Investment advise

[DSM]

I am 37 and attending for last 3.5 years. I have started to save for the down payment on my house for last several years and ultimately bought a house last year. Now I am saving around 60K/year after all expenditure. I saved around 150 K which is sitting on a low-interest saving account. I have a 10% employer match 403/457 retirement fund which I max out(around 44k/year). I have around 170K in that and projected retirement monthly income is around 85% of my current income. I don't have any debt other than 30 years fixed mortgage.

My wife is a homemaker and doesn't have income. I have 2 kids(6 and 1) and I am saving around 10k/year (combined) in state 529 for college tuition.

I have following questions:

1. How much money maximum can I save annually in a tax-deferred account (I filed the tax return with my wife jointly)?

2. How and where to invest the 150K money now from my bank savings account (I am thinking long-term index fund vs time lock retirement fund)? I want to help my kids with their college tuition if I need to.

 

 

 

[ENT Doc]

Are you sure you need 85% of your current income in retirement?  Presumably you won't have kids or a mortgage to think about.  Just a thought.  As for the contribution limits, see this article:

https://thefinancebuff.com/2017-401k-403b-457-simple-roth-ira-limits.html

The total amount will depend on a combination of employee and employer contributions/deferrals.  So while you may be able to put away $18,000 in the 403b and 457 you may be able to get more with matching and other employer contributions.

As for investing now, I'd advise having an emergency fund in a high yield online account (3-6 mo of spending), then deciding on the residual.  You could put more to the 529 plans and allocate aggressively and fund tuition with cash flow as needed.  But it looks like you need to focus a bit more on your own retirement if your spending really is going to equal 85% of your current income.  So you'd want to consider putting the remainder in a HSA (if meeting criteria) or a taxable account.  Determine your appropriate asset allocation first, then pick the index funds to invest in.  Don't like the target date funds since the ERs are higher than the mix you can create on your own with total stock/bond funds.

[jfoxcpacfp]

 

1. You can contribute up to $18k/yr to your 457b and have a combination of up to $54k added to your 401k/yr (employer + employee contributions). You can also contribute up to $5,500/yr to a backdoor Roth IRA for both you and your wife tax-free if you have no pre-tax IRAs in your names. Backdoor Roths are not tax-deductible but grow tax free, which is better than tax deferral. If you have access to an HSA (Health Savings Account) at work, you can also contribute $6,750 for a family (2017 limits) per year and use that account as an additional retirement account. HSA contributions are tax-deductible and growth plus original contributions are tax-free if used for any qualifying medical expenses that are incurred during the life of the HSA.


2. The answer to this depends upon the short- and long-term purposes of this account. Any funds needed for short-term goals (car replacements, private school, remodeling, emergency funds, travel, etc.) should be kept liquid in your savings account. The funding of long-term goals (beyond 5 years) should be invested in a well-diversified equity mutual fund/ETF portfolio, rebalanced annually and otherwise left alone to let the market work its magic.

 

 

 

 

[DSM]

Thank you!

Sorry, I was not clear about the spending part. Our current spending is around 55-60% of the post-tax money and should go down after retirement. But, I came across on some websites that the projected retirement monthly income should be 80-100% of current monthly income.

 

Any recommendation about good online account for keeping the emergency fund?

[PhysicianOnFIRE]

DSM wrote:

But, I came across on some websites that the projected retirement monthly income should be 80-100% of current monthly income.

Click to expand...

You're reading the wrong websites. Or articles, anyway. The "80% to 100% of income" assumes you're living paycheck to paycheck, essentially.

Your retirement needs will depend entirely on your annual spending and have nothing to do with your annual income. If you're spending 55% to 60% of your take-home pay, you're pretty close to living on half, in which case you'll likely have the ability to retire in 15 to 20 years.

How and where to invest? I would go with something simple like a three-fund portfolio. Whatever doesn't fit in a retirement account can go into a taxable account. If you choose to own bonds in taxable, make sure they're tax-free (municipal). Otherwise, you can own bonds in the tax-deferred accounts (or not at all).

Cheers!

-PoF

 

[ENT Doc]

DSM wrote:

Thank you!

Sorry, I was not clear about the spending part. Our current spending is around 55-60% of the post-tax money and should go down after retirement. But, I came across on some websites that the projected retirement monthly income should be 80-100% of current monthly income.

 

Any recommendation about good online account for keeping the emergency fund?

Click to expand...

Depends on your needs.  I like money market accounts because you can write checks from that.  Ally bank has a 1% APY I believe for all account balances.  Everbank or Capital One 360 may be close to that as well.

The 85% thing you read doesn't apply to you.  Agree with PoF about your spending needs and projected (potential) retirement.  Also agree with Johanna - sorry I forgot the backdoor Roth.  Definitely do this - for both you and your spouse.

[AZdoc68]

PhysicianOnFIRE wrote:

DSM wrote:

But, I came across on some websites that the projected retirement monthly income should be 80-100% of current monthly income.

Click to expand…

You’re reading the wrong websites. Or articles, anyway. The “80% to 100% of income” assumes you’re living paycheck to paycheck, essentially.

Your retirement needs will depend entirely on your annual spending and have nothing to do with your annual income. If you’re spending 55% to 60% of your take-home pay, you’re pretty close to living on half, in which case you’ll likely have the ability to retire in 15 to 20 years.

How and where to invest? I would go with something simple like a three-fund portfolio. Whatever doesn’t fit in a retirement account can go into a taxable account. If you choose to own bonds in taxable, make sure they’re tax-free (municipal). Otherwise, you can own bonds in the tax-deferred accounts (or not at all).

Cheers!

-PoF

 

Click to expand...

This is exactly correct.  10 years ago I used to read articles on "how much of my income do i need to replace in retirement" online and they used to scare the heck out of me.  They routinely said stuff like "60% is the bare minimum, more likely 80-100%".  At the time I was making 50% more than I do now and thought, even though I was a pretty diligent saver, that there was no way I was going to be able to replace that amount of annual income with retirement savings unless I worked till my 70s.

It turns out, as WCI has posted, that many expenses doctors have in their working lives either go away or decrease dramatically later on.  With taxes being a big one.