Lori is behind on retirement savings, as a result of being a full-time student for more than a decade. She makes good money and lives frugally, but she’s aware that she’s behind for her age. What should she do?
Sierra wonders whether she should apply her savings towards paying off her mortgage or building investments.
Jenessa plans to retire at age 35, and she’s wondering if the 4 percent withdrawal rule applies for such a long time horizon. Her friend swears that it’s designed to cover a 30-year retirement, not a 60+ year retirement. Is that correct?
Jacqui is 24 and recently married. She’d like to open a 529 College Savings Plan for her future children, which she doesn’t plan on having for another 8 to 10 years. Should she do this?
David is on-track to reach financial independence at age 50. He would like to start adding bonds to his taxable brokerage accounts. How should he manage this?
Mikayla lives in Atlanta. Her employer gives her a stipend to use public transportation. This money can only be used for that purpose. She’s thinking of getting rid of her car so that she can start using public transit, and applying the cost-savings of getting rid of her vehicle into a downpayment fund for a future home. Should she do this?
Former financial planner Joe Saul-Sehy and I answer these six questions on today’s episode.
Here are more details:
Lori asks:
It took 10.5 years of schooling to obtain my career, and as a result, I feel behind in saving for retirement. I make about $280,000 per year, and my husband works part-time while looking after our kids.
We put 90 percent of his income into a 401(k), I invest $2,500/month into a non-qualified tax account, $1,000/month into a more aggressive, less liquid investment account, pay an extra $1,000 towards my mortgage, max out my HSA, and I just maxed out a Traditional IRA this year, as I don’t have access to a 401(k) through my job.
Additionally, we have $50,000 in a high-interest savings account, $20,000 in a regular savings account, and $15,000 in a SEP IRA. I paid off my student loans, I have no consumer debt, I donate 10 percent of my income to charity, and I’m fairly frugal.
What else can I do to catch up on retirement savings?
Sierra asks:
Should we tackle our mortgage, or continue applying any extra money we have towards our savings?
We owe $83,000 on our mortgage and we apply $2,100 per month towards our savings. My savings portfolio looks like this:
- $22,000 in our Roth 401(k)
- $9,500 in a Roth IRA
- $20,000 in savings (which includes our emergency savings)
Would you stop saving and apply the $2,100 towards your mortgage principal and pay it off in two years, or should I continue saving that money? (The $2,100 is separate from our retirement savings; we save about 20 percent of our income toward our retirement.)
The end result would be to hopefully buy our first rental property this year.
Jenessa asks:
I had a question about the four percent rule. I know it’s not perfect, but I had a debate with my friend over this:
My friend says that the four percent rule is meant to carry you through retirement – so there’s only about 30 years until you run about money.
I was under the impression that the four percent rule would allow you to draw out four percent of your dividends forever.
I’m planning to retire before the age of 35, so that’s an important distinction to make. Could you please clarify this issue?
Jacqui asks:
I’m 24 years old and recently married. My husband and I are working to become financially independent – we’re completely debt free, we max out both our 401(k) and Roth IRA, and we’re building up our cash for a potential house downpayment.
We want kids, but not for another 8-10 years. What are your thoughts on putting money into a 529 Plan now for our future kids? By getting ahead, our money would have additional time to grow so we wouldn’t have to put as much money in overall. However, it feels like we’re in a student loan bubble, and we want to make sure a 529 Plan is a safe option. Is there a foreseeable way that money could be taken from us when the bubble bursts?
David asks:
I’m on track to reach financial independence at age 50 (which is 11-12 years from now). I plan on doing a Roth conversion ladder, but not dip into those conversions at the five year mark. Ideally, I’d like to wait until age 70.
Most recommend VTSAX in your taxable account because it’s tax-efficient, but a 9-10 year timeframe (until age 59.5) is a long time to rely on a 100% stock portfolio, so I’m looking at using the bucket approach.
What’s the most efficient strategy for tax purposes to start adding bonds to my taxable account?
- Go with VTSAX until age age 50 and then add bonds
- Start adding bonds at age 45, then stair-step it with one year of expenses until age 50
- Contribute to a Roth now with VBTLX and then not have access to its growth
- Tax-free municipal bonds
Also, are bonds and dividends from bonds taxed at an ordinary income tax rate?
My portfolio right now will be close to $2.5 million to $3 million by age 50, so 20 percent bonds and 5 percent cash is what I’m comfortable with. My spending level is at $65,000 but I wanted to add a buffer for peace of mind.
Mikayla asks:
I just started a job three months ago making $53,000 per year. I want to buy a house soon and I’m looking to take advantage of any pre-tax account my employer has available.
I noticed that we have a transit account which I’m allowed to contribute a max of $265 a month. It doesn’t roll over, but if I don’t use that full amount in the account, it stays there until I use it up. It’s pre-tax, but I currently don’t use public transit.
I’m thinking of contributing to this account to experiment with public transit and to get the pre-tax benefit of the account. Driving has been stressful for me, and my commute time wouldn’t change. Do you think this is a good idea to experiment with?
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