You're listening to cubicle to CEO episode 193. Welcome back to the second installment of our retirement mini series on how entrepreneurs are uniquely building wealth and planning for financial independence through their chosen retirement vehicle. Last week we explored real estate investing in this week. Our guest chosen retirement strategy is investing in a stock portfolio that will allow her to retire at age 60 with a $15 million portfolio that she can withdraw an annual income of $165,000 a year from Kaitlyn Carlson is the founder and CEO of theory planning partners, a boutique wealth creation firm for the top female entrepreneurs in the United States. Before launching theory planning partners, Kaitlyn spent the majority of her career at UBS Financial Services Inc, where she developed more than 300 financial plans for clients with assets ranging from $500,000 to $1 billion.
I feel so lucky to be one of Kaitlyn's theory clients, where she is helping plan my own path to financial independence, with the goal to become work optional by my early to mid 40s. Today, Kaitlyn is getting vulnerable and walking us step by step through her and her husband's personal investment strategy, laying out the exact dollar amounts for everything outside of our own quarterly income reports we publish on the podcast. This is probably the most financially transparent and detailed episode we've ever recorded on the show. I highly recommend you break out your pen and paper or open a Google doc to take notes as you listen so you can fully process the insights Kaitlyn shares with us today.
Welcome to cubicle to CEO the podcast. I'm your host Ellen Yin. I quit my job without a backup plan and bootstrapped my first $300 freelance project into $2 million in revenue by age 28. On the show, you'll hear weekly case study interviews with leading entrepreneurs and CEOs who share one specific strategy that successfully grew their business revenue. Skip the expensive and time consuming learning curve of testing everything yourself by borrowing what actually works from the best and brightest mentors. You'll also get a front row seat to my founders journey through transparent income reports and behind the business solo episodes, subscribe now so we can grow together every Monday.
Video marketing is here to stay. So I want to introduce you to my go to Video Marketing Coach and friend Natasha, host of the shine online podcast. Natasha helps you create strategic video content by sharing a simpler way for you to show up with confidence that doesn't rely on the latest trends or gimmicky hacks. Her sustainable approach is especially refreshing in Episode 71 of the shine online podcast titled be a creator, not an influencer, using social media as a business owner. Here's a quick note of encouragement from that episode that really resonated with me.
I'm literally saying that follower count doesn't matter. What matters is having the audience of the right size and the right people. You could literally have 1000s of people in your community. And that might not do nothing for your small business. I have seen it with one of my greatest friends Dielle. She's an amazing sales coach and she was literally making sales like her first six figure year with only a few 100 people in her audience and she still doesn't have a big audience and still has hit the seven figure mark right.
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Hello, everyone, I am thrilled for you to meet my friend and wealth manager. Kaitlyn today, Kaitlyn first, before we even get started, I just wanted to share my gratitude to you because this is, I would say the most financially transparent, any guest has ever been on our show, not only from the depth of details that you've provided, which you will get to hear in our case study today if you're listening, but also because I think most of our guests who come on and are financially transparent, they're usually sharing about their business finances, right, including myself, like even in my own business income reports. We're specifically talking about this in the context of business, whereas the numbers you're sharing today are actually related to your personal finances, your personal bank accounts. And that is a really, really vulnerable thing to do to share with the entire world. So I just want to say thank you so much for doing that. And thank you for being a wealth advisor who really walks the talk. So anyways, Welcome, friend.
Thank you. I'm so happy to be here, Ellen. And like I was just saying to you before that. So this was actually a great exercise for me to go through. Because sometimes it's like a cobblers kids situation where I know all of my clients things down to a tee and I'm like, What are we doing again? So it was a great exercise.
I honestly think that's so true of almost every profession, right, like the best hairstylist in the world have grown out roots are like the best nail artists in the world haven't done their own nails in months, because they're so focused on their clients. So anyways, I appreciate you immensely. Before we get into today's Juicy, juicy case study, I want you to first share real quick your own cubicle to CEO story. And it's a really interesting one, because you've worked with, you know, some of the wealthiest families in the country.
Yes, I'll try and make this brief. So my name is Kaitlyn Carlson. I'm originally from the Boston area. I knew in college that I wanted to go into finance, but I also love psychology. So I was a psych major in college, I ended up going into Asset Management straight out of college, worked there for two years, and then discovered what financial advisors did, and I loved how it was a combination of finance and psychology. So I moved to wealth management two years into my career, and started at UBS financial services as a wealth planning analyst covered the southeast that we moved down to New Orleans for five years, covered the southeast, worked with over 300 clients, and discovered my passion for working with business owners. So during that time, I got my CERTIFIED FINANCIAL PLANNING designation, and then became a private wealth adviser shortly thereafter.
So that's when I started working with the billionaires and centi millionaires and really learned how the wealthiest families in our country steward their wealth, how they created it, all the different behind the scenes dynamics of that stuff. But my company now theory is incredibly mission based. And I built theory off of everything that I didn't see in the wealth management industry, the first of that which was women. So of the 300 clients that I worked with, not one of them was a woman. And so theory's mission is to essentially help female entrepreneurs create wealth. And I bring all of the Private Wealth Experience from my decade plus career and wealth management to our current clientele, which is a female entrepreneur. The other reason why I started it is because I saw so many business owners that were so poorly prepared for retirement, and I wanted to do something to change that. So theories entire model is very different than the typical wealth management industry. And again, it's about empowering business owners earlier in their entrepreneurial journey to learn how to create wealth and start doing the things to put them in a good financial position four years down the road. So hopefully that was good synopsis.
Absolutely. And if you're curious to learn more about theory planning partners, which like Kaitlyn reference is the name of her business. All of Kaitlyn's links will be below in the show notes. And of course, we'll give you a chance to share a direct link at the end as well. But I really think that this is such an important topic, which is why we wanted to create a mini series on the podcast about retirement. And I was so thrilled when I asked you, Kaitlyn if you'd be willing to come on and share your unique approach to building wealth and creating financial independence through investing in the stock market and specifically building a wealth portfolio that way? Because I think it's really amazing to see different entrepreneurs approach retirement planning, and it's not all through the same asset classes.
But one thing I actually learned early on from Kaitlyn was how every asset class has its pros and cons. So it's not that you know, investing in the stock market is the one and only way that you can generate wealth. But it is one way with a lot of pros and some other considerations, just like any other asset class. So before we get into your own numbers, Kaitlyn, could you maybe just share, like for you? Why did you choose investing in the stock market and building your portfolio that way versus other asset classes that may be available to you?
Yeah, that's a great question. And I think the best answer is because it's what I'm most comfortable with. And that's always what I saw when it came to wealth building is people tend to invest in what they're most comfortable with. And actually, my husband and I met at our first job, which was an asset management firm, like I mentioned before. And so we learned from 22 years old, on how the market worked, the nuances of the market, the risk that comes with the market, how to manage that accordingly. I'm just so comfortable with it. And I'm so comfortable with how it works and what to expect over a long period of time and how to manage my emotions with it, that it's just essentially like second nature for me to do this.
Additionally, you know, the government put in a lot of savings vehicles that reward you for investing in the market as well. But another one of my favorite reasons for investing in the market is because I don't have to do anything. So it's an entirely passive wealth creation vehicle. And as you know, Ellen, as a mom of two young boys, it's really nice not to have one more thing to do, other than just sticking it into the market and letting it do its thing.
Yeah, no fair, that was very attracted to me as well and wanting to work with you. As entrepreneurs, especially, you know, we have our plates so full with our businesses, with our families and other endeavors. So that definitely is a very attractive, I think, quality of this asset class in specific. And I actually loved that you mentioned behavior management, because I think that's another thing that I really took away from even just our short time and working together is, so much of money and wealth creation has to do with your ability to manage your own emotions and behaviors. And it's kind of fun to see when you shared in your cubicle to CEO story that you majored in psychology, that you are able to bring those elements of human behavior into the work that you do in finances. So maybe could you share with our listeners, just because I think this would really benefit a lot of people. The analogy that you shared with me on one of our first meetings about the yo yo on the mountain?
Yes, I knew you're gonna say that. It's such a powerful analogy. I love it. And it's so powerful. It was shared with me when I was 21 years old. And I still remember it to this day. So I had a mentor when I was interning at Putnam Investments. That said, watching the markets is like watching someone walk up a mountain with a yo yo. And so if you pay attention to the yo yo, you're going to be extremely emotional, probably irrational, and you might make irrational decisions. But if you zoom out and see that it's actually a person walking up a mountain with a Yo yo, then you can see that generally things are going in the right direction.
And so whenever I'm presenting, I always say that the yo yo is like the CNBC is of the world, you have to remember that CNBC is paid to be sensational, they're paid to create headlines, that's how they get advertiser support. So they have to create stories. But when you zoom out and look at the market over a 100 year plus period, you can see that generally speaking, it looks like a mountain, it looks like one side of a mountain, and it's going up, which is great. So it's a great way to remind yourself that even though things feel intense in the moment, and they feel volatile in the moment, when you just take a second to zoom out, it's like oh, everything's okay. And it's going to be okay. So managing the time horizon and your emotions around the time horizon is super important.
Such a powerful visual, thank you so much for sharing that, you know, I had to bring that up, because that was changing. I share that all the time now. And I think honestly, that analogy even applies outside of money. It's really about anything that requires patience in life to see the fruits of you have to be willing to go through the ups and downs, but understanding that over the long period, there's progress being made. So I love that. Let's get into your numbers. Kaitlyn, this is what the listeners are here for. I'm so excited. Okay, so first we're gonna do a quick rundown of the context of Kaitlyn and her husband and her family's living situation.
So currently, their living expenses amount to $12,000 a month. Kaitlyn's current salary that she pulls from her business is 12,000 a month. So basically, break even with the expenses required. And then Jake, her husband, his current salary, that he pulls in his $10,750. So all together a net income of around 23 $1,000 I'm assuming that's pre tax, is that correct?
Correct.
Awesome. So 23,000. And obviously, the government's going to take some of that money, you're gonna have to pay into FICA and Medicare and you know, social security, all the things. So that is kind of like the baseline of what we're working with in the two day. As far as future goes, emergency savings, they have about $36,000 saved up. So that's three months of their lifestyle expenses, you know, 12,000 times three. Before we get into the actual other future numbers, like you know, what you're saving towards what the portfolio goal is. I just want to quickly pause and ask a question about this emergency savings fund. You mentioned when you were submitting your numbers for this interview that I noticed you put in parentheses, dual income. So I'm just curious, do you think that the number of months your emergency savings should cover needs to differ if you're a single income household versus a dual income household like yours?
Yes, that's a great question. So typically, the rule of thumb is to have three to six months worth of living expenses, in cash for an emergency savings fund, I tend to recommend if you are a single income household, you have closer to six months in emergency savings, just because if you're a single income household and you lose that income, you want to give yourself that amount of runway to figure things out. If you're a dual income household, you can lean closer to that three month mark. Just because if one person loses their income, at least there's a second income coming in. I also think that just like anything, it depends.
So as you know, Ellen, the clientele for theory is female entrepreneurs who tend to have a high risk tolerance. So the idea of an additional three months sitting in an emergency savings account, they're like, oh, I want to be having this money work for me. So I also think it comes down to risk tolerance, I do have dual income households that have six months of living expenses in cash. And then I have single income households that have three months of living expenses in cash, it just depends. It just, you want to make sure that you're educated and understand why you have that amount and the consequences that come with having that amount. So for people that lean towards six, it might be a little bit more of an opportunity cost, but they might feel safer. For people who have three, they need to understand that they're only giving themselves a three month runway if something were to happen.
Absolutely. And I know that our listeners are in various stages of their financial journey, some are more financially literate than others. So I always like to assume that there may be some people listening who are brand new to this experience and are wondering, What do you mean by opportunity cost? If I keep more savings in my account? Like why is that an opportunity cost to me? Can you just quickly talk about that?
Great question. So opportunity cost is essentially what is the cost of this opportunity? So if I have an additional three months sitting in my bank account, could that money be working for me elsewhere? And what is the cost of that opportunity?
Right, because if your money's just sitting in a normal savings account, and this kind of goes back to what I said at the beginning that I learned from Kaitlyn that just like every retirement vehicle has its pros and cons, every asset class has its pros and cons. Cash is an asset class, right. So if you keep more cash in your bank, the pro is that it's liquid, and you can withdraw at any time and utilize it as needed. But the con is that because it doesn't typically grow, you're losing to whatever inflation is, and you're also losing the potential returns that you could be getting if you put it somewhere else. However, I do want to bring up a point, one of the huge benefits of working with Kaitlyn and theory is that we get access to unique opportunities like flourish, which is an account that yields much higher savings rates than a typical traditional bank offers. Can you just give us a quick teaser of what Flourish is and what it does and how you use that for your clients?
Sure. So Flourish is a cash management program that's available to RAS through RAS. And essentially, they take the hard work out of going to these specific banks that they've vetted to get yields essentially. So I also say this to Ellen and Dustin, when I'm talking to them that just like with every asset class, there are pros and cons. With every economic environment. There are pros and cons. So right now we're in an economic environment where interest rates have been going up. And so usually the headline is how that's affecting mortgage interest rates and how it's making it much more difficult to obtain a mortgage because you're going to pay a higher interest. The flip side of that is we were in a very low interest rate environment for a very long time an artificially low interest rate environment. And so bonds and CDs weren't able to really pay any sort of yields.
So the benefit of this economic environment that we're in is safer asset classes, such as bonds, and such as cash, are now finally able to pay yield. So with Flourish, and they go out to banks that are paying high yields, and they essentially aggregate that for us. So we only have to deposit the money into the Flourish account, they do all the hard work on the back end, there. Also, the amounts are FDIC insured. So they won't hold anything above the FDIC insured amount at any single bank. But they're essentially doing all the hard work of aggregating this for us. And so you just have to deposit your money from your bank account and to flourish. They're doing all the hard work on the back end, but you are reaping the rewards of the higher yields that those banks are paying.
It's incredible. And what is the current higher yield that Flourish is offering in comparison, I guess, to a typical yield rate at a bank, if you were just, you know, to walk in through the doors at a Wells Fargo or chase or US Bank?
So that's a good question. It's a little bit of a moving target. So right now flourish is paying 4.4% on cash. I've seen banks where they're still paying 0.25% on cash. So it just depends on how quickly the bank that you're banking with is responding to this rising interest rate environment.
Hmm, yeah. I love your explanation of looking at the the pros and cons of different economic situations, I think that's probably a new concept to most people, even those who are a little bit more financially savvy. So thank you for bringing up that point. Because I wouldn't have even thought to ask about that. Let's go back to your emergency savings fund. So like we said, 36,000, is what works for you. It's three months of your lifestyle expenses. I'm curious, like, how long did it take you to save up this amount? And what were you contributing? Like? What percentage of your take home income were you contributing to this emergency fund to get it funded?
That's a great question. So various growth has been pretty rapid over the course of the last year. And so I did it more of a pyramid style, to where, okay, so the base of the pyramid was solidifying the profitability and their recurring profit of the base layer. And so once I stabilize the business, then the next layer was stabilizing that emergency savings fund. So I was actually able to build that up pretty quickly. And then I graduated from that second layer of the pyramid, and to the third layer of contributing to the retirement accounts. And then the fourth layer being the taxable investment account. So I went through it and very much a pyramid style of like, okay, let's graduate from one layer to the next to the next to the next. That worked for me, also, because theory did so well. So quickly.
Over this past year, I have other clients, I just had this conversation over the weekend with one of them, where she was like, I just can't stand the idea of like having to wait to invest in the market. Because I'm building up my emergency savings fund. I was like, I hear you, that's totally fine. If you want to split it to where you're taking 50% of your distributions to go towards your emergency savings fund and 50% to invest in the market, because you don't want to feel like you're missing out on market performance. That's totally fine. And I will say that's a great illustration of how wealth creation is part art part science, there's not one way to do it, there's a way that feels good to you. You just want to make sure that you have context so that you can make informed decisions. So because theory's cashflow was growing so rapidly, you know, I was able to fund that emergency savings account within like two to three months, which isn't a particularly large amount of time.
If it was going to take me more like two years to fill that emergency savings fund, then I'd say, Okay, now you're running into opportunity cost. Why don't we try splitting this up like that client wanted to do where we're slowly building the emergency savings fund, and we're investing in the market. And that's kind of more along the lines of what I did as an employee.
So like I had student I came out of college with $200,000 in student debt. But that didn't preclude me from contributing to my 401 K. So, you know, I had a percentage of my income going towards paying down the debt, but I wasn't going to miss out on that match from my company. And that actually ended up really coming in handy down the road because This is gonna sound like such a cardinal sin for CFP, I actually ended up liquidating my retirement accounts to pay off my student loans. If you were taking the CFP, they would be like, That's a cardinal sin, you have to pay 10% interest, you have to pay taxes, all that stuff. This is where being strategic and taking advantage of the opportunity is super important.
So the only reason why I did that is because I had a few pieces of knowledge. And the whole reason why I was able to do this was because of the pandemic. So when the pandemic hit, the Cares Act came out. And the Cares Act said that we would be able to access your retirement accounts without paying the 10% penalty. And so that was like a huge caveat. And I knew Okay, I need to seize this opportunity now. So I ended up liquidating my retirement accounts. But again, the only reason why I was okay with that was one because I wasn't paying the 10% penalty. But two, I had made the transition from an employee to a business owner. And because I knew about financial planning tactics for business owners, I knew that I would be able to make it up on the backside. I knew that retirement vehicles like supercharged retirement vehicles that weren't available to employees, were going to be available to me as a business owner. And so I was okay, liquidating my retirement accounts, because I knew I would be able to make it up in a short period of time.
Okay, this is fascinating. I have a couple of thoughts here first, just real quick for listeners, CFP, I'm assuming stands for Certified Financial Planner. Okay, awesome. I just always like to make sure we're all on the same page. And then it was really interesting hearing you break down kind of your progression, like you mentioned, of what was your first priority stabilizing the business versus like what was at the tip top of that pyramid, aka investing into taxable accounts. And because you're a psychology major, I know, you'll know what I'm referring to kind of reminds me of like Maslow's hierarchy of needs, right? It's like, you can't really worry about social belonging, which is or love, or like self awareness, which is at the top of the pyramid, if you are struggling to feed yourself and put a roof over your head, and really in that survival mindset. So that's really interesting to see the parallels come out in the way that you view what you choose to prioritize.
But I also think it was really helpful that context that you said about how, if it was going to take someone more than two years or around two years, let's say to fund their emergency savings, that it might make more sense with that context to split their contributions between emergency savings and actual, you know, contributions to their portfolio for investments. So those were my big key takeaways from what you shared. I want to move forward to the more future looking aspect of your actual retirement, so to speak. So I put retirement in quotes, because as entrepreneurs, like you said, we are afforded the unique privilege of, in a way getting to decide when we want to retire. And it's not necessarily dependent on reaching a certain age where we can access let's say, our 401 K's without penalties or or be paid or Social Security benefits from the government, which is typically for most employees around like, age 65, give or take. But for entrepreneurs, I mean, people I've seen people retire as early as in their 30s. And on upwards, you specifically chose your desired financial independence age, as 60 which I would love to know why why that number?
That's a great question, Ellen. So I really like what I do. And I see myself wanting to be this invested in my purpose and my business for at least that amount of time. I could even see myself working to like 70 Maybe. And I think this is definitely something that relates back to my experience as a financial planner, because I spent my 20s working with people in their 60s and 70s. And I saw that having purpose was super important. So the people that tended to suffer the most were the people that it was like, boom, they were retired and they didn't have anything else. So I think it's really important to be not just financially prepared for retirement but mentally prepared for retirement and like have hobbies and have things outside of your business.
And to that point, I also chose 60 because I also do want to enjoy my life today. And I do you want to allocate part of our cash flow towards our lifestyle, towards taking trips with the boys, towards living. And so I I tend to be I would say more of like a marathon runner than a sprinter when it comes to my financial independence. I don't want to forego things today so that I can retire 10 years from now. I would rather have a nice slow, steady 2030 years to do both enjoy life today and sustainably builds for a work optional lifestyle at 60. So that felt like, if I'm running a marathon, like a nice eight minute mile, it was like, we got to do everything we can kind of hang out. I'm not trying to break records here. You know, I'm pacing myself. So that's why I picked to 60.
That's a really beautiful thought process. I laugh because an eight minute mile is like, totally still a sprint to me, like, What are you talking about, I'm still like, pushing myself to the edge. I've always been such a slow writer. So clearly, cardio is not my thing, endurance especially. But I totally appreciate and admire your perspective on how life isn't just meant to be delayed for future gratification. I think people tend to fall in extremes. It's either like they only live for today. So they do everything for instant gratification. And then they end up in a place years down the road where they're basically totally screwed over, because they've done nothing to prepare for their future selves.
Whereas I know you know this about me, I tend to fall in the other extreme, where I'm so focused on preparing for my future self, that oftentimes it can hold me back and enjoined today, because I you know, I'm just not present. And so that is one thing that I really enjoy working on with you. And even just, you know, a behind the scenes for those of you listening, Kaitlyn's coming to my wedding this summer, I'm so excited to have her and Jake there. And it's funny, because, you know, Dustin, and I, my fiance seem to be husband and I are also very opposite in the manner that he is very present and has never really cared too much about having money or not having money, it's all really the same to him. So for him, you know, it's easy to just kind of make decisions from where you're sitting at today. And both Dustin and Kaitlyn have been highly encouraging in the wedding planning process, you know, when I get anxious about like, Oh, we're spending this much on XYZ, like we could be using this for, you know, our savings or retirement or investing back into the business, you know, all these fears that I have.
But Kaitlyn has been such a great reminder that, you know, if you delay everything to your future self, that's also not living a very purpose driven life. And that sacrificing a lot of important things and, and time and moments that you really can't get back. So anyways, just wanted to sing your praises there as well.
Thank you for reflecting on Ellen, it means a lot, because I think when I get asked to speak, sometimes I feel like I come across more like the ladder where it's just like, give everything you have to secure your financial independence. And that's not me at all. You know, I think it's really important to live your life. And certainly you want to be aware of these things. Because I always say that wealth isn't one specific number wealth is the luxury of choice. And that's all you're aspiring to give yourself as the luxury of choice. But yes, you are. I feel like I'm in between the two of you, actually. Yeah.
You're the right balance. Let's be honest.
A little bit of Dustin, a little bit of Ellen,
I love that. So you you mentioned that at 60. You use the term work optional, which I think is such a great way to describe like what financial independence really is where your assets and the the passive income that your assets produce can sustain your lifestyle without you actively having to engage in work and receive a paycheck of any sorts for you as you age because you're in your 30s right now as you age to that 60 number where you're going to reach your financial independence number, which again, we'll get to in just a moment. But how do you anticipate your work schedule changing over the next 30 years? Like are you planning to work full time until you're 60? Or are you seeing kind of more of a progressive slowdown where it's going more and more part time as the years go on?
That's a great question. Um, I definitely see myself working full time, but more of like a work life integration, where I have balanced in my days, I'm able to go to the boys sporting events, I'm able to answer emails on my own time. With wealth management, it typically ends up being in terms of exit strategy, like a succession plan, usually, just because you want time for the clients to get to know the new advisors and so I guess I won't get too into the weeds on a whole nother topic. But I could probably see myself just having really nice work life integration and I want to strive for that, you know, as soon as the next few years having some balance and I think by the time I get to 60 I hope that to be able to have a continuation of that but I think that's a huge part of me prioritizing saving because I don't want the sale of my company to be what securing my work optional lifestyle. And so if I can save and secure my work optional lifestyle that way And then I won't be forced into a scenario where like I have to sell the company in order to take off. If that makes sense.
It does that's really fair. And, again, just provides a different perspective to all the options we have available as entrepreneurs. And I love that for you, you know, because you want to work until 60, that you don't want to be forced into an early sale. So I just you're really speaking my love language here, Kaitlyn, because you are providing so much context into the why behind each decision, and showing the listener that it's not about a black and white rulebook of like, this is the right way. And this is the wrong way. It really just depends on what you desire, right?
Yes. And I think a huge advantage that I have is that I've been doing this for 12 years, and I'm a certified Exit Planning advisor on top of being a CFP. So a lot of the knowledge and like thought process that I bring to the table is just because I do this for a living. So I'm happy that I get to share it. This is a great platform. Thanks, Ellen.
Of course, of course, let's talk about the age is one piece of the equation of retirement or financial independence for you 60. But the reason you arrived at that number is because or at the age sorry, is because of your desired financial independence lifestyle, which means at the age that work becomes optional. You want to have enough passive income to fund a lifestyle that costs $30,000 a month, which means that you need a portfolio at retirement of around 15 million, is that correct? And how did you decide $30,000 month because right now, as as we previewed at the beginning of our conversation, you're spending about $12,000 a month. So most people might be like, Oh, that's interesting. Like, why would your living costs actually increase as you get older, and maybe even offload some responsibility? Because by then, obviously, your two sons will be grown. So you're not necessarily taking care of them anymore. So how did you arrive at that? 30k a month?
Okay, so the short answer is because I'm an Enneagram, three. And I'm the achiever. You know, I mean, to be totally honest, so I was a college ice hockey player, right. And so for the first part of my entire life, my goal was to play hockey in college. And that was what drove everything for me. And then I graduated, and then it was like, I didn't have that goal anymore. So what was the next goal, and I feel like I spent, you know, my 20s, trying to figure out what my goals were.
And so 30,000 a month is a little bit like, you know, we don't live in our dream house yet. So it's the mortgage for a dream house, which let's say I'm 32. Now. So let's say we buy our dream house at 35. So a third of that might go to the mortgage for our dream house, which if we have a 30 year mortgage, I would still be paying at 60. So part of it's taking that into consideration. But I also want the spaciousness to be able to travel at leisure, and to be able to one I know one thing I put further down in here as our alma mater, so really important to us, both Jake and mine. And so I want the spaciousness to be able to do things that are close to my heart. So, Jake, and I really want to travel when we are empty nesters, we want to be able to provide our kids with the education that they want. And we want to be able to give to causes that we care about or like our Alma Mater is, for example. So 30,000 felt like enough spaciousness to have flexibility.
You know, right now, 12,000 is like, it's daycare, it's the mortgage. It's like insurance. It's all of the responsibilities. So it was a little artistic and getting here. But it felt like, Let's shoot for that. And even if our real lifestyle is about 15k, all that means is we'll hit work optional, much sooner than 60, essentially. So it gave me another goal to go for where at least I'm putting in really strong habits right now that are either going to give us a very spacious lifestyle, or it's going to speed up our work optional date.
I love that. And especially because I don't think, you know, having more options is ever I mean, I guess never say it's never harmful to have more options, or we shouldn't use absolutes, but in most cases with money, it's not a bad thing to have more options. So like you said, even if you don't realistically spend 30k every single month in retirement, even having the option two is huge. And I do want to circle back to be exact of what you are saving each month and each year in order to get to that $15 million portfolio. But before we dive into those specifics you brought up that one of the things that's important to you, is giving back to your alma mater both you and your husband And, and DAF's are a way for you to do that. Can you explain what that is? Because I think this is such an interesting concept of how you can give back to the causes that you care about. So share with us what what's going on there.
Sure. So a DAF stands for a donor advised fund. And it's essentially like a charitable investment fund that you can create. And one of the coolest things about it is you can get the tax deduction and the year that you contribute to it and set it up. But you don't have to spend all that money immediately. So let's say that I go to sell my company, and I'm going to have a huge tax bill, part of the way I can mitigate that tax bill is by setting up a donor advised fund. So I can put a chunk of money into this, let's call it a charitable investment account, get the tax deduction, and then over the years, decide how I want to allocate that money towards charities. So setting up something like a scholarship, for example, for my alma mater, because I went to a prep school because I got an 80% scholarship. And so if I could pass that on to another kid that got the same opportunity, like that would be so fulfilling to me. So a donor advised fund is just a really tax savvy and investment savvy way to go about a charitable desire, essentially,
I think it's so cool too, because it stretches your dollar so much further, right? Like instead of just for even numbers, instead of being like, I'm going to donate $10,000 to this organization I care a lot about right now, when you pull $10,000 liquid cash, and you give it to them. And it's like, okay, that's all it's ever going to be as 10k. Instead, you can put it in this donor advised fund and let it grow, like you said, over many years, and maybe throughout the course of 2030 years, you're able to give 10k Not just once, but like multiple times out of that initial $10,000 contribution that grows for you, right?
Yes, Ellen, you're one of the best students, A+ client. And like, conceptually, that's what investing is. So I always say like, a same thing with aid. Sometimes I give an example of like a Range Rover. And I say, because I don't know, I've been in masterminds where it's like a Range Rover is the thing. And I'm like, Why buy a Range Rover once when you could buy a Range Rover for life, like Range Rovers for life through investing. Because if you just put cash towards that investment, you've ended the life of that dollar. If you put that dollar into the market, and it grows, you're extending the life of it exactly like you're saying, because it's regenerative.
That's so interesting. I didn't think about it in terms of that language. But that actually makes so much sense. I don't know why like my brain was like populated with images of like regenerative cells re growing and multiplying. But it really is that so that's really powerful. I want to get back to your cash goal of withdrawing 30k a month at retirement, which requires you to save $13,750 A month today, or the equivalent of $165,000 a year, which like I've said a few times will result in a $15 Million Dollar Portfolio at age 60, assuming a 6.5% return from the market, which to my understanding is actually a pretty conservative estimation, correct?
Yes, yes. And I built that into your plan as well. I love that.
What would you say the just for, you know, those who are brand new to investment, what would you say the average returns of the stock market actually have been over the last, let's say 100 years,
it's usually closer to eight to 10% for the market. And small cap stocks are even higher than that. So I would say 8% is probably realistic for the US stock market. But I like to put six and a half because again, I'd like to surprise to the upside rather than saying, Hey, we actually have to save more. And this is a total nerding out moment. But the other thing that I liked about a $15 million portfolio is it keeps us below the estate tax limit.
Oh, tell us about that.
So each individual has a gift and estate tax exclusion. And so right now, it's about $12 million per person. So it's about $24 million for a married couple that's actually gonna be sunsetting in 2025, at the end of 2025. back to its original levels, which I think would take people back down to seven, but it's adjusted for inflation. So let's say 8 million. So if you have above that amount, so if a married couple had $30 million, they would have to pay a state tax on anything above their exclusion amount. So anything above the 24 million And so it's just kind of like simpler to stay under the estate tax. So you don't have to deal with that. I also like to say that just with working with so many wealthy people, I mean, I've worked with people that have $500 million. And you asked me this Ellen, you really who are the happiest people? And I say, I typically find the happiest people have between like five and $20 million, where it's enough for a very nice lifestyle, but not so much that it's going to create dysfunction and confusion.
Mm hmm.
And that's a lot of money.
Yeah, it is it is. And I think that's another big aha that I've had in working with you is, I don't actually need as much money. And I say I, on behalf of both Dustin and me, but obviously, since I'm hosting this podcast, I'm seeking from that perspective, we really don't need as much money as we think we do, not only in the future at, you know, our age of financial independence, which for Dustin, and I were kind of being a little bit more aggressive and trying to reach that in the next 12 or so years. So I would be in my 40s, I think at that point where work would become optional. But for us, I think it was realizing not only that we didn't need as much as we thought we did in retirement, but also that I didn't need to push my business to earn as much as I thought I did in the now in order to achieve that goal.
And that has been such a huge clarity for me, because I think when I didn't have clarity or vision for exactly to the dollar, what I needed to save every single year in order to achieve my vision of what financial independence and a lifestyle that would support us would look like when I didn't have that clarity. It felt like there were so many inputs, you know, encouraging me to dream bigger, dream bigger, Aspire bigger, Aspire bigger, which is very true to my nature already, that it was pushing me to want to always achieve more without understanding why I was achieving more. And that can create a lot of internal anxiety and panic where there's not truly ever enough because you don't have any plan for how you spend the money or allocate the money once you actually earn it.
And so one big tangible takeaway just for our listeners, from my own perspective, is that I no longer necessarily feel this need to like want to generate a seven figure business annually just for the sake of having a seven figure business because it doesn't actually necessarily play into my long term vision or my day to day vision. I think it's more so like, How can I increase profitability in a sustainable way that allows me to still live my life so that I can reach the goals that Kaitlyn and I have set together for our financial independence. But again, that was just something that I'm really glad you brought up. Because I think for a lot of people, they think they need a lot more than they do.
That was so beautifully put Ellen and I think that's the number one myth that we bust for clients when they come on board is, especially in the online world, there's always this like, push, push, push, you know, like a $10 million business and sky's the limit. And if you are programmed, like an achiever, you don't question it, you know, you're just like, grow, grow, grow. But we're able to come in and say, you actually only need like, a half a million dollar business with good profitability to achieve everything that you're looking to achieve. And I feel like we almost give people like a central nervous system reset.
Totally, I 100% agree. And what's really cool is, if you're listening to this, and maybe you're thinking, Well, I don't even know if half a million dollars a year is realistic for my business or for the lifestyle that I'm willing to sacrifice. In order to achieve that. I just want to encourage you that like Kaitlyn, and her team, but not just Kaitlyn or team, like if you just have clarity, you can actually make massive movements toward retiring perhaps at a more typical age, like Kaitlyn is planning for at 60 versus like trying to retire your 30s or 40s. But if you're planning to work for a good majority of your life, even saving or investing, I should say $3,000 A month can make a huge difference in allowing you to achieve that. And that doesn't even require a half a million dollar a year business.
Maybe that's just a, you know, a business that makes like $200,000 a year or something with with good profitability. So I hope that's encouraging to those of you listening, Kaitlyn, I do want you to actually share the numbers into how you're allocating your split of this $13,750 that you're investing a month and or $165,000 a year. So do you want to run us through all the different vehicles that you're placing those funds in?
Sure. Okay, so again, always going to diversification. What we are trying to do once we determine the financial freedom number is go back to this idea of luxury of choice. And so diversification is going to help us navigate any economic environment. So what I've done is created three buckets here. So I have a tax deferred bucket, a tax free bucket and a taxable bucket. So the tax stuff third bucket is retirement accounts. And so for business owners, that's typically going to be a 401k, a solo 401 K, a SEP IRA, an IRA, what that means is you're putting money in today, you're getting a tax deduction for doing so. And that money is going to grow without being taxed for a long period of time until you go to take it out again, and then that's when it will get taxed.
So what that allows is for that money to compound faster, because the earnings aren't getting taxed on it every year, so that's just low hanging fruit that we want to take advantage of. And, again, these structures are set up, like by the government to incentivize a certain type of behavior. So we want to just like take advantage of those while they're there. So for both Jake and me, we have 401 K plans. He's an employee of Amazon. So he maxes out his 401 K plan, I have a 401 K plan for theory, I maxed out my 401 K plan. Now, caveat here. So theory is getting ready to hire employees. So we'll move from a solo 401k to just a regular 401k. So that's actually going to allow me to put in less as the owner of the company into the 401k. But that's okay. Because, generally speaking, it's going to be great for theories growth to hire. But just for those of you out there who are maybe single member LLC is being able to find a solo 401 K plan up to 66,000. That's a huge, really cool savings vehicle that you can take advantage of. So just want to note that.
So with both Jake and me maxing out that's $22,500 Each, that's going into our 401 K's, that's our employee contributions. And then we have employer matches. So for me, my employer match being at 3% is going to be $4,320. Jake, his employer match being at 5% is going to be $6,450. That's a match. That's the company matching what we are contributing to our 401 K plans up to a certain percentage, then moving into our tax free bucket. Now, our income phases us out have the ability to contribute directly to a Roth IRA. But there's a workaround, they're called the backdoor Roth. So we will both contribute after tax to a regular IRA, and then we'll move that money into a Roth IRA.
A Roth IRA is a tax free bucket. So that's after tax dollars going into an investment vehicle that's never going to be taxed again, I repeat, never going to be taxed. So Jake and I are both contributing $6,000 Each to our own roths, even though that doesn't seem like a life changing amount of money, over 30 years, that can compound into a large sum of money. And that doesn't get taxed. And that can be passed on to our kids as a tax free bucket as well. So that's important to understand. And then so once we've taken advantage of the tax deferred and the tax free vehicles, that leaves the last bucket, which is our taxable bucket. So that's after tax dollars, that's going into a regular investment account, the earnings on that money gets taxed every year. So it can grow a little bit slower, but we can access that money at any time. So for that bucket we have at $100 a month going into that. So I have my salary, which is just taking care of our regular lifestyle, but I have my distributions from the company going directly into the investment account.
And I say, make this as thoughtless as possible. So set up auto contributions into your investment account. So it's like you never even see it. One thing that I saw over and over again, when I was working as a wealth planning analyst, the two biggest assets that people had at retirement, their house and their 401 K, reason for that, you have to pay your mortgage, and your 401k gets taken out before you get your paycheck. So set yourself up for like human behavior friendly saving. So the more you automate, and the less you think about it, the more likely it's going to be achieved.
I love that. It's just like pretend like you have three mortgages, right? Or whatever is like going to get you in that mindset of like, if you don't see the money, it doesn't feel like it's yours. So you don't feel that like that pain of losing it, so to speak. I want to just clarify real quick for our listeners, that $22,500 That you each contribute to your 401 ks that's on an annual basis as is the $6,000 each to your backdoor Roth's that's also annual is that right?
Yes. I'm so glad that you pointed that out. Ellen. Yes. So those are annual numbers that 8100 A month obviously is a monthly number. Okay,
perfect. And I mean, we could sit here all day I'm sure so many of you are already mind blown by all of these amazing strategies that Kaitlyn is sharing that she's implementing in her own business some you may have never heard of before which by the way as a thank you to her if you did hear about something today on the podcast that is new to you, would you just do us a quick favor? And DM Kaitlyn directly or DM both Kaitlyn and ourselves at cubicle to CEO and just share what was that new concept for you that kind of set off a light bulb moment. Kaitlyn real quick, your Instagram handle is @theoryplanningpartners, right?
Correct? Yep.
Okay, cool. We'll also link that in the show notes. So you don't have to remember that. But do send Kaitlyn a DM, at least to say thank you for being so transparent and vulnerable with us. I wish we had all the time to dive into every single other amazing strategy that you've utilized to prepare for retirement and financial independence. But in our last couple of minutes, maybe could you just choose your top three favorite ways that you utilize the tax law that has been written to support entrepreneurs uniquely? How are you leveraging some of those things to help accelerate your ability to fund your financial independence or fund your retirement? What are three tax strategies you could share with us here?
Oh, my gosh. Okay. So that's a great question. Being a business owner can provide you with so many cool strategies. So one of them that we haven't implemented yet, but I'm really excited to implement is eventually getting our children on the payroll because we can pay them up to 12,000, I think $750. And that's also the standard deduction. So essentially, they don't have to claim that as income. And we can start funding their Roth IRAs. So we can have them starting tax free buckets for saving. And you know, them being as young as they are, that's going to be so many years of compound interest. So that's a really cool strategy for our kids.
Let's see what else eventually we do want to look into potentially real estate investing, because there are ways where you can use real estate to offset so half of Jake's income is through RSU is restricted stock units. So he gets paid half in stock. And so that can be like a large chunk of money that like a windfall, essentially. And so we're also looking into strategies to utilize real estate to mitigate that tax bill. Now, realistically, it might just be like, my brain trying to do this. I don't think that with two babies under two and a half, it's gonna be in the near future. But real estate is a cool option for entrepreneurs as well.
And then a third one, how would you say good old retirement accounts, I mean, entrepreneurs have the ability to do mega backdoor Roth's, which is a super cool strategy. So you could potentially put up to $66,000 into retirement accounts where employees are capped at 22,500. So you know, that's an extra almost $44,000. And if you do it as after tax contributions, that's potentially $44,000, you can be putting into a Roth IRA or a Roth 401k. So, you know, that would take an employee seven years to do something you could do in a year. So I'd say there are a lot of retirement accounts out there that are available to entrepreneurs that are creative, and can help you make up for lost time. So if you're listening to this, and you're in your 40s, or your 50s, don't feel or even 60s Don't feel like oh, I didn't get started in time. There are so many really cool savings vehicles available, especially as retirement solutions
Isn't that so encouraging? Just all of you listening, I mean, wow, I think that's like one of the things that most people truly don't understand is, if you live in the United States, the tax law really is written to reward risk takers, like entrepreneurs who are helping to fuel the economy through the jobs they create by owning businesses. And I'm sure many of you are sitting here going, Oh, my gosh, a major backdoor Roth sounds incredible. Like, how do I start that? How do I do that? If you would like Kaitlyn, and her team's help in implementing something like that. Kaitlyn, are you taking clients right now?
Yes, yeah, we are. And I can give you my Calendly link. I love to hop on one on one with people and talk through this stuff. Awesome.
So if you're fascinated by this, and you're like, I want to take action on this. I want guidance on this. We're going to drop Kaitlyn's link below so you can book a time with her. Also, again, all of the links we've mentioned today will be below in the show notes as one last hot take. And then we'll wrap Kaitlyn I don't know if you have watched the new Netflix show how to get rich with Ramit, but it just came out.
I saw the trailer. I haven't had a chance it watch it yet. I'm dying.
I found out about it through my friend Selena Soo, who is friends with him. And it was a great I mean, it was a great show. I think some of the things were probably I mean for you for sure. It would be like very, very good. Uh, like things you already know. So not a whole ton that was new necessarily if you are fairly financially literate. But for those who may not be, I think it again opens up this whole concept of how to think about money and how living as he calls it a rich life today is as important as living a rich life and your future, whatever that means to you.
One thing I do want to ask you though, is in the show, he has this one client that like, he just can't understand why she is putting her money with a wealth manager, because he's like, you're paying 1% fees every single year, you're losing out on so much, just put your money into a Vanguard, like an automated software system, and you won't have to deal with these insane fees. And he's like, just not understanding this choice that she's made. Right. And this is one thing that's really unique about theory that I wanted to make sure we mentioned in this episode before we end, so talk to us about what asset under management fees typically look like in the financial planning industry? And why theory does things different for the women that you serve.
Yeah, that's a great, thank you so much, Ellen, that is a big differentiator for us. So we charge a flat monthly fee. And I had a big issue with assets under management model, mostly because it neglected business owners, because with the assets under management model, you're really not going to get the best service until you have millions of dollars to hand over to a wealth manager because if Ellen gives me let's say, a million dollars, then I take 1% of that. So that's $10,000 a year to manage her a million dollars. Entrepreneurs just typically aren't going to set aside that massive amount of money. They're so used to reinvesting in their business. And so what I saw over and over again, was entrepreneurs would come to me at the end of their career with nothing to show for all their hard work. And I would think this is so silly that we lost three to four decades of wealth building opportunities, just because the wealth management industry and entrepreneurs were like two ships passing in the night.
So when I started theory, I wanted to change the way that we were compensated so that we were motivated to bring this private wealth service and strategy to entrepreneurs today. And so I love that for two reasons. One, it allows us to do that to bring all the strategy to entrepreneurs today, but to it keeps us completely objective. So we are not rewarded or motivated by how much you keep in stocks and bonds. Of course, we think that a wealth portfolio is a great wealth building vehicle. And as you can see, personally, I believe in it tremendously. But people have a lot of different things that they're passionate about. And we want to be able to objectively provide people with advice and not get paid more or less for that advice.
And then the other thing that I love about this model is, the more wealth that our clients create, the cheaper our fee becomes, because it is flat. So that just feels like a reward on both sides where we're excited. And you're probably excited as well, because it's becoming, you know, a smaller and smaller fraction of your overall wealth. But again, that's tying back to like how mission based and thoughtful I was with creating theory. And yeah, I hope to do great things and change a lot of lives with it.
It's not a hope you've already done it. So I want to encourage you with that. Kaitlyn, thank you so much for your time and for sharing again with such vulnerability, sharing your wisdom with us today. I've already mentioned people can find you on Instagram @theoryplanningpartners, and they can book a call with you if they're interested in working with you. Is there any other link or direction you want to guide people to before we hop off today?
No, I think those are great. I mean, thank you so much for saying the DM thing. I was just thinking about how much that would make my day to hear from people. So please do take Ellen up on that.
Amazing. Thank you so much, Kaitlyn, and thank you all for listening. I hope this brought new ideas to your perspective today.
Hey, Ellen here. Thank you again for tuning in to cubicle to CEO. If you enjoy today's episode, follow our show on Instagram at cubicle to CEO for more bonus content and hop on the last Tuesday of each month to watch our live after show with recent guests. If you want to support our podcast, text this episode link to a friend, leave a positive review on Apple podcasts or rate our show wherever you're listening right now. Please make sure you also hit the Follow button on Apple it looks like a plus sign. Or click Subscribe on your favorite podcast player so you don't miss out on our new episodes every Monday. And friends until next time, keep dreaming big
