We sometimes get questions about how other people may be using Ellevest to reach their goals — so we’re sharing some stories to help bring its power to life. Meet “Laura” *.
“Laura” is a 34-year-old new mom living in Austin, TX. She just came back from family leave, and she’s settling back into routine as an occupational therapist — as much as possible with a new baby, anyway. Part of her delightful (and exhausting) new “with kid” life is sitting down for some “with kid” money planning.
Laura’s financial picture
Laura makes $73,000 a year and is proudly debt-free — she celebrated that last student loan payment just before her son was born. She’s also been contributing 10% of her gross salary — which comes out to 13% of her take-home pay — since she started working, and nabbing a 3% employer contribution to her 401(k). She’s always put 4% of her take-home pay into a savings account. Its balance is about $17,650 right now.
Laura’s goals: Save for college without losing sight of retirement
Laura’s sure that her son will be 18 in seemingly no time (because how can he be three months old already?). And college just keeps getting more expensive. CollegeBoard found that over the past 30 years, tuition (never mind books and housing) at public schools went from $3,190 to $9,970, and tuition at private schools went from $15,160 to $34,740 (btw, that’s all in today’s dollars). She’s sure it’ll cost even more in 18 years … but depending on the school, scholarships and grants will probably help. Laura definitely plans to start a 529 college savings plan for her son so she can prepare for college in a tax-smart way.
Going off to school comes with other costs that can’t be paid for with a 529. Necessary things like transportation to and from school, be it Greyhound or Delta. Things like a phone — assuming we don’t have chips implanted into our brains by then — and health insurance. Things like off-campus housing above the “cost of attendance” limit (which may be all that’s available at schools with low dorm capacity and high housing costs — looking at you, UC Berkeley). She wants to make sure she has enough for those “incidentals.”
Laura’s playbook: Divvy up her contributions between college and the basics
She ups her 401(k) contributions to $742 a month, which is 16% of her take-home pay. Combined with her employer match, this will put her on track for an annual retirement income of about $121,400. That’s a little more than 90% of her pre-retirement income, which Ellevest adjusted to project her salary growth until she retires and to account for the impact of inflation while she’s investing.
For this goal, Ellevest recommends about 96% equity to start — a good amount of risk — in order to give her the opportunity to earn the higher returns that equity has historically earned. Ellevest will adjust the mix of investments in her portfolio to get less risky as she gets closer to retirement.
That means she has 4% of her take-home pay to put toward her son’s future education expenses. She decides to put $30 a month into a Kids are Awesome goal for those incidentals. That’s projected to help her reach her goal of $10,000 ($2,500 for each of his academic years) by the time he’s 18.
That goal has a shorter timeline, so Ellevest recommends only about 69% equity to start.
After her 401(k) contributions and the deposits into her “college incidentals” Kids are Awesome goal, she’ll have about $153 a month left to invest. She starts a 529 plan for her son using the $3,950 left of her cash savings and sets up an automatic transfer of $153 a month. This will give her family about $80,000 toward paying tuition when the time comes.
Note: Laura's not real. We made her up so we can show you the kind of decisions people can make toward their goals. In other words, this is a hypothetical client scenario that doesn’t represent any Ellevest client, and it’s by no means individually tailored investment advice.
The astonishing cost of housing at UC Berkeley, however: 100% real (sigh).
See the Disclosures section below for how we calculated how much the hypothetical Laura would hypothetically need to hit her hypothetical goals.
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We assume Laura’s tax rate is approximately 25%.
We assume Laura’s “Kids are Awesome” goal starts with a balance of $0, and she makes monthly contributions of $30, or about 0.50% of her salary, which grows in accordance to a women-specific salary curve provided by Morningstar Investment Management LLC, a registered investment adviser and subsidiary of Morningstar, Inc. The account is invested in a low-cost diversified investment portfolio that begins at 69% equity and becomes more conservative as she approaches her goal date. We use Monte Carlo simulation—a forward looking, computer-based calculation in which we run portfolios and savings rates through hundreds of different economic scenarios to determine a range of possible outcomes, and the results shown reflect a 70% likelihood of achieving $10,576 or better, and include the impact of an Ellevest advisory fee of 0.25%, taxes, and inflation.
We assume her 401(k) is invested in a low-cost diversified investment portfolio that begins at 96% equity and becomes more conservative as she reaches retirement. We used a Monte Carlo simulation — a forward looking, computer-based calculation in which we run portfolios and savings rates through hundreds of different economic scenarios to determine a range of possible outcomes. The results shown reflect a 70% likelihood of achieving a retirement income amount of $121,400 per year, or better, and include the impact of taxes and inflation.
We assume Laura’s 529 plan will begin with a balance of $3,950, and she will deposit $1,836 per year ($153/month) for 18 years. This assumes a before-tax return on savings of 7%.
The projections of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Information was obtained from third party sources, which we believe to be reliable but not guaranteed for accuracy or completeness.
The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.
The information provided does not take into account the specific objectives, financial situation or particular needs of any specific person.
Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
Investing entails risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time.