Author Topic: Maximizing my retirement accounts. What to do next and how to have some fun?  (Read 1673 times)

minimalistgamer

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Topic Title: Maximizing my retirement accounts. What to do next?

Life Situation: Ages: 34 (myself), 29 (wife). Married filing jointly. Paid off home. No kids yet, but we are trying to start a family.

Gross Salary/Wages: $74,000 (mine). $11/hr (wife), and it comes to around $20,000. Total $94,000.

Retirement accounts: Maximizing my 401k (no company match), Roth IRA and HSA. 10% of wife's paycheck goes towards her 401k. There is a 6% match for her. She has no Roth IRA account.

Adjusted Gross Income: $91,190 (based on 2016 tax return)

Taxes: Federal tax bill - $9644; State tax bill - $3474

Current expenses:

Total expenditure for 2017: $146,334.28. It is this high because we paid off our mortgage
Total expenditure without mortgage: $19,963.74
Food expenses (groceries and eating out): $3226.18
Utilities: $1966.62


Assets: Amount & description - include current asset allocation plan if you have one
This is our net worth breakdown: https://imgur.com/a/NA0N3
This is our investments breakdown: https://imgur.com/a/4Anat

Specific Question(s): I have a few questions that I want your opinion on.

1. I have a little over $2000 left over each month. At the moment, I am contributing all of it to VTSAX in my taxable investment account. Is this a good idea?
2. Should I consider opening a Roth IRA account for my wife? If so, what should her asset allocation be? Should I just go with 100% VTSAX?
3. How should I budget fun money each month? Given my income and lifestyle situations, what do you think is the appropriate fun money for the both of us each month? We are both immigrants, and...we do not know how to budget for fun.

nereo

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Quote
1. I have a little over $2000 left over each month. At the moment, I am contributing all of it to VTSAX in my taxable investment account. Is this a good idea?
2. Should I consider opening a Roth IRA account for my wife? If so, what should her asset allocation be? Should I just go with 100% VTSAX?
3. How should I budget fun money each month? Given my income and lifestyle situations, what do you think is the appropriate fun money for the both of us each month? We are both immigrants, and...we do not know how to budget for fun.

1.  It's not a bad idea, but you could do better by following the investment order outlined here.

2.  Yes.  By all means open an IRA for your wife.  Her allocation should be whatever she (and you) are comfortable with. Given that this is long-term (decades) tax-advantaged savings I'd consider a broad-market index fund, but its really up to you.

3. "fun money" is up to the individual. The point of making money is to do something with it - sometimes there are things that will improve your quality of life now, other times it's about improving your quality of life down the road (by becoming FI/RE).  A bit more info about what your goals are and what things you want to spend your life on are necessary. 
If your goal is to quit work and travel, every dollar you spend today delays the date when you can quit slightly.  If you want to travel the world while you are young, well there's your answer, but just realize that a thousand dollars you spend traveling this year could be $4k you won't have to travel in 15-20 years.  Finding that balance is the challenge, and every person has to make their judgement for themselves.

Sun Hat

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For fun money, find an amount that will allow you to have experiences that are worth more to you than equivalent savings are.
What that amount is will vary depending on when you want to FIRE, the cost of your hobbies, and probably other factors like how used you are to opting for thrift (self-denial becomes easier with practice until it's routine).

I'm FIRE and generally allocate about 8% to entertainment/fun things. I didn't track my finances when I was working, but I think that it was about the same proportion (though overall higher, since I earned a lot more then). Given that you're still saving, how about starting with 10% to split between the two of you and see if you can trim it down by 10$ each every 6 months or so until you get to a point that feels like a comfortable limit?

Lobo

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You should probably consider maxing out your wifes 401k as well, just for the tax advantages.  Do a little more research on HSAs as well.

Slow&Steady

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Gross Salary/Wages: $74,000 (mine). $11/hr (wife), and it comes to around $20,000. Total $94,000.

Retirement accounts: Maximizing my 401k (no company match), Roth IRA and HSA. 10% of wife's paycheck goes towards her 401k. There is a 6% match for her. She has no Roth IRA account.

Adjusted Gross Income: $91,190 (based on 2016 tax return)

Taxes: Federal tax bill - $9644; State tax bill - $3474

Are you sure you are maxing your 401k + an HSA + $2k to your wife's 401k + paying for insurance?  I believe all of those things should decrease your Adjusted Gross Income (but taxes is one of the areas I am still trying to learn more about).

So if your Gross Income is $94,000 and you are putting in $18.5k (401k max) + $6.5K (HSA max) + $2k (10% 401k) + $2k (total guess of what your health insurance premiums are).  Wouldn't that make your AGI closer to $65,000? 

Once you add in deductions and personal exemptions, wouldn't your taxable income be closer to $44,400?  Meaning that your federal tax bill should have been closer to the $6k mark than the $9k mark?

As I stated above I am still learning the whole tax thing, so this could all be pretty incorrect BUT my point is to say make sure you are doing your taxes correctly!  Then again maybe the AGI and tax bill are based on previous years and you just started maxing your 401k, in that case you can probably ignore my comment.

minimalistgamer

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Thank you for your replies. Apologies for the delay in responding. I got sick.

@Slow&Steady:

> Are you sure you are maxing your 401k + an HSA + $2k to your wife's 401k + paying for insurance?

The AGI I listed is from 2016. I was not maximizing my 401k that year. I am maximizing it this year. Last year, I contributed around $17,500, and I did not have an HSA last year, I signed up for it in 2018. Also, the HSA I have is individual. My wife has insurance through her employer that is not an HSA.

I would imagine that my 2018 AGI would be a lot less than 2016 or 2017 AGI.

@Lobo - I am going to look into maximizing her 401k before I put in more money into the taxable investment account. Thanks for the suggestion.

@Sun Hat: I am going to try what you suggested. I will allocate a certain percentage for fun money for the both of us. I need to come up with a good baseline. Thanks for your suggestion.

@nereo: I do not know if my goal is to retire early. I genuinely feel that I do not want to stop working until I can't work anymore. That said, I would like to become FI so that work is something I am doing because I want to. I am going to have to give this some more thought because based on my overall goal, I can come up with how to allocate for fun money. At the moment, I don't allocate anything for fun. That does not mean I don't have fun, it just means that I am not consciously allocating anything. One of the advantages of having a fun money budget is so that I can spend it carelessly. This is something I haven't done in a long long time. I feel like I reached a stage in life where I can afford to spend a small amount carelessly. I need to do some more thinking...

nereo

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@nereo: I do not know if my goal is to retire early. I genuinely feel that I do not want to stop working until I can't work anymore. That said, I would like to become FI so that work is something I am doing because I want to. I am going to have to give this some more thought because based on my overall goal, I can come up with how to allocate for fun money. At the moment, I don't allocate anything for fun. That does not mean I don't have fun, it just means that I am not consciously allocating anything. One of the advantages of having a fun money budget is so that I can spend it carelessly. This is something I haven't done in a long long time. I feel like I reached a stage in life where I can afford to spend a small amount carelessly. I need to do some more thinking...

FWIW you and I are similar insomuch as we have no intention of stopping work entirely just because we hit FI - rather we are after a better work/life balance, and in our fields its possible for us to keep our jobs while working 1/2 to 2/3rds as much.
Regarding fun money, I'd say that one of the disadvantages of having "fun money" is that it gets spent carelessly. Say you budget $50/week for "fun money" (aka 'guilt free spending') - you buy some overpriced lattes because you are late, eat lunch out once a week because its convenient.  Its all fine and good because you have "fun money" - but  a year in you've blown $2.5k on things that didn't add anything meaningful to your life. As I see it if you look back over previous months' spending and you think "well that charge wasn't worth it" you aren't helping yourself.

Instead we frame each purchase around the question "is this the best use of our money based on our financial goals".  Do it enough and it just becomes habit.  To that end we don't worry about a 'fun money budget at all - when a friend recently dropped by to do some skiing we bought (almost) full-price lift tix, because spending time with her was important to us. Of course you need to define your goals for this to work, but its rare now that we look back over the lat 6 months spending and regret 'wasting' money.