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  • Newbie portfolio review

    Hi all, I’m new here but I’ve been reading and learning from WCI for the last 6 weeks approximately. My background is that I’m in private practice in surgery, with a stay at home wife (who is on my payroll) and two kids, 17&15 (also on the payroll). I’m very impressed with the underlying theme of frugality by many of the posters in this group and although I tend to be fiscally conservative I do spend on the finer things as long as I am convinced I can afford to. My concern is a sense of professional burnout due to the stress of my career and I was hoping to get some financial perspective from the group as to where I am financially in case I decide to retire the scalpel. I realize my kids will be starting college soon so that is a big financial burden I will have to incur so I understand I may have to continue working until their education is done. I live in a high cost of living area and spend plenty on vacations as I feel it’s necessary for my kids to see the world that most others their age will never get a chance to see and growing up I never had the family resources to do what I’m able to do now. I’ve been out of residency for almost 16 years.

    Details:
    Primary residence estimated value 1.45 million with 637k loan balance at 2.5% as a 7/1 ARM maturing in 7/2027
    Rental property #1 value 750k with 357k loan balance at 3% as a 7/1 ARM maturing in 12/2024, net monthly income $330
    Rental property #2 value 300k fully paid off, net income $2,115 per month
    Student loan balance 123k at 2.75%, monthly payment $1,250, still have about 14 years left (I know most here are obsessed with reducing this ASAP but I am not, feel free to chastise me)
    Porsche & BMW fully owned with no loan (I like my toys) and I know some will get angry at me but I am getting a new Tesla model Y with a bank loan at 1.79% for 5 years ($975 per month payment)
    I have never missed any payment in my life that I can remember

    Personal cash in bank 300k, Business cash in bank 225k
    Brokerage account 1.14 million (mostly individual stocks and several ETFs, I’m trying not to pick individual stocks and to stick with low cost index funds but what can I say I’m flawed for thinking I can find the right stocks, lessons have been learned)
    Retirement accounts (me and the wifey) 1.05 million (combination of actively managed mutual funds and ETFs and passively managed ETFs, AA is probably 85% stocks and 15% bonds) I do have a financial advisor that charges a 1% annual fee, I did have a conversation recently with Vanguard about switching over and they charge 0.3% per year but I was not too impressed with them. I’m sure I will make some sort of change to save money.
    Roth IRA for each child is about 24k
    No 529 plans as I was too busy saving for my wife and I and collecting toys (judge me as you wish)
    Personal yearly income is 500k, this may go down in the next few years if I decide to work less.
    I do realize I have financial security but not yet independence and although these are definitely first world problems I have I’m hoping someone is out there in a similar situation that can empathize, criticize, and maybe just give me a pat on back and say you’re ok. I do love performing surgery but I dislike everything else surrounding it. Thank you to all.

  • #2
    You'll get the following advice from many posters.
    • Get rid of individual stocks and switch to mutual funds
    • Get rid of the 1% advisor and switch to low cost brokerage, negotiate a lower rate or DIY
    • You don't seem to be debt adverse as many people are here, but paying off debt would be a suggestion. Probably start with the 7/1 arm.
    • Don't borrow money for the Y, but that interest rate is low
    • 529 for kids? Kind of late in the game, but you can take the state deduction
    • Overall, I think you're doing fine. My biggest advise is get rid of the 1% advisor fee... That's gross.

    Comment


    • #3
      I think your plan is ok, I think you may be under estimating the cost of two kids in college though. I would would payoff your own student loans before college bills start. Unless you are not going to pay for college or do CC you can be looking at 5000 plus a month for each kid which significantly affects cash flow at home. I’m guessing you are in your late 40s or early 50s based on the age of your kids. It might be difficult to continue the same life style if you plan on retiring early. I would look for a new advisor that would help with short term and long term goals , to just buying stocks

      Comment


      • #4
        • Congratulations on making a good living and your toys.
        • I see $2m in retirement assets. You might want to find an hourly fee only retirement planner or do it yourself.
        Current cash burn rate and retirement cash burn rate. No idea if your rentals are positive cash flow or the tax hit in rearranging your accounts.

        •You have a debt load which I assume will be gone and those college expenses knocking on the door. How are you going to do that?
        • Based on your retirement cash burn rate, how much will you need to have saved?
        • Once you know that answer and have the assets,, only then can you get a feel for when you don’t need to work anymore.

        I doubt $2m will do it now.
        Rule of thumb:
        25 x retirement expenses
        4% x retirement assets = max withdrawal rate from retirement assets

        By the way, your FA hasn’t been earning that fee. Should have ALREADY have done this.

        You trained to make a good income and seemed to have used the big shovel to enjoy the fruits of your labor.
        Time to use the big shovel to create a FI retirement. Spend some time or pay someone to make your plan.

        That is when it’s fine to shutdown the shovel. The alternative is to keep shoveling.

        Comment


        • #5
          When I read your post, my first thought was that you have quite a low retirement saving rate for your current lifestyle. You probably need to budget more to have the ability to spend the same amount in retirement.

          A quick calculation is that you have approximately 2.5 million in investments. At 4%, you are looking at $6600/month from these account. With your rental income, it is approximately 9K/month income, which is slightly over 100K annual salary in retirement. It seems like your expenses are much more than this.

          See below for my individual comment.

          Burned out and 16 years in practice
          -You may want to consider how you can save more and pay off debt to obtain financial independence. A budget may help here

          Details:
          Primary residence estimated value 1.45 million with 637k loan balance at 2.5% as a 7/1 ARM maturing in 7/2027
          Rental property #1 value 750k with 357k loan balance at 3% as a 7/1 ARM maturing in 12/2024, net monthly income $330
          Rental property #2 value 300k fully paid off, net income $2,115 per month
          Student loan balance 123k at 2.75%, monthly payment $1,250, still have about 14 years left (I know most here are obsessed with reducing this ASAP but I am not, feel free to chastise me)
          Porsche & BMW fully owned with no loan (I like my toys) and I know some will get angry at me but I am getting a new Tesla model Y with a bank loan at 1.79% for 5 years ($975 per month payment)


          -You have quite a bit of individual debt. Forgetting the retirement property (cash positive), you have over 750K in mortgage and student loans. If you plan to downsize in retirement, it may work out. However, on your 500K salary with potential decrease, it may be worth decreasing your debt.

          Personal cash in bank 300k, Business cash in bank 225k

          -Why so much cash? I would keep 6 months maximum in your personal bank account and pay off debt and/or invest.

          Brokerage account 1.14 million (mostly individual stocks and several ETFs, I’m trying not to pick individual stocks and to stick with low cost index funds but what can I say I’m flawed for thinking I can find the right stocks, lessons have been learned)
          Retirement accounts (me and the wifey) 1.05 million (combination of actively managed mutual funds and ETFs and passively managed ETFs, AA is probably 85% stocks and 15% bonds) I do have a financial advisor that charges a 1% annual fee, I did have a conversation recently with Vanguard about switching over and they charge 0.3% per year but I was not too impressed with them. I’m sure I will make some sort of change to save money.
          -You have 2.19 million total in retirement over 16 years. This seems quite on the low end to sustain your current lifestyle (see above for my basic calculation). I do recommend moving the 1.05 million to a self brokerage account. You are paying 10K on fees alone, which is absurd.

          Roth IRA for each child is about 24k
          -Great start for your kids

          No 529 plans as I was too busy saving for my wife and I and collecting toys (judge me as you wish)
          -Are you planning to pay for higher education for your children?

          Personal yearly income is 500k, this may go down in the next few years if I decide to work less.
          -You may need to work harder to pay off your debt and gain more cash in retirement.

          Comment


          • #6
            Rough assets are $5.2M and debts are $1.1M.

            To me, your net worth is fairly real estate heavy, but to each their own.

            Definitely learn to DIY (as long as you can stay the course) as the 1% fee is around $20k annually compounded. It's easy as keep putting money into 85/15 VT/BND.

            Are you going to have 3 cars after getting the model Y? You may find yourself liking the model Y enough to replace your other cars.

            I don't have kids but you don't have to pay for their college, but it's sure nice for you to do. Definitely worry about your future finances before your kids. I'm sure they'll appreciate you being FI and not being a burden on them when they're adults.

            You're doing fine, but everyone can usually do a little better with finances. Especially if you want the option of retiring early or at least slowing down while keeping the same lifestyle in retirement.

            Comment


            • #7
              No one is here to judge you.
              How much do you spend vs save for the future? A high income does not necessarily equate to financial security. You can afford three cars and fancy vacations. But can you afford to retire early and maintain the same lifestyle? I doubt it.

              Comment


              • #8
                Thank you to all that have commented so far and I look forward to more comments. My age is 46, turning 47 later this year. I do plan on keeping all 3 cars. I keep the cash on hand high as a combination of emergency savings and future college expenses. I do not want to put more into the stock market unless it is for retirement. My parents, with what little money they had, helped me for college and I feel an overwhelming need to pay it forward with my own 2 kids. My plan is to save about another 400k over the next 6 years for college expenses and possibly debt reduction. I will travel in the future after my kids finish college but it will be just 2 of us so the expenses on that end may decrease. I do not feel any of my debt is a major burden currently but I am shocked that (udrag14) believes I have not saved enough yet for retirement, I will have to explore this situation. There were a few years from 2009-2013 where I left one practice as an associate to start my own and did not contribute enough for retirement because I wanted to build up on cash and investments. I will definitely consider a lower cost option for an advisor. I know money does not buy happiness but I am comfortable with the fact that money provides me a smooth road for the pursuit of happiness and personal vacation time with family is priceless. As an aside, I know my financial life jumped the proverbial shark when back in 2013/2014 I was planning a family vacation and my oldest child (who was around 10 at the time) asked me if we were going to stay at a Ritz Carlton

                Comment


                • #9
                  As several have commented, you are on a good path to financial independence, or retirement if you prefer, but you are not there yet. As Tim points out, the simple drill is to figure out what you spend now, then consider how those spending rates will adjust in retirement. Only then will you know if your current investments will cover your expenses. My arithmetic is a bit different than udrag14, but to me me it looks like you are under $150K a year from your investments including both paid off rentals after expenses. Eventually you can add social security, but ideally not until age 70. You don’t really break out your spending, but I’m going to guess it is at more than $150k a year (500-taxes-investments-loans). So, first advice is to identify how much you spend so you can evaluate what the investments will throw off.

                  I totally agree you should fire the financial advisor. As best I can tell he or she provides no value added and she is a drag on your performance. Any competent advisor at that level should already have walked you through some version of this drill. I also agree that Vanguard’s 0.3% service is not that helpful, but DIY is pretty straight forward if you use no cost diversified mutual funds. If you want some help with the budget deconstruction as well as spending plan, then hire a fee only financial planner. Several have been vetted on the WCI website, but this should cost you a few $1000 at most. (Not necessarily recommending, but check out https://www.fiphysician.com as well.)

                  You earn a lot, so no reason not to spend some on a good life. But given your desire to pay for your kids college, and probably through cash flow at that, I personally would not take on the new Tesla. Not trying to be judgmental here, but how many cars can you drive? Suffer and keep driving the $#[email protected] Porsche and put the Tesla money towards college. (Or sell the Porsche and get the Y, whatever.) And I certainly would not be carrying the student loans at this point. Your cash is earning zip. Paying off the student loan is like earning 2.75%. That is respectable in the current interest rate environment.

                  Of course, you can keep working hard and earning big. All that income will allow you to stay on the path you are now and still retire or cut back after the kids graduate. But if you want to be FI sooner, the modest adjustments above will make it a lot easier. My guess, and I am no planner, is that you will need both rental properties and the main home paid off, college expenses behind you, as well a total of $3M investable funds (add another $1M) to retire stress free if you plan to keep current lifestyle.
                  Last edited by Larry Ragman; 04-12-2021, 09:43 PM.

                  Comment


                  • #10
                    While your student loan and Tesla loans will be very low interest, why have those loans at all with $300k sitting in the bank earning likely nothing?

                    Your advisor better be earning that 1% annual fee. Statistically, they're not. Other than that, you'll be fine no matter what you decide but you should sit down and calculate how much that 1% is costing you over 30 to 40 years. Hint: it's a lot.

                    Comment


                    • #11
                      With all due respect. You can have anything you want. Just not everything. Or at least at the same time.

                      Everyone is saying the same thing. Figure out your retirement nest egg and go do it. Yes, your choices make a difference, get the info you need. The last thing you want is at 80 or so is to find out you shorted yourself.

                      Comment


                      • #12
                        Net worth 4 million at 47? I think that is pretty darn good. Especially considering you are living the life you want and not a pinching pennies as some here like to do. I project that I will be around where you are when I am your age, though I think I will have worked a few less years to get there.

                        There are two valid points to be made. 1, are you going to be able to spend the way you want in retirement based on your current lifestyle? and 2, you can make a few improvements.

                        The advisor and the actively managed funds are low hanging fruit to gain you 20k per year. The other thing is to put that cash to work. Probably too late to put the money into 529, but maybe you can get some state tax deductions and put the money into a 529? Or use the money to pay down some debt and then cash flow college? Find a plan that doesn't involve sitting on cash. that's a pretty big drag.

                        Comment


                        • #13
                          I'm all about using leverage to your advantage, particularly during these times of low rates, but financing a depreciating asset like a car is kinda dubious. Especially since you have a bunch of cash sitting there anyways. If that cash is actually in a muni bond or something, then it's fine, but if it's just in the account, it's slowly deteriorating.

                          Comment


                          • #14
                            I really hate to say this, but I’m not overly impressed at this point. What I see is a high-spending lifestyle, 2 kids coming up on college with no provisions for such (you’ve effectively spent college funding on luxury travel and cars), and already burning out with a SAHW and potentially 40-50 years of no earned income ahead. You won’t run out of money, bc you would be forced to cut back on spending, but you sure would have to alter your lifestyle. Plus you are making a lot of excuses for your decisions, I guess to soften the blow of what others may say.

                            To be in your career and own a practice and not be FI and debt-free at this point, especially given that you have chosen to build a life in a HCOLA, is a little scary, but that’s just me. CAVEAT: I am not your financial “advisor” (in fact, I don’t think you have one) and this is general advice.

                            Just realized, you d/n mention life and LTDI, which I hope you have plenty of.
                            Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                            Comment


                            • #15
                              There’s one variable I haven’t seen discussed above. You’re a practice owner. What are your plans for the practice in retirement? Are you going to sell it outright? That could provide provide a huge chunk of change that could facilitate your early retirement.

                              If we ignore that factor, then I agree with some of the other comments. You’re not in a terrible place, but you’ve made some poor decisions that will probably keep you from an early retirement if you continue at this pace.

                              Read about the 4% withdrawal rate. I think it’s a generally safe estimate for you since you have a lot of variable spending and will be able to pare down you’re spending in retirement if the going gets tough. You have to sit down and figure out how much you're currently spending in a year, and then try your best to forecast you will spending in retirement. Healthcare costs will go up and be substantial if you retire before 65. Traveling costs may go up since it seems like you enjoy traveling and will have more free time, even if it’s without kids.

                              you should figure out your annual estimated cost of spending in retirement and multiply by 25. That’s the amount that you should have saved for retirement. Obviously once your rental properties are paid off, you can subtract those from your target. But I would not recommend carrying mortgages into retirement. The reason many feel that you're probably not ready for retirement is your level of spending, which is fine, but it will probably preclude you from retiring early. We can’t be sure because we don’t have a detailed annual budget for you.

                              You have to do the hard work and sit down and look at your spending in terms of concrete numbers. You seem to indicate that you were open to cutting back instead of completely retiring early, which is probably the best middle middle ground as I doubt you’re ready to outright retire right now. If you want to cut back to 70% of what you're doing now, do you still have enough income to cover your debts, your lifestyle, and your planned spending for colleges and toys?

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