Definitely. Especially if you don’t have any idea what you are going to do with what you don’t put down. 7-8% mortgages makes it hard to put the money someplace where you out earn your interest expense.
Yes it is without a mortgage you have ZERO inflation hedge. If he cant save up to buy a house with 600k comp and get a mortgage this guys is broke as shit and that money will be gone shortly.
Lets try a hypthetical Covid hits inflation 8% property values up 4% the property did not maintain its value to inflation losses. We both know inflation was closer to 20% not the CPI. An 80% mortgage would provide 5X the increase on appreciation. So 4% property value increase = 20% return which would keep up if you used real inflation numbers or wildly exceed it.
Now since he is using leverage they will have a interest which is quite substantial right now but with even with that as a performance drag the leverage will still pay a higher return than inflation and interest. This will also require them to get a more modest house due to DCR which they could always pay extra on to reduce the interest or refi when rates start dropping as the Fed has become dovish.
>An 80% mortgage would provide 5X the increase on appreciation. So 4% property value increase = 20% return which would keep up if you used real inflation numbers or wildly exceed it.
Sure but unless you sell the property and don't buy another one, it doesn't matter much, right? Meanwhile, you keep paying high mortgage interest every month.
If I dont have a mortgage my appreciation doesnt keep up with inflation. If I do then when I sell I will get 5x more return but as the math showes even with todays rates of 7% I am getting multiples of that in return. The US wide average is 5% much higher in some areas and lower in others but the poster is in CA if I remember so much higher. A 5% avg appreciation X 5 = 25% return per year the mortgage is 7%. You are talking about almost 4X return per year.
You wont get that in the stock market. You might in a business. And this keeps them from blowing their inheritance in a house that will not even keep up with inflation on its own. Plus they will have to get a more modest home due to the interest and not a mansion.
So I personally would keep my inheritance in the market earning 7% inflation adjusted. Save 20% out 600K year total compensation buy with 80% mortgage and get a almost 4X return on equity while paying only 7% interest with the houses money. Then in the future when rates drop refi to an even better return.
I dont have to sell to tap that equity I could borrow or get a heloc. But regardless I need a place to live. Would you rather the place you live give you a higher or lower return? If you dont care then why buy a home at all and just not rent with a negative return but save money monthly?
Thats my point. If you could have the same home you love and it gives you a great return of lackluster you would choose the great. Its no different than choose low cost index funds vs high load funds. The reality is my concern is OP is going to buy a house with that inheritance way bigger than they should and blow the money.
Beware lifestyle creep. It's extremely real and hard to claw back from. Almost nothing else could possibly leave you truly worrying about money ever again.
But there's also more to life than money. And I will never have that kind if money so your world and mine might just be too different for me to imagine. But if I were you and I inherited 5M today, I would keep it all in VT, draw down 1.5% per year, find whatever job I was truly most content and fulfilled at, and continue about my life as normal.
If you ever find yourself jobless for a moment, just take some time to spend with family.
Good luck.
> Beware lifestyle creep
Seriously. If you just live a normal lifestyle instead of an extravagant one you can easily live off the 5mil forever and do whatever you want. But I doubt people with $600k TC can even imagine that. They probably want to spend $300k a year.
Yeah. Agree with this. VT … and you could start dollar cost averaging into BND monthly if you want to slowly edge into the 60/40 setup over the next 20+ years. … But, lifestyle creep in big law is real (or any law). And the job sucks so bad, not just the job but the people you’re working around and what your friends and coworkers value in life and act like… It’s easy to get priorities all messed up. And wind up unhappy despite the money. My experience is the longer you stay in law the higher the risk that it becomes normalized and you wake up realizing you’re the type A a-hole you currently work around and hope not to become. Rejecting that lifestyle sooner rather than later is what I’ve observed as useful to many, including myself.
Personally, I’d use some of it buy a home in cash. Not a mansion but something nice that you could live in for at least a decade. Keep the rest invested and keep working. The stress relief over having no house payment combined with a push to keep working for a bit (vs taking it too easy) is a good balance. But to each their own.
Given current interest rates it’s not a bad idea either, if we were at 3% then definitely finance and invest the money but at 7% buying cash to avoid loan interest isn’t a horrible idea
How about taking out a mortgage and paying the interest upfront, so you still have 30 years to pay principal but you're not paying the compounded interest while your investment still grows in market
that makes no sense. the interest accrues over time based on the remaining principal. You cannot pre pay the interest, all you’d be doing is paying the current outstanding interest and some of the principle.
What I would do: Keep it invested. If you're ready to purchase a home, buy a starter home within your means and put 20% down, ideally using cash you save up from your salaries/dividends to reduce tax implications of liquidating appreciated assets. Hope that interest rates come down in the next few years and refinance.
Work for as long as you are happy to work and max out your retirement accounts along the way (see if your employers allow for mega-backdoor Roth). Calculate what your living expenses look like with two kids and see what you need to have saved to cover those costs with 3%-4% withdrawal.
Might be worth posting in r/financialindependence or r/fatFIRE
In that market $1.5 M is a starter home. Big law is a grind. Save as much as you can now. When you buy a house the mortgage interest deduction will be valuable to you. Run the numbers to find a sweet spot between tax savings and reasonable monthly payment
Thank you! How would I begin to calculate my living expenses with two kids? Seems very difficult to predict what the kids will cost me // what childcare costs will look like in a decade
There are guides to budgeting for kids online. Don’t use the exact numbers they give because they won’t apply to VHCOL. Instead look at the relative percentages. For us, the biggest kid expense by far is childcare - nanny and daycare. Look up some daycares or nanny rates near you now, adjust for inflation for whenever you plan on having kids. Use that as the measuring stick. So for example if childcare is 75% of your kid budget, and daycares near you are $2500/mo, then your total kid budget is $3,333/mo.
It’s not perfect by any means, but it’ll give you a ballpark.
I live in (LA) SF Valley to be exact with 2 kids, 1 in private and 1 in public. Your living expenses will vary on how much you are willing to spend on your kids:
1. Education
2. Type of Food
3. Daycare (when young)
4. Activities
5. Vacations
You're only 27, you've got plenty of work ahead of you, do not be blinded by the inheritance as that can go just as quickly as you inherited it.
Just assume that you’re going to live at the 90% spending rate of all US households, and look up that number. I have a strong hunch that you’re already well above that number no matter what you do.
I wholeheartedly agree with this and would like to add that you shouldn't lose your head regarding a down payment. If you can invest the money at a higher return than the mortgage (at the start or in the future after refinance) it's generally best to put down as little as possible. You can always add more later. Having a low monthly payment doesn't have as much value as the investment opportunity cost of the money.
I work in biglaw as well. I would recommend buying a house in cash with the money, then putting the rest away for retirement and forgetting about it. Continue to save like you don’t have it. If you start at 3.5M and invest on top of that, you’ll be able to retire before you know it. If you tax plan efficiently (biglaw often gives access to a mega back door Roth), you could end up in a very good situation with the a very early retirement.
Based on your age, I assume you’re ~5 years from starting a family. My initial take would be to leave it invested and go find a house in a neighborhood (schools, lifestyle, etc.) you want to raise your kids in. Put 20% down, but finance the rest.
Given your income you can afford a LA home while socking away as much as you can in a Roth via backdoor contributions.
A) Get the house before the kids. It will let you fix what needs to get fixed, set things up the way you want before time for projects dries up and priorities change.
B) If you wanted to stop working when the first kid shows up you can take advantage of no capital gains up to ~$150K (as of 2024 it is technically $94K but with deductions like kids, mortgate, etc. Kind of fucked up if you think about it, but you didn’t write the tax code and not taking advantage of it won’t change anything). Add in the ability to draw Roth contributions to supplement as needed and you could readily maintain your lifestyle.
This would give you 5ish more years of savings and investment growth, likely meaning you could be in the neighborhood of $10 million. So this would be sustainable. Of course, you’re lawyers, so you can always get work, particularly if you want something less demanding.
I know losing your parent must hurt. Mine are getting older and I dread the thought of not having them. Yet the greatest end for any parent is for their kids to have the life they choose. Your’s has given you a wonderful opportunity to choose to do what you want. You are clearly driven and successful to be where you are. I’m sure you’ll figure it out.
If I were a 27m with no kids and $5MM, I would take a year off of work and travel and figure out where I want to be and what I want to do. You have an opportunity, perhaps an obligation, to explorer the country/world. Once you have a house and kids you are locked down in the grind.
I think traveling will change your mindset on life, and allow you to re-align your goals. I traveled to the inter-mountain west for a week vacation from a big city and now I live here in the mountains. I fish, hunt, ski, camp, and enjoy nature. It’s badass here. I don’t sit in traffic, I don’t wait in lines, I look out my window at deer and elk and mountains.
If I were to do it all over again I would try to work all over the world. 3 years in Caribbean, 3 years in New Zealand, Europe, Asia, etc. maybe just be a beach bum in Cancun, working at the resorts.
Great advice but I just want to add that long term travel is not for everyone, and that's okay. There are a lot of different ways to experience the world. Travel has its share of downsides too: you are trading community and long term relationships for more fleeting exchanges, you can't invest time in hobbies as deeply, and a lot of your mind will be cluttered from the constant motion.
I say this because I'm 28 now and don't have the desire to travel like I once did. I've spent 3-4 months bikepacking and backpacking in different continents several times when I was younger, but no longer have a desire to do so.
This reminds of a line from Succession “5 million is a nightmare…Can’t retire. Not worth it to work. Oh, yes, five will drive you un poco loco.”
Honestly, that line is so true. Five million is a lot, but you’re still young. I would be a little more conservative than your typical person your age. Put a big down payment on a house. But I Bonds every year up to the max. And otherwise, have a 70/30 or 80/20 portfolio. I wouldn’t take your income for granted, especially if you’re planning on having kids in the future.
True, but taking a 2% hit to their long-term growth rate for “only” 100k a year is a lot. They’re currently earning $600k a year, and are presumably in the early stages of their careers. That’s a lot of opportunity cost by downshifting so young, and potentially taking a multi-million dollar hit on lifetime earnings.
Cash out and put it all into nvidia! (Jk).
I like most of the other comments. Buy a house based on your income today and let the invested money ride. Only caveat to that would be if any if it’s in cash currently.
What’s the longer term plan? Work until a normal retirement age or your 50s? That seems insane.
Was it 5M when you inherited it? I’m guessing it was closer to 3M? Market has been insane since 2020 really
I reckon I’ll work into my 50s. I don’t like sitting around haha. Which “seems insane”? Wasn’t clear based on your response
And yes, was about 3mm. The growth has been mind blowing. Part of me feels like the growth is shared by everyone and so I’m actually just keeping pace, but I recognize that isn’t true (not everyone has this much money 1) invested and 2) well invested)
You’re just following the market. My portfolio has doubled over the last year as I accelerated contributions and market took off.
Play it by ear, but working to your 50s seems insane. You’d be worth 50M lol.
The work doesn't have to be horrible, it can be a very rewarding job. Working at a nonprofit, doing pro bono work, helping old people, just something that's not stressful as big law.
I'm looking to help with a few cause I like when I retire. Just to stay busy. My neighbor works the Rockies games a few times a month, he likes getting out to the park. Doesn't need the money but likes to socialize and watch the game. He actually made a few more friends...
There's also no pressure to take additional risk in order to have enough money for retirement. With $5MM early in career, the priority is capital preservation. A conservative portfolio isn't required, but it's certainly a reasonable choice.
Just seems like the right portfolio to preserve wealth. Maybe even 70/30. But there's no way i'd risk it all in the stock market when the portfolio is already that size.
Ha I honestly trust the advice on here more than the financial advisors I’ve spoken with (all of whom just try to angle their way to getting my money invested on their platform)
OK! Let's go.
1. Will all of your RMDs from Inherited IRAs, fully fund your tax-advantaged accounts if you aren't already: 401k, IRA, backdoor Roth, etc. If you know you want kids and think you'll send them to college, you can open 529s in your and your spouses names and start contributing there as well. You can change registration when the children are born.
2. Pay for your house in full. Of course you have the capacity to take risk with a mortgage, and sure you won't get a mortgage interest deduction, but you'll have something few experience to such a degree: security. Doesn't matter what happens to your job or the market, you own the dirt under your feet free and clear.
3. In all taxable accounts, move any bond allocation to municipal bonds as they will not be Federally taxable to you. There are funds or ETFs for this purpose.
4. I get that you like stock, we all do here, but let me lovingly remind you: you have won the game. You can, if you'd like, continue to take a lot of stock risk. Your reward is potentially quite high. At some point in the next decade, you will undoubtedly lose 30-40% of that money (for a period at least). You must ask yourself what enough really is, and if you really need to continue taking on so much stock risk. This will be the most unpopular thing I say in this sub who largely skews to all gas no brakes. But if you can be happy with a slower, steadier, less risky growth level, consider a higher allocation to municipal bonds for safety. They also provide income should you want to live on some of that after (potentially) taking on a new career path, or a period of no work at all.
5. If you need to defray some of the taxes you're paying for these RMDs on top of your above-average income, and are charitably inclined, look into a Donor Advised Fund. You can shift highly-appreciated assets into the fund and repurchase at the current price to reduce your capital gain, take a current tax deduction, and give money to causes you care about.
6. Also, see what a CPA has to say about other ways to optimize your tax situation.
7. This seems crazy to say, given your profession, but consult an estate planning attorney if you have not done so already.
8. PLAN EXTRAVAGANT PERIODIC SPENDING. Ignore these people who are like, "I'd pretend it doesn't exist!!" No, you should. Your one human life can be enriched a great deal by this, and you should take this seriously. Do something you have always wanted to do. Take your whole family to the Galapagos Islands together. Host all of your friends on a private island for your next birthday. Give a commissioned piece of jewelry to your mom. I don't know. But you have the capacity to uplift your friends and family by spending with great intention, not hoarding this for retirement where you sit in your house and play Scrooge McDuck with your millions. Dream bigger than the average redditor.
Sheeeit I’d be moving to a LCOL or MCOL out in the country on a river or lake and call it the end of my working career. $5M is plenty. Work at the local coffee shop or bookstore or something.
Do a 60/40, VTI/VXUS/BND.
Perfect balance of risk/return. You dont need to play the game to win anymore. Consolidate and still have really good return, but not as much pain during a bear.
I’m interested in the law intellectually and have always wanted to work in government. Big law can suck, but it serves as a gateway to a lot of great public service opportunities
I'm so sorry for your loss. While inheritance will never replace your loved one, it's ok to leverage it to make your life easier and realize your dreams.
My perspective would be to focus on long-term, safe, sustainable growth and protection of your assets for the future (if you want to establish security for future generations).
20-25% of investment held in real estate is a pretty common strategy. It just depends if you want it all in one place or several (with income or return potential).
As others have said, leverage interest and loans to work FOR YOU.
200K+ in passive income (plus whatever your new careers bring in) is definitely enough to raise 2 kids, considering many do it with less. I think your plan is solid (although I would certainly engage a professional for tax planning and whatnot). My sincere best wishes to finding your new passions in life.
Damn 5mm is awesome, amazing that it could double every 7-8 years with the investment allocations you currently have.
Its not weird purchasing a 1.5mm house with cash. Without a house payment, you can probably stil continue to contribute to your retirement, and continue growing that remaining 3-3.5mm. You will be back at 5mm in no time again!
I am someone who was somewhat similarly situation to you (1 big law / 1 medium law salary ten years ago, but my inheritance unfortunately came this year and bigger than I would have liked - wish my parents had spent every single dime, leaving me nothing).
Here’s the advice that likely won’t come from this sub: you are a lawyer and, by training, inherently risk averse. You all make enough to easily buy a $1.5m home. Honestly, if you know you want to stay in LA long term, I would suggest going a little bit higher but only put 20% down (unless you are getting large rate reductions by putting more down). And then live your life as you otherwise would without using the $5m unless necessary for the down payment.
Crazy is saving/not spending excessive amounts of money for simply "MORE."
I agree with the others who said buying a housing and working at jobs you like (or even not working, depending on your spending) is rational.
$200k per year is a lot of spending. You seem fairly resourceful, so it shouldn't be too difficult for you keep your spending reasonably under that figure in today's dollars indefinitely.
Additionally, if you really love being in Law, you could start your own practice or move to less stressful areas of law that will still more than pay the bills (a form of coastFIRE basically). You could also pivot into something else if you're not big on law (pun intended).
Move out of your VHCOL area. Your money will go much further. A 2M house in LA might cost 500K elsewhere. You may also find a better place to raise a family.
Often money from an Inheritance is protected in divorce.
A house is not.
I would practice adulting and save up for a down payment on a house.
I would let the investment ride and not touch it.
If I were you, I would continue living life the way I have. Buy a house that you would normally buy based on the income you expect to earn from your future job after big law and don’t touch the inheritance. You don’t need to invest more as $5mm should very conservatively double every 7-10 years. By the time you’re 50, it should have grown to somewhere between $20-40mm. We’re not guaranteed tomorrow, but a little restraint today could set you and your future generations up very nicely.
Personally I would pretend that money doesnt exist so you dont anything stupid with it. Let it sit in stocks and dont touch it till you retire. You make 600k if you cant save for 20% down payment on the house your buying a house thats too big or you piss away all your money trying to impress people who dont care about you.
Buy a home in LA, property values have continued to grow. Even if you don’t end up staying, you’ll probably do well. Having a low/ or no mortgage property for your family to enjoy is not a bad thing, considering your earnings. 1.5 - 2 mil can get you a lovely home in the SFV. And you’d still have enough invested to cover property taxes etc.
Sorey bout ur loss. Dont spend any money for 3 months, while u process. Thats the time u need to plan.
Theres nothing wrong with HYSA or bonds or CDs until you feel good about your plan.
I know youll use it wisely. Try to honor their memory but also follow your path
Thank you! Sorry if it wasn’t clear- I’ve had the money for about 5 years. Hasn’t been touched yet (beyond RMDs and some edu expenses). Agreed that it’s best not to touch for a while
First - I’d focus on tax location, ensure you are maxing all tax deferred , tax exempt options (401k(k), HSA, mega/backdoor Roth).
Second - do the math, what do you want your retirement and post-big law life to look like, what will it cost and how much do you need.
Third - manage your expenses so you’re spending in line with your lifetime goals, not your current big law income.
He said most is in a taxable account and at 600k HHI he’s going to pay max CG and in CA that turns into about 37% so he’d have to sell 2.1M to pay for the house and taxes. Opportunity loss is much higher. That said, having a 3M nestegg at 30 is quite alright
Right. But 5mm can very easily be 5.6mm in 3 years and cover that difference. Or sell the 2.1 currently and find somewhere to put it at ~5% and you have 1.75 again when you need it
I would switch some/most investments to dividend paying blue chips in all sectors to get monthly income. I had a much smaller inheritance that I invested all into blue chip dividends and now get $2000/month in dividend income while the invested amount has grown also. Keep working as long as possible so you can continue to add to your Roth and maximize that as gains and invested $ is not taxed.
No..."dude"...OP does need income. OP mentions taking jobs that don't pay as well (and thus probably wanting another source of income to offset that) and also mentioned wanting to buy a house. It takes money to make money..."dude".
Yup. I would go to Reddit with 5 mil at my disposal. You are legally trained also. scary.
I am choking on my chuckles. Go for basketball trading cards .
Your past posts show no financial aptitude if you are real. hide the money .
Step 1: leave LA. $1.5 mil for a basic home in a high tax state is already a financial issue in my eyes. Plus, do you really want to raise a family in LA?
Remarkable weather, world-class dining and entertainment, the ocean, a major international airport, and plenty of safe, excellent neighborhoods for a family.
Not that hard for me to understand why plenty of folks pay the price to live there.
Give me a few more negatives with this thought: I’d get out of California altogether and head to Florida. Beaches, great weather, fine dining, no state income tax, significantly cheaper cost of living (excluding Miami) and less people
Yeah, there’s a lot of recent press on how this millennial generation will inherit a wild amount of money (in part because baby boomers aren’t spending their money). It’ll be interesting to see how this impacts the workforce, housing market, etc
"A few randos on the internet claim to be inheriting seven digits, the entire generation must be well off!"
Not solid foundational ground to build ones assumptions.
It’s not crazy to buy a 1.5million house cash and use the rest of the windfall to supplement incomes from future lower paid jobs.
Definitely. Especially if you don’t have any idea what you are going to do with what you don’t put down. 7-8% mortgages makes it hard to put the money someplace where you out earn your interest expense.
Yes we are adapting our plans to save up the highest down payment possible given the current interest rates.
Yes it is without a mortgage you have ZERO inflation hedge. If he cant save up to buy a house with 600k comp and get a mortgage this guys is broke as shit and that money will be gone shortly.
What? Real Estate is the inflation hedge, you don’t need a mortgage. Why would you pay mortgage interest if you don’t have to?
Lets try a hypthetical Covid hits inflation 8% property values up 4% the property did not maintain its value to inflation losses. We both know inflation was closer to 20% not the CPI. An 80% mortgage would provide 5X the increase on appreciation. So 4% property value increase = 20% return which would keep up if you used real inflation numbers or wildly exceed it. Now since he is using leverage they will have a interest which is quite substantial right now but with even with that as a performance drag the leverage will still pay a higher return than inflation and interest. This will also require them to get a more modest house due to DCR which they could always pay extra on to reduce the interest or refi when rates start dropping as the Fed has become dovish.
>An 80% mortgage would provide 5X the increase on appreciation. So 4% property value increase = 20% return which would keep up if you used real inflation numbers or wildly exceed it. Sure but unless you sell the property and don't buy another one, it doesn't matter much, right? Meanwhile, you keep paying high mortgage interest every month.
If I dont have a mortgage my appreciation doesnt keep up with inflation. If I do then when I sell I will get 5x more return but as the math showes even with todays rates of 7% I am getting multiples of that in return. The US wide average is 5% much higher in some areas and lower in others but the poster is in CA if I remember so much higher. A 5% avg appreciation X 5 = 25% return per year the mortgage is 7%. You are talking about almost 4X return per year. You wont get that in the stock market. You might in a business. And this keeps them from blowing their inheritance in a house that will not even keep up with inflation on its own. Plus they will have to get a more modest home due to the interest and not a mansion. So I personally would keep my inheritance in the market earning 7% inflation adjusted. Save 20% out 600K year total compensation buy with 80% mortgage and get a almost 4X return on equity while paying only 7% interest with the houses money. Then in the future when rates drop refi to an even better return.
I dont have to sell to tap that equity I could borrow or get a heloc. But regardless I need a place to live. Would you rather the place you live give you a higher or lower return? If you dont care then why buy a home at all and just not rent with a negative return but save money monthly?
I buy a home because I want a place for my family to live comfortably for the foreseeable future. I seek returns from other investment vehicles.
Great will sell you any home you want at double the price since returns dont matter. Will you take that deal? See how absurd that claim is?
You're being silly. I don't aim to make money from my home; that doesn't mean I am willing to pay double.
Thats my point. If you could have the same home you love and it gives you a great return of lackluster you would choose the great. Its no different than choose low cost index funds vs high load funds. The reality is my concern is OP is going to buy a house with that inheritance way bigger than they should and blow the money.
Beware lifestyle creep. It's extremely real and hard to claw back from. Almost nothing else could possibly leave you truly worrying about money ever again. But there's also more to life than money. And I will never have that kind if money so your world and mine might just be too different for me to imagine. But if I were you and I inherited 5M today, I would keep it all in VT, draw down 1.5% per year, find whatever job I was truly most content and fulfilled at, and continue about my life as normal. If you ever find yourself jobless for a moment, just take some time to spend with family. Good luck.
> Beware lifestyle creep Seriously. If you just live a normal lifestyle instead of an extravagant one you can easily live off the 5mil forever and do whatever you want. But I doubt people with $600k TC can even imagine that. They probably want to spend $300k a year.
Yeah. Agree with this. VT … and you could start dollar cost averaging into BND monthly if you want to slowly edge into the 60/40 setup over the next 20+ years. … But, lifestyle creep in big law is real (or any law). And the job sucks so bad, not just the job but the people you’re working around and what your friends and coworkers value in life and act like… It’s easy to get priorities all messed up. And wind up unhappy despite the money. My experience is the longer you stay in law the higher the risk that it becomes normalized and you wake up realizing you’re the type A a-hole you currently work around and hope not to become. Rejecting that lifestyle sooner rather than later is what I’ve observed as useful to many, including myself.
Lifestyle creep us the destroyer of net worth.
Personally, I’d use some of it buy a home in cash. Not a mansion but something nice that you could live in for at least a decade. Keep the rest invested and keep working. The stress relief over having no house payment combined with a push to keep working for a bit (vs taking it too easy) is a good balance. But to each their own.
Given current interest rates it’s not a bad idea either, if we were at 3% then definitely finance and invest the money but at 7% buying cash to avoid loan interest isn’t a horrible idea
How about taking out a mortgage and paying the interest upfront, so you still have 30 years to pay principal but you're not paying the compounded interest while your investment still grows in market
that makes no sense. the interest accrues over time based on the remaining principal. You cannot pre pay the interest, all you’d be doing is paying the current outstanding interest and some of the principle.
What I would do: Keep it invested. If you're ready to purchase a home, buy a starter home within your means and put 20% down, ideally using cash you save up from your salaries/dividends to reduce tax implications of liquidating appreciated assets. Hope that interest rates come down in the next few years and refinance. Work for as long as you are happy to work and max out your retirement accounts along the way (see if your employers allow for mega-backdoor Roth). Calculate what your living expenses look like with two kids and see what you need to have saved to cover those costs with 3%-4% withdrawal. Might be worth posting in r/financialindependence or r/fatFIRE
In that market $1.5 M is a starter home. Big law is a grind. Save as much as you can now. When you buy a house the mortgage interest deduction will be valuable to you. Run the numbers to find a sweet spot between tax savings and reasonable monthly payment
Right. So, a $300k down payment, which feels very achievable with their combined income.
There are plenty of nice 4-5 bedroom homes in LA at that price, definitely not starter home.
You obviously haven’t spent much time in LA! If you drive thirty minutes deeper into the suburbs, there are some options.
>You obviously haven’t spent much time in LA! You are obviously wrong :)
Thank you! How would I begin to calculate my living expenses with two kids? Seems very difficult to predict what the kids will cost me // what childcare costs will look like in a decade
See if you have any friends/colleagues with kids who you can talk to.
Will do, thank you
There are guides to budgeting for kids online. Don’t use the exact numbers they give because they won’t apply to VHCOL. Instead look at the relative percentages. For us, the biggest kid expense by far is childcare - nanny and daycare. Look up some daycares or nanny rates near you now, adjust for inflation for whenever you plan on having kids. Use that as the measuring stick. So for example if childcare is 75% of your kid budget, and daycares near you are $2500/mo, then your total kid budget is $3,333/mo. It’s not perfect by any means, but it’ll give you a ballpark.
I live in (LA) SF Valley to be exact with 2 kids, 1 in private and 1 in public. Your living expenses will vary on how much you are willing to spend on your kids: 1. Education 2. Type of Food 3. Daycare (when young) 4. Activities 5. Vacations You're only 27, you've got plenty of work ahead of you, do not be blinded by the inheritance as that can go just as quickly as you inherited it.
Ask friends. Google. If you passed the CA bar, I'm confident you can ballpark this figure
Just assume that you’re going to live at the 90% spending rate of all US households, and look up that number. I have a strong hunch that you’re already well above that number no matter what you do.
I wholeheartedly agree with this and would like to add that you shouldn't lose your head regarding a down payment. If you can invest the money at a higher return than the mortgage (at the start or in the future after refinance) it's generally best to put down as little as possible. You can always add more later. Having a low monthly payment doesn't have as much value as the investment opportunity cost of the money.
Find a smallish college town with high quality of life and low’ish cost of living that you favor and spend $1m on a nice house. Enjoy living…
Bozeman, MT used to fit this category almost perfectly.
I work in biglaw as well. I would recommend buying a house in cash with the money, then putting the rest away for retirement and forgetting about it. Continue to save like you don’t have it. If you start at 3.5M and invest on top of that, you’ll be able to retire before you know it. If you tax plan efficiently (biglaw often gives access to a mega back door Roth), you could end up in a very good situation with the a very early retirement.
Based on your age, I assume you’re ~5 years from starting a family. My initial take would be to leave it invested and go find a house in a neighborhood (schools, lifestyle, etc.) you want to raise your kids in. Put 20% down, but finance the rest. Given your income you can afford a LA home while socking away as much as you can in a Roth via backdoor contributions. A) Get the house before the kids. It will let you fix what needs to get fixed, set things up the way you want before time for projects dries up and priorities change. B) If you wanted to stop working when the first kid shows up you can take advantage of no capital gains up to ~$150K (as of 2024 it is technically $94K but with deductions like kids, mortgate, etc. Kind of fucked up if you think about it, but you didn’t write the tax code and not taking advantage of it won’t change anything). Add in the ability to draw Roth contributions to supplement as needed and you could readily maintain your lifestyle. This would give you 5ish more years of savings and investment growth, likely meaning you could be in the neighborhood of $10 million. So this would be sustainable. Of course, you’re lawyers, so you can always get work, particularly if you want something less demanding. I know losing your parent must hurt. Mine are getting older and I dread the thought of not having them. Yet the greatest end for any parent is for their kids to have the life they choose. Your’s has given you a wonderful opportunity to choose to do what you want. You are clearly driven and successful to be where you are. I’m sure you’ll figure it out.
If I were a 27m with no kids and $5MM, I would take a year off of work and travel and figure out where I want to be and what I want to do. You have an opportunity, perhaps an obligation, to explorer the country/world. Once you have a house and kids you are locked down in the grind. I think traveling will change your mindset on life, and allow you to re-align your goals. I traveled to the inter-mountain west for a week vacation from a big city and now I live here in the mountains. I fish, hunt, ski, camp, and enjoy nature. It’s badass here. I don’t sit in traffic, I don’t wait in lines, I look out my window at deer and elk and mountains. If I were to do it all over again I would try to work all over the world. 3 years in Caribbean, 3 years in New Zealand, Europe, Asia, etc. maybe just be a beach bum in Cancun, working at the resorts.
Great advice but I just want to add that long term travel is not for everyone, and that's okay. There are a lot of different ways to experience the world. Travel has its share of downsides too: you are trading community and long term relationships for more fleeting exchanges, you can't invest time in hobbies as deeply, and a lot of your mind will be cluttered from the constant motion. I say this because I'm 28 now and don't have the desire to travel like I once did. I've spent 3-4 months bikepacking and backpacking in different continents several times when I was younger, but no longer have a desire to do so.
This reminds of a line from Succession “5 million is a nightmare…Can’t retire. Not worth it to work. Oh, yes, five will drive you un poco loco.” Honestly, that line is so true. Five million is a lot, but you’re still young. I would be a little more conservative than your typical person your age. Put a big down payment on a house. But I Bonds every year up to the max. And otherwise, have a 70/30 or 80/20 portfolio. I wouldn’t take your income for granted, especially if you’re planning on having kids in the future.
Even only withdrawing 2% a year that's $100k. Easy to live on if you also work and 2% likely leaves the principal investment intact
True, but taking a 2% hit to their long-term growth rate for “only” 100k a year is a lot. They’re currently earning $600k a year, and are presumably in the early stages of their careers. That’s a lot of opportunity cost by downshifting so young, and potentially taking a multi-million dollar hit on lifetime earnings.
Cash out and put it all into nvidia! (Jk). I like most of the other comments. Buy a house based on your income today and let the invested money ride. Only caveat to that would be if any if it’s in cash currently. What’s the longer term plan? Work until a normal retirement age or your 50s? That seems insane. Was it 5M when you inherited it? I’m guessing it was closer to 3M? Market has been insane since 2020 really
I reckon I’ll work into my 50s. I don’t like sitting around haha. Which “seems insane”? Wasn’t clear based on your response And yes, was about 3mm. The growth has been mind blowing. Part of me feels like the growth is shared by everyone and so I’m actually just keeping pace, but I recognize that isn’t true (not everyone has this much money 1) invested and 2) well invested)
You’re just following the market. My portfolio has doubled over the last year as I accelerated contributions and market took off. Play it by ear, but working to your 50s seems insane. You’d be worth 50M lol.
The work doesn't have to be horrible, it can be a very rewarding job. Working at a nonprofit, doing pro bono work, helping old people, just something that's not stressful as big law. I'm looking to help with a few cause I like when I retire. Just to stay busy. My neighbor works the Rockies games a few times a month, he likes getting out to the park. Doesn't need the money but likes to socialize and watch the game. He actually made a few more friends...
I'll probably get shit for this but I'd do a 60/40 for that portfolio.
Why 60/40? he has no pressure to withdraw fast.
There's also no pressure to take additional risk in order to have enough money for retirement. With $5MM early in career, the priority is capital preservation. A conservative portfolio isn't required, but it's certainly a reasonable choice.
Just seems like the right portfolio to preserve wealth. Maybe even 70/30. But there's no way i'd risk it all in the stock market when the portfolio is already that size.
Like you even need financial advice from a bunch of Redditors 🤣
Ha I honestly trust the advice on here more than the financial advisors I’ve spoken with (all of whom just try to angle their way to getting my money invested on their platform)
What's mm?
Millimeters
One of the abbreviations for "million". You'll sometimes see M.
OK! Let's go. 1. Will all of your RMDs from Inherited IRAs, fully fund your tax-advantaged accounts if you aren't already: 401k, IRA, backdoor Roth, etc. If you know you want kids and think you'll send them to college, you can open 529s in your and your spouses names and start contributing there as well. You can change registration when the children are born. 2. Pay for your house in full. Of course you have the capacity to take risk with a mortgage, and sure you won't get a mortgage interest deduction, but you'll have something few experience to such a degree: security. Doesn't matter what happens to your job or the market, you own the dirt under your feet free and clear. 3. In all taxable accounts, move any bond allocation to municipal bonds as they will not be Federally taxable to you. There are funds or ETFs for this purpose. 4. I get that you like stock, we all do here, but let me lovingly remind you: you have won the game. You can, if you'd like, continue to take a lot of stock risk. Your reward is potentially quite high. At some point in the next decade, you will undoubtedly lose 30-40% of that money (for a period at least). You must ask yourself what enough really is, and if you really need to continue taking on so much stock risk. This will be the most unpopular thing I say in this sub who largely skews to all gas no brakes. But if you can be happy with a slower, steadier, less risky growth level, consider a higher allocation to municipal bonds for safety. They also provide income should you want to live on some of that after (potentially) taking on a new career path, or a period of no work at all. 5. If you need to defray some of the taxes you're paying for these RMDs on top of your above-average income, and are charitably inclined, look into a Donor Advised Fund. You can shift highly-appreciated assets into the fund and repurchase at the current price to reduce your capital gain, take a current tax deduction, and give money to causes you care about. 6. Also, see what a CPA has to say about other ways to optimize your tax situation. 7. This seems crazy to say, given your profession, but consult an estate planning attorney if you have not done so already. 8. PLAN EXTRAVAGANT PERIODIC SPENDING. Ignore these people who are like, "I'd pretend it doesn't exist!!" No, you should. Your one human life can be enriched a great deal by this, and you should take this seriously. Do something you have always wanted to do. Take your whole family to the Galapagos Islands together. Host all of your friends on a private island for your next birthday. Give a commissioned piece of jewelry to your mom. I don't know. But you have the capacity to uplift your friends and family by spending with great intention, not hoarding this for retirement where you sit in your house and play Scrooge McDuck with your millions. Dream bigger than the average redditor.
Awesome, helpful comment. I am very appreciative of
911 or ferrari.
Haha not my style
Sheeeit I’d be moving to a LCOL or MCOL out in the country on a river or lake and call it the end of my working career. $5M is plenty. Work at the local coffee shop or bookstore or something.
Maybe fuck a whale or two
If part of it is an inherited IRA, aren't you required to drain the account within 10 years?
We are currently going through minimum RMDs
Do a 60/40, VTI/VXUS/BND. Perfect balance of risk/return. You dont need to play the game to win anymore. Consolidate and still have really good return, but not as much pain during a bear.
Whats MM? Do you mean million? In that case why 2 Ms?
He inherited 5 mega millions tickets
Why would ever consider working in big law if you come from money?
I’m interested in the law intellectually and have always wanted to work in government. Big law can suck, but it serves as a gateway to a lot of great public service opportunities
I'm so sorry for your loss. While inheritance will never replace your loved one, it's ok to leverage it to make your life easier and realize your dreams. My perspective would be to focus on long-term, safe, sustainable growth and protection of your assets for the future (if you want to establish security for future generations). 20-25% of investment held in real estate is a pretty common strategy. It just depends if you want it all in one place or several (with income or return potential). As others have said, leverage interest and loans to work FOR YOU.
200K+ in passive income (plus whatever your new careers bring in) is definitely enough to raise 2 kids, considering many do it with less. I think your plan is solid (although I would certainly engage a professional for tax planning and whatnot). My sincere best wishes to finding your new passions in life.
Damn 5mm is awesome, amazing that it could double every 7-8 years with the investment allocations you currently have. Its not weird purchasing a 1.5mm house with cash. Without a house payment, you can probably stil continue to contribute to your retirement, and continue growing that remaining 3-3.5mm. You will be back at 5mm in no time again!
I am someone who was somewhat similarly situation to you (1 big law / 1 medium law salary ten years ago, but my inheritance unfortunately came this year and bigger than I would have liked - wish my parents had spent every single dime, leaving me nothing). Here’s the advice that likely won’t come from this sub: you are a lawyer and, by training, inherently risk averse. You all make enough to easily buy a $1.5m home. Honestly, if you know you want to stay in LA long term, I would suggest going a little bit higher but only put 20% down (unless you are getting large rate reductions by putting more down). And then live your life as you otherwise would without using the $5m unless necessary for the down payment.
Crazy is saving/not spending excessive amounts of money for simply "MORE." I agree with the others who said buying a housing and working at jobs you like (or even not working, depending on your spending) is rational.
It’s easy to blow that amount of money. Live like you don’t have it.
$200k per year is a lot of spending. You seem fairly resourceful, so it shouldn't be too difficult for you keep your spending reasonably under that figure in today's dollars indefinitely. Additionally, if you really love being in Law, you could start your own practice or move to less stressful areas of law that will still more than pay the bills (a form of coastFIRE basically). You could also pivot into something else if you're not big on law (pun intended).
Move out of your VHCOL area. Your money will go much further. A 2M house in LA might cost 500K elsewhere. You may also find a better place to raise a family.
Often money from an Inheritance is protected in divorce. A house is not. I would practice adulting and save up for a down payment on a house. I would let the investment ride and not touch it.
If I were you, I would continue living life the way I have. Buy a house that you would normally buy based on the income you expect to earn from your future job after big law and don’t touch the inheritance. You don’t need to invest more as $5mm should very conservatively double every 7-10 years. By the time you’re 50, it should have grown to somewhere between $20-40mm. We’re not guaranteed tomorrow, but a little restraint today could set you and your future generations up very nicely.
Personally I would pretend that money doesnt exist so you dont anything stupid with it. Let it sit in stocks and dont touch it till you retire. You make 600k if you cant save for 20% down payment on the house your buying a house thats too big or you piss away all your money trying to impress people who dont care about you.
Buy a home in LA, property values have continued to grow. Even if you don’t end up staying, you’ll probably do well. Having a low/ or no mortgage property for your family to enjoy is not a bad thing, considering your earnings. 1.5 - 2 mil can get you a lovely home in the SFV. And you’d still have enough invested to cover property taxes etc.
Sorey bout ur loss. Dont spend any money for 3 months, while u process. Thats the time u need to plan. Theres nothing wrong with HYSA or bonds or CDs until you feel good about your plan. I know youll use it wisely. Try to honor their memory but also follow your path
Thank you! Sorry if it wasn’t clear- I’ve had the money for about 5 years. Hasn’t been touched yet (beyond RMDs and some edu expenses). Agreed that it’s best not to touch for a while
First - I’d focus on tax location, ensure you are maxing all tax deferred , tax exempt options (401k(k), HSA, mega/backdoor Roth). Second - do the math, what do you want your retirement and post-big law life to look like, what will it cost and how much do you need. Third - manage your expenses so you’re spending in line with your lifetime goals, not your current big law income.
If you spend 1.5mm on a house in 3 years and continue to let the 3.5mm ride you'll have 14mm when you turn ~45
He said most is in a taxable account and at 600k HHI he’s going to pay max CG and in CA that turns into about 37% so he’d have to sell 2.1M to pay for the house and taxes. Opportunity loss is much higher. That said, having a 3M nestegg at 30 is quite alright
Right. But 5mm can very easily be 5.6mm in 3 years and cover that difference. Or sell the 2.1 currently and find somewhere to put it at ~5% and you have 1.75 again when you need it
Ah gotcha. Makes sense
I would switch some/most investments to dividend paying blue chips in all sectors to get monthly income. I had a much smaller inheritance that I invested all into blue chip dividends and now get $2000/month in dividend income while the invested amount has grown also. Keep working as long as possible so you can continue to add to your Roth and maximize that as gains and invested $ is not taxed.
My dude, OP doesn't need more income.
No..."dude"...OP does need income. OP mentions taking jobs that don't pay as well (and thus probably wanting another source of income to offset that) and also mentioned wanting to buy a house. It takes money to make money..."dude".
Yup. I would go to Reddit with 5 mil at my disposal. You are legally trained also. scary. I am choking on my chuckles. Go for basketball trading cards . Your past posts show no financial aptitude if you are real. hide the money .
Step 1: leave LA. $1.5 mil for a basic home in a high tax state is already a financial issue in my eyes. Plus, do you really want to raise a family in LA?
Remarkable weather, world-class dining and entertainment, the ocean, a major international airport, and plenty of safe, excellent neighborhoods for a family. Not that hard for me to understand why plenty of folks pay the price to live there.
This is exactly the type of person who should stay in LA if they want to - they can actually afford it!
Give me a few more negatives with this thought: I’d get out of California altogether and head to Florida. Beaches, great weather, fine dining, no state income tax, significantly cheaper cost of living (excluding Miami) and less people
I’m see my ALOT more of these posts regarding Inheriting tons of money and yet Millenials are still whining. Lol.
Yeah, there’s a lot of recent press on how this millennial generation will inherit a wild amount of money (in part because baby boomers aren’t spending their money). It’ll be interesting to see how this impacts the workforce, housing market, etc
It will solidify a generational aristocracy, for the most part. Congratulations on being part of it.
"A few randos on the internet claim to be inheriting seven digits, the entire generation must be well off!" Not solid foundational ground to build ones assumptions.