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  • Basic investing question

    Hello,

    I have completed my fellowship two years ago and have paid off my loans in Jan this year. Currently, I am 36 yrs old, looking into investing.  So far, I have been maxing out my 403B, 457 and also contributing 529 for my 3 kids (3, 2 and 0 yrs, 333$ a month each).

    I have 70 K in taxable account in Fidelity and not sure where to go from here.  It seems like I have no direction.  I have people around me that are buying apartment complexes, farms, commercial complexes with huge loans.  With my limited understanding I feel that these are too high of risk and without enough resources I am not sure I want to lock down that much money aside.

    Also with a little bit of reading, it seems like just indexing(stocks/bonds) will get me to comfortable zone by age 55.  Is this really true?  Why is everyone "diversifying" so much?

    If I can invest 10K a month (which is 45% of my take home pay monthly currently) for next 20 years, with 7% returns, I should have ~7 million.

    I understand I am assuming that I keep this job, without injury, divorce, sickness etc..

    Is this 7 million subjected to income tax or capital gains tax? (is that 20%?).

    Also someone who is making 700000-750000K a year, without any good or bad luck, how much can I expect to retire with?

    I am sure this is not how things will end up but just want to understand what are the possibilities if I stick to the process.

    Thanks in advance.

     

     

     

  • #2
    It works.

    FLP

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    • #3
      With your income and savings rate all you have to do is run out the clock and not do anything stupid.  Just stick with taxable account

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      • #4
        at your income your STCG and non-qualified dividends will be taxed at ordinary income rate...your qualified dividends and LTCG will be taxed at 23.8%

        Yes.  if you regimentally stash 10k/month for 20 years you will have close to that wad.  Taxes above will eat some away.  Keeping fees low helps.

        you don't need to do anything else...stock market works.....the beauty of personal finance is its personal...do what works for you..... That plan will work.

         

         

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        • #5
          Sounds like you're making good decisions to me. I've basically done what you did and am feeling financially comfortable at 43.

          You probably don't need this, but...


          Cheers!
          -PoF

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          • #6
            You can expect to retire with as much as you save, invest wisely (diversification, low costs), and depending on your asset allocation.

            Your accounts will be diversified from a taxability perspective. So do some more reading from the links above. Agree, good start.

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            • #7
              There are many roads to Dublin. You don't need to take on much risk. If you're able to save $100-150k a year, you'll have plenty.

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              • #8
                With your salary I would save and invest more. And contribute more to the 529s. Invest the money in s&p fund.

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                • #9
                  It almost seems too easy. However take a good look at your peers and very few are saving anywhere close to that. Or they are doing something dumb like putting everything in CDs or checking accounts or pot stocks or Bitcoin.
                  A simple 3fund portfolio will outperform more often than not. Stick with it!

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                  • #10
                    My only criticism is that making 750k a year, you should be able to save more. But otherwise yes, your calculations are correct, and unless you want to deal with real estate and other stuff, index funds are likely sufficient.

                     

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                    • #11
                      A simple, low fee portfolio will do the trick over time.   At this age, you will probably be mostly in stock index fund.  As you switch your asset allocation, put more of you bond funds in your tax deferred or tax free accounts.  let you savings and the magic of time do the rest.

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                      • #12
                        Your tax rate will depend on which investment vehicle the funds are parked and how long you hold on to those investments.

                        In a traditional IRA/401(k)/403(b)/457 you are not taxed on the funds deposited but taxed at your income tax rate at the time the funds are withdrawn.

                        In a Roth IRA, you are taxed at your current rate but pay no taxes at the time the funds are withdrawn.

                        In a taxable account, you pay your personal income tax rate if investments are sold within a year, but at the capital gains rates if held at least a year. At your income level you will probably pay 20% plus NIIT. The Net Investment Income Tax (NIIT) or Medicare Tax applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.

                        In an HSA, the funds go in tax deductible and come out tax deductible if you use the funds for qualified healthcare expenses - this is a small amount that can be invested currently roughly $7K/family annually so the income that goes into these funds are never taxed pending you comply with withdrawal rules.

                        In a 529 education savings plan, contributions are made with after tax dollars and distributions are tax free if used for qualified educational expenses.

                        At your income, you will need to look closely at your high tax rate via a good accountant. At $700K you would be in the top tax bracket. I am in this position and have mitigated taxes with business ownership so I can write off expenses, charitable donation (apparently donor advised funds are the preferred way to do this), real estate for tax depreciation and income diversification purposes, home ownership for deductions on primary mortgage/HELOC interest and property taxes with new limits on these deductions. These real estate deduction limits are not in place for commercial real estate, so I put more there.

                        At $700K/year income, retirement with about $7M (10 x earnings) is doable even with a conservative approach, and probably more if you play your cards right.

                        Financial people here, please correct me as needed please.

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                        • #13

                          EntrepreneurMD wrote:At your income, you will need to look closely at your high tax rate via a good accountant. At $700K you would be in the top tax bracket. I am in this position and have mitigated taxes with business ownership so I can write off expenses, charitable donation (apparently donor advised funds are the preferred way to do this), real estate for tax depreciation and income diversification purposes, home ownership for deductions on primary mortgage/HELOC interest and property taxes with new limits on these deductions. These real estate deduction limits are not in place for commercial real estate, so I put more there..

                          I would ignore this paragraph. No need for an accountant and no need to search for tax depreciation schemes

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                          • #14
                            FLP, see below:

                            https://fitsmallbusiness.com/rental-property-depreciation-rules/

                            No accountant huh. Not sure the DIY approach here is the best approach for OP. Doctors don't know as much as we think we know as and that hurts our finances, myself included.

                            OP, saving a couple of bucks by doing your own taxes can be a very costly error. The right way, slow and steady over the decades gets you there.

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                            • #15
                              Majority of physicians have no need for an accountant, no need for a cpa and no need for a financial advisor.
                              Your taxes may be complicated because you are an entrepreneur with a complicated business but for someone like me and most other physicians, there’s no need or benefit to an accountant or cpa. I didn’t bother clicking on your link because I don’t have any interest in rental properties.

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