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I'm an older partner, so take this with a grain of salt. I had my 401k maxed since manager (Roth 401k once I became partner), and when my spouse worked, she did the same. I then split my money between 529 plans (each of my kids is almost college age, and each now has around enough for a 4 year college), which I started when each was still in diapers. I also had a bunch of CDs at various rates, until interest rates went south, and would reinvest my year end distribution in either a CD (when rates were good) or a mutual fund. I started with some basic index funds as well, because independence rules make investing in individual stocks too hard. The last thing I did was throw extra money every month at my mortgage. I now have no debt of any kind, house worth 7 figures, and am investing 50% of my take home in index and bond funds. I was always a middle of the pack partner, compensation-wise, but have amassed a nice amount of money to retire and to pass on to my kids, even before I start collecting from my pension. The key is to pay yourself every single month, through automatic investments if you can, and live on what's left. Sometimes even I'm amazed at how much it grew, because I never felt like I was scrimping on day to day living. Those little things every month do add up. Good luck to you!
Great advice. Thanks
The best high level rough guard rail advice I’ve heard is a 1/3 approach. 1/3 of your salary to savings, 1/3 to taxes and 1/3 to living.
Confirming >50% effective tax rate in California. Not counting property, sales or cap gains taxes
HSA. And don’t use it. Wish I figured that out sooner. Best saving account there is. Then 401k, then back door Roth, then 529s, then brokerage. Brokerage- vanguard funds plus stocks for fun for whatever you are willing to lose.
Got it. Then just need to wait until you are 65 right? So similar benefit to the Roth IRA?
Roth for you and spouse; fund 529 plan, tax efficient investing in Index ETFs
Low turnover vanguard index fund is the standard response for this once all other pretax accounts are exhausted.
Tesla
Ibonds.
Buy more real estate using debt. Put enough money down to ensure the properties cash flow at ~80-90% of expected rent.
I only do single family homes and rent to folks with very good (700+) credit, employment history, background checks, etc. It’s more work up front, but like to think it reduces issues and I’ve had good luck with this approach. My wife and I manage them ourselves (she also works full time in an executive role) with little time invested. If /when it ever gets too much work, ill hire a property manager.
Partner 5 - as a 25 year partner who retired on 6/30/21, I think this is great advice. Very similar profile to yours. I always told our younger partners to live well within your means and you’ll wind up with a great balance sheet.
EY 2 - at least in the case of PwC, we do have what I’ll call “separation agreements” with partners, initiated by the Firm, prior to their mandatory retirement age of 60. You could refer to them as buy-outs (eg leave now and get paid your current comp for the next year, plus you have your pension etc). There are several reasons why we may come to certain partners with those arrangements.
Thanks P5!
I’m not even bold enough to have the rest in a brokerage. I have all my excess cash in the firm’s PDP. It earns 4% nice and safely.
My Roth is maxed every year, but that’s only 12k, so it’s not really that big a benefit.
What, specifically, are you stunned by BDO?
How are you eligible for Roth - would think income limits prohibit? Or dong back door? Besides maxing 401k I assume you are making HSA if have one
Unless you desperately need your HSA funds (eg, in an emergency), you should not withdraw them. Instead, you should keep the earnings invested and pay the medical costs out of pocket. Make sure you save your healthcare receipts, and you can withdraw them 10 or 20 years from now, likely with the investment earnings to pay the past costs. Also, once you retire, you can use the HSA to pay for your medical premiums and other costs. It's "triple tax free money," because it goes in tax free, compounds tax-free, and gets withdrawn tax-free, as long as you use it for qualified expenses.
Also, if you decide you want to tap into the HSA later on in life, after age 59, you can even withdraw the funds without penalty, and only pay ordinary income tax just as you would on an IRA or 401k withdrawal. The HSA is really a great tax-deferral vehicle if you're willing to keep the receipts in your files and pay the current medical costs OOP.