What is shown below is my anticipated earning/taxes for 2019. I calculated this based on a few formulas I found of IRS and my state tax tables.
You might compare your results with the
case study spreadsheet. That tool currently uses 2018 brackets/limits/etc., but perhaps that is what you are doing also? Don't know how good the WI state calc'ns are, but the federal ones are usually very good.
My Driving Questions
- Should I continue to max out my retirement vehicles even though I have basically no after tax investments?
While my savings rate is around 35%, this is mostly in retirement vehicles (~25%). Even then, a good chunk of the after tax cash is going to pay down the mortgage. I'll address the latter part of that in the next question, but I don't really have FU money. I only have a safety net. I have been growing weary of my current job. I have been reading up on stoicism to help even my emotional up and downs from wanting to quit right away to being acutely aware of how privileged I am to have all my needs and a substantial portion of wants taken care of.
- Should I aggressively pay down my mortgage or do after-tax investing?
I am aware that the mathematically correct decision is to invest, but the mortgage pay down is a guaranteed return. Additionally, this is my only debt and does provide me with some anxiety. I have mixed feelings about the house. I like our neighbors and neighborhood, but wish I would've waited longer to buy. I was influenced by the stories I heard of rising house prices (still true) and the fact that we move rentals 2 times over the 3 prior years to the purchase. I plan to make this the home we're raising our kids in, but actually plan to downsize by the time our youngest enter college or the workforce.
- Do you think I should use a vanguard ETF, tax advantaged mutual fund, or regular mutual fund for taxable investments?
One of the reasons I have waited so long for after tax investments, is the tax consequences from the investments. I realize that ETFs largely solve this, but Vanguard doesn't allow automatic investment if you use the brokerage and ETFs. They do allow it for their mutual funds, but it seems that while the tax advantaged mutual fund may have tax advantages, this is counteracted by the higher account minimums and the fact that they may have lower returns due to the tax minimization strategy. This has me stuck in analysis paralysis. I always operate best when I can automate investing so that it just happens and I can spend my energy on other important matters like making sure the 4 year old takes potty breaks instead of peeing on the floor!
- What are your thoughts on 529 Plans or alternatives?
I could contribute up to 3k/beneficiary for college, but trying to max that out would eat up all remaining after-tax money. I would only be getting about 7 cents on the dollar back for my contribution in state tax returns. We actually have ~$1k in the 529 funds, but I paused those contributions to eliminate car and student debt and never restarted it (this was before buying the house).
- How much do you think I would need in my retirement account to just let it appreciate in value for when I am 60 (28 years from now)?
This question is a roundabout way of expressing a thought I've been mulling over. Say I contribute enough in a retirement account such that by age 60 I have enough to retire, but stop contributing. I would then payoff the mortgage, save up FU money, and make a life transition. The real question is how much is that? A lot of my costs are inflated by the larger house we have for the kids and the other increased expenses (food, car, and kids own budget).
1. Yes. Do watch the tIRA deductibility limit,
http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits. You might simply switch to Roth IRA contributions for both of you. See also
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Investment Order and
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How to withdraw funds from your IRA and 401k without penalty before age 59.52. Depending on the PMI rate, it might be worth getting rid of that before doing taxable investing, then paying the monthly mortgage minimum and investing taxably after PMI is gone.
3. "Tax managed" funds often are worthwhile only when one is paying >30% federal, etc. See
ETFs vs mutual funds - Bogleheads for that part of the question.
4. I agree with the "put on your own oxygen mask first" philosophy here: get your own retirement finances in good shape first, then look at 529s if relevant.
5. Some back of the envelope calculations (see rows 48-69 on the 'Misc. calcs' tab of the
case study spreadsheet to do your own):
Quick calculation of "Time to FI" | | | |
|
Planned Withdrawal Rate | WR | 4.0% | |
Annual Savings Invested | S | | $/yr |
Annual Expenses in Retirement | E | 50,000 | $/yr |
Current Assets Invested | A | 320,000 | $ |
Investment return | r_ | 5.0% | |
Time to FI | t | 27.9 | yr |
In other words, $320K growing at 5%/yr real would provide enough to spend $50K/yr if you wait 28 years.
But contributing only $10K/yr (on top of the $320K start) drops the time to FI from 28 years to 21 years. Would 7 years earlier retirement be worth $10K/yr between now and then to you?