Author Topic: Case study: Am I heading in the right direction?  (Read 1909 times)


  • 5 O'Clock Shadow
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Case study: Am I heading in the right direction?
« on: October 04, 2017, 11:24:44 AM »
First time posting on this board.  I just started reading through MMM and am really digging the advice.  I'm curious about how much situation is looking.

Life Situation

IRS filing status: Single
State Income Tax: %5.1%
Federal Tax Bracket: 25%
Age: 28
Gross Salary: $75,000
Semi-monthly: $1550 ($450 is deposited into emergency fund)

My goal is to get to a point where I can work part time on whatever I am interested in.  I am fairly happy with my current spending habits and am already aware of the areas that could be approved (eating out, mostly).  I am single and have no real liabilities other than a car that I barely drive.


Saving overview:
- $5500/year in Roth IRA
- 20% or ~$625/paycheck
- $450 auto deposited into emergency fund/savings
- Random lump-sum deposits in taxable account.  I just opened it this year after receiving a hefty gift and havenít really established a plan with it yet.

Spending overview:
Monthly spending: ~$2800


My Portfolio:

Emergency Fund - Savings Account
1.20% APY
$22,500 -- This could sustain me ~7 months with my current lifestyle.

Vanguard Roth IRA - 2017 ROR 19.8%
Contribution: $5,500 per year
100% VTIAX

Vanguard Taxable Account
100% VTSAX

Roth 401K - 2017 ROR: 8.83%
Contribution: 20% per paycheck, semi-monthly
49% Bond Index (see below for more info)
51% Equity Index (see below for more info)

Other potential 401k options:
10-yr Performance: 6.15%
ER: .043%

Small Company
10-yr Performance: 7.74%
ER: 0.008%   

International Equity
10-year Performance: 1.06%
1-year Performance: 17.98%
ER: 0.070%   

Emerging Markets
10-year Performance: 2.03%
1-year Performance: 27.26%
ER: 0.140%   

Bond Index
10-year Performance: 4.41%
1-year Performance: 0.49%
ER: 0.040%   

Equity Index
10-year Performance: 7.89%
1-year Performance: 16.05%
ER: 0.011%   


Aside from my goal mentioned above (getting to a point where I can work part time on my own interests), I am wondering if I'm being too conservative for my age?  100% of my Vanguard funds are stocks and 50% of my 401k is stocks as well.

I may need a car in the next year or so, but I also feel like my emergency fund is a bit too big.  And then semi-weekly deduction of $450 to savings probably isn't the most efficient use of money either.

I'm happy to give more details on anything.  Thanks in advance!!


  • Magnum Stache
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Re: Case study: Am I heading in the right direction?
« Reply #1 on: October 04, 2017, 11:50:33 AM »
Yes, you are being way to conservative. 50% stocks is fine if you are retired.  Hell, my retired mother has more in stocks.  You need to change that ASAP.  You should have 80-95% in stock. Also switch to a traditional 401k, you make enough to do so.


  • Handlebar Stache
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Re: Case study: Am I heading in the right direction?
« Reply #2 on: October 04, 2017, 12:17:20 PM »
First, I am not quite clear on the figures, because you didn't break out the specific amounts of the various taxes and deductions that come out of each paycheck.  Am I reading it correctly that you currently save:

1.  $15K/yr in a Roth 401(k) (20% of $75K);
2.  $5500/yr in a Roth IRA; and
3.  $10,800/yr in your EF ($450 per semi-monthly paycheck)?

For a total of $31,300, plus whatever else you put away in these random deposits?  If your living expenses are $28K (assuming the rest goes to taxes), then you're at over 50% savings, which puts you at a target FIRE timeframe of 15-17 years, depending.  See  A few thoughts to improve that rather painlessly:

1.  Max out the 401(k).  With your savings rate, there's no reason not to.

2.  Switch from Roth to Traditional IRA/401(k).  You are currently putting aside over $20K/yr in post-tax $ in your Roth.  If you put that money into traditional 401(k)/IRAs instead, the contributions don't show up as income on your tax returns, which at the listed tax brackets means you will pay $5K/yr less in federal taxes, and $1K/yr less in state taxes.*  In other words, you could put away that same $25,500 for retirement, and still have another $6K to put towards something else.  Like, say, maxing out your 401(k) and saving for a replacement car.  :-)

3.  If you really want feedback, you should break out your expenses here.  There is a ton of collective wisdom that you can call on to maximize the value you get per the dollar you spend.  Your expenses in total don't appear unreasonable, but that answer is different if you are, say, paying a mortgage in the Bay Area (in which case your costs are totally bad-ass) vs. living at home for free in an extremely LCOL area (in which case you are likely living like a king).

4.  Yeah, you don't need 50% bonds, unless you are convinced you would panic and sell if the market crashes.

*Yes, that means you do pay taxes when you take the money out of the accounts.  But (a) you may be in a lower tax bracket, in which case this option is better, (b) even if you're in the same bracket (which goes up to AGI of $92K), it's still a wash, and (c) there are many options for converting traditional accounts over to Roth accounts down the road in a way that can minimize your tax hit.  For most people at your income level, the tax deduction now is worth paying the taxes later.

ETA stuff I forgot.
« Last Edit: October 04, 2017, 01:00:52 PM by Laura33 »


  • 5 O'Clock Shadow
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Re: Case study: Am I heading in the right direction?
« Reply #3 on: October 05, 2017, 06:35:49 AM »
Thank you so much for the lengthy suggestions.

Here is a breakdown of my paycheck:

Fed Withholding: $574.74
Fed MED/EE: $45.02
Fed OASDI/EE: $192.51
MA Withholding: $154.11

Pre-Tax Deductions
Transit & Insurance Total: $20.75

After-Tax Deductions:
Roth 401k: $625


Yes, you are correct with those numbers in regards to my savings.  Although, for #3, I do use some of that $450 to pay for vacations once in a while.


1.  I'm going to increase my contribution to my 401k now.  The original reason for taking $450 out of my paycheck was to build my EF but I feel it is rather substantial now, so I am going to reduce that amount by how much extra I'm contributing to the 401k.

2.  I will certainly look into switching to a traditional 401k/IRA.  Although, most of the advice I've seen on the internet always seems to reccomend using Roth, so that your earnings will grow tax free.  But I guess it doesn't make much sense to pay taxes now while I'm at the 25% bracket.  I guess I always figured I'd be in a much higher one when I was retiring.

Up until a few months ago my 401k was part traditional (from a rollover) and part Roth, so I just recently converted it to be fully Roth and believe I'll be owing a few thousand dollars come tax season.

3.  I'll have to do some more work on this one and post back later in another thread. 

4.  I just significantly lowered my bond allocation, so that it is now 10% of my portfolio, however, I thought my bond allocation, when looking at my entire portfolio was more like 21%?

I have 100% of my money in Vanguard as stocks and 50% of my 401k as stocks as well.  My 401k currently has $32,370, so 49% of that was ~$15,861, or 21% of my total retirement portfolio, right? -- I could be very very wrong though!


  • Magnum Stache
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Re: Case study: Am I heading in the right direction?
« Reply #4 on: October 05, 2017, 06:56:11 AM »
The is no reason to keep such a large emergency fund. If you put your money in the stock market, you can sell your stock within days if you have an emergency. When do you ever need to much money without a few days notice?

Have you looked into options of sharing a car/neighbourhood car? Or renting out your own car to others? That last thing is probably a bit more risky.


  • 5 O'Clock Shadow
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Re: Case study: Am I heading in the right direction?
« Reply #5 on: October 05, 2017, 07:11:32 AM »
I was thinking about moving soon to a state that would definitely require me to have my own car.

I don't think I've ever needed more than $1,000 dollars without a few days notice, so you are right that my emergency fund is too large. 

I could probably reduce it to $10,000 and still feel comfortable, but not sure if I should throw it into the stock market.  That would mean the vast majority of my assets are in stocks (current allocation is 90% stocks / 10% bonds).  Shouldn't I have a few more safer investments?


  • Bristles
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Re: Case study: Am I heading in the right direction?
« Reply #6 on: October 05, 2017, 07:25:17 AM »
I'll offer another way to look at your portfolio - it's a slightly different thought process than the standard method I see discussed on the forum.

I think of my asset allocation as "growth"/"stable" rather than stocks/bonds.

Growth = all stock investments
Stable = bonds, real estate equity, cash

I personally shoot for approximately a 80/20 split of Growth/Stable at the moment, but as my net worth grows it becomes increasingly aggressive because I'm insulated from market shocks. I'd recommend a more conservative approach for someone under 100K in assets since they should likely have a e-fund which will weight the stable side pretty heavily.

So for your numbers, I'd break them down like this:

Total Portfolio: 96,470
Growth: Roth 19,700, Taxable 21,900, Roth 401k (stocks) 16,509 = 58,109
Stable: E-Fund $22,500, Roth 401k (bonds) 15,861 = 38,361

When you separate the numbers this way, you're basically at a 60/40 split. In my opinion that's a tad conservative. I don't hate it, but I'd recommend you place all of those bonds into stocks and then you'd be a 75/25 split.

I personally keep an e-fund of 20K so I don't think you're crazy for doing that. By having high-deductible insurance plans or self-insuring, the savings gives me a monthly ROI on my e-fund. I'm more conservative on the e-fund that is typically recommended on the forum - which is a longer discussion. You could probably drop it closer to 10K and still be okay in the majority of bad scenarios.


  • 5 O'Clock Shadow
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Re: Case study: Am I heading in the right direction?
« Reply #7 on: October 05, 2017, 09:38:26 AM »
Interesting.  I like that way of thinking of it.

So I guess I could do something like this:

Reduce EF from $22,500 >> $10,000

Increase VTSAX (held in taxable Vanguard account) by $12,500

Move $12,500 from Equity Index in 401(k) to International Equity Index in 401(k) (to retain even allocation between US and international stocks)

Reduce Bond Index Fund in 401(k) to 20% (from 49%) and distribute the difference evenly between my Equity and International Equity funds.  So, instead of $15,861 beings in bonds, I'll have $6474.  Combined with with my new EF of $10,000 and that would make my 'Stable' investments amount to $16474 or 17% of my portfolio.


  • 5 O'Clock Shadow
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Re: Case study: Am I heading in the right direction?
« Reply #8 on: October 05, 2017, 11:27:14 AM »
Regarding the Traditional vs Roth question, the Investment Order thread had some useful links on this topic: