Seeking general advice; turning 33 in a couple months

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Topic Author
tugofpeace2
Posts: 11
Joined: Tue Jun 01, 2021 5:06 pm

Seeking general advice; turning 33 in a couple months

Post by tugofpeace2 »

Hello all. I come from a pretty rough financial background and haven't made the best decisions in my youth, but am finally seeing some light at the end of the tunnel. I'm trying to figure out what I could be doing better as I enter into my mid 30s. My background is pretty unfortunate - I was pushed into a major in college that I wasn't interested in and prepared for, and subsequently took longer to graduate than I should have. I ended up with $186,000 of student loan debt at 8% interest; my degree was in electrical engineering, albeit from a very good school (non ivy).

Upon graduation my salary was $63,000 in the engineering field. 9 years later, my salary has grown to $110,000, and now I am fully remote. Currently 32 years old, and single, moved in with parents late last year to save money while COVID was going on. Prior to that, I was living in a major city downtown. I definitely should have saved more when I was younger, but I was literally choked financially; paid $1250/month in interest on that student loan the first 4 years before I made a large down payment and refinanced it. Once I did that I had some financial freedom so I increased the cost of my lifestyle.

My finances are fairly straightforward now, but not great. Just wanted to see where I stand relative to others my age (not that it matters a lot), but I've always felt that I was lagging big time. What I am happy about is that I no longer have credit card debt. I used 0% credit card offers to pay down a portion of my student loan and it has taken such a long time to be cleared of it. Very happy to not have any now. I also have plenty of credit card points to put towards hotels/flights. I use the cashback/points features for cards such as the sapphire reserve, amex platinum, blue cash, etc.

401k - $100,000
Cash - $28,000
Debt - $85,000 Student loan privately refinanced at 3% interest ($640/month)
I don't own a car or a home, just everything I need for my apartment.

That's pretty much it. If I were to move out of my parent's home soon, I would be pocketing roughly $30,000/year in cash, on top of my 401k which with my employer's contribution, I put in $13,000. My expenses if I were to move out are as follows:

Monthly - Paycheck of $5800
Rent - $1750 to $2300 depending upon where I live. If I move to the east coast I'd probably be looking at $2300 all in.
Food - $400 (I eat healthy and cook at home)
Phone/Spotify - $70
Transit - $125 (metra)
Student loan - $640

Just looking for general guidance regarding anything I could be doing better. My plan is to put 50% of my future savings into an index fund such as VOO, 25% into cash, and 25% into active investments. I am also planning to make a career change into the SWE field as the pay is better and I have a genuine interest in the field. My current employer doesn't pay bonus or overtime, and 401k match is pathetic ($2k/year maximum).
Last edited by tugofpeace2 on Mon Jun 07, 2021 10:53 pm, edited 1 time in total.
runner3081
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Joined: Mon Aug 22, 2016 3:22 pm

Re: Seeking general advice; turning 33 in a couple months

Post by runner3081 »

Where does the rest of your money go?

5,800-640-1750 to 2,300-125=$3,285 to $2,735
Topic Author
tugofpeace2
Posts: 11
Joined: Tue Jun 01, 2021 5:06 pm

Re: Seeking general advice; turning 33 in a couple months

Post by tugofpeace2 »

I think you missed $400 there, but it would go towards eating out really, and honestly I don't do that much. Maybe another $100-200/month. I have everything I could ever want, if anything else it would be clothes, which is minimal. I also forgot to put $70 in there for phone/spotify.
tomsense76
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Joined: Wed Oct 14, 2020 1:52 am

Re: Seeking general advice; turning 33 in a couple months

Post by tomsense76 »

Good work on cutting down that student debt.

If it were me, would focus on funding all retirement accounts (401k, backdoor Roth, HSA, etc.). After that would put money towards student loans.

Basically that loan is like a bond that gives you a guaranteed 3% return. Most bonds are returning less than that.

Personally wouldn't do any active investment. Sadly the data doesn't suggest any additional return is gotten there. Sticking with low cost index funds like VOO, VTI, VXUS, VT, etc. are generally a better choice
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
lazynovice
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Joined: Mon Apr 16, 2012 10:48 pm

Re: Seeking general advice; turning 33 in a couple months

Post by lazynovice »

If you can pocket 30k after moving out, that isn’t too bad. But how much longer can you stay and how fast could you pay off the debt?
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
Topic Author
tugofpeace2
Posts: 11
Joined: Tue Jun 01, 2021 5:06 pm

Re: Seeking general advice; turning 33 in a couple months

Post by tugofpeace2 »

tomsense76 wrote: Mon Jun 07, 2021 10:59 pm Good work on cutting down that student debt.

If it were me, would focus on funding all retirement accounts (401k, backdoor Roth, HSA, etc.). After that would put money towards student loans.

Basically that loan is like a bond that gives you a guaranteed 3% return. Most bonds are returning less than that.

Personally wouldn't do any active investment. Sadly the data doesn't suggest any additional return is gotten there. Sticking with low cost index funds like VOO, VTI, VXUS, VT, etc. are generally a better choice
I thought about retirement, and realized that if I were to max everything out, I would be struggling to have spending money.. it would be like being in debt all over again. I think what I'm contributing now is a nice compromise (10% + employer match). HSA isn't even offered at my company. That, and I'm betting on my future spouse having retirement funds as well, and our house being paid off by then.

As far as the student loan, I thought about clearing that as well, but then I realized that it would take me until 36 to clear it, and by that time I'd be 36 with no cash. It's great to be debt free, but I feel that at 36 I would rather have $100k+ cash and student loan debt at a low interest rate rather than just break even. I still have to have a down payment for a home and it would be rough not having that at 36.

In regards to the market, I have been doing pretty well; turned $20k into $70k since last November and although that kind of market won't last forever, I think I know enough to do better than 3% with active trading. It's only 25% of my cash so I don't see it as a big risk.

lazynovice wrote: Mon Jun 07, 2021 11:12 pm If you can pocket 30k after moving out, that isn’t too bad. But how much longer can you stay and how fast could you pay off the debt?
I can stay as long as I want, but honestly it's getting difficult not having a social life at my age. It's been 7 months now living in a suburb and I'm struggling.
hachiko
Posts: 228
Joined: Fri Mar 17, 2017 1:56 pm

Re: Seeking general advice; turning 33 in a couple months

Post by hachiko »

tugofpeace2 wrote: Mon Jun 07, 2021 11:16 pm
tomsense76 wrote: Mon Jun 07, 2021 10:59 pm Good work on cutting down that student debt.

If it were me, would focus on funding all retirement accounts (401k, backdoor Roth, HSA, etc.). After that would put money towards student loans.

Basically that loan is like a bond that gives you a guaranteed 3% return. Most bonds are returning less than that.

Personally wouldn't do any active investment. Sadly the data doesn't suggest any additional return is gotten there. Sticking with low cost index funds like VOO, VTI, VXUS, VT, etc. are generally a better choice
In regards to the market, I have been doing pretty well; turned $20k into $70k since last November and although that kind of market won't last forever, I think I know enough to do better than 3% with active trading. It's only 25% of my cash so I don't see it as a big risk.
I'm not as against trading as probably almost everyone here and I do do some scalping, but I can tell you that everyone thinks they're a trading genius in a bull market.
jharkin
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Joined: Mon Mar 28, 2016 7:14 am
Location: Boston suburbs

Re: Seeking general advice; turning 33 in a couple months

Post by jharkin »

tugofpeace2 wrote: Mon Jun 07, 2021 10:32 pmMy background is pretty unfortunate
Just looking for general guidance regarding anything I could be doing better.
My general advice: Sign up for one month of HBO Max, and watch the new show "Mare of Easttown" that just started streaming. It will give you some perspective about "unfortunate backgrounds" (and realize there are people born into third world war zones that would love to live as well as some of the poor families on that show).


Then move on and focus on your career development....
vested1
Posts: 2575
Joined: Wed Jan 04, 2012 4:20 pm

Re: Seeking general advice; turning 33 in a couple months

Post by vested1 »

I never really agreed with the prevailing opinion on these forums that maintaining a loan is the equivalent of investing in bonds. Even if that were purely the case, someone your age shouldn't have bonds as a part of their AA IMHO. The concept of a loan being the same as a bond may be somewhat true in the case of buying real estate because at the end of the loan, and at different points during the loan, the buyer's equity in the real estate increases. That's not true for a student loan however, where the value of the loan has already been consumed, leaving only debt.

If my amortization calculator is correct, your $85,000 loan at 3% won't be paid off until November of 2034, about 13.5 years from now when you will be age 46. If it were me I would continue to pay the amount you previously did with the 8% loan, which would shorten the term to less than 1/2 of what it would be had you not made any extra payments against principal. That additional $610 a month would result in a payoff in August of 2027, a term of 6 years 2 months at your age of 38.

https://www.free-online-calculator-use. ... lator.html
(I've found that using the "old version" button in the middle of the page leads to an easier one to use).

You could also continue paying the regular payment in hopes that student loan forgiveness on a wholesale level may become a reality someday.

All that being said I wouldn't be too discouraged in your financial position. At your age I would have been thrilled to have your net worth. In my opinion, even at age 38, you could divert the amount that you would be paying for the student loan into investments and end up ahead of the game with zero debt. Another consideration is that an existing student loan is not a selling point to a prospective mate.
BlueOrange10
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Joined: Sun Jun 16, 2019 9:30 pm

Re: Seeking general advice; turning 33 in a couple months

Post by BlueOrange10 »

Are you a salaried worker? If so, you need to find a hourly job that lets you work overtime so you can wipe out all your debt ASAP.
tashnewbie
Posts: 1687
Joined: Thu Apr 23, 2020 12:44 pm

Re: Seeking general advice; turning 33 in a couple months

Post by tashnewbie »

Overall I think you’re probably doing better in terms of NW than a lot of your peers. But I wouldn’t concern yourself with comparison. Worry about yourself.

What have you been doing with the extra money you have from not paying rent while living with your parents?

If you’d have an extra $30k cash/year after moving out, then you can afford to max a Roth IRA (which is preferable to taxable investments because the balance grows tax free and qualified withdrawals are tax free too). Contributions (but not earnings) can be withdrawn anytime, penalty and tax free.

I’d personally be maxing 401k and Roth IRA, and then plowing extra money into the loan. If you don’t want to accelerate payoff of loan, at least max 401k and Roth IRA, and you’ll still have probably >$18k cash/year to do with what you want.

It’s also not the end of the world or even bad not to have a mortgage at 36. I’m 36 and happily renting.
JD2775
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Re: Seeking general advice; turning 33 in a couple months

Post by JD2775 »

$100k in your 401k at 33 years old isn't bad at all, I didn't reach that figure until I was almost 40.

That $85k in student loan debt would be killing me though, I would want to pay that off as aggressively as I can. Whatever method you go is up to you, but definitely don't miss the employer match on the 401k at minimum, if you decide to slow down retirement funding. That's free money.
retiredflyboy
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Joined: Sun Dec 02, 2018 10:02 pm

Re: Seeking general advice; turning 33 in a couple months

Post by retiredflyboy »

I love that you are giving this the attention you are and are assessing things. I think it is important at your age to get out of your parents house! You are employed and need to be living on your own. Keep on making yourself more and more valuable and pay yourself first. Best of luck. PS. Your parents love you, but I bet they are ready to return to being empty nesters just as you need a social life.
Facts are stubborn things. Everything works until it doesn’t.
dboeger1
Posts: 648
Joined: Fri Jan 13, 2017 7:32 pm

Re: Seeking general advice; turning 33 in a couple months

Post by dboeger1 »

tugofpeace2 wrote: Mon Jun 07, 2021 11:16 pm I thought about retirement, and realized that if I were to max everything out, I would be struggling to have spending money.. it would be like being in debt all over again.
I see the point you were trying to make about lifestyle, but I assure you building a positive net worth does not feel like being in debt, no matter how much you have to cut to do it. Yes, cutting spending isn't particularly fun, but building a positive net worth just gives you so much financial flexibility. While Bogleheads isn't specifically a FIRE community, I think in many ways, there is some overlap in that most people here heavily prioritize building a retirement portfolio. However, it's not actually a binary thing where the only options are either a comfy retirement or working till death. Your "retirement" savings can be used for just about anything, from bridging between jobs after a layoff to splurging on a nicer car. Those are options that people in debt generally don't have.

In my personal experience, I was unemployed for 18 months between jobs. In retrospect, I now feel I should have filed for unemployment assistance, but I didn't just because of family history, pride, political leanings, etc. My wife was working but her job at the time didn't pay much and was just below what we needed to cover our expenses, so we were slowly losing money over that year and a half. We were more than able to do that though because I had saved a high percentage of my income in the years leading up to that. It's not that I couldn't get a job quicker, but I just wasn't particularly motivated after getting laid off from a job I hated, and I wanted to spend time traveling with my wife and online gaming with friends, one of whom was dying of cancer and passed shortly after I ended up going back to work. It's like I had a mini quarter life retirement, and I honestly don't regret it. It wasn't great for my career, and I learned the hard way that a gap year on a resume fails hard filters on a lot of job sites, making it extraordinarily difficult to get through recruiter screens, even in a booming industry with lots of competition for talent. Still, it's something I could afford to do, and it really recharged me for the next step in my career.

Similarly, we thought we'd never be able to afford a house in our area, but we just kept investing new money, until one day, we had enough in taxable for a substantial down payment. So we bought our first home, and our quality of life has improved dramatically as a direct result. We also have our first kid on the way, and we've been blessed, particularly with my wife's unexpectedly lucrative career moves, so our net worth is much higher than the original targets I had set for when we would have kids. Not only do we have a home, but our liquid investment portfolio is now worth more than what I expected our total net worth to be by the time we would start to have kids, and we're well on our way to a very early retirement and the possibility of pursuing passion projects and entrepreneurship.

All that is to say that while cutting spending early on can feel unnecessarily austere early on, building positive net worth gets better and better over time, and it provides so much flexibility aside from the traditional retiring when you're 60+. You don't necessarily need to wait decades to realize the fruits of your labor. You might earmark some of those savings for more medium term spending, such as a home purchase or a car upgrade. I think it's a societal trap to believe that you need to spend your earnings on a monthly basis as they arrive in order to live well. I also think it's a Boglehead / FIRE / financial planning trap to insist that one's portfolio be locked up and never touched for decades until retirement. That money is there as a resource, and depending on your wants and needs, it may be best used today, 1 year from now, 5 years, 15 years, or passed down to the next generation. The money you don't spend today just gives you options. It doesn't mean you have to live like a monk.
Topic Author
tugofpeace2
Posts: 11
Joined: Tue Jun 01, 2021 5:06 pm

Re: Seeking general advice; turning 33 in a couple months

Post by tugofpeace2 »

dboeger1 wrote: Tue Jun 08, 2021 10:59 am
tugofpeace2 wrote: Mon Jun 07, 2021 11:16 pm I thought about retirement, and realized that if I were to max everything out, I would be struggling to have spending money.. it would be like being in debt all over again.
I see the point you were trying to make about lifestyle, but I assure you building a positive net worth does not feel like being in debt, no matter how much you have to cut to do it. Yes, cutting spending isn't particularly fun, but building a positive net worth just gives you so much financial flexibility. While Bogleheads isn't specifically a FIRE community, I think in many ways, there is some overlap in that most people here heavily prioritize building a retirement portfolio. However, it's not actually a binary thing where the only options are either a comfy retirement or working till death. Your "retirement" savings can be used for just about anything, from bridging between jobs after a layoff to splurging on a nicer car. Those are options that people in debt generally don't have.

In my personal experience, I was unemployed for 18 months between jobs. In retrospect, I now feel I should have filed for unemployment assistance, but I didn't just because of family history, pride, political leanings, etc. My wife was working but her job at the time didn't pay much and was just below what we needed to cover our expenses, so we were slowly losing money over that year and a half. We were more than able to do that though because I had saved a high percentage of my income in the years leading up to that. It's not that I couldn't get a job quicker, but I just wasn't particularly motivated after getting laid off from a job I hated, and I wanted to spend time traveling with my wife and online gaming with friends, one of whom was dying of cancer and passed shortly after I ended up going back to work. It's like I had a mini quarter life retirement, and I honestly don't regret it. It wasn't great for my career, and I learned the hard way that a gap year on a resume fails hard filters on a lot of job sites, making it extraordinarily difficult to get through recruiter screens, even in a booming industry with lots of competition for talent. Still, it's something I could afford to do, and it really recharged me for the next step in my career.

Similarly, we thought we'd never be able to afford a house in our area, but we just kept investing new money, until one day, we had enough in taxable for a substantial down payment. So we bought our first home, and our quality of life has improved dramatically as a direct result. We also have our first kid on the way, and we've been blessed, particularly with my wife's unexpectedly lucrative career moves, so our net worth is much higher than the original targets I had set for when we would have kids. Not only do we have a home, but our liquid investment portfolio is now worth more than what I expected our total net worth to be by the time we would start to have kids, and we're well on our way to a very early retirement and the possibility of pursuing passion projects and entrepreneurship.

All that is to say that while cutting spending early on can feel unnecessarily austere early on, building positive net worth gets better and better over time, and it provides so much flexibility aside from the traditional retiring when you're 60+. You don't necessarily need to wait decades to realize the fruits of your labor. You might earmark some of those savings for more medium term spending, such as a home purchase or a car upgrade. I think it's a societal trap to believe that you need to spend your earnings on a monthly basis as they arrive in order to live well. I also think it's a Boglehead / FIRE / financial planning trap to insist that one's portfolio be locked up and never touched for decades until retirement. That money is there as a resource, and depending on your wants and needs, it may be best used today, 1 year from now, 5 years, 15 years, or passed down to the next generation. The money you don't spend today just gives you options. It doesn't mean you have to live like a monk.
One of the things I don't understand about people who are aggressive towards their retirement savings is when they say they are building wealth, and that that money can be used for anything.

Your 401k can't really be withdrawn until 59.5, and the gains from a roth IRA can't either. So what's the benefit of investing so heavily for retirement at the expense of present day savings? How is it that you say cutting spending in favor of retirement savings is worth it since those savings can be used for anything, when really they can't be?

The maximum you can take out for a loan is $50k from a 401k so I just don't see it.

Obviously it's a huge benefit when you retire, but if you don't intend to have a pricey retirement lifestyle, it's kind of a moot point. Between myself and a spouse I can expect to have a home paid off and to have $3MM+ in retirement with my current savings rate so I just don't understand the value in contributing nearly twice as much.
humbledinvestor
Posts: 209
Joined: Mon Jul 14, 2014 3:37 pm

Re: Seeking general advice; turning 33 in a couple months

Post by humbledinvestor »

Overall you are doing well OP and better than many your age or even older. What are your career growth prospects to make more as you get older and gain more experience?
mattsm
Posts: 247
Joined: Mon Jan 11, 2010 10:27 am

Re: Seeking general advice; turning 33 in a couple months

Post by mattsm »

tugofpeace2 wrote: Sun Jun 13, 2021 8:00 pm
dboeger1 wrote: Tue Jun 08, 2021 10:59 am
tugofpeace2 wrote: Mon Jun 07, 2021 11:16 pm I thought about retirement, and realized that if I were to max everything out, I would be struggling to have spending money.. it would be like being in debt all over again.
I see the point you were trying to make about lifestyle, but I assure you building a positive net worth does not feel like being in debt, no matter how much you have to cut to do it. Yes, cutting spending isn't particularly fun, but building a positive net worth just gives you so much financial flexibility. While Bogleheads isn't specifically a FIRE community, I think in many ways, there is some overlap in that most people here heavily prioritize building a retirement portfolio. However, it's not actually a binary thing where the only options are either a comfy retirement or working till death. Your "retirement" savings can be used for just about anything, from bridging between jobs after a layoff to splurging on a nicer car. Those are options that people in debt generally don't have.

In my personal experience, I was unemployed for 18 months between jobs. In retrospect, I now feel I should have filed for unemployment assistance, but I didn't just because of family history, pride, political leanings, etc. My wife was working but her job at the time didn't pay much and was just below what we needed to cover our expenses, so we were slowly losing money over that year and a half. We were more than able to do that though because I had saved a high percentage of my income in the years leading up to that. It's not that I couldn't get a job quicker, but I just wasn't particularly motivated after getting laid off from a job I hated, and I wanted to spend time traveling with my wife and online gaming with friends, one of whom was dying of cancer and passed shortly after I ended up going back to work. It's like I had a mini quarter life retirement, and I honestly don't regret it. It wasn't great for my career, and I learned the hard way that a gap year on a resume fails hard filters on a lot of job sites, making it extraordinarily difficult to get through recruiter screens, even in a booming industry with lots of competition for talent. Still, it's something I could afford to do, and it really recharged me for the next step in my career.

Similarly, we thought we'd never be able to afford a house in our area, but we just kept investing new money, until one day, we had enough in taxable for a substantial down payment. So we bought our first home, and our quality of life has improved dramatically as a direct result. We also have our first kid on the way, and we've been blessed, particularly with my wife's unexpectedly lucrative career moves, so our net worth is much higher than the original targets I had set for when we would have kids. Not only do we have a home, but our liquid investment portfolio is now worth more than what I expected our total net worth to be by the time we would start to have kids, and we're well on our way to a very early retirement and the possibility of pursuing passion projects and entrepreneurship.

All that is to say that while cutting spending early on can feel unnecessarily austere early on, building positive net worth gets better and better over time, and it provides so much flexibility aside from the traditional retiring when you're 60+. You don't necessarily need to wait decades to realize the fruits of your labor. You might earmark some of those savings for more medium term spending, such as a home purchase or a car upgrade. I think it's a societal trap to believe that you need to spend your earnings on a monthly basis as they arrive in order to live well. I also think it's a Boglehead / FIRE / financial planning trap to insist that one's portfolio be locked up and never touched for decades until retirement. That money is there as a resource, and depending on your wants and needs, it may be best used today, 1 year from now, 5 years, 15 years, or passed down to the next generation. The money you don't spend today just gives you options. It doesn't mean you have to live like a monk.
One of the things I don't understand about people who are aggressive towards their retirement savings is when they say they are building wealth, and that that money can be used for anything.

Your 401k can't really be withdrawn until 59.5, and the gains from a roth IRA can't either. So what's the benefit of investing so heavily for retirement at the expense of present day savings? How is it that you say cutting spending in favor of retirement savings is worth it since those savings can be used for anything, when really they can't be?

The maximum you can take out for a loan is $50k from a 401k so I just don't see it.

Obviously it's a huge benefit when you retire, but if you don't intend to have a pricey retirement lifestyle, it's kind of a moot point. Between myself and a spouse I can expect to have a home paid off and to have $3MM+ in retirement with my current savings rate so I just don't understand the value in contributing nearly twice as much.
You can withdraw money before 59.5
TheDDC
Posts: 1389
Joined: Mon Jan 08, 2018 11:11 am

Re: Seeking general advice; turning 33 in a couple months

Post by TheDDC »

Your rent budget numbers are too high. You can get an apartment for way less than that… like $1200 or less over here in the East. Pile the rest into the student debt. If I had that kind of debt I’d probably get a roommate.

Also, we recommend maxing out tax advantage investment vehicles. Make killing your debt a priority, then ease into maxing out all IRA and 401k. Put into good growth stock mutual funds. Your future self will thank you.

-TheDDC
Rules to wealth building: 75-80% VTSAX piled high and deep, 20-25% VTIAX, 0% given away to banks, minimize amount given to medical-industrial complex
Topic Author
tugofpeace2
Posts: 11
Joined: Tue Jun 01, 2021 5:06 pm

Re: Seeking general advice; turning 33 in a couple months

Post by tugofpeace2 »

mattsm wrote: Sun Jun 13, 2021 10:13 pm You can withdraw money before 59.5
What about taxes? I thought the whole point was to not touch retirement savings until 59.5
TheDDC wrote: Sun Jun 13, 2021 10:21 pm Your rent budget numbers are too high. You can get an apartment for way less than that… like $1200 or less over here in the East. Pile the rest into the student debt. If I had that kind of debt I’d probably get a roommate.

Also, we recommend maxing out tax advantage investment vehicles. Make killing your debt a priority, then ease into maxing out all IRA and 401k. Put into good growth stock mutual funds. Your future self will thank you.

-TheDDC
$1200 wouldn't get me into a desirable area.. I am looking at Jersey city to have proximity to NYC. Might even consider NYC itself, wanted to live there my entire life but could never afford it until now. Even now it's difficult, but it's now or never.
Lee_WSP
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Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Seeking general advice; turning 33 in a couple months

Post by Lee_WSP »

tugofpeace2 wrote: Sun Jun 13, 2021 8:00 pm
One of the things I don't understand about people who are aggressive towards their retirement savings is when they say they are building wealth, and that that money can be used for anything.

Your 401k can't really be withdrawn until 59.5, and the gains from a roth IRA can't either. So what's the benefit of investing so heavily for retirement at the expense of present day savings? How is it that you say cutting spending in favor of retirement savings is worth it since those savings can be used for anything, when really they can't be?
Save 20% of your take home pay and you should be fine if you work until normal retirement age. You might even be better than middle of the road. Either way, do that and don't worry about the rest, it'll take care of itself.
Obviously it's a huge benefit when you retire, but if you don't intend to have a pricey retirement lifestyle, it's kind of a moot point. Between myself and a spouse I can expect to have a home paid off and to have $3MM+ in retirement with my current savings rate so I just don't understand the value in contributing nearly twice as much.
Three million thirty years from now is only going to be about 750,000 to 1.6 million today.
Kaizen Soze
Posts: 126
Joined: Thu Apr 11, 2019 1:47 pm

Re: Seeking general advice; turning 33 in a couple months

Post by Kaizen Soze »

You're doing well at 33yrs old but more importantly you have the right mindset to set yourself up for future success.

Roth conversion ladder to access retirement funds prior to 59.5.
https://www.madfientist.com/how-to-acce ... nds-early/
deltaneutral83
Posts: 1930
Joined: Tue Mar 07, 2017 4:25 pm

Re: Seeking general advice; turning 33 in a couple months

Post by deltaneutral83 »

tugofpeace2 wrote: Mon Jun 07, 2021 10:32 pm That's pretty much it. If I were to move out of my parent's home soon, I would be pocketing roughly $30,000/year in cash
Is someone paying you to move out? I assumed it would cost you the $30k to move out in added rent?

I wouldn't begin to day trade until I have all debt paid off, fully funded retirement accounts, and a good 5-10x of expenses in those accounts in my mid 30's. I wouldn't do it either with more than 5% of my portfolio, the gains you've made up until now aren't gains until you hit the register and quit playing. Curious if you look back in ten years with $50k of gains and wished you'd cashed out against your loans.

I also wouldn't analyze the 3% rate on your student loans so much as I would the balance $85k. Overall numbers given, I'd be hammering that after my 401k match, markets making a series of all time highs and higher than normal valuations the past 7 years is icing on that cake IMO to turn resources toward debt. 3% guaranteed ROI isn't bad either and no one went broke paying down 3% debt.
azxcds
Posts: 1
Joined: Mon Jun 14, 2021 8:22 am

Re: Seeking general advice; turning 33 in a couple months

Post by azxcds »

Hi OP,

I've been a reader of this board but never posted before. I just registered so I could share what I did in case it might help.

First, I just want to say hang in there because you've made a ton of progress and should be very proud of that!

I'm 35 now and graduated from undergrad in 2008 with a somewhat similar starting point. My degree wasn't as valuable as yours coming out of school (BA in Econ) and I went to an average state school. I graduated with approx. $75k in student loans at whatever was the higher rates at that time (I've refi'd a few times now and can't remember). I definitely overpaid but didn't know it at the time. I didn't do my own research well and didn't have others in my life to provide good guidance on the financial implications of the debt I took on.

From 2008-2011 I earned approx. $40k/yr. In 2012 I found a better job and over a series of pay increases from 2012 to 2020 I went from $57k to $70k to $85k to $94k. The employment market for experienced staff in high-demand professions is hot right now and I was able to recently re-negotiate my salary to $123.5k.

Here are my current numbers:

401k - $222k
Roth IRA - $38k
HSA - $25k
Savings - $22k

Student Loan - $15k @ 1.61% (timed my most recent refi in early 2019 very fortunately to variable rate indexed to 1mo Libor)
Credit Cards - $13.8k (I've been doing the 0% thing you mentioned and put large purchases on the card to then payoff when the 0% period ends)

Net Worth - $280k

I manage to keep expenses lower (~$3-5k per month all in) thanks to living with my partner and the modest rent in our area (we pay $1400/mo). My range is wide here because some months I buy things I want or we go on a trip.

I think the biggest factor that helped me grow out of my initial post-grad hole was the realization in 2010 that compound interest is the most influential component to growing wealth over time and I had a huge advantage given my relatively young age and long time horizon. Early on I set the personal goal to put as much money into investment accounts as I reasonably felt I could afford, with a priority to putting the money in the most tax advantaged accounts, e.g. HSA > Roth > Traditional > Brokerage. In my accounts I chose to invest in index funds/ETFs with the lowest fees based on similar reasons that most everyone else on this board would likely say. By 2016 my earnings increased with enough personal savings safety margin to max out my annual 401k contributions. My employer matches up to 6%, so around that time I started stacking ~$22-25k new savings in investment accounts each year.

I chose to manage my debts by gradually paying them down over time and minimizing interest costs via strategic refi's and 0% credit cards. My impression is that a lot of members of this board are extremely paranoid of debt for emotional reasons or from past experiences, so they like to recommend others to pay off debts ASAP. But my personal view is that if I have enough liquid personal savings to gradually pay down the debt and fund personal expenses for X number of months in an emergency, then I would rather channel marginal dollars into long duration compounding assets like equity ETFs. Paying down 3% interest debt today may generate a "guaranteed 3% return" today, but that return is 1) very low and 2) a one time occurrence. You could use that same dollar and buy something like VOO to turn it into $8-16 dollars at time of retirement. If you put that $1 in a Roth account, you own all $8-16 at the end! I just cited VOO for sake of example and get that valuations might be steep now, which would reduce forward expected returns. The $8-16 range is just an assumption based on 3-4 compounding cycles.

Just to highlight the impact of all this to my personal balance sheet: in Q1 2011 my assets were $25.7k and liabilities were $71.7k; currently assets are $308k and liabilities $29.1k. Could be this strategy only looks good with the benefit of hindsight given we've had a bull market in stocks since 2009, but it's also hard to be pessimistic looking forward into the future right now.

Another thing that helped me is that I knew I had job security for longer durations due to contracts my employer had with the client I support. This allowed me to more comfortably take risks in my personal portfolio. But this factor really just depends on your personal subjective view of your job security.

To sum up, I think when starting from a low starting point the biggest impacts to growing your wealth faster will be accumulating as much compounding assets as you can as fast as you can, without taking undue risks with debt/personal emergency savings. Investing in yourself through education/networking/continually learning to improve your earning prospects is also extremely impactful. At the beginning of your compounding journey, your earnings are the wellspring from which all asset accumulation will come.

Edit - one thing I forgot to add. I think if you're going to load up on investment assets, you'll need to be comfortable with the shorter term volatility that comes with it. Prices don't always move up and to the right. My net worth is $280k now but during the covid crash trough it was all the way down to $89k. Just something to keep in mind if big swings may impact your temperament and may risk making a big mistake by selling at lows.
Last edited by azxcds on Mon Jun 14, 2021 9:52 am, edited 1 time in total.
Katietsu
Posts: 5093
Joined: Sun Sep 22, 2013 1:48 am

Re: Seeking general advice; turning 33 in a couple months

Post by Katietsu »

tugofpeace2 wrote: Sun Jun 13, 2021 10:57 pm
mattsm wrote: Sun Jun 13, 2021 10:13 pm You can withdraw money before 59.5
What about taxes? I thought the whole point was to not touch retirement savings until 59.5
TheDDC wrote: Sun Jun 13, 2021 10:21 pm Your rent budget numbers are too high. You can get an apartment for way less than that… like $1200 or less over here in the East. Pile the rest into the student debt. If I had that kind of debt I’d probably get a roommate.

Also, we recommend maxing out tax advantage investment vehicles. Make killing your debt a priority, then ease into maxing out all IRA and 401k. Put into good growth stock mutual funds. Your future self will thank you.

-TheDDC
$1200 wouldn't get me into a desirable area.. I am looking at Jersey city to have proximity to NYC. Might even consider NYC itself, wanted to live there my entire life but could never afford it until now. Even now it's difficult, but it's now or never.
I think this is the most important item in this thread. A move to a VHCOL area with your current income could derail your progress. I also question if it will be as much fun as you think if you are trying to do it within your budget constraints. It seems to me that there is a big world of difference between living with the parents in the suburbs for free and spending over $25,000 a year on rent as a single guy. As a young unattached person in a high rent neighborhood, what type of social life do you envision with a minimal budget for food, entertainment and clothing? Maybe you have this all worked out. But I have seen others regret a similar move. So think carefully. And be prepared to change course if it is not getting you to where you want to be.
Onlineid3089
Posts: 221
Joined: Thu Jan 02, 2020 3:47 pm

Re: Seeking general advice; turning 33 in a couple months

Post by Onlineid3089 »

Do you have friends who are already in NYC that you'd be spending time with? If not you may end up just as bored and lonely but with way higher expenses.

Usually if you can work remotely you'd move to a lower cost area, not to one of the highest cost places in the country.
TheDDC
Posts: 1389
Joined: Mon Jan 08, 2018 11:11 am

Re: Seeking general advice; turning 33 in a couple months

Post by TheDDC »

tugofpeace2 wrote: Sun Jun 13, 2021 10:57 pm
mattsm wrote: Sun Jun 13, 2021 10:13 pm You can withdraw money before 59.5
What about taxes? I thought the whole point was to not touch retirement savings until 59.5
TheDDC wrote: Sun Jun 13, 2021 10:21 pm Your rent budget numbers are too high. You can get an apartment for way less than that… like $1200 or less over here in the East. Pile the rest into the student debt. If I had that kind of debt I’d probably get a roommate.

Also, we recommend maxing out tax advantage investment vehicles. Make killing your debt a priority, then ease into maxing out all IRA and 401k. Put into good growth stock mutual funds. Your future self will thank you.

-TheDDC
$1200 wouldn't get me into a desirable area.. I am looking at Jersey city to have proximity to NYC. Might even consider NYC itself, wanted to live there my entire life but could never afford it until now. Even now it's difficult, but it's now or never.
If you live in a place like you mention, property ownership will also be out of reach and your budget is basically blown. Look at a more affordable area or suburb.

-TheDDC
Rules to wealth building: 75-80% VTSAX piled high and deep, 20-25% VTIAX, 0% given away to banks, minimize amount given to medical-industrial complex
Lane4Imaging
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Re: Seeking general advice; turning 33 in a couple months

Post by Lane4Imaging »

Young man, seriously you need a better, high paying job! Your salary growth for an EE from a good/great school should provide you better opportunity. You should easily be north of $150K and $175K would be better with you experience. $200K fir tech heads with 10 years experience is about the norm. I live in Northern Virginia and like other tech hubs, people with good technical degrees get hired - like instantly. Make more money and attack that student debt. Good luck1
ckangas
Posts: 64
Joined: Fri May 21, 2021 8:08 pm

Re: Seeking general advice; turning 33 in a couple months

Post by ckangas »

tugofpeace2 wrote: Sun Jun 13, 2021 8:00 pm One of the things I don't understand about people who are aggressive towards their retirement savings is when they say they are building wealth, and that that money can be used for anything.

Your 401k can't really be withdrawn until 59.5, and the gains from a roth IRA can't either. So what's the benefit of investing so heavily for retirement at the expense of present day savings? How is it that you say cutting spending in favor of retirement savings is worth it since those savings can be used for anything, when really they can't be?
What will make you happy in the future?

Some material gains, such as having your own place, likely will. Other gains, such as having a nice house/car over an average one probably won't. Although everyone is different.

For most people, building up substantial retirement savings means that you have a lot more freedom concerning your job, career, and whether you and your partner work full time or part time (if applicable). If you're at a 50% savings rate in your 30s, it means you will have more flexibility in your 40s assuming your spending doesn't increase. And *much* more flexibility in your 50s. Maybe one would like to switch to a low stress but rewarding career that you enjoy that pays a fraction of your current one. Once you save enough for retirement, you'll get to the position where you won't have to save; you just need to coast the next 20 years and not withdraw from your savings.

There's obviously a limit. If you can accomplish this working and living comfortably over 20 years instead of going through hell for 10-15, I'd personally take the comfortable 20. But regardless, how much you have saved for retirement will greatly impact your 40s and 50s. Not just 60-100.
fyre4ce
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Re: Seeking general advice; turning 33 in a couple months

Post by fyre4ce »

I would continue to live in your parents house and prioritize retirement saving and burning down that debt. Budget should look something like this:

Gross salary: $110k
Income and FICA taxes: $20k
401k: $19.5k
Roth IRA: $6k
Student loan payments: $50k
Everything else: $14.5k (seems easily doable with no rent and the budget items you listed)

If you immediately threw $18k in cash against the student loans and applied this budget, your loans would be gone in 16 months. How's that for motivation to get out of your parents' house?! Extreme situations call for extreme measures. You're looking to turn yourself around financially, and that's how I think you should do it. Get rid of this debt, then reward yourself by going out and getting your own place. Don't be shy about maxing out retirement accounts either. After getting rid of your debt, that's the best thing you can do to build wealth for your future, especially considering you're behind on saving. In fact, you should have your accounts maxed by Labor Day each year.
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FOGU
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Re: Seeking general advice; turning 33 in a couple months

Post by FOGU »

"So what's the benefit of investing so heavily for retirement at the expense of present day savings?"

Savings on taxes in the present.
Tax-deferred growth on invested funds.
fyre4ce
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Joined: Sun Aug 06, 2017 11:29 am

Re: Seeking general advice; turning 33 in a couple months

Post by fyre4ce »

tugofpeace2 wrote: Sun Jun 13, 2021 8:00 pm One of the things I don't understand about people who are aggressive towards their retirement savings is when they say they are building wealth, and that that money can be used for anything.

Your 401k can't really be withdrawn until 59.5, and the gains from a roth IRA can't either. So what's the benefit of investing so heavily for retirement at the expense of present day savings? How is it that you say cutting spending in favor of retirement savings is worth it since those savings can be used for anything, when really they can't be?

The maximum you can take out for a loan is $50k from a 401k so I just don't see it.

Obviously it's a huge benefit when you retire, but if you don't intend to have a pricey retirement lifestyle, it's kind of a moot point. Between myself and a spouse I can expect to have a home paid off and to have $3MM+ in retirement with my current savings rate so I just don't understand the value in contributing nearly twice as much.
Retirement and other similar accounts (401k, 403b, IRA, HSA, etc) are best thought of as making a deal with the government. The deal is, you agree to lock your money away until you're near retirement age (59.5), and the government gives you a tax break in return. This tends to be a win-win, because it saves you money, and also reduces the chances that you'll be destitute when you're older and need assistance for the government. The size of the tax break you get depends on how much tax you pay as a baseline. If you earn a high income and live in a high tax state, the benefits can be huge, like having 2-3x as much money available for the same initial investment. If your tax burden is already low, the benefits are smaller. (There are other benefits besides just the tax savings, like the 10 year stretch for your heirs, and asset protection, to name a couple.) But Bogleheads tend to be big fans of retirement and other tax-advantaged accounts, for all these reasons. You're going to need money to eat when you're >59.5, right? So why not take the tax break? And the rules for early withdrawal are pretty flexible too - you can take money out for home purchases, medical expenses, paying back taxes, even early retirement. It's probably a good strategy to put as much of your savings in retirement accounts as you can, with a few exceptions: building an emergency fund, paying off debts, saving for known expenses you'll incur before age 59.5 (like a future car or house down payment fund), and maybe a few others. But for general savings, fill up the retirement accounts first before saving in a taxable account.
mattsm
Posts: 247
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Re: Seeking general advice; turning 33 in a couple months

Post by mattsm »

tugofpeace2 wrote: Sun Jun 13, 2021 10:57 pm
mattsm wrote: Sun Jun 13, 2021 10:13 pm You can withdraw money before 59.5
What about taxes? I thought the whole point was to not touch retirement savings until 59.5
RMDs, and you can start earlier without paying any penalty. You can touch retirement money when you retire.
Frank the Tank
Posts: 71
Joined: Fri Oct 16, 2020 9:24 am

Re: Seeking general advice; turning 33 in a couple months

Post by Frank the Tank »

fyre4ce wrote: Mon Jun 14, 2021 7:23 pm
tugofpeace2 wrote: Sun Jun 13, 2021 8:00 pm One of the things I don't understand about people who are aggressive towards their retirement savings is when they say they are building wealth, and that that money can be used for anything.

Your 401k can't really be withdrawn until 59.5, and the gains from a roth IRA can't either. So what's the benefit of investing so heavily for retirement at the expense of present day savings? How is it that you say cutting spending in favor of retirement savings is worth it since those savings can be used for anything, when really they can't be?

The maximum you can take out for a loan is $50k from a 401k so I just don't see it.

Obviously it's a huge benefit when you retire, but if you don't intend to have a pricey retirement lifestyle, it's kind of a moot point. Between myself and a spouse I can expect to have a home paid off and to have $3MM+ in retirement with my current savings rate so I just don't understand the value in contributing nearly twice as much.
Retirement and other similar accounts (401k, 403b, IRA, HSA, etc) are best thought of as making a deal with the government. The deal is, you agree to lock your money away until you're near retirement age (59.5), and the government gives you a tax break in return. This tends to be a win-win, because it saves you money, and also reduces the chances that you'll be destitute when you're older and need assistance for the government. The size of the tax break you get depends on how much tax you pay as a baseline. If you earn a high income and live in a high tax state, the benefits can be huge, like having 2-3x as much money available for the same initial investment. If your tax burden is already low, the benefits are smaller. (There are other benefits besides just the tax savings, like the 10 year stretch for your heirs, and asset protection, to name a couple.) But Bogleheads tend to be big fans of retirement and other tax-advantaged accounts, for all these reasons. You're going to need money to eat when you're >59.5, right? So why not take the tax break? And the rules for early withdrawal are pretty flexible too - you can take money out for home purchases, medical expenses, paying back taxes, even early retirement. It's probably a good strategy to put as much of your savings in retirement accounts as you can, with a few exceptions: building an emergency fund, paying off debts, saving for known expenses you'll incur before age 59.5 (like a future car or house down payment fund), and maybe a few others. But for general savings, fill up the retirement accounts first before saving in a taxable account.
Correct.

Plus, putting aside the tax break, the greatest wealth generator is time. Each dollar put into retirement accounts at a younger age is will end up being worth exponentially more than the dollars put in later on due to compounding interest.

The OP mentioned taking Metra (which I also do), so that likely means the OP lives in Illinois. Note that one of the very few tax friendly policies that the state has is that it doesn’t tax retirement income. So, if you work in Illinois and then also retire in Illinois, you have 401k contributions that are truly free of state income taxes today and they won’t be applied when they’re withdrawn. That’s a guaranteed 4.95% return with the state income tax savings on all 401(k) contributions (not just tax deferred). This is another reason to favor maxing out all 401(k) contributions on top of the reasons others have already stated.
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