Author Topic: Case Study: 35 years old & Wife 32 years old w/ 2 young kids  (Read 3203 times)

bpage12

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We are 35 and 32 and have a 5 year old and 1 year old. We have zero debt.  Paid off cars and home. What should we focus on or do next?  Invest more cash even though market is at all time highs?

Roth accounts: $82,000 (VTSAX & some VTIAX)
Brokerage account: $9,000
M1 Finance: $600
Cash: $75,000
529 plans : $1,200 (total)

Income is $6,000 a month total for both of us.


Thanks for the help!

YttriumNitrate

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #1 on: May 01, 2019, 08:51:00 AM »
We are 35 and 32 ...  Invest more cash even though market is at all time highs? Thanks for the help!

My wife and I are just a few years older than you, and our expectation is that the Dow Jones will be in excess of 100,000 for a decent portion of our retirement. While 26,000 is higher than the past, it's still a lot lower than 100,000.

ysette9

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #2 on: May 01, 2019, 09:35:17 AM »
We are 35 and 32 and have a 5 year old and 1 year old. We have zero debt.  Paid off cars and home. What should we focus on or do next?  Invest more cash even though market is at all time highs?

Roth accounts: $82,000 (VTSAX & some VTIAX)
Brokerage account: $9,000
M1 Finance: $600
Cash: $75,000
529 plans : $1,200 (total)

Income is $6,000 a month total for both of us.


Thanks for the help!
Welcome! Congrats on being debt free. That is a great basis for working towards financial independence. The other two key factors to master are keeping your spending under control and investing. You donít say what your monthly expenses are, but I am going to assume you have margin and are saving each month as you have managed to achieve what you have so far. So the last step between you and a successful path to FI is investing. Letís see if we can get you in the right mindset for that.

First, the stock market grows by nature over time, which means that it spends more time than not at record highs. It is like plotting your kidís weight every day. There would definitely be fluctuations, maybe even big fluctuations if she were to unfortunately fall sick, but the general trend like is upward.
If you weighed your kid and saw she was at a record high would you assume that tend would continue or that she was definitely going to lose weight in the future?

The other thing to consider is that you are investing for the long term. The LONG term. As in the next 50 years or so, luck be with you. So even if we see a correction that takes several years to recover from, that is just a blip in the long term path. Most important is to cultivate a discipline of investing early and often. ďTime in the market, not market timingĒ is a classic phrase you will see around here. You donít have a crystal ball and neither does anyone else, no matter what you read on finance sites.

So, get that cash invested! You probably donít need to retain too much as an emergency fund as your debts are already paid off. Decide on a target asset allocation. The Bogleheads lazy portfolios are a great place to start. Your combo of VTSAX and VTIAX is great; we do that in a 60/40 ratio for our stocks.

This is less relevant to you now that you have most of your ducks in a row, but read it anyway to educate yourself; https://forum.mrmoneymustache.com/investor-alley/investment-order/


bpage12

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #3 on: May 01, 2019, 10:14:05 AM »
Thanks for the info you two!!  It is just a little scary to pull the trigger and drop 30-40K in investments but it does make sense!!  I really appreciate you taking the time to respond.

ysette9

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #4 on: May 01, 2019, 10:36:25 AM »
Thanks for the info you two!!  It is just a little scary to pull the trigger and drop 30-40K in investments but it does make sense!!  I really appreciate you taking the time to respond.
Yep, I get it.

Here is a white paper that Vanguard published looking at investing lump sum versus dollar cost averaging for a sum of cash you have on the sidelines. I think it is relevant to your situation.

https://personal.vanguard.com/pdf/s315.pdf

ďWe conclude that if an investor expects such trends to continue, is satisfied with his or her target asset allocation, and is comfortable with the risk/return characteristics of each strategy, the prudent action is
investing the lump sum immediately to gain exposure to the markets
as soon as possible. But if the investor is primarily concerned with minimizing downside risk and potential feelings of regret (resulting from lump-sum investing immediately before a market downturn), then DCA may be of use. Of course, any emotionally based concerns should be weighed carefully against both (1) the lower expected long-run returns of cash compared with stocks and bonds, and (2) the fact that delaying investment is itself a form of market-timing, something few investors succeed ď

jps

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #5 on: May 01, 2019, 10:51:06 AM »
Just wanted to say nice work on your situation so far. There probably aren't a lot of 35 year-olds who have paid off cars and no house debt. Keep crushing it!

cincystache

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #6 on: May 01, 2019, 03:49:49 PM »
congrats you two! well done. Are you Dave Ramsey fans? Just curious

Keep maxing your IRAs, 401k, HSA if available

Put the rest in your taxable brokerage into low cost index funds. With your low income you'll be in the 0% tax bracket on cap gains and dividends.

Keep crushing it.

bpage12

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #7 on: May 01, 2019, 03:59:51 PM »
Thanks everyone! This is a lot of help! We have listened to Dave and his theories. We just got lucky and had cars that were purchased by our parents in college and we had both saved up since day 1 and have been smart with our money. Love the advice, thanks!!

The_Pretender

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #8 on: May 01, 2019, 05:18:15 PM »
I don't see any 401K balances.  Maybe you could ramp up your 401k to max out this year while you use your cash reserves.  Maybe your Roth Accounts line item is a Roth 401K?  If it is, why aren't you taking advantage of the pre-tax investing?

Also, do you have access to an HSA?  possibly fully funding this will help ease your minds around Emergency Fund being so large as many "emergencies" are around medical and getting an HSA started to a mature balance to help whenever major medical events happen. 

bpage12

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #9 on: May 01, 2019, 06:37:07 PM »
We are both teachers and our insurance isnít a high deductible plan so we donít qualify for an HSA. We just have Roth IRAs and no 401ks. We have $9,000 in our vanguard brokerage account and will add to it since we donít have a 401k.

snoot

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #10 on: May 02, 2019, 05:12:31 AM »
Do you have access to a 403b or 457 plan through work? Those are often offered in education type jobs instead of a 401k. I work for a community college and have access to both!

marty998

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #11 on: May 02, 2019, 06:50:11 AM »
The original advice from the blog might apply here....

Do you live near your jobs? Can you drop to one car and ditch the commute?

thesis

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #12 on: May 02, 2019, 08:47:24 AM »
As for investing when the market is at an all-time high...
https://forum.mrmoneymustache.com/investor-alley/top-is-in/

I hate to do it, but the world must be informed!

On a more serious note: https://forum.mrmoneymustache.com/investor-alley/investment-order/

$75k in cash seems high. If you are the paranoid sort (no shame, it happens), you might consider keeping a lot in cash, but a person can be resilient in more ways than cash savings, you can always get creative with jobs in a recession, too, and you may never have problems anyway

JGS1980

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #13 on: May 02, 2019, 09:04:29 AM »
We are both teachers and our insurance isnít a high deductible plan so we donít qualify for an HSA. We just have Roth IRAs and no 401ks. We have $9,000 in our vanguard brokerage account and will add to it since we donít have a 401k.

Are you paying any Federal Taxes? If so, how much? Roth IRA's may be suboptimal for you. Investing in 401K may lead to a lower year to year Fed Tax burden, which will compound into greater investment growth over time.

bpage12

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #14 on: May 02, 2019, 09:23:14 AM »
Yes I have read the Top is in! haha!  Still just tough to put a huge chunk in at one time!!  I want to but just a little scared to pull the trigger.


We actually get money back from taxes this year!

JGS1980

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #15 on: May 02, 2019, 11:03:35 AM »
Do you mean a Fed Tax Refund? Or do you mean you did not have to pay any Federal Taxes? These two things are not equivalent.

bpage12

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #16 on: May 02, 2019, 02:48:57 PM »
We get a fed tax refund

JGS1980

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #17 on: May 02, 2019, 06:05:31 PM »
So Roth may not be optimal. You may eliminate Fed taxes by saving into a 401k.

How much in Fed taxes last year?

How much did you put in the Roth?

bpage12

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #18 on: May 02, 2019, 06:45:26 PM »
Max out Roth every year! Had to pay $700 in state taxes and got $4,000 back in fed. We are offered a 403b at work but no 401k option.

lk4296

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #19 on: May 02, 2019, 08:45:35 PM »
You could both max out your 401ks or equivalents at work too.


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The Gecko

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #20 on: May 04, 2019, 02:05:33 PM »
Max out Roth every year! Had to pay $700 in state taxes and got $4,000 back in fed. We are offered a 403b at work but no 401k option.

Be wary of 403b plans. My wife is a teacher and is in a plan offered by AXA Equitable. (They also offered plans from MetLife and another big vendor I do not recall but was worse than AXA). Since you are not paying a ton of taxes at your current earning rate, you would probably be better off keeping your money in Roth and brokerage accounts.

These plans tend to be very fee heavy and usually have some kind of redemption fee if you need to roll out of them before you retire (her's is something like 6%). They are usually sold onto school districts by life insurance vendors. The key selling point to the board of education is that they do not have to be a fiduciary based on the way the 403b law is written. If you dream of FIRE, 403Bs will surely eat some of your lifetime earnings when you go to collect or roll over early.

We use hers only because my earnings can fluctuate year to year or quarter to quarter in the positive direction and sometimes we get stuck with largish tax bills on our combined income. Maxing out the 403b helps wipe out a big chunk of taxable income.

bpage12

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #21 on: May 04, 2019, 04:46:33 PM »
Thanks Gecko! That is good info. I was looking into a 403b but have heard about the fees!

Gin1984

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #22 on: May 12, 2019, 09:10:09 AM »
Thanks Gecko! That is good info. I was looking into a 403b but have heard about the fees!
Any employer based account can have high fees, you have to do your due diligence. That said, you can have more influence in a school district than many other employers if they are truly terrible.

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Buffalo Chip

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #23 on: May 12, 2019, 12:23:46 PM »
Your situation is impressive. No debt and youíre killing it.

My perspective is a little different on investing. The ďthrow it all at a Vanguard Total Stock Market indexĒ doesnít sit all that well with me, although you could do a lot worse.  Suggest going onto the portfoliocharts.com website and look. They have a tool that you can use to build your own fantasy portfolio. Very cool.

OneCoolCat

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #24 on: May 23, 2019, 11:07:09 PM »
I'd invest the cash into the index fund.  You're young and not going to touch it for a while anyways.  Just set it in an index fund and forget about it.

fuzzy math

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Re: Case Study: 35 years old & Wife 32 years old w/ 2 young kids
« Reply #25 on: May 25, 2019, 06:18:15 PM »
Thanks Gecko! That is good info. I was looking into a 403b but have heard about the fees!

No no no. I cannot sit back while you are being given some of the worst advice I've ever seen on this forum. A 403b is the same as a 401k, it's just administered by a non profit.

I have a 403b through my employer and we use fidelity who is notoriously LOW FEE. I had a different 403b with s previous employer and they also used fidelity. I have access to institutional shares of vanguard products which have a 0.003 fee. So please do not assume that your employers offer garbage. Look into it, see who the administrator is and what funds are available to buy. If you see anything fidelity, or vanguard you've hit the jackpot.

Given your earnings and your savings , if you contributed to your 403b's and did Roth IRAs also you would be on track to NEVER PAY (federal) TAXES AGAIN. Go curry cracker has a great article on this, I highly recommend you read it.
« Last Edit: May 25, 2019, 06:20:12 PM by fuzzy math »