Author Topic: Debt-free, high-income: where to put our money?  (Read 2912 times)

Lillers5

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Debt-free, high-income: where to put our money?
« on: December 19, 2017, 09:59:26 AM »
Life Situation: We are a married couple (filing jointly) in our early 30s living in Chicago. No kids (but trying to change that) and one elderly dog. Both of us have advanced professional degrees and work full-time. We have a desire to retire earlier than "normal" but both enjoy working at our jobs and plan to work at least until our 50s.

We own 2 mortgaged properties (Chicago condo and SFH out-of-state) and a boat. We may have the opportunity in the near future to move to our SFH permanently (in a state with a very low COL) and sell the condo. We also love to travel and utilize all of our vacation time every year.

Gross Salary/Wages:
Earner1: $165,000
Earner2: 170,000

Individual amounts of each Pre-tax deductions 401k, HSA, FSA, IRA, insurance, etc. - whatever you have
Pretax Health Ins.   $202
Pretax Vision/Dental Ins.   $32
Healthcare Flex Savings Acct. (FSA)   $196
Daycare FSA   $0
Employer-sponsored HSA   $258
Pretax Commuter costs   $200
Traditional IRA   $916.00
401(k) / 403(b) / TSP / etc.   $1,220
457 plans      $0.00
Personal HSA   
Employer Match   $1,395.00
ESPP/After-tax 401k   $1,590
Pension contribution   $0
Life/LTD Insurance   $33


Other Ordinary Income:
We both qualify for bonuses and Earner2 receives long-term incentives. For 2017, this was as follows:
Earner1 (paid in December) - 18k (32k pre-tax) cash bonus
Earner2 (paid in March) - 26k (41k pre-tax) cash bonus; 34k in RSU vesting over 3 years


Qualified Dividends & Long Term Capital Gains:
Dividends = approximately 1k in 2017

Rental Income, Actual Expenses, and Depreciation: None

Adjusted Gross Income:
23,245 (pretax)
$15,570 (post-tax, ouch)

Taxes:
Federal tax   $5,298
State/City tax   $1,011
Soc. Sec. tax   $1,314.40
Medicare tax   $447.09
Medicare premium   $0
Self-employment Tax   $0
Total income taxes   $8,070

Despite having a 0 on our W4, we each also have an additional $350/month removed from our checks as we ended up having to pay a lot in taxes one year (with requirements for quarterly taxes the following year). To be honest, I don't have a strong hold on our tax situation. I'm hoping to engage with a tax specialist/accountant for 2018.

Current expenses:
Mortgage 1 (condo)   $1,026
Mortgage 1 (SFH)   $1,121
HOA (condo)   $473
Property Tax (condo)   $446
Property Tax (SFH)   $364
Home Insurance (condo)   $29
Home Insurance (SFH)   $80
Boat Storage/Maintenance   $220
Netflix/Prime   $15
Car Insurance   $71
Car Maintenance, Registration, etc.   $35
Charitable contributions   $500    
Clothing/Shoes   $100
Dentist   $5
Dining (Lunch/Dinner/Etc.)   $200
Gifts (not charitable contributions)   $75
Electricity   $80
Entertainment   $50
Fuel/Public Transport   $50
Groceries   $250
Hair Care   $25 
Household; Maintenance   $200
Internet   $56
Life Insurance   $244
Medical (Doctor, Hospital, etc.)   $25
Medicine (OTC + Prescription)   $10
Miscellaneous   $1000 (random items plus saving for a large piece of furniture we need)
Parking/Tolls   $20
Pets   $260
Phone (cell)   $146
Sports/Recreation   $25
Subscriptions (paper/magazines/etc.)   $10
Travel/Vacation   $2,000
Water/Sewer   $37 
Non-mortgage total   $8,213

Assets:
We have approximately 100k in equity in our condo and 60k in our SFH.
401(k) plans: 170k
Roth(k)/backdoor Roth IRA: 175k
Brokerage acct (low-fee index/mutual funds): 50k
Cash savings: 40k

Liabilities: None

Specific Question(s):
We are hoping to retire early (between 50-55) - where should we be putting our extra cash every month?

What is the best strategy for leveraging restricted stock units? We have been using them to make our charitable donations but are open to other ideas as the stock grows.

We are also trying to grow our family. Any financial considerations while planning for children?

If we have the opportunity to move and sell our condo, what should we do with the 100k equity?

I realize we are so very fortunate that our upbringing and hard work has allowed us to build a successful life for ourselves. We work hard to save although at this point we aren't ready (nor is there a need) to dive deep into the MMM lifestyle. I would appreciate any and all feedback on our situation as we plan for the future. Please let me know if you need more information.

Laura33

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Re: Debt-free, high-income: where to put our money?
« Reply #1 on: December 19, 2017, 12:09:59 PM »
First, start here:  https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

You want to retire in about 20 years.  This says you need a savings rate of 40-45% of your take-home pay to get there, assuming you're starting from zero.  From a brief glance at your numbers, you seem to be there, without even considering what you already have put aside.  So just keep chugging along and put the extra in a broad-market index fund and you'll be fine.

Re: the kids, my only advice is to be prepared for one or both of you to go part-time or not want to work at all for several years.  You have a huge income now, and plenty of slack in the budget, but adding daycare or cutting income will affect how much you have left over to save.  And per the above, you will need to maintain a pretty high savings rate (at least compared to the normal American) to be prepared to quit in 20 years and still maintain your current lifestyle.  So if I were you, I would want to figure out how to tweak my budget to make sure I can hit my @20-yr RE target date, even when I add the extra kid expenses (not just daycare, but things like do you want to cover college costs?) and remove some of the income to reflect the possibility of part-time work or SAHP for at least a few years. 

Ben Kurtz

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Re: Debt-free, high-income: where to put our money?
« Reply #2 on: December 19, 2017, 02:14:40 PM »
Quote
Liabilities: None

That's not quite right -- you admit up front you have two mortgages. Those are liabilities.

Given that you posted here, as opposed to at Bogleheads or some retirement advice site sponsored by someone like Fidelity, I'm going to conclude that you are secretly cruising for a facepunching.

You're burning money like it's going out of style; you have a $335,000 family income and a net worth barely double that. You spend $100,000 per year -- without children in the house -- and if you seriously wanted to keep that up for good you'd need $2,500,000 in the bank when you retire.

My advice is to read the blog from the first post to the very last, punch yourself in the face a couple of times, and ask yourself very carefully if this is the sort of life that makes you happy.

If it is -- great! You're doing a better job than average getting ahead while running on the treadmill, avoiding the pitfalls of credit card debt, overleverage, and living beyond your means. You'll hit your financial targets by your hoped-for dates. Surf on over to the White Coat Investor blog -- aimed at high-earning semi-high-spending professionals (doctors, but really anyone in that lifestyle bracket) for detailed advice on what accounts to open, what stock/bond portfolios are reasonable to adopt, and what kinds of insurance products to buy, and how to become financially independent reasonably quickly even while living semi-large, but (here's the secret) not TOO large.

But if the blog here makes you re-think your priorities, then it should become blindingly obvious how to cut 50% to 75% of your current spending and any old savings plan of, e.g., 60% U.S. stocks, 20% bonds, 20% foreign equities in a regular taxable e-trade account will make you filthy rich in no time flat.

My final piece of advice is this: If you want to have kids, push forward with no delay. It sounds like you're already moving in that direction, which is good. It doesn't become easier to create them as you grow past age 30, and it certainly doesn't become easier to stay up all night looking after a puking infant the older you get. For most people, kids make a huge difference in lifestyle, outlook and habits. So, as Laura33 suggests, don't get TOO attached you your specific retirement dates / plans until you've had your family and seen what it does to your lifestyle and finances. Kids could slow down your savings a little bit, by putting one parent (usually the mother) on reduced hours for a number of years... or they could provide you the kick in the pants to substantially change your lifestyle and save even faster.
« Last Edit: December 19, 2017, 02:17:35 PM by Ben Kurtz »

Lillers5

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Re: Debt-free, high-income: where to put our money?
« Reply #3 on: December 19, 2017, 04:30:21 PM »
Thanks for the responses. I'm definitely open to face-punching, as there is certainly some low-hanging fruit here. We are working on making a big change (moving) that will decrease a lot of our monthly costs as well as eliminate one mortgage.

The referral to other blogs regarding investing is much appreciated!


thedayisbrave

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Re: Debt-free, high-income: where to put our money?
« Reply #4 on: December 19, 2017, 06:51:51 PM »
Am I reading this right? $2,000 per month going toward travel... that's $24,000 a year!?

Ben Kurtz

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Re: Debt-free, high-income: where to put our money?
« Reply #5 on: December 20, 2017, 07:19:09 AM »
Quote
The referral to other blogs regarding investing is much appreciated!

The more I think on it, the more I think you should start by surfing over to White Coat Investor and reading that beginning to end, but skipping all the posts that relate student debt (you don't have any), most of the detailed ones having to do with disability insurance (many more issued for doctors there than most other high earning professionals), and skim the ones that seem too doctor-specific -- with the caveat that some seemingly "doctor specific" posts are really of general applicability, they just use doctor case studies and doctor lingo to make their point. For example, the author there frequently uses the expression "live like a resident" (i.e. a doctor in his poorly-paid training years right out of medical school)... and while that sounds all doctor-ish what the author is really saying applies to us all: Live below your means; don't spend your entire raise the minute you get it; hold back on lifestyle inflation at least by a few years after each big career jump, to allow higher incomes to turn into big slugs of savings.

That blog caters far more strongly to someone in your situation: $300,000+ yearly family income; owns a boat; has to spend more time on the details of managing a high income and savings rate -- more discussion of mega-backdoor Roth strategies, management of professional practices and businesses, asset protection issues, why you should generally prefer term life insurance to whole life, etc. It's for the person who figures out that if he cuts $100,000 annual spending back to $70,000 and thereby adds $30,000 to his already sizable savings he could be completely financially independent within a decade while he still has most of his hair. If you want stronger medicine (encouragement to adopt a $35,000 per year lifestyle), stay here; if you want moderate medicine for the high-income professional (encouragement to adopt a $70,000 per year lifestyle) spend more time there.
« Last Edit: December 21, 2017, 05:24:51 AM by Ben Kurtz »

MDM

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Re: Debt-free, high-income: where to put our money?
« Reply #6 on: December 20, 2017, 10:09:09 PM »
Gross Salary/Wages:
Earner1: $165,000
Earner2: 170,000

Individual amounts of each Pre-tax deductions 401k, HSA, FSA, IRA, insurance, etc. - whatever you have
Pretax Health Ins.   $202
Pretax Vision/Dental Ins.   $32
Healthcare Flex Savings Acct. (FSA)   $196
Daycare FSA   $0
Employer-sponsored HSA   $258
Just checking: HSAs and FSAs may be mutually exclusive (see Publication 969.  Are you ok in that regard?

Quote
Traditional IRA   $916.00
401(k) / 403(b) / TSP / etc.   $1,220
One might expect the 401k amount to be ~3X (more precisely, 18/5.5 X) the IRA amount...?

Quote
Despite having a 0 on our W4, we each also have an additional $350/month removed from our checks as we ended up having to pay a lot in taxes one year (with requirements for quarterly taxes the following year). To be honest, I don't have a strong hold on our tax situation. I'm hoping to engage with a tax specialist/accountant for 2018.
Might be interesting to compare the tax results you get from the case study spreadsheet to your official 2017 filing numbers.  If they are close, you may be able to use the spreadsheet to do 2018 "what if...?" studies with some confidence.  If your situation is too complex for the spreadsheet, well, so it goes....

Quote
Specific Question(s):
We are hoping to retire early (between 50-55) - where should we be putting our extra cash every month?
The Investment Order sticky applies reasonably well to a wide income range.  How does it seem to you?

SimpleCycle

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Re: Debt-free, high-income: where to put our money?
« Reply #7 on: December 20, 2017, 10:21:54 PM »
I’m seeing $7,101 in non-mortgage expenses and $2,147 in mortgage expenses.  Is my math wrong?

I agree that this is fundamentally a question about what kind of lifestyle you want to adopt.  Do you really want to minimize expenses to cut years off working or do you want to work longer in order to live a higher lifestyle?

We can give you some advice to cut expenses, but it’s not clear you really want to do that.

From your budget, it looks like you should have about $5k/month going into a taxable account, but based on your balances and the fact that some of your budget numbers look off, I suspect that is not actually happening.  You really need to track your actuals rather than your aspirational numbers.  For example, your grocery and eating out numbers look really low compared to the rest of your lifestyle.

A few others - life insurance is wildly high.  Is it whole life?
-$2000 a month on travel is absurd
-$1000 on miscellaneous is money you should be tracking
-maxing two 401ks is $3000/month, you should do this immediately

I have more thoughts, but could use some clarification first.

remizidae

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Re: Debt-free, high-income: where to put our money?
« Reply #8 on: December 20, 2017, 10:27:58 PM »
I am also curious why your 401k contributions are so low. You're not even maxing out the limit for one person, let alone two.

Consider whether you've optimized health expenses. There may be something I don't know about your health, but what with vision/dental insurance, HSA, FSA, and your $35 in other medical expenses (that somehow aren't coming out of FSA/HSA?) you're looking at 6k+ a year. I spend less than $1k for two people, so that seems off. Get your glasses online.

Why do you need life insurance at all when you are dual-income with no kids? If you do need life insurance, why is it so much? Again, there may be stuff I don't know about your health, and you don't need to tell me, but when I had life insurance it was $22 a month, so I'm not sure why $244 for two people is necessary.

Obviously you don't need a boat :)

$40k in cash is a ton.

$250 in groceries is pretty great.

MrSpendy

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Re: Debt-free, high-income: where to put our money?
« Reply #9 on: December 21, 2017, 06:29:56 AM »
As a person who grew up in south florida, I have something to say here.

If it flies, floats, or f**ks*, RENT IT.

*referring to horses

Between the Chicago weather, your 3,5,6 (???) weeks spent on vacation based on your travel, your demanding careers, there's a low probability that you're getting anything close to your money's worth out of that boat.

The only way I can square your travel expenditures with the rest of the facts here is if you're chartering a small plane to go to your remote single family home and then using your boat there, while eating rice and beans all day. There are 180 meal units in a month for a couple (30*2*3). You're spending an average of $2.50 / meal ($200+$250) / 180 = $2.5 in a somewhat expensive metro, while traveling a lot (which disrupts meal planning), which shows serious frugality effort...or poor expense tracking.


I've spent $3.5K /month on work travel this year. I've flown first class to Asia 3 times and stay in $500 - $800 / night hotels.

I must hear about these vacations you're taking. It's like 2-3 luxury honeymoons a year.

Are you doing National Geographic Expeditions or something?

Riding the steppes of Mongolia, seeing the polar bears, tracking leopards in the Okavango?

EDIT: Don't get me wrong, I spend more as a percent of income and am very rent burdened, I'm more just curious how this shakes out.
« Last Edit: December 21, 2017, 07:34:22 AM by mrspendy »

I'm a red panda

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Re: Debt-free, high-income: where to put our money?
« Reply #10 on: December 21, 2017, 06:38:28 AM »
Am I reading this right? $2,000 per month going toward travel... that's $24,000 a year!?

7% of their gross wages. I spend more as a percentage.

At that income level, the assets are shockingly low though.  I think first step would be: Max a 401k
« Last Edit: December 21, 2017, 06:40:25 AM by iowajes »

SimpleCycle

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Re: Debt-free, high-income: where to put our money?
« Reply #11 on: December 21, 2017, 08:19:54 AM »
Am I reading this right? $2,000 per month going toward travel... that's $24,000 a year!?

7% of their gross wages. I spend more as a percentage.

At that income level, the assets are shockingly low though.  I think first step would be: Max a 401k

They should definitely max both 401ks (and really all tax deferred options available), but I also suspect a later start, since both have professional degrees.

Fi365

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Re: Debt-free, high-income: where to put our money?
« Reply #12 on: January 01, 2018, 06:55:37 PM »
I have some partial math on the "how much does a baby cost" side.

Here's our spreadsheet (https://docs.google.com/spreadsheets/d/1oDfc1-QBNuoO84IO7XaXZe9SIa1llUcZJiJ-tQRkGdQ/edit#gid=0) and fledgling blog where we document some of these financial topics (https://fi365.wordpress.com/).

We had our daughter in October 2015. So, compare the 2014 to 2015/2016 numbers to see how a newborn affects your budget.

For example:
1) Our doctors' visit copays went from $60/year in 2014 to $680/year in 2015.
2) We also opted to hire a doula and take childbirth education classes, which was $718 in 2015.
3) Where we live--in the suburbs waaaay outside DC--part-time childcare has ranged from $9,000/year to $11,000/year, depending on whether we opt to send her 3, 4, or 5 days a week. (I own a LLC so my work/life schedule is flexible.)
4) We tried reusable cloth diapers in 2014/2015, which were $500-600/year in 2014/2015.
5) We spend ~$100 on her birthday parties to get balloons, food, and drinks.
6) Entertainment (vacations, etc.) has almost zero extra cost in the first couple of years because they fly for free and get free admission to almost everything.
7) Clothes were $500-600/year at first, before I knew what I was doing. They grow so darn fast and the $10 here and $20 there purchases add up fast. Now, we buy most of her clothes used, with the exception of underwear, shoes, and winter coats. I'd actually love to buy winter coats used but the consignment shops sell out of coats fast.

We have a similar income situation as you guys and were not trying to live especially frugal with a new baby. You could definitely spend way less if you actually tried to.

Oh! The best part! Our spending in tons of other categories actually went down (e.g., dining out). So we're actually making more money and spending less, even with the addition of a child.