High Income Earner Humbly Seeks Advice

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LongTerm1
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High Income Earner Humbly Seeks Advice

Post by LongTerm1 » Sat Jun 03, 2017 9:23 pm

​Hello all

First time poster and long time boglehead reader. I have been lurking for several years now and ready to design an investment plan and stick too it. I'm the type that will implement plan asap.

Here are my numbers and I would love to hear your thoughts on a good long term plan. I'm fairly a quiet and private person so even sharing these numbers is harder than I had expected. Again- I am open too complete criticism and humbly know my situation might be different than some.

Married, 38 years old, filing jointly. My wife is stay at home mom. Two children under the age of 4 years old with another surprise on the way.

We do believe in supporting our church and charity work.

Background:

Assets- we have no debt on our primary residency, no credit card or student loans- we do owe about $225k at 3.75% on an office building.

My wife and I live off of $70k after tax dollars for our annual household budget. That amount has been paid in full for 2017. I write her a check at the beginning of every year- that way we don't have to worry about it.

Risk- I haven't had the experience of a bear market but I'm kind of a park and leave it guy. I would say that I have problems pulling the trigger/dumping in large amounts of money at one time but once it's in the market- big relief and really don't check on it. I have no basis besides a hunch there will be a good size correction but I thought that at Dow 17k and feel stupid yet grateful I learned what I consider a valuable lesson at a young age.

Education- I have setup Roth IRA's for both kids and contribute about $5k per year. My hope is to use these account toward their education expenses.

In regards to my retirement. I am currently doing a "defined benefit cash balance program." It is expensive to administer (about $6K which is a tax deduction) but allows me to contribute around $150K pertax dollars per year for my family. I have considered dropping it.

We also believe in saving toward our retirement.

WAY TOO MANY Vanguard accounts (embarrassing) but just glad everything has been consolidated into one place. Here we go:

Texas resident.

Finished training 3 years ago. 2015 pretax income was $1.4M and 2016 was $1.8M.

Taxable Account- $2,451,246 total (Vanguard Energy ETF $19K, Total Stock Market $549K, Limited Term Tax Exempt bonds $170K, Prime Money Market- $1,598,000, Misc stocks I wish I didn't own $205k)

Traditional IRA- $11k in Total Stock Market

Roth IRA- $48k in Total Stock Market

SEP IRA- $90K in Total Stock Market

401K- $236K total ($180K in Total Stock Market, $57K in Federal Money Market)

Cash Balance- $282K total ($206k in Target 2045, $76k in Federal Money Market)- needs to be in a target fund for a conservative return per cash balance administrator

Wife's Rollover IRA- $2,400 in Prime Money Market

Few questions:
1. Of course I want to know that exactly what you would be doing in my situation to help me design an investment plan. Funds and allocation percentages. Again I will feel so much better once the plan is in black and white- ready to implement. I'm a very goal oriented person.
2. Do you think I should discontinue the "defined benefit cash balance program" considering it's so expensive?
3. I hear a lot about Back Door Roth IRA's. Do you think this is something I should consider?

Again my friends I am grateful for this message board and thank you in advance for your opinions.
Last edited by LongTerm1 on Sat Jun 10, 2017 2:54 pm, edited 2 times in total.

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JDCarpenter
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Re: High Income Earner Humbly Seeks Advice

Post by JDCarpenter » Sun Jun 04, 2017 11:33 am

Congrats for putting yourself in this position. (Wow!)

First question: What are your goals for which you are accumulating your assets?

If, for an extreme example, your goal were early retirement, you are [hypothetically] almost there, if you keep the $70,000 post-tax spending going forward and get the office building paid off. :happy (to get 70K at a 3% withdrawal rate only requires a 2 1/3 million portfolio.) More realistically, to build the ranch home, pay for kids education, support charities/church, and ???, how much money do you and your spouse need/want? (From your post, you don't strike me as one looking solely at "how big of a pile can I accumulate")

As for investment allocations, you seem a good candidate for a three fund portfolio. You are a set it and forget it type and likely have little free time outside of work/family/volunteering--and family demands will likely increase as the tykes get older. OTOH, your savings each year are so much in excess of what you spend post-tax that you could just about "invest" it in a tin can in the back yard and be fine. (and, this is akin to what you are doing with 1.5 mill in the prime money market). Three fund would be easy though and would optimize your returns. Just sell the 19K energy ETF (not even a rounding error--why mess with it?) and the "stocks you wish you didn't own" and put into Total stock market or the international index. For tax purposes, put your fixed income allocation above your emergency fund in the tax sheltered accounts to the extent possible.

Can't really comment on the Cash Balance plan. Has been a topic of discussion here (one of the more recent, I think: viewtopic.php?t=183365 ) and at White Coat Investor: https://cse.google.com/cse?cx=partner-p ... gsc.page=1 Sounds like "it all depends."

As for backdoor roth, this site and white coat investor are full of discussions. Don't miss the wiki if you haven't read it. My personal feeling is that if you are only looking at $5500 a year (and are a high earner/saver), it isn't worth messing with. (Disclosure: we never really looked at this because we had such large deferred IRAs before it became an option.) Others will differ. Note that you need to convert the existing IRA holdings before doing backdoors if you want a clean process.
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LongTerm1
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Re: High Income Earner Humbly Seeks Advice

Post by LongTerm1 » Sun Jun 04, 2017 1:17 pm

​JD- thank you for your response.
Yes- I am a park it and leave it person. I really like the idea of the 3 fund approach. Again, I feel blessed to have figured out there is better, simplistic route to investing (hence my $205k of individual stocks I own from someone that was managing my money). You are correct I have little to no free time. The ETF I own with $19K is for energy when oil tanked. I do max out all tax sheltered accounts but need to figure out an overall plan for tax sheltered accounts and taxable accounts. My plan would be to figure of a plan- put existing money into work and then start putting money in over time to that same plan.

Goals. I think I'll walk away from my current job around 50-55 years of age and should be able to do some consulting or back to my former career (real estate). I won't be able to sit on a beach. Long term I don't need to own multiple homes or have lots of toys. I just want to be financially secure for myself and children. I like the simple life. I like the idea that I could buy something if I "needed it." Please don't get me wrong, my wife and I have plenty and don't do without but we personally believe an accumulation of lots of stuff is just noise to us. People literally comment all the time how clean our house is.... it's not! We just don't have lots of stuff.

I have no idea what my expenses will be next year or the year after. I'm not sure the $70K is sustainable but I think we will always keep it simple. Since I am still at the beginning of the accumulation phase of investing, I have never wondered how much I will need per year in retirement. Too many variables with young kids, their personal needs, education (I hope to be able to pay for their educations- together they have about $35k in roth IRA's), etc.

How much do we need in retirement? I think we can be fairly conservative in our position and do believe hitting singles all game wins the race, but I also believe in maximizing the potential under a conservative strategy.

In regards to a plan, I guess (and I say that loosely) I would do:
70% Total Stock Market throughout different accounts
20% Total International (VTIAX) throughout the different accounts. I know there is mixed feelings on international, drives me crazy with the increased ER, but maybe I have enough international in the target funds?
10% limited Tax exempt bonds (VMLUX) in taxable account. Or should I do intermediate tax exempt (VWIUX).

Again- please tell me I'm wrong or how you would allocate. Simple is good and generic is good but I don't feel like I have a grasp. Lifestyle funds, more target funds, balanced funds (VTMFX).....

In regards to pulling the trigger- I'm a simple person from a simple background. Never inherited a penny and probably never will. That said, if I am totally being honest, dealing with these kinds of numbers makes me nervous. Not nervous enough to get an adviser, so I can learn and get over it. Coming from my background and thinking $50k is a ton of money, it is more challenging than I would like to admit pulling the trigger with large amounts of money at market highs. I know the concepts are the same but it makes me nervous. I don't think I would have an issue if the markets corrected.

I cannot tell you how grateful I am to you investing your time and thought into helping my family become finaically independent.
Last edited by LongTerm1 on Sun Jun 11, 2017 9:26 pm, edited 1 time in total.

sport
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Re: High Income Earner Humbly Seeks Advice

Post by sport » Sun Jun 04, 2017 1:22 pm

LongTerm1 wrote:Education- I have setup Roth IRA's for both kids and contribute about $5k per year. My hope is to use these account toward their education expenses.
Does this mean you that have opened Roth IRAs in your kid's names? That would require that your children have earned income.

pindevil
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Re: High Income Earner Humbly Seeks Advice

Post by pindevil » Sun Jun 04, 2017 1:33 pm

sport wrote:
LongTerm1 wrote:Education- I have setup Roth IRA's for both kids and contribute about $5k per year. My hope is to use these account toward their education expenses.
Does this mean you that have opened Roth IRAs in your kid's names? That would require that your children have earned income.
I was thinking the same thing...I too have small children and would love to know how your little ones are generating income at such a young age.

livesoft
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Re: High Income Earner Humbly Seeks Advice

Post by livesoft » Sun Jun 04, 2017 1:36 pm

I'm guessing the children do have jobs. They are probably paid to work in dad's business as models for marketing purposes or something.

I think the kids can have $2100 in unearned income before they are taxed at the parent's rate, so perhaps $2100 tax-free. This might mean that parents should give children appreciated stock each year and have the children sell stock to have $2100 in LT capital gains each year. Check with your accountant and run the numbers. This might be a way to unload appreciated stock that you no longer want.

The children's Roths should not be used for college because they can be used for their retirement. 529 plans are a way to invest for college for the wealthy, so get some of those going for each child.
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BolderBoy
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Re: High Income Earner Humbly Seeks Advice

Post by BolderBoy » Sun Jun 04, 2017 1:43 pm

How old are you (and your wife) now. How old are the kids? What kind of capital gains(losses) would you be looking at by selling off the individual stocks in your taxable account? Are you holding the Energy ETF hoping "energy will come back"?

You are doing very well and just need a little guidance and nudging.
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LongTerm1
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Re: High Income Earner Humbly Seeks Advice

Post by LongTerm1 » Sun Jun 04, 2017 1:48 pm

Livesoft is correct. Each child is a model and per my accountant can make up to like $5k per year- tax free. I can't remember exact number. He always has me make up a reasonable number for them.

I was told a Roth IRA could be used for any education expenses (even private school), buying their first home or medical emergency. I was then told by them holding the IRA in their name it will affect any scholarships but with my two kids.... not counting on any. :shock:

LongTerm1
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Re: High Income Earner Humbly Seeks Advice

Post by LongTerm1 » Sun Jun 04, 2017 2:01 pm

BolderBoy wrote:How old are you (and your wife) now. How old are the kids? What kind of capital gains(losses) would you be looking at by selling off the individual stocks in your taxable account? Are you holding the Energy ETF hoping "energy will come back"?

You are doing very well and just need a little guidance and nudging.
My wife and I are both 38 years old. Two kids- 4 years old and 14 months old. Baby on the way.

Also- my wife is on the payroll.

If I sold the stock- I have a few super stars that have done well and lots of oil stocks that were bought for me and in the red. I just logged into vanguard and if I sold everything I'd be up $9k (that takes into account my few superstar stocks, terrible oil stocks and even one terrible REIT). Ironically not to change the subject but the good stocks I picked years ago and the person handling my money picked the losers. Shows what "professionals" know.

Yes I bought the energy etf (VDE) when oil tanked and hoping it would come back.

I know I need nudging but I'm being brutally honest. I don't know where do go from here.

Gronnie
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Re: High Income Earner Humbly Seeks Advice

Post by Gronnie » Sun Jun 04, 2017 2:23 pm

LongTerm1 wrote: I was told a Roth IRA could be used for any education expenses (even private school), buying their first home or medical emergency. I was then told by them holding the IRA in their name it will affect any scholarships but with my two kids.... not counting on any. :shock:
It can, but why would you want to? At the time they are in college it could still have 50+ years to continue growing tax free. At your income you should have more than enough to cash flow them through school.

LongTerm1
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Re: High Income Earner Humbly Seeks Advice

Post by LongTerm1 » Sun Jun 04, 2017 2:37 pm

Gronnie wrote:
LongTerm1 wrote: I was told a Roth IRA could be used for any education expenses (even private school), buying their first home or medical emergency. I was then told by them holding the IRA in their name it will affect any scholarships but with my two kids.... not counting on any. :shock:
It can, but why would you want to? At the time they are in college it could still have 50+ years to continue growing tax free. At your income you should have more than enough to cash flow them through school.
I agree. I just don't know where I'll be at in life. My wife is a firm believer in paying for kids schooling. I want to help as long as they are doing well and have some skin in the game. My hope would be to help them and if everything goes as planned I should be able too.

I do believe in making my kids work for stuff. I did and appreciate life more.

Any thoughts on asset allocation and designing a three fund plan? Funds/percentages?

livesoft
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Re: High Income Earner Humbly Seeks Advice

Post by livesoft » Sun Jun 04, 2017 2:49 pm

Everybody in your family can have the same asset allocation and funds:

34% Vanguard Total Stock Market Index fund
33% Vanguard Total Int'l Index Fund
33% Vanguard Interm-term tax-exempt muni (in taxable) or Total Bond Index (in tax-advantaged)

Of course, you can get more complicated when you learn more, but that's basically it. In some sense, this should have already occurred to you. https://www.bogleheads.org/wiki/Three-fund_portfolio

One would not be locked into to anything with the above and could adjust asset allocation pretty trivial with incoming cash.
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edge
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Re: High Income Earner Humbly Seeks Advice

Post by edge » Sun Jun 04, 2017 3:00 pm

Um. The numbers show that you will not be in a position to need to use the ROTHs for school. Why wouldn't you just peel off a small fraction of your income?
LongTerm1 wrote:
Gronnie wrote:
LongTerm1 wrote: I was told a Roth IRA could be used for any education expenses (even private school), buying their first home or medical emergency. I was then told by them holding the IRA in their name it will affect any scholarships but with my two kids.... not counting on any. :shock:
It can, but why would you want to? At the time they are in college it could still have 50+ years to continue growing tax free. At your income you should have more than enough to cash flow them through school.
I agree. I just don't know where I'll be at in life. My wife is a firm believer in paying for kids schooling. I want to help as long as they are doing well and have some skin in the game. My hope would be to help them and if everything goes as planned I should be able too.

I do believe in making my kids work for stuff. I did and appreciate life more.

Any thoughts on asset allocation and designing a three fund plan? Funds/percentages?

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vitaflo
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Re: High Income Earner Humbly Seeks Advice

Post by vitaflo » Sun Jun 04, 2017 3:21 pm

Did I read this right? You make ~$1.5M per year, have ~$3M in assets but have only $70k in expenses? Have you considered just calling it quits and enjoying your life?

As for AA I would just do whatever let's you sleep at night. Money seems to be the least of your concerns. You're going to have more than you'll know what to do with if you keep working regardless of what your AA is.

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Re: High Income Earner Humbly Seeks Advice

Post by arsenalfan » Sun Jun 04, 2017 3:36 pm

I second Livesoft's 529 idea. Dump $140k into 3 accounts, and be done with it for 5 years. After that, consider dumping another $140k in per kid.
Let the Roths grow as long as possible.

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jharkin
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Re: High Income Earner Humbly Seeks Advice

Post by jharkin » Sun Jun 04, 2017 4:02 pm

If you are actually living on 70k a year with 2-3MM saved...

you can retire today.

I'm seriously not kidding. Your done. At your income 1-3 more years and your kids, grandkids and even great grand kids wont' ever have to work either so long as you make smart decisions.


What was the training you finished a few years ago? MLB spring training ??? :sharebeer :sharebeer (thats a joke/rhetorical - you dont need to answer)

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patrick013
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Re: High Income Earner Humbly Seeks Advice

Post by patrick013 » Sun Jun 04, 2017 4:53 pm

Investment Priorities - a backdoor Roth even a small one is better than taxable. Any Roth-401k available ?

Tax-efficient Fund Placement - proper fund placement will increase your return.

Portfolio Allocation Models - I'd probably go with 25% bonds (Munis) in your 3-fund portfolio.
age in bonds, buy-and-hold, 10 year business cycle

LongTerm1
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Re: High Income Earner Humbly Seeks Advice

Post by LongTerm1 » Sun Jun 04, 2017 5:08 pm

vitaflo wrote:Did I read this right? You make ~$1.5M per year, have ~$3M in assets but have only $70k in expenses? Have you considered just calling it quits and enjoying your life?

As for AA I would just do whatever let's you sleep at night. Money seems to be the least of your concerns. You're going to have more than you'll know what to do with if you keep working regardless of what your AA is.
Yes you are correct. I live in a small town where I don't feel like we have to keep up with our neighbors. My parents/accountant are the only ones that know my salary.... and now bogleheads.

Every year I write my wife a check for $70k (now cars are paid off, house paid off, health insurance is paid through business along with HSA account, cell phones paid through business, wife pays property taxes) so that number might be a little misleading since so much is through the business . That is after tax dollars. $70k keep us in line with our neighbors and people we go to church with. We just took a vacation to Florida (family friends had a free place to stay and used credit card points for free flight) with money my wife has saved throughout the 2016 year. So at this point our 2017 family budget is done- my wife handles it and I don't even think about daily expenses. Our strategy allows me to focus on my business and puts her in total control of household. Of course if something major came about we would pull money elsewhere.

I really do need help with deciding on percentage & allocation for a plan in my situation. I think I will sleep better with a plan in writing. Help.

In 2014 Vanguard did a free plan for me (I did not have the assets I have today).

2014 Vanguard recommendation:

75% stocks (36% large cap, 16% mid, 23% international)
25% bonds (8% short term, 10% intermediate, 5% long, 2% international)

The bonds were a mix of taxable and tax exempt. Total was like 10 different mutual funds. I thought it was fairly crazy.

Thoughts?

LongTerm1
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Re: High Income Earner Humbly Seeks Advice

Post by LongTerm1 » Sun Jun 04, 2017 5:19 pm

jharkin wrote:If you are actually living on 70k a year with 2-3MM saved...

you can retire today.

I'm seriously not kidding. Your done. At your income 1-3 more years and your kids, grandkids and even great grand kids wont' ever have to work either so long as you make smart decisions.


What was the training you finished a few years ago? MLB spring training ??? :sharebeer :sharebeer (thats a joke/rhetorical - you dont need to answer)
I don't know what the future holds so I don't know if $70k will work in the future. Right now these are the numbers that work perfectly for my wife and I promise we don't deal without. It's just small town living with good people.

I finished residency and literally work all the time. Not sure if I can work this hard for the next fifteen years so at some point probably cutting back.

livesoft
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Re: High Income Earner Humbly Seeks Advice

Post by livesoft » Sun Jun 04, 2017 5:22 pm

LongTerm1 wrote:Thoughts?
My thoughts haven't changed from my previous post. Just get started. It really doesn't matter what allocation you select as long as it is tax-efficient and low-cost. I gave an example of that.
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LongTerm1
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Re: High Income Earner Humbly Seeks Advice

Post by LongTerm1 » Sun Jun 04, 2017 5:27 pm

patrick013 wrote:Investment Priorities - a backdoor Roth even a small one is better than taxable. Any Roth-401k available ?

Tax-efficient Fund Placement - proper fund placement will increase your return.

Portfolio Allocation Models - I'd probably go with 25% bonds (Munis) in your 3-fund portfolio.
Thanks for your response. I asked the pension plan people about Roth 401k and their answer was that I couldn't do it with doing the defined benefit cash balance program. They said the IRS makes you decide on one plan or the other.

Vanguard also said to go with 25% bonds. I just posted their allocation and it was way to many funds- like around 10 funds.

LongTerm1
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Re: High Income Earner Humbly Seeks Advice

Post by LongTerm1 » Sun Jun 04, 2017 5:34 pm

livesoft wrote:
LongTerm1 wrote:Thoughts?
My thoughts haven't changed from my previous post. Just get started. It really doesn't matter what allocation you select as long as it is tax-efficient and low-cost. I gave an example of that.
Livesoft- I really do value your advise and have followed your posts for some time now.

Do you think it would be too aggressive:

60% Total Stock Market, 15% Total international, 25% intermediate bonds

I guess it would make more sense to place the tax exempt bonds in a taxable account?

Allocate over 12 months?

Even consider a backdoor Roth?

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Re: High Income Earner Humbly Seeks Advice

Post by livesoft » Sun Jun 04, 2017 5:37 pm

LongTerm1 wrote:Do you think it would be too aggressive:
No, it would not be too aggressive, but you can always dial it down if you want.

Yes, to tax-exempt munis in taxable in your tax bracket. That's a no brainer.

Your portfolio growth is going to come from contributions mostly and not from stock market gains.

DCA or not? Doesn't matter. You could invest half now and DCA the rest over the next 10 months. Once again it won't matter as long as you get started.

And don't forget you have new money pile-ing up every month that has to go somewhere, too. Better start now.

It's only June, so you can work on backdoor Roths in December.
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Re: High Income Earner Humbly Seeks Advice

Post by GMT-8 » Sun Jun 04, 2017 5:44 pm

I agree with Livesoft. I just worked with a friend slightly older than you are who also has $2M+ in money market and who also doesn't need to work. But she does, in medicine. And worries. I can tell you what told her:

Put the money in the market, in the 3-fund portfolio and be done with it. Stop procrastinating. Then leave it alone.

That's my 2 cents.
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jcchen
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Re: High Income Earner Humbly Seeks Advice

Post by jcchen » Sun Jun 04, 2017 6:06 pm

If you are donating to your church, you can consider opening a charitable gift fund. And then donate appreciated stock or mutual funds to the CGF; you can deduct today's stock value and avoid paying capital gain tax. And then have the CGF give money to your church. The CGF's gift to your churcch can be anonymous, if you wish, to protect your privacy. This strategy has been discussed at various forums at bogleheads.

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Re: High Income Earner Humbly Seeks Advice

Post by cutterinnj » Sun Jun 04, 2017 6:14 pm

How old are your children? How are you putting 5k into Roths for them?

I have 4 and 6 year olds and wanted to start funds for them, but my accountant (and the folks here) told me it would be illegal unless they are truly doing 5k of work, which is hard (impossible?) to do for a 6 year old.

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Re: High Income Earner Humbly Seeks Advice

Post by livesoft » Sun Jun 04, 2017 6:18 pm

I just received in the mail a very nice flyer of a new dental practice in town. The photos used were of the dentist, their spouse, and their adorable children all with fantastic smiles! I bet those kids got paid modeling fees for this bit of marketing.
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patrick013
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Re: High Income Earner Humbly Seeks Advice

Post by patrick013 » Sun Jun 04, 2017 6:25 pm

LongTerm1 wrote:
patrick013 wrote:Investment Priorities - a backdoor Roth even a small one is better than taxable. Any Roth-401k available ?

Tax-efficient Fund Placement - proper fund placement will increase your return.

Portfolio Allocation Models - I'd probably go with 25% bonds (Munis) in your 3-fund portfolio.
Thanks for your response. I asked the pension plan people about Roth 401k and their answer was that I couldn't do it with doing the defined benefit cash balance program. They said the IRS makes you decide on one plan or the other.

Vanguard also said to go with 25% bonds. I just posted their allocation and it was way to many funds- like around 10 funds.
Plus the cash balance plans appear to be insured for life if the plan's assets fall short.

You could limit yourself to 3 or 4 funds without problem. Not much more to do.

60% Total Stock Market, 15% Total international, 25% limited and intermediate muni bonds
age in bonds, buy-and-hold, 10 year business cycle

qwertyjazz
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Re: High Income Earner Humbly Seeks Advice

Post by qwertyjazz » Sun Jun 04, 2017 7:01 pm

You make more money doing your job than worrying about AA at this point
So 1/3 each in a 3 fund portfolio in all accounts with bonds being tax exempt in taxable
70 from each parent *2 parents *3 kids in 529s
Fund Roth for each kid for their retirement
Then figure out what you want to do with your life in 4-5 years
Bring in partners? Do mission work? Teach, write etc etc
Get a good lawyer for asset protection
Work like you are for 4-5 years and you have set up your family for reasonable expense lives
At that point, optimize everything for next stage of life and then worry about AA
Good luck
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Re: High Income Earner Humbly Seeks Advice

Post by Leemiller » Sun Jun 04, 2017 7:09 pm

arsenalfan wrote:I second Livesoft's 529 idea. Dump $140k into 3 accounts, and be done with it for 5 years. After that, consider dumping another $140k in per kid.
Let the Roths grow as long as possible.
I agree with this. Spending Roth money on college at your income level is bizarre to me.

LongTerm1
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Re: High Income Earner Humbly Seeks Advice

Post by LongTerm1 » Sun Jun 04, 2017 7:27 pm

livesoft wrote:I just received in the mail a very nice flyer of a new dental practice in town. The photos used were of the dentist, their spouse, and their adorable children all with fantastic smiles! I bet those kids got paid modeling fees for this bit of marketing.
I have heard of dentist doing it for their practices. Don't forget photos on websites and photos on the walls throughout the office or practice.

To be clear from what I've been told, you pay a 10% penalty on the money you take out of a Roth before like 59.5 years of age but education is excluded. Now my children will be tax on that money each year they withdraw but it will be in their tax bracket not mine. It also affects their ability for financial aid and any grants.

I will need to look into the 529 option more. Especially if I can contribute $140k. I can do that every 5 years?

I liked the Roth option since I felt they could use it for retirement, education, house or school.

mac808
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Re: High Income Earner Humbly Seeks Advice

Post by mac808 » Sun Jun 04, 2017 7:39 pm

I'm assuming you are a nsx taking lots of trauma call and working around the clock. This goes without saying but make sure you have great malpractice coverage, as even post tort reform in Texas I've heard of some frightening cases. Disability also. Investing efficiently is great, but you need to do everything possible to protect your assets and income.

LongTerm1
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Re: High Income Earner Humbly Seeks Advice

Post by LongTerm1 » Sun Jun 04, 2017 7:46 pm

qwertyjazz wrote:You make more money doing your job than worrying about AA at this point
So 1/3 each in a 3 fund portfolio in all accounts with bonds being tax exempt in taxable
70 from each parent *2 parents *3 kids in 529s
Fund Roth for each kid for their retirement
Then figure out what you want to do with your life in 4-5 years
Bring in partners? Do mission work? Teach, write etc etc
Get a good lawyer for asset protection
Work like you are for 4-5 years and you have set up your family for reasonable expense lives
At that point, optimize everything for next stage of life and then worry about AA
Good luck
I agree with you and plan on working like this for 7 years and then figure out everything from there. Right now I just need to accumulate.

I just asked this but $140k is the max 529 I can make towards my children's education? Stupid question but can kids have more than one 529 program because my parents said they had opened a 529 for each child or maybe a joint account between grandchildren. No idea how much is in it but won't be counting on those funds with other grandchildren that will be in more of a need.

I can just contact my vanguard rep to setup 529?
Last edited by LongTerm1 on Sun Jun 11, 2017 9:39 pm, edited 1 time in total.

qwertyjazz
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Re: High Income Earner Humbly Seeks Advice

Post by qwertyjazz » Sun Jun 04, 2017 7:50 pm

LongTerm1 wrote:
qwertyjazz wrote:You make more money doing your job than worrying about AA at this point
So 1/3 each in a 3 fund portfolio in all accounts with bonds being tax exempt in taxable
70 from each parent *2 parents *3 kids in 529s
Fund Roth for each kid for their retirement
Then figure out what you want to do with your life in 4-5 years
Bring in partners? Do mission work? Teach, write etc etc
Get a good lawyer for asset protection
Work like you are for 4-5 years and you have set up your family for reasonable expense lives
At that point, optimize everything for next stage of life and then worry about AA
Good luck
I agree with you and plan on working like this for 7 years and then figure out everything from there. Right now I just need to accumulate.

I just asked this but $140k is the max 529 I can make towards my children's education? Stupid question but can kids have more than one 529 program because my parents said they had opened a 529 for each children or maybe a joint account between grandchildren. No idea how much is in it but won't be counting on those funds with other grandchildren that will be in more of a need.

I can just contact my vanguard rep to setup 529?
You can contribute no more than 14k as a gift per year before hitting lifetime gift issues per my limited understanding
You can precontribute 5 years at a time
So 5*14
And your wife can do the same
So 140
But my numbers might be wrong and would wait for someone else to confirm numbers/logic
G.E. Box "All models are wrong, but some are useful."

arsenalfan
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Re: High Income Earner Humbly Seeks Advice

Post by arsenalfan » Sun Jun 04, 2017 7:53 pm

Yes. One person can contribute 5 years at a time to a 529.
So you can do 70k, partner 70k = $140k.
That's per person, so hey kid's grandpa 70k, kid's grandma 70k = another $140k. Heck, Friendly neighbor can give $70k, and friendly neighbor's husband $70k. etc etc.

Many 529s have maximums they can hold, around 300k-400k. But if you max one, open another in another state. It could be a way to also pass down directed inheritance since you can rename for anyone (kid, then grandkid, then great grandkid) if you value education. But I digress.

bhough
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Re: High Income Earner Humbly Seeks Advice

Post by bhough » Sun Jun 04, 2017 8:29 pm

Dear longterm1,

Nice work. A few things that haven't been mentioned that you are probably already doing:

1. Need a lawyer and a will.
2. Need to ask lawyer about how you own your commercial building and who should be driving which car.
3. Need to have an asset protection plan in place BEFORE a lawsuit occurs
4. Wouldn't kill you to buy $10,000 each of I bonds and EE bonds for you and your wife each year.
5. Term life insurance for $2 million dollars
6. My wife has her own savings account with some of our money in her name. It is all in a savings account which is how she likes it. It makes her feel better and when she feels better I feel better.
7. Safe boring cars. I don't mean a hummer. Just buy your wife a honda odyssey if she is still driving a 1998 dodge caravan. I suspect you guys struggled for 15 years and still have these habits ingrained. If your wife breaks down driving your kids to school because you guys are trying to be frugal, that is an unnecessary risk at your asset level.
8. Umbrella policy

Thanks for your hard work.
b

livesoft
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Re: High Income Earner Humbly Seeks Advice

Post by livesoft » Sun Jun 04, 2017 8:51 pm

You like the Roth option for the kids which is GREAT and you should do it anyways, but in addition to the Roths, you should do 529 plans. And you might also look up Coverdell IRA to use for private school K-12.

Your kids aren't getting any financial aid, so that is not something that should enter you mind at this stage of planning.

And that tip about using a Donor Advised Fund (DAF) is a great one. You need one of those for charitable giving. Your accountant (parent?) should have already told you about that and you probably already have one. Mine is with Fidelity, but Vanguard, Schwab and others also have them available.
This signature message sponsored by sscritic: Learn to fish.

cutterinnj
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Re: High Income Earner Humbly Seeks Advice

Post by cutterinnj » Sun Jun 04, 2017 9:15 pm

LongTerm1 wrote:
livesoft wrote:I just received in the mail a very nice flyer of a new dental practice in town. The photos used were of the dentist, their spouse, and their adorable children all with fantastic smiles! I bet those kids got paid modeling fees for this bit of marketing.
I have heard of dentist doing it for their practices. Don't forget photos on websites and photos on the walls throughout the office or practice.

To be clear from what I've been told, you pay a 10% penalty on the money you take out of a Roth before like 59.5 years of age but education is excluded. Now my children will be tax on that money each year they withdraw but it will be in their tax bracket not mine. It also affects their ability for financial aid and any grants.

I will need to look into the 529 option more. Especially if I can contribute $140k. I can do that every 5 years?

I liked the Roth option since I felt they could use it for retirement, education, house or school.

So how are you getting $5k/kid into Roths?
I assume if I take a few pictures of my kids and put them on a website, I can't justify $5k/year.

Not to sidetrack things, but does anyone have some legitimate ideas on how to get money into Roths for kids under the age of 16? I currently only use 529's as I can't think of an IRS-proof way of getting money to my kids for their retirement.

LongTerm1
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Re: High Income Earner Humbly Seeks Advice

Post by LongTerm1 » Sun Jun 04, 2017 10:05 pm

livesoft wrote:You like the Roth option for the kids which is GREAT and you should do it anyways, but in addition to the Roths, you should do 529 plans. And you might also look up Coverdell IRA to use for private school K-12.

Your kids aren't getting any financial aid, so that is not something that should enter you mind at this stage of planning.

And that tip about using a Donor Advised Fund (DAF) is a great one. You need one of those for charitable giving. Your accountant (parent?) should have already told you about that and you probably already have one. Mine is with Fidelity, but Vanguard, Schwab and others also have them available.
I am going to setup a 529 plan asap with vanguard and I'll put the $140k in it.

I also wanted to clarify earlier- my parents and my accountant (separate people) are the only people besides my wife that know my financials. And. I my accountant has not mentioned anything to me about DAF. At this point I just write checks to the church.

LongTerm1
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Re: High Income Earner Humbly Seeks Advice

Post by LongTerm1 » Sun Jun 04, 2017 10:09 pm

Cutterinnj- what about advertising? Like livesoft said- flyers? Say you run an HVAC company and send out information to customers, TV ads, business cards, etc. that would easily costs you $5k. Accountant said if asked it needs to be a reasonable fee for work.

ImaBeginner
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Re: High Income Earner Humbly Seeks Advice

Post by ImaBeginner » Sun Jun 04, 2017 10:19 pm

We are in a very similar situation.

1. Insurance:
Life: Enough for kids college (I plan 250k a kid), and dream house, rounded up to next million.
Disability: Max it out. expensive, but you wont notice the payments. Definitely use post tax money.
Umbrella: Big, it is cheap.

2. Charity: DAF funded with all "winner" stocks. Loss harvest the losers. All my planning continues to give at current levels even when income drops.

3. Retirement accounts:
Max them out for variety later, but they will be dwarfed by taxable. Tax free growth is awesome. I use Roth so kids can inherit, I will never need it. I personally dont go for the high bond percent here, figure I want to grow these accounts as much as possible. Mine are stock:bond 80:20, and will stay that way.
Backdoor Roth: Easy to do for you and wife, and makes sense. They will never get gigantic comparitively, but it is a nice future inheritence. To be honest here, I use mine for very nonboglehead stock picking.

4. Education:
Superfund 529 for each kid right away and forget about it for 5 years. Consider doing it again then. Again, you wont notice the payment, and they are good for moving money to future in a way that encourages bettering oneself.

5. Emergency fund: Basically unnecessary for you. Just keep a quarter ahead's estimated tax laying around at some random internet bank.

6. Taxable: Shift to a three fund portfolio, use a bond rate of ~30%. You dont need maximum growth/risk here. You will be fine even with below average results, which I doubt you will have. US vs International is personal preference, but I wouldnt do more than 50:50. I like my country's chances still.
The only bad choice here is sitting with huge amounts on the sidelines. I had a lot sitting around for a few years because I was nervous, uneducated, not used to dealing with big numbers, and just plain busy.

7. Lifestyle
You need to start future planning to decrease workload. The feeling that you need to make hay while sun is shining is strong, as is the push to say yes to great opportunities.
Put in another year or two, but start looking for ways to offload, whether it would be a partner or dropping a little business. Figure out what you hate doing and subtly shift practice away from that. You can make 50% less and still hit all your goals, the big thing is to get rid of that debt and not draw down your current pile. From experience, it will take far longer than you think to titrate work down, begin planning years ahead of time. Evaluate all new opportunities for the time they will take from you.

You need to take the time with kids now, your wife now, your church now, etc.

Just for fun, your~3 mil now will be ~5.6mil at 55 yo with4% real rate of return (inflation adjusted), which will give you ~200k yearly at a 3.5% draw if you only work enough to not draw from it.

brybogle
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Re: High Income Earner Humbly Seeks Advice

Post by brybogle » Mon Jun 05, 2017 2:02 am

You talk about decreased workload. But let's say you reduce your workload by 20% (1 day a week), that would drop your income by 20% x 1.5M = 300k/yr.

Basically, an hour of additional work for you is worth $750. If you can pay someone $20/hr to save you time you might have otherwise spent working, it's worth it. I wonder if you could spend a small amount of money to make your workload more tolerable. For example, buying a house with a shorter commute. Pay someone to clean your home once a week, or watch your kids for a date night once a week, or help take care of the kids in the mornings. Maybe then you'll be less tired/burnt out from work.

As far as investment advice, 3-fund portfolio is the way to go as your baseline and go from there. If you're more adventurous, you can invest a small % in alternatives like real estate/etc. If you're less adventurous, dump everything into one vanguard target fund and stop worrying about it.

rrppve
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Re: High Income Earner Humbly Seeks Advice

Post by rrppve » Mon Jun 05, 2017 4:15 am

Maybe I'm missing something here. What's the point of working your a** off and training for 10+ years to earn $1.5mm annually and only spend $70k. Enjoy the fruits of your labor. Smell the roses. Take some awesome vacations with the family before school and youth commitments constrain the schedule. Have some fun. You've earned it. :sharebeer

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BL
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Re: High Income Earner Humbly Seeks Advice

Post by BL » Mon Jun 05, 2017 11:59 am

Consider Roth for spouse as well if she is not contributing.

You can withdraw Roth IRA contributions, but not gains, at any time with no penalty.

Umbrella insurance and disability.

High 529 contributions every 5 years.

Take your family on a nice vacation.

Try to reduce your work hours.

Increase family allowance each year.

Read WhiteCoatInvestor blogs and book.

Bonds 30-50%.

alfaspider
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Re: High Income Earner Humbly Seeks Advice

Post by alfaspider » Mon Jun 05, 2017 12:41 pm

qwertyjazz wrote:
LongTerm1 wrote:
qwertyjazz wrote:You make more money doing your job than worrying about AA at this point
So 1/3 each in a 3 fund portfolio in all accounts with bonds being tax exempt in taxable
70 from each parent *2 parents *3 kids in 529s
Fund Roth for each kid for their retirement
Then figure out what you want to do with your life in 4-5 years
Bring in partners? Do mission work? Teach, write etc etc
Get a good lawyer for asset protection
Work like you are for 4-5 years and you have set up your family for reasonable expense lives
At that point, optimize everything for next stage of life and then worry about AA
Good luck
I agree with you and plan on working like this for 7 years and then figure out everything from there. Right now I just need to accumulate.

I just asked this but $140k is the max 529 I can make towards my children's education? Stupid question but can kids have more than one 529 program because my parents said they had opened a 529 for each children or maybe a joint account between grandchildren. No idea how much is in it but won't be counting on those funds with other grandchildren that will be in more of a need.

I can just contact my vanguard rep to setup 529?
You can contribute no more than 14k as a gift per year before hitting lifetime gift issues per my limited understanding
You can precontribute 5 years at a time
So 5*14
And your wife can do the same
So 140
But my numbers might be wrong and would wait for someone else to confirm numbers/logic
Contributing more than the $14k means you would have to use up a very small portion of your lifetime gift exclusion. I'm not sure that's really a huge concern. While the OP's heirs may eventually end up paying estate tax given his high income if things stay the same, we are talking about a tax that is likely 50+ years into the future, and the continued existence of the gift and estate tax is somewhat dubious even in the short term.

LongTerm1
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Re: High Income Earner Humbly Seeks Advice

Post by LongTerm1 » Mon Jun 05, 2017 5:44 pm

rrppve wrote:Maybe I'm missing something here. What's the point of working your a** off and training for 10+ years to earn $1.5mm annually and only spend $70k. Enjoy the fruits of your labor. Smell the roses. Take some awesome vacations with the family before school and youth commitments constrain the schedule. Have some fun. You've earned it. :sharebeer
Reducing workload is in the future. I keep telling myself this is a marathon and not a sprint. I drive myself crazy with working more efficient. I honestly don't know what else I could do to optimize my production any more than I currently do besides hiring additional staff.

Roth IRA- I don't think my wife or I qualify unless you are saying backdoor Roth.

rrppve- honestly my wife and I are not doing without. We just like it simple- wife shops at Walmart for groceries not the high end supermarkets and I cut the grass for exercise/stress relief. We both drive nice cars, spend time with friends and family and volunteer weekly. I try to see my children throughout the day- usually happens about 3 to 4 times per week. Might sound crazy to some but how can life get any better?

I get a lot of statisfsction of being able to buy something and pay cash for it if I need it. If my wife has to have that new suburban, if it's a must, I tell her to get it.

My financial life is currently about accumulation and reducing taxes. I think that's where most of us are at.

gilgamesh
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Re: High Income Earner Humbly Seeks Advice

Post by gilgamesh » Mon Jun 05, 2017 8:07 pm

The defined benefit cash balance plan that allows you to put away $150k is a pension plan right? You are guaranteeing pension to your employees too correct? I think there's a strict rule on how much you are allowed to use from the pool. Do you understand exactly how it works?

Can you just get away from it like you've alluded to?

I am not an expert, but many in my career, at least towards the end, look to put away that much. However we were always told those defined benefit plans are not worth the trouble.

You obviously don't need any of that money, but curious whether you know the complexities involved, and if you do, can you explain a bit for me.

I hope you know it's not just another 401k with profit share...those are all defined contribution plans, yours guarantees pension to all your employees.

P.S: You mentioned residency, so assume it's a medical field.

LongTerm1
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Re: High Income Earner Humbly Seeks Advice

Post by LongTerm1 » Mon Jun 05, 2017 8:55 pm

gilgamesh wrote:The defined benefit cash balance plan that allows you to put away $150k is a pension plan right? You are guaranteeing pension to your employees too correct? I think there's a strict rule on how much you are allowed to use from the pool. Do you understand exactly how it works?

Can you just get away from it like you've alluded to?

I am not an expert, but many in my career, at least towards the end, look to put away that much. However we were always told those defined benefit plans are not worth the trouble.

You obviously don't need any of that money, but curious whether you know the complexities involved, and if you do, can you explain a bit for me.

I hope you know it's not just another 401k with profit share...those are all defined contribution plans, yours guarantees pension to all your employees.

P.S: You mentioned residency, so assume it's a medical field.
Sure I would be glad to share what I know.

Yes- pension plan. You are only guaranteeing the plan as long as it's functional. I asked about long term and they said the plan makes sense if you can do it for at least three years.

Here's the story- I was paying an investment guy 1% to manage my money. He has discretion over my account- I ended up loosing money (shocker). During our long 10 month relationship they suggest the defined benefit profit sharing program to reduce taxes and save for the future. I ran everything by my accountant, several conference calls and then we decided to do it.

It's fairly complex. I don't as told it only makes since if you are keeping at least 80% of all contributions and had a small staff. I think our numbers came back at like 97%. The company runs lots of numbers based on hours worked, wages and employees ages (younger people get more of a benefit than older). My employees have the option to contribute toward the plan but all decided against it so this "retirement package" is just a perk to the job that I pay. The money toward each employee vests over 4 years and if the employee leaves/gets fired then left over funds can be used toward administration fees.

Two separate accounts- 401k and cash balance. 401k can be aggressive investment. I use Total Stock Market. Cash balance needs to earn around 4%- I use target date funds. You invest as you please.

It's honestly a pain. Yes I contribute $150k but it seems like the administrators are always needing something. It's also expensive.

Any way I can help. Ask away.

grokzilla
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Re: High Income Earner Humbly Seeks Advice

Post by grokzilla » Mon Jun 05, 2017 11:08 pm

LongTerm1 wrote:Cutterinnj- what about advertising? Like livesoft said- flyers? Say you run an HVAC company and send out information to customers, TV ads, business cards, etc. that would easily costs you $5k. Accountant said if asked it needs to be a reasonable fee for work.
LongTerm -- Just a real world reality check from a parent with a kid who is a model -- they don't make what you probably think they make. Kid models are common and the pay reflects that reality. $5.5k earnings over the course of an entire year for a kid modeling in print is a A LOT of modeling work -- and that's in a major metro working with major brands.

I'd just advise some caution there -- anything that draws the eye of the IRS gives me the heebie jeebies! Or, maybe just make sure you knock out LOTS of photoshoots! ;-)

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vitaflo
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Re: High Income Earner Humbly Seeks Advice

Post by vitaflo » Tue Jun 06, 2017 12:34 am

LongTerm1 wrote: I really do need help with deciding on percentage & allocation for a plan in my situation. I think I will sleep better with a plan in writing. Help.
Thoughts?
If you can't decide, I would go 50/50 and call it a day. Your income vs your expenses means that whatever the market gives you will be nothing compared to what you are saving every year. You are your returns. The market isn't going to do a whole lot for you either way when you're saving 90% of your income every year.

For what it's worth, people with extreme income to expenses ratio's tend to go very aggressive. The reasoning is since expenses are so low they can live off of the low bond % just fine, and let the stocks ride and never touch them. Warren Buffet I believe set up an aggressive portfolio for his wife for this reason.

That said, the easiest way to know the answer is just to see your reaction to an AA. If you feel 50/50 is too aggressive, then go more conservative. Or vice versa if you feel the other way. The math says it really won't matter in your situation at all.

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