Where to allocate extra $?

[ERMammoth]

Hey guys,

I was hoping to get some insight as to which may be the best mathematical move regarding allocating prior budgeted retirement savings.

Briefly, to arrive at the our goal retirement nest egg, my wife and I have been saving about 15% of gross income toward retirement. I have been able to that in tax protected accounts thus far. 401k, self employed 401k, her 401k, back door Roth IRA, pretty much starting during residency and now early in my attending career.

I now have a new job, W2 which allows 401k contributions, a separate qualified plan pre tax contribution, but also has a traditional pension plan which is great and, should I work here for the long haul, will amount to about $2 million.

Considering this pension plan, I now would like to decrease my pretax retirement savings and maybe allocate some of that money elsewhere? since I can achieve that retirement best egg with less savings.

I understand the tax saving and asset protection benefits of the pre-tax accounts, however we also have been fairly frugal and just bought our first home, looking to travel finally, and I’m trying to decide if contribution 10% toward pre tax retirement accounts (which in combination with the pension plan would amount to the same nest egg) while contributing the other 5% savings rate toward other wealth building tools might be better?

Options:

1. paying of student loans faster - currently $190k 0% due to COVID relief but will refinance soon
2. invest in brokerage account to have extra liquidity and opportunity to tax loss harvest?
3. Extra toward mortgage currently 30yr fixed 3.5%
4. Save extra with goal to invest in some real estate within a year - likely single family home rental scenario.

Any other thoughts would be appreciated as well!

[F0017S0]

Is this really "extra" money or money that is just being reallocated based on the fact you have a employer pension? What is the balance on your mortgage/when did you buy your home? Do you have any kiddos who will need a college education? Any other debt or obligations?

[CordMcNally]

1.) Not at this time.
2.) Yes, but you shouldn't invest with the purpose of having an opportunity to TLH.
3.) Probably not.
4.) If you want to be a landlord then this is an option.

Debt is personal. You may be one of those people who wants to get rid of your debt fast. While likely not the mathematically correct answer, paying off debt is never a bad choice. I wouldn't be in a hurry to pay off my student loans until things settle down with regards to what they're going to moving forward. I would also have a hard time paying off my mortgage during the current environment.

Personally, I would probably want some kind of taxable account for future flexibility.

[bovie]

Option 2. No question.

[ERMammoth]

Is this really "extra" money or money that is just being reallocated based on the fact you have a employer pension? What is the balance on your mortgage/when did you buy your home? Do you have any kiddos who will need a college education? Any other debt or obligations?

1. Not extra, but reallocated as you mentioned
2. about 900k on mortgage at purchase earlier this year, very high cost of living area, home appreciating well still.
3. No kiddos yet.
4. No other debt

[ERMammoth]

1.) Not at this time.
2.) Yes, but you shouldn't invest with the purpose of having an opportunity to TLH.
3.) Probably not.
4.) If you want to be a landlord then this is an option.

Debt is personal. You may be one of those people who wants to get rid of your debt fast. While likely not the mathematically correct answer, paying off debt is never a bad choice. I wouldn't be in a hurry to pay off my student loans until things settle down with regards to what they're going to moving forward. I would also have a hard time paying off my mortgage during the current environment.

Personally, I would probably want some kind of taxable account for future flexibility.

this was kind of my thought process, I have never had a brokerage account, just need to learn the ropes a bit about how do this correctly- let me know if you have any tips or reference any posts about how to start!

[ERMammoth]

Option 2. No question.

Any tips on how to start and do this best? Have never had a brokerage account

[CordMcNally]

this was kind of my thought process, I have never had a brokerage account, just need to learn the ropes a bit about how do this correctly- let me know if you have any tips or reference any posts about how to start!

It couldn’t be easier.

1.) Pick the brokerage firm of your choice.
2.) Open an account and link your bank.
3.) Buy the funds you want.
4.) ??????
5.) Profit!

[F0017S0]

Any tips on how to start and do this best? Have never had a brokerage account

Option 2, for sure. VTI/VXUS: check it out!

[bovie]

Any tips on how to start and do this best? Have never had a brokerage account

What CordMcNally said. Very easy.

Just transfer money in, purchase tax-efficient funds (e.g., VTSAX/VFIAX), and let it be.

[nephron]

Are you considering decreasing your contributions to your retirement plans to save/invest outside of them? If so, I would advise against that. Unless you are going to be purchasing rental properties, there are very few investments that will beat the 20-30% tax savings the first year that you get from investing in retirement plans. That plus the asset protection factor. If you do have money to save in addition to your retirement plan, I agree with starting at taxable account and going from there. Throwing money at your 30 year mortgage is a reasonable option as well. I would probably purchase some i bonds before you did that though given the current rate of inflation.

[ERMammoth]

Are you considering decreasing your contributions to your retirement plans to save/invest outside of them? If so, I would advise against that. Unless you are going to be purchasing rental properties, there are very few investments that will beat the 20-30% tax savings the first year that you get from investing in retirement plans. That plus the asset protection factor. If you do have money to save in addition to your retirement plan, I agree with starting at taxable account and going from there. Throwing money at your 30 year mortgage is a reasonable option as well. I would probably purchase some i bonds before you did that though given the current rate of inflation.

Yes, as I mentioned the pension plan is now a nice benefit where I don’t have to save as much toward retirement to reach my goals.

And I would prefer to have the next decade to still continue to build wealth, reach those initial retirement goals, but now maybe use the initial allotted money for other ventures, just trying to see where it should go.

I understand the tax benefits and asset protection of retirement counts. If I maxed out every single retirement account option available to my wife and I, It would be about %30 of my gross income, which is just too much for us, I still want to enjoy our lives, upgrade our home eventually etc, can do that with money sitting in retirement accounts.

[Random1]

#2, you have over a million dollars worth of debt. You don't need more debt as part of your financial plan, you need less debt.

The is nothing wrong with having a savings plan outside of your retirement plan, as long as you don't use it as a slush fund for upgrades in life. Having a large nest egg , in a brokerage account allows you to retire early and live off your savings while letting the tax deferred accounts grow. Especially , if you want to retire in your 50's but shouldn't touch your retirement accounts for the next 15 years or so. Our brokerage account is significantly larger than our retirement accounts even though we maxed them out for the last 30 years. Hopefully, this will allow up to live off of those savings and roth convert when our earned income is low.

[Dewangski1]

I’m going to take a step back and ask 2 questions:
1. When are you guaranteed that pension?
2. Why are you immediately taking a tax deferred option off the table?

[F0017S0]

1. Not extra, but reallocated as you mentioned
2. about 900k on mortgage at purchase earlier this year, very high cost of living area, home appreciating well still.
3. No kiddos yet.
4. No other debt

And with no kiddos, now is the time to maximize that DINK status, assuming your wife is working (which I understood in a previous comment that she is)...