Author Topic: Beginner from Utah! Would love feedback on next direction to take.  (Read 764 times)

HotChocolateCup

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Hi!

My name is Claire and I'm from Utah. I've enjoyed reading the MMM blog and trying to apply the principles but I feel like I'm still fuzzy on a couple of things and would like some feedback and direction for this current stage of life.

Some background. I'm 25 and I currently work as an X-ray Technologist at a hospital making about 55-60K, my husband is currently in school and has a part-time job as an instrument technician making about 10K, but hoping to increase his income with a new job this year. We have no debt or loans.

I currently have a 401(k) with my job which includes an employee match past a certain percentage, but lately I've been contributing 15% of my paycheck to that and it has about $17,000 in it. I also have an HSA with my job that has an employee match and that currently has about $1,000.

I had started a Roth IRA back in 2017 and that account has about $12,000. My husband also started a Roth this last year but has minimal funds currently.

I started a Vanguard account as well, but haven't contributed yet because I feel pretty confused about what account I should prioritize putting my savings.

My husband and I are also trying to save for a home and are living for free with his mom currently, and we are also trying to save for some fertility treatments. We have about $6,000 in a savings account right now.

The main questions I think I have are:

Which retirement accounts should I prioritize?
If I don't invest in a Vanguard account, will I not be able to take out withdrawals for early retirement?
Which Vanguard allocation should I be focusing on buying? Is there a certain name that works best for people?
Are there any accounts I should stop contributing to?
How do I know where I stand with early retirement? Having trouble calculating net worth.

Anyway! I would appreciate any and all feedback so I can get moving in a great direction. Thanks for the help and insight in advance.

patchyfacialhair

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Re: Beginner from Utah! Would love feedback on next direction to take.
« Reply #1 on: March 17, 2023, 10:38:51 AM »
https://forum.mrmoneymustache.com/investor-alley/investment-order/

That should answer your investment questions.

And since you're asking for advice...I'll come from the perspective of a dude who is only a couple years older than you but can remember being 25, as that's about how old I was when I first got married.

Life comes at you fast, and while saving for early retirement is fun, focus first on the things that you consider most important. You volunteered that you are saving for fertility treatments at age 25. That seems atypical, but I don't say that to judge. Only to say that you mentioned it for a reason, meaning you probably want kids at some point, and maybe there are some issues there. So I'd argue that you should focus first on doing things that help reach that goal. Maybe that means moving out of parent's house so that you and your husband can spend quality unencumbered time together. Maybe that means prioritizing house savings. Kids really have a funny way of reshaping your outlook on life, and if you want them, I'd focus less on these early retirement nuts and bolts, and figure out how to make the important things happen.

Wish you the best!

Purple_Crayon

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Re: Beginner from Utah! Would love feedback on next direction to take.
« Reply #2 on: March 17, 2023, 10:57:31 AM »
Hi Claire, and welcome! Fellow Utahn here!

I agree with patchy. You have A LOT going on right now (husband's schooling, family considerations, a prospective home purchase). Although it sounds like you're already taking great steps toward a successful future (way better off than I was at 25), I would agree that focusing on the shorter term considerations may be more prudent currently. Continue to get your HSA and 401k match, certainly, and having a ROTH started early is always good (takes five years to bake), but first consider taking some time to make a prioritized list of the many things you want for your future. Then it'll be a lot easier to take steps toward those at the top of the list first. It will also help your friends here provide advice more effectively.

Also, in case you're curious: my sister is also an X-ray tech in Utah. An awesome thing that she did to help out her retirement is to start working for the University instead of private hospitals or clinics. As a public entity, they provide additional options to save more pre-tax and, as an added benefit, will provide the equivalent of 14.2% of your salary toward a retirement account whether you contribute or not (https://benefits.utah.edu/university-funded-retirement-accounts/).


bacchi

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Re: Beginner from Utah! Would love feedback on next direction to take.
« Reply #3 on: March 17, 2023, 11:11:14 AM »
Is your "Vanguard account" a brokerage account?

How much interest does your savings account pay?

Loren Ver

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Re: Beginner from Utah! Would love feedback on next direction to take.
« Reply #4 on: March 17, 2023, 01:36:54 PM »
Welcome!  Glad you are starting to ask questions and figure things out early.  It really helps.

You have gotten good advice so far, and this place is full of all kinds of good stuff.  The other thing you will find is that there are lots of path that lead roughly in the same direction and to a sorta similar goal but are all different.  It might seem frustrating if you want someone to just tell you want to do, but it is also good because there is no one right answer where all the other answers are wrong.  There are just a bunch of good answers with different focuses and timelines.  I didn't follow the optimum path, but I still got out early :). 

Okay- make sure I got the questions.
Which retirement accounts should I prioritize? 401k to match then HSA.  Then the others, it depends on your goals.  Fast answer is see the investment order patchy listed, but your mileage may vary.  See other posters answers and my answer below in story time.  It can be as cut and dry as you want. 
 
If I don't invest in a Vanguard account, will I not be able to take out withdrawals for early retirement?

I assume by vanguard account you are talking about a brokerage account where you just invest where you like.  If so then:
Many FIRE folks use a 401k to Roth conversion ladder as a strategy.  This allows them to take money out of a 401k and move it to an IRA then to a Roth (this is a taxable event) and then in 5 years take out of money as principle.  So they only need 5 years of money to live on. This can only happen once once leaves a company where the 401k was connected. 

There are other strategies as well like 72t (which i don't understand).  But overall, you will not be locked in.

Which Vanguard allocation should I be focusing on buying? Is there a certain name that works best for people?

People here seem to like VSTAX Total Stock Market Index Fund.  It is good general purpose.  Some throw in some international or other flavors as well, but VSTAX gets the most love.  That's what I rolled DHs IRA into for safe keeping.

Are there any accounts I should stop contributing to?

This will depend on your goals, and there will probably be disagreement here but I think overall based on your income and not knowing what your FIRE income will be, I would make the Roth your lowest priority.  The power of the Roth is that you put in money that has already been taxed so that you don't pay taxes later (and you can take out principle).  Well the taxes you will pay on the growth will be capital gains, which for married filing jointly is 0% up to $83,350 + the standard deduction (25,900)=$109,250.  Then 15% after that up to $500,000+.  So assuming the tax rates don't change a ton, you wont be reaping huge benefits on putting money there.  Instead avoid the taxes now since they are a higher % and you need the cash.  The principles in Roths make decent emergency funds since most people really think twice about taking the money out and using it. 

How do I know where I stand with early retirement? Having trouble calculating net worth.


Okay so net worth.  This is one of those things that has one of two purposes, 1-it can matter to you so you can compare yourself over time to see if you are meeting your goals or 2- you use it to compare to others to see how you stack up.  There is no rule on how this is done.  If you want to compare your pile to other people's piles to see who has the biggest pile then you need to scrape all the stuff together you can and see how big it is.  I've seen people use investments, cash, house, cars, things, etc.  If you just want to do a time point by time point comparison of self, then find the things that matter to you.  I personally only use my investment piles, because those are the only things that matter to my FIRE date.  To some people their pension matters, to some house (they plan to relocate).  To some debt or negative costs (kids college) get factored in. 

Now if you question was actually, how much $$ do I need to retire, that is more a math answer.  We generally start with 4% as our quick and dirty answer.  If you need $40,000 per year to live on then you need $1,000,000 invested.  There was a study done (Trinity study) and follow ups and debates and stuff.  There are lots of caveats to this (invested in what, do you really mean 4%, blah blah blah).  But there are dozens of posts on lots of this.  But the ball park to start you off is 4% or 25x your spending. 

Story time - because why not :D.  Above is the best practices kinda stuff.  Below is more of what I did. 

I (well we - DH and I) followed a very different investment path than most of the (very smart) folks here.  Starting out I went for 401K match, HSA, then brokerage account.  I wasn't a high earner so reducing taxes was less of a concern than growing money in an accessible way.  I then used some of the growth of the brokerage account over the years to pay for a home down payment, student loans, DH's re-education, cars, etc.  Eventually incomes grew enough that we started to max out my 401k, but that was only in the last few years.

Now we are living on our brokerage accounts for early retirement, starting at age 36 for me.  So people can and do do it that way, it just isn't the optimum way to go about doing it.  But I had to figure most of this out on my own before I found MMM and before 401k access. 

Note- most people on MMM don't do it this way!  They invest in 401k, HSA, Roth (which is a much more tax friendly strategy). 
 

MDM

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Re: Beginner from Utah! Would love feedback on next direction to take.
« Reply #5 on: March 17, 2023, 11:52:42 PM »
I'm 25...making about 55-60K, my husband is currently...making about 10K, but hoping to increase his income with a new job this year.
...
The main questions I think I have are:

Which retirement accounts should I prioritize?
The Investment Order already mentioned is a good idea for most.  Unless you see a reason to do otherwise, that would be a good guide.

See Traditional versus Roth - Bogleheads for more on that issue.  One quote from that source: "If you can contribute to Roth accounts today at 12% or less, it is usually a good idea as this is a historically low tax rate - especially if you are far from retirement."

Your combined gross income would have to reach $117K in 2023 before you move out of the 12% and into the 22% federal bracket, so going 100% Roth (whether 401k or IRA) until that happens would be reasonable.

Quote
If I don't invest in a Vanguard account, will I not be able to take out withdrawals for early retirement?
Vanguard, along with Fidelity and Schwab, etc., offers all three account types: traditional, Roth, and taxable.  People new to personal finance (and congratulations for starting at age 25 - many don't think about this until much later) may not appreciate the difference among those.  See the 'Basic Terms' tab in the case study spreadsheet.  Does that help, or just raise more questions?

Quote
Which Vanguard allocation should I be focusing on buying? Is there a certain name that works best for people?
Some version of a Three-fund portfolio - Bogleheads is a good place to start (and can be a good place to stay).

Quote
Are there any accounts I should stop contributing to?
Following the Investment Order should be a good guide.

Quote
How do I know where I stand with early retirement? Having trouble calculating net worth.
At this point you are many years away.  "How many?" will depend on things unknowable now, such as tax laws, market returns, and your personal lives.  To the extent you can establish a "set it and forget it" investment philosophy (i.e., automate the contributions and just let things grow over time) and then get on with your lives, that will likely be have you moving in a great direction indeed.  Good luck, and don't hesitate to ask more as you learn more!
« Last Edit: March 19, 2023, 02:11:39 PM by MDM »

zolotiyeruki

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Re: Beginner from Utah! Would love feedback on next direction to take.
« Reply #6 on: March 20, 2023, 09:05:22 AM »
Welcome, Claire!  The fact that you're on the MMM forums in your 20's is a fantastic first step! :)

You have some strongly-competing financial goals:
--Fertility treatments
--Down payment on a house (dang, UT was expensive before COVID, and it's twice as bad now!)
--Saving for retirement

That's a lot of very expensive things, and you probably can't afford all of them now.  So you'll have to decide which priority is the highest.  Here is what I'd suggest:
1) Follow steps 0-2 on the Investment Order post.  For the 401k, go Roth rather than traditional, because a) your income is within the 12% bracket today, b) tax rates are set to revert (higher) in 2025, and c) you'll want Roth contributions you can withdraw down the road as you build your Roth pipeline.
2) Save up for the fertility treatments and the down payment.
3) If you've still got money left over to invest at Vanguard (IRAs or taxable brokerage accounts), I'd suggest you contribute to Roth IRAs, then taxable brokerage accounts.
4) What to invest in?  The default answer is "index funds" and there are plenty of reasons why.  VTI is probably the simplest/most straightforward option.

As others have said, you have a lot going on in your financial life right now, so there's value in sticking with a simple plan.

As for the age at which to have kids, DW and I had our first at age 23/21.  Could we have taken more time for ourselves?  Sure.  Do we regret having kids at a young age?  Absolutely not.  The energy level it takes to parent is really, really high, and I'm glad we chose to do it during our relatively younger years.  Our first kid will leave home this year.  Our last will leave in 10 years, when I'm 52.  I have peers who are just now having kids, and they will be almost 60 by the time their kids have graduated from high school.

Dicey

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Re: Beginner from Utah! Would love feedback on next direction to take.
« Reply #7 on: March 20, 2023, 10:17:44 AM »
Since you phrased your question that way, you can't go wrong heading this way:

https://forum.mrmoneymustache.com/meetups-and-social-events/magical-moab-meetup-2023/