Author Topic: New to Personal Finance - Where to put $60K of savings a year?  (Read 2634 times)

tm05

  • 5 O'Clock Shadow
  • *
  • Posts: 3
New to Personal Finance - Where to put $60K of savings a year?
« on: October 17, 2017, 02:57:01 PM »
Hi,

I am extremely new to MMM, personal finance, investment and savings in general. I have so many questions and hoping you can help. Iíve read through most of MMMís blog but may have to read it again or do some extra reading/researching to familiarize myself and learn more. Saving for us has become easier and easier so the next step is WHERE to save or how to allocate our savings.

My husband and I are newly weds and have recently both just graduated from grad school. To make it simple, we have calculated that we can safely say that we can put away $60K per year towards retirement/investment. The other money is used for living (24K) and saving for down payment and some student loans. But we are not sure where to put our savings. Do we max out on our retirement accounts first (HSA, IRA, 401K) which is the total saving is $53,750 (calculations below). Should we not max out and put more of it in an taxable investment account?

HSA maxed =$6,750   
IRA maxed  =$11,000
401K maxed =$36,000.00   
Maxing our retirement =$53,750.00

However, we cannot touch this money until retirement age 59 Ĺ. Using a simple compounding interest calculator at a assumption that growth is between 3%-7% = $1,122,229 (retirement fund) for 16 years (when my husband and I are 45) this number includes some of the money we already have as well over the past 2-3 years.  I will use the rest of the $6350 into an investment account, which only comes out to be about $127,955 after 16 years. Assume that my annual expense is $27K so I would need that x 25 = 675,000K in order to retire early and pull out using the 4% rule. How am I able to build enough savings to reach $675,00K if I am using most of my savings to max out on retirement accounts?

The only way I can think of to reach $675,000 is to save another $33600 for the next 16 years (assuming compounding interest at 3%-7%). This means total savings per year has to be $87,350 for the next 16 years. However, that number just seems extremely hard without having to somehow find another income.

Am I making the right assumptions? Am I understanding the concept correctly? Should I be maxing out on retirement accounts (HSA/IRA/401K) first? Is there any rule of thumb on where to allocate the money first?

Do you have any book, blogs, video recommendations that can explain this concept further? Any recommendations for this newbie couple would be appreciated.

Thank you!
« Last Edit: October 17, 2017, 03:08:52 PM by tm05 »

chasesfish

  • Magnum Stache
  • ******
  • Posts: 3713
  • Age: 39
  • Location: South Carolina
Re: New to Personal Finance - Where to put $60K of savings a year?
« Reply #1 on: October 17, 2017, 03:05:06 PM »
Welcome!!  You're off to a great start.   I agree with your premise and personally think there's some value to getting $100,000 saved in a "regular" account as well as maximizing all your tax deferred options.

That being said, the starting point for your premise is a little off.  You can get to your Roth IRA contributions penalty free, so twenty years of contributing around $11,000/year adds $220,000 to your number to withdraw.   After that, there are numerous ways to manufacture money out of qualified accounts.  The Roth IRA Ladder and 72t are the biggest that come to mind

dandarc

  • Magnum Stache
  • ******
  • Posts: 4474
  • Age: 38
Re: New to Personal Finance - Where to put $60K of savings a year?
« Reply #2 on: October 17, 2017, 03:06:24 PM »
However, we cannot touch this money until retirement age 59 Ĺ.

This is a common misconception.  So common, there is a sticky-post addressing it in this forum.  https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

As to general investing advice, a good starting point is always the stock series.  jlcollinsnh.com/stock-series/

So, knowing you can touch your HSA / IRA / 401K money early with or without penalty before 59.5, if you really do keep your retirement expenses to 27K per year and wait until you've got 1.1 million to retire, you'll have about as secure a retirement for yourselves as anyone ever has.  Even if you have to pay the 10% additional tax, you'll have so much more than you need to fund the early part of your retirement it just won't matter.

tm05

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: New to Personal Finance - Where to put $60K of savings a year?
« Reply #3 on: October 17, 2017, 03:11:34 PM »
Thank you for the links!! I'll definitely look into those.

jamesbond007

  • Pencil Stache
  • ****
  • Posts: 683
  • Location: USA
  • One penny at a time.
Re: New to Personal Finance - Where to put $60K of savings a year?
« Reply #4 on: October 17, 2017, 03:15:53 PM »
I am 34 and I am 100% stock in VTSAX. But most people recommend around a 80-20 stock-bond split. I'd start here for more details: https://www.bogleheads.org/wiki/Three-fund_portfolio

MDM

  • Senior Mustachian
  • ********
  • Posts: 10666
Re: New to Personal Finance - Where to put $60K of savings a year?
« Reply #5 on: October 17, 2017, 03:38:25 PM »

SimpleSpartan

  • Stubble
  • **
  • Posts: 101
  • Location: Washington
Re: New to Personal Finance - Where to put $60K of savings a year?
« Reply #6 on: October 17, 2017, 05:07:24 PM »
However, we cannot touch this money until retirement age 59 Ĺ.

This is a common misconception.  So common, there is a sticky-post addressing it in this forum.  https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

As to general investing advice, a good starting point is always the stock series.  jlcollinsnh.com/stock-series/

So, knowing you can touch your HSA / IRA / 401K money early with or without penalty before 59.5, if you really do keep your retirement expenses to 27K per year and wait until you've got 1.1 million to retire, you'll have about as secure a retirement for yourselves as anyone ever has.  Even if you have to pay the 10% additional tax, you'll have so much more than you need to fund the early part of your retirement it just won't matter.

+1000

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 8103
  • Location: Fayetteville, NC
Re: New to Personal Finance - Where to put $60K of savings a year?
« Reply #7 on: October 17, 2017, 08:13:29 PM »
I am 34 and I am 100% stock in VTSAX. But most people recommend around a 80-20 stock-bond split. I'd start here for more details: https://www.bogleheads.org/wiki/Three-fund_portfolio

I can understand having a bond component and why.  But bond funds have problems that individual bonds don't (and vice-versa).   The bond funds have some of the same issues as stock funds so I just don't see the value to them.

BlueHouse

  • Magnum Stache
  • ******
  • Posts: 3639
  • Location: WDC
Re: New to Personal Finance - Where to put $60K of savings a year?
« Reply #8 on: October 18, 2017, 03:05:28 PM »
1.  Use MDM's list
2.  Join this thread, make a plan, and hold yourself accountable. https://forum.mrmoneymustache.com/throw-down-the-gauntlet/save-100k(couple)-or-50k(single)-in-2017/   It's really very motivating!