Author Topic: Critique investing plan & advice  (Read 386 times)

FIallday

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Critique investing plan & advice
« on: April 07, 2020, 11:58:03 PM »
So about a year ago I posted about how to invest and received a ton of useful advice from everyone. I also read through JL Collins Stock Series and had a baby since 😊 which was an adjustment financially.
Iím outlining my gameplan so to speak to see if Iíve got everything right.

Current
ē   Single income family of 3 (Teacher)
ē   Total Expenses about $3000 a month
ē   Income post-tax about $4000
ē   I have a 6-month Emergency fund in a checking/savings account @ $18,000
ē   Student loan of $15,000 @ ~6% interest rate. (should qualify for loan forgiveness next year or 2)

Plan
I believe I can max out my 403b yearly. I will be using Fidelityís Total Market Index Premium with a 0.02% Expense Ratio listed here https://www.403bcompare.com/subProducts/672

Question 1
I currently have $2000 in what I believe is an annuity from an insurance company that works with our district. From the little I know, Iíve read that annuities have something crazy like 5% annual fees. Can this be rolled over into my Fidelity account when I start it?

Question 2
The plan is to go 100% stocks understanding that the stock market always goes up over time and offers the highest returns. I am a ďmath guyĒ so the rationale totally makes sense to me and donít make decisions based on emotions/psychology. Is this mathematically the best way?

Question 3
I also plan to be doing extra tutoring, clubs, sports, and activities afterschool. After I max out my 403b, our district offers a 457, would I attempt to fund that or should I do a Roth IRA? Would the answer to this question depend on what funds are offered in the 457? From the little I have seen, it seems to be limited.

Question 4
The $18,000 is just sitting in a savings account in our local credit union. Pretty sure inflation is eating it up, should I move it to a high yields online savings account? I donít know any so recommendations would be nice, I am also super wary of sales-based commission things such as insurance, credit cards, etc.  I can also use suggestions for life-insurance companies or criteriaís to sort them out and plan to look into term-insurance.

Question 5
Our FI number is 1,000,000. 4% of that is 40,000. Divided by 12 months is 3,333.33
Using these numbers, is this 3333.33 our pre-tax or post-tax monthly income? If pre-tax, how much would be taxed out? 25%?

Question 6
I still donít have a credit card under my name, is this bad? Almost 30 y/o. Iíve read a little about credit card travel hacking somewhat but Iím sure thatís another research topic Iíd need to do.

Question 7
Iím a worst-case scenario guy so just prepping for the worst. Say I die, does my 403(b), 457(b), and whatever else I have transfer over to my DW? What if DW and I both die, does it transfer to our baby who would clearly be under the age of 18?

Miscellaneous
DW is currently stay-at-home with our baby and will also be a teacher in 2 years. Our savings rate would increase significantly once she starts working since we would be living on the same income as we donít have plans to have lifestyle inflation. Although we both come from collectivists culture and will help out our family members as needed.

I donít have any ambitions to own a home (less than 5%), If I had to put a large sum of money down into something, Iíd much rather own a business or something that produces additional income (which I keep thinking about a laundromat for some reason) but Iíd have to do tons of research and this would also be down the road. But then again, Iím not motivated by money so itís probably not a good move. Anyone that owns/runs a business can provide some commentary on this?

DW and I are simple, mostly outdoor people. In FI, we would like to travel, volunteer, and build schools, etc. in 3rd world countries that kind of thing.


wellactually

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Re: Critique investing plan & advice
« Reply #1 on: April 08, 2020, 08:54:35 AM »
Question 1
You're going to need to get more information on this product. There is some info out there on 1035 exchanges for annuity rollovers or you could potentially roll it into a Roth, but it really depends on what exactly you have your money in.

Question 2
"The market always goes up over time" is different from "the market is up when I need to start withdrawing." I also want to clarify that owning single stocks is different from owning mutual funds and owning individual stocks is the first step toward thinking you're a day trader and losing money IMO.

You need to determine your own risk tolerance and then set yourself up to follow that. All of my retirement investing is in target date funds that re-balance each year and get more conservative the closer to the target date. This from vanguard gives a good comparison: https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations.

I do agree that finding a strategy that takes emotion out is good. But you and your wife need to both be on the same page about how much risk you can tolerate. You also don't have to do every account the same. You could have a different balance for your IRA or 457 than for your 403b.

Question 3
I love love love 457 plans. I'm also a public employee and the 457 has a lot of benefits. The contribution limit is over 3x a Roth. You can also withdraw both contributions and earnings from a 457 before retirement age with no 5 year waiting period like with the Roth. That said, it may not be the right choice if you hate the options available. You also likely have very low taxes right now, so some post-tax retirement savings might be beneficial.

Question 4
I'd be a little careful about the idea that emergency cash needs to work harder. It's not a bad idea, just that it can get out of hand. You are currently a single-income family and the world is bananas right now, it's okay to accept that that money is your safety net and that's its main job, not to earn you money like your investments. That said, an online high-yield account can be a great option. Personally, I'd want some buffer cash available instantly, but you can put the rest in an account like Ally or similar. Just google for a comparison of them. You're only looking at 1.5% or something, so it's not going to make or break you. A local credit union money market account could also be a good option.

I used Zander Insurance, a broker, to search for term life insurance policies for myself and DH. Any broker would work, they were easy to use. We came up in Dave Ramsey class, so we each got 10x our income through private policies and then have some amount of employer-provided coverage as well. You should get a policy on your wife too, consider how much daycare and other outsourcing would cost if you were all of a sudden a single dad.

Question 5
Well this super depends on where your money is located. So far, all of your retirement savings seems to be in pre-tax accounts. I think you'll want to use some of the simulators to truly get a handle on how much 1M will net you in take home $. Others will have better answers here, but generally, yes you'll pay taxes on those withdrawals subject to your AGI-determined tax rate at the time of the withdrawal. In general, working backwards is a better idea than setting 1M and then seeing what you'd get. Think about what you would need in annual expenses (especially taking into account healthcare costs and living costs if you are retiring early and potentially rising living costs if you don't have buy) then account for the amount you'll need to withdraw pre-tax to take home what you need. Then multiply by 25. There are options for Roth ladders and such around here that can spread your tax liability. I'm not close to RE, so I'll let others more in that arena help.

Question 6
You have student loans in your name, so you've probably got a decent credit score if you've been making those payments. But if they get forgiven soon, your credit score might start to drop with no other activity. I didn't have any credit history other than my credit card, so it was super helpful to me when we went to buy a house. If you never plan to finance anything, it doesn't matter. Personally, I like to have the option to get the best rates available. I have a bank affiliated credit card that gives me absolutely no benefits and I put gas on it and then pay it off. Been doing it that way for 12 years. But if you're interested, you can absolutely find a card that would actually reward you. Probably wouldn't be a terrible idea to just have one. (And it might get you more of a return than your online savings account!)

Question 7
You need to go into all those accounts and establish your wife as your primary beneficiary and kid as secondary beneficiary. You'll also want to make sure you're each other's beneficiaries on the term life policies you buy up in question 4. Then you can look into estate planning options beyond that.

In general, make sure you're having these planning conversations with your wife. I'm generally more risk-tolerant than my husband, so we frequently have to figure out a compromise so that we both feel comfortable with our plan. You mention wanting to go 100% in on stocks but then say you're a worst-case scenario guy. In my book, those are conflicting things! Keep reading, keep learning, do more research on your individual options by reading up on the plans available to you. Consider also that you might want to build some flexibility into your plan, especially since you seem pretty young.

Get life insurance, don't put the emergency fund in anything risky, and save save save. The exact vehicle for your savings right now probably doesn't matter as much as the actual saving. But work together to determine your risk comfort and then you'll have flexibility to change the plan or start a business or adapt to changing family situations as time goes on.

Dee18

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Re: Critique investing plan & advice
« Reply #2 on: April 08, 2020, 09:00:42 AM »
Wellactually has given you a lot of great advice.  I only write to add that before deciding how much life insurance to purchase you should consider the Social Security survivor benefits. (The SS website explains this clearly.)  They are a substantial amount of money for a widow/widower with a young child.  Federal student loans in the name of the deceased would also be canceled. 

wellactually

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Re: Critique investing plan & advice
« Reply #3 on: April 08, 2020, 09:10:28 AM »
that's a good point @Dee18!

We absolutely have a higher amount of term life insurance than would strictly be necessary. My husband's sister lost her husband in a plane crash before I joined the family. Watching his sister go through that really affected his feelings on term life insurance. We basically wanted to prepare for a scenario where a surviving spouse could take an extended leave of absence from work and pay off the house or pay for potential kid's college. Term life is cheap, I hope we end up being the ones who never get a return!

Good example of how your personal family decisions may not always be straight mathematical comparisons!

FIallday

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Re: Critique investing plan & advice
« Reply #4 on: April 10, 2020, 12:53:39 AM »
@wellactually & @Dee18, thanks so much for the responses, I shouldíve realized how many dang questions I was askingÖ
Thanks for sharing the model allocations, if I understand what youíre saying I need to be cognizant of my time investment horizon & the fact that the market fluctuates. I donít have a hard-set
must have date and the plan is to work through any recession or market lows to counteract that. And when I mentioned stocks, I shouldíve clarified 100% index funds like the growth portfolio in the link you posted. I believe Iím more interested in the ďhaving the optionĒ to walk away/retire if I felt like it. With that said, post-FI Iíll still see myself semi-working in some capacity in a school. Great advice on the term-life insurance

In regards to the 457, would you max that out first prior to a 403(b) if I can find index funds in it just due to the fact that you can withdraw principal without penalty if ever needed?

You wrote:
ď(especially taking into account healthcare costs and living costs if you are retiring early and potentially rising living costs if you don't have buy)Ē
It seemed like you got cutoff or misspelled something, did you mean I need to account for potential rising costs if I donít buy a house?

ďYou mention wanting to go 100% in on stocks but then say you're a worst-case scenario guy.Ē
I hope this response makes sense, and please feel free to correct/comment. The reason I want to go 100% stocks is because I know mathematically (again, as a ďmath personĒ :D) I wonít do the selloff, jump-in and jump-out of the market like many people Iíve read do based on fear & psychology depending on how the stock market does. Honestly, I probably wonít even pay attention to it as it doesnít interest me but I know itís important. Itís similar to what JL Collins daughter stated, I know itís important but Iíd rather build bridges, help people, etc. In addition, it also provides the highest return in the long run. I mentioned worst-case scenario because I didnít want to do all this investing and then somehow I die and my DW or baby doesnít get it but setting beneficiaries will take care of that. I almost want to say the two things are unrelated if that makes sense?

Iím also with you on getting a higher amount of term life insurance than necessary!