Advise a 34 y/o who's late to the game ~

Archived From: Finance
  • Text Only
Voting History
rated:
Hi All,

Late to the game but hopefully not too late. I graduated from University in 2015, got a decent job, recently payed off 25K in student loans and stored up 9.5K in emergency savings.

At this point I'd like to start setting up my finances for success in the future, but when it comes to talking finances I feel a bit like a fish out of water. I find myself unsure about what to do. Should I open an account with Fidelity? A Roth Account? A Traditional IRA Account? Or a Cash Management Account? Should I do something else entirely?

Bit about me:

  • 34 years of age
  • Recently married
  • Income of $63K (wife not currently working but will be soon)
  • My employer does not offer matching 401K contributions
  • Currently have 9.5K emergency savings
  • Just finished school, payed off 25K in student loans
  • No debts at all
  • Expenses: 1.8K-2K/mo
  • No savings beyond emergency savings

So what are my next steps? 

My future goals include starting my own business (for which I will need savings) along side my full-time job, buying property & home, starting a family, and down the road being able to care for my aging father, while leaving something for my family after I am long gone.

I have a lot of catching up to do, and it seems to me to make this all happen I will certainly need to be making more than I currently am - so I am hopeful I can grow a business. It seems to me that the smartest thing would be to open a Roth IRA and begin funneling what I can into that, while being conscious of the fact that I will need money set aside to begin a business.

Does this make sense? How would you all advise me to proceed with my finances?

Thank you much.

Member Summary
Most Recent Posts
I am not starting just yet. These are the early days. Much research to do and work to be done. If you have any good read... (more)

xxxkxxx (Jan. 10, 2017 @ 8:21p) |

I was talking about factoring 401k as networth.  If you wish to compare withdraw of 401k at retirement to replace "salar... (more)

hchen42 (Jan. 11, 2017 @ 2:28p) |

It is definitely worth more for non NYC.  NYC residents pays state (about 7%) plus city tax (closer to 4%).  I think tha... (more)

hchen42 (Jan. 11, 2017 @ 3:20p) |

Staff Summary
Thanks for visiting FatWallet.com. Join for free to remove this ad.

34 is a little late, but not too late by any stretch. Do you have an idea how much money you will need for the following and when you will need it?

1) Starting your own business
2) Buying property/home
3) Caring for your aging father

Doing all of those things while saving for retirement seems a bit aggressive based on your current salary, so you may have to prioritize. When will your wife start to work and what do you expect her salary to be?

I am not an expert and don't want to get bashed for my comments.
For the IRA you can only do $5500 max I believe.
But you would want to do that.
The traditional would be able to be deducted if you qualify.
So I would recommend traditional because of the deduction.
However, the ROTH is better because you are not taxed when taking it out when it is higher.
So you may want to consider that instead.
Either way you must do 1 of these.
But that is only $5500.00.

That is not enough.
So you will need to look for additional options.

I don't mean to sound harsh but maybe even a new job with better benefits.

Other options are real estate investing.

Hope this helps, I am no not an expert.
But you must get an IRA going now.

BostonOne said:   34 is a little late, but not too late by any stretch. Do you have an idea how much money you will need for the following and when you will need it?

1) Starting your own business
2) Buying property/home
3) Caring for your aging father

Doing all of those things while saving for retirement seems a bit aggressive based on your current salary, so you may have to prioritize. When will your wife start to work and what do you expect her salary to be?


Thank you for your kind replies. I know I am not in the most favorable position and will need to do something extraordinary to get things in order. 

@BostonOne
1) Research shows starting the business could take as much as 60K. But with my skills I am hoping I can get it turning for $20–30K
2) To buy a home I am expecting I'll need 80K.
3) My wife should be making 40–50K starting in a couple months.

@fishbone - No apologies needed. Thank you for your honest assessment. 

 

Recently married - is that 2016 or 2017?

It is all a question of tax brackets on what you should do. If you got married in 2016 and your total income from everything combined was less than 95K for 2016, then do ROTH for 2016. Don't pass up this opportunity.

2017 is going to be tricky - all depends upon wife's income. If you expect to cross the 95K number (75K is the 15% tax bracket, 12K std. deduction, 4K * 2 for personal exemptions), then you should traditional IRA and 401K and take the deduction since you would have crossed into the 25% bracket. But it all boils down to income - e.g. if you have 100K of joint income, I would take 5K of deduction and remaining funds would be in 401-Roth and Roth.

While you are in 15% bracket, recommend Roth variety of investment. If you jump to 25%, then deduction type investment.

fishbone81274 said:   For the IRA you can only do $5500 max I believe.
 

  Yes, but it is 5.5k each for OP and wife.
If OP's job is reasonably stable, he could use the 9.5k emergency savings to fund a Roth IRA and keep it invested in less risky assets; one can always tap into Roth contributions without any penalty.
and the need for emergency funds is

With 103K annual income between the two of you, no kids, and $2K/mo in expenses, you should be able to save quite a bit. All you really need to figure out is the right balance between pre-tax and post-tax savings.

Here's some the most common advice:
1. Make the minimum 401k contribution that takes maximum advantage of the company match.
2. Max out Roth IRA (at a brokerage with lots of low cost investment options, like Vanguard or Fidelity). Roth IRA can double as an emergency fund (Read me), since contributions can be withdrawn at any time without taxes or penalties.
3. Increase 401k contributions. Max out if possible.
4. After-tax (taxable) investments.

Since you want to save some (presumably after-tax) money for starting a business and a down payment, I would skip #3 until you've saved enough for these goals using #4.

As far as how to invest your savings, start with Lazy Portfolios until you learn more about investing. And even when you learn more you can just stick with a Lazy Portfolio.

New wife not working....oy veh! Please tell me she has an education or marketable skill!

kriskos4 said:   New wife not working....oy veh! Please tell me she has an education or marketable skill!
  I think the expression is actually "oy vey" - but then as part of the goyim, what would I know?

PrincipalMember said:   Recently married - is that 2016 or 2017?

It is all a question of tax brackets on what you should do. If you got married in 2016 and your total income from everything combined was less than 95K for 2016, then do ROTH for 2016. Don't pass up this opportunity.

2017 is going to be tricky - all depends upon wife's income. If you expect to cross the 95K number (75K is the 15% tax bracket, 12K std. deduction, 4K * 2 for personal exemptions), then you should traditional IRA and 401K and take the deduction since you would have crossed into the 25% bracket. But it all boils down to income - e.g. if you have 100K of joint income, I would take 5K of deduction and remaining funds would be in 401-Roth and Roth.

While you are in 15% bracket, recommend Roth variety of investment. If you jump to 25%, then deduction type investment.

We married in 2016. Interesting that I can do a 2016 Roth right now, in 2017. Am I right to assume I could do a 2016-Roth up until I file taxes?

@Scripta - Really helpful how you laid it out. 

@kriskros - Yes, she has a good degree with a marketable skill and is very well spoken. I have no doubt she'll be working within a month or two.

Thanks everyone.

xxxkxxx said:   We married in 2016. Interesting that I can do a 2016 Roth right now, in 2017. Am I right to assume I could do a 2016-Roth up until I file taxes?
  Yes, nominally April 15, 2017.
ETA: Actual deadline for this year is April 18, 2017 due to holidays. Try not to cut it too close; some hick up at the IRA custodian could screw everything.

Don't worry, you aren't that far behind. Plenty of folks your age and broke, but also sitting with massive school debt (negative net worth).

With your wife working you should be able to really make major progress quickly. $2k total expenses for both of you? That seems incredibly cheap...what is your housing situation?

I started working for a med sized company at age 36 in 2013 with no debt and 10k emergency savings to start with similar starting income (~63k). I rent and live cheaply and 4 yrs later I now have ~260K in net worth. I'm single and will keep it that way as long as possible and hopefully minimize my potential unemployment time so my networth has a chance to reach ~2M when I hit 50 and 12M when I am 70 even if I stopped working at 50. Well it's the plan anyway.

I have been maxed out my 401k, Roth IRA, HSA, and put $3k/yr into 529 savings plan for my relatives who need college fund (or myself) in the future.

A business on the side sounds great. Though I heard 90% of start-ups fail. That is why I have not get passed the idea collection stage.

sclantw said:   I started working for a med sized company at age 36 in 2013 with no debt and 10k emergency savings to start with similar starting income (~63k). I rent and live cheaply and 4 yrs later I now have ~260K in net worth. I'm single and will keep it that way as long as possible and hopefully minimize my potential unemployment time so my networth has a chance to reach ~2M when I hit 50 and 12M when I am 70 even if I stopped working at 50. Well it's the plan anyway.

I have been maxed out my 401k, Roth IRA, HSA, and put $3k/yr into 529 savings plan for my relatives who need college fund (or myself) in the future.

A business on the side sounds great. Though I heard 90% of start-ups fail. That is why I have not get passed the idea collection stage.

  How did you get to 260k net worth starting at a 63k salary 3 years ago?  Did you salary increase that much?

fwuser12 said:   
xxxkxxx said:   We married in 2016. Interesting that I can do a 2016 Roth right now, in 2017. Am I right to assume I could do a 2016-Roth up until I file taxes?
  Yes, nominally April 15, 2017.
ETA: Actual deadline for this year is April 18, 2017 due to holidays. Try not to cut it too close; some hick up at the IRA custodian could screw everything.

  
With the Roth IRA - you wont get any tax breaks right now - correct? you need a traditional IRA to get a tax break

BWS said:   [
  How did you get to 260k net worth starting at a 63k salary 3 years ago?  Did you salary increase that much?


It's been tough past 4 years with my aggresive savings practice. My salary had increased to 80k plus a couple k in bonuses last year.

I encourage anyone who just stared the career with ambitious goal for the future to try it some time. Keep minimal life style with boarderline homeless mentality. Save to a point that your friends think there is something wrong with you and your relatives are worried about you. If they dont do that, you are doing it wrong.

Then here comes the unnatural part: do not increase living expense or life standard with the income increase because that is the #1 enemy to aggressive saving.

I do splurge on vacation traveling but I do it wisely. My past posts include more information about my attitude to acheiving extreme saving rate.

My new year goal is to get a part time job to increase my income further. Hopefully I can buy a house with cash when the next recession hits.

you are not late at all at 34, with soon combined income at least 100k no debt and a frugal mindset what are you anxious about ?   you didn't say where you are located,  if you are in low cost or reasonable housing market, you are sitting real pretty,  i would suggest aggressively paying down the mortgage once you buy your house, but even with 15 year mortgage you will own your house free and clear at 50, you can retire at 55

OP, a married couple filing jointly with income of $63k will pay a top rate of 15%. You should max out a ROTH IRA then invest outside of tax deferred since you will likely pay at least 15% at retirement. Invest your Roth aggressively and invest more conservatively outside the Roth. This will give you liquid assets when you decide to buy a house of a car to minimize the cost of borrowing.

right,,like college guarantees you a great job,,,good one.

invest in oil stocks,,they will be booming soon..

Start to invest in a Roth IRA or IRA is an individual decision. It depends on where you expect your tax bracket to be in the future. They both are very good options.

It is never too late to start as long as you start planning now.

I would say, learn to build a solid financial foundation for yourself. Learn to become your own money manager and have access to financial services to help yourself and your family. My company offers financial literacy to empower you to help yourself.

If wife is close to 35, she is up against her biological clock. Having kids can really challenge your saving plans!

Seal said:   If wife is close to 35, she is up against her biological clock. Having kids can really challenge your saving plans!

I'd say no to your first point, women are having kids at 40. To your second point, kids suck your life force and your savings...it's what they do.

OP
1. Immediately fully fund a 2016 Roth IRA for both you and your wife. You can essentially use the Roth IRA as an emergency fund if you don't have enough outside the emergency fund to fully fund the Roth for both of you. You have until 4/18 (this year) to fund this but don't wait that long.
- If you are using the Roth as an emergency fund, just open Roth accounts at one of the online banks that offers >1% for savings and park it there.
- If you have enough to keep a separate emergency fund intact, open a Roth at Vanguard or Fidelity, and invest in index funds (see below).
2. With the next bit of available cash, fully fund 2017 Roth's for both of you.
3. Since buying a home and starting a business both sound like goals for the short term, your next goal may be to shovel every extra penny above 1 & 2 above into high yield savings to reach those goals quickly. If it goes into 2018 and beyond, remember to fully fund Roth's in those years as well.
4. If wife's new job has any 401k matching, invest in that 401k to get the match before, or maybe in lieu of funding wife's Roth. Doing both would be great, as would investing an equal amount in your 401k.

Head on over to bogleheads.org and read up on things over there, including using a Roth as an emergency fund, which types of mutual funds to invest in, etc.

Congrats on paying off the loans and not having debt.

sclantw said:   
BWS said:   [
  How did you get to 260k net worth starting at a 63k salary 3 years ago?  Did you salary increase that much?


It's been tough past 4 years with my aggresive savings practice. My salary had increased to 80k plus a couple k in bonuses last year.

I encourage anyone who just stared the career with ambitious goal for the future to try it some time. Keep minimal life style with boarderline homeless mentality. Save to a point that your friends think there is something wrong with you and your relatives are worried about you. If they dont do that, you are doing it wrong.

Then here comes the unnatural part: do not increase living expense or life standard with the income increase because that is the #1 enemy to aggressive saving.

I do splurge on vacation traveling but I do it wisely. My past posts include more information about my attitude to acheiving extreme saving rate.

My new year goal is to get a part time job to increase my income further. Hopefully I can buy a house with cash when the next recession hits.

  
Personally, there is something wrong with you. This is fatwallet finance - so sure people want to save money and earn money but what you are doing does not make sense. These are 4 years of your life that you will never get back. I am all for saving but also having a balance in life because at some point, all of us die and dying while leaving behind several million dollars to next of kin/state makes no sense whatsoever.

kriskos4 said:   
Seal said:   If wife is close to 35, she is up against her biological clock. Having kids can really challenge your saving plans!

I'd say no to your first point, women are having kids at 40. To your second point, kids suck your life force and your savings...it's what they do.


Is that what you did to your parents - suck away their life force and their savings?  

I disagree with the advice above to fund a Roth immediately for 2016.

I think the most critical current decision is whether you should/want to buy a home. In that case, you should pile up a down payment.

If by some good fortune you have too much cash saved at the end of 2017 (a good problem to have) you can dump it into two Roth IRAs for 2017 and immediately fund two Roths for 2018 at the beginning of the next year. That solves $22k of a too-much-cash problem on top of your down payment and business starting fund.

Keep it simple. For the next year you have to pile up $30-50k in cash. You will need cash to either start a business or buy a home. Over the course of the year you can learn here and at bogleheads and build a master financial plan.

Not optimizing tax advantage or market exposure now buys you the supreme flexibility and freedom of a huge cash reserve for near term opportunities, which seem to be the most important in your situation.

PrincipalMember said:   sclantw said:   BWS said:   How did you get to 260k net worth starting at a 63k salary 3 years ago?  Did you salary increase that much?It's been tough past 4 years with my aggresive savings practice. My salary had increased to 80k plus a couple k in bonuses last year.

I encourage anyone who just stared the career with ambitious goal for the future to try it some time. Keep minimal life style with boarderline homeless mentality. Save to a point that your friends think there is something wrong with you and your relatives are worried about you. If they dont do that, you are doing it wrong.

Then here comes the unnatural part: do not increase living expense or life standard with the income increase because that is the #1 enemy to aggressive saving.

I do splurge on vacation traveling but I do it wisely. My past posts include more information about my attitude to acheiving extreme saving rate.

My new year goal is to get a part time job to increase my income further. Hopefully I can buy a house with cash when the next recession hits.
Personally, there is something wrong with you. This is fatwallet finance - so sure people want to save money and earn money but what you are doing does not make sense. These are 4 years of your life that you will never get back. I am all for saving but also having a balance in life because at some point, all of us die and dying while leaving behind several million dollars to next of kin/state makes no sense whatsoever.
But more to the point it doesn't answer the question, because it seems like sclantw saved more than he made. He must have either increased his income quickly, had side income, or had some incredible luck with investment returns.

fattie123 said:   you are not late at all at 34, with soon combined income at least 100k no debt and a frugal mindset what are you anxious about ? you didn't say where you are located, if you are in low cost or reasonable housing market, you are sitting real pretty, i would suggest aggressively paying down the mortgage once you buy your house, but even with 15 year mortgage you will own your house free and clear at 50, you can retire at 55People who want to aggressively pay down a mortgage at 4% are bad at math. Even 5% isn't high enough to make extra payments IMO.

scripta said:   But more to the point it doesn't answer the question, because it seems like sclantw saved more than he made. He must have either increased his income quickly, had side income, or had some incredible luck with investment returns.
 

Here is the math:
260k - 10k = 250k net worth gain in 4 years (2017-2013).
Minus tax and expenses, plus 5-8% investment return and a few k bonuses/employer matches. I don't see why it is not achievable. Perhaps you missed something from my previous posts.

kriskos4 said:   To your second point, kids suck your life force and your savings...it's what they do.
  Do you really have to put that in every other post of yours?  It's a very personal decision and there is such a thing don't be a jerk, even if you are one to your parents.

sclantw said:   scripta said:   But more to the point it doesn't answer the question, because it seems like sclantw saved more than he made. He must have either increased his income quickly, had side income, or had some incredible luck with investment returns.Here is the math:
260k - 10k = 250k net worth gain in 4 years (2017-2013).
Minus tax and expenses, plus 5-8% investment return and a few k bonuses/employer matches. I don't see why it is not achievable. Perhaps you missed something from my previous posts.
I didn't miss anything. You had to sock away $50K+/yr on average with that return. Considering you probably had to pay $12-15K in taxes (not including state), You basically spent less than $1K/mo. Including health insurance and vacation "splurges". Am I close?

Try to continue to live off of one income when your wife starts working and save the entirety of the other. Every time you get a raise, divert 50-75% of the raise to increase your savings that's out of mind (401ks, IRAs, HSAs, etc)

My wife was not working and finishing grad school when we were first married, and we took this approach when she started working. This gave us a lot of lifestyle flexibility if one of us wanted to try a new career, start a family and stay at home a while, etc. We have friends with similar household incomes that live in houses 3 times as nice, or cars 10 times as expensive... but we don't worry about a $10,000 unexpected expense, buy cars in cash, are able to be charitable, and never fight about money or the other one needing to work.

scripta said:   I didn't miss anything. You had to sock away $50K+/yr on average with that return. Considering you probably had to pay $12-15K in taxes (not including state), You basically spent less than $1K/mo. Including health insurance and vacation "splurges". Am I close?

Maxing out 401k and HSA gave tax advantages which resulted avg no more than 11k total tax per year. My monthly avg spending was way less than 1k rent included. You were close, just not enough.

My vacation spending is less than 100/day all expense (flight, airbnb, food, etc) included. That's probly not even enough for camping cost for some people but that is way more than my usual daily living expense hence the splurge.

Instead of thinking I am sacrificing my life, I rather think it's a game to see how much I can push myself to defer grafitication and find ways to save. Not many people can grasp that concept though. To me the only tool to achieve wealth is the saving rate. Now I know I can be OK with this, increasing income will make it even easier.

sclantw said:   Instead of thinking I am sacrificing my life, I rather think it's a game to see how much I can push myself to defer grafitication and find ways to save. Not many people can grasp that concept though. To me the only tool to achieve wealth is the saving rate. Now I know I can be OK with this, increasing income will make it even easier.

Whatcha gonna do with all that cheese if you don't plan on getting married or having kids?

scripta said:   
fattie123 said:   you are not late at all at 34, with soon combined income at least 100k no debt and a frugal mindset what are you anxious about ? you didn't say where you are located, if you are in low cost or reasonable housing market, you are sitting real pretty, i would suggest aggressively paying down the mortgage once you buy your house, but even with 15 year mortgage you will own your house free and clear at 50, you can retire at 55
People who want to aggressively pay down a mortgage at 4% are bad at math. Even 5% isn't high enough to make extra payments IMO.

  
to me it's worth to aggressively pay down at any % for the peace of mind and ability to pay yourself the monthly payments instead to the bank,  i paid off one 15 year mortgage at 6.5% in 6 years, saved all the monthly payments for a few years, paid off another 30 year at 3.25% in 6 months using the earlier saved payments, I guess I am financially conservative

fattie123 said:   scripta said:   fattie123 said:   you are not late at all at 34, with soon combined income at least 100k no debt and a frugal mindset what are you anxious about ? you didn't say where you are located, if you are in low cost or reasonable housing market, you are sitting real pretty, i would suggest aggressively paying down the mortgage once you buy your house, but even with 15 year mortgage you will own your house free and clear at 50, you can retire at 55People who want to aggressively pay down a mortgage at 4% are bad at math. Even 5% isn't high enough to make extra payments IMO.to me it's worth to aggressively pay down at any % for the peace of mind and ability to pay yourself the monthly payments instead to the bank,  i paid off one 15 year mortgage at 6.5% in 6 years, saved all the monthly payments for a few years, paid off another 30 year at 3.25% in 6 months using the earlier saved payments, i guess I am financially conservativeFirst let me address "peace of mind." Let's say you have a $200K mortgage and $100K in savings. If you pay down your mortgage to $110K and keep $10K in savings, your savings would run out very quickly if you lose your income for a prolonged period. You could even eventually lose your house. But a much bigger sum in savings would allow you to make the minimum mortgage payments (and other living expenses) for much longer. I think a bigger bank balance brings a "peace of mind", not a smaller mortgage. Even if you have more money in savings than the whole mortgage -- you could maintain your standard of living for a much longer time without any income if you have lots of savings and a mortgage than if you just had a little in savings and no mortgage. This math arguably changes in your favor if your home is a small portion of your total net worth.

And second, the "pay yourself" vs "pay the bank" is just mathematically and statistically wrong. If instead of paying down the 3.25% mortgage you invested that money in the market and got a return greater than 3.25%, you would have come out ahead. You would have made money on the borrowed money. Not to mention that mortgage interest can be tax deductible.


scripta said:   First let me address "peace of mind." Let's say you have a $200K mortgage and $100K in savings. If you pay down your mortgage to $110K and keep $10K in savings, your savings would run out very quickly if you lose your income for a prolonged period. You could even eventually lose your house. But a much bigger sum in savings would allow you to make the minimum mortgage payments (and other living expenses) for much longer. I think a bigger bank balance brings a "peace of mind", not a smaller mortgage. Even if you have more money in savings than the whole mortgage -- you could maintain your standard of living for a much longer time without any income if you have lots of savings and a mortgage than if you just had a little in savings and no mortgage. This math arguably changes in your favor if your home is a small portion of your total net worth.

And second, the "pay yourself" vs "pay the bank" is just mathematically and statistically wrong. If instead of paying down the 3.25% mortgage you invested that money in the market and got a return greater than 3.25%, you would have come out ahead. You would have made money on the borrowed money. Not to mention that mortgage interest can be tax deductible.

   

  
I understand both sides of the argument, you are right if somebody is worried about losing a job or barely making it he is certainly not a good candidate to pay extra on the mortgage,  but some people are averse to debt or  want to retire early a paid off house is a step closer to that goal. .....as to why not use the extra money to invest instead of prepaying on a low 3.25% i am risk averse perfectly happy with a steady 3.25% return
 

fattie123 said:   

scripta said:   First let me address "peace of mind." Let's say you have a $200K mortgage and $100K in savings. If you pay down your mortgage to $110K and keep $10K in savings, your savings would run out very quickly if you lose your income for a prolonged period. You could even eventually lose your house. But a much bigger sum in savings would allow you to make the minimum mortgage payments (and other living expenses) for much longer. I think a bigger bank balance brings a "peace of mind", not a smaller mortgage. Even if you have more money in savings than the whole mortgage -- you could maintain your standard of living for a much longer time without any income if you have lots of savings and a mortgage than if you just had a little in savings and no mortgage. This math arguably changes in your favor if your home is a small portion of your total net worth.

And second, the "pay yourself" vs "pay the bank" is just mathematically and statistically wrong. If instead of paying down the 3.25% mortgage you invested that money in the market and got a return greater than 3.25%, you would have come out ahead. You would have made money on the borrowed money. Not to mention that mortgage interest can be tax deductible.

   

  
I understand both sides of the argument, you are right if somebody is worried about losing a job or barely making it he is certainly not a good candidate to pay extra on the mortgage,  but some people are averse to debt or  want to retire early a paid off house is a step closer to that goal. .....as to why not use the extra money to invest instead of prepaying on a low 3.25% i am risk averse perfectly happy with a steady 3.25% return

  It's actually less than 3.25% return if you consider that it's tax deductible.  I am risk adverse but that is pretty hardcore. 

start by taking advantage of all tax deductions you can claim and exercising all benefits you can get through your employer. talk to few people within your company to make sure that you are taking advantage of them.

Skipping 18 Messages...
PrincipalMember said:   
hchen42 said:   
A side note, I see there's a discussion on net worth.   I've worked with many wealth managers (aka financial advisors, planners), mortgage brokers, bankers, do not over estimate your retirement net worth.  With the exception of Roth IRA, most retirement vehicles are not taxed until withdraw.  The wealth manager typically value your 401k/ira at 50% (at least in NYC and depend on your tax bracket).  Properties are valued at 90% of appraisal (if you sell, you have closing cost such as a typical 3-6% realtor fee, lawyer fee).  Many people tend to just add up the balance and ignore tax, fee implications.

 

  
50% seems wrong to me and definitely way too high for people not in NYC. There is a huge difference between "tax bracket" and "average tax rate" unless you are super-super millionaire in which case "average tax rate" starts creeping towards "tax bracket".

 

It is definitely worth more for non NYC.  NYC residents pays state (about 7%) plus city tax (closer to 4%).  I think that equates about 10%.  There's also a 401k penalty.  Let's just say this, currently my tax is withold is closer to 40% than the number in your example.

I am not saying that 50% is your 401k's true current worth, it's just an estimated number for people in the finance.  Think of it this way, if you were to buy a house, your mortgage broker is not just going to ask your bottom line net worth, they going to break down each accounts.  401k is protected from bankruptcy as well, so that 401k worth is going to take a discount.  



Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.

Thanks for visiting FatWallet.com. Join for free to remove this ad.

While FatWallet makes every effort to post correct information, offers are subject to change without notice.
Some exclusions may apply based upon merchant policies.
© 1999-2017