Author Topic: Next steps for 33 year old beginner Mustaschian?  (Read 1141 times)

junioroldtimer

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Next steps for 33 year old beginner Mustaschian?
« on: September 15, 2018, 12:26:28 PM »
    Hey guys,

    Hopefully I'm posting in the right place. I'd like some advice from the hivemind (Mustaschemind?) on what I should be doing.

    I feel like I've been doing a mix of a lot of the right things (saving, living below my means, paying off credit cards in full every month) and some of the wrong things (not budgeting, saving to a savings account instead of index fund, etc.).

    As for background, I'm 33 years old with no debt. I make approx $95k per year and I have approx $100k in the bank and no real estate. I was keeping cash liquid to one day buy a house but I think I will be ok renting for the next few years as the majority of my family is out east while I live in Texas. It's not impossible that in the next 5 years I move there.

    My post-tax income every month is approximately $4100. Of that, I'm saving approximately $1300 every month.

    I am contributing the max rate to my 401k and IRA accounts every year. I need a plan for what to do to my cash ($80k currently locked up in a 2% 6 month Ally CD which frees up on 12/25, Merry Christmas to me). I have approx ~$20k in an Ally high-interest savings account for emergencies.

    I currently have three 401ks from past jobs:
    • I have approximately $30k in my work 401k account (currently in a 2040 target date fund)
    • Another $15k from a past job 401k in a separate account. The fees are pretty minimal but I think it'd be a good idea to roll my old one into my new one to keep things simple.
    • Another ~$10k in a traditonal IRA account that I rolled over from my first job into a Chase Traditional IRA account
    I think it makes sense to consolidate all of these into my current job's 401k. Does that sound right?

    I also have another $20k in a ROTH IRA approx 2/3 of which is in an S&P 500 index tracker fund.

    I have an HSA that I've been contributing to for 2018 that I have not needed to tap into this year.

    *Questions for the group*:

    *What should I do with that big chunk of cash? Would it be smartest to put it in post-tax IRA account? What are tax obligations if I ahve to pull that out in a few years to use for a downpayment on a house?

    *From the experienced mustaschios here, anything major standing out that I should be doing? (Budgeting comes to mind -- I do have Mint and it shows alcohol and restaurants as highest amounts every month after $1k in monthly rent).

    *Any obvious things I should be doing that I'm not?

    Appreciate time spent on replies. Cheers.
« Last Edit: September 15, 2018, 12:32:08 PM by junioroldtimer »

nereo

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Re: Next steps for 33 year old beginner Mustaschian?
« Reply #1 on: September 15, 2018, 04:26:39 PM »
Step 1:  Read, and understand, the investment order. Ask questions about any particularities.

Step 2: Do not withdraw funds from your HSA; its the best retirement fund you have.  Instead pay out of pocket and save your receipts for later use.  See this article to understand why.

Answers to your specific questions:
1) Save whatever cash you deem necessary for an ER fund.  Put the rest of it to work immediately by investing it following the "investment order" outlined above.  You can do this over a series of months if you like, but studies show that doing it all at once tends to work out better most of hte time.

2) I'd consolidate your old 401(k) accounts by rolling them over into an IRA.  At your income I would be contributing to a tIRA, not a Roth. Here's why.
My biggest question is: What are you spending your money on where your take-home pay is $4100 yet your leftover savings is $1300.  That's an annual burn of about $33k, which isn't bad at all - but a more detailed accounting of your expenses might reveal several thousand in needless spending.  Consider doing a full Case Study for the most targeted responses.

3) Following the Investment Order linked above, your HSA should be maxed out each year and (ideally) not touched until later.  Overall you seem to be doing very well.

I've linked a lot of information in the text above which should answer a lot of your questions.  Let us know what else you need held with after going through it. 
Cheers
~n~

junioroldtimer

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Re: Next steps for 33 year old beginner Mustaschian?
« Reply #2 on: September 15, 2018, 07:33:50 PM »
Thanks nereo, will check out those links and get back to you. Enjoy the weekend.

RyaninLA

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Re: Next steps for 33 year old beginner Mustaschian?
« Reply #3 on: September 16, 2018, 03:25:23 PM »
That 80k is a nice little down-payment so when the CD matures, I would consider other low-risk assets: money market, short duration bonds, another CD, or a mix. I'm currently saving for another rental property and just keep those funds in money market because I want to be able to buy if we have some economic weakness in the next couple of years.

I second rolling 401k to IRA, not your current 401k. You 401k custodian company is hired/paid by your employer and plan rules are set by employers. My last company's 401k custodian was unresponsive and made it difficult for me to access the funds. 401ks also tend to have fewer investment choices than IRAs. The only reason you might want to roll over to a 401k is if you plan to take out a loan since loans aren't allowed from IRAs.

Have you considered buying an owner-occupied rental property in TX with a roommate? Then you would just hold it if you move back East?

civil4life

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Re: Next steps for 33 year old beginner Mustaschian?
« Reply #4 on: September 17, 2018, 12:08:32 PM »
+1 for Nereo

junioroldtimer

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Re: Next steps for 33 year old beginner Mustaschian?
« Reply #5 on: September 30, 2018, 09:18:07 AM »
Hey guys,

Big thanks to Nereo for sharing a ton of information. I've been traveling a lot this month and was finally able to get through everything.

Here are some questions:

1. Re: Contributing to tIRA(https://www.madfientist.com/traditional-ira-vs-roth-ira/). Apart from my old 401ks from past jobs, how can I get pre-tax dollars to continue to invest in a traditional IRA after I roll over my 401ks?

2. The investment order list made a lot of sense -- but question on point 8 (Invest in a taxable account and/or fund a 529 with any extra.) -- I'm at this stage and I need to open a taxable account. Is that as easy as converting post-tax dollar cash (i.e. money in my savings account) into an index fund with Schwab/Vanguard or similar?[/li][/list]

3. Any suggestions/recommendations on reading for the hivemind-recommended bond index fund : stock index fund ratio?

I'm just trying to figure out the smart move for my $80k in cash once the CD matures in December. 

Thanks for the advice Ryan -- I think I'll continue renting for now. I live with my partner and probably won't look into getting a roommate for the time being.

nereo

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Re: Next steps for 33 year old beginner Mustaschian?
« Reply #6 on: September 30, 2018, 11:05:28 AM »
1) I'm not 100% certain I understand your question, but... you can make a $5500 contribution every year towards your IRA.  It can be either a tIRA, a Roth IRA, or a combination, but the maximum per-adult is $5500. 
Rolling over money from a 401(k) into an IRA does not count as part of your annual contribution.  You can roll over $100k and still contribute $5,500 that year.
Did that answer your question

2) . Yes.  For a variety of reasons Vanguard is very popular here, but you can contribute any post-tax dollars in whatever amount you like at whatever frequency suits you at any of the various brokerages around.  I'd recommend setting up an auto-contribution that deducts the same time as your paycheck, but that's just me.
Here's why Vanguard is so popular around these parts.  Fidelity has fans too, and some people like BEtterment for their robo-advising and loss harvesting (though that is also available elsewhere).  What's important is that its a brokerage that you are comfortable with, that is transparent, and whos fees are very low (≤0.05% for domestic equity indexes, ≤0.15% for mixed/lifestyle/target-date funds.  Some international funds may go as high as 0.20% for tax reasons, but if any fund is asking for 0.40% or more in fees run away.)

3) this is a deeply personal question.  How solid is your job? Are you really the sort that can watch your equities portfolio lose 35% of its value in a matter of months and do nothing? Do you have any large-ticket itemds to pay for in the next 2 years?  How many 'layers of safety' do you have with your revenue streams (e.g. side gigs, overtime opportunities, rental income, family savings, ability to cut back your budget, disability insurance, etc).  All those factor into how much you'd want to keep in bonds.  Some (myself included) have >90% of our liquid assets in equites. Others like to hold anywhere from 20-40% in bonds.  There is no right answer of even a hive answer on this - it depends on oyu and your circumstances and your level of comfort with gains and loses.

junioroldtimer

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Re: Next steps for 33 year old beginner Mustaschian?
« Reply #7 on: September 30, 2018, 01:36:38 PM »
Thank you -- the first question was a misunderstanding on my part that is now cleared up.

2. - After tons of research this morning / afternoon I ended up opening a Betterment account. I like the tax loss harvesting as well as robo advising -- I don't wnat to have to manually allocate every so often. I also like that I can put my target age and just let it go.

3. The job is solid -- I think I'll keep a slush fund of about ~$15k for emergencies and invest the rest.

I appreciate the time you spent helping me -- I feel like I've got a solid path forward. I'll post in future with updates. Thank you!

nereo

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Re: Next steps for 33 year old beginner Mustaschian?
« Reply #8 on: September 30, 2018, 01:42:04 PM »

I appreciate the time you spent helping me -- I feel like I've got a solid path forward. I'll post in future with updates. Thank you!

Glad to help.  Hope you stick around and add to the community here. Cheers ~n~

junioroldtimer

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Re: Next steps for 33 year old beginner Mustaschian?
« Reply #9 on: September 30, 2018, 08:33:00 PM »
Thank you!