High Earning 35YO w/ Cash Out Dilemma Seeking Life Advice

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TiGuy
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Joined: Thu Jul 08, 2021 9:10 pm

High Earning 35YO w/ Cash Out Dilemma Seeking Life Advice

Post by TiGuy »

Bogleheads – As the title suggests, my past, present, and future is a pretty complicated financial web in terms of planning. I humbly ask the group to consider my current financial state and provide any wisdom that comes to mind (financial, lifestyle, family, etc.). I truly appreciate this forum and have been logging in for about 7 years to gain invaluable advice. I’ll try to make my scenario as simple as possible, but that may be near impossible. Anyhow, here it goes (***I recently changed my BH user name to remain anonymous, thus, this is not truly my first post)

I need to start by explaining my profession. I am a healthcare provider who sold his practice to a larger group in exchange for ownership in a “startup” type health model. 40 independent practices came together under one group on the same day. We are 100% doctor owned. I am employed by the main practice group, so my personal PSC is paid for my medical services (~700k/yr). I pay myself a salary of 150k/yr from this. I work 3.75 days a week. The way the business is set up, we have a “management company” that charges a management fee to each of the 40 practices. This “Management Company” ownership pays my business PSC 150k/yr. I also have dividends that come directly to my personal bank account (not business) through my ownership in the group practice, this is around 150k per year. Thus, my three sources of income provide around 1M in pre-tax income. The model shows this growing around 5% a year though continual acquisitions/mergers, but I do not consider that in any of my forecasts.
I have 2 years left on my commitment to this group. At that time, I can choose to “retire” at any point with a 12 month notice. At that time, I will be compensated a lump sum between 2.5-3.0M. This lump sum is from the sell of my percentage of the “Management Company” (this essentially allows younger associates to buy in). I will always maintain my ownership of the whole group (which for prediction purposes I consider will not grow) and will continue to provide me with 150k of passive income for the foreseeable future. To answer a question I am sure will come up – the only way the original group of partners could sell to PE is if over 75% of us vote yes. The main selling point of this model was for the passive income, so I do not see that happening.

Thus, my dilemma revolves around when to “exit”. I am sure I could spell out the options, but I will allow the forum to do that. My ultimate goal is FAT FIRE and to spend as much time with my children (current age 2 and 4), extended family, and wife as possible. We also have family goals of starting a non-profit down the road and I would like to do that in my early 40s.

Lastly, I do want to mention an inheritance. This forum and others have told me to never consider this, but I believe I am past the point of being held back personally due to relying on an inheritance. I’ve been working a job since age 12, so that hasn’t really been a hinderance. I do not need this money, but my father (who has a true, blue collar American story  40+ years at the same factory, started there with no college, maxed retirement account from age 20, and became very successful in his own right) and I are very close and meet regularly with his CPA/financial adviser. I am an only child. His current accounts amount to around 5M. He is 68, in good health, and spends around 75k/yr with my mother. They are happy and buy anything they want. So again, I assume worst case scenario and no growth – but in all reality, I will inherit a significant sum in the next 35 years. The only reason I even bring this up is the commodity of time. If knowing this allows me to work less now and spend more time with loved ones, I know my father would absolutely want this more than anything. One lesson for anyone reading this: The greatest gift you can give a child is to start a career mostly debt free. I still had over 100k debt, but it should have been way more. A second lesson: Even if you can afford to, let your son/daughter keep some debt to teach them the lesson of how to budget.

Age: 35 M / wife 35 (professional degree, stays at home for now)
Income: ~1M/year (see above for explanation)
Current Investments (I have rounded to make easier):
Taxable account: 3 fund portfolio Vanguard (20% international) 1.1M
His ROTH IRA: 85k (33/33/33 SP500/Total stock market/small market)
Her ROTH IRA: 75k (Same allocation as his)
Local Bank stock: ~100k value
His 401k: 150k Van Target date 2065
Her 401k: 20k Van Target date 2065
Cash: 350k (multiple reasons this got so high over the last year, but it will either go towards debt or lump sum invest)
HSA: 15k (money market)
Sons 529: 15k (50/50 SP500/Total world)
Daughter 529: 10k (Same)
House: Worth 625k, remaining debt 295K (15 year, 2.1%  14 years remaining…just Refi)
Total w/ home equity: 2.25M

Spending:
We spend around 140k each year. This includes private school for both kids (~40k total), which is expensive. Yes, I know the pros/cons of public vs. private and we have decided this route for our children currently. This does NOT include debt services, which is right at 20k per month. Thus, we spend a total of 380k “all in” each year. When debt goes away, I do not see the 140k/yr fluxing much. Even when/if the 40k for school goes away, I believe we will be taking vacations/tithing more/ect.
(For FIRE, 30x140 = 4.2M)

Debt:
Practice loan – 1.7M (4%, 9.25 years remaining)  I essentially used debt to leverage how much ownership I would have in the current model I explained above. I bought as much as I had the right to purchase from an agreement I pushed for after practicing 3 years. Thus, I literally bought a lot more ownership the day we sold. I did this to “buy” more passive income for my family.
Home: 295k (14 years left, 2.1%)
TOTAL DEBT: ~2.0M (~20k/month payment)
Plan:
- Max out all retirement/tax sheltered accounts each year (401k, Roth IRA, HSA, 529)
- Use excess cash flow to continue investing in taxable account and pay down debt
- My numbers show that I can invest 7.5k/month in taxable, max out retirement funds, and if I use the excess cash all my debt will be paid in ~5-6 years (age 40). It is conservative and assumes no growth in our company model. It is around 125k extra per year towards debt.
- ~Age 40 I should be able to “exit”  all practice debt will be paid, all investment accounts should be ~2.5-3.0M (ultra conservative estimate of 1-2% return), I will get the lump sum payment of ~2.5M. Thus, will have ~5M invested and will continue to receive 150k/year in dividends allowing the 5M to remain untouched since it will cover annual expenses.
- I honestly don’t see myself not working, but I always want to consider the safest example when looking at finances. I currently work 3.75 days/week and find it enjoyable. My wife will work again at some point, most likely making ~50k/yr in a part time gig once kids go full time school.
- No plans for a third child at this time

Questions:
1) When would you considering exiting and collecting the lump sum?
(For those with kids, when they get into school full time, will working less than 3.5 days a week even allow me to spend more time with them? For reference, I have already set my schedule to work 7-3 almost every day. I ask this because I can continue to make ~1M/yr on this schedule, and if going down to 1-2 days a week does not bring more time with family it would defeat the primary purpose)
2) Tax strategy?
3) Advice on how to best spend time with children as they grow
4) What have you “loosened” the purse strings for that has related to an increase in happiness?
5) When would you and how would you pay my debt? (would you consider investing all excess cash in a taxable account instead of paying off the 4% debt for instance…)
6) Does anyone have experience retiring from practice at age 40? (I do enjoy what I do and honestly would most likely continue working 1-2 days a week, which would be an option in our group for as long as I wanted)
7) Any considerations for estate planning at this point in life?
8) Those with an inheritance/trust, did this allow you retire early or plan accordingly to maximize life experiences and happiness with family? Did you continue to work your entire life or what changes did you make?
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