Advice please

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Topic Author
cisco kid
Posts: 3
Joined: Fri Sep 24, 2021 8:45 am

Advice please

Post by cisco kid »

Emergency funds: Yes. $10K at local bank earning .06%, $30K at Ally earning .5%, $10K of newly purchased iBonds (9/21).

Debt: Car - $30,461.53 (~4 years @ .9%). House - Just refinanced to 20 year at 2.25%. $180,697 remaining (~$300K value).

Tax Filing Status: Married Filing Jointly

Tax Rate: 22% Federal, 0% State

State of Residence: TX

Age: 37

Desired Asset allocation: 70% stocks / 30% bonds
Desired International allocation: 10% of stocks


Current retirement assets

His 401k
$10K in Principal 2055 target date fund (.29)

His Roth IRA at Fidelity
$17K T Rowe Price 2060 Fund (TRRLX) (.64)

Her Roth IRA at Fidelity
$20K T Rowe Price 2060 Fund (TRRLX) (.64)

His HSA at Fidelity
$17K T Rowe Price 2060 Fund (TRRLX) (.64)
_______________________________________________________________

Contributions

New annual Contributions
5% + 4% match his 401k
$7100 or maximum allowed his HSA
$6K or maximum allowed his Roth IRA
$6K or maximum allowed her Roth IRA


Available funds

Funds available in his 401(k)
LargeCap S&P 500 Index Separate Account (.05)
Vanguard Total Bond Market Index Admiral Fund (VBTLX) (.05)


Questions:

My salary is $104K. She's in part time sales $45K. Monthly expenses ~$6.7K. Monthly net income ~ 10K.

1. I work in tech for a financial institution and my wife does sales for a franchisee. Her employer is older and I worry she'll soon retire, leaving her without an income. We hope the son will take over, or could potentially take over ourselves but my wife doesn't seem interested and not 100% sure I'd want to either. I also have low job satisfaction and worry about mergers/acquisitions. Most other employers in the area probably wouldn't be able to match my current salary. This worrying is probably unwarranted (and obviously does 0 good) but I feel as if I'd be a lot less worried/stressed if I had enough liquid assets to cover 100% of my debt. With the excess monthly income should I prioritize maxing out my 401K or invest up to the max contribution and put the rest in taxable? I don't want one, or both, of the above scenarios to play out and not have access to the money without taxes and penalties.

2. Should I ditch the target date fund in 401K and use the two funds mentioned above? I would forgo international but seems like that's better placed in taxable anyway based on what I've read.

3. I assume I should also forgo the target date funds in IRA/HSA? Perhaps 100% VTI in roth and get bond allocation through 401K, HSA, iBonds?
Last edited by cisco kid on Fri Sep 24, 2021 9:57 am, edited 2 times in total.
User avatar
retired@50
Posts: 12834
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Advice please

Post by retired@50 »

cisco kid wrote: Fri Sep 24, 2021 9:30 am Tax Filing Status: Married Filing Jointly
Tax Rate: Not sure - Federal, 0% State

Current retirement assets

His 401k
$10K in Principal 2055 target date fund (.29)

His Roth IRA at Fidelity
$17K T Rowe Price 2060 Fund (TRRLX) (.64)

Her Roth IRA at Fidelity
$20K T Rowe Price 2060 Fund (TRRLX) (.64)

His HSA at Fidelity
$17K T Rowe Price 2060 Fund (TRRLX) (.64)

2. Should I ditch the target date fund in 401K and use the two funds mentioned above? <- Yes.
Welcome to the forum. :happy

You can look up your tax bracket here: You'll need your taxable income from 2020 (line 15 on Form 1040).
https://www.nerdwallet.com/article/taxe ... x-brackets

You might consider using the Fidelity Freedom Index 2060 fund (it has a much lower expense ratio, which is important).
https://fundresearch.fidelity.com/mutua ... =sq-NavBar

Why expense ratios are important: https://www.bogleheads.org/wiki/Expense_ratios

Target date funds are good, and can certainly help with behavioral errors and biases. If you're looking for simple solutions, they work. If you really want to set up a three-fund portfolio instead, that can be done too. Just watch out for some of the pitfalls that come along with it.
https://www.bogleheads.org/wiki/Three-fund_portfolio

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
HomeStretch
Posts: 11420
Joined: Thu Dec 27, 2018 2:06 pm

Re: Advice please

Post by HomeStretch »

Welcome to the forum! It’s good that you are using the various retirement account options available to you to save for retirement.

You are using higher-ER funds in your portfolio. Reduce your investment costs. Decide whether you want to use target date funds (if so, use the Fidelity Freedom Index Fund in your Fidelity accounts) or use a 3-fund portfolio.

Is your HSA a retirement account or are you using it to pay current out-of-pocket healthcare costs? If the latter, don’t include it as part of your retirement contributions/ portfolio. Consider it instead as a healthcare costs sinking fund.

Given your concerns about job stability, consider:
1) beefing up your emergency funds from ~6 months to 12 months
2) paying down your car loan more quickly than the 4-year loan term.
3) testing the job market. Perhaps your wife can go full time.
4) adding to your/wife’s job skills to improve marketability
Topic Author
cisco kid
Posts: 3
Joined: Fri Sep 24, 2021 8:45 am

Re: Advice please

Post by cisco kid »

Thanks for the responses. I've updated the federal tax bracket using the link provided. I'll look into swapping the Roth/HSA mutual funds over. I researched it when initially buying and the minor outperformance of TRRLX influenced my decision. We pay healthcare expense out of pocket and keep receipts. I consider this a part of my emergency fund should I ever need it but plan on trying not to until retirement. Do you really think it makes sense to pay car early when financed at .9%? I think we already have 12 months of EF considering the following fixed costs.

Mortgage - 1375
Insurance - 125
Groceries - 800
Utilities - 300
Vehicle - 600
Cell Phone - 190
Gas - 400

We'd cut back or eliminate everything else.

Entertainment - 750
Childcare - 500
Misc - 1500
Kids extracurricular - 120
Gym - 22
Streaming services - 50

And you're funny about the wife working full time :wink:
User avatar
ruralavalon
Posts: 26353
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Advice please

Post by ruralavalon »

cisco kid wrote: Fri Sep 24, 2021 9:30 amQuestions:

My salary is $104K. She's in part time sales $45K. Monthly expenses ~$6.7K. Monthly net income ~ 10K.

1. I work in tech for a financial institution and my wife does sales for a franchisee. Her employer is older and I worry she'll soon retire, leaving her without an income. We hope the son will take over, or could potentially take over ourselves but my wife doesn't seem interested and not 100% sure I'd want to either. I also have low job satisfaction and worry about mergers/acquisitions. Most other employers in the area probably wouldn't be able to match my current salary. This worrying is probably unwarranted (and obviously does 0 good) but I feel as if I'd be a lot less worried/stressed if I had enough liquid assets to cover 100% of my debt. With the excess monthly income should I prioritize maxing out my 401K or invest up to the max contribution and put the rest in taxable? I don't want one, or both, of the above scenarios to play out and not have access to the money without taxes and penalties.
Worry is a complete waste of time and energy.

Your employer's 401k plan offers good to excellent funds, with reasonable to very low expense ratios. Make the maximum annual employee contribution ($19.k) to your employer's 401k plan.

Use any monthly excess to (1) pay off debt (like the car loan), and (2) beef up your emergency fund (you already have $20k, enough for 3 months of living expenses. You can each buy $10k of I bonds annually.).

Roth IRA contributions (but not earnings) can be a backup emergency fund, because the contributions can be withdrawn at any time for any reason without penalty or tax.


cisco kid wrote: Fri Sep 24, 2021 9:30 am2. Should I ditch the target date fund in 401K and use the two funds mentioned above? I would forgo international but seems like that's better placed in taxable anyway based on what I've read.
Both are excellent funds to use if you want to switch away from the simple all-in-one fund approach.


cisco kid wrote: Fri Sep 24, 2021 9:30 am3. I assume I should also forgo the target date funds in IRA/HSA? Perhaps 100% VTI in roth and get bond allocation through 401K, HSA, iBonds?
Don't just assume that.

In the Fidelity accounts you can get a much lower expense ratio using Fidelity Freedom® Index 2060 Fund - Investor Class (FDKLX) ER 0.12%.

It's largely a personal preference. (1) How much do you value the simplicity of an all-in-one solution? (2) How much do you value the ability to set your own personal asset allocation as you like?

Using an allocation fund seems to inoculate the investor against behavioral errors and so produce higher investor returns. Morningstar (8/25/2019), "Mind the Gap, 2019", link.
Last edited by ruralavalon on Fri Sep 24, 2021 11:00 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
User avatar
retired@50
Posts: 12834
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Advice please

Post by retired@50 »

cisco kid wrote: Fri Sep 24, 2021 10:50 am I'll look into swapping the Roth/HSA mutual funds over. I researched it when initially buying and the minor outperformance of TRRLX influenced my decision.
This method of research is quite common, but unfortunately, it's not as reliable as one would hope.

Morningstar (the fund rating firm) has a relevant article that you might find interesting.
From 2016: https://www.morningstar.com/articles/75 ... or-failure

From 2010: https://www.morningstar.com/articles/347327/article

Same general conclusion, which is that expenses matter more than past performance.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
sjt
Posts: 407
Joined: Fri May 26, 2017 3:03 pm
Location: NC

Re: Advice please

Post by sjt »

cisco kid wrote: Fri Sep 24, 2021 10:50 am
Mortgage - 1375
Insurance - 125
Groceries - 800
Utilities - 300
Vehicle - 600
Cell Phone - 190
Gas - 400

We'd cut back or eliminate everything else.

Entertainment - 750
Childcare - 500
Misc - 1500
Kids extracurricular - 120
Gym - 22
Streaming services - 50
The two big opportunities for me seem to be the vehicle and the "Misc". 400 for gas seems to be a bit steep - I'm guessing this vehicle that still has an outstanding $30k owed is not a 4 cylinder fuel efficient economy car. If you're really looking to cut back, I'd start here - vehicles are depreciating assets - minimizing their costs (including insurance costs on pricier vehicles) can really help to build wealth. Also scrutinize that $1500 misc bucket to determine what's important (increases life enjoyment) and what can be reduced
"The one who covets is the poorer man, | For he would have that which he never can; | But he who doesn't have and doesn't crave | Is rich, though you may hold him but a knave." - Wife of Bath tale
Topic Author
cisco kid
Posts: 3
Joined: Fri Sep 24, 2021 8:45 am

Re: Advice please

Post by cisco kid »

It's not. She does traveling sales so needs the room for "work stuff", plus the kids, groceries, etc. We keep them until they pretty much die. Last one had ~200K miles over 8 years before trading in and my truck has ~200K miles over ~10 years and I hope to keep it much longer. With her traveling and my occasional 1 hour commute each way, I budget the 400. Most times we are under. Same with the Misc. budget. It's just to account for those one-off's that inevitably happen.
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