Friday Roundup 026R

026R | The Friday Roundup | Paul Case Study – Part 5 | Final

In today's podcast we discuss our takeaways from Episode 26 with Physician on FIRE plus some exciting developments in the Financial Independence world as well as feedback, questions and comments from the ChooseFI community.

In Today’s Podcast we cover:

  • The Friday Roundup after the Physician on FIRE interview. Listen to the full episode with Physician on FIRE here.
  • Information for the high income professionals and how it’s important to give details for that aspect of our audience
  • Does the perfect answer exist for high income professionals pursuing FI? It might not be possible to defer enough money to get them out of that high marginal tax rate
  • “A dollar saved is two dollars earned in the 50% tax bracket.” A brilliant quote from Physician on FIRE
  • Everything comes down to living a frugal lifestyle
  • “Doesn’t your spouse deserve a really great lifestyle?” asked the White Coat Investor. “Well yes, and she’ll have one, but she deserves my time.” Responds PoF.
  • The fundamental flaw in the ‘retirement calculators’ that are published online for “normal people.”
  • Your current income is not relevant when considering your retirement number. It is all about your expenses.
  • For new physicians, you need to avoid the blowup in spending on cars and expensive homes when you get that first big paycheck
  • You need to keep your fixed expenses down to a manageable level and you can splurge at the margins on other things
  • Don’t fall into peer pressure to live an expensive lifestyle. Maybe move to a smaller town and practice geographic arbitrage in the US
  • Brad’s own geographic arbitrage in his life moving from Long Island to Richmond, VA
  • Optimized charitable giving with a ‘donor advised fund’
  • Discussion of the ‘backdoor Roth’ that Physician on Fire mentioned on the episode and the applicability for high income earners
  • A new Camp Mustache event was announced for January 2018 and the tickets are available
  • The ChooseFI private Facebook group is running and extremely vibrant and we’d love for you to join us
  • Scott Rieckens contacted us about a documentary on the FI community that he is embarking on
  • The FI community is on the verge of a breakthrough in the US
  • Brad’s mom is listening to the podcast and had a frugal win of the week
  • Feedback from PastorFI: College hack for student housing
  • Discussing the call from Mark from Student Loan Freedom from Episode 25R about permanent life insurance
  • Feedback from about Ken’s prior call about the ESPP from Olaf. He clarified the tax treatment on the purchase through the Employee Stock Purchase Plan
  • Don’t let paying taxes get in the way of making a smart financial decision
  • Noah from Money Metagame’s call about how to remove escrow to potentially save hundreds of dollars per year
  • Part 5 of the case study with Paul including Paul’s feedback on his daughter’s college plans plus Paul’s summary of the case study
  • Frugal Wins of the Week from the ChooseFI Community
  • Itunes Reviews of the Week and Book Winners

Links from the show:

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10 thoughts on “026R | The Friday Roundup | Paul Case Study – Part 5 | Final”

  1. I listened to your recent podcast about hacks for high income earners. Here is one for consideration for your high income audience.

    Some large corporations allow executives / high income earners access to non-qualified deferred compensation (NQDC) plans. In many ways they function like 401ks, in which you can defer pre-tax income into investments. You can elect to contribute above your 401k/IRA, and contribution ceilings are usually much higher than 18k per year. The company may also elect to match a percentage of contributions. Unlike 401ks, they are paid out once you leave the company either immediately or over a period of time. They are also part of company general obligations and are not protected if the company goes bankrupt, so people need to be very certain that the company has long term sustainability.

    This is how I plan to use it:

    I am a highly compensated individual with highest marginal tax rates of 50% (state and federal). My plan allows me to take distributions as a lump-sum, over 5 years, or over 10 years upon termination, with the option to defer distribution one time for 5 years. They also match 3% of the first 6% contribution amount.

    I defer 50% of my salary and 75% of my bonuses every year and put them in an AA of 75/25 vanguard mutual funds. This allows me to dramatically reduce my marginal tax rates. Once I retire in 3 years (around 50), I will defer my 10 year distribution for 5 years, and immediately take distributions for my 5 year plan. This will bridge my income between 50 to 65.

    So for illustratively purposes, if I have $1.5M in the account, comprised of $1M 10 year distribution, $500k 5 year distribution. I will get $100k per year from ages 50-55 and another $100k from ages 56-65.

    If you are given this option and work for a very stable company, I think it’s the perfect FI vehicle beyond the traditional pre-tax investment accounts.

  2. I am a pediatrician and I loved that you guys had an interview with Physician on Fire this week! However, you implied today on Friday Roundup that most physicians come out of residency making $300,000 plus per year. This is not true at all for the majority of primary care physicians. Most primary care docs don’t make anywhere near this much money straight out of residency and most won’t ever make that much money.

    • I love that you pointed this out. And I’m embarrassed because I knew that this was true. Without intimate knowledge I assume that it ranges anywhere from 180K to 250K for Primary care. We were intentionally focusing on the concept of the high income professional and could/should have been more accurate with regard to the wide actual range of physician salaries

  3. International Frugal win of a lifetime!

    Hey guys,

    I’ve been dating A lovely lady who lives in Indonesia. She was jealous of my lifestyle, I’m a 33 yer old retiree, so she let me help her sort out her finances. She was fairly clueless about money so there was plenty of opportunity to improve. Since her income is only $8000 any changes to recurring expenses can have a massive impact. She moved from a house to an apartment, canceled a redundant insurance policy, and pulled back on her charitable giving. These changes will allow her to save $261 per month or 3132 per year, thats 40% of her income. The best part of about improving your recurring expenses is it creates recurring savings.

    The fire is spreading worldwide!

  4. To Paul for your daughter’s college plans,

    You might want to look more closely into the curriculum required for an associates degree versus what is required to transfer as a junior from a community college. In our state, the requirements are significantly different, which could pose a problem. An associates degree is worthless in the job market or for transfer. If she uses up credits getting the associates degree, while not having the required credits for transfer, she’ll have to take more courses than necessary.

    Also, I assume you’re aware that the AP tests are for high school students and CLEP tests are for high school graduates.

    Here are a few pointers about the AP tests. Probably the best one to take first is the Engllish Composition, which will prepare her for the essays on all the other tests. For homeschoolers, Pennsylvania Homeschoolers has a well established online AP course offering. Our son took four of their courses including English Comp and chemistry. If you can’t find a suitable AP course near you (or even if you can), this program is well worth it.

    Bear in mind there is no need to take an AP course to pass the tests. Some of the tests are very difficult and will require a lot of preparation and discipline. Others, not so much. For example, because of the large Hispanic population, the AP Spanish test is VERY DIFFICULT. Whereas the world history course is fairly ease and has fewer choice for answers on the multiple choice sections.

    I gave our daughter an art history book, told her to read it. Then we bought the AP Art History study book for the practice tests. She got a 5 on the exam. She then took American and European History courses, but she never took a world history course. She merely bought the AP study book, did some practice tests and got a 5 on the exam. So don’t think that, if your daughter is a diligent student, that she has to take courses to take the tests.

    Good luck.

    • Carol, thank you so much! These are great tips for our daughter’s high school studies. I am casually throwing around “associate’s degree” but we will be targeting the credits for her that will transfer from our local Juco. We hope she can accumulate two years. I suspected the same about the AP classes, particularly history, so I’m glad you confirmed this. Our oldest took AP classes in high school and took the subsequent exams, and earned almost a year of credit. So while it isn’t our first rodeo with AP, it is our first time pursuing AP credit as homeschoolers. Thanks again!

  5. I’m behind on the shows, so I just heard you read my ESPP comment today – glad that you found it added value. Love the follow up point about paying a mortgage just for the interest deduction – I see that’s getting some more attention on this week’s roundup, looking forward to that whole discussion.

  6. Man!! You make my life worthy, donor advisory fund, back door roth, roth conversion, college funding etc. We learn many powerful tools, it shapes our life – it’s unimaginable. Interview is one thing but Friday explanation, you take it to completely new level – you guys are great. God bless you and God bless FI community.

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