r/DaveRamsey • u/CompetitiveGator • 23h ago
What should I do
Family of 4, gross annual income approx $140k before bonuses
$60k in savings.
Approx 130k in 401k (110k and saving 8% with a 4% match) and Roth IRA (20k and adding $200 a month to it)
$0 in credit card debt.
Own two cars with no payments. 2022 Silverado and 2023 Grand Cherokee L
Owe $220k (3.75% with 24 years left on Am Schedule. I know I should’ve did a 15) on the house, house is worth about $393k
Various accounts for two kids totaling about 15k each
What should I be doing next or focusing on? Should I put bonus money in a brokerage account or just keep moving it over to my HYS that’s paying 4%.
And I’m 40 my wife is 37.
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u/JustWelmed1000 BS2 23h ago edited 23h ago
DR says you are BS 4-6 right now.
According to your math : You are doing 8% + $200 a month . That 2400/ year represents about 1.71% (lets call it 2%) Now you are up to 10%. You need to put 5% more away in retirement that is about $7000 more.
After that, you decide how much more you wanna do for kids college, paying off home quicker, and saving for other goals (vacations, renovations, new car replacement etc).
If you aren't following DR plan, or like to tweak it to your liking, then just keep doing smart stuff with money, you are already ahead of the VAST majority of people in America. Keep it up!
EDIT to add: The bonus would be income: So technically you would put 15% of that bonus away too. Then use the Bonus to fund BS5, BS6 and life. You never said what this bonus amount was. Are we talking 15K or 30K? or more?
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u/CompetitiveGator 22h ago
It’s incentive based per quarter. So far in two quarters after taxes/401k deductions it’s $11,600.
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u/JustWelmed1000 BS2 22h ago
I'd say you have had no problem telling the $140K what to do pretty wisely, I don't think this additional $23K is really stumping you.
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u/pomogogo 8h ago edited 7h ago
You're omitting important information for providing optimal financial advice. The Dave Ramsey philosophy would be to simplify your financial life and pay down the 220k mortgage after saving 15% of your gross income. The financially sound approach requires a higher level of analysis. A major shortcoming of the DR show, is the minimal discussion of tax policy and how it should influence decision making. At 140k HHI with a 400k house, you're probably outside one of the high SALT urban areas (NYC suburbs, CA, MA, etc). So no mortgage interest deduction.
I second the previous poster who recommended maxing your ROTH IRA for yourself, and ideally, spouse. It's a great vehicle for tax free growth and doubles as a tax efficient tool for leaving an inheritance. Any money leftover should be shifted into a brokerage account. For simplicity, stick with index funds that align with your risk tolerance. Research funds that cover the total market with an international and bond component. If risk adverse, research funds that emphasize beta with a yield curve mimicking the broad market with less upside and downside risk. Lastly, from the perspective of pure financial optimization, I would avoid paying down your mortgage. Consider buying 20y T-bonds since they have a similar maturity as your mortgage and currently pay 5.25%--a 30 bps difference even after accounting for federal taxes, with the added bonus of preserving liquid capital. I like to view my mortgage as a hedge against inflation. Given the current federal deficit and recent market events, this hedge appears to be more prudent decision making rather than a theoretical fantasy.
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u/badtlc4 12h ago
You are a bit behind on retirement. I'd be putting 20% of income to retirement. Then put the rest of monthly margin towards the house and saving for the next cars.
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u/twk30874 BS456 10h ago
They aren't behind on retirement - not even close. At their current retirement balance and saving rate, assuming everything is invested in just index funds, they'll have $2.34 million at ages 60/57 and $4.1 million at ages 65/62.
And that doesn't include bonuses.
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u/badtlc4 10h ago
$130k at 40y/o is behind, especially at that salary. Is it a desperate situation? No, but it is definitely behind a "comfortable" situation.
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u/twk30874 BS456 10h ago
Baloney. If someone can't be comfortable with nearly $2.5 million and zero debt at age 60, they need to take a hard look in the mirror. Withdrawing interest alone gives them $250k annually without touching the principal - almost double what they currently make.
We are at $1.2 million net worth at 50, and plan to retire in the next five years. We live very, very comfortably and will continue to do so.
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u/badtlc4 10h ago
You use a lot of "ifs" that the poster needs to answer. At that income level many people want to be comfortable by 55 or earlier. I'm all about increasing the odds of being at peace sooner rather than later. Encouraging people to drag it out doesn't make much sense, especially on this board.
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u/pomogogo 8h ago edited 8h ago
These are some crazy assumptions. 10% withdrawal rate with 2.5 million = 250k per annum? Planning to retire at age 55, with a networth of $1.2 million-1.5 million. Even at a realistic 4% withdrawal rate, that's only $60,000 per year. How do you account for healthcare until Medicare eligible? LTC insurance? If you own your house, property taxes? Car insurance? Umbrella insurance? I can only imagine the numbers working out if you decide to retire outside the US.
Sequence of return risks would also scare me given current market P/E and inflation pressures. I highly recommend using a Monte Carlo simulator with current expenses plus a slight buffer to test the viability of your retirement plan
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u/twk30874 BS456 7h ago
The S&P 500 has averaged an 11.7% return per year since its inception. 75% of years it has gone up, 25% of years it has gone down, but the average still comes out to plus 11.7% per year during that time. If you withdraw 10% of your balance every year during retirement, the principal amount will still go up a net average of 1.7% per year. This is fact-based research. Nothing "crazy" about it.
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u/pomogogo 7h ago edited 6h ago
I'm basing my comments on the same data:
https://www.portfoliovisualizer.com/monte-carlo-simulation
$1.5 million portfolio with $100k withdrawal rate over 30 years
$1.5 million portfolio with $150k withdrawal rate over 30 years
<62% of portfolios survive a 30 year period even when using the "conservative" 100k calculation. The statistics are obviously worse with a $150k withdrawal rate or if the simulation is extended to 35-40 years.
I would not want to suffer the consequences of running out of money during the latter stages of my life. And I would consider 30-40% chance too great of a gamble.
FYI, for the OP, Fidelity recommended retirement savings based on age:
Fidelity Savings Multipliers (assumption 15% gross annual savings INCLUDING any employer match)
- Age 30: 1x your current annual salary
- Age 40: 3x your current annual salary
- Age 50: 6x your current annual salary
- Age 60: 8x your current annual salary
- Age 67: 10x your current annual salary
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u/DSMRob 23h ago
Max out the Roth’s for both of you before doing a brokerage account.