Author Topic: Case Study: 30 yrs old Am I on the right track?  (Read 2545 times)

benstagram

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Case Study: 30 yrs old Am I on the right track?
« on: July 19, 2018, 03:58:12 PM »
Hi Im new to the forum after discovering MMM a couple weeks ago. Id like some advice on whether Im investing intelligently and where I should be focusing on putting my money.  Some background is Im 30 years old and intrigued by FIRE but its all pretty new to me so Im trying to learn as much as possible.

Life Situation
Single tax filer, no dependents but my girlfriend has a 10 yr old daughter that lives with us half of the time.
We keep our finances separate, so everything below is just for me. 

Gross Salary/Wages: $47,756
Individual amounts of each Pre-tax deductions: monthly
Federal Income Tax Withholding      172.68
Kansas Income Tax Withholding      79.71
Medicare EE                                    28.30
Social Security EE                           121.00
BASE HEALTH/RX EE - PT                37.41
DENTAL EE - PT                              1.71
KPERS (KS state retirement fund)   119.39


Other Ordinary Income: Just small amounts from bank/savings account interest, credit card cash back, and occasional overtime

Qualified Dividends & Long Term Capital Gains: N/A not sure

Rental Income, Actual Expenses, and Depreciation: N/A
Adjusted Gross Income:  3,419.46/month, 41,033.60/yr.
Taxes: see above on deductions

Current expenses: (monthly) I split several things with my girlfriend. Only my portion is listed.

Rent                                        $390   
Home/Rent Insurance             $10
Bicycle Maintenance                $3
Car Insurance                         $48
Car Maintenance,Reg. etc       $57   
Christmas/Holidays                 $30
Clothing/Shoes                       $30
Dentist                                    $12
Dining (Lunch/Dinner/Etc.)      $160
Electricity                                $84
Entertainment                        $45
Fuel/Public Transport              $150
Gas/Oil for heating                 $35
Groceries                                $150
Household; Maintenance        $12
Internet                                  $15
Medical (Doctor etc.)               $10
Medicine (OTC + Prescription) $13
Miscellaneous                         $100 (Amazon/Walmart junk purchases mostly)
Personal Care                         $11
Pets                                         $32
Phone (cell)                             $27.83
Travel/Vacation                        $220
Water/Sewer                           $32
Wine/Beer/Tobacco                  $22

Total                                         $1698 / month

Assets:
-   Roth IRA through Vanguard: $2100 (VGSTX - STAR fund)  (another ~ $4500 is in process of being rolled over from a previous employers profit sharing plan that I had let sit idle for a couple years. I'm thinking I'll put this in the VTSMX total market fund once it transfers to my Vanguard account)
-   $2500 Vanguard Total Stock Market ETF
-   $5000 in Discover savings account (1.75% interest)
-   $6000 in KPERS (Kansas government employee retirement) 6% of my check automatically goes into this.
-   2011 Subaru Forester that should hopefully last me many more years!
-   $2500 in regular checking account

Liabilities: no debt, or loans. Paid off student loans! yesssss :)
Specific Question(s):
My main question is whether I should start putting money into a 457 plan offered by my employer (government)? Would it be wise to do this over putting money in the Roth IRA or vice versa? If Im contributing to both, which should I prioritize and what would be a recommendation for the percentage to put in one vs. the other?

Edit: I would most likely put this in a Vanguard Targeted fund offered in the 457. Admin costs aside from Vanguard expense ratio (0.15%) are:
0.173% for annual service and recordkeeping
0.048% for annual KPERS oversight

Should these costs sway my decision at all?

I have $5000 in a savings account that Im thinking of as an emergency fund/house down payment account. My girlfriend and I would like to purchase a house within the next couple years, so I dont know if I need to be saving a significant amount in cash or is there something better to do? We make about 100k combined currently.


Finally, is there anything obvious in my spending that could be addressed? I used to budget religiously, but I havent paid as much attention as of late. I know that my restaurant spending could be reduced, so Ill be working on that. Ive also started taking the bus to work (which is free with my job!), so that should save some fuel and car maintenance costs.
Let me know if I need to clarify anything, and thanks for reading/commenting! This site is awesome!
« Last Edit: July 20, 2018, 03:02:53 PM by benstagram »

MarciaB

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #1 on: July 20, 2018, 10:13:16 AM »
Nice job on having a healthy savings rate! You are keeping your monthly expenses at just around the 50% mark of your take home pay (way to go!).

My initial thoughts for you are on the Roth vs. pre-tax retirement question.

If I'm understanding the 2018 federal tax brackets correctly, you will fall into the 12% bracket. Taking your gross pay ($47,756) and subtracting the 6% of your pay that goes into your state retirement fund ($2865) gets you to $44,891 taxable income. And then subtracting $12,000 for a standard deduction gets you to $32,891 - which puts you squarely into the 12%  bracket for a single filer.

A cursory search for Kansas state income taxes looks like the top marginal bracket is around 5%, but yours is probably a little lower due to the nature of marginal brackets. So let's ballpark that at 4%.

12% federal plus 4% state is 16%...which leads me to wonder whether pre-tax retirement accounts (if you're wanting to save more for retirement than you currently are) is the way to go, or whether Roth makes more sense for you at this point (because with your savings habits and general fiscal superguyness, you will probably be in a higher tax bracket by the time you are retired!), making it more prudent to pay the lower tax rate now and save the higher taxes later). I'd like to hear other posters weigh in on this.

CrispKale

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #2 on: July 20, 2018, 05:28:22 PM »
Yes while there may be some fat in the misc. and food categories for a newbie Id still say Well Done! Your rent right now sounds like quite a bargain, what are homes in your preferred area going for? How are you and your girlfriend going to handle the down payment and purchase costs? 50/50?

MDM

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #3 on: July 20, 2018, 06:48:14 PM »
Specific Question(s):
My main question is whether I should start putting money into a 457 plan offered by my employer (government)? Would it be wise to do this over putting money in the Roth IRA or vice versa? If Im contributing to both, which should I prioritize and what would be a recommendation for the percentage to put in one vs. the other?
Good question, and the answer is not obvious.  Fortunately, if you pick the "wrong" one the difference in spendable income may be only a few percent when you withdraw in retirement.

For generic suggestions see Investment Order.

To make a reasoned traditional vs. Roth choice you need to gaze into your crystal ball and compare the 12% (or ~16.5% if you just hit the first tier of the saver's credit) that you could save today, vs. the likely marginal federal tax rate you'll pay when it comes time to withdraw.  That also assumes a constant state tax rate - you'll need to include state tax effects if you plan to retire in a state with dissimilar tax rates.

See Traditional versus Roth - Bogleheads for more on that choice.  Good luck!


benstagram

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #4 on: July 20, 2018, 10:50:21 PM »
Thanks for the replies! So much to think about!

12% federal plus 4% state is 16%...which leads me to wonder whether pre-tax retirement accounts (if you're wanting to save more for retirement than you currently are) is the way to go, or whether Roth makes more sense for you at this point (because with your savings habits and general fiscal superguyness, you will probably be in a higher tax bracket by the time you are retired!), making it more prudent to pay the lower tax rate now and save the higher taxes later). I'd like to hear other posters weigh in on this.

Definitely curious too about some other posters' thoughts on the Roth vs 457 in my situation. I'm leaning toward maybe just sticking with the Roth especially after seeing that the 457 maintenance fees will be more than just dealing with Vanguard directly.

This might be a total noob question, but is it wise at all to contribute to both a 457 and a Roth if I'm not maxing my contributions right away? Or would I want to build up more money in one for compounding(?) purposes? Not sure if that makes sense sorry!

Yes while there may be some fat in the misc. and food categories for a newbie Id still say Well Done! Your rent right now sounds like quite a bargain, what are homes in your preferred area going for? How are you and your girlfriend going to handle the down payment and purchase costs? 50/50?

We are indeed getting really good value in our apartment compared to similarly priced places in town, so we're not in much of a rush for house purchasing. It looks like median home value is around 150k, and I think to be in a good area we would be looking at upwards of that.

We will continue splitting things 50/50 as best we can. She has some student loan debt, but also should see her salary increasing pretty substantially in the very near future as well. We are not looking yet but I'm curious about what the best way to save for a down payment would be -- Interest bearing savings account like I have? Or what other options might there be?

MDM: Thanks for the info and links, definitely some more research and learning I need to do. Good to know if I pick "wrong" it might not end up making a huge difference.
 



MDM

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #5 on: July 20, 2018, 11:09:04 PM »
This might be a total noob question, but is it wise at all to contribute to both a 457 and a Roth if I'm not maxing my contributions right away? Or would I want to build up more money in one for compounding(?) purposes? Not sure if that makes sense sorry!
Doesn't matter whether the money is in one big pot or several small ones.  Let G = Growth = (1 + r)^n, where r = annual rate of return and n = years.

Then (A * G) + (B * G) + (C * G) = (A + B + C) * G.

So three little pots (A, B, and C) have the same total growth as one big pot (A + B + C).

Not an uncommon question!

benstagram

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #6 on: July 21, 2018, 12:19:56 AM »
Good to know Thanks!

I also just realized after looking closer that I can also do a 527 Roth plan. I don't totally understand what this is, seems like after tax contributions, then tax free withdrawal? If that is the case I should max that right? Now I wonder if I should be rolling over my previous employer's $4900 into that account if I can (Rollover is in process). hmmmm 
« Last Edit: July 21, 2018, 12:29:57 AM by benstagram »

Hirondelle

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #7 on: July 21, 2018, 01:08:59 AM »
Others have already commented nicely on your Roth vs 457 question.

Some comments on your spending:
- Dining is definitely high for one person. Could easily be reduced to $100 I guess?
- You mention you can take a free bus to work; then why are you spending $150 on fuel and public transport a month? That's almost 10% of your full expenses!
- Advanced Mustache steps: Does your girlfriend have her own car? If you can take a free bus, would it be an option to go down to one car only and use bike and public transit for everything?
- I see tobacco is a line item.... Have you tried to quit?
- Misc. category could be reduced with a little attention. $50/month of junk is plenty.
- Your travel/vacation budget is really high for a single person and that's coming from someone who does lavish travel overseas all the time for less money than is in your budget. What kind of trips are you taking? Any options for travel hacking flights/hotels or reducing it in other ways?

I think you should be able to reduce your expenses by $100-150/month quite painless (even more if you'd really try hard) that then could go to maxing out your tax-deferred accounts or to your house downpayment fund.

benstagram

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #8 on: July 21, 2018, 08:38:00 AM »
- Dining is definitely high for one person. Could easily be reduced to $100 I guess?
Yep, that's something we are actively trying to do less of. We both don't love cooking much, which is the challenge, but we also like pretty basic recipes which helps.

- You mention you can take a free bus to work; then why are you spending $150 on fuel and public transport a month? That's almost 10% of your full expenses!
- Advanced Mustache steps: Does your girlfriend have her own car? If you can take a free bus, would it be an option to go down to one car only and use bike and public transit for everything?
I just started taking the bus last week, so the $150 is what my average has been up until then. I'm looking forward to seeing this drop!
My girlfriend has her own car as well and at this time we are not ready to go to just one car.

- I see tobacco is a line item.... Have you tried to quit? 
No tobacco, just alcohol :) I used the categories from the spreadsheet in the case study "how to" post.

- Your travel/vacation budget is really high for a single person and that's coming from someone who does lavish travel overseas all the time for less money than is in your budget. What kind of trips are you taking? Any options for travel hacking flights/hotels or reducing it in other ways? 
So my travel is primarily a monthly average of the costs I incure from skiing every winter (ski pass, gas, and car maintenance mostly). Skiing is my passion but unfortunately living in Kansas means an 8 hr drive to Colorado to ski. I have this about as optimized as it can be because I car camp when I go and I own all of my own gear. We would like to move to Colorado, but we are living here for my  girlfriend's daughter (family is all here, as is mine). Once she is done with school we are considering moving.

When we do other vacations we usually try to find airbbs, vrbo etc.

Hirondelle

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #9 on: July 21, 2018, 01:28:21 PM »
Sounds like you're well on track making improvements. Curious to see how far you can stretch the dining and fuel budgets. Seems like the first $100 will be indeed "easy" to cut out.

Totally get the love for skiing. Those prices seem very expensive to me though but I'm in Europe so not sure how prices for a skiing trip compare to prices here. It sounds like you've already tried your best optimizing that one.

rockeTree

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #10 on: July 21, 2018, 02:01:37 PM »
Both the Ira and the 457 can be Roth or traditional it sounds like, so that’s a separate call. Things to consider: get a match if there is one, of course. Options and fees if there’s a big difference. Flexibility: these each have a great feature, think about which is more valuable to you.

A Roth or traditional 457 is deferred compensation and as a state employee it’s guaranteed. As soon as you do not work for the state, you can withdraw contributions and earnings without penalty, no matter how old you are. This can be great for early retirees looking to get tax advantaged savings while not needing more complicated strategies to access the money at say, 45.

The Roth or traditional IRA gets you tax advantages savings and allows you to withdraw contributions without penalty at any age, with only minor record keeping hassles. This makes it kind of a spare emergency fund that you can tap in a crisis that hasn’t had you losing your job - some folks value that a good bit, especially if they don’t have a huge regular emergency fund.


MrThatsDifferent

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #11 on: July 21, 2018, 03:32:37 PM »
I think your expenses are fine, that all seems pretty tight without going extreme. So, can you do anything about increasing your income? New job? Ask for a raise? Side hustles?

Finances_With_Purpose

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #12 on: July 21, 2018, 11:35:31 PM »
457 - max - by far.  The math isn't close for most people, especially at your age.

Why?  In most cases (check yours), you can withdraw from the 457 without any penalty as soon as you end your employment.  So if you retire in 10 years, you can begin using that account and let your Roth, 401k, and other IRAs/etc. sit and continue to grow.

You can't withdraw before 59.5 years old from a 401k without paying a 10% penalty in addition to taxes. 

The 457 is the most versatile account available - max it out, if you can.  You can pull money out of it later at lower tax rates/without having to do the gymnastics involved in Roth-ladder-conversions and other things that may or may not exist by the time you're ready to withdraw.

YMMV, of course, so be sure to verify whether your 457 allows such withdrawals first.   

benstagram

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #13 on: July 25, 2018, 07:42:43 AM »
It looks like I can contribute up to $18,500 to a tradition 457 or Roth  457. Right now I think Ill focus on maxing my Vanguard Roth since the admin costs are less and I have a better choice of funds to buy.

After that Ill plan on contributing to the 457-Roth  as much as I can. There is no company match, so I think the main benefit would be the higher contribution limit. I probably need to check with the plan admin, but does anyone know offhand if it is ok to be contributing to both of these Roths (Vanguard account and 457-Roth)?

PowderStache

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #14 on: July 25, 2018, 09:19:27 AM »
It looks like I can contribute up to $18,500 to a tradition 457 or Roth  457. Right now I think Ill focus on maxing my Vanguard Roth since the admin costs are less and I have a better choice of funds to buy.

After that Ill plan on contributing to the 457-Roth  as much as I can. There is no company match, so I think the main benefit would be the higher contribution limit. I probably need to check with the plan admin, but does anyone know offhand if it is ok to be contributing to both of these Roths (Vanguard account and 457-Roth)?
You can contribute $18,500 to the 457 AND $5,500 to an IRA.   How you split each of those between traditional and Roth is up to you.  So traditional 457 + Roth 457 <= $18,500 AND traditional IRA + Roth IRA <= $5,500.

Finances_With_Purpose

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #15 on: July 25, 2018, 11:35:38 AM »
It looks like I can contribute up to $18,500 to a tradition 457 or Roth  457. Right now I think Ill focus on maxing my Vanguard Roth since the admin costs are less and I have a better choice of funds to buy.

After that Ill plan on contributing to the 457-Roth  as much as I can. There is no company match, so I think the main benefit would be the higher contribution limit. I probably need to check with the plan admin, but does anyone know offhand if it is ok to be contributing to both of these Roths (Vanguard account and 457-Roth)?
You can contribute $18,500 to the 457 AND $5,500 to an IRA.   How you split each of those between traditional and Roth is up to you.  So traditional 457 + Roth 457 <= $18,500 AND traditional IRA + Roth IRA <= $5,500.

This sounds right, but YMMV/verify it.  At your age, traditional should beat Roth - your income is probably more likely to increase than decrease from now into retirement.  Plus, you want some in different buckets, so you don't want to go all Roth, especially given the large tax savings (20% of your returns, compounded) in a traditional. 

benstagram

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #16 on: July 25, 2018, 11:47:51 AM »
It looks like I can contribute up to $18,500 to a tradition 457 or Roth  457. Right now I think Ill focus on maxing my Vanguard Roth since the admin costs are less and I have a better choice of funds to buy.

After that Ill plan on contributing to the 457-Roth  as much as I can. There is no company match, so I think the main benefit would be the higher contribution limit. I probably need to check with the plan admin, but does anyone know offhand if it is ok to be contributing to both of these Roths (Vanguard account and 457-Roth)?
You can contribute $18,500 to the 457 AND $5,500 to an IRA.   How you split each of those between traditional and Roth is up to you.  So traditional 457 + Roth 457 <= $18,500 AND traditional IRA + Roth IRA <= $5,500.

This sounds right, but YMMV/verify it.  At your age, traditional should beat Roth - your income is probably more likely to increase than decrease from now into retirement.  Plus, you want some in different buckets, so you don't want to go all Roth, especially given the large tax savings (20% of your returns, compounded) in a traditional.

Ah thanks, but I guess I still don't quite understand. I was thinking Roth would be the better option since I'll presumably be making more in the future - pay the smaller tax amount now vs pay more when withdrawing in retirement?  Can you explain what the "large tax savings (20% of your returns, compounded) in a traditional" means? I don't know an awful lot about taxes yet. Thanks!

Finances_With_Purpose

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #17 on: July 25, 2018, 10:19:23 PM »
It looks like I can contribute up to $18,500 to a tradition 457 or Roth  457. Right now I think Ill focus on maxing my Vanguard Roth since the admin costs are less and I have a better choice of funds to buy.

After that Ill plan on contributing to the 457-Roth  as much as I can. There is no company match, so I think the main benefit would be the higher contribution limit. I probably need to check with the plan admin, but does anyone know offhand if it is ok to be contributing to both of these Roths (Vanguard account and 457-Roth)?
You can contribute $18,500 to the 457 AND $5,500 to an IRA.   How you split each of those between traditional and Roth is up to you.  So traditional 457 + Roth 457 <= $18,500 AND traditional IRA + Roth IRA <= $5,500.

This sounds right, but YMMV/verify it.  At your age, traditional should beat Roth - your income is probably more likely to increase than decrease from now into retirement.  Plus, you want some in different buckets, so you don't want to go all Roth, especially given the large tax savings (20% of your returns, compounded) in a traditional.

Ah thanks, but I guess I still don't quite understand. I was thinking Roth would be the better option since I'll presumably be making more in the future - pay the smaller tax amount now vs pay more when withdrawing in retirement?  Can you explain what the "large tax savings (20% of your returns, compounded) in a traditional" means? I don't know an awful lot about taxes yet. Thanks!

Sure.  I'm going to start by giving a huge caveat: I'm not a financial advisor, this isn't financial advice, just some guy's explanation at something.  Plus, the tax laws could easily change in the future, especially Roths, I think, but that's for another day/topic.  All this stuff is somewhat trial-and-guess when you're planning on a 10-20-30 year time horizon, in other words; who knows what the laws will be then.  (We had 90% marginal tax rates in this country once before, for instance.) 

Now, to your questions, beginning with the Roth.  You want to compare when you put the money into the account (now) versus when you will withdraw it (now, not when you're making your highest-ever salary).  So, I'm guessing that you're making more than you plan to need in retirement, since you're able to save it right now.  Thus, your required income upon retirement will be less than your income now (adjusted for inflation of course). 

Roths are more useful the lower your income tax rate is now, basically.  If your income is low, then presuambly your income tax is lower as well.  So if you're only paying 10% or 15% income tax on that money now, then you can put the money in a Roth, then pull it out whenever you need, but you start with less capital (10-15% less). 

By contrast, if you make more now, and pay 25%+ in income tax, you can put the money in a traditional account and save the 25% immediately while letting it invest.

Take an example to get the difference: you could put $100,000 in pre-tax dollars and put them in a traditional account, invest them, and they'll grow (and compound) tax-free until you are ready to take them out.  Then you would just pay whatever the income tax rate is on the money when you withdraw it - but you had ___ years of compound growth to offset the taxes. 

For example, $100,000 invested over 22 years ought to (assuming normal return rates) double three times, so you would have $400,000 in 22 years (even adjusting for inflation), and could pull however-much per year and pay income taxes on it, but you had 22 years of tax-free growth on that money to begin with, plus more unless you pull it all out at once. 

By contrast, you would only have $85,000 or $75,000 to put in a Roth (after taxes), so it would grow, but you started with less.  The longer it compounds (or the lower the starting amount/tax rate), the more it matters.

This article seems to cover it pretty well too. 

The math gets complicated, and needs specifics, plus has a lot of assumptions (current v. future tax rates, growth rate, the fact that a Roth will still exist/work the same way, etc.).  So we all speak generally.

Actually, I sort of mis-spoke earlier, as *both* accounts have the tax-free growth aspect, and I didn't mean to imply otherwise.  But I'll answer your question - what I meant by 20% savings.  You could put your money in a normal account, neither Roth nor traditional.  If you did, you would pay capital gains taxes each year, which are currently set at 20%, or 1/5 of your return.  (Those rates change over time, too, and used to be higher.)  So, every year, you save 20% - 1/5 of your returns - in *either* account, Roth or Traditional/457. 

You do not save it in a normal, taxable account.  That is one of many reasons why tax-advantaged accounts are better, and you will do well to save in either kind of account.

Finally, I'll add this general wisdom: it's helpful to have some money in a variety of buckets.  You have access to the 457, which is the most versatile account possible, since it lets you withdraw anytime after you leave your job.

As an overall strategy, you eventually want to accrue some money in various buckets, so you'll have some in each (including taxable) no matter what the future looks like. 

Personally, I would max the 457 because it's the most flexible and rarest bucket. 

Either way, though, you'll be fine.  Keep in mind, we're talking margins here, but the key is what you're already doing, which is saving in tax-advantaged accounts.  It's probably not a huge difference to you either way, and the only way it would be is if something unforseeable happens (like crazy tax-rate increases or elimination of Roths or so on), and you can't really plan for that much anyway. 

benstagram

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #18 on: July 26, 2018, 07:41:50 AM »

Take an example to get the difference: you could put $100,000 in pre-tax dollars and put them in a traditional account, invest them, and they'll grow (and compound) tax-free until you are ready to take them out.  Then you would just pay whatever the income tax rate is on the money when you withdraw it - but you had ___ years of compound growth to offset the taxes. 


I think this was the disconnect for me, I wasn't really thinking about that the money should grow enough for the after tax withdraw in retirement to make sense. I think I get it now! Thanks so much for taking the time to explain that - I really appreciate it!

Wayward

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #19 on: July 26, 2018, 08:18:49 AM »
Welcome and congratulations on educating yourself about finances!

I also wanted to chime in about utilizing your traditional (pre-tax) 457 plan, even if its only a few percent to start.  Here is some reading about why pre-tax contributions can accelerate your path to FI:

https://www.madfientist.com/optimize-your-journey-to-fi/
https://www.gocurrycracker.com/never-pay-taxes-again/

For your Roth IRA with Vanguard, I would get the $3,000 minimum for VTSMX and transfer over as soon as possible.  For your age, 40% bond allocation is far too high.  For great investing advice read:

http://jlcollinsnh.com/stock-series/

Keep tracking your spending to ensure you dont experience lifestyle creep, especially as your salary grows.  You have a really great start so far, now its just about optimizing your journey. Good Luck!


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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #20 on: July 26, 2018, 08:50:43 AM »
For your Roth IRA with Vanguard, I would get the $3,000 minimum for VTSMX and transfer over as soon as possible.
Thanks! This is actually exactly what I'm planning to do once my rollover comes through! I've been reading through the jlcollinsnh site and I think it's really great! Also got his book on audiobook (audible free trial!) 

I think if I keep an eye on it, I can keep my spending down. I actually used to live on a much lower salary up until a couple years ago and still managed to save a little. Just need to get back to those habits!

MDM

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Re: Case Study: 30 yrs old Am I on the right track?
« Reply #21 on: July 26, 2018, 10:07:31 AM »
Take an example to get the difference: you could put $100,000 in pre-tax dollars and put them in a traditional account, invest them, and they'll grow (and compound) tax-free until you are ready to take them out.  Then you would just pay whatever the income tax rate is on the money when you withdraw it - but you had ___ years of compound growth to offset the taxes. 
I think this was the disconnect for me, I wasn't really thinking about that the money should grow enough for the after tax withdraw in retirement to make sense. I think I get it now! Thanks so much for taking the time to explain that - I really appreciate it!
If the tax rates at contribution and withdrawal are equal, then traditional and Roth give exactly the same result.  See the commutative property of multiplication as it applies to this choice.