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April 27, 2012

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It looks like you are in great shape. You have a very high balance in the 529's and may have enough set aside already. If you needed more once they go to college, you could probably just cash flow the difference. You could just divert those funds to regular savings.

Since you do not use a financial advisor and have a conservative investment style, I would suggest picking up a book by William Bernstein, such as this one:

http://www.amazon.com/The-Investors-Manifesto-Prosperity-Armageddon/dp/0470505141/ref=lp_B001H6ID14_1_3?ie=UTF8&qid=1335524572&sr=1-3

Not only will you find similar themes to the Millionaire Next Door, but he does one of the best jobs talking about the risk of each investment and how to establish a proper portfolio allocation in a tax efficient manner.

Like yourself, I am also concerned about the potential cuts in reimbursement and the impact on physicians. The medicare situation is very scary. However, your current cash flow (after the current mortgage is paid off) should still allow you plenty of room to consider a move even if we see some of the proposed cuts.

"Currently, I spend one week a year on mission trips to 3rd world countries to serve - by way of operating on the needy."

That's awesome. Most Americans would do more good giving the travel costs to an effective charity than they do on an international service trip. Surgeons are clearly an exception. Kudos.

I'll second the note on the 529s. Seems to me you already have too much in those accounts so I would stop those contributions right away.

You already have 25k/year in your budget for school and plan to raise that as your kids enter middle school. If your kids are in school spanning 6 years your normal 25k/year would add 150k in typical school cash flow to your existing 310k for 460k total for college. In today's dollars a max of 60k/year * 8 for your two kids yields 480k total needed.

I realize that private high school may overlap college but the point is you have the assets and cash flow to cover it with existing savings. What if you kids get a scholarship or if they get accepted to a great state school?

Even if you feel you must put away that money for college, I'd just save it in a separate account that is not in a 529b.

Question back to you. How do you avoid lifestyle creep? I know you can't completely but what do you do to avoid new 'stuff' even though you can afford it?

Erik

It definitely seems that you have enough in the 529s...I don't know much about that as I don't have kids, but aren't 529s investment accounts? You've got 10 years til your kids go to college, that money should grow on its own.

The only other thing I would suggest is, why not bullet-proof yourselves against job loss/healthcare cuts/etc. now by saving that $4k from the 529s in some other kind of non-retirement investment? You say you have $50k in cash saved up - well that is only a few months worth of your fixed expenses as described. I'd suggest keeping the $50k in some pretty liquid savings but then channel that $4k/month into a similarly liquid investment vehicle.

I don't see life insurance and disability insurance noted here. That would be a pretty high priority if I found myself in this position.
Congratulations on giving your time and energy to those less fortunate!

Thank you very much for taking the time to submit this post – I really enjoyed it. You all have done exceptionally well for yourselves – I know it must have take an enormous amount of arduous effort to achieve such exceptional educations and positions in your field. Well done. Mostly I am VERY surprise at how well you have done avoiding lifestyle creep. We have several medical professionals in our circle of family and friends; I have noticed that most doctors have a strong desire to “enjoy the fruits of their labor” and spend heavily on vacations, cars and other status symbols that inversely reflect the delayed gratification and discipline they exerted for many years while in school, residency etc. By-the-way I can’t say that I actually blame them for that – I can only imagine how difficult it was! Well done.

Secondly, it is very clear how much value you put on education (private school for the kids, huge 529s) – that’s great and so long as you continue to have the cash flow I see no problem funneling your money in that direction. I will remind you that as young as your kids are (< middle school aged) – 300K in a good mutual fund could take that balance over a million before they are ready for college. I get the feeling you are saving for the potential of Ivy League tuition – and you have the money – so stay the course with your plans! If you have money left over in the 529s you can just repurpose it for grandkids at a later date when (and if) that time comes.

I am assuming you have 2-4M in term life insurance on yourself (consider you have the house paid off). I would also carry 5M in umbrella liability if I were walking in your shoes (on top of your malpractice) – that actually is a pretty inexpensive policy to have.
I would avoid moving into a leafier part of town UNLESS you are willing to compromise in other areas. I bet you are carrying those car loans because the interest rate is rock bottom (0-2%). I would pay them off and only purchase with cash for those depreciating assets moving forward.

This is just an aside but you just PAID OFF YOUR HOUSE !!!! WOOHOOOO!!! Go splurge a former house payment on something your family has been wanting for a while. You have earned it!!!

You and your wife have clearly done a fantastic job with your education, careers, income and with managing your money. Great job and enjoy!!!!

CP and his wife are obviously doing great financially. Making $500k a year, saving about 1/3 of after tax income and they're millionaires.

Only recommendation I'd have is to make sure they have beefy insurance policies for disability and life insurance. A good umbrella policy for a couple million would be worthwhile too.

I don't think the 529 savings is really 'too much'. Sounds like the kids are relatively young. Putting 2 kids through 4 years of an expensive school could easily be $50k/year x 4 years x 2 kids = $400k total. Thats in todays dollars and by the time they hit college age it could be $1 million total cost.

I'd recommend you hire a wealth management firm (about $500/yr). You will have to consider many more issues like estate planning that may get too thorny for you to do alone.

Thanks for flaunting your obscene amount of salary. Friggin' disgusting.

I'm not saying people don't have the right to earn as much as they want. That's a fundamental right. But every year when you demand more pay and when you demand more profit you are raising the cost of healthcare in America. Why can't greedy people just be satisfied with just a little less. OP, you have a lot of money. You earn a lot of money. How about you take $100,000 pay cut this year and use that 100K to provide free or cheaper care to your patient. How about doing some charity surgery every month? You'd still make 300K and you'd be raising the quality of life for everyone else. That in turn is going to increase your quality of life and in the long run, you'll probably end up making more.

Give this some thought.

Wow, John...what a thoughtful and constructive comment! Perhaps the reason it took CP 6 months of reading others' reader profiles before submitting his own is because he was watching to make sure the comments weren't filled with vitriol towards the people publicizing the details of their financial lives - hardly "flaunting" his salary.

Secondly, if you want the best, brightest, and most qualified Americans operating on you when you're in a critical car accident, you won't begrudge the man his salary that is compensation for the 2 decades of schooling and study, insane hours, and "always-on-call" status as a surgeon.

The only disgusting thing on this site is your uninformed comment.

I literally have never said this online before. But you are an idiot John. Seriously.

You most certainly will never taste the joy of well earned economic success. For your attitude alone I feel sorry for you.

The man is already donating a week of time a year to needy people and intends to increase that generosity over time – did you overlook those comments?

What is your annual salary? Why don’t you give half of it away to me?

Give that some thought.

Agreed...John that was way out of line. I have the utmost respect for doctors because of the time they committed--no easy way out in Medical School.

If you want to hate someone, focus your energies on those getting inheritances without working or those cheating the tax system or those abusing welfare.

Hard work and subsequent success should only be applauded.

John, your comments come off as spiteful and mean. The poster said he nets $25,000 a month after taxes. That means about 60% of their $500K income goes to taxes, leaving them with $200K. Those taxes are used to benefit everyone else. I don't begrudge them their $200K per year after all the years of hard work and lower income during those years it took to become a doctor. Plus many doctors have high malpractice insurance payments and high student loan bills to pay.

Also he already does charity surgery..yet you beef about that?

Pennysaved, I generally agree with your point, but not your math. $25k a month is $300k.
I wouldn't assume their taxes is exactly $200k either.
The IRS bill would be around $135k or less and their SS/medicare bills would be around $20k. So thats around $155k to federal total. Probably less given their deductions. Thats 31% of their gross. Their state income tax rate could be anywhere in the 0-9% range.

Yes they pay a lot of taxes. But they certainly do not pay 60%. Total tax burden of 40% is possible.

CP,

You are doing amazingly well- the effort you put into your education is finally paying off- and you are earning an amazing compensation. Even more impressively you are saving a large amount of your take home pay and have accumulated a large amount of assets.

If you keep your lifestyle in check and protect against misfortune you should do extremely well. As others have mentioned review insurance coverage- you don’t want your family to suffer financial disaster if you were hit by a bus.

You have enough assets that getting professional assistance to manage your money may make sense- if an advisor could improve the tax efficiency of your taxable retirement account it would be worth $3400.

> My wife and I debate, daily, the value of private school since we are both a product of public schools.

I’ve struggled with that question as well- however we wanted religious education for our kids and since my son has done very well at the private school he is attending I don’t want to mess with success. I think they could do fine in a public school, but at the same token you are making enough to afford the tuition without sacrificing savings. I would talk with your family and come up with a list of the advantages of the private school. With that list evaluate if it is worth the cost.

>We consider moving into a leafier part of town. But, I am not sure it is a wise move given the projected >cuts in health care in the near future.

I suspect your $500K home in the Midwest is already very nice. Will moving to a more expensive “leafier” house really make you happier? I doubt it. It will tempt you to increase your lifestyle- to keep up with richer Jones? I suspect so. If you like your home and neighborhood- why move, even if you can afford to do so? I wouldn’t without something that would definitely add value- like a shorter commute.
Since you are a fan of “The Millionaire Next Door.” – Check out this post from Dr Stanley’s blog talking about reasons millionaires choose less expensive homes:
http://www.thomasjstanley.com/blog-articles/347/Millionaire_Rule_1.49.html

-Rick Francis

I too think Johns comments are uncalled for and unfair.

CP already does volunteer and he plans to do more in the future. I appreciate the service that doctors provide society and simply doing their job is helping others.

John - Get real. Factor in the massive amount of money CP spent on his education. Then factor that he did not start making money until much later in his life versus those that come right out of college. Physicians have a much shorter period of time build their financial life. They also work much longer hours than others.

Greedy? Give me a break.

Unfortunately, there are many out there like John. They envy those that earn more money, saved more money, etc. and feel as if they the money really doesn't belong to those that have earned it. Our current political environment has fueled this mindset as well. I fear a future where those that have worked hard and have earned/saved during their lives will have there savings impacted by means testing and wealth taxes.

My only thought would be to pay your nanny more! Not easy to tell from the remark you many hours a day she's working, or whether she lives in and has room/board/car as part of her compensation, so this remark may be off base. Hopefully she's being paid above the table so she is getting Social Security credit, etc. as much of a hassle as that is.

But someone who is helping you raise your kids is doing the most valuable possible service for you, and the last thing you want is to a) seem to not appreciate that, or b) cause any feelings of resentment. After all, your kids are likely to learn more life lessons from this person than from school.

I make waaaaay less than you guys, and have always paid at least $15/hour for anything like that, even for high school girls, and we don't live in NYC! Also has the advantage that I was able to pick the best of the best both in the areas of character and level of education.

Good for you that you're able to NOT worry after money after many years of preparation and hard work.

@John
Sour grapes aren't going to get you anywhere! You're just angry that you didn't have what it takes to be a surgeon. Think about it if you ever have to go under the knife. I'm 77 and I have the best eyesight that I have ever had in my life thanks to the wonderful lady ophthalmoligist that removed a cataract along with the lens from each of my eyes and replaced them with lens implants. My wife can now walk without pain thanks to the orthopedic surgeon that replaced both of her arthritic hip joints with artificial ones.

If you compare surgeons with many of the professional ball players in this country, surgeons are very underpaid.

Forget John's attitude, his logic is off-base. To quote the ever-popular saying: don't hate the player hate the game. American healthcare is a growing monster of high administrative costs, technological innovations, million-dollar workups for patients, Big Pharma (prescription costs are growing faster than GDP and /or any other healthcare cost), and much more. A skilled surgeon earns his pay. If the ACA goes through and he nets 100k less in 2016, I bet you he'll still do his charity work without much hesitation. Have faith in our medical professionals.

Let's back away from the John comment. Being 'overpaid' is a worthless 'debate' as I've never seen anyone ever change their mind on the issue.

Back to the numbers. It appeared almost strange to me that one with an annual $300K take home and $750K in retirement & savings combined at 43 was getting pats on the back from everyone.

Its obvious though that the income came a lot later than most and they've built up the other assets well (house paid off, 529s maxed IMO).

Best, if you look at the expenses theres only $8K/month there after house paid off & kids move out and retirement savings finished.

I'd say just pile up money & investments (which there is now not enough of at this age and desire to make major changes in 10 years or so) for maybe the next 5 years (looks like 15K/month is avail now without house payment and 529s finished). At that point you'll probably have enough in investments and be close enough to the big changes to be able to know what kind of house you can really afford for the life you want, etc, and not have to delay any dreams.

CP has discusses the pros and cons of private vs public schools and expressed a desire to move to a warmer climate.
Northern California, where I live has a beautiful year round climate and the doctors that we have got to know very well handle the school issue by living in one of the more prestigious "very leafy" neighborhoods. You only have to look at the public school test scores printed in the newspaper to see that the areas where the high income people live have, by far, the best schools. You pay a lot more to buy a home in these prestigious neighborhoods but you don't need to pay very expensive private school costs and you also have a home that holds its value well because of the housing demand to move into that area. Be prepared however to pay at least $2m for a beautiful home in a great neighborhood with great schools, here in Silicon Valley.

I'd like to point out to John that if the physician was truly greedy he'd be working as a fortune 500 CEO somewhere making more money with less value to society. My husband is a surgeon too and I can testify to the YEARS of advanced education and high stress required for the profession. Surgical skills take a huge investment of time and education and constant practice to develop and maintain and the results justify the high incomes. I am an RN and both my husband and I "give back" to the community in monentary and non-monetary ways. How about you, John? How much of your time and or income do you devote to helping others?

Thank you all for your comments. I appreciate the encouragement & I will take heed to your advice. With regards to 529's, my plan is to save about 300k for each child. I've been looking at current out-of-state tuition (just in case) and it runs quite high - over 50k. Our hope is that kids will go to graduate school and that will incur extra expense. I'm concerned about the market possibly staying stagnant for a long time - and therefore have at least half of the 529's in high yield mutual funds. As one reader suggested, 'I could "re-gift" left over money to grandkids' - and that is what I would do.

With regards to life insurance I have a $2M term policy until I am 55. I hope by then I have saved enough to no longer need life insurance. Additionally, my kids would be out of the home and my wife could work full time if anything were to happen to me. Disability insurance is very important and I have worked with my insurance agent to maximize my benefit for any injury that would not allow me to operate.

Life style creep is an issue. It becomes easier to spend larger amounts of money on home decor, vacation, etc... We pay ourselves first - by automatically transferring money out of our checking account into our various savings accounts. That leaves us feeling that we have to be careful about how we spend the left over money in our checking account. We try to take money out of the savings accounts for real needs - taxes/tuition/necessary home remodel projects/etc. (By the way with regards to the reader asking about our nanny's pay - she only works 15 hours a week - so her pay is approximately $15/hr)

I don't take John's comments lightly and he has a point. I think any great country should not have vast disparities between the professional and working class. On the surface, it does seem to me that some of our country's executive class and even some in my own profession are exploiting the general public for their own benefit; and its disappointing. I don't feel my salary is out of line given the sacrifices I have made to get to this point and the amount of time I continue to put in to provide the best care I can.

I wanted to put the details of salary etc out there of so that people know that tangible result of hard work in this country - which is amazing. I also think it may be helpful to 'demistify' what a high salary buys you. Yes it buys you security - but no it doesn't always buy you a lavish jet-setting lifestyle that some imagine. I suppose if I didn't value saving for retirement or my kids education I could do more jet-setting (but I don't think the government will bail me out here.)

To some degree money can buy you happiness. And to me that happiness comes from spending money on those around me - especially on those less fortunate. I don't intend to amass wealth to bury in my coffin or give away to my children. I hope to use it wisely to lead a productive life and spend the rest on making those around me more productive (which I think makes us all happier). Thanks again for your comments.

Well said CP.

Wow. Because CP is highly skilled, provides a tremendously valuable service and contributes greatly to society, he is justly rewarded. It sounds to me like John believes, "From each according to his ability, to each according to his need." After all, CP's ability is his valuable medical service, and apparently John thinks everybody else needs free healthcare. That doesn't even recognize the fact that CP already contributes more to the pool than the average American earns. Oh and by the way, he donates to charity in time (service) and money. Here's an idea, we should just take all the farmers' crops and distribute them to everybody because, heck, they have the ability to grow food and everybody else needs to eat, right?

Who is the greedy one? The person who wants to keep what they rightfully earned without force, or the person who wants to take that which they did not earn with force?

Think about that one, John.

Fantastic accomplishment CP. A few things for you to research more:

1. Subscribe to some paid for investment services that hold your type of thinking and will screen good ideas for you. I have a lot of doctor friends, and they do not have the time to do good research. So, this will bring many filtered ideas that can be your 'narrower starting point'.

2. Your mix of Stocks and Bonds is a great idea, although at your age, you can afford to be in stocks. Having looked at Emerging Markets in a huge way, you should have a huge % of your portfolio into Emerging Markets (in a diversified manner). A few ETFs will do you a lot of good, esp. in the current times since they are all going down, and you like to buy when they are low!

3. Your 529 over-funding will not help in the long term. I have done the same, and it is stressful now, since I am not sure how to get the money out without paying taxes on it. My kids just entered college and the pricing is growing at 11% per year, with Public School around $20K-30K, and Private Schools at $35K-$60K per year. I also live in the Midwest and these are real numbers for 2012-13.

4. You have put in a LOT of effort to become a Surgeon, and you deserve every penny of it. With the giving that you are doing, you are doing AMPLE. Others can look up to it, or treat it as sour grapes, but they too have a choice (at whatever stage they are at) to apply to Med School and climb the ladder like you! My kids are on your track and know how hard/competitive it is to climb each rung of the 1000 foot ladder. And, you climbed the 2nd ladder by Specializing. BRAVO! Congrats!

5. Feed the kids Vitamin N. I learned this when my kids were born. N stands for NO. Today, they do really well in life, since there is always a few Yes'es around the corner, but lots of No's around the other corner, and they have learned to deal with it (esp. for material things).

6. My major recommendation for you is to "Outsource or Out-task" as much as you can to a) Improve the quality of your life and your family life b) Just cause you can afford it. This is a huge form of giving today with an element of 'high ethics associated with it for the person receiving it'......It's a "Work and You Shall Get Paid" ethic. Of course, I am not talking about throwing money away, or wasting it, but of course, all little tasks in/around/outside the home/car/life. And, while you outsource, give the workers more respect than a peer doctor/nurse. Watch the enjoyment and fun coming out of it inside yourself.

7. Finally, A BIG KUDOS to you for being so brave in doing the writeup and posting it.

Good luck, Best wishes and Congratulations again......

Kenny

ps: FMF may provide my email address if requested by CP

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