Author Topic: Reader Case Study - Oblivious cash autopilot  (Read 15397 times)

Badass by 41

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Reader Case Study - Oblivious cash autopilot
« on: March 01, 2014, 01:22:52 AM »
Hello Mustachians,

My wife and I found this blog in January and have been devouring it ever since. While she's been out shaping the minds of our next generation as a teacher, I have been marching up the corporate ladder in order to feel more "secure" by earning more money.  It could definitely be said that we've decided to take the red pill after having been blissfully living a consumer lifestyle, oblivious of our marketing and financial services brainwashing.

The good:
   - We have no debt
   - We spend less than we earn
   - We put all of the expenses we can on our CapitalOne Venture card (2% back) and pay it off every month
   - We max out our retirement accounts
   - We've saved quite a bit of cash
   - We have 5 bikes + a trailer (I used to race and want to get back to it again)

The bad:
   - 1 Car (2014 Subaru Forster, Paid in Full)
   - We have done almost nothing with our money
   - What we have done has performed poorly
   - 401k fees are killing us
   - We're not nearly as Mustachian as we should/could be
   - We're worried we've missed the boat on FI.

I'm 36, DW is 34, we have a 3yo and would like to have one more child.  We currently live in the California, so between the property values, cost of living, and taxes, it's a challenge spending as little as we would like.  We're incredibly excited about accelerating our FI so we can relocate back to our hometown in New England, near family, good schools, and more reasonable real estate and cost of living.  We would love the opportunity to follow in MMM's footsteps and focus on being parents while our kids are young/in school.  We'll definitely end up working some after FI, but prefer to do more soul searching and finding ourselves before we commit to anything.

We think we could possibly make this happen in the next 5 years, but are still so new to it all that we're unsure how realistic that really is.  I'll leave my questions for the end of this post, but would greatly appreciate feedback and guidance from this incredible community.

Thanks in advance!



Gross Income:
DH$212k + $53k Bonus (25%)
DW$65k
TOTAL:$330k/yr

"Traditional Retirement" Savings:
DH$17,500(401k)
DW$17,500(403b)
TOTAL:$35k/yr

Net Income:
DH~$118kUPDATE:* Additional info see Addendum #1.
DW~$35k
TOTAL:~$153k/yr~$12,750/mo

Current expenses:
Home$2,800Rent
Kids$1,650Childcare + $100 misc.
Food & Dining$800Groceries + $100 dining out
Allowance$750Personal spending
Bills & Utilities$500
    Insurance    $140Auto, Renters, Valuable Property (bikes, computers, furniture)
    Phone    $140
    Electric    $100
    Water    $70
    Internet    $50Includes basic cable "for free"
    Netflix    $8
Shopping$500 Family spending
Travel$500Budget for $6k/year for 2 East coast trips
Auto & Transport$300
Health & Fitness$100Meds, co-pay, etc.
TOTAL:$7,900/mo$94,800/yr

TOTAL Cash flow: $4,850/mo, $58,200/yr

Expected ER expenses:
Home$1000Property Tax, Insurance
Food & Dining$500Groceries + $100 dining out
Allowance$500Personal spending
Bills & Utilities$283
    Heat    $85Potentially $1k/yr for heating oil
    Insurance    $50 Automotive
    Phone    $40
    Electric    $50
    Water    $0
    Internet    $50
    Netflix    $8
Shopping$200Family spending
Travel$400Vacation travel UPDATED
Auto & Transport$100
Health & Fitness$100Meds, co-pay, etc.
TOTAL:$2,933/mo$35,196/yr
UPDATE: Increased ER Travel budget by $200. Updated ER Expense totals.

Assets:
Cash - Savings$193kPreviously down payment savings
Cash - CDs$90kLaddered 2015-2019 "Emergency fund"
401k$250kFidelity
401k$21kFidelity (Previous Employer)
403b TDA #1$50kTIAA-CREF (Previous Employer)
403b$40kTIAA-CREF (Previous Employer)
403b TDA #2$8.5kTIAA-CREF
Roth IRA$4.5kUSAA
Betterment$3k
Brokerage$7kUSAA - 99 shares of Facebook IPO
Brokerage$3kVanguard
Brokerage$0Fidelity
Brokerage$0ETRADE
TOTAL Cash:$286k
TOTAL Retirement:$374k
TOTAL Investments:$13k
TOTAL:$673k

Liabilities: $0

Employer Equity
5/20138500 RSU1 yr cliff, 4 yr vesting
2/20141500 RSU1 yr cliff, 4 yr vesting
TOTAL Unvested Value:$550k(10000 RSU @ $55.00/share)



Our immediate plan to get to FI
1. Consolidate brokerage accounts into Vanguard (close them)
    Betterment$3k
    Brokerage$7kUSAA - Facebook IPO
    Brokerage$0Fidelity
    Brokerage$0ETRADE
2. Move Cash+CDs into Vanguard brokerage account
    Cash - Savings$193k
    Cash - CDs$90k
3.   Allocate 'stash
   VTSAX   100%
      or
   VTSAX   88%
   VMMXX   12%
      or
   VTSAX   50%
   VGSLX   25%
   VBTLX   20%
   VMMXX   5%
4. Move Roth IRA to Vanguard
    Roth IRA$4.5kUSAA
5. Convert 401k into Vanguard Roth IRA (backdoor conversion)
    401k$21kFidelity (Previous Employer)
6. Make 2013 IRA backdoor Roth contribution into Vanguard Roth IRA
    DH$5,500
    DW$5,500
    TOTAL:$11k
7. Rebalance 401k based on overall asset allocation
    401k$250kFidelity
8. Figure out what to do with old TIAA-CREF accounts
    403b TDA #1$50kTIAA-CREF (Previous Employer)
    403b$40kTIAA-CREF (Previous Employer)
9.  Rebalance 403b based on overall asset allocation
    403b TDA #2$8.5kTIAA-CREF
10. Figure out optimal auto,renter,valuable property insurance situation (High deductible?)
11. Figure out optimal health insurance situation (HSA?)
    DH+child$232/moEmployer Kaiser HMO
    DWEmployer Kaiser HMO
12. UPDATE: Figure out appropriate Federal and State withholdings to increase take home pay.

That would leave us with a account portfolio looking something like the following.
Cash - Savings$15kUSAA
401k$250kFidelity
DH Roth IRA$36.5kVanguard
DW Roth IRA$90kVanguard
403b TDA #2$8.5kTIAA-CREF
Brokerage$281kVanguard - VTSAX + FB



Notes:
1. We'll have to purchase a house when we relocate to New England. The decision boils down to needing $500k upon FI for a house, or $250k for a house plus $100-$200k over the following 10-12 years for tuition.
2. I included my employer equity though it's not real money until it's in the bank. My intention is to sell/cover and hold for long-term cap-gains. Also, I should receive roughly the same 1500 share grant annually until FI.



Specific Question(s):
1. Given our current (or proposed) assets/allocation a) is FI possible in 5yrs at $35k/yr
2. How should we structure funding our FI before 59.5yo, before 70, after 70?
3. Punch us in the face over our current and ER expenses. Please.
4. Does our FI plan seem reasonable? What are we missing?
5. Given our ages, we're comfortable being aggressive or extremely aggressive with our AA but are still unsure how that works if we also need to live off that AA. We just cribbed JLC's simple allocations, so happy to have some pointers here.
6. We're still only learning about Roth conversions and especially backdoor conversions especially given our pre-FI income bracket.  What are we missing in that part of the plan?
7. WTF are we supposed to do with TIAA 403b annuities?  I'm hoping we can just treat them like other funds, but have no idea.
8. We're trying to have another child, and the Kaiser HMO fee for our first (which included 5 days in the hospital and a c-section) cost us $100.00.  DW and I have separate healthcare plans right now with child #1 on my plan.  Given our 5yr horizon, is it worth considering moving off my plan onto an HSA plan?
9. What is the most reasonable way to consider the employer equity in our net worth/AA? Should we consider just taking the ordinary income hit for some guaranteed cash rather than gamble with long-term cap-gains?



* Addendum #1: Paycheck Information
Gross:$8541.67

Primary Deductions:
Federal Income Tax:$1,454.55Withholding = 1
State Income Tax:$533.49Withholding = 1
State Disability Insurance:$84.09Mandatory disability/unemployment fund
Social Security:$522.37
Medicare:$122.17
TOTAL:$2716.67

Other Deductions:
Dental:$16.50
Kaiser HMO:$116.00
401k:$800.00
TOTAL:$932.50

Net:$4892.50/chk$9,785.00/mo

* Addendum #1: Relocation Taxation
Reader Thegoblinchief astutely noticed the high property tax numbers in our ER Expense breakdown.  Here's a the short answer why we've budgeted $12k/year for property tax and insurance.  The state we're planning on relocating to has no state income tax.  Because of this, the state/towns primarily make up for those funds with higher property taxes.  the 2013 tax load for our home town was almost 18% which would be $9,000/yr for a $500k home. Additionally, our hometown happens to be one of the more affluent towns in the state.  That's a pain financially, but it comes with other benefits such as great schools and more robust/diverse culture.  This is why we have to make a decision about Note #1 above.  We have an option of living in an adjacent town and where property prices and tax rates are lower.  The tradeoff is having to drive more due to the rural nature of the towns, and potentially having to tuition our kids into the good schools.

UPDATE: I was able to direct-rollover 80% of my 401k funds into my tIRA at Vanguard since those were from a previous rollover.  This opens up a whole new world for my AA.
« Last Edit: April 03, 2014, 01:20:18 PM by Badass by 41 »

MDM

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #1 on: March 01, 2014, 03:27:52 AM »
Quick check on the first few numbers before we get into all the details:

Gross income =    $330K
401K/403b =         $35K
Taxable income = $295K

Going to http://www.tax-brackets.org/californiataxtable and taking standard deductions gives

Gross Income        $295,000.00
Total Tax               $  99,304.65  (this includes federal, state, FICA and Medicare)
After-Tax Income   $195,695.35

$195.7K is much higher than the $153K quoted in the original post.  Entirely possible that I fat-fingered an entry somewhere, but if not could you explain the $43K difference?

Thegoblinchief

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #2 on: March 01, 2014, 06:32:48 AM »
Lots of detail in your post. I'm not the best at answering the investment questions, but with your assets my family would be FIRE yesterday. That's a lot of money (to me).

In your ER budget, $1,000/month sounds awfully high for tax+insurance. I know the East Coast is bad, but $12K a year for housing would make me search for a different tax district nearby that's cheaper.

Your "allowance" and family spending per month is really high. $700/month combined? If you can afford it, great I guess, but what are you buying with that? My entire 'consumable' budget (fuel+food+household) is less than that per month. Take full advantage of thrift stores, craigslist, etc. Declutter. For the sake of your future freedom and the environment, reevaluate that.

Based on threads I've seen, your heating oil allowance is low. I'd do further research on that one.

Your medical category in ER doesn't factor in cost of insurance, just co-pay. Apologies if I missed that elsewhere.

$2400 a year for travel doesn't seem high enough, but everyone's got different priorities. Even though I'm very frugal/minimalist, my ER budget has $5K for travel planned. We wouldn't necessarily spend that every year, but that way we have the option of doing lots of domestic and international trips, or long-term slow traveling. The way I figure, if we have a year of unexpected expenses, the travel budget is also the first "cut", so it acts as padding/contingency funding.

Everything else in your plan seems solid. You're on the right track.

FWIW, I'd relocate sooner rather than later and find at least a PT job in the new area. Spend a couple years there. 1 year as renters. 1 year as a homeowner. Then you'll have a really good idea of what your actual COL is going to be and whether you truly want to "settle down" there.

Badass by 41

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #3 on: March 01, 2014, 09:25:41 AM »
MDM: Good catch. To be honest, I know my annual salary (we just went through the focal period) and I know what clears my bank for each paycheck, so I just grabbed those numbers.  I've added some additional info to the original post about what's coming out of each check.

Thegoblinchief: Thanks so much for your feedback. Please see Addendum #2 above for some additional context about taxes in the area we're planning relocating to.

RE: Allowance+Family Spending, thanks for the reality check here.  This is a bit of a compromise for DW "easing" into the Mustachian lifestyle.  I fully expect this to approach zero over time. We're trying to trade existing items for the new things we need through Criagslist, but these categories are picking up some of the near term startup costs as well.

RE: Heating oil, You're probably right, but I also expect to be able to build some efficiency into our new home, or eventually convert to an oil alternative for heat.  given the fluctuations in oil prices year to year, it's really hard to estimate this.  I would love more insight if others on the forum have some real world numbers for their New England heating costs.

RE: Medical, you missed it, but that's because it was hidden in question #8.  DH+child are on one employer plan @ $232/mo while DW is fully covered by her employer.  Or were you pointing out a lack of budget in our ER Expenses?  If so, I haven't done the research yet to determine the costs for a youngish family of 4 through the ACA. I'll do some investigation and update the post with what I find.  Unless someone on this thread beats me to it, or has a reasonable rough estimate to share.  9)

RE: Travel, we spend about $6k/year for 2 trips from CA to New England each year.  Our summer trip can be as long as 5 weeks (only 2 of those for me) and our winter trip is between 2-3 weeks.  We plan on traveling some while the kids are in school, and would like to do more after they're out of the house. But we haven't really thought about it more than that.  Seems reasonable to up the budget some, so I'll do that as well.

RE: Relocating sooner, if it turns out we can afford to, we absolutely would.  That's a challenge I hope this community can help us understand how to overcome!  The good news is that we're very familiar with the area we're planning on relocating, and still have family there, so we're able to keep an eye on COL and property prices, and get a reality check there.

Awesome feedback/questions so far.  Thanks and keep it up!

engineerjourney

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #4 on: March 01, 2014, 10:47:04 AM »
RE: Heating oil, You're probably right, but I also expect to be able to build some efficiency into our new home, or eventually convert to an oil alternative for heat.  given the fluctuations in oil prices year to year, it's really hard to estimate this.  I would love more insight if others on the forum have some real world numbers for their New England heating costs.

Heating oil was $3.78/gal this past week in CT.  This winter has been much colder than usual so we might use more oil than usual but we usually fill up at least two tanks a year for a 1,700 sq ft house with the basement at 50 degs and the upstairs at 64 degs in the winter.   Thats 500 gals, or $1,890 a year... for a small house.  OIL HEATING SUCKS!!!!  When you move here try your damndest to get another source of heat.  Prices have been going up, up, up and it really really sucks. 

Daleth

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #5 on: March 01, 2014, 11:17:17 AM »
What are your job prospects in New England? And why are you spending $2800/mo in rent for two adults and a 3yo? Since the kid is 3 you don't need to be in a good school district. I know California is ridiculous, but that still seems high.

If your job prospects are good in NE, given your savings, you can afford to move now--you could buy a house in cash, or what would make more sense given how low interest rates are is to buy with at least 20% down and get a mortgage for the rest, leaving you over $500k to work for you in investments.

Also, re the $500k house budget. Have you considered buying a multi-unit so that you can have some rent coming in? Depending where you will live in NE, that could be basically free money. (For instance, if you live in or next to a college town, having a 1BR "mother-in-law suite" attached to your house could get you a nice quiet grad student who will pay half your mortgage for you.)

Catbert

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #6 on: March 01, 2014, 11:18:08 AM »
I was too lazy to look up the mutual fund symbols, however, I'm guessing that VTSAX is an SP500 fund.  While this is a great type of fund to be 100% in when you're starting out, with your assets I'd look for more diversity.  So I'd select one of the models with 4 or 5 different funds. 

I also wouldn't try to replicate your overall asset allocation in your 401k, IRA and 403b respectively.  Your IRA has unlimited fund  possibilities.  Your 401k and 403b most likely have limited fund choices.  So look at the choices in your 401k and 403b and select the best available funds.  Then fill in the holes of your asset allocation with your IRA.

I don't know all the ins and outs of 403b rules (never had one).  Before you convert to an IRA make sure you understand all the rules about getting money out of them.  There may be some advantages to leaving as a 403b until you at ER. 

MDM

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #7 on: March 01, 2014, 01:16:54 PM »
Quote
I've added some additional info to the original post about what's coming out of each check.
Thanks, that explains some things, but raises other points...:

The generic advice is
A.  Understand your income and expenses in detail
B.  Then, work on the things that have the biggest effect

Good start going back to the paycheck to see the details, but you really should take a "previous 12 month actual" look at everything.  E.g., due to your high income the $522.37 for Soc Sec will stop coming out of the paycheck after July (or even earlier, depending on when the bonus kicks in).  You should check your annual tax return to understand whether withholding is correct.  Etc. 

To take a stab at your questions:
Quote
1. Given our current (or proposed) assets/allocation a) is FI possible in 5yrs at $35k/yr
Possible, yes.  Guaranteed, no.  I'd even say "probable", but my crystal ball is a little foggy today.  Do your best, hope the market cooperates, and time will tell.
Quote
2. How should we structure funding our FI before 59.5yo, before 70, after 70?
The simplistic but maybe good enough answer is "take advantage of your high income to accumulate now, then invest well to let the accumulated money work for you."   
Quote
3. Punch us in the face over our current and ER expenses. Please.
You seem to self-flagellate well enough, and others have contributed appropriate shots.
Quote
4. Does our FI plan seem reasonable? What are we missing?
Yes, seems reasonable.  Missing the detailed knowledge of your current income and expenses (e.g. paycheck comments above).  From your post it appears you organize things well.  Do you have Quicken+Excel or similar software to help here?
Quote
5. Given our ages, we're comfortable being aggressive or extremely aggressive with our AA but are still unsure how that works if we also need to live off that AA. We just cribbed JLC's simple allocations, so happy to have some pointers here.
That's a pretty good way to start.
Quote
6. We're still only learning about Roth conversions and especially backdoor conversions especially given our pre-FI income bracket.  What are we missing in that part of the plan?
7. WTF are we supposed to do with TIAA 403b annuities?  I'm hoping we can just treat them like other funds, but have no idea.
8. We're trying to have another child, and the Kaiser HMO fee for our first (which included 5 days in the hospital and a c-section) cost us $100.00.  DW and I have separate healthcare plans right now with child #1 on my plan.  Given our 5yr horizon, is it worth considering moving off my plan onto an HSA plan?
I defer to others for details here
Quote
9. What is the most reasonable way to consider the employer equity in our net worth/AA? Should we consider just taking the ordinary income hit for some guaranteed cash rather than gamble with long-term cap-gains?
Can't say without more analysis (and given my inability to predict the future).  To the extent a single company stock would be a large fraction of your net worth, I'd say take the income hit and diversify.  To the extent you have enough in other assets, then let it accumulate.

Badass by 41

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #8 on: March 01, 2014, 04:25:19 PM »
RE: Heating oil, You're probably right, but I also expect to be able to build some efficiency into our new home, or eventually convert to an oil alternative for heat.  given the fluctuations in oil prices year to year, it's really hard to estimate this.  I would love more insight if others on the forum have some real world numbers for their New England heating costs.

Heating oil was $3.78/gal this past week in CT.  This winter has been much colder than usual so we might use more oil than usual but we usually fill up at least two tanks a year for a 1,700 sq ft house with the basement at 50 degs and the upstairs at 64 degs in the winter.   Thats 500 gals, or $1,890 a year... for a small house.  OIL HEATING SUCKS!!!!  When you move here try your damndest to get another source of heat.  Prices have been going up, up, up and it really really sucks.

Oil heat is definitely not our first choice, though it's likely what a house will come with when we buy.  Thanks for the extra context on the pricing. I've updated my ER Expenses to reflect that.

SunshineGirl

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #9 on: March 01, 2014, 05:07:46 PM »
Are you willing to consider other cities on the east coast, or does it have to be your hometowns? If you could move to Raleigh-Durham or Charlotte, or many other places, you could get much cheaper property. Maybe your loved ones will join your move to a new city? Choosing to live in such an expensive hood is not a decision to make lightly.

Badass by 41

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #10 on: March 01, 2014, 07:11:58 PM »
What are your job prospects in New England? ...
If your job prospects are good in NE, given your savings, you can afford to move now--you could buy a house in cash, or what would make more sense given how low interest rates are is to buy with at least 20% down and get a mortgage for the rest, leaving you over $500k to work for you in investments.

Job prospects for my current career are limited unless I can work out a remote arrangement, which I'm sowing the seeds for right now, but it's not guaranteed.  As mentioned in my post, both DW and I plan on spending some time doing some soul searching once we're relocated and the kids are settled in.  I have a few small business/consulting ideas but it has to be something I can be passionate about it, and it takes some real experience to fully appreciate.

re: moving now, how would income work out in the 20% down mortgage scenario you suggest?

And why are you spending $2800/mo in rent for two adults and a 3yo? Since the kid is 3 you don't need to be in a good school district. I know California is ridiculous, but that still seems high.

We live 5 miles from my office, 2 miles from childcare, and I bike to both.  DW commutes 35 miles to work but is looking to switch to a closer school.

Check out rentometer.com for average and median 3br prices in the Bay Area.  It's CRAZY!

Burlingame: https://www.rentometer.com/results/YYxCGe5RH-M
San Mateo: https://www.rentometer.com/results/VeV3BZO61bQ
Belmont: https://www.rentometer.com/results/gFPHmodifNk
Foster City: https://www.rentometer.com/results/LyT1MekEvlI
Redwood City: https://www.rentometer.com/results/4FouDOTf61M
Menlo Park: https://www.rentometer.com/results/AZFsAxdclXg
Palo Alto: https://www.rentometer.com/results/FT0j3GniXe0
Mountain View: https://www.rentometer.com/results/7zfmI-n7334
Sunnyvale: https://www.rentometer.com/results/tWvuC1tU37A

Also, re the $500k house budget. Have you considered buying a multi-unit so that you can have some rent coming in? Depending where you will live in NE, that could be basically free money. (For instance, if you live in or next to a college town, having a 1BR "mother-in-law suite" attached to your house could get you a nice quiet grad student who will pay half your mortgage for you.)

We have definitely thoughts about an in-law or duplex.  I've been keeping an eye on the market for the last year and there is some inventory out there.  We'll see what's available when we're ready to pull the trigger.  I've also thought about potentially picking up a 2-3 unit income property in an adjacent/nearby town. 
« Last Edit: March 01, 2014, 07:13:44 PM by Badass by 41 »

Badass by 41

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #11 on: March 01, 2014, 07:24:03 PM »
I was too lazy to look up the mutual fund symbols, however, I'm guessing that VTSAX is an SP500 fund.  While this is a great type of fund to be 100% in when you're starting out, with your assets I'd look for more diversity.  So I'd select one of the models with 4 or 5 different funds. 

I also wouldn't try to replicate your overall asset allocation in your 401k, IRA and 403b respectively.  Your IRA has unlimited fund  possibilities.  Your 401k and 403b most likely have limited fund choices.  So look at the choices in your 401k and 403b and select the best available funds.  Then fill in the holes of your asset allocation with your IRA.

I don't know all the ins and outs of 403b rules (never had one).  Before you convert to an IRA make sure you understand all the rules about getting money out of them.  There may be some advantages to leaving as a 403b until you at ER.

Thanks for the input.  The only fund in my 401k that's really worth investing in is FUSVX   (SpartanŽ 500 Index Fund - Fidelity Advantage Class) which has gross fees of 0.07% .  The rest of the funds fees range from 0.67%-1.46%!!!

I would consider the one REIT fund FHEAX (Fidelity AdvisorŽ Real Estate Fund - Class A) since interest/dividends/income would be tax sheltered, but with gross fees of 1.17% I'm not sure it's worth it.

The options in the CREF portion of the 403b are abysmal as well, which is why I I think the best thing I could do is to roll them into an IRA. If that's even possible.

Badass by 41

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #12 on: March 01, 2014, 11:07:57 PM »
Good start going back to the paycheck to see the details, but you really should take a "previous 12 month actual" look at everything.  E.g., due to your high income the $522.37 for Soc Sec will stop coming out of the paycheck after July (or even earlier, depending on when the bonus kicks in).  You should check your annual tax return to understand whether withholding is correct.  Etc. 

I've used Mint.com since it was in BETA, and I've been using PersonalCapital.com since last fall.  The current expenses listed are our budget in mint based on last years spending and where we want to be.

With the married standard deduction + child, childcare expenses, and retirement savings, we should definitely be withholding more taxes than we are.  I just tend to err on the side of tax refunds rather than owning taxes, and haven't dialed in the withholdings.  I've added it to our plan.  Thanks!

To take a stab at your questions:
Quote
1. Given our current (or proposed) assets/allocation a) is FI possible in 5yrs at $35k/yr
Possible, yes.  Guaranteed, no.  I'd even say "probable", but my crystal ball is a little foggy today.  Do your best, hope the market cooperates, and time will tell.

I guess that question was a bit vague.  Thanks for calling me on that.  When I do the simple math MMM recommends, I come up with a number like $35k*25=$875k.  That number would lead me to believe that we should consider FI once we've saved and additional $200k on top of the $675k we already have.  It just seems too close to be possible.

Quote
2. How should we structure funding our FI before 59.5yo, before 70, after 70?
The simplistic but maybe good enough answer is "take advantage of your high income to accumulate now, then invest well to let the accumulated money work for you."   

Again, I don't think I did the best job articulating my actual question here.  Let's say we're 5 years down the road, and we've saved $1 million dollars.  That sum would be split amongst multiple accounts and investments.  It's easy enough to say "just take 4% out every year and you'll be fine".  I'm ust left wondering about the actual mechanics of that 4% withdrawal.  Do I only take it out of dividends?  How does that work if I've put my dividend heavy investments into my tax advantaged accounts like my 401k?  Do I take it out of principle?  That seems reasonable if I'm drawing from a Roth IRA, but in order to do that from the stock portion of my portfolio I would have to sell.  Though doesn't that defeat the purpose of DCA?  Even with low living expenses, don't I still have to worry about capital gains?

It seems there should be at least as basic a withdrawal strategy as there is a saving strategy.  Maybe I just haven't read the right blog post yet.

Quote
3. Punch us in the face over our current and ER expenses. Please.
You seem to self-flagellate well enough, and others have contributed appropriate shots.

Thanks, at least you and DW agree.  9)

Quote
4. Does our FI plan seem reasonable? What are we missing?
Yes, seems reasonable.  Missing the detailed knowledge of your current income and expenses (e.g. paycheck comments above).  From your post it appears you organize things well.  Do you have Quicken+Excel or similar software to help here?

As mentioned above, Mint.com, PersonalCapital.com.  Additionally I'm a data junky by night, so there's a bit of Excel/Numbers for my own amusement.

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5. Given our ages, we're comfortable being aggressive or extremely aggressive with our AA but are still unsure how that works if we also need to live off that AA. We just cribbed JLC's simple allocations, so happy to have some pointers here.
That's a pretty good way to start.

Also, as mentioned above, any help on understanding how withdrawals would work against an aggressive AA?  Being aggressively into stocks when building wealth makes sense to me, but once you start needing to live off that portfolio, isn't that too volatile and not tax efficient?

Quote
9. What is the most reasonable way to consider the employer equity in our net worth/AA? Should we consider just taking the ordinary income hit for some guaranteed cash rather than gamble with long-term cap-gains?
Can't say without more analysis (and given my inability to predict the future).  To the extent a single company stock would be a large fraction of your net worth, I'd say take the income hit and diversify.  To the extent you have enough in other assets, then let it accumulate.

I guess I'm just stuck on the fence.  Given our current tax bracket (30%) my natural tendency is to hold out for the lower LT Cap-gains.  But to your point, given that it's basically $50-$100k/yr, and a gamble at which end of that spectrum we'll be each year at vesting, I'm also inclined to just take the cash when it's a certainty.

I would be super interested in whether anyone else in the community has worked through this dilemma.

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #13 on: March 01, 2014, 11:55:34 PM »
Are you willing to consider other cities on the east coast, or does it have to be your hometowns? If you could move to Raleigh-Durham or Charlotte, or many other places, you could get much cheaper property. Maybe your loved ones will join your move to a new city? Choosing to live in such an expensive hood is not a decision to make lightly.

You are absolutely right! Unfortunately, both DW and my families are 90% located within 1hr of where we intend on relocating.  Which is one of the primary reasons we're considering the location, along with having the best public schools in state, and cultural diversity. That last one may not sound important, but if we're going to raise children in New England at all, it has to be somewhere with a vibrant and diverse community.  That's not as easy to find as you might think.  Coupled with good schools is even harder.

Anyway, once the kids are out of the house we'll most likely relocate again to a more moderate climate.  As long as there is still room in Longmont.  8)

RobertBirnie

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #14 on: March 02, 2014, 12:49:52 AM »
Quote
9. What is the most reasonable way to consider the employer equity in our net worth/AA? Should we consider just taking the ordinary income hit for some guaranteed cash rather than gamble with long-term cap-gains?
Can't say without more analysis (and given my inability to predict the future).  To the extent a single company stock would be a large fraction of your net worth, I'd say take the income hit and diversify.  To the extent you have enough in other assets, then let it accumulate.

I guess I'm just stuck on the fence.  Given our current tax bracket (30%) my natural tendency is to hold out for the lower LT Cap-gains.  But to your point, given that it's basically $50-$100k/yr, and a gamble at which end of that spectrum we'll be each year at vesting, I'm also inclined to just take the cash when it's a certainty.

Since you are a data junky, model out what your investing totals will look like over the next 5 years and adjust your spending so your savings can match your goals for FIRE. Then for the extra income from stock grants, I'd hold out for the long term cap gains but include it in your model discounted to the lower end of the range. With your income you should be able to hit goals without it. Then if the money comes back in the $100k range it will just decrease your FIRE time beyond what your goals are (home run?). Although truthfully, I've not dealt with the issue personally.

Daleth

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #15 on: March 02, 2014, 08:42:50 AM »
Job prospects for my current career are limited unless I can work out a remote arrangement, which I'm sowing the seeds for right now, but it's not guaranteed.

What about DW's? And what field do you work in--something Silicon Valley-ish, I'm guessing, since that's where you live and you say such jobs are limited on the East Coast?

re: moving now, how would income work out in the 20% down mortgage scenario you suggest?

Not sure what you mean by "how would income work out," but this is a good site to run numbers for mortgages, because it shows you not just the monthly payment but what the total cost of the mortgage would be if you stayed long enough to pay it off (15 yrs, 30 yrs, whatever):
http://www.mortgagecalculator.org/

You don't actually need to bother with the boxes for home value, credit profile, loan purpose, yada yada. Just put in the loan amount (house price - 20%, so if it's a $500k house the loan would be for $400k), your best guess for the interest rate you would get (you know your credit score, and with 20% or more down you'll get the best rate your credit score allows), and the term (15 or 30 years are what's generally available). Put a zero in the PMI box at the bottom, because with 20% down you won't be paying PMI. If you know the property tax rate in the place you're thinking of moving, put that in--for instance, 20 mils would be 2%. Otherwise put a zero in that box too, and just remember you've also got to factor that cost in. You have to put zeros in those boxes rather than leaving them blank--just a quirk of that site.

For a $400k loan at 4% and a 30-year term, the monthly payment (not including property tax or insurance) would be $1909.66. If it's a 15-yr at 3.35%, which apparently is the current best rate for 15-yr fixed, it's $2830.16 (but the total cost of the mortgage would be almost $180,000 less than taking the full 30 years to pay it off!). If you put 25% down, which some banks may require for a multi-unit (even though you'll also be using it as a primary residence), then you're looking at about $1790/mo (30yr) or $2653 (15yr), plus property taxes and insurance. If you have a unit you can rent for, say, $1000... well, I'm sure you can see the beauty of that!

I've also thought about potentially picking up a 2-3 unit income property in an adjacent/nearby town.

If the adjacent/nearby town has a college in it, or a hospital, or another major employer, so much the better. Colleges and hospitals will give you an endless supply of tenants, and they're not going anywhere--they're never going to close the hospital and move it to Brazil to get cheaper labor, haha. You're not legally allowed to refuse to rent to undergrads but you can target your advertising such that grad students or other more studious types are attracted (emphasize things like "quiet street," "close to library"), and of course you're not obligated to rent to the first people who apply--you can collect a few applications and pick the one you like best.

Fuzz

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #16 on: March 02, 2014, 09:40:33 AM »
I'd play around with how you're actually spending your "allowance." If you're giving yourself $500 in mad money every month, don't spend it one month. See how that feels. And, this is the hard part, don't give yourself another $500 the next month in your mad money to make up for the deprivation by buying something extra sweet.

I don't have any advice on the other stuff. You've got a great income and a pretty detailed plan--so it will work out. However, I'm always interested in the psychological challenges of getting to FIRE. I would imagine your job is part of your identity and a certain level of spending is part of your habits (and certainly part of your cohort's habits), so changing those is tricky. 

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #17 on: March 06, 2014, 05:17:23 PM »
Thanks everyone.  This all has helped a lot.  I'm considering this thread closed unless someone comes along with additional insight.  I'll ask my additional questions in more targeted threads.

I really appreciate everyone's time.

beltim

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #18 on: March 06, 2014, 05:38:39 PM »
I have two points that I don't think anyone else has addressed:

1) Rolling your old 401K into a Roth IRA is a terrible idea.  You'd be paying taxes on the converted amount at the highest possible tax rate you're likely ever going to see.  You should roll this into a traditional IRA instead.

2) You can roll a 403b into an IRA just as easily as a 401k.  This may be the solution to your TIAA-CREF account, although it depends on the particular annuities you have in there whether you actually should roll it over or not.  If you provide additional details on that, we may be able to help on that one.

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #19 on: March 06, 2014, 05:53:35 PM »
1) Rolling your old 401K into a Roth IRA is a terrible idea.  You'd be paying taxes on the converted amount at the highest possible tax rate you're likely ever going to see.  You should roll this into a traditional IRA instead.

Thanks for making this point, and confirming my decision.  I've initiated a rollover into a Vanguard Traditional IRA for exactly this reason.

2) You can roll a 403b into an IRA just as easily as a 401k.  This may be the solution to your TIAA-CREF account, although it depends on the particular annuities you have in there whether you actually should roll it over or not.  If you provide additional details on that, we may be able to help on that one.

In terms of handling my 403b questions, let me just say, Vangaurd is AWESOME! They had quite a bit of information about how to handle TIAA-CREF, and when they didn't know, they jumped on a call with reps from TIAA-CREF and facilitated the conversation and eventual conversion of these into Vanugaurd Traditional IRAs.

For posterity, while the TIAA portion of these kinds of 403b's are technically an annuity, they convert just fine into Traditional IRAs.  The CREf portion has an annuity as an investment option which also converts just fine.

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #20 on: April 01, 2014, 01:52:40 PM »
Thanks for the input.  The only fund in my 401k that's really worth investing in is FUSVX   (SpartanŽ 500 Index Fund - Fidelity Advantage Class) which has gross fees of 0.07% .  The rest of the funds fees range from 0.67%-1.46%!!!

UPDATE: So I have a confession to make, 80% of the funds in my current employer Fidelity 401k are a rollover from a previous 401k at Vanguard.  I was under the impression that this make those funds part of the current 401k.  Which is why I was stressing about the fund options.  To my surprise and delight, the rollover is managed as a separate source within the 401k and is available to "direct rollover" to another provider.

So I'm moving those funds into my newly minted Vanguard tIRA, and will now have access to the ideal funds in my AA.

+1 for taking control of your own finances by reading, learning, and asking a ton of questions.

+1 also for both Vanguard and Fidelity representatives.  They've been incredibly knowledgable and helpful.  I highly recommend using those resources.

bdc

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #21 on: April 02, 2014, 11:34:20 PM »
I'm having trouble understanding why you would consider a Roth conversion now.  Your income (and tax bracket) will drop dramatically when you retire; converting now will only increase your tax rate.

TomTX

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #22 on: April 03, 2014, 04:58:16 AM »
I would still move the "old" 401(k) money out to a tIRA  - but yeah - why would you do a Roth conversion NOW?

james77

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #23 on: April 03, 2014, 10:39:32 AM »
My advice on where to put the cash.  I would start out with indexes or ETFs such as:

IVV: IShares core S&P 500 index ETF  30%

VONE: Vanguard Russell 1000 ETF  30%

VUG: Vanguard growth 30%

VNQ: Vanguard REIT 10%

or any ETF/Index with a 4 star rating on morningstar.com. 

*credibility- licensed FINRA broker

I don't think you need to go from luxury to thrift shops.  I would just define your personal spending and decide if the shopping is really worth it. 

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #24 on: April 03, 2014, 12:12:58 PM »
1) Rolling your old 401K into a Roth IRA is a terrible idea.  You'd be paying taxes on the converted amount at the highest possible tax rate you're likely ever going to see.  You should roll this into a traditional IRA instead.
I'm having trouble understanding why you would consider a Roth conversion now.  Your income (and tax bracket) will drop dramatically when you retire; converting now will only increase your tax rate.
I would still move the "old" 401(k) money out to a tIRA  - but yeah - why would you do a Roth conversion NOW?

Thanks for the feedback all.  I apologize if I wasn't clear, but I didn't mean to suggest I would be converting my 401k rollover into a ROTH prior to FIRE.  I will definitely be moving those funds into a tIRA.

That said, perhaps you can check my math here.  Since I'm contributing the max IRA contribution, and I make too much to take a deduction, couldn't I do a ROTH conversion on my annual tIRA contribution tax free?  Or at least only taxed on the small amount of cap-gains possible between contribution and immediate conversion?  What am I missing?

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #25 on: April 03, 2014, 12:17:40 PM »
My advice on where to put the cash.  I would start out with indexes or ETFs such as:

IVV: IShares core S&P 500 index ETF  30%

VONE: Vanguard Russell 1000 ETF  30%

VUG: Vanguard growth 30%

VNQ: Vanguard REIT 10%

or any ETF/Index with a 4 star rating on morningstar.com. 

*credibility- licensed FINRA broker

I don't think you need to go from luxury to thrift shops.  I would just define your personal spending and decide if the shopping is really worth it.

Thanks james77.  Help me understand why you're suggesting IVV, VONE, VUG, and VNQ over VTSAX, VGTLX, and VBSLX.  Especially your ETF recommendation.

ZiziPB

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #26 on: April 03, 2014, 12:24:58 PM »
Quote
That said, perhaps you can check my math here.  Since I'm contributing the max IRA contribution, and I make too much to take a deduction, couldn't I do a ROTH conversion on my annual tIRA contribution tax free?  Or at least only taxed on the small amount of cap-gains possible between contribution and immediate conversion?  What am I missing?

If you don't have other traditional IRAs, then you can definitely do backdoor Roth.  If you have other IRAs, your conversion is taken proportionately from all your IRAs so you would end up paying taxes on at least a portion of it.

rescuedog

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #27 on: April 03, 2014, 01:06:14 PM »
Visually, this was a very pleasing post!  Very organized!

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #28 on: April 03, 2014, 01:12:24 PM »
My advice on where to put the cash.  I would start out with indexes or ETFs such as:

IVV: IShares core S&P 500 index ETF  30%

VONE: Vanguard Russell 1000 ETF  30%

VUG: Vanguard growth 30%

VNQ: Vanguard REIT 10%

or any ETF/Index with a 4 star rating on morningstar.com. 

*credibility- licensed FINRA broker

I don't think you need to go from luxury to thrift shops.  I would just define your personal spending and decide if the shopping is really worth it.

Thanks james77.  Help me understand why you're suggesting IVV, VONE, VUG, and VNQ over VTSAX, VGTLX, and VBSLX.  Especially your ETF recommendation.

I would recommend reading the two following articles to help make a decision.   
http://www.forbes.com/sites/mitchelltuchman/2013/11/01/index-fund-vs-etfs-get-the-facts/
http://www.investopedia.com/articles/mutualfund/05/etfindexfund.asp

"Passive institutional investors love ETFs for their flexibility. Many see them as a great alternative to futures. For example, ETFs can be purchased in smaller sizes. They also don't require special documentation, special accounts, rollover costs or margin. Furthermore, some ETFs cover benchmarks where there are no futures contracts.

Active traders, including hedge fund traders, love ETFs for their convenience, because they can be traded as easily as stocks. This means they have margin and trading flexibility that is unmatched by index funds. Ironically, ETFs are exempt from the short sale uptick rule that plagues regular stocks (the short sale uptick rule prevents short sellers from shorting a stock unless the last trade resulted in a price increase).

Passive retail investors, for their part, will love index funds for their simplicity. Investors do not need a brokerage account or deposit with index funds. They can usually be purchased through the investor's bank. This keeps things simple for investors - a consideration that the investment advisory community continues to overlook."

Attached is a list of 5 star bond funds for some diversity.  I would not recommend your VBTLX because of its average rating.  Ratings aren't the end all be all decision but a reputable source definitely helps in the decision making process. 



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Re: Reader Case Study - Oblivious cash autopilot
« Reply #29 on: April 03, 2014, 01:14:48 PM »
If you don't have other traditional IRAs, then you can definitely do backdoor Roth.  If you have other IRAs, your conversion is taken proportionately from all your IRAs so you would end up paying taxes on at least a portion of it.

Interesting.  So here's my scenario with hypothetical numbers.

tIRA - rollover $100k
tIRA - 2013 contribution $5.5k
tIRA - 2014 contribution $5.5k
Total tIRA - $111k

So are you saying that if I do a ROTH conversion of $5.5k this year, I don't have the option of choosing the contribution source (and therefore the cost basis for the conversion), so I'll be taxed on the average gain on the entire tIRA value ($111k)??

Badass by 41

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #30 on: April 03, 2014, 01:37:51 PM »
I would recommend reading the two following articles to help make a decision.   
http://www.forbes.com/sites/mitchelltuchman/2013/11/01/index-fund-vs-etfs-get-the-facts/
http://www.investopedia.com/articles/mutualfund/05/etfindexfund.asp

"Passive institutional investors love ETFs for their flexibility. Many see them as a great alternative to futures. For example, ETFs can be purchased in smaller sizes. They also don't require special documentation, special accounts, rollover costs or margin. Furthermore, some ETFs cover benchmarks where there are no futures contracts.

<...snip...>

Attached is a list of 5 star bond funds for some diversity.  I would not recommend your VBTLX because of its average rating.  Ratings aren't the end all be all decision but a reputable source definitely helps in the decision making process.

Thanks for the links and extra info.  I also realized you said "My advice on where to put the cash..." in your original post.  Are you only suggesting this diversification for the cash position in my AA?  Or by cash, do you mean "Taxable investments"?

Also, does your stance on ETF vs. Index Fund change between accumulation, FIRE (pRetirement), and tRetirement?  I would think the dividend treatment differences would make ETF more effective during accumulation, potentially a wash in pRetirement, and a liability in tRetirement.  What am I missing.

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #31 on: April 03, 2014, 01:38:33 PM »
Visually, this was a very pleasing post!  Very organized!

Too bad the content and discussion were garbage!  9)

ZiziPB

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #32 on: April 03, 2014, 01:40:14 PM »
Quote
So are you saying that if I do a ROTH conversion of $5.5k this year, I don't have the option of choosing the contribution source (and therefore the cost basis for the conversion), so I'll be taxed on the average gain on the entire tIRA value ($111k)

I don't think you would not be taxed on the entire balance. The way I understand it to work is that a proportionate amount of your converted $5.5K would be deemed to have come from your $100K IRA and would be taxed.  In your example it would be something like 90%.  You are not able to designate the source for the conversion. 

skunkfunk

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #33 on: April 03, 2014, 01:48:03 PM »
How big is your current house? How far is the commute? Are groceries unusually expensive in your area? I'm not familiar with that part of the country, but your expenses seem absurdly high for someone trying to get on the frugality train. $750 personal spending? WTH is that?

ZiziPB

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #34 on: April 03, 2014, 01:49:26 PM »
Here is a simple explanation I found on this site http://www.nerdwallet.com/blog/investing/2013/backdoor-roth-ira-high-income-how-to-guide/:

The Pro-Rata Rule

All rollovers from Traditional to Roth IRAs must be done on a pro-rata basis.  So if you have existing Traditional assets (pre-tax) and you try to do a Backdoor Roth IRA by contributing to a non-deductible Traditional IRA (post-tax), you cannot choose to only rollover the non-deductible Traditional assets.  Instead, any amount you rollover will be taken proportionally from across all of your Traditional assets.  For example, if you have $90k in deductible contributions and you make $10k in non-deductible contributions, intending to immediately roll it over to a Roth, when you do the $10k Traditional to Roth conversion (10% of your total Traditional assets) you will actually be converting $9k from your deductible contributions (10% of $90k) and $1k from your non-deductible contributions (10% of $10k).


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Re: Reader Case Study - Oblivious cash autopilot
« Reply #35 on: April 03, 2014, 02:05:26 PM »
How big is your current house? How far is the commute? Are groceries unusually expensive in your area? I'm not familiar with that part of the country, but your expenses seem absurdly high for someone trying to get on the frugality train. $750 personal spending? WTH is that?

Current house is 3/2.5 rental - more than we need right now, but with rents still going up, we wanted to get into something with growth potential since we're trying for #2.  That said, we'll definitely be looking at other rentals when our lease is up later this year.

Sales tax is ridiculous in the San Francisco Bay Area so that's definitely a factor.  I've started tracking our grocery receipts in a spreadsheet last month, so hopefully in another week or two we'll have a more specific picture of where our $$$ is going.

DW and I have chosen to only combine our joint expenses and savings.  We each have our own money to spend/save as we like, no questions asked. So the $750 budget is the portion of our salaries that we keep for our own personal use/savings. I agree it's a big number, especially since neither of us spend it all every month.  It used to be $500 each but I've reduced my share to $250.  That said, it's how we've chosen to do our finances. I used to leave it out of our finances all together, but we decided to track it 1) for simplicity (no special cases in Mint, PersonalCapital) and 2) we both agreed that if the sh*t hit the fan, we would contribute that money as emergency funds.

Do you have other thoughts on how to reduce the expenses you see as ridiculously high?  The COL is really high out here and we've been living a consumerist lifestyle for so long it's hard for us to see.  Which is why we're on here asking these questions.  9)

Your help is much appreciated.

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #36 on: April 03, 2014, 02:07:42 PM »
Here is a simple explanation I found on this site http://www.nerdwallet.com/blog/investing/2013/backdoor-roth-ira-high-income-how-to-guide/:

The Pro-Rata Rule

All rollovers from Traditional to Roth IRAs must be done on a pro-rata basis.  So if you have existing Traditional assets (pre-tax) and you try to do a Backdoor Roth IRA by contributing to a non-deductible Traditional IRA (post-tax), you cannot choose to only rollover the non-deductible Traditional assets.  Instead, any amount you rollover will be taken proportionally from across all of your Traditional assets.  For example, if you have $90k in deductible contributions and you make $10k in non-deductible contributions, intending to immediately roll it over to a Roth, when you do the $10k Traditional to Roth conversion (10% of your total Traditional assets) you will actually be converting $9k from your deductible contributions (10% of $90k) and $1k from your non-deductible contributions (10% of $10k).

Awesome!  That makes sense.  Thanks!

skunkfunk

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #37 on: April 03, 2014, 02:21:28 PM »
How big is your current house? How far is the commute? Are groceries unusually expensive in your area? I'm not familiar with that part of the country, but your expenses seem absurdly high for someone trying to get on the frugality train. $750 personal spending? WTH is that?

Current house is 3/2.5 rental - more than we need right now, but with rents still going up, we wanted to get into something with growth potential since we're trying for #2.  That said, we'll definitely be looking at other rentals when our lease is up later this year.

Sales tax is ridiculous in the San Francisco Bay Area so that's definitely a factor.  I've started tracking our grocery receipts in a spreadsheet last month, so hopefully in another week or two we'll have a more specific picture of where our $$$ is going.

DW and I have chosen to only combine our joint expenses and savings.  We each have our own money to spend/save as we like, no questions asked. So the $750 budget is the portion of our salaries that we keep for our own personal use/savings. I agree it's a big number, especially since neither of us spend it all every month.  It used to be $500 each but I've reduced my share to $250.  That said, it's how we've chosen to do our finances. I used to leave it out of our finances all together, but we decided to track it 1) for simplicity (no special cases in Mint, PersonalCapital) and 2) we both agreed that if the sh*t hit the fan, we would contribute that money as emergency funds.

Do you have other thoughts on how to reduce the expenses you see as ridiculously high?  The COL is really high out here and we've been living a consumerist lifestyle for so long it's hard for us to see.  Which is why we're on here asking these questions.  9)

Your help is much appreciated.

How far do you commute for work?

I spend about $300 a month on food for 2 people, and was face punched about that quite a bit in my case study. Buy whole chickens and cut them up and freeze them, buy rolled oats in bulk, shop at costco or sams, and shop the sales. My wife hits the grocery store on Wednesdays, when they are starting up the new sales and the stuff that is about to expire is on sale.

I would certainly like to see a breakdown of "personal spending" and "shopping." Those categories seem pretty high. My wife and I have a combined $400 personal spending, but that includes things like cable tv, brewing beer, cell phones, etc. Get republic wireless, Ting, or some other MVNO and you will save on that $140 phone bill. Sell your car, pocket most the cash for retirement and save on insurance buy getting liability only, and buy one of these. With as much cash flow as you have, you do not need valuable property insurance. If you have anything so valuable that it needs that kind of insurance, sell it and get something cheaper.

I guess that was kind of a ramble, but these are my suggestions, drawn from personal experience. I haven't read every word of the thread so far, so forgive me if I'm merely rehashing things here.

Edit: Can you break down the childcare costs?
« Last Edit: April 03, 2014, 02:32:10 PM by skunkfunk »

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #38 on: April 03, 2014, 08:27:22 PM »
How far do you commute for work?

I ride my bike 10mi round trip to work every day.  My DW commutes 50 miles round trip in the car.  Childcare is on her commute route so she does the majority of drop-off/pick-up, though I do 1 or 2 days a week when I can.  The plan is for her to work one more year where she is, then take a year off if/when #2 happens, then find work closer to home when she goes back to work.

I spend about $300 a month on food for 2 people, and was face punched about that quite a bit in my case study. Buy whole chickens and cut them up and freeze them, buy rolled oats in bulk, shop at costco or sams, and shop the sales. My wife hits the grocery store on Wednesdays, when they are starting up the new sales and the stuff that is about to expire is on sale.

Wednesday is a great idea.  I keep meaning to chat up the manager at our Safeway and get their stocking schedule.  We're shopping at Costco now, though I need some more data to determine if it's a win yet or not. There's definitely some more work to be done here.

I would certainly like to see a breakdown of "personal spending" and "shopping." Those categories seem pretty high. My wife and I have a combined $400 personal spending, but that includes things like cable tv, brewing beer, cell phones, etc.

As mentioned in a previous reply, the "personal spending" category is our separate money allowance.  It's 90% saved every month between the two of us. When we do spend the money, it's usually either on each other (gifts), massages/nails (wife), bike stuff/electronics (me). 

Get republic wireless, Ting, or some other MVNO and you will save on that $140 phone bill.

We can't unlock our phones until December 2014, so we're waiting this out.  Breaking the contract and buying new phones would cost more than just waiting out the contract.  That said, we've considered taking advantage of the T-Mobile promotion running right now where they'll cover the cancel charges and we could BYOP.  Undecided.

Sell your car, pocket most the cash for retirement and save on insurance buy getting liability only, and buy one of these.

That's a clear face-punch.  I'd love to drop the car and buy a used Prius to convert to EV.  DW isn't there yet, and since she does the majority of the driving (and we've got other things to work on for now) I haven't pushed on this much. I think we'll get there next year.  Good idea.

With as much cash flow as you have, you do not need valuable property insurance. If you have anything so valuable that it needs that kind of insurance, sell it and get something cheaper.

This is a great call!  I'm canceling the hell out of that policy tomorrow.  8)

Edit: Can you break down the childcare costs?

Sure: $1550/mo 7am-6pm daycare, 5 days a week + $100 for misc expenses (varies month to month).

zolotiyeruki

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #39 on: April 03, 2014, 08:53:07 PM »
Most people here have thoroughly dissected the investment side of things.  I'm here to facepunch you on your spending:
1) $140/mo for phones is ridiculous.  Even a switch to a not-very-mustachian Straight Talk unlimited plan would cut you down to $50/mo/phone, and switching to Airvoice could get you even lower.  Before you do, though, check to see how much you actually use your phones--how many minutes calling, how many texts, how much data.  You may be surprised at how little you use.
2) I know California cost of living is higher than were I am (Illinois) but $700/mo for a family of 2.5 seems awful high.  We feed our family of 7 (5 kids, oldest is 9) on $800-1000/mo.
3) Allowance - I'll admit, I wish I had that kind of mad money :).  But this seems like really low-hanging fruit.
4) "Shopping" (Family spending) --I'm not sure what that is.  Maybe it corresponds with the "miscellaneous" category in our budget :)


While I was looking at this, one thought struck me.  In effect, "is it worth it for DW to be working?"  $65k/year is nothing to sniff at.  However, when you take out Federal taxes (35%), FICA (7.5%), and CA state taxes (10%), you're down to just over $30k.  Subtract from that the cost of childcare (almost $19000), the cost of the commute (a couple grand more), and your wife's net is under $15k/year, for what I assume is a full-time job.  This may be none of my business, but you might want to consider the possibility of your wife staying at home with the kid(s) for a few years until they're in school, then picking up a job again.  The financial losses would be relatively small, while the less tangible benefits would be great.

On the other side (and I'll admit I'm ignorant on this point), would you have to forego here $17,500/year contribution if she isn't working?

On the side of retirement expenses, I'll point out the following:
$500/mo for food is high for 2 people
$500/mo for allowance seems high
$1k/mo for taxes/insurance seems high, but I don't know the area where you're planning to settle.

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #40 on: April 03, 2014, 10:47:01 PM »
This is great, here's more info.  I really appreciate the face-punches.  9)

1) $140/mo for phones is ridiculous.  Even a switch to a not-very-mustachian Straight Talk unlimited plan would cut you down to $50/mo/phone, and switching to Airvoice could get you even lower.  Before you do, though, check to see how much you actually use your phones--how many minutes calling, how many texts, how much data.  You may be surprised at how little you use.

We're on a 2 phone Verizon Family plan with unlimited Talk, Txt, and Data shared between our two accounts.  Over the last 3 months (the usage Verizon has available) we've averaged 825 minutes of Talk and 550MB data.  We text A LOT, but iMessage does it over Wifi so it's rarely over the air.

2) I know California cost of living is higher than were I am (Illinois) but $700/mo for a family of 2.5 seems awful high.  We feed our family of 7 (5 kids, oldest is 9) on $800-1000/mo.

Ya, we're looking into this.  I'm doing a food log to see where the money is going. See my previous comment with more detail about Costco, etc.

3) Allowance - I'll admit, I wish I had that kind of mad money :).  But this seems like really low-hanging fruit.

Ditto on this one re: previous comment.  More info there.

4) "Shopping" (Family spending) --I'm not sure what that is.  Maybe it corresponds with the "miscellaneous" category in our budget :)

Yes, it's anything outside of our other budget categories.

While I was looking at this, one thought struck me.  In effect, "is it worth it for DW to be working?"  $65k/year is nothing to sniff at.  However, when you take out Federal taxes (35%), FICA (7.5%), and CA state taxes (10%), you're down to just over $30k.  Subtract from that the cost of childcare (almost $19000), the cost of the commute (a couple grand more), and your wife's net is under $15k/year, for what I assume is a full-time job.  This may be none of my business, but you might want to consider the possibility of your wife staying at home with the kid(s) for a few years until they're in school, then picking up a job again.  The financial losses would be relatively small, while the less tangible benefits would be great.

This is awesome feedback.  We've definitely discussed it, and considered it.  Having spent the first year at home with #1 she knows what's involved.  We want to socialize #1 and DW is a home body, though we could probably do part time childcare for that. The biggest conversation point is her career and prospects after being out of work for a year or more.  Though I just realized that may be less of an issue now if we're going to FIRE in 5-6 years anyway.  Maybe she should just pull the ripcord now.

On the other side (and I'll admit I'm ignorant on this point), would you have to forego here $17,500/year contribution if she isn't working?

That's a good point.  I should probably do some research into a personal 401k?

On the side of retirement expenses, I'll point out the following:
$500/mo for food is high for 2 people
$500/mo for allowance seems high
$1k/mo for taxes/insurance seems high, but I don't know the area where you're planning to settle.

You've caught me being a bit conservative here, though the taxes are based on current rates in our hometown (19% of $500k assessed value worse case home purchase).  We'll obviously try to find something less expensive.

I really appreciate all of the feedback, face-punches, and suggestions. I hope my answers aren't coming off as complanypants. DW and I are trying to reach a balance between my natural tendency to go for it, and her fear of change.  If others have strategies for working through MMM changes with SOs, I'm all ears.

skunkfunk

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #41 on: April 04, 2014, 05:28:46 AM »
This is great, here's more info.  I really appreciate the face-punches.  9)

1) $140/mo for phones is ridiculous.  Even a switch to a not-very-mustachian Straight Talk unlimited plan would cut you down to $50/mo/phone, and switching to Airvoice could get you even lower.  Before you do, though, check to see how much you actually use your phones--how many minutes calling, how many texts, how much data.  You may be surprised at how little you use.

We're on a 2 phone Verizon Family plan with unlimited Talk, Txt, and Data shared between our two accounts.  Over the last 3 months (the usage Verizon has available) we've averaged 825 minutes of Talk and 550MB data.  We text A LOT, but iMessage does it over Wifi so it's rarely over the air.

I suspect that if you sell your iphones and switched to Ting, you'd make back the money pretty quickly. Check their savings calculator. Additionally, they will pay 25% of your cancellation fee. Look into it. 9 months is a long time to be spending $140 a month.

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Re: Reader Case Study - Oblivious cash autopilot
« Reply #42 on: April 04, 2014, 09:48:23 AM »
This is great, here's more info.  I really appreciate the face-punches.  9)

1) $140/mo for phones is ridiculous.  Even a switch to a not-very-mustachian Straight Talk unlimited plan would cut you down to $50/mo/phone, and switching to Airvoice could get you even lower.  Before you do, though, check to see how much you actually use your phones--how many minutes calling, how many texts, how much data.  You may be surprised at how little you use.

We're on a 2 phone Verizon Family plan with unlimited Talk, Txt, and Data shared between our two accounts.  Over the last 3 months (the usage Verizon has available) we've averaged 825 minutes of Talk and 550MB data.  We text A LOT, but iMessage does it over Wifi so it's rarely over the air.

I suspect that if you sell your iphones and switched to Ting, you'd make back the money pretty quickly. Check their savings calculator. Additionally, they will pay 25% of your cancellation fee. Look into it. 9 months is a long time to be spending $140 a month.

Nice!  I'm checking them out again now.  Anyone heard of or looked into Net10?  They've got some interesting plans as well.