Saving without a goal, midcareer edition
July 31, 2020 6:56 AM Subscribe
Five years ago, you all gave me great advice on what to do with my finances as an early-career professional. So far, so good! Now what?
Here's what I did based on your wonderful advice in 2015, plus five years of career growth:
1) Got a Roth IRA, invested mostly in index funds, and contributed the maximum allowable amount every year (not yet in 2020 though, see below)
2) Continually upped my contribution to my 401(k), now at 15% of income
3) Got some good credit cards and pay them off in full every month. My credit score is in the high 700s.
4) Have one year of typical living expenses saved in my high-yield account
5) Easily(!) weathered an unexpected five-figure(!) expense last year when my pet died after a complicated illness requiring extensive treatment.
Here's where I'm at now:
1) Entering my thirties with more than the recommended 1x my salary saved.
2) Working in an industry that is vulnerable to Covid-19. So far, signs are good I will not lose my job, but in a situation like this, things can change any moment.
3) Previous "facts of the case" are still the same. Still no debt. Still zero interest in homeownership, buying a car, a blowout wedding, going to grad school, or having a kid.
4) The biggest life change that I've gone through is that I'm now in a long-term relationship and cohabiting. We've kept everything separate so far, but my partner is in even better financial shape than I am, makes about the same as me, and is on the same page as me about life choices. Splitting the rent also allows me to save a lot more.
5) The second-biggest life change I've gone through is that my parents are now elderly and have retired. They are in very good health but I know that could change. They also care for my adult sibling, who may or may not need long-term care (I'm not really sure; that's a whole other question). Their finances are also in very good shape. They are extremely paranoid about talking about money (see: "feral child raised by wolves" in previous post) but I know they are wealthy and not in debt.
Here are my questions:
1) Oh hey, I'm in the US and our economy is probably going to collapse. Should I wait to contribute to my Roth until it does, and "buy low" as they say, or is it better to contribute now? What else should people do differently in anticipation of a very bad economy? (I'm talking about a Great Depression-type situation, not a "no election in November, democracy collapses, end of the US as we know it" nightmare scenario, at least for now, and I don't think it's really possible to prepare for the latter anyway.)
2) What should I know about investment accounts that are not retirement accounts? I assume I don't actually want to keep saving in a high-yield savings now that I'm up to my necessary funds for if I lose my job. What are the other options?
3) How realistically should I be looking at retiring early? What, if anything, should I do differently if I'd like to keep that option on the table?
4) What should I talk to my parents about? What do I need to know about their wishes for care, should something go wrong? Is there something special I need to do financially to prepare for the possibility of financing their care or my sibling's?
Here's what I did based on your wonderful advice in 2015, plus five years of career growth:
1) Got a Roth IRA, invested mostly in index funds, and contributed the maximum allowable amount every year (not yet in 2020 though, see below)
2) Continually upped my contribution to my 401(k), now at 15% of income
3) Got some good credit cards and pay them off in full every month. My credit score is in the high 700s.
4) Have one year of typical living expenses saved in my high-yield account
5) Easily(!) weathered an unexpected five-figure(!) expense last year when my pet died after a complicated illness requiring extensive treatment.
Here's where I'm at now:
1) Entering my thirties with more than the recommended 1x my salary saved.
2) Working in an industry that is vulnerable to Covid-19. So far, signs are good I will not lose my job, but in a situation like this, things can change any moment.
3) Previous "facts of the case" are still the same. Still no debt. Still zero interest in homeownership, buying a car, a blowout wedding, going to grad school, or having a kid.
4) The biggest life change that I've gone through is that I'm now in a long-term relationship and cohabiting. We've kept everything separate so far, but my partner is in even better financial shape than I am, makes about the same as me, and is on the same page as me about life choices. Splitting the rent also allows me to save a lot more.
5) The second-biggest life change I've gone through is that my parents are now elderly and have retired. They are in very good health but I know that could change. They also care for my adult sibling, who may or may not need long-term care (I'm not really sure; that's a whole other question). Their finances are also in very good shape. They are extremely paranoid about talking about money (see: "feral child raised by wolves" in previous post) but I know they are wealthy and not in debt.
Here are my questions:
1) Oh hey, I'm in the US and our economy is probably going to collapse. Should I wait to contribute to my Roth until it does, and "buy low" as they say, or is it better to contribute now? What else should people do differently in anticipation of a very bad economy? (I'm talking about a Great Depression-type situation, not a "no election in November, democracy collapses, end of the US as we know it" nightmare scenario, at least for now, and I don't think it's really possible to prepare for the latter anyway.)
2) What should I know about investment accounts that are not retirement accounts? I assume I don't actually want to keep saving in a high-yield savings now that I'm up to my necessary funds for if I lose my job. What are the other options?
3) How realistically should I be looking at retiring early? What, if anything, should I do differently if I'd like to keep that option on the table?
4) What should I talk to my parents about? What do I need to know about their wishes for care, should something go wrong? Is there something special I need to do financially to prepare for the possibility of financing their care or my sibling's?
So, I am in my forties and I could almost be future-you, although I was in a bit less good shape as I entered my thirties!
1) Don't try to time the market. Split your contribution up into monthly installments if a sudden drop is going to make you miserable, but if there's a Great Depression-type event, getting an extra-good yield on one year's Roth contribution is not going to change your personal outcome significantly.
2) First, max out the 401k unless it's a really crappy 401k. Then, get a brokerage account. I have a brokerage account at the same place where I keep my IRAs (Vanguard). I contribute money to the brokerage account every month, pretty similar to the way I contributed to my IRAs before I started making too much money to be able to use them. I keep the money in the brokerage account in pretty much the same kinds of funds as I have in my IRAs, but I try to put things that return significant dividends in the IRAs because the dividends are taxable if I keep them in the taxable brokerage account. "Brokerage account" sounds fancy and expensive but it's no more complicated than an IRA. If you sell stocks/funds held in your brokerage account you will likely owe capital gains tax, but if it's for long-term savings you won't need to sell things very often, if at all.
3) Just keep saving money, and really think through the financial consequences of big decisions like where you live, whether you do end up buying real estate, etc. There are loads of calculators and things that can give you an idea of how well you're doing, where you stand, etc. I like Personal Capital's tools, which let you play with lots of different scenarios (they will try to sell you other stuff that I personally don't feel is worth the money). Obviously take everything with a grain of salt.
4) This one is crazy hard and I have no idea. You can't *make* them talk about things they don't want to talk about. I am a huge wimp about this kind of stuff.
posted by mskyle at 7:24 AM on July 31, 2020
1) Don't try to time the market. Split your contribution up into monthly installments if a sudden drop is going to make you miserable, but if there's a Great Depression-type event, getting an extra-good yield on one year's Roth contribution is not going to change your personal outcome significantly.
2) First, max out the 401k unless it's a really crappy 401k. Then, get a brokerage account. I have a brokerage account at the same place where I keep my IRAs (Vanguard). I contribute money to the brokerage account every month, pretty similar to the way I contributed to my IRAs before I started making too much money to be able to use them. I keep the money in the brokerage account in pretty much the same kinds of funds as I have in my IRAs, but I try to put things that return significant dividends in the IRAs because the dividends are taxable if I keep them in the taxable brokerage account. "Brokerage account" sounds fancy and expensive but it's no more complicated than an IRA. If you sell stocks/funds held in your brokerage account you will likely owe capital gains tax, but if it's for long-term savings you won't need to sell things very often, if at all.
3) Just keep saving money, and really think through the financial consequences of big decisions like where you live, whether you do end up buying real estate, etc. There are loads of calculators and things that can give you an idea of how well you're doing, where you stand, etc. I like Personal Capital's tools, which let you play with lots of different scenarios (they will try to sell you other stuff that I personally don't feel is worth the money). Obviously take everything with a grain of salt.
4) This one is crazy hard and I have no idea. You can't *make* them talk about things they don't want to talk about. I am a huge wimp about this kind of stuff.
posted by mskyle at 7:24 AM on July 31, 2020
On 1) Our economy did collapse, and the stock market is now just about where it was before COVID. I still wouldn't try to time the market. On the other hand, it wouldn't be a stupid idea to move to a somewhat more conservative portfolio. (It also wouldn't be a stupid to stick with what you have.)
On 4) It sounds unlikely that your parents will talk about their money with you, but you can still talk about your money with them and give them the opportunity to respond. You could say: If sibling does need care, I wouldn't be able to pay for that. Or: I have been working to save money. I expect that if sibling needs care, I would be able to help pay for that, but my situation might change. Then maybe they would say, "Oh, we have plenty saved for sibling." Or "That's reassuring." Or maybe they will say nothing, but you gave them a chance.
posted by Mr.Know-it-some at 7:27 AM on July 31, 2020
On 4) It sounds unlikely that your parents will talk about their money with you, but you can still talk about your money with them and give them the opportunity to respond. You could say: If sibling does need care, I wouldn't be able to pay for that. Or: I have been working to save money. I expect that if sibling needs care, I would be able to help pay for that, but my situation might change. Then maybe they would say, "Oh, we have plenty saved for sibling." Or "That's reassuring." Or maybe they will say nothing, but you gave them a chance.
posted by Mr.Know-it-some at 7:27 AM on July 31, 2020
The question about your parents' aging/how to talk to them about goals of care is probably a whole 'nother question in itself, but if they don't have long-term care insurance already, they should get it now.
If they don't want to talk about it, email them this. In 2019, the monthly nursing home cost is listed as 7500 for a semi-private room and 8500 for a private room, basic edition; if you want amenities like social programs or nicer food, you'll pay more. If you want 24/7 care at home instead, you're looking at around $16k/month. These numbers are likely to increase in the next 10-20 years, because an aging population means the need for such services far exceeds the supply.
People often assume long-term care costs are covered by Medicare. They are not; it's 100% out of pocket unless you have private long-term care insurance (which will cover at least some fraction of that 8-16k per month). If your parents aren't prepared to pay for this, can you? Will you? (What often happens is that family -- almost exclusively women family members -- provide 90% of care, unpaid and at detriment to their own earning potential.)
posted by basalganglia at 7:42 AM on July 31, 2020 [3 favorites]
If they don't want to talk about it, email them this. In 2019, the monthly nursing home cost is listed as 7500 for a semi-private room and 8500 for a private room, basic edition; if you want amenities like social programs or nicer food, you'll pay more. If you want 24/7 care at home instead, you're looking at around $16k/month. These numbers are likely to increase in the next 10-20 years, because an aging population means the need for such services far exceeds the supply.
People often assume long-term care costs are covered by Medicare. They are not; it's 100% out of pocket unless you have private long-term care insurance (which will cover at least some fraction of that 8-16k per month). If your parents aren't prepared to pay for this, can you? Will you? (What often happens is that family -- almost exclusively women family members -- provide 90% of care, unpaid and at detriment to their own earning potential.)
posted by basalganglia at 7:42 AM on July 31, 2020 [3 favorites]
2) What should I know about investment accounts that are not retirement accounts? I assume I don't actually want to keep saving in a high-yield savings now that I'm up to my necessary funds for if I lose my job. What are the other options?
You can open regular, taxable accounts. With basically the same funds if you are happy with what you have through the same companies. Most years (especially for the first 10 years, unless you get lucky and have like $1mm in the account or whatever) you will receive dividends and will have to pay a minor amount of tax on them.
These are a good place to save money to put a down payment on a house or a car or whatever future goals you have.
On 1) Our economy did collapse, and the stock market is now just about where it was before COVID.
Exactly. In terms of the stock market, the comings and goings of low income employees just aren't that important, it's sad to say. The crash of 2008 was much worse, even though job loss was much less because it impacted more middle class people.
posted by The_Vegetables at 7:47 AM on July 31, 2020
You can open regular, taxable accounts. With basically the same funds if you are happy with what you have through the same companies. Most years (especially for the first 10 years, unless you get lucky and have like $1mm in the account or whatever) you will receive dividends and will have to pay a minor amount of tax on them.
These are a good place to save money to put a down payment on a house or a car or whatever future goals you have.
On 1) Our economy did collapse, and the stock market is now just about where it was before COVID.
Exactly. In terms of the stock market, the comings and goings of low income employees just aren't that important, it's sad to say. The crash of 2008 was much worse, even though job loss was much less because it impacted more middle class people.
posted by The_Vegetables at 7:47 AM on July 31, 2020
I looked at long-term care insurance plans recently, and the policies available to me just didn't make financial sense. They had more restrictions than conventional retirement savings, and the payouts weren't any greater.
posted by yarntheory at 9:28 AM on July 31, 2020 [2 favorites]
posted by yarntheory at 9:28 AM on July 31, 2020 [2 favorites]
you have the kind of investments now where fees really really matter over the decades between now and when you pass. make sure nothing, including your 401K, has excessive fees. If you have to put up with high fees on the 401K to get an employer match, it's even worth sending a gentle letter to your HR saying "you know, with the fees that [Brokerage] takes from my 401K annually, it's really like the match you are giving me is worth [9%] not [10%]. Have we ever considered a brokerage with a more favorable fee structure even if the match was less generous?"
posted by slow graffiti at 10:28 AM on July 31, 2020 [2 favorites]
posted by slow graffiti at 10:28 AM on July 31, 2020 [2 favorites]
Sounds like you're on the right track, and nothing you've mentioned is too unusual in terms of changing your investment strategy. This savings flowchart is solid advice for most people most of the time:
posted by chrisamiller at 1:03 PM on July 31, 2020
posted by chrisamiller at 1:03 PM on July 31, 2020
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