Financial Planning for High Earners with Student Loans

Big Shovel Bob must strategically manage his high income to effectively tackle student loans and plan for retirement.

### Financial Strategies for Big Shovel Bob: Navigating Debt and Retirement
* 💰 Big Shovel Bob, in your mid-30s with a household income of **$1.4 million** and a net worth of **$250,000**, you face a unique financial situation, especially with **$400,000 in student loans**.
* 📊 It's essential to determine whether your student loans are **high-interest or low-interest debt**, as this will influence your financial strategy moving forward.
* 📝 Following the financial order of operations is crucial to **effectively allocate your resources** and decide between retirement accounts like a **401k or a cash balance plan**.
* 💡 With an average interest rate of **6.5%** on your student loans and a potential **37% marginal tax rate**, you need to consider the **most efficient use of your funds**.
* 💵 Contributing to a cash balance plan could allow you to **save around $100,000 in taxes**, which could then be redirected towards your student loan payments.
* 🔍 It’s important to maximize your financial opportunities, as a **high income can be fleeting**; thus, turning that income into **net worth is essential**.
* ⚖ Consider the complexities of your financial landscape, including **employer contributions** and **tax implications**, to ensure you make **informed decisions** about your next steps.
* 🛠 Lastly, seek out comprehensive financial advice that encompasses **all available planning tools**, rather than just those that are being sold to you, to ensure you are making the **best choices for your future**.

[Music] We've got another one from Big Shovel Bob. He says hello. The wife and I are in our mid-30s and working $199. Our combined income is $1.4 million, with $250k net worth. We are on step three of the Foo because we have $400k in student loans. How do we plan for retirement? A friend mentioned cash balance plans. This sounds like an interesting situation. So, what would you say to Big Shovel Bob? So, I want to make sure I got this right. Mid-30s, $1.4 million household income, $250,000 net worth, $400,000 in student loans. So, that means the $1.4 million probably is a newfound thingal profession. I love the name, by the way, Big Shovel, because that's always talk about having a big income. So, Big Shovel Bob is very appropriate, but it has not shown up on his net worth statement just yet. Well, I think it's so interesting is you may be out there listening to be like, Oh man, this...

cat makes a million and a half bucks. I bet the rules are different for them. I bet the way that they approach their financial decisions is different. And what you're going to be amazed to hear, big shovel Bob, is that we're going to say the first thing you got to do. You got to start with the foo, Brian. We hold the thing up good. If you want your own copy and go to moneyguide.com resources because you have to determine based on where you are in your financial journey. What do each one of these buckets fall into? And so when I hear $400,000 of student loans, I that I'm like, that's a lot of debt. But the thing that I don't know is what is the interest rate on those student loans. And for you in your mid-30s, do those student loans count as high-interest debt or do they count as low-interest debt? You have to answer that question first before then you can begin navigating. Okay, well, when it comes to allocating my resources and when it comes to figuring out what types of

retirement accounts I should use. Do I do a 401k, or do I do a cash balance plan? You have to make sure you're following the financial order of operations in the right order. Yeah, all terrain, all weather, all income types, this thing works. I mean, that's the reality, is because what Bo just described, steps one through three, that student loan, we got to figure out, is it high-interest debt, or is it more like the low-interest debt of step nine? And then that's going to allow you to keep progressing. Then, you of course not want to skip and sleep on emergency reserves, because even though you have... Because here's the thing that scares me, is when you have a high income like 1.4 million, it is so easy... I used to deal with professional athletes at one of the early firms I worked at, and they just feel like they have so much money coming in. The problem is it's short-lived. I mean, the typical NFL career is less than 3 years, at least that's what it was.

Back when I was managing their money, when we did some presentations, and I remember thinking about the fact that yes, it looks like on paper you have all the world just held on you, you're holding it on a string, but if you don't actually turn this into net worth, it's a loss opportunity because I don't know if this 1.4 million is something you'll make one year, is this something you'll make 5 years, is something you'll make 10 years. Either way, we need to maximize the moment, and that's why the financial water of operations is going to get you through the base level stuff, then help you with the maximization to build your good financial foundation, meaning this shows up on your net worth statement. And then yes, once you get into steps 8 and N, let's pay off that student loan debt if it's low, even if it's low-interest debt. Um, that's what we try to walk you through big shovel, and I think congratulations, and I love that you

found our content right as you're at this incredible fork in the road moment. So, so get out there and make it happen. Yeah, I think, uh, so just so you can take some little nuggets away from this because big shovel Bob did say the average interest rate on the student loans is around 6.5%. But they're in their mid-3. So, one, when you think about opportunity cost, obviously satisfying 6.5% debt, S, I mean, it sounds good. That's a good noble thing. But you are in this unique situation where your tax rate on the federal side at $1.4 million, not knowing your actual tax return, probably going to be 37% marginal. And then I don't know what state that you live in. So, you do have to think about with every dollar that I deploy, where will that dollar be most efficiently, most effectively utilized. There is a chance that some sort of retirement plan like a cash balance or something like that might make sense because if you could put in at your age $200,000 into a cash

balance plan. There's a chance I could save you $100,000 in taxes. Well, with that $100,000 of tax savings, you could then theoretically take that and apply it to your student loan. So, that way, it's not an either-or; it's a both-and. And I would argue, at an income, even though it's relatively new, he said just entered the workforce a couple of years ago. Even though that income is relatively new at $1.4 million of household income, I would argue you with that big shovel ought to be able to satisfy a number of different financial goals simultaneously: saving on taxes, building liquid wealth, as well as satisfying St. This is the complexity. Look, I always say I love that our content is free and it's so approachable for everyone out there, but when somebody like big shovel comes along, you got unique stuff going on because is Bo. I'll put this in the words that Bo was saying, is that just like step two is if your employer is offering you 50 cents on the dollar, you kind of have to jump on that.

free money because it's just a once-in-a-lifetime opportunity. If you're paying 50 cents on the dollar in taxes, which somebody in there making over a million dollars, good chance that you're paying, especially depending on which state you live in. You could be getting very close to paying, you know, 50 cents on the dollar, especially with self-employment taxes and other things that you stack on top of it. So, that is something you really will need to pay attention to, the nuances of what do you do with your next dollar. And this is the complexity of where taking the relationship to the next level, even though you're on the early part of the net worth, you want to make sure you don't mess this up. And that's the part if you just don't know where your blind spots are, you just don't know what planning tools are in your back pocket. Because here's the other thing about cash balance plans. I love cash balance plans. We use those. We use those with clients, but cash balance

PL in the past were set up with life insurance products. Then, it wasn't only not that many years ago. They've kind of, you've got these third-party administrators that allow you now to open this up to where you can even buy index funds and all kinds of other low-cost things that are much, don't have some of the headaches that those insurance products had. But you've got to make sure you're tying into the right person that tells you the full bag of tools at your disposal, not just what they're selling.

How Do We Plan for Retirement with a $1.4M Income?

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The Money Guy Show

Big Shovel Bob and his wife are in their mid-30s, with a combined income of $1.

4 million and a net worth of $250,000, while also facing $400,000 in student loans.

The couple is on step three of the financial journey, and the advisor emphasizes the importance of understanding the interest rates on the student loans before making financial decisions.

The first step for them is to determine how to allocate their resources based on their financial situation.

Deciding between a 401k and a cash balance plan is crucial, and following the financial order of operations is essential.

High-income individuals, like those earning $1.

4 million, must be cautious about short-lived income and focus on building net worth.

Maximizing financial opportunities and addressing student loan debt, even if it's low-interest, are key steps in achieving a solid financial foundation.

Navigating Financial Decisions with a High Income

4 million household income faces a 37% marginal tax rate and has the opportunity to deploy their dollars effectively.

Contributing $200,000 to a cash balance retirement plan could save them $100,000 in taxes, which could then be used to pay off student loans.

The unique financial situation allows for simultaneous achievement of multiple goals: tax savings, building wealth, and paying off debt.

The Importance of Strategic Financial Planning

Paying high taxes, especially for those making over a million dollars, can significantly impact financial decisions.

It's crucial to understand the nuances of managing income and taxes to avoid costly mistakes.

Cash balance plans can be an effective tool for financial planning, but it's important to be aware of all available planning tools and potential blind spots.

Life insurance products were once the primary offering for PLs, but now third-party administrators provide access to index funds and other low-cost options.

These modern alternatives aim to reduce the headaches associated with traditional insurance products.

It's important to work with the right person who offers a comprehensive view of all available tools, rather than just focusing on their own sales.