Author Topic: Case study - savings strategy - single late-30s professional in San Francisco  (Read 7569 times)


  • 5 O'Clock Shadow
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  • Posts: 15
Hi all,

I'm relatively new here. Having spent several weeks reading and digesting this and related sites, I'm ready for your scrutiny. Specifically, I'm looking for feedback on changes I think I need to make to my savings approach.

About me:
39, single, no kids, no debt, enjoying life in San Francisco, fortunate to have rewarding work that I enjoy. Intrigued by FIRE but not fully committed to a specific timeline yet.

403b: 205k
Roth IRA: 81k   
Rollover IRA: 11k (just sitting there, I no longer contribute)   
HSA: 400
Emergency fund: 15k (in savings account @1%)
Down payment fund: 132k (in savings account @1%)
Checking: 7k

Income (per month):
Gross income: 10,250 
Benefits: - 131
Taxes: -3,641
Net pay:  6,478 / month
In addition, my employer contributes $820/month to my 403b and $1300/year to my HSA.

Expenses (per month): 
Rent: $1,700 (for context, this is 50% of a rent-controlled 2BR that I share with a housemate)
Electricity/Gas: $25
Internet/Cable: $40
Phone: $85
Groceries/household: $150
Cleaners: $100 (non-negotiable due to roommate situation)
Gym: $80
Subscriptions: $40 (Netflix, Spotify, etc.)
Transportation: $80 (BART/Uber/Lyft)
Charity: $200
Vacation: $200
"Spending": $750 (currently under review!)

Currrent savings approach (per month):
Down payment fund: $1400
Emergency fund: $50 (already fully funded at $15K, this is just to maintain/increase)
Roth 403b: $813 (employer contributes additional $820)
Roth IRA: $300
HSA: $0 (employer contributes additional $108)

Proposed action plan for your feedback:
1. Switch back from Roth 403(b) to pre-tax 403(b). I used to contribute to my 403(b) pre-tax. I switched to making post-tax contributions a couple of years ago under the guidance of a financial advisor, whose logic was "taxes are at historic lows and they will be higher when you retire." I see her point, but in the 28% bracket, I am now skeptical that I personally will be in a higher bracket after retirement. I am thinking I should switch back to regular.
2. Work towards maxing out the regular 403(b). I currently contribute $9750 per year post-tax. If my math is correct, this is equivalent to $13,542 pre-tax, so I could contribute the latter amount pre-tax without cutting into my take-home budget at all. To max out the regular 403(b) at $18K, I would need to put in about $4500 additional pre-tax, which would reduce my post-tax take-home pay by about $3200. (I am only considering federal 28% tax in this calculation...should I be considering state tax too? FICA?) I may not get all the way there this year, but I am due for a small raise in a few months, which can go entirely towards this objective.
3. Switch from Roth IRA to traditional IRA. I think I have to do this, as I've recently started earning above the income limit for a Roth. I see there is something called a backdoor Roth - should I look into this, or just go traditional?
4. Start maxing out traditional IRA. I'm putting $3600/year into the Roth (used to max it out, but fell off the wagon a few months ago when my rent went up), which would be equivalent to $5000 pre-tax (at 28% tax rate). So I could put $5K to the traditional without even reducing my take-home pay. To max it out, I need to put in an additional $500 pre-tax, which equals $360 - essentially peanuts over the course of an entire year, so I should be able to start this right away.
5. Start maxing out HSA. My employer puts in $1300 so I should be putting in the additional $2000, which is pre-tax, so it would only reduce my take-home pay by $1440.

I'm looking forward to any feedback on this plan. Thanks in advance!


  • Stubble
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  • Posts: 129
  • Age: 34
  • Location: Seattle

Looks like you are doing great. Congratulations on having a job that you find rewarding, that really makes this process better and more flexible for you.

I'll just offer my two cents on your proposed actions, and a couple of other thoughts for your consideration. Keep in mind I'm just a forum member and not a professional financial planner.

Proposed actions:
1. I agree that it's likely right to switch back to pre-tax contributions. However, the right answer depends on your income in retirement. You need to decide for yourself what you think your spending will be in retirement and how much you plan to save in retirement vehicles. If you plan to save a lot in retirement vehicles, this which would drive required minimum distributions up high. For the stereotypical mustachian early retirees, however, their spending will be far below their earning during working years, and they won't run into problems with high required minimum distributions in retirement, so their tax bracket will be very low or even zero. For example, say you spend 40,000/year and over time you save $1million while working making $150,000/year in the 28% tax bracket. You plan to continue your same spending level in retirement. So you retire and start withdrawing $40,000 each year from your investments. These withdrawals will likely include some earnings in the form of dividends and capital gains, but  the $40k won't all be counted as income. So your income in retirement will be below $40k and not all of this will be earned income (taxed at normal income tax rates) but rather in these other forms of income. This will likely put you in the 0% tax bracket.  Therefore, contributing pre-tax dollars now is much better for the average mustachian. This math changes if you plan to save a ton more money than you actually need in retirement vehicles, which would trigger high Required Minimum Distributions after traditional retirement age and thus high taxes. It also changes if you plan to spend a ton of money in retirement.

2. This is a good idea. Do what you can to make it happen. I know you didn't ask for feedback on your spending, but I'd check that "Spending" category for savings opportunities. I also suggest looking for a cheaper phone plan. I just switched to Google Project Fi for $30/month. Otherwise you spending looks very reasonable to me.

3. The income limit to contribute pre-tax dollars to a traditional IRA is actually LOWER than the contribution limit to contribute to a Roth IRA. So if you are going to make too much income to contribute to Roth, then you can't just switch to the traditional. However, you also brought up the backdoor Roth, which is exactly what you need in your situation. Although you will make too much to contribute pre-tax dollars to a traditional IRA, you can still contribute POST-TAX dollars to the traditional IRA. Then, you can do a 'rollover' from the traditional to the Roth IRA. So when all is said and done, the effect is the same as contributing directly to the Roth IRA, but you've done this little dance with some extra paperwork. This works best if you have a $0 balance in your traditional IRA (Because rollovers from a traditional IRA containing both pre- and post-tax dollars cannot be separated during the rollover, so you will end up rolling over some pre- and some post-tax dollars from traditional to Roth). It appears that you do not have a traditional IRA balance now - so the backdoor roth is something you definitely want to look at. Read up on it.

4. Yes to maximizing the IRA, but as stated above, you can't contribute pre-tax dollars to the traditional IRA if you make too much to contribute to a Roth. So these will have to be post-tax dollars.

5. Yes, good idea. Read the fine print in your HSA documents to find out what fees they charge. Some charge outrageous fees for investing, or don't allow investing at low balances. You can look into transferring the money from the default employer-sponsored HSA carrier to a better one if yours is not good.

Other thoughts:
Some might say that you are being overly conservative with a 15k emergency fund, 7k in checking, and 132k in down payment fund. I would think through what emergency situation you are preparing for, and how likely it is to happen, and all of your options if it did happen. When are you planning to use the down payment fund? can it serve as your emergency fund for now? In a dire emergency, Roth IRA contributions can also be used penalty free (though this is not optimal since you can't put them back again). So for example, if you decide you need 15k in liquid assets for an emergency fund because you're worried about losing your job and you think that worst case is you would need a couple of months past unemployment benefits to find a new job. Then you could plan to keep 7k in checking and 8k in savings generally, but for now just use your down payment fund as emergency fund. when you do use the down payment, you could spend all of it and be left with no emergency fund (briefly) until you build it back up with monthly savings. In that time, your Roth IRA could serve as your interim emergency fund, since it is short term the risk is low that you would actually need it. Just a few thoughts, everyone's appetite for risk is different.


  • Walrus Stache
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  • Posts: 9403
Proposed action plan for your feedback:
1. Switch back from Roth 403(b) to pre-tax 403(b).
2. Work towards maxing out the regular 403(b).
3. Switch from Roth IRA to traditional IRA.
4. Start maxing out traditional [Roth] IRA.
5. Start maxing out HSA.
TFTF, welcome to the forum.

PowerMustache already gave many good answers, so I'll just add a few things.
1) Yes, for all the reasons PM gave.
2) Yes - you can easily afford it.
3) That would be nice, but the IRS won't allow you to deduct tIRA contributions.  See
4) By contributing $18K to the regular 403b, you will be under the Roth IRA contribution limit, so put $5500 there.
5) Yes.

You may eventually exceed the IRS's Roth IRA contribution limits.  If so, see  Note that, if you go this route, you will likely want to roll your rollover IRA into your 403b to avoid the pro-rata rule (see the bogleheads link if "pro-rata rule" is unclear).


  • 5 O'Clock Shadow
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  • Posts: 15
Thank you, Power Mustache and MDM! This has already been very helpful. It sounds like I was misguided about the traditional IRA. It hadn't occurred to me that if I am maxing out the 403b (pre-tax) and the HSA, that will take my adjusted gross income back under the Roth limit (right?) - so I can just continue with the Roth IRA.

So here's the revised plan:
1. Switch 403(b) contributions from Roth to traditional.
2. Max out the traditional 403(b).
3. Max out Roth IRA (now that I will be under income limit due to traditional 403b contributions).
4. Max out HSA (and research its details per PowerMustache's advice).

Question - if I need to reduce my down payment savings rate (currently $1400/month) to maximize contributions to all these accounts, I should do that, right? Because I can use some of my Roth towards the down payment if needed? (I promise to scrutinize the "spending" category first.)


  • Walrus Stache
  • *******
  • Posts: 9403
Question - if I need to reduce my down payment savings rate (currently $1400/month) to maximize contributions to all these accounts, I should do that, right? Because I can use some of my Roth towards the down payment if needed? (I promise to scrutinize the "spending" category first.)

Here is the long version.  See the bolded part about the down payment.  In short, that's up to you.

See the 'Investment Order' tab in the case study spreadsheet for the latest version.  This is the content as of today.
"Max..." means "contribute up to the maximum allowed for..., subject to your ability to pay day-to-day expenses."   
It is up to you whether to consider "saving for a house down payment" as a "day to day expense", vs. lumping the down payment savings in with "taxable investments" at the end.   
If you are renting, you may not be throwing away as much on rent as you might think.  See for some thoughts.
In the lists below, thinking "first your 457 (if you have one), then your 401k and/or 403b" wherever "401k" appears is likely correct -   
   unless your 457 fund options are significantly worse than those in the 401k/403b -
   due to penalty-free access to 457 funds at retirement, even if younger than 59 1/2.
Differences of a few tenths of a percent are not important when applicable for only a few years (in other words, these are guidelines not rules).   
Current 10-year Treasury note yield is ~2%.  See
0. Establish an emergency fund to your satisfaction   
1. Contribute to 401k up to any company match   
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.   
3. Max HSA    
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level   
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)   
6. Fund mega backdoor Roth if applicable   
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.   
8. Invest in a taxable account with any extra.   
0. Give yourself at least enough buffer to avoid worries about bouncing checks   
1. Company match rates are likely the highest percent return you can get on your money   
2. When the guaranteed return is this high, take it.   
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.   
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between (or see
   if you want even more details on that topic).  See also,
   and other posts in that thread about exceptions to the rule.
5. See #4 for choice of traditional or Roth for 401k   
6. Applicability depends on the rules for the specific 401k   
7. Again, take the risk-free return if high enough   
8. Because earnings, even if taxed, are beneficial   
The emergency fund is your "no risk" money.  You might consider one of these online banks:
If your 401k options are poor (i.e., high fund fees) you can check
for some thoughts on "how high is too high?"   
Priorities above apply when income is primarily through W-2 earnings.  For those running their own businesses (e.g., rental property owner, small business owner, etc.),   
   putting money into that business might come somewhere before, in parallel with, or after step 5.