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Mid 30s finances critique please

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  • Avatar NutADuc 
    Participant
    Status: Other Professional
    Posts: 41
    Joined: 08/29/2016

    You need to do a back door Roth IRA for you and your wife: $6000 each so $12000. WCI has a detailed post on how exactly to set up one.

    HSA is a health savings account. Do this only if you have an insurance plan with a high deductible. That’s $3500 for one person and $7000 per family.

    Find out if you have access to a 457 plan at your job. Kinda like a 401k. Just slightly different. The max there is 19k.

    You DEFINITELY need a taxable account. This is just a brokerage account you can open with any brokerage firm like vanguard or fidelity. You can put as much money in there as you want. The dividends will be subject to taxes each year though.

    Familiarize yourself with these terms and take the plunge. Don’t get the terms mixed up. You mentioned putting 11k into a traditional ira for u and ur spouse but that makes no sense. You shouldn’t be owning a traditional ira. I think you meant to say a Roth IRA. If so, the limit is 12k as mentioned above. The limit for 401ks is 19k as well, not 18k.

    Putting your money in a savings account?! That’s shooting urself in the foot and there is no way you will be able to meet your financial goals for retirement by putting extra money unnecessarily in a savings account.

    Read a lot. Just like you will, I learned mostly by A LOT of reading and just jumping in.

    #227849 Reply
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 729
    Joined: 06/18/2018

    “Will be buying new car soon (not sure if cash or finance). Very high cost of living area. About $250k in savings (savings acct).”

    You’ve got 250k sitting in savings earning a pittance, and you’re going to finance a car? Why?

    #227857 Reply
    Avatar NationalPark 
    Participant
    Status: Physician
    Posts: 18
    Joined: 06/22/2019

    Will have to check out the back door Roth IRA.  Sounds like common practice, but I read something about two steps whose sum is illegal is still illegal.??? Although again sounds very commonly done though/not enforced.

    Why no traditional IRA? Isn’t it good to not pay taxes on that sum right now while at high tax rate?

    Have great insurance with no deductible.

    One of my friends suggested being in bonds right now (a bond fund I think).  Need to figure out asset allocation for the taxable account  Should I be putting all of that 12k savings per month in a Vanguard index fund(s)?  Seems like a lot/risky. Mind suggesting a reasonable allocation?…80 % in VTSMX and 20% in a bond index?

    As for the car,….when you put it like that I guess financing is stupid.  Thanks.

    Thanks for all the replies. Should I consider a financial planner? Or once I get the investing the monthly savings going I’m heading on the right track?  Would hate to pay those fees….

     

     

     

     

     

    #227869 Reply
    Dreamgiver Dreamgiver 
    Participant
    Status: Physician
    Posts: 894
    Joined: 03/09/2017

    In your income bracket a traditional IRA gives you absolutely no tax advantage therefore backdoor Roth. Not illegal, done hundreds of thousands of times every year. As far as bonds vs equities that is where your individual choices come in. Not sure why NOW is a good time to be in bonds, imo it is as good or as bad as any other time. There is obviously a place for bonds but being only into bonds guarantees you will lose to inflation in the long run especially for someone young like yourself. We are about your age and own less than 2% of the portfolio in bonds.

    #227878 Reply
    Avatar NutADuc 
    Participant
    Status: Other Professional
    Posts: 41
    Joined: 08/29/2016

    Having a traditional ira, sep ira will prevent you from doing a back door Roth IRA due to the pro rata rule (read up on this). So instead of having a traditional ira, you should have a 401k. This also applies to ur wife. If you have a traditional ira, make sure to get Reid of it by rolling it over to ur 401k or individual 401k if u have one. As for the back door Roth IRA being illegal, it’s not. Please make sure you are getting legit info from credible sources. And yes, it is a 2 step thing.

    As for how aggressive you want to be with ur allocation, that’s where your investment plan comes in. You need to write one out and stick to it (again, WCI has written a great post on this. A quick search will bring it up). It’ll dictate how you should be spreading your funds across all accounts.

    Trust me, the financial planner won’t care about ur money as much as you will and you will save your self several thousands of dollars, potentially hundreds of thousands. Plus you are already on the right path. You r reading and asking questions. Like the WCI says ‘Trusting it all to ur ‘money guy’ will likely lead to disappointment… Just like rotating through gynecology and psychiatry, this has to be done no matter how painful you find it… Just like CME, you need a few hours of CFE (continued financial education) for your second job (being good at ur personal finances) each year.’

    Hahaha. Love the quotes.

    #227881 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3339
    Joined: 09/18/2018

    If you are saving $150k per year, I missed it.
    No AA allocation plan? Don’t seem to have a plan. Well, other than to carry a big debt for a HCOL house.
    My friend, you need a plan and see where this road is taking you. Just run the numbers. If you like the destination, great! If not, tweak it where you want. Or pay a FP to run the numbers for you. Your income has given you a jump with the house, but long term it’s gonna be a drag too. Good luck.
    No mention of insurance.

    #227883 Reply
    Avatar Anne 
    Participant
    Status: Physician
    Posts: 1238
    Joined: 11/07/2017

    Will have to check out the back door Roth IRA.  Sounds like common practice, but I read something about two steps whose sum is illegal is still illegal.??? Although again sounds very commonly done though/not enforced.

    Why no traditional IRA? Isn’t it good to not pay taxes on that sum right now while at high tax rate?

    Have great insurance with no deductible.

    One of my friends suggested being in bonds right now (a bond fund I think).  Need to figure out asset allocation for the taxable account  Should I be putting all of that 12k savings per month in a Vanguard index fund(s)?  Seems like a lot/risky. Mind suggesting a reasonable allocation?…80 % in VTSMX and 20% in a bond index?

    As for the car,….when you put it like that I guess financing is stupid.  Thanks.

    Thanks for all the replies. Should I consider a financial planner? Or once I get the investing the monthly savings going I’m heading on the right track?  Would hate to pay those fees….

     

     

     

     

     

    Click to expand…

    You really need to read more, about all of this.

    Read about the backdoor IRA and why it is legal.

    Read about income limits for tax deferral on traditional IRAs–you will not get tax deferral at your income level.

    Read about investing, asset allocation, risk.  Read about the inflation and the risk of having everything sit in a savings account.

    You are in a pretty good spot with ability to invest but your knowledge level is really low right now.  I think you are actually someone who might benefit from paying a *good* fee-only financial advisor to walk you through this initially.  You need to understand why you are doing what you are doing, not just the what to do/how to do it.

    #227900 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 2179
    Joined: 02/11/2019

     

    Why no traditional IRA? Isn’t it good to not pay taxes on that sum right now while at high tax rate?

    When you have a plan at work and make over a certain limit you are not able to deduct a traditional IRA.  But you can still contribute to one and convert it to a Roth.  Back door roth.

    Should I consider a financial planner? Or once I get the investing the monthly savings going I’m heading on the right track?  Would hate to pay those fees….

    It depends on how willing /much time you have to devote to this.  I knew nothing a little over a year ago and was in a very similar boat as you with way too much in a bank account.  However I read several good books and have been following this blog ever since.  Now it seems crazy to not want to do it myself.   Personally I would rather pay someone to mow my lawn and spend the time learning about investing.  Financial advisors cost way more then lawn mowers.

     

    Start with the attached below.  If you cannot get through that then hire an advisor.

     

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    “Never let your sense of morals prevent you from doing what is right.”

    #227902 Reply
    Liked by Hank
    Avatar NationalPark 
    Participant
    Status: Physician
    Posts: 18
    Joined: 06/22/2019

    Yes, saving about 150 per year. My calculations, based on no returns:

    By age 50, should have house paid off and have about 2 mil in savings. Not counting any 401k, which is actually about 60k per year going in due to a very generous employer match.

    Probably save another 2 mil between ages 50-60.

    Age 60: 4 mil saved. 1.5 in 401k. Assumes zero returns. But 401k should do better. Plus plan to get into index funds with the savings. Pension of 130k per year. Retire.

    That’s what I’m thinking right now. Thanks.

    #227905 Reply
    wonka31 wonka31 
    Participant
    Status: Physician
    Posts: 714
    Joined: 03/24/2018

    You really need to do some ‘back to the basics’ reading on WCI. The fact that you said ‘my friend says to be in bonds’ suggests that you just need to educate yourself, which you can easily accomplish. All you need is there and will likely be more fruitful long term than a post on the forums.

    #227911 Reply
    Liked by Anne
    Avatar DCdoc 
    Participant
    Status: Physician
    Posts: 607
    Joined: 06/14/2016

    You need a plan. You make enough and save enough to end up in a good place regardless merely through the brute force of your savings. But without a plan, that money you save will not work hard enough for you if you merely stash it in a savings account. You have 2 options for getting started. You can immerse yourself in learning about personal finance and investing. Your post here is a start. But “tell me what to do with my savings” is far too broad a question to develop a full plan if you only use this forum. You need to do the WCI course, read books, and spend time learning. If you have no interest in that, you would do well to speak with a FA yo develop a plan. A one time setup should be a couple grand, not much in the big picture. You can then just keep that plan going moving forward with periodic checkups. You don’t need a AUM advisor. So, spend the time, or the money, to develop a plan. Your choice.

    #227913 Reply
    Avatar EndoRobert 
    Participant
    Posts: 71
    Joined: 01/12/2019

    5k per month earmarked for living expenses (includes budgeting for vacations, car insurance, car payment if going to finance, bills, food, eating out, etc).

    Click to expand…

    What are you actually spending/month? I ask because you live in a $2m home but budget only $60k/year in expenses? The house traditionally “should” average $15k/year in expenses over its life.

    Download Personal Capital (or competitor) and start tracking the next 6 months to a year of actual income, expenses, and cash flow. That’s your baseline.

    While that’s happening, read voraciously (maybe buy the Fire Your FA course).  In 6 months, have an idea about whether you want to DIY or hire a “fee only” (not fee based) advisor.

    MUCH better IMO to do nothing and have a plan you can stick with than to just “do something” only to undo later.

    #227917 Reply
    Liked by Lordosis, Anne
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3339
    Joined: 09/18/2018

    “We both put 18k in 401k. Prob about $150k currently in retirement combined mostly in 401k.”

    “Combined income is 640. About 25% of gross going to retirement/savings.”

    The above are examples of inconsistencies in this thread. Gross income is split between taxes. Retirement savings and spending. Your indicated spending in a HCOL area with lot of housing expenses but come back with low spending. I count your interest, re tax and insurance and maintenance as spending. Can’t get a clear picture of where 640 goes.

    #227946 Reply
    Avatar hightower 
    Participant
    Status: Physician
    Posts: 1501
    Joined: 12/07/2016

    Yes, saving about 150 per year. My calculations, based on no returns:

    By age 50, should have house paid off and have about 2 mil in savings. Not counting any 401k, which is actually about 60k per year going in due to a very generous employer match.

    Probably save another 2 mil between ages 50-60.

    Age 60: 4 mil saved. 1.5 in 401k. Assumes zero returns. But 401k should do better. Plus plan to get into index funds with the savings. Pension of 130k per year. Retire.

    That’s what I’m thinking right now. Thanks.

    Click to expand…

    Your calculations are way off and that’s ok because it’s clear you’re just starting out and have a lot of reading to do;)  With your savings rate, assuming you’re 35 yrs old, if you continue this until you’re 60, you invest appropriately in stocks and bonds, you should be able to hit well over 12 million without much difficulty (assuming a conservative 7% return and investing 150k/year).  The power of compounding is something you apparently haven’t heard of yet, lol.  With a 4% safe withdraw rate, you’ll be able to easily live off of around 480 a year from just your investments (not counting social security which will be in addition to this).  But, you HAVE to stop putting money in a savings account, open a taxable brokerage account and start buying index funds today.  Keep it simple.  A simple 3 fund portfolio would do (total stock market, total bond market, and total international stock market).  Aim for a mix of around 80% stocks/20% bonds and gradually adjust that to be higher in bonds over the next 25 years.

    Also, you’re going to have a pension of 130k/yr??  What are you going to do with all this money when you retire?!  Wow.  You might want to start reading about dealing with minimum required distributions too, lol.  I was going to say that a 10k/month mortgage is nuts, but if you’re able to work 25 years with that savings rate, you’ll be more than fine.  Start having kids today because you’re going to need something to spend all your money on when you’re 65 and still getting over 600k a year of income from your giant savings, haha.

    Play with this calculator for fun: https://www.daveramsey.com/smartvestor/investment-calculator/

    #227973 Reply
    Rogue Dad, M.D. Rogue Dad, M.D. 
    Participant
    Status: Physician
    Posts: 975
    Joined: 03/07/2016

    Agree with above including going back to most basic steps: write down and figure out where all your $ is really going.

    A $640k income with a 25% gross savings rate should have you well above your listed assets based on what you’ve reported, unless you are in year 1. If you are counting paying down the mortgage in that 25% I wouldn’t. Usually the 20-25% number people throw out is specific to $ saved for retirement only to get to a comfortable spot.

    Have to ask — is moving a lower COL area an option? With that income you could be debt free and with significant flexibility if you moved.

    Even if not I think you do need to start from scratch with the planning. You should be reading basic investing books and blog articles and listening to introductory podcasts on personal finance. Not just WCI book but Clements “How to think about Money” , also “The One Page Financial Plan” (i forget the author).

    You aren’t in a bad position— your biggest need is to learn more of the basics. A financial planner *may* help but also could be terrible. You need to know not only how to identify a good one and what a good fee is but most importantly know if their advice is any good. Right now (and this isn’t meant to be mean) you would be a good target for an unscrupulous advisor.

    http://www.RogueDadMD.com

    An alt-brown look at medicine, money, faith, and family

    #228047 Reply
    Liked by Tim

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