Announcement

Collapse
No announcement yet.

Advice for savings allocation

Collapse
X
Collapse
First Prev Next Last
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Advice for savings allocation

    Hi everyone,

    I'm early 30s, started my first attending job a few months ago. I've been learning a lot from WCI and this forum, and wanted some advice on how I should allocate my savings. Below is my financial info:

    W-2 salary: 350k/yr
    roth IRA: 30k
    HY savings: 70k
    Loans: None
    Rent: $1700
    Still living like a resident and saving about 75% of my post-tax money (about 13-15k/month).
    Single wit no kids

    I plan on maxing out my 401k (~19k) and doing a back door roth (6k) every year. Furthermore, once I make partner in 3 years I will have access to more benefits and will be able to contribute a total of about 52k into a tax deferred account.

    Currently I'm at a stage where I am saving money for a wedding in the next year and hopefully buying a home in 2-3 years. I live in a super HCOL area and predict I will spend ~1-1.2M to purchase a decent place. So far I have just been putting all my savings in a HY savings account. My question is, am I doing the right thing by putting all my money in a HY account given that I would want to buy a home in the next 2-3 years? Or should I open a taxable account and start putting money in there too? My original plan was to place all my savings in the HY savings account until I have enough money for the down payment (150-200k). I would obviously max out my 401k and Back door roth. However, I am wondering if that is enough going towards retirement for the next 3 years. Should I open a taxable account and divert some of my wedding/downpayment money there? Keep in mind after 3 years I will be able to put a total of ~52K in a tax deferred account, so I have some room to catch up.

    If the answer is yes, open a taxable account, how much should I put in there? 20% of gross? And If not now, when would be the optimal time to open a taxable account and start investing there?

    Thanks for everyone’s help!


    P.S. My gf, who I plan on getting engaged with, also has no student loans, makes about 80k/yr, and has about 100k in HY savings account. Obviously when we get married, we will max out her 401k and back door roth too.
    Last edited by HILA88; Today, 12:17 AM.

  • #2
    You're doing great.

    You have 70k in HY savings. You'll save $150k over next year. I'd split difference and save $75k in HYS earmarked for downpayment and $75k in taxable earmarked for retirement. Assuming you get married some of your gf's HYS could be used for downpayment too.

    Other questions:
    1) Enough disability insurance?
    2) Access to HSA?
    3) max 401k is 19.5k for 2020

    Comment


    • HILA88
      HILA88 commented
      Editing a comment
      Thank you for your input. Does that imply I should open a taxable NOW and EVERY MONTH, put half of my savings to HYS and half into the taxable account? Or should I save a bunch in HYS and lump sum invest (assuming former is better).

      1) Yes have enough DI.
      2) Looking in to HSA now. It appears that I an use a HSA while I am not a partner, but once I am, I cannot. So I only have access for 3 years. Not sure if its worth it?
      3) Thank you, I wrote approximately since I don't know the exact number for 401k max. But yes I will max out 401k and my additional tax deferred account once I'm a partner.

    • wa2106
      wa2106 commented
      Editing a comment
      Re taxable - I personally would just split whatever you have leftover at the end of the month into taxable and HYS until you're sure you have enough for downpayment then switch entirely to taxable
      Re HSA - even if just for 3 years it would save you $3k in taxes (1k/yr assuming 30% tax rate), more once you get married. I wouldn't turn down that money if you have access to it.

    • HILA88
      HILA88 commented
      Editing a comment
      WA2106:

      I was reading that contributing to a taxable account frequently (i.e. monthly vs quarterly) increases the amount of tax lots. Does this mean I will be paying more taxes since it is more frequent transactions? Or it just might make taxes more complicated (I have a CPA though)

  • #3
    the rule is to put at least 20% towards retirement. The 401k limit for this year is $19,500. Do that and then another $6k towards roth. Do you have access to a 457? The mega backdoor roth?

    If the plan is to purchase a home, keep the $70k in your HY savings. Safe to assume if your gf plans to form a household with you that her $100k HY savings can also go towards the down payment. If you're planning on a $1.2m place, then you need only need another $70 between the two of you. If you are both working and plan to work, I'd use up almost all of that fund for the downpayment and then rebuild an emergency fund from there. Since your rent is low and you have no child or other familial obligations and no loans, I think you can pretty easily put $45k in a taxable account this year (assuming no 457 or mega backdoor roth) and also contribute $55k to the HY savings account (80% of what you need to get to the 20% downpayment, as your salary is 80% of the total to-be household salary). My very quick math suggests you still have ~$100k left over to spend on yourself this year, which is a lot of money for a single person with no obligations....

    Comment


    • HILA88
      HILA88 commented
      Editing a comment
      20% rule is 20% of my GROSS income correct? (Just did the match and figured thats where you got the $45k towards taxable account)

      I do have access to a mega backdoor roth PRIOR to making partner, during year 2 and 3. I plan on taking advantage of that during those years. However, I do NOT have access to it my 1st year and once I make partner in 3 years. I am assuming it will be a good idea to use this option when I can each year? And those years, I will just put less in my taxable account, as long as total is 20%? And no 457.

      thank you for your advice!

      And yes, my gf has been saving to use the cash for a home purchase as well.

  • #4
    Hit your retirement savings at 20% of gross. One of your taxable accounts will need to be retirement. The available of tax advantages doesn't change your target.

    Gross -taxes - retirement (20%) = spending /savings Do not put off the retirement at 20%.

    Comment


    • HILA88
      HILA88 commented
      Editing a comment
      Ok, from your post and the above posts, I think I understand. Thank you!

  • #5
    My rule on short-term goals: any money that you must access within 3-5 years should not be in the stock markets. If today is unknowingly March 2000 or Aug. 2007, your investments will be depreciated for the next 3-5 years.
    At age 32, after sacrificing a decade of retirement investing, you can not skip any more years. Every year counts toward your inevitable retirement.

    Comment


    • HILA88
      HILA88 commented
      Editing a comment
      Hi Jz,

      Yes, I understand your first point, and thats why I put all my initial savings in a HYS since I wanted to save for a down payment. My questions was whether I should take some of that money and place it in a taxable account for retirement, which I would not touch until retirement. From what everyone else said, it sounds like I should put a total of 20% of my gross towards retirement, so I SHOULD allocate about an additional $45K this year to a taxable account which I will not touch. Would you agree?

  • #6
    Thanks everyone for their response. It seems like everyone agrees I should take a portion of my savings and start putting it in a taxable account starting now, even if that means it may slow down my down payment accumulation. Not being able reach my downpayment goal and having the power to buy ahome ASAP kind of disappoints me, but I would prefer to make the most out of my money.

    Initially I thought the cash I'm saving for the downpayment counts towards the "Save 20% of income" (since the sooner I am able to buy a home, the sooner I can stop paying rent) but I guess it does not? Is the more accurate term: "Save 20% of income TOWARDS RETIREMENT."

    Comment


    • #7
      MIN 20% towards retirement:
      • 19.5k to 401k
      • 6k Backdoor Roth IRA
      • 45k to Taxable Account (~4k/month)
      Then, 10k/month to HY Savings for downpayment for your house.

      Comment


      • HILA88
        HILA88 commented
        Editing a comment
        Great, thanks for breaking it down. I have a much better understanding of what I should do with my money

    • #8
      Op, yes the mega backdoor roth is a rarity in general these days so if you have those two years to shove more into your Roth bucket you absolutely should do that. I’m one of the lucky ones and it’s amazing seeing my roth grow so much more because I can put more than $6k into it via this method. And it’s all tax free when you retire

      Comment


      • HILA88
        HILA88 commented
        Editing a comment
        Perfect, so those 2 years I will put as much as I can via mega backdoor roth, and reduce contribution to my taxable account. Thanks!

    • #9
      Originally posted by HILA88 View Post
      P.S. My gf, who I plan on getting engaged with, also has no student loans, makes about 80k/yr, and has about 100k in HY savings account. Obviously when we get married, we will max out her 401k and back door roth too.
      Can the girlfriend backdoor roth now? And up her 401K? Time waits for no one...
      __________________________


      Originally posted by ACN View Post
      MIN 20% towards retirement:
      • 19.5k to 401k
      • 6k Backdoor Roth IRA
      • 45k to Taxable Account (~4k/month)
      Then, 10k/month to HY Savings for downpayment for your house.
      Couldn't agree more. You already have $70,000 in your high yield savings account. This year save $120,000 just for the home. Find $10,000 from somewhere (skip vacations...), and 52 weeks from now you'll have >$200,000 ready well ahead of time for Spring 2021 home buying season.

      Comment


      • HILA88
        HILA88 commented
        Editing a comment
        She is at least maxing her Roth IRA. I will try to convince her to contribute to 401k as well (I know she has mandatory contributions to a pension too so she is tight on after tax money).

        Thanks for the advice and reiterating importance of contributing to taxable account.
        Last edited by HILA88; 01-17-2020, 11:49 PM.

    • #10
      Hi, you're in amazing financial shape for such a young Doc, good job! You may also consider putting down more than 20%. We bought a home in a very HCOL in 2007 (with 10% down), and refinanced twice. We made extra principal payments q month, with a one time larger lump sum principal paydown each January after our Group's year end bonus. We ended up liquidating some after-tax funds and paid it off in 2018. No regrets despite the market's performance last year. This is due partly to the fact my wife and I save approx. 25% of our gross, and max out our tax-deferred and Roth space every year. I would definitely encourage you to pay off the house in less than 30 years (we saved approx. 400K in interest payments from our most recent refinance in 2013). Being debt free has enabled me to scale back my hours, yet maintain our savings rate. As a middle aged MD, that's a fortunate place to find myself in.

      Comment


      • #11
        Hopefully your gf did not read this post and ruin the surprise!

        Comment


        • #12
          Originally posted by Lordosis View Post
          Hopefully your gf did not read this post and ruin the surprise!
          Ha! thankfully she is not into finances...yet

          Comment


          • #13
            I think you're doing very well. You're doing all the right things right now and could change things around a little bit. As for the HY savings account, I'm guessing you're getting maybe 1.5% interest on that if you're lucky. Inflation's around 2-3% so even having it in a HY savings account you're losing purchasing power with that but not as bad if you just had it in your checking or savings account. There's two options you can do here to pay for a wedding and to buy a house.
            1. You can use the principal ONLY and not the interest you've earned from your Roth accounts to pay for things. It's some money but I'd like to leave that alone to accrue compound interest over time.
            2. Open a taxable account. You can have this account more bond focused since you'll most likely be using the funds in the next few years. I would strongly suggest municipal bonds or muni bonds because you do not pay for federal and maybe state taxes depending on where you live and if you get muni bonds from your own state. Even though you're taxed in a taxable account you can still make it more tax efficient by using municipal bonds. I'm not sure of the allocation to stocks to bonds ratio in a taxable account but maybe like 40/60 or 30/70 stocks to bonds. You'll have to ask around. As for the stock section of your taxable account obviously use low cost index funds if you do. I know that you have an 86% of making more money using the S&P 500 in 5 years and greater in the long run. I believe Fidelity has the lowest expense ratios right now. Hope this helped.

            Comment

            Working...
            X