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Hi there everyone.
I had a quick question for the group from which i was hoping to get some opinions. Without going into individual funds within each account, I will give a quick and dirty layout of my overall financial status and then ask the question:
taxable accounts....around 650k
Profit sharing keogh....around 250k
emergency fund...about 6 months
529s for 2 kids...around 190k
House mortgage 285k left at 3.375% been paying it down pretty heavily. House started around 750k, probably now around 600k.
My main question is whether I should be deferring more of my pre-tax income to a defined benefits program through my group. It seems very stable, but it is a 20 or so physician group. My FA has been very helpful in many ways, but he is a little leery to recommend this to me. He has encouraged me to spend down the mortgage as a first step (of course, this is after putting money into all of the above accounts...I also save about 4k per month into taxable and put some of my bonus there at the end of the year). He explains that if for some reason my group were to dissolve, then my money would be at risk. He feels I am saving enough and not to take the risk. I am mid-30s if this helps at all.
Please feel free to ask any questions you feel I need to answer. Sorry for not posting in the usual manner, but I just thought Id get this out there to evaluate.
- Posts: 11
- Joined: Sun May 29, 2011 12:47 pm
you dont list your age but in general the older you are, the better a defined benefit program works for you (especially if you are paying for the plan). A couple of reasons are bc your kids are gone so you have lost those costs and deductions but are now almost exclusively focused on retirement. If you are older and thus have fewer years to retirement then you can defer more. If i were you, i probably would pay the mortgage down to get it to a non jumbo and then reconsider. You probably can get the rate down another percent at that point with refi if rates are similar to what they are now.
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- Joined: Mon May 24, 2010 4:03 pm
Who is managing the group's investments? Is it insured? What are the retirement benefits?
The surest way to know the future is when it's the past.
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- Joined: Wed Sep 14, 2011 8:08 pm
I have to say, I usually have a low opinion of FAs but your guy seems to have some dignity. He is advising you to pay down your mortgage faster, a move that does NOT benefit him in any way. They usually want every dime you've got so that their AUM fees go up. There are still a few good ones left!
I think being in your mid 30s with a 7-figure portfolio means you are doing pretty well. It seems to make sense that your money might be in jeopardy if the practice were to dissolve but I don't know enough about plans to make any definitive statements on that end.
With the kind of money you have already saved I like paying down the mortgage. It is a way to safely earn a return on the extra money you are able to save right now. When the mortgage is paid off you will have that much more per month to add to the DB plan if you choose to.
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- Joined: Fri May 25, 2012 10:38 am
You're doing fantastic! $4K per month in taxable plus any bonus. Your 529 plans are nearly funded, retirement is on track, I agree with your FA - get rid of the mortgage! The FA must be your friend, I don't know of many FA's who recommend something that is not in their interest with the exception of the one's who post on this forum.
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- Location: New York
Thanks for the responses, guys....much appreciated. I still have to find out a little more information about the plan before making any moves anyway, so I shall search out that info. Thanks also for the encouragement to keep paying down the mortgage. I think I would like to keep doing that and then maybe begin placing some money into the defined benefit plan once I am mortgage free!
Have a great weekend.
- Posts: 11
- Joined: Sun May 29, 2011 12:47 pm
Knowing the details of your group's DB plan will help guide your decision (and other's advice here).
For instance, is your DB plan a traditional pension plan that will pay an annual benefit upon retirement until death. Or, is it a Cash Balance DB plan that will pay a lump sum plus interest credit upon retirement.
As always, the devil is in the details.
For what it's worth, my group is starting a cash balance DB plan this year. We specifically chose this over a traditional pension because it was a cleaner exit upon retirement. That is, the group is not on the hook to provide an annual pension salary once a member retires. With the cash balance plan the "defined benefit" upon retirement is simply the participant/group/corp's contributions plus an annual interest credit (e.g. 4%). That's it. Clean and simple. In addition, if we were to dissolve as a group, merge, become acquired, etc. we can terminate our cash balance plan and roll the funds into our IRA/401k accounts to be self-managed.
Hope this helps.
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- Joined: Sat Mar 16, 2013 11:56 am
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