Author Topic: Reader Case Study: How are we doing?  (Read 12239 times)

sj16

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Reader Case Study: How are we doing?
« on: September 17, 2014, 11:19:47 AM »
Hi all,
I just stumbled upon this blog a month ago when the idea of an early retirement was non-existent. Now, I'm trying to see if this is a feasible goal for my husband and I and also how we are doing financially.
Husband is 37 and I'm 32 and we have a six-months old. We also live in a high COL city with high housing costs.
Combined annual income is around $150K.

Assets
Housing value: $550K
Retirement/Investment: $160K
EF/Checking: $15K

Debt
Mortgage: 190K (14yr remaining at 3.5%)

Net Worth: ~$535K

Monthly Income: $9,000 
Monthly Expenses: $7000

Expenses:
(Fixed)
Housing (mortgage, HOA, property tax): 2600
Childcare: 1500
Giving: 400
Phone bill (family plan): 250
Auto/property insurance: 250
Term/life insurance: 400
Utility/cable: 100
Sub-Total: 5500
(Variable)
Gas: 400
Grocery/Dining: 800
Entertainment/Miscellaneous: 300
Sub-Total: 1500

Total Expenses ~ 7000

So we're saving about $2000 total a month (this includes IRA, 401K and investment contributions). We don't really have a set goal at this time of when/how early we want to retire but I would like some feedback on how we look financially in general and how we can do better. I don't know where we can/should cut costs from as I feel it's pretty trimmed down.  Please help us Mustachians!!
« Last Edit: September 17, 2014, 12:48:32 PM by sj16 »

MDM

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Re: Reader Case Study: How are we doing?
« Reply #1 on: September 17, 2014, 11:47:54 AM »
Seems you could contribute $35K/yr to your 401k plans, and $11K/yr to Roth IRAs (maybe a little to traditional IRAs, depending on the exact definition of "income is around $150K").  Does anything prevent you from doing so?

Do you take advantage of any company stock discounts?

Others here will likely take you to task for overspending and tell you to invest what you save when you reduce spending.  This post is suggesting you "pay yourself first" by maximizing tax-advantaged investments, then adjust spending to fit whatever is left.  Same overall advice - follow whichever path suits you better.

Good luck!

genselecus

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Re: Reader Case Study: How are we doing?
« Reply #2 on: September 17, 2014, 12:02:25 PM »
You pay a lot for your phone plan. Switching to Republic would save you $150+ per month.
Your gas bill is high, look for a way to reduce that (not sure if you can bike to work, carpool, etc.).
Your grocery/dining bill is also high for a family of (effectively) two. Seems like there's an opportunity to save $300+ per month there.
Entertainment/Misc seems fine to me, but recognize that it is slowing down the path to retirement, so evaluate it with that in mind.
In short, it seems like you should be able to save $500+ per month more than you currently do by making some relatively painless adjustments. Given your savings rate and your current savings, you have a long ways to go to hit the 4% SWR mark.

I'd also stress that you max out your 401ks and IRAs every year. Freeing up that extra $500 per month should help get you close.

Finally, I won't go there with some of your other categories, but I would stress that you get rid of the mentality that classified expenses as "fixed" vs. "variable." This may be semantics and not what you intended when you chose that word, but I think using the term "fixed" allows people (not saying this is necessarily you) to remove control over that expense or situation. You can stop giving $400 per month, you can stop paying for life insurance. You can change your cell phone bill, or reduce energy usage. Anyways, there are additional expenditures that you have that I don't have. If you truly value donating ~$5k per year, then you should do it, but don't look at it as something out of your control.

Kmp2

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Re: Reader Case Study: How are we doing?
« Reply #3 on: September 17, 2014, 12:12:27 PM »
We are in the same place (32 & 37, with a 17 month old), and our house is about 500k too.

Comparing to our expenses, I would say your childcare is high (ours is 870/month), but that may drop as your child approaches the 1.5yr mark. It is more expensive for babies than toddlers.
Our cell phone bill is 75/month - includes free long distance & unlimited data for two phones (this is in canada where cells are expensive). And at 400$/month in gas with 250$/month insurance - it looks like you have two cars and drive a lot! We have two cars, but are down to 110$/month insurance and less than 100$/month gas.

Those look like your best opportunities to trim some expenses.

Also the 800$/month for food is in line with yours, but I know that we spend ridiculous amounts on food and dining... I could (and have at times) trimmed down to 450 fairly easily.

Generally I would say you're on the right track, spending less than you earn. Just keep questioning your expenses from time to time, spend money where it matters to you.

dandarc

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Re: Reader Case Study: How are we doing?
« Reply #4 on: September 17, 2014, 12:16:56 PM »
$400 / month for term life insurance?  Is that right?  How much do you have?  How long are the terms?

Recently cut mine from $102 / month down to about $30 for $1 million for me (31/male - in the 'preferred' rating group, so this isn't even the lowest you could get, if you're healthy - Cholesterol ratio bit me in the ass) by recognizing 2 things:
1.  We no longer need (possibly never needed) a 30 year term - cut it to 10 years, which is still too long, but much closer to what we actually need.
2.  We had bought from the wrong insurer - middle of the road within the rating category for premiums - now we are at the low end.

Any way, there could be some significant savings there.

FrugalSpendthrift

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Re: Reader Case Study: How are we doing?
« Reply #5 on: September 17, 2014, 12:20:39 PM »
This post is suggesting you "pay yourself first" by maximizing tax-advantaged investments, then adjust spending to fit whatever is left.
Great advice.  Take advantage of your 401k and reduce your tax bill.  I'm sure you used to live on a lot less than you currently make, so think back about how you used to live for some ideas on where to cut back.

sj16

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Re: Reader Case Study: How are we doing?
« Reply #6 on: September 17, 2014, 12:53:37 PM »
Seems you could contribute $35K/yr to your 401k plans, and $11K/yr to Roth IRAs (maybe a little to traditional IRAs, depending on the exact definition of "income is around $150K").  Does anything prevent you from doing so?

Do you take advantage of any company stock discounts?

Others here will likely take you to task for overspending and tell you to invest what you save when you reduce spending.  This post is suggesting you "pay yourself first" by maximizing tax-advantaged investments, then adjust spending to fit whatever is left.  Same overall advice - follow whichever path suits you better.

Good luck!

Thanks MDM for your inputs, I agree with you 100% that it is the right thing to "pay ourselves first" and up the 401K contribution to max (currently maxing Roth IRA at $11K a year..questions here, if we're doing Roth, we can't do a traditional IRA no?)

sj16

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Re: Reader Case Study: How are we doing?
« Reply #7 on: September 17, 2014, 12:57:37 PM »
$400 / month for term life insurance?  Is that right?  How much do you have?  How long are the terms?

Recently cut mine from $102 / month down to about $30 for $1 million for me (31/male - in the 'preferred' rating group, so this isn't even the lowest you could get, if you're healthy - Cholesterol ratio bit me in the ass) by recognizing 2 things:
1.  We no longer need (possibly never needed) a 30 year term - cut it to 10 years, which is still too long, but much closer to what we actually need.
2.  We had bought from the wrong insurer - middle of the road within the rating category for premiums - now we are at the low end.

Any way, there could be some significant savings there.

Both Term and Whole. Whole was bought by husband about 12 yrs ago while young and naive..we looked into canceling whole and just keeping the term (about $150/mo for $2MM 30 yrs) but our friend (advisor) said it might be worth just keeping it given how long it's been in place and the value it has accumulated).

dandarc

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Re: Reader Case Study: How are we doing?
« Reply #8 on: September 17, 2014, 12:58:01 PM »
Seems you could contribute $35K/yr to your 401k plans, and $11K/yr to Roth IRAs (maybe a little to traditional IRAs, depending on the exact definition of "income is around $150K").  Does anything prevent you from doing so?

Do you take advantage of any company stock discounts?

Others here will likely take you to task for overspending and tell you to invest what you save when you reduce spending.  This post is suggesting you "pay yourself first" by maximizing tax-advantaged investments, then adjust spending to fit whatever is left.  Same overall advice - follow whichever path suits you better.

Good luck!

Thanks MDM for your inputs, I agree with you 100% that it is the right thing to "pay ourselves first" and up the 401K contribution to max (currently maxing Roth IRA at $11K a year..questions here, if we're doing Roth, we can't do a traditional IRA no?)
If you're maxing the Roth then no.  You get one bucket of money to share between Roth and Traditional IRAs.  At your income, you might want to consider Traditional IRAs (assuming you can deduct the contributions - maxing the 401Ks can help you to qualify there).  Sounds like you might be in the 25% bracket, so you're getting into 'saving lots of money at today's rate' territory.

dandarc

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Re: Reader Case Study: How are we doing?
« Reply #9 on: September 17, 2014, 01:01:53 PM »
$400 / month for term life insurance?  Is that right?  How much do you have?  How long are the terms?

Recently cut mine from $102 / month down to about $30 for $1 million for me (31/male - in the 'preferred' rating group, so this isn't even the lowest you could get, if you're healthy - Cholesterol ratio bit me in the ass) by recognizing 2 things:
1.  We no longer need (possibly never needed) a 30 year term - cut it to 10 years, which is still too long, but much closer to what we actually need.
2.  We had bought from the wrong insurer - middle of the road within the rating category for premiums - now we are at the low end.

Any way, there could be some significant savings there.
Both Term and Whole. Whole was bought by husband about 12 yrs ago while young and naive..we looked into canceling whole and just keeping the term (about $150/mo for $2MM 30 yrs) but our friend (advisor) said it might be worth just keeping it given how long it's been in place and the value it has accumulated).
Ah - you might be getting there where you've had the whole-life so long that it does make sense to keep it.  I've heard it usually takes 20+ years before the math works out in favor of keeping, so do the math yourself - if you ask your advisor who sold you the policy and continues to get residual commissions on it, you know what answer you're going to get.

sj16

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Re: Reader Case Study: How are we doing?
« Reply #10 on: September 17, 2014, 01:06:17 PM »
We are in the same place (32 & 37, with a 17 month old), and our house is about 500k too.

Comparing to our expenses, I would say your childcare is high (ours is 870/month), but that may drop as your child approaches the 1.5yr mark. It is more expensive for babies than toddlers.
Our cell phone bill is 75/month - includes free long distance & unlimited data for two phones (this is in canada where cells are expensive). And at 400$/month in gas with 250$/month insurance - it looks like you have two cars and drive a lot! We have two cars, but are down to 110$/month insurance and less than 100$/month gas.

Those look like your best opportunities to trim some expenses.

Also the 800$/month for food is in line with yours, but I know that we spend ridiculous amounts on food and dining... I could (and have at times) trimmed down to 450 fairly easily.

Generally I would say you're on the right track, spending less than you earn. Just keep questioning your expenses from time to time, spend money where it matters to you.

Thanks Kmp2, those areas are where I thought that we should focus on reducing (phone and food). Childcare and car/gas costs are harder. Average nannys in our neighborhood get paid $10-$15/hr but my mother in law helps out a couple of times a week so we're actually paying a lot less comparatively..and want to wait a lilttle to put her in day-care/preschool. We're in southern cali so public transportation is pretty tricky and gas bills price is what it is. Definitely going to look into cutting down phone and food costs. Thanks!

sj16

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Re: Reader Case Study: How are we doing?
« Reply #11 on: September 17, 2014, 01:08:35 PM »
Seems you could contribute $35K/yr to your 401k plans, and $11K/yr to Roth IRAs (maybe a little to traditional IRAs, depending on the exact definition of "income is around $150K").  Does anything prevent you from doing so?

Do you take advantage of any company stock discounts?

Others here will likely take you to task for overspending and tell you to invest what you save when you reduce spending.  This post is suggesting you "pay yourself first" by maximizing tax-advantaged investments, then adjust spending to fit whatever is left.  Same overall advice - follow whichever path suits you better.

Good luck!

Thanks MDM for your inputs, I agree with you 100% that it is the right thing to "pay ourselves first" and up the 401K contribution to max (currently maxing Roth IRA at $11K a year..questions here, if we're doing Roth, we can't do a traditional IRA no?)
If you're maxing the Roth then no.  You get one bucket of money to share between Roth and Traditional IRAs.  At your income, you might want to consider Traditional IRAs (assuming you can deduct the contributions - maxing the 401Ks can help you to qualify there).  Sounds like you might be in the 25% bracket, so you're getting into 'saving lots of money at today's rate' territory.

Thank you dandarc! can you please explain why doing a traditional IRA might be better in our income range?

justajane

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Re: Reader Case Study: How are we doing?
« Reply #12 on: September 17, 2014, 01:09:18 PM »
Quote
as I feel it's pretty trimmed down

I don't want to sound harsh, but if you have spent any time on here reviewing people's budgets, I think you will realize immediately that many of your categories are rather high. Maybe it is the fact that you live in a high cost of living area, but if you feel this is trimmed down, you're likely out of step with most people who read this forum. But since you asked, the ones that jump out at me are food, phone, insurance and gas.

MDM

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Re: Reader Case Study: How are we doing?
« Reply #13 on: September 17, 2014, 01:20:06 PM »

dandarc

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Re: Reader Case Study: How are we doing?
« Reply #14 on: September 17, 2014, 01:23:48 PM »
Seems you could contribute $35K/yr to your 401k plans, and $11K/yr to Roth IRAs (maybe a little to traditional IRAs, depending on the exact definition of "income is around $150K").  Does anything prevent you from doing so?

Do you take advantage of any company stock discounts?

Others here will likely take you to task for overspending and tell you to invest what you save when you reduce spending.  This post is suggesting you "pay yourself first" by maximizing tax-advantaged investments, then adjust spending to fit whatever is left.  Same overall advice - follow whichever path suits you better.

Good luck!

Thanks MDM for your inputs, I agree with you 100% that it is the right thing to "pay ourselves first" and up the 401K contribution to max (currently maxing Roth IRA at $11K a year..questions here, if we're doing Roth, we can't do a traditional IRA no?)
If you're maxing the Roth then no.  You get one bucket of money to share between Roth and Traditional IRAs.  At your income, you might want to consider Traditional IRAs (assuming you can deduct the contributions - maxing the 401Ks can help you to qualify there).  Sounds like you might be in the 25% bracket, so you're getting into 'saving lots of money at today's rate' territory.

Thank you dandarc! can you please explain why doing a traditional IRA might be better in our income range?
shelters your income from taxes this year - if you're in the 25% federal bracket, and living / working in California (9%ish state income tax there, yes?), and you're gonna invest 11K this year, you can put it in the Roth IRA and have the peace of mind that you'll never pay taxes again on that money.  You also get a little more withdrawal flexibility with the Roth.  Or you can go traditional and save ~34% of that 11K right now - about $3,740 that you'll save on taxes this year.  So that peace of mind / flexibility is expensive.  At lower tax rates (i.e. lower incomes), going Traditional does not save nearly as much in taxes - which makes the benefits of the Roth IRA much less expensive.  At the extreme low end, the Roth is a no-brainer - if you're paying any more than $0 in taxes, you've got to weigh the taxes saved today vs. the potential taxes saved in the future to make the decision.

Here's the big thing you've gotta realize about taxes in the future though - if you embrace the teachings of this blog / board, you'll lower your expenses a lot and it will then be extremely likely that you will pay much lower taxes in retirement than you are today - so you save taxes today with the traditional IRA, then don't pay taxes (or at least not nearly as much) in the future.  Traditional is a better deal for a lot of people - you just have to be sure you can legally deduct the contributions (phase-out of that starts around 96K, I think if you both work and have access to 401Ks).  There are a lot of ways to reduce your income for this purpose, so even though your gross salary might be 150K, it is not totally out of the question to get down to below 96K MAGI for IRAs.

FrugalSpendthrift

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Re: Reader Case Study: How are we doing?
« Reply #15 on: September 17, 2014, 01:31:27 PM »
We're in southern cali so public transportation is pretty tricky and gas bills price is what it is.
Don't just assume it is what it is.  You may not be able to change the price of gas, but you can control how you use it.  The big factors that you can control are how long the commute is and how efficient the vehicle is.

Aphalite

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Re: Reader Case Study: How are we doing?
« Reply #16 on: September 17, 2014, 02:13:30 PM »

shelters your income from taxes this year - if you're in the 25% federal bracket, and living / working in California (9%ish state income tax there, yes?), and you're gonna invest 11K this year, you can put it in the Roth IRA and have the peace of mind that you'll never pay taxes again on that money.  You also get a little more withdrawal flexibility with the Roth.  Or you can go traditional and save ~34% of that 11K right now - about $3,740 that you'll save on taxes this year.  So that peace of mind / flexibility is expensive.  At lower tax rates (i.e. lower incomes), going Traditional does not save nearly as much in taxes - which makes the benefits of the Roth IRA much less expensive.  At the extreme low end, the Roth is a no-brainer - if you're paying any more than $0 in taxes, you've got to weigh the taxes saved today vs. the potential taxes saved in the future to make the decision.

Here's the big thing you've gotta realize about taxes in the future though - if you embrace the teachings of this blog / board, you'll lower your expenses a lot and it will then be extremely likely that you will pay much lower taxes in retirement than you are today - so you save taxes today with the traditional IRA, then don't pay taxes (or at least not nearly as much) in the future.  Traditional is a better deal for a lot of people - you just have to be sure you can legally deduct the contributions (phase-out of that starts around 96K, I think if you both work and have access to 401Ks).  There are a lot of ways to reduce your income for this purpose, so even though your gross salary might be 150K, it is not totally out of the question to get down to below 96K MAGI for IRAs.

They make 150k combined, they CAN'T do traditional - no tax break, Roth is the only way they get a tax advantage (on the back end)

Aphalite

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Re: Reader Case Study: How are we doing?
« Reply #17 on: September 17, 2014, 02:26:05 PM »
Like everyone else has already said, max both 401k (35k total), then max Roth IRA - another 11k, and then think about maxing an HSA if you guys have a HDHP (6.5k) - that forces you to save a little over 50k, which is likely close to or more than 50% of your after tax income after federal, FICA, and state tax (25+7+9 = 41%) - this means that you're currently about 28k short of that goal

To reach it, start cutting from below:
Childcare costs are a little high, any chance you can find an alternative? (Maybe a SAHM friend who can watch your kid for less than 1500 a month?), if you knock it down to even 1k a month that's 6k of the 28k you need to get to
Gas - cut it in half if possible, another 2.5k of the 28k
Grocery/Dining - eat out less, bring lunches, should be able to knock it down to 600 or less, another 2.5k
Phone - Republic Wireless/Ting - knocked down to 50 or less, another 2.5k
Insurance - Get rid of whole life - you might need to provide us with some more details to decide where to keep, but most likely the answer is no, that should save you about 200-300 a month, we'll say 250, which is 3k

The remaining (28-(6+2.5+2.5+2.5+3)=11.5) 11.5k should come from tax savings as you up your before tax contributions to 401k and HSA

Good luck! Keeping a 50% savings rate requires a lot of discipline, which can be hard in a place like California, where money is sometimes treated like toilet paper : )


dandarc

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Re: Reader Case Study: How are we doing?
« Reply #18 on: September 17, 2014, 02:50:10 PM »

shelters your income from taxes this year - if you're in the 25% federal bracket, and living / working in California (9%ish state income tax there, yes?), and you're gonna invest 11K this year, you can put it in the Roth IRA and have the peace of mind that you'll never pay taxes again on that money.  You also get a little more withdrawal flexibility with the Roth.  Or you can go traditional and save ~34% of that 11K right now - about $3,740 that you'll save on taxes this year.  So that peace of mind / flexibility is expensive.  At lower tax rates (i.e. lower incomes), going Traditional does not save nearly as much in taxes - which makes the benefits of the Roth IRA much less expensive.  At the extreme low end, the Roth is a no-brainer - if you're paying any more than $0 in taxes, you've got to weigh the taxes saved today vs. the potential taxes saved in the future to make the decision.

Here's the big thing you've gotta realize about taxes in the future though - if you embrace the teachings of this blog / board, you'll lower your expenses a lot and it will then be extremely likely that you will pay much lower taxes in retirement than you are today - so you save taxes today with the traditional IRA, then don't pay taxes (or at least not nearly as much) in the future.  Traditional is a better deal for a lot of people - you just have to be sure you can legally deduct the contributions (phase-out of that starts around 96K, I think if you both work and have access to 401Ks).  There are a lot of ways to reduce your income for this purpose, so even though your gross salary might be 150K, it is not totally out of the question to get down to below 96K MAGI for IRAs.

They make 150k combined, they CAN'T do traditional - no tax break, Roth is the only way they get a tax advantage (on the back end)
Subtract any health insurance premiums, HSA, and 401K deductions from 150K - they might be closer than you think.  Maybe part of that is self-employment income?  Subtract half the self-employment tax as well, maybe use a Solo401K or SEP-IRA to get under the limit.  Also if one spouse has access to a work 401K and the other does not, then the lower limit only applies to the spouse with the 401K - a much higher limit applies to the spouse without one available.

It really isn't as simple as 'they make 150K, so they can't do it'.  http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits

Aphalite

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Re: Reader Case Study: How are we doing?
« Reply #19 on: September 17, 2014, 03:21:08 PM »

shelters your income from taxes this year - if you're in the 25% federal bracket, and living / working in California (9%ish state income tax there, yes?), and you're gonna invest 11K this year, you can put it in the Roth IRA and have the peace of mind that you'll never pay taxes again on that money.  You also get a little more withdrawal flexibility with the Roth.  Or you can go traditional and save ~34% of that 11K right now - about $3,740 that you'll save on taxes this year.  So that peace of mind / flexibility is expensive.  At lower tax rates (i.e. lower incomes), going Traditional does not save nearly as much in taxes - which makes the benefits of the Roth IRA much less expensive.  At the extreme low end, the Roth is a no-brainer - if you're paying any more than $0 in taxes, you've got to weigh the taxes saved today vs. the potential taxes saved in the future to make the decision.

Here's the big thing you've gotta realize about taxes in the future though - if you embrace the teachings of this blog / board, you'll lower your expenses a lot and it will then be extremely likely that you will pay much lower taxes in retirement than you are today - so you save taxes today with the traditional IRA, then don't pay taxes (or at least not nearly as much) in the future.  Traditional is a better deal for a lot of people - you just have to be sure you can legally deduct the contributions (phase-out of that starts around 96K, I think if you both work and have access to 401Ks).  There are a lot of ways to reduce your income for this purpose, so even though your gross salary might be 150K, it is not totally out of the question to get down to below 96K MAGI for IRAs.

They make 150k combined, they CAN'T do traditional - no tax break, Roth is the only way they get a tax advantage (on the back end)
Subtract any health insurance premiums, HSA, and 401K deductions from 150K - they might be closer than you think.  Maybe part of that is self-employment income?  Subtract half the self-employment tax as well, maybe use a Solo401K or SEP-IRA to get under the limit.  Also if one spouse has access to a work 401K and the other does not, then the lower limit only applies to the spouse with the 401K - a much higher limit applies to the spouse without one available.

It really isn't as simple as 'they make 150K, so they can't do it'.  http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits

It's also not as simple as 'maybe they are self employed, so use solo401k or sep-ira' - she has not mentioned anywhere that they are self employed, and 401k + HSA aside, they'd have to pay 15k+ a year on health insurance premiums, and if their premiums are that high, they're probably not on a HDHP, so now you're looking at 21k+ a year to get to the cutoff on full tax deduction

That said, I'm assuming that they both have a 401k and they're not self employed, while you're assuming that at least one of them is self employed, so now she has two scenarios to look at to make her decision

sj16

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Re: Reader Case Study: How are we doing?
« Reply #20 on: September 17, 2014, 04:07:29 PM »
Seems you could contribute $35K/yr to your 401k plans, and $11K/yr to Roth IRAs (maybe a little to traditional IRAs, depending on the exact definition of "income is around $150K").  Does anything prevent you from doing so?

Do you take advantage of any company stock discounts?

Others here will likely take you to task for overspending and tell you to invest what you save when you reduce spending.  This post is suggesting you "pay yourself first" by maximizing tax-advantaged investments, then adjust spending to fit whatever is left.  Same overall advice - follow whichever path suits you better.

Good luck!

Thanks MDM for your inputs, I agree with you 100% that it is the right thing to "pay ourselves first" and up the 401K contribution to max (currently maxing Roth IRA at $11K a year..questions here, if we're doing Roth, we can't do a traditional IRA no?)
If you're maxing the Roth then no.  You get one bucket of money to share between Roth and Traditional IRAs.  At your income, you might want to consider Traditional IRAs (assuming you can deduct the contributions - maxing the 401Ks can help you to qualify there).  Sounds like you might be in the 25% bracket, so you're getting into 'saving lots of money at today's rate' territory.

Thank you dandarc! can you please explain why doing a traditional IRA might be better in our income range?
shelters your income from taxes this year - if you're in the 25% federal bracket, and living / working in California (9%ish state income tax there, yes?), and you're gonna invest 11K this year, you can put it in the Roth IRA and have the peace of mind that you'll never pay taxes again on that money.  You also get a little more withdrawal flexibility with the Roth.  Or you can go traditional and save ~34% of that 11K right now - about $3,740 that you'll save on taxes this year.  So that peace of mind / flexibility is expensive.  At lower tax rates (i.e. lower incomes), going Traditional does not save nearly as much in taxes - which makes the benefits of the Roth IRA much less expensive.  At the extreme low end, the Roth is a no-brainer - if you're paying any more than $0 in taxes, you've got to weigh the taxes saved today vs. the potential taxes saved in the future to make the decision.

Here's the big thing you've gotta realize about taxes in the future though - if you embrace the teachings of this blog / board, you'll lower your expenses a lot and it will then be extremely likely that you will pay much lower taxes in retirement than you are today - so you save taxes today with the traditional IRA, then don't pay taxes (or at least not nearly as much) in the future.  Traditional is a better deal for a lot of people - you just have to be sure you can legally deduct the contributions (phase-out of that starts around 96K, I think if you both work and have access to 401Ks).  There are a lot of ways to reduce your income for this purpose, so even though your gross salary might be 150K, it is not totally out of the question to get down to below 96K MAGI for IRAs.

Ah, that makes sense about paying a lot in taxes in absolute terms, I gotta do some homework to see if we can qualify for traditional IRA after 401K deductions then.
Thank yoU!

sj16

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Re: Reader Case Study: How are we doing?
« Reply #21 on: September 17, 2014, 04:10:09 PM »

shelters your income from taxes this year - if you're in the 25% federal bracket, and living / working in California (9%ish state income tax there, yes?), and you're gonna invest 11K this year, you can put it in the Roth IRA and have the peace of mind that you'll never pay taxes again on that money.  You also get a little more withdrawal flexibility with the Roth.  Or you can go traditional and save ~34% of that 11K right now - about $3,740 that you'll save on taxes this year.  So that peace of mind / flexibility is expensive.  At lower tax rates (i.e. lower incomes), going Traditional does not save nearly as much in taxes - which makes the benefits of the Roth IRA much less expensive.  At the extreme low end, the Roth is a no-brainer - if you're paying any more than $0 in taxes, you've got to weigh the taxes saved today vs. the potential taxes saved in the future to make the decision.

Here's the big thing you've gotta realize about taxes in the future though - if you embrace the teachings of this blog / board, you'll lower your expenses a lot and it will then be extremely likely that you will pay much lower taxes in retirement than you are today - so you save taxes today with the traditional IRA, then don't pay taxes (or at least not nearly as much) in the future.  Traditional is a better deal for a lot of people - you just have to be sure you can legally deduct the contributions (phase-out of that starts around 96K, I think if you both work and have access to 401Ks).  There are a lot of ways to reduce your income for this purpose, so even though your gross salary might be 150K, it is not totally out of the question to get down to below 96K MAGI for IRAs.

They make 150k combined, they CAN'T do traditional - no tax break, Roth is the only way they get a tax advantage (on the back end)
Subtract any health insurance premiums, HSA, and 401K deductions from 150K - they might be closer than you think.  Maybe part of that is self-employment income?  Subtract half the self-employment tax as well, maybe use a Solo401K or SEP-IRA to get under the limit.  Also if one spouse has access to a work 401K and the other does not, then the lower limit only applies to the spouse with the 401K - a much higher limit applies to the spouse without one available.

It really isn't as simple as 'they make 150K, so they can't do it'.  http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits

It's also not as simple as 'maybe they are self employed, so use solo401k or sep-ira' - she has not mentioned anywhere that they are self employed, and 401k + HSA aside, they'd have to pay 15k+ a year on health insurance premiums, and if their premiums are that high, they're probably not on a HDHP, so now you're looking at 21k+ a year to get to the cutoff on full tax deduction

That said, I'm assuming that they both have a 401k and they're not self employed, while you're assuming that at least one of them is self employed, so now she has two scenarios to look at to make her decision
Thanks for all this info aphalite. Yep, we're not self-employed and actually don't pay that much on health premiums so seem slike we won't qualify for a traditional. Homework done! :)

dandarc

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Re: Reader Case Study: How are we doing?
« Reply #22 on: September 17, 2014, 04:15:13 PM »
Seems you could contribute $35K/yr to your 401k plans, and $11K/yr to Roth IRAs (maybe a little to traditional IRAs, depending on the exact definition of "income is around $150K").  Does anything prevent you from doing so?

Do you take advantage of any company stock discounts?

Others here will likely take you to task for overspending and tell you to invest what you save when you reduce spending.  This post is suggesting you "pay yourself first" by maximizing tax-advantaged investments, then adjust spending to fit whatever is left.  Same overall advice - follow whichever path suits you better.

Good luck!

Thanks MDM for your inputs, I agree with you 100% that it is the right thing to "pay ourselves first" and up the 401K contribution to max (currently maxing Roth IRA at $11K a year..questions here, if we're doing Roth, we can't do a traditional IRA no?)
If you're maxing the Roth then no.  You get one bucket of money to share between Roth and Traditional IRAs.  At your income, you might want to consider Traditional IRAs (assuming you can deduct the contributions - maxing the 401Ks can help you to qualify there).  Sounds like you might be in the 25% bracket, so you're getting into 'saving lots of money at today's rate' territory.

Thank you dandarc! can you please explain why doing a traditional IRA might be better in our income range?
shelters your income from taxes this year - if you're in the 25% federal bracket, and living / working in California (9%ish state income tax there, yes?), and you're gonna invest 11K this year, you can put it in the Roth IRA and have the peace of mind that you'll never pay taxes again on that money.  You also get a little more withdrawal flexibility with the Roth.  Or you can go traditional and save ~34% of that 11K right now - about $3,740 that you'll save on taxes this year.  So that peace of mind / flexibility is expensive.  At lower tax rates (i.e. lower incomes), going Traditional does not save nearly as much in taxes - which makes the benefits of the Roth IRA much less expensive.  At the extreme low end, the Roth is a no-brainer - if you're paying any more than $0 in taxes, you've got to weigh the taxes saved today vs. the potential taxes saved in the future to make the decision.

Here's the big thing you've gotta realize about taxes in the future though - if you embrace the teachings of this blog / board, you'll lower your expenses a lot and it will then be extremely likely that you will pay much lower taxes in retirement than you are today - so you save taxes today with the traditional IRA, then don't pay taxes (or at least not nearly as much) in the future.  Traditional is a better deal for a lot of people - you just have to be sure you can legally deduct the contributions (phase-out of that starts around 96K, I think if you both work and have access to 401Ks).  There are a lot of ways to reduce your income for this purpose, so even though your gross salary might be 150K, it is not totally out of the question to get down to below 96K MAGI for IRAs.

Ah, that makes sense about paying a lot in taxes in absolute terms, I gotta do some homework to see if we can qualify for traditional IRA after 401K deductions then.
Thank yoU!
That right there is the point - you're close enough it is worth looking into.  This article might give you some ideas - they don't all necessarily apply for the IRA purpose, but here's someone who found a way to pay $150 in federal income taxes on $150K gross income.  http://rootofgood.com/make-six-figure-income-pay-no-tax/

sj16

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Re: Reader Case Study: How are we doing?
« Reply #23 on: September 17, 2014, 04:17:02 PM »
Like everyone else has already said, max both 401k (35k total), then max Roth IRA - another 11k, and then think about maxing an HSA if you guys have a HDHP (6.5k) - that forces you to save a little over 50k, which is likely close to or more than 50% of your after tax income after federal, FICA, and state tax (25+7+9 = 41%) - this means that you're currently about 28k short of that goal

To reach it, start cutting from below:
Childcare costs are a little high, any chance you can find an alternative? (Maybe a SAHM friend who can watch your kid for less than 1500 a month?), if you knock it down to even 1k a month that's 6k of the 28k you need to get to
Gas - cut it in half if possible, another 2.5k of the 28k
Grocery/Dining - eat out less, bring lunches, should be able to knock it down to 600 or less, another 2.5k
Phone - Republic Wireless/Ting - knocked down to 50 or less, another 2.5k
Insurance - Get rid of whole life - you might need to provide us with some more details to decide where to keep, but most likely the answer is no, that should save you about 200-300 a month, we'll say 250, which is 3k

The remaining (28-(6+2.5+2.5+2.5+3)=11.5) 11.5k should come from tax savings as you up your before tax contributions to 401k and HSA

Good luck! Keeping a 50% savings rate requires a lot of discipline, which can be hard in a place like California, where money is sometimes treated like toilet paper : )
Thank you for for your detailed advice, really appreciate it. Going to look closer at all these categories, some are work in progress (childcare/gas) and some can probably be implmented right away (food, phone).

Seņora Savings

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Re: Reader Case Study: How are we doing?
« Reply #24 on: September 17, 2014, 04:22:47 PM »
To spend $7000 a month, you need $2.1 million in investments for a 4% withdrawal rate.  My spreadsheet (5% interest) has you hitting that in about 17 years.  That means that you're on track to retire at about 49 and 54, pretty darn good.  If you can get your spending down to $1783 you can retire today. (All these calculations assume that you didn't include home equity in net worth)

I don't know where we can/should cut costs from as I feel it's pretty trimmed down.

You can cut pretty much everything.  Living in an RV and eating rice and beans with no cell phone or cable really is an option.  I doubt it's the one that you'll choose and you don't have to.  My one rule is that you have to acknowledge the luxury in your life.  I'm guessing that you wouldn't be giving what you are to charity if you didn't know that plenty of people live on less than you, so I won't harp on this.

galliver

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Re: Reader Case Study: How are we doing?
« Reply #25 on: September 17, 2014, 04:24:41 PM »
I just moved to SoCal and found the public transit better than I was led to believe. I don't want to make assumptions, but if you haven't gone to maps.google.com and found transit directions for you and your husband, you should try. My commute is 3.50 roundtrip or $70-80/mo if I don't bike (I should, but I've been sick).  Or if you find out that doesn't work for you, have you considered e.g. a scooter for one of the work commutes? I was thinking about one if we couldn't find housing within biking distance (we did); I've never owned one but they're fun to ride, and the climate here is perfect for them.

Just throwing some ideas out there for you. :)

dandarc

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Re: Reader Case Study: How are we doing?
« Reply #26 on: September 17, 2014, 04:37:25 PM »
I had a lengthy post, and scrapped it when you said you were checking into it.  Now I'm not so sure you're actually going to research this - read Root of Good's post - then read it again - there are lots of ways you can reduce your income for this purpose.  And keep in mind, the phase-out range is 96K - 116K.  If your MAGI is say 106K, you'd have half of the IRA deductions available to you - sheltering $5500 is potentially worth it - you could go half traditional, half Roth.  Maxing 2 401Ks alone gets you down into the top of the phase-out range from 150K - wouldn't be able to much with just those, however that should be your starting point.

List of things you might have available to you that can reduce your income for this purpose:

1.  401Ks (obviously) - 2X 17.5K - 35K
    1.a - worth looking into would be to create a profit sharing contribution beyond the employer match - some employers allow this, some (most?) don't - if you ask Cheddar Stacker real nice, he can probably tell you the basics of the procedure.
2.  457B (either / both of you government / state university / public school employees?  You may have one or two of these available - although your 401Ks would likely be 403Bs in that case.  Another possible 2 X 17.5K
3.  Pension plan - percentage may be set by your employer, and varies
4.  HSA (if you have eligible insurance) - $6500
5.  Healthcare FSA - $2500
6.  Transit FSA - $250ish / month for parking ($3K / year), another $130ish / month for transportation ($1.5K / year)
7.  Dependent Care FSA - $5K per year
8.  Tax-loss harvesting - if you've got any stocks / funds that are down, you can sell, then re-invest in other stocks / funds to capture the loss and deduct up to $3K per year.  Be careful to do this right.
9.  Health / Dental / Vision Insurance premiums - amount varies, but generally premiums deducted from your paystub for these things reduce your taxable income for this purpose.

Anyway, there are many things like these.  You may have some / all of these available through your employers.  Be careful with FSAs - they are typically 'use it or lose it' deals.  HSAs are great because you can keep the money in there even if you don't spend it in the year you contribute.

And if you've read this far - none of this tax optimization stuff is as important as cutting your living expenses.  Cutting taxes only helps on one side - you have more to save.  Cutting living expenses gives you more to save AND reduces your need forever, so you need to save less to get there.

dandarc

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Re: Reader Case Study: How are we doing?
« Reply #27 on: September 17, 2014, 05:14:36 PM »
To spend $7000 a month, you need $2.1 million in investments for a 4% withdrawal rate.  My spreadsheet (5% interest) has you hitting that in about 17 years.  That means that you're on track to retire at about 49 and 54, pretty darn good.  If you can get your spending down to $1783 you can retire today. (All these calculations assume that you didn't include home equity in net worth)

I don't know where we can/should cut costs from as I feel it's pretty trimmed down.

You can cut pretty much everything.  Living in an RV and eating rice and beans with no cell phone or cable really is an option.  I doubt it's the one that you'll choose and you don't have to.  My one rule is that you have to acknowledge the luxury in your life.  I'm guessing that you wouldn't be giving what you are to charity if you didn't know that plenty of people live on less than you, so I won't harp on this.
This might be a tad optimistic - Starting Balance is $175K or less (depending on how you count the cash), no?  Retire today at 4% = 583.00 / month (Actually 7K per year - so they are 1/12th of the way there with current spending, yes?)

Hotstreak

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Re: Reader Case Study: How are we doing?
« Reply #28 on: September 17, 2014, 06:06:49 PM »
To spend $7000 a month, you need $2.1 million in investments for a 4% withdrawal rate.  My spreadsheet (5% interest) has you hitting that in about 17 years.  That means that you're on track to retire at about 49 and 54, pretty darn good.  If you can get your spending down to $1783 you can retire today. (All these calculations assume that you didn't include home equity in net worth)

I don't know where we can/should cut costs from as I feel it's pretty trimmed down.

You can cut pretty much everything.  Living in an RV and eating rice and beans with no cell phone or cable really is an option.  I doubt it's the one that you'll choose and you don't have to.  My one rule is that you have to acknowledge the luxury in your life.  I'm guessing that you wouldn't be giving what you are to charity if you didn't know that plenty of people live on less than you, so I won't harp on this.
This might be a tad optimistic - Starting Balance is $175K or less (depending on how you count the cash), no?  Retire today at 4% = 583.00 / month (Actually 7K per year - so they are 1/12th of the way there with current spending, yes?)

Yeah, you're on the right track.  The post you quoted was using the "net worth" number at the bottom of OP's financial disclosure, and assumed that number did not include house (it appears that it does include house).  That leaves a low starting point, but a decent savings rate (based on what has been discussed here).

The big elephant in the room that's not being talked about much is that you're living in a high COL area, with a huge commute, and you're not really making that much money.  75k / year / person is pretty normal for a smart, reasonably successful person in their 30's, in a moderate COL area.  Unless you have excellent job prospects and anticipate a big increase in income over the next few years, it's time to write yourself a budget of what it would look like to live in a few other cities, and seriously consider moving there (and changing jobs if required).

ragnathor

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Re: Reader Case Study: How are we doing?
« Reply #29 on: September 17, 2014, 07:17:35 PM »
$400 / month for term life insurance?  Is that right?  How much do you have?  How long are the terms?

Recently cut mine from $102 / month down to about $30 for $1 million for me (31/male - in the 'preferred' rating group, so this isn't even the lowest you could get, if you're healthy - Cholesterol ratio bit me in the ass) by recognizing 2 things:
1.  We no longer need (possibly never needed) a 30 year term - cut it to 10 years, which is still too long, but much closer to what we actually need.
2.  We had bought from the wrong insurer - middle of the road within the rating category for premiums - now we are at the low end.

Any way, there could be some significant savings there.
Both Term and Whole. Whole was bought by husband about 12 yrs ago while young and naive..we looked into canceling whole and just keeping the term (about $150/mo for $2MM 30 yrs) but our friend (advisor) said it might be worth just keeping it given how long it's been in place and the value it has accumulated).
Ah - you might be getting there where you've had the whole-life so long that it does make sense to keep it.  I've heard it usually takes 20+ years before the math works out in favor of keeping, so do the math yourself - if you ask your advisor who sold you the policy and continues to get residual commissions on it, you know what answer you're going to get.

Someone correct me if I'm wrong, but the life insurance premiums you're paying don't make sense to me. Why would you need both whole and term life insurance at the same time?  From what you describe it sounds like $250/mo for whole, and $150/mo for term. By the time term is done, you will have saved enough for retirement that you won't need life insurance anymore, so it would make sense to drop the whole life insurance.

sj16

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Re: Reader Case Study: How are we doing?
« Reply #30 on: September 17, 2014, 11:14:36 PM »
I just moved to SoCal and found the public transit better than I was led to believe. I don't want to make assumptions, but if you haven't gone to maps.google.com and found transit directions for you and your husband, you should try. My commute is 3.50 roundtrip or $70-80/mo if I don't bike (I should, but I've been sick).  Or if you find out that doesn't work for you, have you considered e.g. a scooter for one of the work commutes? I was thinking about one if we couldn't find housing within biking distance (we did); I've never owned one but they're fun to ride, and the climate here is perfect for them.

Just throwing some ideas out there for you. :)
Thank you galliver and welcome to sunny Socal! Husband started to take the train to work from a nearby train station so it will help with the gas expense :) No transit to my work but it's pretty close from home.

sj16

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Re: Reader Case Study: How are we doing?
« Reply #31 on: September 17, 2014, 11:16:19 PM »
I had a lengthy post, and scrapped it when you said you were checking into it.  Now I'm not so sure you're actually going to research this - read Root of Good's post - then read it again - there are lots of ways you can reduce your income for this purpose.  And keep in mind, the phase-out range is 96K - 116K.  If your MAGI is say 106K, you'd have half of the IRA deductions available to you - sheltering $5500 is potentially worth it - you could go half traditional, half Roth.  Maxing 2 401Ks alone gets you down into the top of the phase-out range from 150K - wouldn't be able to much with just those, however that should be your starting point.

List of things you might have available to you that can reduce your income for this purpose:

1.  401Ks (obviously) - 2X 17.5K - 35K
    1.a - worth looking into would be to create a profit sharing contribution beyond the employer match - some employers allow this, some (most?) don't - if you ask Cheddar Stacker real nice, he can probably tell you the basics of the procedure.
2.  457B (either / both of you government / state university / public school employees?  You may have one or two of these available - although your 401Ks would likely be 403Bs in that case.  Another possible 2 X 17.5K
3.  Pension plan - percentage may be set by your employer, and varies
4.  HSA (if you have eligible insurance) - $6500
5.  Healthcare FSA - $2500
6.  Transit FSA - $250ish / month for parking ($3K / year), another $130ish / month for transportation ($1.5K / year)
7.  Dependent Care FSA - $5K per year
8.  Tax-loss harvesting - if you've got any stocks / funds that are down, you can sell, then re-invest in other stocks / funds to capture the loss and deduct up to $3K per year.  Be careful to do this right.
9.  Health / Dental / Vision Insurance premiums - amount varies, but generally premiums deducted from your paystub for these things reduce your taxable income for this purpose.

Anyway, there are many things like these.  You may have some / all of these available through your employers.  Be careful with FSAs - they are typically 'use it or lose it' deals.  HSAs are great because you can keep the money in there even if you don't spend it in the year you contribute.

And if you've read this far - none of this tax optimization stuff is as important as cutting your living expenses.  Cutting taxes only helps on one side - you have more to save.  Cutting living expenses gives you more to save AND reduces your need forever, so you need to save less to get there.

This is all new info for me and will take some time to look into them but def worth it. Thank you so much!!

sj16

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Re: Reader Case Study: How are we doing?
« Reply #32 on: September 17, 2014, 11:25:55 PM »
To spend $7000 a month, you need $2.1 million in investments for a 4% withdrawal rate.  My spreadsheet (5% interest) has you hitting that in about 17 years.  That means that you're on track to retire at about 49 and 54, pretty darn good.  If you can get your spending down to $1783 you can retire today. (All these calculations assume that you didn't include home equity in net worth)

I don't know where we can/should cut costs from as I feel it's pretty trimmed down.

You can cut pretty much everything.  Living in an RV and eating rice and beans with no cell phone or cable really is an option.  I doubt it's the one that you'll choose and you don't have to.  My one rule is that you have to acknowledge the luxury in your life.  I'm guessing that you wouldn't be giving what you are to charity if you didn't know that plenty of people live on less than you, so I won't harp on this.

Hi Senora! thank you for your time and input into this. Was your calculation based on our net worth with the home equity? I'm guessing yes..
Agree that many/most things in our lives are luxury that we can do without..I'm hoping that we will reduce our expenses as we become more familiar and ingrained with the Mustachian way of life, we certainly didn't live that way so will take some time for that muscle to grow. Reading the forums and all your posts are definitely motivating me every day.

horsepoor

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Re: Reader Case Study: How are we doing?
« Reply #33 on: September 18, 2014, 12:05:44 AM »
To spend $7000 a month, you need $2.1 million in investments for a 4% withdrawal rate.  My spreadsheet (5% interest) has you hitting that in about 17 years.  That means that you're on track to retire at about 49 and 54, pretty darn good.  If you can get your spending down to $1783 you can retire today. (All these calculations assume that you didn't include home equity in net worth)

I don't know where we can/should cut costs from as I feel it's pretty trimmed down.

You can cut pretty much everything.  Living in an RV and eating rice and beans with no cell phone or cable really is an option.  I doubt it's the one that you'll choose and you don't have to.  My one rule is that you have to acknowledge the luxury in your life.  I'm guessing that you wouldn't be giving what you are to charity if you didn't know that plenty of people live on less than you, so I won't harp on this.

But in 17 years, they won't need $7K per month.  The mortgage is paid off in 14 years, and presumably the kid won't need childcare, slashing almost $4,100 from their budget.  At that point they could also choose to move to a lower COL area, but a house with cash, and put the rest of their So Cal home equity into the 'stache if they wanted.  So say, $3K per month without even touching the big food budget and other expenses, and the required stash is drastically reduced to somewhere closer to 1 mil (this doesn't account for taxes, both property and income).

sj16

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Re: Reader Case Study: How are we doing?
« Reply #34 on: December 04, 2014, 04:27:10 PM »
Starting 2015, we'll be maxing out 401k (just one for now as the other doesn't offer much selection), fully fund 11K of Roth IRA, and make $1K monthly taxable investments (Vanguard Index). So $18K + 11K + 12K = 41K total savings of our now $170K combined representing ~ 25% of pretax income. Would you say this is a good savings rate? I'm not sure the savings rate mentioned on the blog are generally pretax or posttax?
We want to practice "paying ourselves" first and adjust everything else accordingly.

Hoping for another decent income increase within a year. We had some career changes/setbacks and now working to be on track.

Thanks you everyone for your input!!

MDM

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Re: Reader Case Study: How are we doing?
« Reply #35 on: December 04, 2014, 07:45:54 PM »
Starting 2015, we'll be maxing out 401k (just one for now as the other doesn't offer much selection)

See http://jlcollinsnh.com/2013/06/28/stocks-part-viii-b-should-you-avoid-your-companys-401k/, particularly Addendum I.  The tax advantage of the 401k over a regular taxable account is substantial, so the fund selection has to be extremely bad for the 401k to be your worse choice.  Doesn't mean yours isn't that bad, but worth checking into.

Still think you could handle $35K into 401ks and $11K into Roth IRAs, given $170K gross....

sj16

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Re: Reader Case Study: How are we doing?
« Reply #36 on: December 04, 2014, 08:18:16 PM »
Starting 2015, we'll be maxing out 401k (just one for now as the other doesn't offer much selection)

See http://jlcollinsnh.com/2013/06/28/stocks-part-viii-b-should-you-avoid-your-companys-401k/, particularly Addendum I.  The tax advantage of the 401k over a regular taxable account is substantial, so the fund selection has to be extremely bad for the 401k to be your worse choice.  Doesn't mean yours isn't that bad, but worth checking into.

Still think you could handle $35K into 401ks and $11K into Roth IRAs, given $170K gross....

You definitely have a point MDM. We should be able to contribute 18K in the other 401K if we really wanted to but then we might not be able to do the $12K taxable investing. In some ways, I wanted to diversify our savings/investments since a big portion is already in tax deferred accounts. I wanted to put some in an after-tax account so that it will give us flexibility/options if we needed some cash (for future real estate purchase/other investments). What do you think of my rationale?

MDM

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Re: Reader Case Study: How are we doing?
« Reply #37 on: December 04, 2014, 09:11:33 PM »
sj16, below are some numbers based on your posts, some guessing, and the assumption of $35K in 401ks and $11K in Roth IRAs.  You could enter more correct numbers by downloading from http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/msg274228/#msg274228.  That may be worth the time.

Admittedly it doesn't leave a lot for taxable investment.  All your Roth contributions can be withdrawn at any time, however, so that money - to the extent your Roth investments don't lose value - is "available." 

My primary suggestion would be invest the max in tax-advantaged accounts, find ways to reduce spending and put those reductions to taxable investments. 

If you are saving for some "near future" spending then you don't want to invest that in anything much more risky than CDs or online savings accounts.  In that case I could see not putting the max into the tax-advantaged accounts.  The choice is yours....  Good luck!



CategoryMonthly amt.CommentsAnnual
Salary/Wages$14,167From recent post$170,000
401(k) / 403(b) / 457(b) / TSP /etc.$2,917At maximum$35,000
Federal Adj. Gross Inc.$11,250$135,000
Federal tax$1,1912014 rates, item. ded., 3 exemptions$14,295
State/City tax$619Guess, using 5.50% * Fed. AGI$7,425
Soc. Sec.$878Assumes 2 earners paying$10,540
Medicare$205$2,465
Total income taxes$2,894$34,728
Income before other expenses  $8,356$100,272
Monthly Expenses:
Mortgage$1,432$17,186
HOA$168Guesses to match$2,016
Property Tax$1,000$2600 in OP$12,000
Cable TV$100Includes utilities?$1,200
Car Insurance$250Includes home$3,000
Charitable contributions$400$4,800
Childcare$1,500$18,000
Fuel/Public Transport$400$4,800
Groceries$800$9,600
Life Insurance$400$4,800
Miscellaneous$300$3,600
Phone (cell)$250$3,000
Non-mortgage total$5,568$66,816
Roth IRA$917$11,000
Total Expense$7,917$95,002
Available for taxable investment:$439$5,270