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  • latebeginner
    replied
    Thanks a lot for the advice! I will just stick to term life then. I mostly wouldn't need to worry about the 3-day gap. I live in Midwest and the state Muni bonds has a expense ratio ranging from 0.5-0.9. I am not sure if I should go for it. Vanguard intermediate tax-exempt bond fund seems like a great choice? I also see higher morningstar rating for Vanguard high yield tax-exempt bond fund, but it is subject to AMT and has increased risk. I guess it is not worth it.

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  • StarTrekDoc
    replied
    Settlement takes 3 days from move out of bond fund to cash.     An interim step that I have to bridge that 3 day is our HELOC for immediate cash needs.    We use Fidelity Intermediate Cali Muni Bonds and our BOA HELOC.

    -NO Whole life, No Universal Life.   Term life only.    Don't go to any of those free dinner sales pitches.

     

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  • Hank
    replied
    Avoid whole life like the plague. It will make the insurance salesman rich, not you.

    Vanguard has muni funds for most of the highly populated, high tax states. As an example, Vanguard California Intermediate-Term Tax-Exempt Fund Admiral Shares (VCADX) would be a solid choice for high income California residents.

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  • latebeginner
    replied
    And with your suggestion, I am planning to make my taxable account and Roth IRA 100% equity while moving the bonds to 401k and 457b, while keeping the same amount of bonds. The idea to put emergency funds into Muni bond funds can also increase my final bond allocation, just need to determine how much exactly.

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  • latebeginner
    replied




    Depends on how aggressive what one wants to be on the split 90/10- 70/30 — you have 20-30years so depends on your risk tolerance.

    For Emergency Fund – Muni Bond Fund is a great way to balance out since you’re in a high income state tax zone.

    As DMFA suggested the 10-30% nonMuni bond portion should go to a tax deferred to minimize capital gains distributions tax.   I don’t know if that Roth vs deductible really makes a difference though.   — just not in your taxable account.   Same goes with anything with distributions — international stocks tend to have this too.
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    Thanks DMFA and StarTrekDoc. It sounds like a good idea to put emergency funds in Muni bond fund. I guess the intermediate tax-exempt funds from Vanguard or Fidelity would work well for it? Don't laugh at me for this: I should be able to take money out of this fund without much of trouble or penalty anytime when there is an emergent situation, correct? To be honest I am quite confused by so many different kinds of bonds and bond funds.

    One more question brought up by my wife: someone is suggesting us buy a whole life insurance instead of term life. I vaguely remember there was an article at WCI website that argued against this thing. Isn't it growth tax free? Any hidden trick or problem in there?

     

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  • StarTrekDoc
    replied
    Depends on how aggressive what one wants to be on the split 90/10- 70/30 --- you have 20-30years so depends on your risk tolerance.

    For Emergency Fund - Muni Bond Fund is a great way to balance out since you're in a high income state tax zone.

    As DMFA suggested the 10-30% nonMuni bond portion should go to a tax deferred to minimize capital gains distributions tax.   I don't know if that Roth vs deductible really makes a difference though.   -- just not in your taxable account.   Same goes with anything with distributions -- international stocks tend to have this too.

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  • DMFA
    replied
    I would put bonds in tax-deferred instead of Roth. User the tax-free status for higher-earning holdings.

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  • latebeginner
    replied
    Sorry for my delayed response, just got off my busy call day  

    Thank you all for the great suggestions and encouragement! As for ENT Doc's question regarding my emergency funds, my plan is to save for Emergency funds every year, so the listed $20,000 is only from year 1. If nothing emergent happens they will become $40,000 in year 2, and hopefully the funds will increase to $80,000 in year 4, and I will keep them at this level. I have to admit the planned monthly routine expenses are high, but it is not easy to convince my wife we can do just well with less money   . But I am hopeful my wife will be on board with me in the near future. If we can save more from routine expenses, these numbers will look better I hope. This is a little risky in the first 4 years, but I think this risk is tolerable. If my wife returns to work, we will have more in emergency funds. I will make sure she maximizes her 401k if there is one for her. Also we can surely put more in taxable accounts.

    I am so glad there are so many inspiring ideas here for the emergency funds, which I had no idea about! Laddering bonds sounds interesting, will try to learn some details. I know it is silly to keep big chunk of money in regular checking account.

    I put everything together except 529 and emergency funds, which totals $89,750/year. Equity/bonds allocation is about 90/10. Also there is a planned $10,000 crowdfunding, more like a play money that my wife will be in charge. The equity distribution is tilt toward small-cap value based on an experienced friend's suggestion, I myself actually don't have a very clear mind about it. May give it a test drive.

    The nice thing is that I still have a little room for salary increase in the next few years, so will try to add more in taxable accounts, and maybe add even more by limiting our routine expenses (at the condition of approval by my wife).

    I also consulted someone with financial expertise, but they were concerned the set-up was too aggressive and suggested a 70/30 allocation based on my age. So I guess I will need to think through about it. Let me know if you have any more suggestions, appreciated!

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  • VagabondMD
    replied
    Very well thought plan. Not plan is perfect, but yours is pretty dang good! Best of luck.  

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  • childay
    replied


    Adding up all your savings I get to about a 30% savings rate.  I would encourage you to push that higher for the next few years, perhaps more into taxable for flexibility.  If you more slowly grow into your attending income over say the next 5 years and increase your savings, you will give yourself a big boost at this early stage of your career.  Your plan seems solid though.
    Click to expand...


    Agreed.  My first thought was increase your EF some, then that you should probably save more in taxable per year.

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  • StarTrekDoc
    replied
    Laddering takes out the middle man and fees. It's relatively easy to do in Cali for bond purchasing.   So if you're a regular at bonds, direct has some savings benefits.

     

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  • ENT Doc
    replied




    One other minor suggestion — if you have room for taxable, and you live in a high income tax state, consider Munis.  Perhaps (very slowly) replacing part of your emergency fund with a laddered bond portfolio and hold them to maturity.  If you buy them at 5K intervals, you can get them commission free with no ER, and if you hold them to maturity then no price fluctuation (only interest risk and very, very small (if you are careful) default risk).
    Click to expand...


    Do you mean no interest rate risk, but only re-investment risk (if rates are on the decline...which they don't appear to be)?  Curious about this ladder approach and buying bonds directly rather than bond funds.  Requires that you do the re-investment of the interest payments on your own, right?  Seems like this would be painful.

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  • Marko-ER
    replied
    One other minor suggestion -- if you have room for taxable, and you live in a high income tax state, consider Munis.  Perhaps (very slowly) replacing part of your emergency fund with a laddered bond portfolio and hold them to maturity.  If you buy them at 5K intervals, you can get them commission free with no ER, and if you hold them to maturity then no price fluctuation (only interest risk and very, very small (if you are careful) default risk).

    Leave a comment:


  • Dr. Mom
    replied
    Adding up all your savings I get to about a 30% savings rate.  I would encourage you to push that higher for the next few years, perhaps more into taxable for flexibility.  If you more slowly grow into your attending income over say the next 5 years and increase your savings, you will give yourself a big boost at this early stage of your career.  Your plan seems solid though.

    Leave a comment:


  • Hatton
    replied
    The plan looks solid.  I agree on the insurance and er fund comments.  Congrats on the job and your financial organization.

    Leave a comment:

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