Check In/Next Steps? [Portfolio review]

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Tyrael314
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Check In/Next Steps? [Portfolio review]

Post by Tyrael314 »

Looking to get everyone’s thoughts on our current financial situation. Overall, I am confident that we have a good foundation and will continue to build off it.

Emergency funds: Six-month emergency fund

Debt: Only debt is our mortgage. 15 year fixed $154,000 overall at 4.375% and currently have about $300,000 in equity. $1,800 a month taxes/insurance/mortgage which includes roughly $130 in extra principal payments monthly.

Tax Filing Status: Married Filing Jointly

Tax Rate: 22% Federal, 5% State

State of Residence: Massachusetts

Age:35 & 36

Wife and I have a HHI of about $190,000 before bonus closer to $210,000 with bonus (not guaranteed). We have experienced significant wage growth in the last 3-4 years. Prior to that we did not take finances seriously and we allocated all our efforts into eliminating consumer debt from our lives. In addition to our retirement savings, we allocate about $3,000 a year to our son’s 529 (approaching 2 years old) which is also funded with cash gifts from family and friends etc. It currently stands at around $11,000. We are currently cash flowing a renovation to the bathroom and have various sinking funds set up for known updates, expenses etc. with plans to continue updates the house which has not been updated since it was built in the early ‘90s. We also have automatic increases scheduled for our retirement accounts to coincide with reviews/raises.

Net worth of approximately $500k including equity in the home.

Current retirement assets

Taxable
No taxable accounts currently.

His Roth 401k
Principal’s S&P Index equivalent .10% Expense ratio
3% match – Contributing 14% before match
$51,000

His Roth IRA at Fidelity
FXAIX .015%
$1,800

Her 401k
Vanguard 2050 Target Date VFIFX .08% Expense Ratio
Company does profit sharing which in the past has equaled out to about an annual lump sum of about 15% of her pay – Contributing 14% before match
$142,000 – Blended between traditional and Roth

Questions:
1. We are applying additional money monthly towards our mortgage with the plan to have it paid down somewhere around 7 years. We plan to push this goal forward using “found money” from bonuses etc. to apply to the mortgage. Is this a sound plan and if not why? Where should we direct this money if not the mortgage?
2. How does one calculate how much will be needed for college? My wife and I have zero desire to burden our son with student loans after working as hard as we did to dig out of my wife’s. Beyond covering “school” any activities beyond that he will be responsible for funding.

Hopefully I didn’t butcher this template too bad and look forward to hearing everyone’s thoughts and suggestions.
"A society grows great when old men plants trees under whose shade they know they shall never sit."
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FiveK
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Re: Check In/Next Steps?

Post by FiveK »

1. See Prioritizing investments and Investment Order for the usual suggestions.

2. It depends. Harvard/MIT with no aid vs. UMass with some merit-based scholarship?

Other: with no mention of a pension, using 100% traditional instead of Roth for both 401ks looks preferable. What is your thinking on that?
mortfree
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Re: Check In/Next Steps?

Post by mortfree »

Increase 401k contributions. (Reconsider Roth vs traditional)

Open a taxable account. Invest in VTI or VTSAX or equivalent Total US at brokerage of your choice.

The net worth is too lopsided towards home equity so I wouldn’t pay extra to the mortgage at this point.
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DiMAn0684
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Re: Check In/Next Steps?

Post by DiMAn0684 »

Tyrael314 wrote: Tue Aug 16, 2022 7:25 pm 2. How does one calculate how much will be needed for college? My wife and I have zero desire to burden our son with student loans after working as hard as we did to dig out of my wife’s. Beyond covering “school” any activities beyond that he will be responsible for funding.
I am in a similar-ish boat as you're. For now I am setting goals to have enough funds in 529 accounts to cover tuition, fees & living expenses at UMass Amherst for four years. There's plenty of historical data to make a decent guesstimate on the cost by the time your son is college age. I might consider adjusting the goals later on, but for now that's where I am at.
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Tyrael314
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Re: Check In/Next Steps?

Post by Tyrael314 »

FiveK wrote: Tue Aug 16, 2022 7:36 pm 1. See Prioritizing investments and Investment Order for the usual suggestions.

2. It depends. Harvard/MIT with no aid vs. UMass with some merit-based scholarship?

Other: with no mention of a pension, using 100% traditional instead of Roth for both 401ks looks preferable. What is your thinking on that?
1) Thanks for those reccomendations I will check them out.

2) State school unless he get's scholarships or our financial situation changes.

Other: My thoughts were that taxes will only increase from here on out and I figured I would be in a higher tax bracket in retirement. That said our income has risen steadily in recent years.
"A society grows great when old men plants trees under whose shade they know they shall never sit."
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FiveK
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Re: Check In/Next Steps?

Post by FiveK »

Tyrael314 wrote: Tue Aug 16, 2022 7:57 pm Other: My thoughts were that taxes will only increase from here on out and I figured I would be in a higher tax bracket in retirement. That said our income has risen steadily in recent years.
No idea what tax law changes will occur. Under current law, it takes ~$2.7 million in traditional accounts before a 4%/yr withdrawal rate (if that is the only income) will get out of the 12% bracket and reach the 22% bracket.

With $100K or so in traditional now, it's unlikely to grow to $2.7 million in today's dollars if employer matches are the only contributions. But one is free to speculate - just not in this forum ;) - on what tax law changes will occur in the next 20, 30, 40, etc., years.
VoiceOfReason
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Re: Check In/Next Steps?

Post by VoiceOfReason »

How did you get so much equity in your house and why do you have a rate over 4% on a 15 year note?

I’d consider moving away from Roth 401k. Do you think you will be pulling $200k+ per year from your portfolio in retirement? Meaning a portfolio of $5MM+. Your current real expenses that would continue in retirement minus the contributions to retirement, 529 and mortgage is likely around the top of the 12% tax bracket. Granted there are a lot of variables and changes that can happen between now and then. Only you have the best understanding of your true earning capacity and if you expect it to jump in a big way. If you expect it to remain steady, you might be in a higher bracket today.

Plus I’d stop paying extra to mortgage. Too much of your net worth us in your house.
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Tyrael314
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Re: Check In/Next Steps?

Post by Tyrael314 »

VoiceOfReason wrote: Tue Aug 16, 2022 8:26 pm How did you get so much equity in your house and why do you have a rate over 4% on a 15 year note?

I’d consider moving away from Roth 401k. Do you think you will be pulling $200k+ per year from your portfolio in retirement? Meaning a portfolio of $5MM+. Your current real expenses that would continue in retirement minus the contributions to retirement, 529 and mortgage is likely around the top of the 12% tax bracket. Granted there are a lot of variables and changes that can happen between now and then. Only you have the best understanding of your true earning capacity and if you expect it to jump in a big way. If you expect it to remain steady, you might be in a higher bracket today.

Plus I’d stop paying extra to mortgage. Too much of your net worth us in your house.
To make a long story short I was gifted equity from a home we rented from my parents. We just closed on the purchase in the last 60 days. It was purchased for the remainder of the mortgage they had. Hence the equity and the rate on the 15 year note.

I anticipate that both of us will continue to see steady income growth as promotions are in the future for both my wife and I.
"A society grows great when old men plants trees under whose shade they know they shall never sit."
delamer
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Re: Check In/Next Steps?

Post by delamer »

All of your money is tied up in retirement accounts, with limited ability to access it in an emergency.

At a minimum, consider putting 6 months of expenses in an emergency fund before you do any more principal paydown on your mortgage.

For college, determine annual cost-of-attendance for a good, in-state public. Apply an inflation factor of 4% per year until your son is college age. Multiply the inflated number by 4. That’s a decent estimate of what you’ll need, barring private or out-of-state enrollment.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Tyrael314
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Re: Check In/Next Steps?

Post by Tyrael314 »

delamer wrote: Wed Aug 17, 2022 6:20 pm All of your money is tied up in retirement accounts, with limited ability to access it in an emergency.

At a minimum, consider putting 6 months of expenses in an emergency fund before you do any more principal paydown on your mortgage.

For college, determine annual cost-of-attendance for a good, in-state public. Apply an inflation factor of 4% per year until your son is college age. Multiply the inflated number by 4. That’s a decent estimate of what you’ll need, barring private or out-of-state enrollment.
We have 6 months in a high yield savings account and various other savings accounts for sinking funds etc. In total about $100k in liquid cash currently.

Thats good info for calculating college costs.
"A society grows great when old men plants trees under whose shade they know they shall never sit."
sailaway
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Re: Check In/Next Steps?

Post by sailaway »

Tyrael314 wrote: Tue Aug 16, 2022 8:43 pm
VoiceOfReason wrote: Tue Aug 16, 2022 8:26 pm How did you get so much equity in your house and why do you have a rate over 4% on a 15 year note?

I’d consider moving away from Roth 401k. Do you think you will be pulling $200k+ per year from your portfolio in retirement? Meaning a portfolio of $5MM+. Your current real expenses that would continue in retirement minus the contributions to retirement, 529 and mortgage is likely around the top of the 12% tax bracket. Granted there are a lot of variables and changes that can happen between now and then. Only you have the best understanding of your true earning capacity and if you expect it to jump in a big way. If you expect it to remain steady, you might be in a higher bracket today.

Plus I’d stop paying extra to mortgage. Too much of your net worth us in your house.
To make a long story short I was gifted equity from a home we rented from my parents. We just closed on the purchase in the last 60 days. It was purchased for the remainder of the mortgage they had. Hence the equity and the rate on the 15 year note.

I anticipate that both of us will continue to see steady income growth as promotions are in the future for both my wife and I.

Don't rush laying down the mortgage. 4% isn't crazy high and you get tax benefits. Put that found money towards maxing out the retirement accounts, including Roth IRA (you may be bumping up against income limits in a good year, so backdoor or waiting until you do taxes might be best), then taxable accounts. This will give you much more flexibility if something big comes up before you achieve FI, and tends to be mathematically superior, as well, although that does come with risks.
tashnewbie
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Re: Check In/Next Steps?

Post by tashnewbie »

I'd contribute to a Roth IRA for her. Maybe would do it before making 529 contributions.

Agree with others that 100% traditional 401k probably makes sense. You don't have large tax-deferred balances and you don't mention a pension, so I think that militates in favor of traditional contributions for now. You can reassess every few years.
HomeStretch
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Re: Check In/Next Steps?

Post by HomeStretch »

I agree with other posters that you should relook at your Traditional v. Roth 401k contribution decision. This BH wiki page may be helpful:
https://www.bogleheads.org/wiki/Traditional_versus_Roth

If you switch to Traditional 401k contributions, you can use the tax savings to fund Roth IRAs for each of you. Your spouse should open and contribute to a Roth IRA now in order to start the 5-year clock on initial Roth IRAs.

As you have a shorter 15-year mortgage term, contributing extra towards principal doesn’t seem to make sense as a financial priority. You and spouse are not making maximum 401k contributions or fully funding Roth IRAs and probably aren’t contributing enough to the 529 plan to fully pay 4 years of college (absent future family gifts).

Excluding employer matches and 529 contributions, how much are you and spouse annually contributing to your 401k plans and Roth IRAs? You should target for retirement to contribute at least 15-20% of your annual income including bonuses to 401k/Roth IRA/Taxable accounts.
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Tyrael314
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Re: Check In/Next Steps?

Post by Tyrael314 »

HomeStretch wrote: Thu Aug 18, 2022 8:07 am Excluding employer matches and 529 contributions, how much are you and spouse annually contributing to your 401k plans and Roth IRAs? You should target for retirement to contribute at least 15-20% of your annual income including bonuses to 401k/Roth IRA/Taxable accounts.
Appreciate the advice. As for the above...

We are both contributing 14% of our paychecks and bonuses. We have automatic increases scheduled annually to coincide with our reviews. I did not set a max so the increases will continue. My biggest takeaway is I need to research traditional vs. Roth. We anticipate we will contine to receive cash gifts from his grandparents which are going to continue to fund his 529.
"A society grows great when old men plants trees under whose shade they know they shall never sit."
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