DINK HCOL to 500k networth by June 2025?

[ebella]

My spouse and I are two relatively healthy DINK Americans living in Washington D.C.  I'm an attorney working for the US Govt with a relatively stable job.  Spouse is early 40s, no college degree and works as a middle-manager at the retail sales location of a major manufacturer/retailer and didn’t save for retirement for most of his 30s.  We're not having kids and our Boomer parents have union or US govt pensions so are better than most in terms of affording and accessing elder care. Our main concerns are having to care for aging parents (our younger siblings don’t generate income/depend on their spouses and aren’t especially reliable) andwhat  care for ourselves as we age will be like in a time of increased elder and healthcare costs.   We’re also just concerned about global warming and state of America long term, so while our jobs feel somewhat stable and I have to live in DC to do mine, we're also reluctant to invest in things like real estate that tie us to a particular place or where assets are less liquid.

Income: I make $144,042 with minimal raises and the occasional $1-2k performance bonus every year. I’ve been offered a promotion to a managerial role and, if I take it, would be making $163,964. Husband earns $70,000 annually and sometimes gets bonused, but this is going to be lean year for his employer.  There are limited options for promotion/raises at our current jobs and we’re not especially interested in switching employers or taking on more responsibilities that interfere with work/life balance (Husband already works alot).

Pretax deductions:  We max 401ks, our employer-provided health insurance is $4882 annually and we do a $3000 FSA

AGI:  $146,160

Taxes: Married filing jointly, so I think it should be around $30,835 (or 22%) this year and we usually are best off when we just take the standard deductions

Debt: NONE! 

Assets:
- My Amex hi yield savings: $87,232 (this is the emergency fund/my solution to not knowing how to passively invest)
- my TSP:  $108,214
- joint savings: $67,915 (this is all just sitting in a savings account and I would love to passive invest it)
- His employer 401k: $30,000
- Vanguard Roths: $132,410.56
- his former employer ESOP: $12,000

Monthly expenses:
- Rent: We live in my dad's 1 bed 1 bath coop apartment and pay the HOA ($1800/mo, incl all utilities, gym, parking). 
- Roth IRAs: maxed every year ($14000)
- Storage unit: $214
- Cell Phones: $50
- Food: $700
- HIIT class: $80
- House cleaners: $220
- Transport: $185 (insurance, AAA, gas, rideshare, metro)
- Subscriptions (video, music, cloud storage, news, Amazon): $100
- Misc (travel, shopping, gifts, personal care): $500

Question: I prioritized debt payoff and finally repaid all my student loans last year and want to focus on getting our networth to over $500,000 in the next year or so (before I turn 40).   What should we be doing to maximize our investments/savings right now given that goal and the greater context (financially-secure Boomer parents who may need care at some point, expat goals, DINKs who hate corporate America)?  I am trying to FIRE would be great but for us it’s really about protecting ourselves as we age in a time of great uncertainty about the impact that future instability on a micro (our employers, our health etc) and macro (global warming, political unrest, AI) level will have on us personally. 

[dandarc]

You've got under $48K / year in expenses (Roth IRA contributions are not expenses - this is part of your savings). against $210-230K in gross income.

So, you're less than $70K from your goal, you should be able to add $100K this year if your numbers on expenses and income are reasonably accurate.

We have generic investing order that would probably be a reasonable plan for you: https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

#1 thing will be to max out traditional retirement accounts - not just up to whatever match you've got at the TSP and H's 401K, but all the way to the max they'll let you put in. Then if you're able to deduct (probably not, but mention it just in case), go traditional instead of Roth on the IRA. And I don't see an HSA, but if you have access fund that. You're pretty high income right now, so you can save a fair amount of taxes by favoring traditional over Roth and funding to the maximum that you can.

Then put the additional, and with your income and expenses listed there should be quite a bit more yet, then just put it into a taxable brokerage account invested in index funds.

The only thing that will keep you from being at $500K 15 months from now would be the market taking a pretty significant dive between now and then, and that's actually good for you - all this money you will be putting in will be buying shares at a lower price.

Since this reads like you might be uncomfortable with investing, I recommend reading the stock-series. https://jlcollinsnh.com/stock-series/ Investing well is actually is very simple and nothing to be afraid of, but everyone has to get to that conclusion on their own time.

[lhamo]

Just a couple of obvious areas to look at more closely:

1)  What is in the storage unit?  Is it really worth paying over 2k/year to keep? 

2)  Do you really need cleaning services for a small apartment with two adults? 

I mean, both of these are values decisions.  Personally I would not pay $5k/year for those things. 

I also would not pay the extra $80/month for a fitness class when you have access to a gym included in your HOA/rent.  And $100 in subscriptions might be high, depending on what alternatives are available to you (can you get media from your local library, for example, or get an external drive to store files on rather than paying a subscription fee).

Food spending might be a bit on the high side for two people, though I know inflation has made it much harder to keep those costs in check (I paid $10 for 5 lbs of rice at the Asian market yesterday -- pre-pandemic that would have been $4-5!). 

All that being said, your current net worth is already close to 440k, and you should have about 100k left after your base expenses (I would not count Roth contributions as an expense).  So you should fairly easily meet your 500k target this year, assuming we don't have a major market pull back.

[dandarc]

So that's more nuts and bolts. Bigger picture, you can qualm your fears about not having enough money in the future by having more money in the future.

And investing as much as you can right now is how you'll have a lot more money in the future. Investing in a tax-efficient manner will help you have more money to invest.

[ebella]

#1 thing will be to max out traditional retirement accounts - not just up to whatever match you've got at the TSP and H's 401K, but all the way to the max they'll let you put in. Then if you're able to deduct (probably not, but mention it just in case), go traditional instead of Roth on the IRA. And I don't see an HSA, but if you have access fund that. You're pretty high income right now, so you can save a fair amount of taxes by favoring traditional over Roth and funding to the maximum that you can.

yea, we both max the 401k at $23000/annually each and I put $3000 in a FSA (that's the HSA I mentioned).  Why got traditional over Roth? For tax purposes? I always thought Roth was better for for liquidity and the conventional wisdom was that we have no idea how taxes will shake out in the future for rather be taxed on the IRA now then later (when it's grown in value and tax rates could be higher).

[dandarc]

#1 thing will be to max out traditional retirement accounts - not just up to whatever match you've got at the TSP and H's 401K, but all the way to the max they'll let you put in. Then if you're able to deduct (probably not, but mention it just in case), go traditional instead of Roth on the IRA. And I don't see an HSA, but if you have access fund that. You're pretty high income right now, so you can save a fair amount of taxes by favoring traditional over Roth and funding to the maximum that you can.

yea, we both max the 401k at $23000/annually each and I put $3000 in a FSA (that's the HSA I mentioned).  Why got traditional over Roth? For tax purposes? I always thought Roth was better for for liquidity and the conventional wisdom was that we have no idea how taxes will shake out in the future for rather be taxed on the IRA now then later (when it's grown in value and tax rates could be higher).

If it is deductible and your tax rate is high right now and you can deduct it and you don't already have a lot of money in traditional accounts, it is quuite likely that going traditional today will result in saving taxes in the overall grand scheme. Cannot know for sure until after the fact, of course.

But remember that withdrawals from retirement accounts are mostly driven by your spending needs once you've actually retired. And that most seniors spend less as they age rather than more, up until the very very end - that last year or two can be super expensive depending on how end of life goes down for you. All signs point to you having a lower income in retirement than a higher one. Tax rates would likely have to go up substantially or you'd have to work much longer than you need to and therefore have much more money than you actually need.

Also FSA and HSA are not the same thing - FSA is a use it or lose it deal, HSA through an employer is one of the best tax-advantaged investment accounts there is (assuming the high-deductible health plan you have to choose to have an HSA fits in your overall scheme well). You even save FICA tax when you contribute if you contribute via your employer's plan, and if you withdraw for medical expenses down the road, completely tax free. Even if you withdraw for non-medical, once you're 65 it is equivalent to an IRA. And in the intervening years / decades, it is invested and growing similar to your other retirement accounts.

[ebella]

1)  What is in the storage unit?  Is it really worth paying over 2k/year to keep? 

2)  Do you really need cleaning services for a small apartment with two adults? 

I mean, both of these are values decisions.  Personally I would not pay $5k/year for those things. 

I also would not pay the extra $80/month for a fitness class when you have access to a gym included in your HOA/rent.  And $100 in subscriptions might be high, depending on what alternatives are available to you (can you get media from your local library, for example, or get an external drive to store files on rather than paying a subscription fee).

Food spending might be a bit on the high side for two people, though I know inflation has made it much harder to keep those costs in check (I paid $10 for 5 lbs of rice at the Asian market yesterday -- pre-pandemic that would have been $4-5!). 

1. storage. Yes it's alot but we have a 1 bed/1 bath apartment and my spouse works in the outdoor recreation industry and has alot of large gear that we can't store inside it.  No way we can find a place that saves us $2000 a year and accommodates that stuff without increasing my spouse's work commute time to 1+ hrs each way. This is one of those marriage compromise things.

2. cleaning.  Another marriage compromise thing we've gone back and forth on and had many arguments about.  I have very severe allergies, especially to dust (like I take 5 types of eye drops every day and a nasal spray and have been taking allergy shots for the last 6 years) so my allergist advised me to prioritize having a super clean/dust free place.  We could DIY but my spouse's work schedule (40+ hours of physical labor a week, some of it involving pretty nasty cleaning-related tasks) and my allergies mean it's probably best for our health and the health of our relationship to outsource.

3. Food.  The USDA liberal food plan puts the monthly cost for an adult between $406-$458 so I think around $700 is pretty good?  Sadly, Costco is just not practical given size of our apartment/lack of any pantry space so I did a bunch of research and we get a weekly perishable delivery from Misfits Market/Imperfect Foods and a pantry one from Thrive Market, and supplement from a little independent grocery near us. If there are cheaper, ethical retailers I'm overlooking, I'm definitely open to suggestions.

4.  Subscriptions. It's probably closer to $90/mo.  I subscribe to Wapo and NYT because I think people should pay for reporting so I don't think I will cancel those.  I could cancel some of our streaming subscriptions (we pay for Netflix, Hulu, and Peacock) but we use them all. I'm not sure how I could replace Spotify/no-add music streaming for free on my phone but open to suggestions.  While I do use the library A TON, I also pay $12/mo for Everand so I can get audiobooks when the library either doesn't have the books I want to read available or in audio format.  FWIW I read 3+ books a month but I don't buy any and share subscription with my mom so this is like our main hobby expenditure.  The other subscriptions are $19.99/yr for Googleone (necessary given size of my Google Drive and age of my gmail) and $50/yr for Thrive Market (see above re food). I am planning to cancel the Amazon subscription bc Amazon is evil.

5. I've thought about cancelling the fitness class but the reality is that I need to do jump and plyometric training for bone health as I age and will not do things like burpees/box jumps/tabata without the social pressure of an in-person class.  Maybe I just need to suck it up but this ($17 per class with certified trainer) was the cheapest option I could find to ensure accountability for that part of preventative healthcare. Also my bldg gym is pretty bad (no barbells, very little space) so I pretty much just use it to lift heavy free weights and the occasional cardio equipment if it's really bad outdoors since there's not really much floor space in gym when others are there.

[ebella]

Also FSA and HSA are not the same thing - FSA is a use it or lose it deal, HSA through an employer is one of the best tax-advantaged investment accounts there is (assuming the high-deductible health plan you have to choose to have an HSA fits in your overall scheme well). You even save FICA tax when you contribute if you contribute via your employer's plan, and if you withdraw for medical expenses down the road, completely tax free. Even if you withdraw for non-medical, once you're 65 it is equivalent to an IRA. And in the intervening years / decades, it is invested and growing similar to your other retirement accounts.

Ah so I would need a high-deductible health plan AND for my employer to offer an HSA?  I don't think that is/was an option for my benefits package.

[Villanelle]

How accurate are those expenses?  Is that based on going back and trying to capture everything, or actual tracking?  Because it that's correct (and includes lumpy expenses), you should be able to save six figures by just stuffing under a mattress.  You only need about $150k to get to your goal.

But I question those expenses because, unless your salaries have increased significantly very recently, or your expenses dropped, it doesn't seem like you've been investing/saving anywhere near that much.

[ebella]

How accurate are those expenses?  Is that based on going back and trying to capture everything, or actual tracking?  Because it that's correct (and includes lumpy expenses), you should be able to save six figures by just stuffing under a mattress.  You only need about $150k to get to your goal.

But I question those expenses because, unless your salaries have increased significantly very recently, or your expenses dropped, it doesn't seem like you've been investing/saving anywhere near that much.

They are about as accurate as I can get them with my budget spreadsheet now that Mint is no longer.  As I said in the original post, I recently paid off my student loans so, for the last 6 years, I was paying at least $1000 and sometimes as much as $3000 a month to get rid of that.  Our combined salary during that time was also much lower, rarely over $150,000 and most often somewhere between $100,000-$150,000. Some of our other expenses such as transportation (car commuting) were also higher and we had a mortgage, which we no longer do. I don't expect as much variation going forward now that debts are paid and I have a salary set by statute.

[ixtap]

I would go ahead and put the regular savings account into VTI or similar on Monday.

Focus on savings more than short term accumulation goals. As mentioned above, a market pull back might mean you miss short term goals while supercharging long term goals. We have seen market dips or crashes as we approach a milestone only to see it delayed, but then shoot well beyond that target.

We only add up our portfolio twice a year in order to rebalance. This helps keep our focus on the process rather than milestones we don't actually have control over.

[Villanelle]

How accurate are those expenses?  Is that based on going back and trying to capture everything, or actual tracking?  Because it that's correct (and includes lumpy expenses), you should be able to save six figures by just stuffing under a mattress.  You only need about $150k to get to your goal.

But I question those expenses because, unless your salaries have increased significantly very recently, or your expenses dropped, it doesn't seem like you've been investing/saving anywhere near that much.

They are about as accurate as I can get them with my budget spreadsheet now that Mint is no longer.  As I said in the original post, I recently paid off my student loans so, for the last 6 years, I was paying at least $1000 and sometimes as much as $3000 a month to get rid of that.  Our combined salary during that time was also much lower, rarely over $150,000 and most often somewhere between $100,000-$150,000. Some of our other expenses such as transportation (car commuting) were also higher and we had a mortgage, which we no longer do. I don't expect as much variation going forward now that debts are paid and I have a salary set by statute.

Then the next question is why you want that half mil savings in a year.  The motivation matters.  If you wanted to buy a house and have the money for a downpayment, the answers would be different than if you just want to challenge yourself to super charge your savings for the next year, before you turn 40.  If it is the latter, then as others have said, you'll do better to set a goal of saving investing $100k, than of reaching $500k.  That's something you can control; the market value of those shares isn't.  And if you are just saving for your future retirement, then a market crash in 6 months that drops your NW by 25% means you don't get to $500k, but it also means the  $100k you put away just bought a lot more shares. 

[Laura33]

FWIW, you are on a good path now.  Just continuing to do what you're currently doing will set you up for long-term financial success.  An arbitrary number is entirely irrelevant; what matters are the habits you build to get to that number.

My #1 piece of advice for you:  take the money you've been putting toward paying off your loans and have it automatically withdrawn from your bank account every month into an investment account (I use Vanguard and put everything in their Total Stock Market Index).  The biggest risk to your long-term financial health is getting used to having all that extra income now and increasing your budget to spend it.  If you have that extra money automatically invested, you won't ever actually "see" it, which makes it easier not to increase your lifestyle.

[ebella]

If it is deductible and your tax rate is high right now and you can deduct it and you don't already have a lot of money in traditional accounts, it is quuite likely that going traditional today will result in saving taxes in the overall grand scheme. Cannot know for sure until after the fact, of course.

Well I just found out the traditional IRA is not deductible now (MAGI too high), so then it makes more sense to do Roth IRA's right?

[dandarc]

Yes - assuming your MAGI is under the Roth contribution limit, or you're ready to try something like a Backdoor Roth IRA.