to put it in a tax advantaged account. As such, moving a large portion of it to an index fund (or other portfolio allocation based on your risk tolerance etc) in a taxable brokerage account would allow you to invest it and expect it to grow at a rate that would outpace inflation.

Looking at your other thread though, you seem to be a very low-risk investor, so maybe your risk aversion is why it's in cash. If so, you need to at least recognize that the money in "cash" today will be "worth" less a year from now etc due to inflation. If you're money isn't growing, its buying power is shrinking.

 

[Davis65]

My only advice is to keep at it. It looks like a long haul, but when you get there, it will have been worth it, and your peers will be saying, "I wish I had done what you did."

I finished work in April at 50, and am still very happy about it. Best of luck to you.

 

[dsp0725]

...index fund (or other portfolio allocation based on your risk tolerance etc) in a taxable brokerage account would allow you to invest it and expect it to grow at a rate that would outpace inflation.

Yes, our cash is simply sitting in our checking/savings account.

When you say index fund, other portfolio allocation, taxable brokerage accounts.... you're referring to separate investments OUTSIDE my Roth/401k, right?

Pardon my ignorance but I've never heard of such a thing.

 

[Davis65]

Yes, our cash is simply sitting in our checking/savings account.

When you say index fund, other portfolio allocation, taxable brokerage accounts.... you're referring to separate investments OUTSIDE my Roth/401k, right?

Pardon my ignorance but I've never heard of such a thing.

Tax-sheltered accounts like Roth and Traditional IRAs and 401ks are a special kind of brokerage or mutual fund account. The regular kind is one where you get no tax deduction for putting money in, you pay on income each year and capital gains tax when you sell something that has increased in value, and you pay no tax when you withdraw. This is what is meant by a taxable account. My taxable brokerage account was a key part of my early retirement plan.

 

[exnavynuke]

Yes, our cash is simply sitting in our checking/savings account.

When you say index fund, other portfolio allocation, taxable brokerage accounts.... you're referring to separate investments OUTSIDE my Roth/401k, right?

Pardon my ignorance but I've never heard of such a thing.

Correct. A "normal" brokerage account has no tax advantages (it isn't put in pre-tax like a traditional 401k or IRA and it doesn't grow tax free like a Roth account), but it also has no early withdrawal penalties before certain ages or any of the other restrictions associated with tax-advantaged accounts like your 401k or IRA.

 

[DrRoy]

When you say put the cash to work, do you just mean continue to invest in my retirement accounts? If so, we do that annually.

We're investing about 35% of our income... maxing roth's and solo401k's.

I meant put it in some investment, not leave it as cash earning nothing. 35% is great. I never saved 35% and I did fine.

 

[broadway]

Cash $56,146

How much does this represent in terms of your combined net income?

In other words, if your wife and you make $3000/month net, then this would be 18.7 months.

Most "experts" recommend having an emergency fund of 6-9 months.

In these times, I personally feel more comfortable with 12 months of income in an emergency fund gathering 1% interest. You don't want to be raiding your retirement accounts when something unexpected happens.

 

[dsp0725]

How much does this represent in terms of your combined net income?

In other words, if your wife and you make $3000/month net, then this would be 18.7 months.

Most "experts" recommend having an emergency fund of 6-9 months.

In these times, I personally feel more comfortable with 12 months of income in an emergency fund gathering 1% interest. You don't want to be raiding your retirement accounts when something unexpected happens.

We're sitting on a lot of cash right now for a few reasons. Wife and I merged banks account, got married in August, were considering buying a new home, didn't make estimated tax payments in 2016...

The cash we have now is about 29.5% of our household income. We do have an additional 20k sitting in a different account for emergency fund.

With that said, I think we're on the right path and doing the best we can right now. However a lot of people are telling us to get into HSAs...

Do you guys think we should do HSAs or the brokerage accounts, or both? Also, should the brokerage account be on my personal side or through my LLC (or both, or doesn't it really matter?)

 

[dsp0725]

Hey guys - I typically fund my Roth IRA and 401k in a lump sum at the end of the year. I'm thinking about funding it now. Any pros or cons I should know about?

 

[2017ish]

Typically the market goes up; thus, funding early is better than funding later. Granted the market is high right now, but who knows when that will change?

 

[Bamaman]

You're doing great for your age. But the only change you might have made is in buying such an expensive house--especially in Texas where housing is affordable but property taxes eat your lunch. You live in an absolutely great city, and I hope you're in an area that homes are appreciating very fast.

In some ways, I'm with Suze Ormann in that one should live substantially below their means. That means buying cars and homes far below what income would warrant.

But who am I to talk--paying taxes and utilities on 10,000 square feet of homes and driving a Jag and a Lexus. But they're all paid for by somewhat frugal living and stock market appreciation.

 

[Blue Collar Guy]

at least you have a plan

nice start, keep it up, you doing better than 90 % of 32 year olds, max out the 401s, roths, etc, if you saving for a house then build up the cash, if not, start paying down the house to a 15 year time frame, and invest the rest in an asset allocation you like with low cost funds dollar cost average , put it on auto pilot, when the monthly quarterly statements come look them over, when the market starts to tank DONT open them up, just keep investing , when u decide to pull the plug u will be in the top 5-10 % of the country in wealth enjoy the ride

 

[dsp0725]

Thanks for the feedback guys.

Here are our latest numbers. Wife is 29, I'll be 33 in July.

We paid about 350k for the house and if I were to sell it today I'd get about 425k. We owe 298k on the house and I'm about to re-fi for a 10 or 15 year note.

75k cash
152k (roth & 401k)

Looks like I'll be throwing 5500 and 18k at the roth/401 in May.

 

[dsp0725]

Follow-up question for you all.

Would you suggest converting my solo401k to a Roth 401k?

As I've mentioned above my only retirement accounts right now are the Roth IRA & Solo401k. Thanks!

 

[exnavynuke]

I'd recommend opening a brokerage account (many are big fans of Fidelity or Vanguard here, I personally am with TDAmeritrade but use no-commission Vanguard funds in my accounts there) and also investing in your HSAs if you can. You may want to use the same company your IRA is with currently, you may not. Then use low-cost index fund(s) in those.

Taxable brokerage accounts are very helpful in early retirement planning as they can be used to fund your retirement at any time without any withdrawal penalties or complicated rules to follow in order to avoid penalties. You'll have access to the contribution portion of your Roth IRA if you need it, but gains there and your traditional 401k balances are all subject to IRS withdrawal limitations. As such, having a taxable account to also draw from during the "early" part of early retirement is generally considered very helpful for funding those first years of retirement.

 

[dsp0725]

Anyone else have advice on this?

###
Would you suggest converting my solo401k to a Roth 401k?

As I've mentioned above my only retirement accounts right now are the Roth IRA & Solo401k. Thanks!
###

 

[evilanne]

It depends on your marginal tax rate and where you are in the tax bracket, if you are at the top of the bracket, it may not be good idea. You don't necessarily have to convert everything to Roth but many plans allow both traditional and Roth contributions, which are tracked separately--combination of the 2 cannot exceed the annual limit. You can adjust how much of your future contributions should be in each. In retrospect, Roth contributions may have been more advantageous even if paying slightly higher tax rate when you consider than the earnings are also tax free if you have a long time horizon. I don't know much about a solo 401K, but with TSP if you made Roth Contributions, the employer matching funds were still tax deferred.