Government Drone Set on Fire

[triple7stash]

Hello All

Topic Title: Government Drone Set on Fire

Life Situation: Single (live with GF, but split expenses and keep money seperate), 27 years old, no dependents, and living right outside of Sacramento, CA.

All figures listed below are monthly

Gross Salary/Wages: $4,975

Pre-tax deductions:

Health Insurance: $125.39
Pension: $356.96
457 Plan: $1,583.00
CERBT (Union Dues, cannot opt out): $42.64

Adjusted Gross Income: $2,950.01

Taxes:

Fed: $257.83
State: $57.88
Soc Security: $298.03
Medicare: $69.70
CASDI: $48.07

Total Taxes: $731.51

Current expenses*:

Auto Loan: $157.91
Auto Insurance (note that I pay this upfront 6 months at a time, however this would be the monthly cost): $147.00
Gas (48 mile round trip commute, for the short future this is non-negotiable but would like to get closer long term.  Open/looking into cutting vehicle/gas costs down, potentially combo bike/bus since there is no direct route): $100.00
Rent: $825.00
Groceries: $200.00
Dining Out: $300.00
Personal Care: $35.00
Household Goods: 35.00
Entertainment: $50.00
Gifts: $50.00
Spotify: $9.99
Cell Bill: $25.61
Comcast: $41.79
Utilities: $80.00
Miscellaneous: $78.20

Total Monthly Expenses: $2,135.50

*This year I have began tracking all expenses in a spreadsheet I have created, and these are my best estimates to date of what my spending looks like.

Assets:

401(k) and 457 Plans managed by SavingsPlusNow (Nationwide is the plan administrator) Through a huge contract with the state of CA, they are able to offer some pretty low fee index funds to invest in

401(k): $5,357.91 – this was a roll-over from previous employer
International Index Fund (Expense Ratio, 0.12%): 39.56%
Small Cap Index Fund (Expense Ratio, 0.08%): 17.76%
Mid Cap Index Fund (Expense Ratio, 0.08%): 18.94%
Large Cap Index (Expense Ratio, 0.06%): 18.75%
Bond Index (Expense Ratio, 0.08%): 4.99

457 Plan: $5,409.73 – Similar asset allocation

Checking Account $1,334.19

Savings: $10,540.31

2014 Ford Mustang: ~45k miles KBB’d at about $11,000.00

Total Assets: $33,642.14

Liabilities:

Car Loan – Original Loan 5 Year $8,783.79 @ 2.99% for a total of $9,474.03.  Currently, there is a remaining balance of $6,013.14.  Considering going to the credit union and paying this off  from the cash in my savings.  Lastly, this was to purchase a 2014 Mustange… yes for my commute… yes you can punch me in the face.  Since this is a convertible I would like to wait til spring til the demand goes up then clean it up and sell it for a more reasonable car.

Credit Card – Just charge some of my monthly expenses and pay off in full every month

Total liabilities: $6,013.14

Specific Question(s):

Looking for general picking apart of my budget lifestyle to look for any glaring issues that I’m too close to see.  Also, if there is anyone with any knowledge on 457 plans that would be greatly appreciated.  From my understanding they appear to be an awesome vehicle for early retirement.  No early withdrawal penalty on the contributions or gains at any age, as long as you separate from your employer.  My plan was to test out this budget for a few months, and then if all is going well increase my investing through an IRA account.  From my understanding the $18,500 401(k) limit is a total combination of 401(k) & 457 contributions.  So the plan was max out 457, then max out IRA if possible, then start contributing to taxable accounts.

If there is anything that is formatted wonky, or you would like me to provide additional information just let me know!

Feel free to pass along any and all advice/criticisms.   As long as there is a plan of action or a course of correction I’m happy to entertain any ideas!  Thanks ☺

[Freedomin5]

Welcome to the forums!

You've already punched yourself in the face for the Mustang, so I will refrain, but yes, please sell it and buy a sensible car. We generally do not include vehicles in our net worth calculations because the idea is that you drive the car until it dies. It's a depreciating asset that will ultimately be worth close to nothing.

In terms of investments, a good idea is to review the Investment Order thread: https://forum.mrmoneymustache.com/investor-alley/investment-order/

It should answer some of your questions regarding the order to pay off debt/maximize your retirement accounts/etc.

Your groceries and dining out bill is high. Take a closer look at those line items and see what is contributing to the large expenses.

Cellphone could also probably be lowered. There are threads here on the best service providers to lower the bill.

Other than that, you seem to be saving a good chunk of your money each month. Looks like you're at around a 40% savings rate between the pension and 457 plan? Once you get rid of the car loan and dial down the food expenses, you could probably hit 50% savings rate. Eventually, as your income increases, your savings rate will continue to go up, as long as you do not succomb to lifestyle inflation.

[Goldy]

One number that jumped out at me was the auto insurance at $147.  That seems high, when was the last time you shopped around for that?  We have two drivers and two cars and pay $49/m with pretty high coverage.

Everything else looks good to me. 

[triple7stash]

Thanks for the replies!

Freedomin5

Weighing the mileage of my car (45k) vs. the expected lifetime (assuming at least 125k, I really have no idea) with also considering in my comical commute, would you have any insight on what i could sell my car for and find a good used replacement commuter?  I'm guessing a civic or corolla is probably a good bet.  I'm really just looking for a cheap, reliable, fuel efficient, highway commuter vehicle.

Goldy

Yeah it is really high :( Unfortunately I think it's the result of totaling a vehicle, then going out and purchasing a mustang and needing full coverage since it's not paid off yet.  Pretty smart right?  Hopefully at least the paid off part should change soon so I can drop to just liability.

[civil4life]

I agree with the others with the auto insurance.  That is crazy.  I have full coverage and live in a major city and pay $72/month.  I have a 2013 prius.  I commute just over 30 miles each way.  It has saved me a ton on gas the past few years.

Also, that is a lot for maintenance.  Is that for the previous vehicle? 
Again the food is a high one.

A 457 is great especially for early retirement.  I fully max mine out each year then roth IRA.  My income is a bit higher so a tIRA is not beneficial to me. 

[triple7stash]

Awesome, my insurance is up at the end of the month so now is a great time to start looking for better rates. Typically I’ll go online and get quotes from as many insurers as I can then once I fund the cheapest few ask if theres any additional discounts I might be eligible for. Any other tips auto insurance shopping tricks?

civil4life - Not sure which category your putting maitenance into. I would just put any auto maintenance into miscellaneous. Also, seems counter intuitive regarding putting excess investments into a roth IRA instead of a tIRA. Would the tIRA make more sense if you have a high income now and potentially a lower tax bracket in retirement?

[Freedomin5]

Thanks for the replies!

Freedomin5

Weighing the mileage of my car (45k) vs. the expected lifetime (assuming at least 125k, I really have no idea) with also considering in my comical commute, would you have any insight on what i could sell my car for and find a good used replacement commuter?  I'm guessing a civic or corolla is probably a good bet.  I'm really just looking for a cheap, reliable, fuel efficient, highway commuter vehicle.

I am not in California (or even in the US for that matter), so I can’t comment on what you can sell your car for. Years ago, when I lived in LA, I bought a 5-year old used Elantra for $6000 at a dealership. It served me well for 5 years and was still going strong when I had to sell it because I was moving overseas. This included making weekly trips between LA and San Francisco.

I know many people on this forum like electric vehicles. I would look around to see if there are any car threads on this forum. Or post a “What car should I buy?” Question on the “Ask a Mustachian” subforum.

[civil4life]

Awesome, my insurance is up at the end of the month so now is a great time to start looking for better rates. Typically I’ll go online and get quotes from as many insurers as I can then once I fund the cheapest few ask if theres any additional discounts I might be eligible for. Any other tips auto insurance shopping tricks?

civil4life - Not sure which category your putting maitenance into. I would just put any auto maintenance into miscellaneous. Also, seems counter intuitive regarding putting excess investments into a roth IRA instead of a tIRA. Would the tIRA make more sense if you have a high income now and potentially a lower tax bracket in retirement?

I must have looked at the budget wrong.  I thought I saw a separate line for auto maintenance.

There is a max income where you are able to get a tax deduction for a tIRA.  For a single filer for 2019 is $74k.  Any AGI above that does not get a tax break.  See the attached table for details.

I am not the best at explaining the tIRA vs rIRA for individual people.

This is a good resource to see what is best for your situation.  https://www.nerdwallet.com/article/roth-or-traditional-ira-account

[Calvawt]

A 457 plan is just tax deferred income.  When you leave the employer, unless you roll over to a new one, you will owe the federal and state taxes on the distribution.  the good news is that the medicare/social security was already taken out on your original paycheck.  You usually can delay the distribution and can sometimes break it up, but that can depend on the 457 plan set-up.  It is a great savings tool, but only if you can roll it over to a new employer or are done with work for good when you quit.

[civil4life]

Yes you would still pay income tax on the withdraw from a 457, but you are not penalized for taking it out before 59.5.  As soon as you leave that employer you can use the funds if you wanted.  That is why it is great for the early retire people.  I hope to retire at 40 at that point I would most likely withdraw from my 457.  At 60 I get my pension and at 62 social security.  I should not even need my retirement funds after I am 62.

A 457 can be rolled over into another 457 or a 401k, but if you rolled it over to a 401k you cannot touch the money until 59.5.

[triple7stash]

To add onto the 457 plan discussion, the state of CA offers both a traditional 457 and a roth 457 plan.  I'm failing to see the major benefit of a roth 457 plan because I still believe you are subject to the roth age limit of 59.5 so even if you separate from your employer prior to age 59.5 your roth 457 gains are subject to penalties.  However, to echo what civil4life said, the 457 (traditional) seems like an awesome vehicle for early retirement and is my main vehicle of choice at the moment.  I believe that the contribution limits are a total of 401(k), roth, and 457 plans.  So my plan is to balance out my accounts by opening a roth ira if I find myself being able to stash away additional money after contributing the maximum $19,000 to my traditional 457 plan.

[Calvawt]

I forgot government 457 plans can be rolled over.  The $19,000 limit is each for 401k and 457, so you can contribute $38,000 per year in total.  The Roth would be on top of that as well if you choose to use it.  That is $44,000 a year now that the limits all went up in 2019!

[triple7stash]

I forgot government 457 plans can be rolled over.  The $19,000 limit is each for 401k and 457, so you can contribute $38,000 per year in total.  The Roth would be on top of that as well if you choose to use it.  That is $44,000 a year now that the limits all went up in 2019!

Wow, thank you for the information Calvawt... I was informed by an advisor that administers the plan that the contributions must total the 401(k)/457 limits, however you are clearly correct.  This is wonderful news indeed.  Just another reminder that regardless if the information is coming from an advisor, a CFP, or whomever... do your own homework.

[triple7stash]

In regards to traditional vs. roth plans, the questions seems to get slightly more complex when you are retiring early and there are multiple layers (457, 401k, and IRA).  Any thoughts on my current breakout:

1. Max contributions (19k) to traditional 457 plan. - Reason being that with a roth 457 plan, your gain distributions are still subject to the early withdrawal penalty up to 10%, hence a traditional 457 plan so that the entire account may be deferred without penalty.
2. Max contributions (19k) to roth 401k plan. - Reason being that with a roth 401k plan, only the portion of gains are subject to penalty.  (For example, retired at 50 with 100k in a roth 401k ($90,000 in contributions and $10,000 in gains.  For an annual $10,000 distribution, $9,000 would be tax and penalty free, while $1,000 would be subject to penalty).  For a traditional 401k, any early withdrawals would be subject to the early withdrawal penalty.
3. Roth IRA - Same logic as roth 401k.

Any glaring logic/reasoning that I am missing or any reason to not elect the above mentioned traditional/roth accounts?

[BicycleB]

Another path to early withdrawal without penalties is to contribute first to a traditional 401k, then convert the 401k to tIRA, then convert to Roth IRA. Earned contributions to Roth IRA can be withdrawn without penalty, though investment gains in the Roth have to wait five years. I think the penalty-free option is why 401k is so high on the list.

https://www.madfientist.com/retire-even-earlier/

457k is really good too though. I will defer to wiser commenters if they venture into this thread.

[Tuskalusa]

On your car. A good place to check value is Kelley Blue Book. https://www.kbb.com/

Another good thing to do is look up cars like yours that are currently for sale on Craigslist. Between those two things,you should have a solid picture of what you can get.

To sell your car in a private sale,you will need to pay it off so you can get a clean title. So, you might want to budget for paying it off well before youintend to see (to allow for paperwork processing.)