Hi folks,
Long time lurker, first time poster. I wanted to hang out my financial laundry for all to see, and get some feedback and/or advice. I am late to the Mustachian game and trying to make up for lost time.
Current situation: 43yo, married, 3yo kid. My wife and I split household expenses. Unfortunately she is kind of weird about money. She’s frugal by complainypants standards but not by Mustachian standards. Efforts to encourage more frugality have been met with resistance and hurt feelings, to the point where I have given up in favor of domestic harmony. She has no interest in retiring early – too scared of outliving her money. But she doesn’t care what I do or when I retire, as long as I contribute our agreed-upon amount to our household checking account. My expenses are, for now, mostly fixed. We have mutually agreed not to bother with a 529 or other college savings for the kid, on the grounds that college might be totally unrecognizable, unnecessary, free, etc. by the time she is of age to consider it. (If it’s not, and she wants a degree, then she can do community college and a state school on her own dime and/or student loans.)
Annual income: $51,000 plus bonuses. That’s after-tax. The bonuses could be anywhere between $20k-$30k/year. I just started this position so I’m not sure how much or how often they’ll come.
Annual expenses: $25,000. This is my share of the household expenses, which I split with my wife, plus miscellaneous expenses for myself. I could probably trim my own expenses by about $1000/year but as mentioned, the household expenses cannot be trimmed for now. It covers all utilities, mortgage, groceries, insurance, etc.
Debt: Just a mortgage: 30-year fixed @3.75% with $201k left. Credit card is paid off monthly, no car loan, student loans, etc.
Retirement accounts:
- $33k of VTSAX in a Roth IRA.
- $119k of VTSAX in a traditional IRAs and an old 401k.
- $10k of VTIAX, also in the IRA.
- $25k of VBTLX in a taxable brokerage account.
So that’s $188k total. Going by the 4% rule, my FU money (“FUM” henceforth) is 25x my annual expenses, or $625k. Depending on bonuses, I should reach this somewhere between 5 and 10 years from now, or when I’m 48-53 years old.
Asset allocation is 14% bonds, 5% foreign, 81% domestic.
Contributions: $5500/year IRA contribution (maxing out). I am not eligible for the company 401k until February. They will match 50% on the dollar, up to 4% of my paycheck. That’s $2600/year into a 401k, plus a match of $1300, for a total of $3900/year if I stop at the match.
That leaves $18k to contribute. My thoughts/concerns:
- If I reach FUM when I’m 48, I will have 11 years until I’m 59.5 and can easily access the IRAs/401k. If I reach it when I’m 53, I will have 6 years.
- So either way it seems like I’ll need to have 5 years of expenses in my taxable account to live on while I do between 1-6 years of a Roth conversion. That’s $125k.
- While I know market timing is a fool’s errand, we are overdue for an economic dip. This is, on one hand, fine (fire sale on stocks!) but I’d like to mitigate at least a little of the risk, hence the VBTLX. Is this silly? Should I go 100% VTSAX?
- Sequence of return risk: I am kind of thinking that I need about two years’ worth of expenses ($50k) in bonds in my taxable, so I can draw that down instead of VTSAX in case the economy craters within the first couple years of retirement. Two years seems to be about the general length of a longer recession. Silly? Smart?
- The Bogleheads are really big on a 60/40 stock/bond split. Most of the FIRE community is way heavier on stocks, 80/20 or more. What’s the argument for this? What’s your ideal split during accumulation, and after retirement?
- Foreign stocks. VTIAX is cheap by most standards at 0.11%, but that is almost 3x as much compared to VTSAX's lovely 0.04%. Do you hold a foreign index fund? If so, what percentage of your portfolio is it?
- How much of my leftover $18k should I put into my 401k versus my taxable account? Should I funnel as much as possible into the 401k to lower my tax burden? Or into my taxable account until I reach five years of expenses (will take about five years assuming a 7% return)? Or a hybrid – put $18k/year into the taxable account, but any extra money from bonuses goes into the 401k?
I’m sure I’ll come up with more questions later. Thanks for reading and for any feedback you can share.
