Author Topic: My Retirement "Catch Up" plan. Please help/critique.  (Read 2037 times)

Steven37NJ

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My Retirement "Catch Up" plan. Please help/critique.
« on: June 11, 2019, 11:17:32 AM »
My first post in this community. Thanks in advance.

I wish I did this 10 years ago, but, can't go back in time.

At 37 years old, filing as single and getting taxed to the max due to high salary, I realize that lots of time has been wasted and I should have done this at least at 7 years ago. It is what it is, and I can't go back in time, but I needed a plan to get myself back on track as fast as possible. Currently I have only under 40k in my 401k (my only retirement vehicle right now that I began contributing to 2-3 years ago).

Being that I don't plan to retire for another 30 years or so, my risk tolerance is high. I don't care about drops as I have enough time to weather the storm. My focus is on getting money into 401k, IRA, etc. as much as possible. I am thinking that at this point, dividends should be something to focus on in the Roth IRA for sure.

The Plan:

1) Continue maxing out 401k = Nationwide S&P 500 Index Svc (GRMSX). Learned last week that we have 1.77% fee with that fond and it's the cheapest one available. Yes, very bad.

2) Open up Roth IRA via Backdoor. Investment strategy (by % invested)
60% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
20% High Dividend REITS (VNQ, IYR or SCHH)
20% High Dividend individual stocks .. with their current dividend %s (ED = 3.43%, Disney = 1.33%, ABT = 1.68%, PG = 2.90%, JNJ = 2.90%, JPM = 3.02%, DOV = 2.15%, MSFT = 1.40%).


My questions;
1) What do you think? Based on what I want to achieve, is the above a plan you'd recommend?
2) Should my Roth IRA focus on S&P500 instead of Total Stock due to higher dividends in S&P Large cap?
3) Since I plan to relocate money and contribute to individual stock, should I consider going with Schwab or Fidelity instead of Vanguard for their lower "transaction fees" as these transactions will happen yearly with new money coming in AND re balancing?

TomTX

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Re: My Retirement "Catch Up" plan. Please help/critique.
« Reply #1 on: June 11, 2019, 12:24:58 PM »
Just put the IRA into something simple, broad and low cost until you have at least $50k. Diversification at low levels isn't worth the administrative overhead.

I use VTI.

talltexan

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Re: My Retirement "Catch Up" plan. Please help/critique.
« Reply #2 on: June 11, 2019, 01:28:15 PM »
Start the Roth IRA out with $VTI. When you get three years' worth of contributions there, consider making year 4 contribution all in one shot as an individual stock position. You can add one of those a year to minimize transaction costs.

Financial.Velociraptor

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Re: My Retirement "Catch Up" plan. Please help/critique.
« Reply #3 on: June 11, 2019, 03:39:38 PM »
I think you are on the right wavelength.

You say you have a "high" salary.  You should then be able to make additional savings in taxable vehicles after maxing your tax advantaged vehicles.  You didn't note a bond allocation.  There is a lot to be said for ballast in a diversified portfolio.  You might consider putting part of your taxable in closed end municipal bond funds.  You can get 4.5 to 5% or so right now in several well diversified muni CEFs completely federal tax free.  See https://www.cefconnect.com/closed-end-funds-screener for a handy tool to locate muni CEFs and compare to one another.

DeniseNJ

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Re: My Retirement "Catch Up" plan. Please help/critique.
« Reply #4 on: June 12, 2019, 02:24:23 PM »
Why on earth are you planning to retire in THIRTY years?!  Anybody who is "planning" now doesn't need to wait 30 years.  The only reason to reitre at 67 is bc you started planning at 57.  With a high income you could retire in 10 by just ramping up savings and cutting expenses.  If I were you, I woulnd't go a minute past age 50.  Set that as your goal with 13 years to become FI then you can retire whenever you want after that.  Never plan to retire in 30--a lot can happen between now and then.  Plan to retire in 15 and then you always have the option to keep working only if you want to.

Gin1984

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Re: My Retirement "Catch Up" plan. Please help/critique.
« Reply #5 on: June 12, 2019, 02:56:23 PM »
Define high salary please.

2Birds1Stone

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Re: My Retirement "Catch Up" plan. Please help/critique.
« Reply #6 on: June 12, 2019, 03:01:43 PM »
If it's high for north NJ then I would hope at least $250k, in which case you have a LOT of ground to make up.

More importantly, where the fuck has your money been going to date???? How are you going to change that?

Bernard

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Re: My Retirement "Catch Up" plan. Please help/critique.
« Reply #7 on: June 12, 2019, 08:25:41 PM »
Given the high fees your 401K carries, my contribution order would be:

1) contribute only the employer match into your 401K and, if applicable, your spouse's 401K
2) full $6K contribution in Traditional IRA and, if applicable, your spouse's Traditional IRA
3) remaining contributions up to the $19K limit to your 401K and your spouse's 401K

If you are married or live with someone, you can actually save up to $50K tax deferred. That should make a dent into your taxes, yes?
If you live alone, you can save up to $25K annually. Not so bad either.

In regard to 401K, I go full out risk-wise, depending on what funds are available. For the Traditional IRAs, I suggest VOO, which I prefer over VTI. I have both in my ETrade accounts.

mies

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Re: My Retirement "Catch Up" plan. Please help/critique.
« Reply #8 on: June 13, 2019, 05:08:14 AM »
I would just suck it up with the 401k and max it out. 1.77% is really expensive for an S&P 500 index fund, but itís your least bad option.

I would simplify the IRA holdings. You can get away with just VTSAX. Donít fall for the complexity bias trap of thinking more holdings is better especially if you are only planning to own US companies.

If you have any extra money after maxing out your tax advantaged accounts, throw some more in a taxable brokerage account. I would just do VTSAX in the taxable account too. It will make it much easier to figure out what your portfolio is doing. VTSAX generally follows what the S&P 500 does. If it goes up or down, so will your portfolio value. It will also make it easier to track dividends since you will get all the dividends for VTSAX at the same time across all of your different account types.

appleshampooid

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Re: My Retirement "Catch Up" plan. Please help/critique.
« Reply #9 on: June 13, 2019, 05:51:11 AM »
Given the high fees your 401K carries, my contribution order would be:

1) contribute only the employer match into your 401K and, if applicable, your spouse's 401K
2) full $6K contribution in Traditional IRA and, if applicable, your spouse's Traditional IRA
3) remaining contributions up to the $19K limit to your 401K and your spouse's 401K

If you are married or live with someone, you can actually save up to $50K tax deferred. That should make a dent into your taxes, yes?
If you live alone, you can save up to $25K annually. Not so bad either.

In regard to 401K, I go full out risk-wise, depending on what funds are available. For the Traditional IRAs, I suggest VOO, which I prefer over VTI. I have both in my ETrade accounts.
Depending on how high his income is, he is probably not eligible to deduct traditional IRA contributions. He mentioned backdoor Roth, so probably he is past both the traditional IRA deduction income limit AND the Roth IRA contribution income limit.

He already noted single, so no spousal options to consider.

OP, I would agitate with your employer to get some lower cost funds in your 401(k) plan. If 1.77% is truly the cheapest option, that is god damn absurd in 2019. They are doing their employees a huge disservice.

+1 on all the other posts about where your money has been going, cutting spending, and contributing to a taxable once you have maxed out all tax advantaged options.

Steven37NJ

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Re: My Retirement "Catch Up" plan. Please help/critique.
« Reply #10 on: June 14, 2019, 10:24:22 AM »
Once again ... amazing place to get advice. I appreciate it. After reading all the comments here and other platforms, here is where I am and I hope you still have enough patience to provide further advice.

My updated plan agenda: .... no Individual stocks, Welcome HSA, aggressive contribution and investment, high fees are bad, but since balances low, focusing on high growth ... no bonds. No more dividend heavy investing, for now.

Old company 401k, small balance, under 40k. Right now split 50/50 between these 2 funds. Want to keep PRNHX because of extra dividend growth?
T. Rowe Price New Horizons  (PRNHX) = 50% (0.97% expense) ... has dividends
BlackRock Russell 3000 Index = 50% (0.34% expense)

Current company 401k = almost max out.
Nationwide S&P 500 Index Svc (GRMSX) = 100% (1.77% expense) ... we're working on lowering that hideous fee.

Roth IRA via backdoor = will try to max out. Until IRA reaches 50k+ balance, only then do I see a point of looking at REITs, and other options.
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) or VOO or VTI?
Please help me understand the differnece between the 3 and which one makes sense. Some suggested VOO and VTI for tax benefits over VTSAX?

HSA = just found out our company offers HSA ... that's awesome! I am on the low plan, high deductible, it makes sense. I am maxing it out! Here I want to be a bit more conservative though; Maybe 50/50 split between;
Vanguard LifeStrategy Conservative Growth Inv (VSCGX) (0.12% expense)
T. Rowe Price Blue Chip Growth I (TBCIX) (0.57% expense)

All HSA investment funds only have their own fund expense fees, Optum Bank does not add anything, but $3/mo for maintenance. Link to available funds (https://www.optumbank.com/all-products/hsa/investment-services/fund-lineup.html)

This is my strategy until my balances grow to a total of maybe 100k+. Only then do I see a need to diversify more or pay closer attention to things that may not matter right now.

Thoughts?
Thank you.

Given the high fees your 401K carries, my contribution order would be:

1) contribute only the employer match into your 401K and, if applicable, your spouse's 401K
2) full $6K contribution in Traditional IRA and, if applicable, your spouse's Traditional IRA
3) remaining contributions up to the $19K limit to your 401K and your spouse's 401K

If you are married or live with someone, you can actually save up to $50K tax deferred. That should make a dent into your taxes, yes?
If you live alone, you can save up to $25K annually. Not so bad either.

In regard to 401K, I go full out risk-wise, depending on what funds are available. For the Traditional IRAs, I suggest VOO, which I prefer over VTI. I have both in my ETrade accounts.
Depending on how high his income is, he is probably not eligible to deduct traditional IRA contributions. He mentioned backdoor Roth, so probably he is past both the traditional IRA deduction income limit AND the Roth IRA contribution income limit.

He already noted single, so no spousal options to consider.

OP, I would agitate with your employer to get some lower cost funds in your 401(k) plan. If 1.77% is truly the cheapest option, that is god damn absurd in 2019. They are doing their employees a huge disservice.

+1 on all the other posts about where your money has been going, cutting spending, and contributing to a taxable once you have maxed out all tax advantaged options.

I would just suck it up with the 401k and max it out. 1.77% is really expensive for an S&P 500 index fund, but itís your least bad option.

I would simplify the IRA holdings. You can get away with just VTSAX. Donít fall for the complexity bias trap of thinking more holdings is better especially if you are only planning to own US companies.

If you have any extra money after maxing out your tax advantaged accounts, throw some more in a taxable brokerage account. I would just do VTSAX in the taxable account too. It will make it much easier to figure out what your portfolio is doing. VTSAX generally follows what the S&P 500 does. If it goes up or down, so will your portfolio value. It will also make it easier to track dividends since you will get all the dividends for VTSAX at the same time across all of your different account types.
Given the high fees your 401K carries, my contribution order would be:

1) contribute only the employer match into your 401K and, if applicable, your spouse's 401K
2) full $6K contribution in Traditional IRA and, if applicable, your spouse's Traditional IRA
3) remaining contributions up to the $19K limit to your 401K and your spouse's 401K

If you are married or live with someone, you can actually save up to $50K tax deferred. That should make a dent into your taxes, yes?
If you live alone, you can save up to $25K annually. Not so bad either.

In regard to 401K, I go full out risk-wise, depending on what funds are available. For the Traditional IRAs, I suggest VOO, which I prefer over VTI. I have both in my ETrade accounts.
Why on earth are you planning to retire in THIRTY years?!  Anybody who is "planning" now doesn't need to wait 30 years.  The only reason to reitre at 67 is bc you started planning at 57.  With a high income you could retire in 10 by just ramping up savings and cutting expenses.  If I were you, I woulnd't go a minute past age 50.  Set that as your goal with 13 years to become FI then you can retire whenever you want after that.  Never plan to retire in 30--a lot can happen between now and then.  Plan to retire in 15 and then you always have the option to keep working only if you want to.
I think you are on the right wavelength.

You say you have a "high" salary.  You should then be able to make additional savings in taxable vehicles after maxing your tax advantaged vehicles.  You didn't note a bond allocation.  There is a lot to be said for ballast in a diversified portfolio.  You might consider putting part of your taxable in closed end municipal bond funds.  You can get 4.5 to 5% or so right now in several well diversified muni CEFs completely federal tax free.  See https://www.cefconnect.com/closed-end-funds-screener for a handy tool to locate muni CEFs and compare to one another.
Start the Roth IRA out with $VTI. When you get three years' worth of contributions there, consider making year 4 contribution all in one shot as an individual stock position. You can add one of those a year to minimize transaction costs.
Just put the IRA into something simple, broad and low cost until you have at least $50k. Diversification at low levels isn't worth the administrative overhead.

I use VTI.

harvestbook

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Re: My Retirement "Catch Up" plan. Please help/critique.
« Reply #11 on: June 15, 2019, 04:07:46 PM »
You seem obsessed with dividends but they are unreliable. Just like a dividend darling GE which dropped like a rock and now pays a penny a share.

Also not sure why you would ever choose a more expensive fund like the T Rowe Price Blue Chip at .57 when you have perfectly serviceable LifeStrategy funds at 12 percent.

Additionally, if you're not getting an employer match on the 401K, I'd crunch the numbers and see if a taxable account is actually better than paying 1.77 percent. (Numbers I've seen on tax drag for broad index funds is about. 3 percent a year, so depending on how the deduction affects your taxes...

Steven37NJ

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Re: My Retirement "Catch Up" plan. Please help/critique.
« Reply #12 on: June 17, 2019, 07:38:44 AM »
Thank you for the suggestion. And so now, here is my latest breakdown.

Old 401k = BlackRock Russell 3000 Index = 50% (0.34% expense)
New 401k = Nationwide S&P 500 Index Svc (GRMSX)  (1.77% expense)
Roth IRA = Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
HSA = Vanguard Wellington Admiral (VWENX)

Review again when total portfolio reaches at least 100k.

Thanks to all for your suggestions.

talltexan

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Re: My Retirement "Catch Up" plan. Please help/critique.
« Reply #13 on: June 26, 2019, 08:59:31 AM »
It sounds like you're making positive moves, nicely done!

Buffalo Chip

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Re: My Retirement "Catch Up" plan. Please help/critique.
« Reply #14 on: June 26, 2019, 09:09:27 PM »
Dittoes on the kudos for trying to get your financial house in order.

Iím a Curmudgeon and Contrarianģ️. Iím also not an investment advisor and donít play one on TV. So take my comments with that in mind.  YMMV.

In no particular order:

- not a big fan of the ďstick it all in VTSAX and let rí rideĒ mantra that youíll see here. You could do much worse, but why not do better? For very small stashes it wonít much matter but at some point Might want to check out portfoliocharts and backtest some portfolios.

- didnít talk much about your spending. I suspect that itís not pretty. You canít really outearn your spending habits so maybe do a budget at least for awhile so you can see where improvements can be made.

-I didnít catch it, but how awful are fees on the old 401k? If bad, you can roll into an IRA. Caution on that, though. 401ks have some asset protection qualities that IRAs donít.

-Current 401k is godawful. Might look and see if your plan allows you to rollover to another plan or IRA while still working there. Probably not, but you might get lucky.