savings vs retirement allocation

[rk53115]

Wife and I are both 27. She is a PGY-2 & due to an inheritance, we are luckily debt-free. Am I saving and allocating correctly?

Background: Currently rent in a HCOL area currently and for the foreseeable future. I am in finance and make ~$100k/yr, she makes ~$60k/yr as a resident.

She will do a fellowship that's on the low end of the salary spectrum - she's expecting to make $180k/yr starting salary. We plan to buy a house after fellowship in an area where median home prices are ~$800k. No kids planned until end of fellowship.

ASSETS:

$100k in brokerage, mostly low risk tax-advantaged funds, targeting 3% post tax annual earnings

$20k in checking/savings

$12k between our ROTH IRAs (started last year)

$10k in my 401k (I have employee match up, her hospital offers a 457/401k with no match)

INCOME/EXPENSES:

income: $160k

taxes: $50k (high tax city & state...)
rent: $38k (we pay median rent fora 1BR)other: $39k (food, utilities, vacations, shopping, etc)

remainder: $33k

How I'm saving so far:

401k contribution: $6k (6% matched of $100k salary = $12k total contribution, I contribute after-tax)
employee stock purchase: $6k (purchase for 11% discount, extremely low beta, dividend aristocrat, 4-5% EPS)
Roth IRA contribution: $11k ($5.5k in each)
savings/brokerage: remaining $10k

Would like to have ~$170k saved for down payment by 2022, have $120k in cash/equity today. Are we saving enough for retirement (currently contributing ~14% of salaries)? I expect to contribute more once we move and buy a house in 5 years...

 

 

 

 

 

 

 

[DarrVao777]

rk53115 wrote:

Wife and I are both 27. She is a PGY-2 & due to an inheritance, we are luckily debt-free. Am I saving and allocating correctly?

Background: Currently rent in a HCOL area currently and for the foreseeable future. I am in finance and make ~$100k/yr, she makes ~$60k/yr as a resident.

She will do a fellowship that’s on the low end of the salary spectrum – she’s expecting to make $180k/yr starting salary. We plan to buy a house after fellowship in an area where median home prices are ~$800k. No kids planned until end of fellowship.

ASSETS:

$100k in brokerage, mostly low risk tax-advantaged funds, targeting 3% post tax annual earnings

$20k in checking/savings

$12k between our ROTH IRAs (started last year)

$10k in my 401k (I have employee match up, her hospital offers a 457/401k with no match)

INCOME/EXPENSES:

income: $160k

taxes: $50k (high tax city & state…)
rent: $38k (we pay median rent fora 1BR)other: $39k (food, utilities, vacations, shopping, etc)

remainder: $33k

How I’m saving so far:

401k contribution: $6k (6% matched of $100k salary = $12k total contribution, I contribute after-tax)
employee stock purchase: $6k (purchase for 11% discount, extremely low beta, dividend aristocrat, 4-5% EPS)
Roth IRA contribution: $11k ($5.5k in each)
savings/brokerage: remaining $10k

Would like to have ~$170k saved for down payment by 2022, have $120k in cash/equity today. Are we saving enough for retirement (currently contributing ~14% of salaries)? I expect to contribute more once we move and buy a house in 5 years…

 

 

 

 

 

 

 

Click to expand...

I think you guys are way ahead of the curve already since you are debt free and saving anything while in residency

I think the general advice to save 20% of your gross income is more applicable on an attending salary (esp in HCOL areas). That being said, if you are coming close on a resident's salary, all the better!

[hightower]

You're doing great with saving.  When she's an attending, try maxing out your contributions to both 401K's as well.  As far as home ownership, you'll have a combined income of 280/yr correct?  An 800k house is a bit of a stretch if you go by the WCI rule (2x salary in mortgage).  So you really shouldn't do more than a 560k mortgage.  An 800k home with a 20% down would result in a mortgage of 640K.  Since you guys have no other debt and you're in a HCOL area, you could stretch a little, but with taxes as high as they likely are in your area, make sure you really think long and hard about it and really look at the total costs.  Just make sure you make savings your top priority before signing up for that kind of debt.

[ENT Doc]

Could consider a Doc mortgage with putting less money down, no PMI.  Put more away now, do a reasonable mortgage and pay down early.  Agree re: mortgage amount.  $50k in tax on $160k income is brutal.  Please share which city/state so I don't move there.

[mitochondria]

Strong work! Very smart in maximizing all ROTH instruments available to you and your wife. As young as you are, I would not be investing any of your ROTH contributions to bonds. Broad diversified equities (100%) will pay off in the long run.  You have plenty in the low risk tax advantaged brokerage account already. You will go through steep market fluctuations, but it will work out in the long run.

On the other hand, if you insist on staying in a HCOL area, then you will lose the wealth accumulating leverage of geographic arbitrage.  I'm assuming your staying in this area due to family.  I have family who have lived and worked hard in southern California for over 20 years.  They are very frugal and they will never be financially independent. However, they are happy and that situation works for them.

[rk53115]

@ENT Doc

Living in NYC (Manhattan specifically)...

@mitochondria

Roth investments at 100% equity. 70% of non-retirement savings (for down payment) are bonds, due to risk preference. After fellowship, the plan is to move to lower cost of living area, but not by much. Combined salary should increase to $330k by the we but a house.

Thanks for all the suggestions! Really helpful!

[ENT Doc]

I don't know that your money is "safe" in bonds over the next 5 years.  Just ask the people who bought in July 2016.  Most bond funds are up, but the long term treasury fund is down 3%+ over the last year.  Are you willing to put this into something that's a mix of US treasuries and corporate?  This is inherently more risky.  All I'm saying is beware if your primary goal is protection of your wealth.

 

Yeah, I pretty much figured it was NYC or some Cali city.  ************************ shame what they charge y'all with.  My brother works for a law firm in NYC and gets absolutely destroyed in taxes every year.  Lots of people, himself included, are trapped there because of the quality/uniqueness of the job.  Trouble with NYC is anywhere you want to live remotely close to there otherwise is very expensive and hits you with taxes up the whazoo.

[StarTrekDoc]

Remember to factor in price appreciation of the home over the next 5 years.  If you look at NYC/SFO/SoCal 5 years ago, 800K got you very different homes from today.

One thing to consider if no kids for 5+ years -- get into something now on a 1st time owner/Doc loan that's low 5% without PMI and let the home work for you to get into the next home post fellowship.  That $100k bump for 2-3 years fellowship adds up quickly. and will really ramp up the ability for home in 5 years.

Really depends on your market and tolerance of moving a few times on the way up.