Author Topic: How's my stache looking?  (Read 3232 times)

gamecock_mustache

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  • Age: 35
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How's my stache looking?
« on: June 09, 2016, 07:36:06 AM »
Emergency funds: 6 mo+ (3 mo in checking + 3 mo in Vanguard Total Stock Market Index Adm (VTSAX) (.05))
Debt: $206k 15yr mortgage @ 3.125% (home value is ~$240k); no other debt
Tax Filing Status: Married Filing Jointly
Tax Rate: 15% Federal, 7% State
State of Residence: SC
Age: 31, wife is 29, and a 9 month old
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 30% of stocks

My salary is ~$76k/yr and my wifes is ~$36k/yr (if full-time). We both have steady jobs with large international companies. Our annual expenses/budget (including mortgage) = ~$45-50k. I expect our spending in retirement to be about $30-35k in todays dollars with $20-25k of that being essential and $10k being discretionary (no mortgage).

Current total portfolio: ~$265k (stocks, bonds, cash only)(does not include $40k of equity to make "net worth" ~$300k).


Current retirement assets (~$244k)
Her Taxable
15.3% Intermediate-Term Bond Index Admiral Shares (VBILX) .10
4.2% Vanguard 500 Index Fund Adm Shares (VFIAX) .05
5.2% Vanguard Total International Stock Index Fund Adm (VTIAX) .12

His Taxable
6.5% Vanguard Total Stock Market Index Fund Adm Shares (VTSAX) .05

His 401k
36.1% Spartan 500 Index Inst (FXSIX) .05
9.6% Spartan Extended Market Index Adv (FSEVX) .07
1.3% SSgA International Index Fund (EAFE) .09
2.0% SSgA Bond Index C   (SSFEX) .06

His Roth IRA at Vanguard
2.2% Vanguard Total international Stock Index Fund Inv Shares (VGTSX) .19

Her 401k
5.5% Vanguard Total International Stock Market Index Fund (VGTSX) .22
0.7% Vanguard Total Bond Market Index Fund (VBTIX) .06

Her Roth IRA at Vanguard
2.2% Vanguard Total International Stock Index Fund Inv Shares (VGTSX) .19

His Traditional IRA at Vanguard
2.3% Vanguard Total international Stock Index Fund Inv Shares (VGTSX) .19

Her Traditional IRA at Vanguard
2.3% Vanguard Total international Stock Index Fund Inv Shares (VGTSX) .19

His HSA at WellsFargo
3.7% WellsFargo Index Admin (SP500 Index) (WFIOX) .37
0.8% Cash (Required to be in cash)


Contributions (Annual)
$18,000 (~23%) into His 401k (plus 6% full employer match + 2% non-elective; $24,000 total)
$13,500 (75%, max % per her company's plan) into Her 401k (plus 3% full employer match + 2% non-elective; $14,400 total while part-time)
$5,500 into his Traditional IRA
$5,500 into her Traditional IRA
$3,350 into His HSA ($1,850 from paycheck, $1,500 from employer)
~$3k into His Taxable
No employer pension options (2% non-elective shown above in lieu)


Notes:
1.   I have a $1M 30yr term life insurance policy on myself and a $350k 30yr term life insurance policy on my wife. I also have a LTD insurance policy on myself that covers 40% of my paycheck (work pays for 40% so I have 80% coverage total). I need to get a will and living will worked up but I just havent done it yet.
2.   The plan is for my wife to work part-time (20 hours/week) until our child starts 1st grade; were planning to only have 1 child for now. My sister is a stay at home mom and will be keeping our child for a small fee while my wife is at work.
3.   My goal is to semi-retire at age 35 and then work some part time doing something I enjoy up to a few months out of the year to supplement my income as/if needed. Id like to take a yacht (used 35-40 @ ~$180k) up and down the intercoastal for a few years and also tour the US and Canada with a used RV for a few years. I figure our child will be in college at this time and can fly to our nearest airport and stay with us a week or month and then fly back (as well as other family and friends).
I'll likely work part-time (mostly while my son is at school hopefully) making $15k or so per year until my son goes to college and then just work as needed or to make hobbies/travel destinations a little cheaper (ski resort employee for a month or two in the winter, kayak guide in the summer, etc). My wife wants to continue her job until my son goes to college working 20-40 hrs/week and after that would likely be able to have $5-10k of income easily by working part time at an animal kennel, walking neighborhood dogs, etc until true retirement age or likely even after that if she wants and still can. We'll also downsize our house by age 40, if not much sooner, and will therefore be mortgage free by age 40-45 or just have more in savings depending on how we play that.
4.    My plan for paying for my son's college education, should he choose to attend, is that I've opened a 529 for him and all his birthday $, etc is going into that for now, also plan on him getting a job at age 15 like I did and start saving half of what he makes towards college, get scholarship(s), possibly attend tech/community college for the first two years of college and then transfer, attend an in-state school unless he has a scholarship to an out-of-state school that would cause it to make more sense, and also use student loans for anything else (student loans should be minimal if all other options are used). My current plan is to pay for his second 2 years of college if he maintains a 3.5GPA and graduates or if he has scholarships that bring down total cost then I'll pay off his student loans if he has any and I'm able to. Therefore I don't plan on his college being some unimaginable cost and I have budgeted for what I'll be willing to help with. No handouts here but I'll certainly help if he earns that help.
5.    My thought is that I can always ramp up and down the amount I work in the "semi-retirement" phase of my life and hopefully never have to return to a cubicle for 40hrs/week again and work for "MegaCorp". If I completely fail then I'll re-enter the full-time job market at some point down the road before it's too critical and work until true retirement age like most other folks will anyways but I'd have spent a whole lot more time with my child as he grows up. (Actually the more likely action would be I'd just ramp down my spending and after my son goes to college we'd live out of a small RV or car and travel that way like we'd love to do anyways (http://www.cheaprvliving.com/); it's amazing what you can do when you're not trying to "keep up with the Jones'").


Questions:
1.   First off Id like to know how you think my portfolio looks with respect to what Im invested in etc. and my goals. Could I make any changes that would be beneficial in the long run with regards to tax efficiency, risk vs reward, etc?
2.   Do you think my goal of semi-retiring at 35 is feasible and what can I do to make it even more so?

Thanks in advance!

Platypuses

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Re: How's my stache looking?
« Reply #1 on: June 09, 2016, 07:58:33 AM »
First off good job at saving.
Two small comments:
Is their a reason why you are not maxing out the HSA (limit is $6,750 for family)?
In you asset allocations it looks like you are going only traditional, do you have some of this going to a Roth?

My opinions on your questions:
Retiring at 35 might be a stretch. Just doing simple quick math you will need $1.25M to retire with $50k annual expenses at the 4% rule. The big thing to consider is that most of your money is in retirement accounts, so you will need a considerable stache outside of retirement accounts and/or a decent part time job to reach the $50k/yr spending.

Your expense ratios all look good, at your age 20% bonds is pretty conservative.



radram

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Re: How's my stache looking?
« Reply #2 on: June 09, 2016, 08:42:24 AM »
I agree with platy.  GREAT start.  I know it is hard to consider the PT vs FIRE calculation.  I think most here, including myself want to consider PT work only icing and not needed for FIRE.  For that reason, I agree 35 might be a little early to pull the plug.

AS far as other numbers, I agree 80/20 might be a little low on the stock side... you need your stache to last 50 or 60 years.

Your emergency stache in the stock market is a concern.  I would ladder 6 cd's that mature at 1 month intervals.

I think 30% international is a little high.  Since a great deal of the US market already is international, you are really more like 40%(or 50%?) international.  I would cut that to 10%.

Notes

1. My opinion is you only insure assets you can not afford to replace.  Once you are FIRE and no longer producing income, you are not an asset, you are a liability.  In other words, your remaining family needs LESS to live the rest of their lives, not more.  I believe you are over-insured and I would add those payments to your stache.

2.  A sound family plan.

3. A yacht trip sounds like quite an adventure, but I would advise caution.  Boats are money traps, and should be treated as such. You know the definition -a hole in the water into which one pours money.  The 4% rule does not include a yacht, since you are sailing on a great portion of your stache and it is depreciating every day until you sell it.  You need your stache to grow instead.  I would completely remove your yacht money from all calculations moving forward, while still including living expenses for that time since you would spend that money somewhere even if you were not sailing.  I look forward to the blog posts :)

4.  Another sound plan with regard to your child's education.  It requires skin in the game as well as a helping hand after he has proven himself.  I do not think the next 20 years will have the same cost increases as the last 20 years with regard to college, but if they do he might benefit from a little more assistance.  Only time will tell.

5.  I also agree with this.  Entering the workforce again at 60 might prove difficult, but you would see it coming decades away and can prepare.  The fact that you are starting with the understanding you might have to adjust is definitely the right mindset.


Your questions:

1.  I am not at all concerned with your tax deferred account balances.  You can do IRA to Roth conversions every year using a 5 year ladder, then withdraw that amount each year.  You DO need 5 years for the plan get its legs.  Do you have 5 years of spending in non-taxable investments.  If not, you have 5 years to get there.  That might change where you put your NEXT 5 years savings.

2.  I think I mostly covered this above.


Keep it up, and keep us posted

Radram

gamecock_mustache

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Re: How's my stache looking?
« Reply #3 on: June 09, 2016, 11:52:09 AM »
First off good job at saving.
Two small comments:
Is their a reason why you are not maxing out the HSA (limit is $6,750 for family)?
In you asset allocations it looks like you are going only traditional, do you have some of this going to a Roth?

My opinions on your questions:
Retiring at 35 might be a stretch. Just doing simple quick math you will need $1.25M to retire with $50k annual expenses at the 4% rule. The big thing to consider is that most of your money is in retirement accounts, so you will need a considerable stache outside of retirement accounts and/or a decent part time job to reach the $50k/yr spending.

Your expense ratios all look good, at your age 20% bonds is pretty conservative.

My wife is currently on her employers health plan with our son so my HSA is me only.  With respect to IRA, this year I'll likely do Trad but with so many pos/neg either way it's kind of a toss up so I may do a combination next year depending on tax status and plans for semi-retirement needs.

As I said in my post we should be mortgage free by 40-45 due to a 15 yr mortgage and downsizing so our expenses in most of retirement will be $30-35k and I'll be working part-time to cover the difference in 4% from my stache and what I'll need each year.  My wife will also be working 20-40hr/week until my son goes to college.  I'll be semi-retiring at 35.  I sit in a cubicle 40+hrs/week right now doing work that bores the hell out of me and there's no way I can do this for more than 4-5 more years.  I'm currently looking for another job as there's no job I want with my current employer partly due to the current management.  Since I'll have a pretty sizable stache by 35, working part-time should give me plenty of income to meet my spending/stache difference and free up a lot of time to spend with my son and pursue some of my hobbies/passions.

gamecock_mustache

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Re: How's my stache looking?
« Reply #4 on: June 09, 2016, 02:05:31 PM »
Thanks for the replies!

I agree with platy.  GREAT start.  I know it is hard to consider the PT vs FIRE calculation.  I think most here, including myself want to consider PT work only icing and not needed for FIRE.  For that reason, I agree 35 might be a little early to pull the plug.
I agree that it would be nice for PT to be the icing and not required but when I consider working til 40 in my current job vs retiring from my current job at 35 and doing PT work til 48 I'd much rather go the PT way.  I feel like I'd be enjoying life so much more while young and still able to do so and would know if it wasn't going to work by age 45-50 and be able to go back to work full-time if needed then.

Quote
Your emergency stache in the stock market is a concern.  I would ladder 6 cd's that mature at 1 month intervals.
My thought here is that in an emergency I could use my HELOC or worst case Roth should I need it and have that $ working for me in the meantime vs having it in CD's which earn next to nothing right now.

Quote
Notes

1. My opinion is you only insure assets you can not afford to replace.  Once you are FIRE and no longer producing income, you are not an asset, you are a liability.  In other words, your remaining family needs LESS to live the rest of their lives, not more.  I believe you are over-insured and I would add those payments to your stache.
Agreed and I'll likely lower this next year for the both of us.  The $1M policy only cost me $540 this year so not a huge benefit in reducing it.

Quote
3. A yacht trip sounds like quite an adventure, but I would advise caution.  Boats are money traps, and should be treated as such. You know the definition -a hole in the water into which one pours money.  The 4% rule does not include a yacht, since you are sailing on a great portion of your stache and it is depreciating every day until you sell it.  You need your stache to grow instead.  I would completely remove your yacht money from all calculations moving forward, while still including living expenses for that time since you would spend that money somewhere even if you were not sailing.  I look forward to the blog posts :)
I definitely know all about that definition of a boat since I grew up with them and have owned them myself since I got my first job and up until earlier this year.  The yacht would of course be purchased used so deprecation wouldn't be that bad over a year or two.  Also, this would only happen far into retirement (18 years at least) and by then I'd know better where I stand and if it doesn't happen it's not a deal breaker, just a cherry on top.  It'd also be purchased with $ from the sale of my house which isn't calculated in my stash anyways.  My best friend should be retired by then as well and we may go in half's on the yacht which would make it even less expensive.

Quote
You DO need 5 years for the plan get its legs.  Do you have 5 years of spending in non-taxable investments.  If not, you have 5 years to get there.  That might change where you put your NEXT 5 years savings.
At 35 I'd have around $15k/yr in taxable available and the difference would come from PT work from my wife and I.

csprof

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Re: How's my stache looking?
« Reply #5 on: June 10, 2016, 11:06:27 PM »
Current retirement assets (~$244k)
Her Taxable
15.3% Intermediate-Term Bond Index Admiral Shares (VBILX) .10
Questions:
1.   First off Id like to know how you think my portfolio looks with respect to what Im invested in etc. and my goals. Could I make any changes that would be beneficial in the long run with regards to tax efficiency, risk vs reward, etc?

The one thing that jumped out at me is that VBILX is a dividend-heavy fund, and AFAIK, Vanguard's bond funds don't produce qualified dividends, so you're paying taxes on most of your gain in this fund as ordinary income.

Assuming I'm correct (you can check it with your tax forms from them last year), you might want to shift to have your bond holdings in your roth or 401k, and equity growth-focused holdings only in your taxable account.  Depends how you want to balance your risk, but given that you can steal your Roth contributions back, you should be able to find a way to do this that reduces your taxes a bit.

MDM

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Re: How's my stache looking?
« Reply #6 on: June 11, 2016, 12:00:12 PM »
Contributions (Annual)
$18,000 (~23%) into His 401k (plus 6% full employer match + 2% non-elective; $24,000 total)
$13,500 (75%, max % per her company's plan) into Her 401k (plus 3% full employer match + 2% non-elective; $14,400 total while part-time)
$5,500 into his Traditional IRA
$5,500 into her Traditional IRA
$3,350 into His HSA ($1,850 from paycheck, $1,500 from employer)
~$3k into His Taxable
No employer pension options (2% non-elective shown above in lieu)
It appears your choice of traditional instead of Roth is correct - keep up the good work!

Although some rules of thumb suggest using Roth if you are in the 15% bracket now, you don't have enough in your traditional accounts yet to reach a 15% marginal rate on withdrawal (assuming a 4% withdrawal rate).

If your traditional accounts reach a combined ($18,550+$20,700)/.04 = $981,250, then you might want to switch to Roth.  The $18,550 is the start of the 15% bracket for MFJ, and $20,700 is the standard deduction and personal exemption for two people.  The number goes even higher if you include your child's exemption.  It will be lower if you have other taxable income.

See https://www.bogleheads.org/wiki/Traditional_versus_Roth for more.

gamecock_mustache

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Re: How's my stache looking?
« Reply #7 on: June 13, 2016, 12:08:47 PM »
The one thing that jumped out at me is that VBILX is a dividend-heavy fund, and AFAIK, Vanguard's bond funds don't produce qualified dividends, so you're paying taxes on most of your gain in this fund as ordinary income.

Assuming I'm correct (you can check it with your tax forms from them last year), you might want to shift to have your bond holdings in your roth or 401k, and equity growth-focused holdings only in your taxable account.  Depends how you want to balance your risk, but given that you can steal your Roth contributions back, you should be able to find a way to do this that reduces your taxes a bit.
You are correct.  It's a long story as to why that $ is there (it's much better off there than where it was; a CD gaining next to nothing that her parents were a part of setting up) but yes, I am currently moving it into her 401k every paycheck and am also going to be moving it into IRA's each year.