Author Topic: Panic attack - 401k Allocations  (Read 4606 times)

Levi421

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Panic attack - 401k Allocations
« on: April 07, 2018, 10:51:32 AM »
Hello fellow Mustachians!

I have only recently discovered this blog and I am reading almost everyday like an addiction! Most of the investing terminology goes over my head but am slowly learning in an attempt to achieve "expert" mustachian level. I was young and dumb and I haven't contributed to any 401k plans until now (age 27).  My wife and I have a substantial amount of debt (about $50k) at the moment, but I want to contribute to my companies 401k since it is really the only thing I can do until our debt is paid. They match $0.50 cents for every dollar I contribute, up to 6%. At the moment, I can only afford to contribute 3%, until I get a raise. I currently make a little over $33k gross per year (pretty sad, I know). I would like some input on how I should allocate my contributions through Prudential. They have several "plans" (I guess this is what they call them). I am just going to put it all out there to get ideas on where to go from where I am. Keep in mind, my wife is not "all in" yet, but we designed a plan that we both "win" and get things that we want to achieve out of life.

Plans -- asset class -- expense ratio (Gross)

Guaranteed Income Fund  -- Stable -- 0.00%
Vanguard GNMA Adm  (VFIJX) -- Fixed Income - Govn't Securities -- 0.11%
Metropolitan West Total Return Bd Plan  (MWTSX) -- Fixed Income - Intermediate Bond -- 0.38%
Templeton Global Bond R6  (FBNRX) -- Fixed Income - Global/International -- 0.58%
Prudential website lists a lot of JPMorgan SmartRetirement "xYear" R6 funds
JPMorgan SmartRetirement Income R6  (JSIYX) -- Balanced (Target date) -- 0.45%
Vanguard LifeStrategy Cnsrv Gr Inv  (VSCGX) -- Balanced-blend -- 0.12%
Vanguard LifeStrategy Income Inv  (VASIX) -- Balanced-blend -- 0.11%
Vanguard LifeStrategy Moderate Gr Inv  ( VSMGX ) -- Balanced - Blend -- 0.13%
Vanguard LifeStrategy Growth Inv  ( VASGX ) -- Balanced - Specialty -- 0.14%
Large Cap Value / LSV Asset Management -- Large Cap Stock - Value -- 0.52%
Vanguard 500 Index Admiral  ( VFIAX ) -- Large Cap Stock - Blend -- 0.04%
Fidelity Growth Company  ( FDGRX ) -- Large Cap Stock - Growth -- 0.85%
Vanguard Extended Market Index Admiral  ( VEXAX ) -- Mid Cap Stock - Blend -- 0.08%
Four left.... Almost done... *Wheeze*
Small Cap Value / Integrity Fund -- Small Cap Stock - Value -- 0.87%
Hartford Small Cap Growth HLS IA  ( HISCX ) -- Small Cap Stock - Growth -- 0.66%
Vanguard Developed Markets Index Admiral  ( VTMGX ) -- International Stock - Blend -- 0.07%
Oppenheimer Developing Markets I  ( ODVIX ) -- International Stock - Emerging Markets -- 0.88%

As you can see, there are quite a few options. So much so, I almost had a panic attack. So, I need recommendations. Please tell me your opinions and WHY.

Thank you,
Levi

Steeze

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Re: Panic attack - 401k Allocations
« Reply #1 on: April 07, 2018, 11:20:30 AM »
Personally I would go 80-90% VFIAX, 10-20%VEXAX. Keep it simple and minimize expenses. The above will approximate a total us stock market index with a 100% stock allocation. Aggressive, but you are young and can ride out any short term losses.

Try to get up to your company match, it's free money you are leaving on the table. You want to make more? Start with the money your boss is already offering you via the match.

After that, work on finding a side hustle or better job, no harm in applying and interviewing in your spare time. Might surprise yourself and find a position making significantly more. Aim high and rise to the occasion.

Best of luck!


Radagast

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Re: Panic attack - 401k Allocations
« Reply #2 on: April 07, 2018, 12:00:44 PM »
Hello fellow Mustachians!

I have only recently discovered this blog and I am reading almost everyday like an addiction! Most of the investing terminology goes over my head but am slowly learning in an attempt to achieve "expert" mustachian level. I was young and dumb and I haven't contributed to any 401k plans until now (age 27).  My wife and I have a substantial amount of debt (about $50k) at the moment, but I want to contribute to my companies 401k since it is really the only thing I can do until our debt is paid. They match $0.50 cents for every dollar I contribute, up to 6%. At the moment, I can only afford to contribute 3%, until I get a raise. I currently make a little over $33k gross per year (pretty sad, I know). I would like some input on how I should allocate my contributions through Prudential. They have several "plans" (I guess this is what they call them). I am just going to put it all out there to get ideas on where to go from where I am. Keep in mind, my wife is not "all in" yet, but we designed a plan that we both "win" and get things that we want to achieve out of life.

Plans -- asset class -- expense ratio (Gross)

Guaranteed Income Fund  -- Stable -- 0.00%
Vanguard GNMA Adm  (VFIJX) -- Fixed Income - Govn't Securities -- 0.11%
Metropolitan West Total Return Bd Plan  (MWTSX) -- Fixed Income - Intermediate Bond -- 0.38%
Templeton Global Bond R6  (FBNRX) -- Fixed Income - Global/International -- 0.58%
Prudential website lists a lot of JPMorgan SmartRetirement "xYear" R6 funds
JPMorgan SmartRetirement Income R6  (JSIYX) -- Balanced (Target date) -- 0.45%
Vanguard LifeStrategy Cnsrv Gr Inv  (VSCGX) -- Balanced-blend -- 0.12%
Vanguard LifeStrategy Income Inv  (VASIX) -- Balanced-blend -- 0.11%
Vanguard LifeStrategy Moderate Gr Inv  ( VSMGX ) -- Balanced - Blend -- 0.13%
Vanguard LifeStrategy Growth Inv  ( VASGX ) -- Balanced - Specialty -- 0.14%
Large Cap Value / LSV Asset Management -- Large Cap Stock - Value -- 0.52%
Vanguard 500 Index Admiral  ( VFIAX ) -- Large Cap Stock - Blend -- 0.04%
Fidelity Growth Company  ( FDGRX ) -- Large Cap Stock - Growth -- 0.85%
Vanguard Extended Market Index Admiral  ( VEXAX ) -- Mid Cap Stock - Blend -- 0.08%
Four left.... Almost done... *Wheeze*
Small Cap Value / Integrity Fund -- Small Cap Stock - Value -- 0.87%
Hartford Small Cap Growth HLS IA  ( HISCX ) -- Small Cap Stock - Growth -- 0.66%
Vanguard Developed Markets Index Admiral  ( VTMGX ) -- International Stock - Blend -- 0.07%
Oppenheimer Developing Markets I  ( ODVIX ) -- International Stock - Emerging Markets -- 0.88%

As you can see, there are quite a few options. So much so, I almost had a panic attack. So, I need recommendations. Please tell me your opinions and WHY.

Thank you,
Levi
All in on Vanguard Lifestrategy Growth, the only fund you'll ever need. Do everything in your power to get the full employer match up to and including eating dandelions on beans and rice two meals a day. You will not get a better return on your money anywhere.

2Birds1Stone

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Re: Panic attack - 401k Allocations
« Reply #3 on: April 07, 2018, 12:34:30 PM »
Immediately contribute 6%, even if it means giving up discretionary consumer purchases or things like coffee, eating out, etc. That match is a free $1,000/yr.

Spudd

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Re: Panic attack - 401k Allocations
« Reply #4 on: April 07, 2018, 01:03:57 PM »
I'd keep it simple and put it all in:
Vanguard LifeStrategy Growth Inv  ( VASGX ) -- Balanced - Specialty -- 0.14

And I agree with 2Birds1Stone that you need to try to contribute to get the full match. Never turn down free money!

koshtra

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Re: Panic attack - 401k Allocations
« Reply #5 on: April 07, 2018, 01:16:13 PM »
What they all said :-)  If I were going to do just one, I'd chuck it all in VFIAX. And yeah, you REALLY want to hit that 6% limit. I know you can't afford it, but what you really can't afford, even more, is to leave free money on the table.

Joel

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Re: Panic attack - 401k Allocations
« Reply #6 on: April 07, 2018, 01:20:03 PM »
VFIAX.

doneby35

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Re: Panic attack - 401k Allocations
« Reply #7 on: April 07, 2018, 01:24:52 PM »
For a 27 year old, I would do 100% VFIAX.

tralfamadorian

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Re: Panic attack - 401k Allocations
« Reply #8 on: April 07, 2018, 04:10:51 PM »
100% VFIAX and find a way to pinch some more pennies to contribute the 6%.

Levi421

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Re: Panic attack - 401k Allocations
« Reply #9 on: April 07, 2018, 06:15:29 PM »
Wonderful! Thanks for the feedback. I see a lot of people saying VIFAX, why this one specifically? I see it has the lowest expense ratio. Also, some of you are stating my age. Should I be changing the plan as I age? Is this a set it and forget it type of situation?

Sidebar: I already have a weekend part time job that I put straight toward my debt load (or if life happens). It is crazy but 33% of our primary job income (without the side gig) is allocated to minimum payments of our debt. Based on this debt snowball calculator I found It is going to take about 3 years to pay off all current debt (without any bad months, like a car breaking down). I wish I was in a better financial position... I guess time is all I need. I wish I had more time to save!!

2Birds1Stone

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Re: Panic attack - 401k Allocations
« Reply #10 on: April 07, 2018, 07:21:44 PM »
VIFAX is being recommended because it's 100% large cap stocks. You have a long investment timeline, risk = reward.

More importantly is HOW MUCH you contribute. AA is a second place.

Basenji

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Re: Panic attack - 401k Allocations
« Reply #11 on: April 07, 2018, 07:30:20 PM »
« Last Edit: April 07, 2018, 07:34:09 PM by Basenji »

Steeze

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Re: Panic attack - 401k Allocations
« Reply #12 on: April 07, 2018, 08:01:31 PM »
Congrats on getting serious about your debt, 33% on minimums is insane. I recently finished the last of my 100k student loan off after 6 years at 30yo (also insane). The feeling of being debt free is absolutely worth any sacrifice. I did manage to hit my company 4% match for the last 4 years, which at the time I wasn't sure if I should be prioritizing the match over the extra loan payments. Looking back now I am really happy I did. Now it's a race to FI and it's great to have a bit of a head start.

Three years is not long, but I bet you will do it faster than you think! I went with the debt avalanche method and it worked out well. I had calculated it taking me about 9 months longer than it did.

HBFIRE

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Re: Panic attack - 401k Allocations
« Reply #13 on: April 07, 2018, 08:20:03 PM »
I own the life strategy in my SEP.  I recommend the Growth fund.  It's a simple well diversified fund.  A single fund portfolio (50/30/20 mix of US/INT/and US and INT bonds) that you don't need to ever touch, will rebalance for you, etc.  Really a great "set it and forget it" fund.  Despite what you might read some places, it's important to be globally diversified and this one has you covered.
« Last Edit: April 07, 2018, 11:48:29 PM by dustinst22 »

Radagast

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Re: Panic attack - 401k Allocations
« Reply #14 on: April 07, 2018, 11:07:22 PM »
Wonderful! Thanks for the feedback. I see a lot of people saying VIFAX, why this one specifically? I see it has the lowest expense ratio. Also, some of you are stating my age. Should I be changing the plan as I age? Is this a set it and forget it type of situation?

Sidebar: I already have a weekend part time job that I put straight toward my debt load (or if life happens). It is crazy but 33% of our primary job income (without the side gig) is allocated to minimum payments of our debt. Based on this debt snowball calculator I found It is going to take about 3 years to pay off all current debt (without any bad months, like a car breaking down). I wish I was in a better financial position... I guess time is all I need. I wish I had more time to save!!
Realistically any of
VFIAX
VEXAX
VTMGX
VASGX
might be a good choice. VASGX includes four funds for US and international stocks and bonds. Over long accumulations the bonds become a drag and it appears you have many years left of accumulation. On the other hand, VASGX is a good standalone fund and you will never need to make another allocation decision if you choose it. It is less risky, reducing the chances of the best and worst likely outcomes.
VFIAX is the popular choice because it is well known and has done well in the past including recently. There is not any reason to expect it to do better than VEXMAX and VTMGX, but it might be a little less volatile. If you choose one of these other three you will eventually want to make other allocation decisions.

If your employer offers you a 3% tax-free raise that may double in ten years, might lower your marginal tax rate, and will also possibly allow you to get back several hundred dollars cash as a saver's tax credit, would you say "no, I'd rather have short-lived consumer goods and eat out once a week?"

wienerdog

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Re: Panic attack - 401k Allocations
« Reply #15 on: April 07, 2018, 11:54:21 PM »
If you have 50k debt and you are paying more than 3% interest on that then you are stupid for putting money anywhere else.  If the debt isn't something like a low interest mortgage let's run some numbers.

Save 6% at best (you said you can only afford 3%) of 33,000 = $2000.  Company matches 50% so you are putting away $3000 a year.
At 3% you are only putting back $1000 and company matches $500 a year = so total $1500.

Now we look at your debt.  I'll pull a number out of my ass and pick 10% but it is probably more than that if it isn't a mortgage.

50,000 * 10% = $5000 / year.  So now you are in the hole $2000 at best if you are saving the 6% into VFIAX or whatever else was offered up.  You said 3% so put yourself $3500 in the hole.

But the stock market does have some returns but most likely over time you are not going to beat 10% or whatever your debt is.   Pay down your debt first unless it is low interest that the stock market might beat! Use the snow ball effect.  If your debt is multiple accounts pay the smallest account first.  As you start to knock them down you will be motivated to to save more.

Learn about VFIAX and all the other crap suggested while you're knocking out the debt.

privatefarmer

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Re: Panic attack - 401k Allocations
« Reply #16 on: April 08, 2018, 12:43:15 AM »
put 50% into vanguard 500 index, 50% into vanguard developed index.

you're 27 years old, you have 40+ years to let this grow. you should be 100% equities, half US half international. just let it ride and check it in 40 years. have an EKG machine close by.

Steeze

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Re: Panic attack - 401k Allocations
« Reply #17 on: April 08, 2018, 07:17:12 AM »
If you have 50k debt and you are paying more than 3% interest on that then you are stupid for putting money anywhere else.  If the debt isn't something like a low interest mortgage let's run some numbers.

Save 6% at best (you said you can only afford 3%) of 33,000 = $2000.  Company matches 50% so you are putting away $3000 a year.
At 3% you are only putting back $1000 and company matches $500 a year = so total $1500.

Now we look at your debt.  I'll pull a number out of my ass and pick 10% but it is probably more than that if it isn't a mortgage.

50,000 * 10% = $5000 / year.  So now you are in the hole $2000 at best if you are saving the 6% into VFIAX or whatever else was offered up.  You said 3% so put yourself $3500 in the hole.

But the stock market does have some returns but most likely over time you are not going to beat 10% or whatever your debt is.   Pay down your debt first unless it is low interest that the stock market might beat! Use the snow ball effect.  If your debt is multiple accounts pay the smallest account first.  As you start to knock them down you will be motivated to to save more.

Learn about VFIAX and all the other crap suggested while you're knocking out the debt.

This isn't the whole picture, and the break even point isn't close to 3% on your debt.

Consider if you were to increase your contribution to your 401k to 6% vs. putting that extra 3% toward loan payments. Here we are talking about $33,000*.03 = $990 extra toward 401k, or $990*(1-0.12) = $871.2 toward loan reduction assuming you pay around 12% in taxes.

If you were to invest that extra $990, you would immediately receive a 50% return on your investment of $495. In addition, you will pay around $118.8 less in taxes, for a total return of 613$ on $990, or 62% ROI (return on investment). Lets assume you invest in the S&P 500 fund and it returns 7% a year. You now have ($990+$495 = $1485) invested at 7%.

Now lets look at what your load interest rate would have to be to make investing a bad decision. We are talking about $871.2 @ (X)% vs. $1485 @ 7%.

Each year the $1485 @ 7% will create ($1485*.07 = $103.95) So, you debt would have to have an interest rate above ($103.95/$871.2 = 11.9%) to start making the investing look like a worse decision. This is still not the whole picture, because you had a 62% return in the first year. 

Now we must consider that you will be out of debt in 3 years on your current payoff schedule. Lets say that increasing your 401k contributions sets you back 6 months and you your payoff date is now 3.5 years. So, over 3.5 years, what would your interest rate have to be to cancel out the 62% return in year 1?

In year 1 you had a return of $613. for your $871.2 in debt to eliminate this return over a 3.5 year period you would need an interest rate of 15.3% a year.

So, your debt would need a 15.3% + 11.9% = 27.2% interest rate in order to make the extra 401k payments a bad idea.

Debt is bad, there is not doubt about it, but not accepting the money someone is trying to give you is almost never the best financial decision.

It will run you about $35 additional dollars per paycheck (assuming bi-weekly paychecks) to hit the company match. $2 a day. If you can find a way to save $2 a day then none of this matters, you can stay on track with your debt reduction and make the extra contributions to your 401k. That is the challenge. 


 

Levi421

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Re: Panic attack - 401k Allocations
« Reply #18 on: April 08, 2018, 07:42:52 AM »
Thanks for more info everyone! I am in the air on these VFIAX, VASGX, VTMGX. With everyones help, it seems these are the ones I need to be focused on. I want to be diversified enough to be "safe" but I also want some nice gains on my investment. Spreading my money across the top 500 companies seems pretty damn diversified. If I want even more diversification I could do both VFIAX and VTMGX. Based on what Radagast stated, I am not too sure I want invest too much into bonds this young? If I do decide to change, will my initial choice remain invested or will they "Sell" it all to reinvest it in the new plan?

To Radagast, it would be nice to hear more from you on this long term bond buying statement.

To weinerdog, I understand where you are coming from. However, if I were to not invest anything in my 401k my wife would just spend it on an Amazon order or another outing with her friends (this is because she isn't 100% on board, yet). I would rather put it somewhere where it cant really be touched but can grow. I do agree. Ideally, I would be putting the BURN on that debt. I am the only one out of the 2 of us to have a side hustle, but I am hopeful that I can eventually get her 100% on my team. I would consider myself pretty at not spending money, with the exception of my early collage years. I am sure I could do better, of course... I grew up in a poor family, so money was always tight. My wife had a more lavish childhood and is accustomed to spending.

To Steeze, Thanks for carrying the math out farther. According to all my coworkers, we are pretty much guaranteed a 3% raise every year at a minimum with the most being 5%, unless you are a crap employee. According to my boss, I am doing very well. At this point, I don't expect less than 3% on my annual eval.  My plan is to just increase my contribution at that point, no questions asked to get that 6%.

Radagast

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Re: Panic attack - 401k Allocations
« Reply #19 on: April 08, 2018, 03:03:29 PM »
Thanks for more info everyone! I am in the air on these VFIAX, VASGX, VTMGX. With everyones help, it seems these are the ones I need to be focused on. I want to be diversified enough to be "safe" but I also want some nice gains on my investment. Spreading my money across the top 500 companies seems pretty damn diversified. If I want even more diversification I could do both VFIAX and VTMGX. Based on what Radagast stated, I am not too sure I want invest too much into bonds this young? If I do decide to change, will my initial choice remain invested or will they "Sell" it all to reinvest it in the new plan?

To Radagast, it would be nice to hear more from you on this long term bond buying statement.
Whether you do
50/50 VFIAX/VTMGX (This is a good choice if you are looking at 20 years and you realize you can experience large percentage losses, but they will be a small percentage of your eventual net worth.)
100% VASGX
100% VFIAX
100% VEXAX
doesn't matter nearly as much as the amount you save, and nobody can foresee which will be best in retrospect. In tax sheltered accounts you can change things up at any time, but generally should do so rarely.

Obligatory reading which astonishingly has not been mentioned yet:
http://jlcollinsnh.com/stock-series/

CorpRaider

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Re: Panic attack - 401k Allocations
« Reply #20 on: April 09, 2018, 11:21:40 AM »
I agree with Radagast about the target date funds,or building a balanced fund yourself. 

I wouldn't go 100% stocks until after you have been through an actual bear market to see if you slept any when your stocks were down 40-60%. 

I predict a lot of the people who have come to investing after the GFC and calmly extoll the virtues of 100% stocks will freak out and buy some bonds in the next legitimate bear market.

Don't panic, you've got a lot of good options!  Target date funds are just fine.  Morningstar did a study that revealed that the target date fund investors in their study actually did better than their funds because of dollar cost averaging, while everyone else suffered behavioral gaps (buying high and selling low).
« Last Edit: April 09, 2018, 11:25:33 AM by CorpRaider »

Levi421

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Re: Panic attack - 401k Allocations
« Reply #21 on: April 14, 2018, 10:13:43 AM »
Thanks everyone for all of the great information! After critical review, I have chosen VASGX for my 401k allocation because of the greater diversity and reasonable expense ratio.

JAYSLOL

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Re: Panic attack - 401k Allocations
« Reply #22 on: April 14, 2018, 01:40:58 PM »
I know 3 years paying off debt looks like an eternity from here, but keep at it, with a bit of perseverance you will be COMPLETELY DEBT FREE BY 30!  That's better than a lot of your peers I'd bet, and from 30 onwards you can save like a badass by putting those would-be debt payments to work in your retirement accounts. 

MustacheAndaHalf

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Re: Panic attack - 401k Allocations
« Reply #23 on: April 14, 2018, 09:40:48 PM »
When you have too many choices in a retirement plan, focus on the expense ratios.  For example, although Fidelity offers some low cost funds, they just can't help themselves - they offer a "Growth" fund costing 0.85% expense ratio.

The popular recommendation of VFIAX is based on several factors, but it's 0.04% expense ratio is a big one.  When you look for low expense ratios, you are also favoring passive index funds.  Those funds buy and hold, using whatever weights the stock market has determined.  If the market is very efficient, it makes sense to accept the market prices.  And the market weight is just stock price x number of shares, so it's a short step from accepting market prices to using a passive index fund.

I personally favor a Total Stock Market fund since it includes small cap stocks, but VFIAX (Vanguard S&P 500 index fund) is fairly close and a good choice.

Bill_

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Re: Panic attack - 401k Allocations
« Reply #24 on: April 15, 2018, 04:25:13 AM »
What are the details on your loan?  Doesn't look like a mortgage to me, what is the interest rate?

What is total household income?  Does your wife work?  At $33k annually you would pay almost no federal income tax in 2018.  $33k less medical ($3k) less 401k ($1k) less standard deduction ($24k) x 12% is $600.  Not sure that matters, but maybe it does.  How much federal withholding will you have this year?

Assuming your lifestyle stays the same a 3% annual wage increase is not a raise, it is a cost of living adjustment that will likely just barely keep up with inflation.  Don't let your boss tell you that 3% is a raise.

SeattleCPA

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Re: Panic attack - 401k Allocations
« Reply #25 on: April 15, 2018, 07:07:49 AM »
This counter-argument to taking the match:

I think you need to look at the interest rate on the debt.

For example, putting $1000 into employer 401(k) and getting a $500 match is great.

At that point, you've got maybe $1,500 earning, what, 5% a year?

But if you take the $1,000 instead and invest it in paying down your credit card debt charging 20%, that pretty quickly catches up with the matched funds.

Don't get me wrong: I think the 401(k) match is a great deal. But super-high-interest-rate credit card debt is a pretty hard "investment" to beat.

Also consider this: Something like a credit card interest rate is a guaranteed, tax-free rate of return. The stock market won't get you a 20% guaranteed rate of return. And the return might not be tax-free for you.

HBFIRE

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Re: Panic attack - 401k Allocations
« Reply #26 on: April 15, 2018, 03:52:08 PM »
The huge difference of course is that the money you put in your 401 K (hopefully not as bad as 5% avg!) will give you a return every year, and of course compound giving you even a larger return each year.

The CC return, while huge immediately, is finite (assuming you won't be carrying that balance perpetually).  In other words, you get a one time return on your money instead of a perpetual return.

Also, the 1 K you're putting into the 401 K is without taxation obviously, so really you'd be paying off something like 7-$800 of cc debt.   

I would strive to get the company match on the 401 K, then attack the cc debt.   
« Last Edit: April 15, 2018, 03:56:36 PM by dustinst22 »

Levi421

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Re: Panic attack - 401k Allocations
« Reply #27 on: April 18, 2018, 01:32:04 PM »
I have attached my current debt load. It shows the creditor (SM stands for Sallie Mae), total balance, interest rate, and minimum payments. Yes, my wife has a job that gives us about $1160.00 net per month. But I really wanted more of an education on where to place my allocations in my 401k. I have already chosen to go with the VASGX. I feel that I have obtained what I set out for in this post. However, I am always open to learning more!
« Last Edit: April 18, 2018, 01:43:23 PM by Levi421 »

HBFIRE

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Re: Panic attack - 401k Allocations
« Reply #28 on: April 18, 2018, 04:23:22 PM »
Yikes, that's some pretty heavy high interest debt.  You're paying close to 5 grand a year in interest right now.  Attack that high interest debt with everything you have.  I'm all for getting your 401K match, but after seeing this, I'm thinking you might want to throw everything at these debts first, just to make your day to day expenses easier to deal with in the short term.  At a minimum, I'd want to knock out the 17% items before contributing to the 401k.
« Last Edit: April 18, 2018, 04:29:30 PM by dustinst22 »

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Re: Panic attack - 401k Allocations
« Reply #29 on: April 18, 2018, 04:29:11 PM »
The high interest on your two credit cards is concerning, as is your student loans. I didnít know that student loan interest rates could be that high. Credit card interest rates, Iíve seen worse, unfortunately.

If I were in your shoes, I would still hit the match on the 401k, but it is an understandably tough call. With any extra money I could scrape together each week I would start paying down Leviís chase while paying the minimums on all the other loans. Once Levi's was paid I would roll that payment into Andreaís chase until that was paid. Then work on Andreaís SM1, then Andreaís SM2, followed by Andreaís Car, then Leviís Fed Loan. Always rolling the extra payment along with the minimum payment to the next loan. This is the Ďavalanche methodí of killing debt. I wouldnít recommend the snowball method at all, especially with 10k at 17%.

Before I did any of that though I would call every creditor I could find that would potentially refinance my debt to more reasonable rates, being extra careful not to incur any origination fees. If possible, I would refinance the two Sallie Mae loans and the two credit cards (into two separate loans if needed, one if it made sense). As a last resort I would consider opening a new credit card with a 0% introductory offer and transfer the credit card debt, making sure I could pay off the balance by the end of the intro offer. If that wasnít possible I would carry on as described above.

Tough spot to be in, no doubt about it, but you got yourselves here, now just a matter of getting out as quickly as possible and staying out for life. Those credit cards will destroy your finances in a heartbeat.

Of course this is just what I would do Ė you have to make your own choices. Best of luck on you journey to being debt free ASAP!!


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Re: Panic attack - 401k Allocations
« Reply #30 on: April 18, 2018, 07:21:48 PM »
I have attached my current debt load. It shows the creditor (SM stands for Sallie Mae), total balance, interest rate, and minimum payments. Yes, my wife has a job that gives us about $1160.00 net per month. But I really wanted more of an education on where to place my allocations in my 401k. I have already chosen to go with the VASGX. I feel that I have obtained what I set out for in this post. However, I am always open to learning more!
Those are pretty high. Even at 17% it will be nearly three years before they equal the 50% employer match, even before other tax advantages and possible gains. If you can handle the cash flow and pay those off within three years you'll be better getting the 401k match.

As Steeze said, see if you can lower those interest rates.  That is a no-lose proposition.

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Re: Panic attack - 401k Allocations
« Reply #31 on: April 18, 2018, 07:33:04 PM »

Those are pretty high. Even at 17% it will be nearly three years before they equal the 50% employer match, even before other tax advantages and possible gains. If you can handle the cash flow and pay those off within three years you'll be better getting the 401k match.


It might be mathematically better to still go for the 401K match as long as everything goes smoothly.  But my sense is, finances are very tight.  Do we have an emergency fund?  What happens if a huge medical or other cost comes up?  Job loss?   

I would want to get my basic living costs in order first and get my costs down, just to ensure I can survive one of the above if it happens.  Then I can start thinking about my retirement savings.



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Re: Panic attack - 401k Allocations
« Reply #32 on: April 18, 2018, 11:01:47 PM »
This is just discussion, please don't act on this without further research. Even if paying the loans as quickly as possible is the objective, wouldn't it still be best to first get the employer match, and then withdraw the money early at a 10% penalty? Say you add 1000, employer adds 500, pay 150 penalty, and in the end you have an extra 350 to put towards debt compared to not getting the match. You have to pay extra taxes, but that would have been the same issue either way. I know I have seen this advice come up in "taxable account vs IRA discussions."

In fact would that not be the optimal solution until the debt greater than 10% is gone?

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Re: Panic attack - 401k Allocations
« Reply #33 on: April 20, 2018, 08:57:48 AM »
Yes, It is pretty bad... This I know. We have made a plan and we have stuck to it pretty well. Levi Chase balance was close to $7k balance in August and we have gotten it down to where it is now. Based on our plan/timeline, it will be gone the 1st or 2nd week of June. I am glad we are getting serious about our debt, I just wish I was more caring about it when I was 18 years old. But I do have to pay for the crimes of charging/financing everything... So, 33 months if all goes well (according to my snowball/avalanche calculator). We have $1000.00 as an emergency fund currently. I have attached my budget if you want to see that. After that, It would be nice to set up the Emergency fund of like 6 months of expenses. After that, I want to invest in like a rental property or something that cashflows. I really don't want to work 2 jobs forever...

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Re: Panic attack - 401k Allocations
« Reply #34 on: April 20, 2018, 09:55:20 AM »
Levi - aside from the 401k info consider posting a case study.  I found it incredibly helpful in ways I didn't anticipate.

Read them here:
https://forum.mrmoneymustache.com/case-studies/

Tips on writing your own here:
https://forum.mrmoneymustache.com/case-studies/how-to-write-a-'case-study'-topic/

:)


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Re: Panic attack - 401k Allocations
« Reply #35 on: April 20, 2018, 10:05:56 AM »
This is just discussion, please don't act on this without further research. Even if paying the loans as quickly as possible is the objective, wouldn't it still be best to first get the employer match, and then withdraw the money early at a 10% penalty? Say you add 1000, employer adds 500, pay 150 penalty, and in the end you have an extra 350 to put towards debt compared to not getting the match. You have to pay extra taxes, but that would have been the same issue either way. I know I have seen this advice come up in "taxable account vs IRA discussions."

In fact would that not be the optimal solution until the debt greater than 10% is gone?

Actually yes I think you are correct here.  Get the match should be first priority.  Like you mention, its a 50% instant return, and even if you have to early withdraw for an emergency you're still ahead.

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Re: Panic attack - 401k Allocations
« Reply #36 on: April 20, 2018, 04:47:17 PM »
This is just discussion, please don't act on this without further research. Even if paying the loans as quickly as possible is the objective, wouldn't it still be best to first get the employer match, and then withdraw the money early at a 10% penalty? Say you add 1000, employer adds 500, pay 150 penalty, and in the end you have an extra 350 to put towards debt compared to not getting the match. You have to pay extra taxes, but that would have been the same issue either way. I know I have seen this advice come up in "taxable account vs IRA discussions."

In fact would that not be the optimal solution until the debt greater than 10% is gone?

You owe federal and state tax on the full withdrawal and an additional 10% penalty.  Yes, you didn't pay income tax on the way in....but that still doesn't leave you with an extra $350.

Radagast

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Re: Panic attack - 401k Allocations
« Reply #37 on: April 20, 2018, 06:28:35 PM »
This is just discussion, please don't act on this without further research. Even if paying the loans as quickly as possible is the objective, wouldn't it still be best to first get the employer match, and then withdraw the money early at a 10% penalty? Say you add 1000, employer adds 500, pay 150 penalty, and in the end you have an extra 350 to put towards debt compared to not getting the match. You have to pay extra taxes, but that would have been the same issue either way. I know I have seen this advice come up in "taxable account vs IRA discussions."

In fact would that not be the optimal solution until the debt greater than 10% is gone?

You owe federal and state tax on the full withdrawal and an additional 10% penalty.  Yes, you didn't pay income tax on the way in....but that still doesn't leave you with an extra $350.
But it does leave you with more money than had you not taken the match.

HBFIRE

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Re: Panic attack - 401k Allocations
« Reply #38 on: April 20, 2018, 06:31:30 PM »
This is just discussion, please don't act on this without further research. Even if paying the loans as quickly as possible is the objective, wouldn't it still be best to first get the employer match, and then withdraw the money early at a 10% penalty? Say you add 1000, employer adds 500, pay 150 penalty, and in the end you have an extra 350 to put towards debt compared to not getting the match. You have to pay extra taxes, but that would have been the same issue either way. I know I have seen this advice come up in "taxable account vs IRA discussions."

In fact would that not be the optimal solution until the debt greater than 10% is gone?

You owe federal and state tax on the full withdrawal and an additional 10% penalty.  Yes, you didn't pay income tax on the way in....but that still doesn't leave you with an extra $350.
But it does leave you with more money than had you not taken the match.

Assuming the market hadn't gone down.  I believe in my tax bracket in CA, I would end up with less assuming the market was flat.

Radagast

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Re: Panic attack - 401k Allocations
« Reply #39 on: April 20, 2018, 06:39:57 PM »
This is just discussion, please don't act on this without further research. Even if paying the loans as quickly as possible is the objective, wouldn't it still be best to first get the employer match, and then withdraw the money early at a 10% penalty? Say you add 1000, employer adds 500, pay 150 penalty, and in the end you have an extra 350 to put towards debt compared to not getting the match. You have to pay extra taxes, but that would have been the same issue either way. I know I have seen this advice come up in "taxable account vs IRA discussions."

In fact would that not be the optimal solution until the debt greater than 10% is gone?

You owe federal and state tax on the full withdrawal and an additional 10% penalty.  Yes, you didn't pay income tax on the way in....but that still doesn't leave you with an extra $350.
But it does leave you with more money than had you not taken the match.

Assuming the market hadn't gone down.  I believe in my tax bracket in CA, I would end up with less assuming the market was flat.
I assumed it was withdrawn and used to pay of the loan immediately in this case. I ran some numbers showing the match and withdrawal to be the better option even with 10% state tax, 10% penalty, 12% tax on the $1k, and the entire $500 match got bumped to 22% tax.

=$1000*.88 =$880 (no match)
=$1000*(.88-.1-.1)+$500*(.78-.1-.1) =$970 (match)