Author Topic: Help me allocate upcoming increased cash flow  (Read 3275 times)

fallstoclimb

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Help me allocate upcoming increased cash flow
« on: April 04, 2014, 09:21:59 AM »
We are on track to pay off my student loans by September.  That will make us debt free, except for our 3.75% mortgage.  Hooray!  Now it's time to start focusing on retirement.  We are aiming for flexibility more than true early retirement but I would like to have the freedom to walk away from our office jobs by 45 (we are 30 now). 

Roughly $2,000 will be freed up monthly when the loans are paid off.  I want to quickly ramp up our various retirement savings by $1000, and use the remaining $1000 to build back up an emergency fund, do a little traveling and get some work done on the house before increasing further.  Although now that I'm listing all the other things we want money for I am wondering if $1,000 is too aggressive.  But let's stick with the $1,000 for now - so that's $500/biweekly we have to allocate.

Currently we have the following (paltry) accounts:
$35,000 in my TSP
$5,000 in my husband's 403b.

The 403b is with AXA and the fee is a 1.2% charge on money invested (0.3% charged quarterly).  I assume this is higher than TSP but pretty standard for most accounts.  Does this seem reasonable or concerning? 

I am leaning towards also opening a 457(b) with AXA (same fees) and probably a Roth IRA - not sure of the fees on that one.

So with the new $500/biweekly we will have to allocate I am considering the following plan:

(All biweekly amounts)
TSP - Existing $216 -- add $270 -- total $486/biweekly, or 15.7% (plus 5% match)
403b - Existing $70 -- add $30 -- total $100/biweekly (no match)
457b - Existing $0 -- New $150
     So my husband's retirement contributions would be $250/biweekly, or about 14% (no match)
Roth IRA - Existing $0 -- add $50


Rationale behind this:
1) TSP has the lowest fees and is easiest to temporarily cut back on to increase cash flow.  Seems to make sense to put most of our eggs in this basket.
2) 403b is already opened, so I dunno, increase it a little to diversify?
3) 457 is accessible upon retirement, no matter how young we are, so it aligns with flexibility goals (still feel like I'm missing something here, these accounts seem too good to be true - how are they tax advantaged with almost no strings attached?)
4) We're in a high tax bracket now so I don't want to put too much into this, but I like that we could access our contributions if needed. 

The implementation plan will be to immediately open/increase funding for the 403b, 457 and Roth IRA when the loans are paid off, and then slowly kick up my TSP contributions over several months as our emergency fund builds (we will likely wipe it out on the final loan payment).   

Thoughts on this?

curler

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Re: Help me allocate upcoming increased cash flow
« Reply #1 on: April 04, 2014, 09:50:30 AM »
I'm not too familiar with 403b or 457b accounts.  My understanding is that 403b's are essentially identical to 401k's.  If that is the case, the fees for your 403b seem on the higher side, but not completely out of the norm.  I can't think of an advantage of contributing to that until you max out your TSP. 

fallstoclimb

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Re: Help me allocate upcoming increased cash flow
« Reply #2 on: April 04, 2014, 12:12:04 PM »
I'm not too familiar with 403b or 457b accounts.  My understanding is that 403b's are essentially identical to 401k's.  If that is the case, the fees for your 403b seem on the higher side, but not completely out of the norm.  I can't think of an advantage of contributing to that until you max out your TSP. 

The AXA advisor's argument was that it was good to diversify across different accounts, since they would hold different stocks and bonds and might be affected differently by a market crash.  Is there any truth to that?  He also alluded to it being safest to have somewhat-equal accounts in the event of a divorce, because "even though they are joint assets you never know what lawyers might do", but I'm completely discounting that. 

curler

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Re: Help me allocate upcoming increased cash flow
« Reply #3 on: April 04, 2014, 12:23:07 PM »
Why do you recommend the IRA before the TSP?  It has a much better expense ratio than anything else an individual can get.

fallstoclimb

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Re: Help me allocate upcoming increased cash flow
« Reply #4 on: April 04, 2014, 12:30:09 PM »
Yes, I'm curious about that too.  We are (just) in the 25% tax bracket and I know tax-advantaged money grows much faster than after-tax funds.  I like that the IRA is accessible, but thats in a long term, in-case-of-unforeseen-emergency way.  It seems like that should be our last priority, or at least behind the TSP.

Catbert

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Re: Help me allocate upcoming increased cash flow
« Reply #5 on: April 04, 2014, 01:05:08 PM »
I'd max out TSP before adding more to 403b.   The 403b salesperson is just that, a sales person.  TSP has a limited range of funds but they cover all the basics, SP500 fund, small cap fund, international fund, government bond fund and a couple more I can't remember at the moment.  I think they are even adding (or maybe just considering adding) a REIT.  TSP has the lowest expense ratios anywhere.

I'm not that familiar with 457 plans but they do seem sweet.

fallstoclimb

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Re: Help me allocate upcoming increased cash flow
« Reply #6 on: April 04, 2014, 01:11:20 PM »
Ok, awesome.  It looks like a pretty solid consensus to focus on the 457 and the TSP (and I may go ahead and throw a little in a Roth for my own reassurance).  We will probably contribute heavily to both but won't be able to max either, at least not for quite a while.

I imagine we probably can't/don't want to roll over the 403b into the 457 or the Roth IRA, right?