A 50-year-old high-earning sales professional told me last week, “I’m exhausted, I need help getting out of the rat race.”
If you’ve ever felt that way, this is for you.
They went on to the stresses of the job and what was keeping them in place:
- The comp plan resets every January
- Higher goals / higher quotas
- Golden handcuffs, money’s hard to ignore
- Tax complexity (recently experienced “AMT” – The Alternative Minimum Tax)
- And lack of time to do the things they felt was truly important (time with spouse, children, and favorite hobbies and activites).
We decided it was imperative to reframe the goal.
What did “out” mean?
That’s why we created a date-specific, dollar-specific goal.
To make work optional, they needed $12,000 per month in today’s dollars.
We took all that pent up emotion and turned it into numbers: We figured out how much they needed to save and invest every month based upon historical rates of return to end up with a portfolio that could historically create the income they needed.
Spoiler Alert: They didn’t have to save & invest nearly as much as originally thought.
We re-ran the plan to get to their target goal sooner than anticipated.
The Path Forward:
- While compensation is high, we agreed upon a default savings rate of 30%
- Tax optimization allowed for a “Mega” Backdoor Roth IRA through their employer plan, maxed out and invested funds within the Health Savings Account that were originally sitting in cash, and eliminated contributions to tax inefficient mutual funds in taxable accounts that were distributing unnecessary capital gains.
- We reduced their concentration in their employer stock.
- They stated during our meeting that “My comp is variable and often have big highs and lows from month to month.” We increased their cash position to reduce stress during odd commission cycles.
- We earmarked some funds to be used as a bridge if they decided to pivot and change careers.
At the beginning of the conversation, stress and anxiety were high, often is the case for people who are winging it on their own. Rudderless because they have no map to ensure they are, and stay on the right path.
After going through the planning process, we increased their savings rate, decreased risk by limiting the concentration in employer stock, increased cash positions to smooth out cash flow imbalances (commission checks), and identified funds that can be used to explore different career options if interested. This was our plan to allow them to get out of the rate race.
If you’re a high-earning professionals who wants work-optional on a sane timeline, I’d love to hear your story. We’ll pressure-test your numbers and give you clear and concise next steps.
–Nic
This is a hypothetical situation based on real life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your advisor prior to investing. A Roth IRA conversion—sometimes called a backdoor Roth strategy—is a way to contribute to a Roth IRA when income exceeds standard limits. The converted amount is treated as taxable income and may affect your tax bracket. Federal, state, and local taxes may apply. If you’re required to take a minimum distribution in the year of conversion, it must be completed before converting. To qualify for tax-free withdrawals, you must generally be age 59½ and hold the converted funds in the Roth IRA for at least five years. Each conversion has its own five-year period, and early withdrawals may be subject to a 10% penalty unless an exception applies. Income limits still apply for future direct Roth IRA contributions. This material is for informational purposes only and does not constitute tax, legal, or investment advice. Please consult a qualified tax professional regarding your individual circumstances.
