DH | $212k + $53k Bonus (25%) |
DW | $65k |
TOTAL: | $330k/yr |
DH | $17,500(401k) |
DW | $17,500(403b) |
TOTAL: | $35k/yr |
DH | ~$118k | UPDATE:* Additional info see Addendum #1. |
DW | ~$35k | |
TOTAL: | ~$153k/yr | ~$12,750/mo |
Home | $2,800 | Rent |
Kids | $1,650 | Childcare + $100 misc. |
Food & Dining | $800 | Groceries + $100 dining out |
Allowance | $750 | Personal spending |
Bills & Utilities | $500 | |
Insurance | $140 | Auto, Renters, Valuable Property (bikes, computers, furniture) |
Phone | $140 | |
Electric | $100 | |
Water | $70 | |
Internet | $50 | Includes basic cable "for free" |
Netflix | $8 | |
Shopping | $500 | Family spending |
Travel | $500 | Budget for $6k/year for 2 East coast trips |
Auto & Transport | $300 | |
Health & Fitness | $100 | Meds, co-pay, etc. |
TOTAL: | $7,900/mo | $94,800/yr |
Home | $1000 | Property Tax, Insurance |
Food & Dining | $500 | Groceries + $100 dining out |
Allowance | $500 | Personal spending |
Bills & Utilities | $283 | |
Heat | $85 | Potentially $1k/yr for heating oil |
Insurance | $50 | Automotive |
Phone | $40 | |
Electric | $50 | |
Water | $0 | |
Internet | $50 | |
Netflix | $8 | |
Shopping | $200 | Family spending |
Travel | $400 | Vacation travel UPDATED |
Auto & Transport | $100 | |
Health & Fitness | $100 | Meds, co-pay, etc. |
TOTAL: | $2,933/mo | $35,196/yr |
Cash - Savings | $193k | Previously down payment savings |
Cash - CDs | $90k | Laddered 2015-2019 "Emergency fund" |
401k | $250k | Fidelity |
401k | $21k | Fidelity (Previous Employer) |
403b TDA #1 | $50k | TIAA-CREF (Previous Employer) |
403b | $40k | TIAA-CREF (Previous Employer) |
403b TDA #2 | $8.5k | TIAA-CREF |
Roth IRA | $4.5k | USAA |
Betterment | $3k | |
Brokerage | $7k | USAA - 99 shares of Facebook IPO |
Brokerage | $3k | Vanguard |
Brokerage | $0 | Fidelity |
Brokerage | $0 | ETRADE |
TOTAL Cash: | $286k | |
TOTAL Retirement: | $374k | |
TOTAL Investments: | $13k | |
TOTAL: | $673k |
5/2013 | 8500 RSU | 1 yr cliff, 4 yr vesting |
2/2014 | 1500 RSU | 1 yr cliff, 4 yr vesting |
TOTAL Unvested Value: | $550k | (10000 RSU @ $55.00/share) |
Betterment | $3k | |
Brokerage | $7k | USAA - Facebook IPO |
Brokerage | $0 | Fidelity |
Brokerage | $0 | ETRADE |
Cash - Savings | $193k | |
Cash - CDs | $90k |
Roth IRA | $4.5k | USAA |
401k | $21k | Fidelity (Previous Employer) |
DH | $5,500 | |
DW | $5,500 | |
TOTAL: | $11k |
401k | $250k | Fidelity |
403b TDA #1 | $50k | TIAA-CREF (Previous Employer) |
403b | $40k | TIAA-CREF (Previous Employer) |
403b TDA #2 | $8.5k | TIAA-CREF |
DH+child | $232/mo | Employer Kaiser HMO |
DW | Employer Kaiser HMO |
Cash - Savings | $15k | USAA |
401k | $250k | Fidelity |
DH Roth IRA | $36.5k | Vanguard |
DW Roth IRA | $90k | Vanguard |
403b TDA #2 | $8.5k | TIAA-CREF |
Brokerage | $281k | Vanguard - VTSAX + FB |
Gross: | $8541.67 |
Federal Income Tax: | $1,454.55 | Withholding = 1 |
State Income Tax: | $533.49 | Withholding = 1 |
State Disability Insurance: | $84.09 | Mandatory disability/unemployment fund |
Social Security: | $522.37 | |
Medicare: | $122.17 | |
TOTAL: | $2716.67 |
Dental: | $16.50 | |
Kaiser HMO: | $116.00 | |
401k: | $800.00 | |
TOTAL: | $932.50 |
Net: | $4892.50/chk | $9,785.00/mo |
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.
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...:
1. Given our current (or proposed) assets/allocation a) is FI possible in 5yrs at $35k/yrPossible, 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.
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."
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.
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?
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.
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?I defer to others for details here
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?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.
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.
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.
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.
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.)
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.
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:Quote1. Given our current (or proposed) assets/allocation a) is FI possible in 5yrs at $35k/yrPossible, 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.
Quote2. 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."
Quote3. 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.
Quote4. 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?
Quote5. 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.
Quote9. 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.
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.
Quote9. 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.
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.
re: moving now, how would income work out in the 20% down mortgage scenario you suggest?
I've also thought about potentially picking up a 2-3 unit income property in an adjacent/nearby town.
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.
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%!!!
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?
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.
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?
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.
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.
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.
Visually, this was a very pleasing post! Very organized!
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)
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?
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).
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 (http://www.mrmoneymustache.com/2013/05/30/republic-wireless-19-for-an-unlimited-everything-smartphone-plan/) 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. (http://www.mrmoneymustache.com/2012/03/19/top-10-cars-for-smart-people/)
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.
Edit: Can you break down the childcare costs?
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.
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.
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.