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How “Maria” Is Building a Kid Cushion

By Ellevest Team

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 Maria *.

Maria’s a 35-year-old new mom just coming off maternity leave. She makes $125,000 as an account director at an ad agency. She’s already thinking forward to summer camp and other potentially high-cost hobbies in her brand-new daughter Octavia’s future. Because kids are awesome … and kids are expensive.

How

Maria’s goal: Build a kid cushion

While her partner has started up a tax-advantaged 529 plan to get started saving for Octavia’s college, Maria’s looking to build up about nine months’ of her take-home pay ($75,000 annually) for those upcoming kid costs — coding camp, oboe lessons, hockey uniforms, what have you — plus unexpected expenses and other incidentals.

She’s on track for her own retirement goals — she’s been saving and investing in her 401(k) for a while. And she has more than what she needs for emergencies (six months’ worth of her take-home salary) saved in cash right now.

And she’s a stickler for research, but (ahem, new mom) she’s short on time … and she knows she doesn’t need to have read every single book on investing to get started. She plans to seek out investment advice from a fiduciary (like, you know, Ellevest) to save herself some effort and research time.

Maria’s playbook:

  • She puts $31,000 into a Kids Are Awesome goal. This is a relatively short-term goal, so it’s a mix of equities with a moderate risk: 51% stocks and 49% bonds.

  • She contributes 5% of her salary — $520 — each month.

  • She keeps contributing about 10% of her salary to her 401(k) to stay on track for a retirement income of $146,695 — or 90% of her projected after-tax salary in the year she retires, adjusted for inflation — per year.

  • She’s putting 3% of her salary into that 529 Plan account her partner set up for Octavia’s college.

  • We estimate that in 70% of market scenarios, she’ll reach her goal of $75,000 in six years, and Octavia’s totally set to start in on her coding, oboe, and hockey (or what have you) dreams.

Note: Maria’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.

Because Maria's not real, Octavia's not real, either. Octavia Butler, on the other hand, was an African American writer who broke all sorts of barriers in science fiction, and used it to comment on race and gender roles. If you haven't read her, Kindred is a great place to start.

See the Disclosures section below for how we calculated how much the hypothetical Maria would hypothetically need to hit her hypothetical goals.

Disclosures

© 2018 Ellevest, Inc. All Rights Reserved.

We assume Maria’s “Kids are Awesome” goal starts with a balance of $31,000, and she makes monthly contributions equal to 5% of her $125,000 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 portfolio that begins at 51% 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 $76,500 or better, and include the impact of an Ellevest advisory fee of 0.25%, taxes, and inflation.

We assume Maria starts with a 401(k) balance of $250,000 and she makes monthly contributions equal to 9.6% of her $125,000 salary into a 401(k) 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 portfolio that begins at 74.46% 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 $146,695 per year, or better, and include the impact of taxes and inflation.

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.

All opinions and views expressed by Ellevest are current as of the date of this publication, for informational purposes only, and do not constitute or imply an endorsement of any third-party’s products or services.

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.

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Ellevest Team

The Ellevest team is working to help women reach their financial and professional goals.