Author Topic: Case Study-27 Year Old Single Male  (Read 5369 times)

4fergsb

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Case Study-27 Year Old Single Male
« on: July 15, 2014, 09:32:36 PM »
Hi all, first post here, so please be gentle.  I'm a 27 year old single male--dating for 3 years, and could take it to the next level in another year or two. 
Income:
Job 1
$70k Gross Per Annum
$5,833/mo Gross (paid semi monthly)
$3,510/mo Net ($946 Fed Tax, $348 SS, $82 Medicare, $266 NY Tax, $2.60 NY Disability, $201 single health coverage, $8.24 dental coverage, $2 vision coverage, $466 401k contribution (currently @ 8%)
Job 2
$19.5k Gross Per Annum
$1,625/mo Gross (paid bi-weekly)
$1,096/mo Net (average--withholding vary as the schedule rotates on a 3 week basis)
Currently at 10% 401k contribution.

Both jobs are currently at a single withholding status, and 0 exceptions for federal and state.

Mortgages:
Owner Occupied--UPB=$105k--15 year (just refinanced) @ 3.5% No PMI--PITI Pmt=$1,050--Value=$135k
Rental (family occupied)--UPB=$45k--15 year (just refinanced) @ 4.0% No PMI--PITI Pmt=$600--Value=$85k

Retirement-401k:
Job 1-$28k ADP/ING
Current YTD Employee Contributions: $10,274
Note: Employer Contributes $114/pay period match MAX (4% of salary)
Job 2-$15k (even split between 401k pretax and post tax) PUTNAM
Current YTD Employee Contributions: $556.61 pre tax, $556.61 post tax ($1,113.22 total)

I play to max out 401k contributions for the year and fully fund a ROTH.

I currently have $5k in savings.

Budget:
$1,050 Mortgage 1
$600 Mortgage 2
$50 Gas (work from home)
$50 Auto Insurance (liability only--pay once every 6 months)
$100 Home Improvement (will reduce as just about completed where I'd like to get this small home)
$25 Craft Beer per month

Total Outlay: $1,875
Net Income: $4,606
=$2,731 Leftover at current standing

Other Income:
$200 (girlfriend pays $200 towards mortgage, paired with covering all utilities and food expenses)
$400 rental income from mother towards $600 mortgage
I do not like to count this money should circumstances change.

Looking how to best allocate this money to fund retirement.  Even distribution to max out 401ks is obvious, paired with an immediate $5,500 full funded ROTH.  What's next? 
« Last Edit: July 15, 2014, 09:38:27 PM by 4fergsb »


Cwadda

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Re: Case Study-27 Year Old Single Male
« Reply #2 on: July 16, 2014, 05:18:30 AM »
Looks like you're doing pretty good. Maxing out the 401(k) and Roth are always good things. Where are you investing those/planning on investing them?

4fergsb

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Re: Case Study-27 Year Old Single Male
« Reply #3 on: July 16, 2014, 05:43:15 AM »
Looks like you're doing pretty good. Maxing out the 401(k) and Roth are always good things. Where are you investing those/planning on investing them?

Great point--I did not mention how the 401k's are invested. 

Job 1 401k is 100% invested in the Voya Target Solution Fund 2050.
-2013 ROR=8.23% (this may not be totally accurate, as the custodian switch June 2013)
-Current ROR this year to date=6.43%

 Job 2 fund is currently allocated respectively in the following funds:
 27.49%   Fidelity Low Priced Fund   
 22.68%   Putnam Equity Income A   
 11.06%   Victory Small Company Opportunity A   
 10.65%   Company Stock
 10.24%   MFS Growth Allocation R3   
 9.71%   T. Rowe Price Retirement 2010 Adv   
 8.18%   Putnam Stable Value Fund
-2013 ROR=18.4%
-Current ROR this year to date=4.42%

The ROTH has not officially been opened, as I'm still researching options on who to go through and investment options of the smae.

I should probably be more diversified, and am currently researching available funds.  Any other guidance would be appreciated.
   

iwasjustwondering

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Re: Case Study-27 Year Old Single Male
« Reply #4 on: July 16, 2014, 06:08:49 AM »
Your budget has no items for food or clothing.  Vacation?  You're doing very well for 27; just think the budget needs to be a little more accurate.  Even $10 a month for clothes is still $10.

Cwadda

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Re: Case Study-27 Year Old Single Male
« Reply #5 on: July 16, 2014, 06:56:44 AM »
Looks like you're doing pretty good. Maxing out the 401(k) and Roth are always good things. Where are you investing those/planning on investing them?

Great point--I did not mention how the 401k's are invested. 

Job 1 401k is 100% invested in the Voya Target Solution Fund 2050.
-2013 ROR=8.23% (this may not be totally accurate, as the custodian switch June 2013)
-Current ROR this year to date=6.43%

 Job 2 fund is currently allocated respectively in the following funds:
 27.49%   Fidelity Low Priced Fund   
 22.68%   Putnam Equity Income A   
 11.06%   Victory Small Company Opportunity A   
 10.65%   Company Stock
 10.24%   MFS Growth Allocation R3   
 9.71%   T. Rowe Price Retirement 2010 Adv   
 8.18%   Putnam Stable Value Fund
-2013 ROR=18.4%
-Current ROR this year to date=4.42%

The ROTH has not officially been opened, as I'm still researching options on who to go through and investment options of the smae.

I should probably be more diversified, and am currently researching available funds.  Any other guidance would be appreciated.

You have a very nice budget going. My advice to you would be to look into what exactly your investments are and why. What percentages are mutual funds, equities, bonds, cash, etc? And the critical one, how much in FEES do you pay? I took a quick diagnosis of your Voya fund using this link: https://investments.voya.com/Investor/Products/Variable-Portfolios/Profile/index.htm?p=295. The questions I have are these:
1. Do you pay a sales charge (front load)?
2. What are your expenses for the fund? It looks like that site is saying the expense ratio is 0.51%. Okay, a measly half a percent common folks say. But if you compare that to Vanguard, which is a 0.05% expense ratio, then you're paying 10 times more in fees.
3. Do your employers allow you to invest in whatever you want or are you limited to the 401(k) funds they have? You can ask your employer this.

For your education, read this:
http://jlcollinsnh.com/stock-series/

You'll read that investing in funds that are actively managed (the guys that get huge bonuses even when the market suffers) tend to charge more fees and tend to underperform funds that aren't actively managed! Vanguard is an example of this non-actively managed idea, hence why it has such low expenses.

4fergsb

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Re: Case Study-27 Year Old Single Male
« Reply #6 on: July 16, 2014, 08:42:46 AM »
Your budget has no items for food or clothing.  Vacation?  You're doing very well for 27; just think the budget needs to be a little more accurate.  Even $10 a month for clothes is still $10.

That is a good point.  I shop at consignment shops, as I work remotely from home and wear t-shirt and shorts/athletic pants daily.  I typically spend no more than $50/yr on the same--small, but I agree, not negliable.

I haven't been on a vacation in  years---I travel quite a bit for work, so I never get the itch--I'd like to start to budget $100/mo for the same, and will build that into the budget.

Looks like you're doing pretty good. Maxing out the 401(k) and Roth are always good things. Where are you investing those/planning on investing them?

Great point--I did not mention how the 401k's are invested. 

Job 1 401k is 100% invested in the Voya Target Solution Fund 2050.
-2013 ROR=8.23% (this may not be totally accurate, as the custodian switch June 2013)
-Current ROR this year to date=6.43%

 Job 2 fund is currently allocated respectively in the following funds:
 27.49%   Fidelity Low Priced Fund   
 22.68%   Putnam Equity Income A   
 11.06%   Victory Small Company Opportunity A   
 10.65%   Company Stock
 10.24%   MFS Growth Allocation R3   
 9.71%   T. Rowe Price Retirement 2010 Adv   
 8.18%   Putnam Stable Value Fund
-2013 ROR=18.4%
-Current ROR this year to date=4.42%

The ROTH has not officially been opened, as I'm still researching options on who to go through and investment options of the smae.

I should probably be more diversified, and am currently researching available funds.  Any other guidance would be appreciated.

You have a very nice budget going. My advice to you would be to look into what exactly your investments are and why. What percentages are mutual funds, equities, bonds, cash, etc? And the critical one, how much in FEES do you pay? I took a quick diagnosis of your Voya fund using this link: https://investments.voya.com/Investor/Products/Variable-Portfolios/Profile/index.htm?p=295. The questions I have are these:
1. Do you pay a sales charge (front load)?
2. What are your expenses for the fund? It looks like that site is saying the expense ratio is 0.51%. Okay, a measly half a percent common folks say. But if you compare that to Vanguard, which is a 0.05% expense ratio, then you're paying 10 times more in fees.
3. Do your employers allow you to invest in whatever you want or are you limited to the 401(k) funds they have? You can ask your employer this.

For your education, read this:
http://jlcollinsnh.com/stock-series/

You'll read that investing in funds that are actively managed (the guys that get huge bonuses even when the market suffers) tend to charge more fees and tend to underperform funds that aren't actively managed! Vanguard is an example of this non-actively managed idea, hence why it has such low expenses.

This is a great point.  I will be researching fees involved in these 401k investments.  Unfortunately, I'm stuck with the investment options the employers offer through their plans ADP/ING and Putnam, respectively, but perhaps they have lower fund fees with similar/better performance. I don't believe there is a sales charge.  I'll also read up on the education material provided--Thanks!

Cwadda

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Re: Case Study-27 Year Old Single Male
« Reply #7 on: July 16, 2014, 09:00:39 AM »
The fact that your second job involves a number of different firms leads me to believe that you can choose where to allocate your money. If that's the case, look into consolidating everything in Fidelity and then allocating investments from there. I just randomly searched the Putnam Equity Income A fund and was sickened to see a 5.75% front load fee and a 1.02% expense ratio.

Fidelity has a number of good indices called Spartan series. It also has a nice user-friendly website.

I cannot stress the importance enough of knowing fees and how bad they will eat away at your money in the long run.
http://www.moneychimp.com/calculator/compound_interest_calculator.htm

Let's take an example of new Roth IRA:
$5500 principle
$5500 annual addition
30 years to grow (will put you at 58 years old, almost able to withdraw from it penalty free)
5.50% annual return (assume 6% over the years minus .50% in expenses)
Future value: $447,718.59

Then let's compare it to a lower expense ratio:
$5500 principle
$5500 annual addition
30 years to grow
5.95% annual return (we use a .05% expense ratio instead)
Future value: $487,802.70

The difference in those expense ratios is $40,000. If the expense ratio is 1%, then that's another $40,000.