Huge income increase

[NattyAnn]

A few months ago I started a new job with a 4x income increase. This job puts me in the highest income tax bracket for the US. I never expected to experience such a sudden jump, nor to earn so much on a single W2.

And advice for handling this much money? Unsure of where the blindspots might be lurking...

For example I just learned that I'm over the income limit for contributing to a Roth IRA, and I had previously been unaware that there was such a limit.

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[RedmondStash]

If you haven't already, you might want to look into Backdoor Roths. They're a way you can contribute to a regular IRA and then convert that to a Roth.

My only other advice is to assess whether you want to adjust your asset allocation based on the higher income stream. I set an aggressive AA because I valued return over risk near the end of my working career, but if I'd suddenly made 4x that salary, I might have made my AA more conservative, because I'd get to my goal quickly either way, and a more conservative approach protects capital better.

[Chris Pascale]

Great job getting such a great job.

Go slow with adding to your fixed expenses; if you come to hate your situation but have a monthly overhead of $20,000 before that next trip to Paris, you're stuck. That kind of overhead might seem unreal at this moment, but all you need to do is buy a horse that you fool yourself into thinking is an investment (riding lessons, outfits for competition, stabling, feeding, vet bills, travel).

[NattyAnn]

If you haven't already, you might want to look into Backdoor Roths. They're a way you can contribute to a regular IRA and then convert that to a Roth.

My only other advice is to assess whether you want to adjust your asset allocation based on the higher income stream. I set an aggressive AA because I valued return over risk near the end of my working career, but if I'd suddenly made 4x that salary, I might have made my AA more conservative, because I'd get to my goal quickly either way, and a more conservative approach protects capital better.

Ah, thanks. I'll look into the backdoor Roth and see what that entails.

Yeah, up until this point we've just been putting most of our investment money in a VFIAX index fund. There is just so much extra now we think we'll shift to start aggressively pay down our mortgage too, as a more conservative place to also put our money

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[Blackeagle]

My experience is via a windfall rather than W-2 income, but my advice would be the same.  Keep your expenses constant and shove everything else into taxable.

[NattyAnn]

Great job getting such a great job.

Go slow with adding to your fixed expenses; if you come to hate your situation but have a monthly overhead of $20,000 before that next trip to Paris, you're stuck. That kind of overhead might seem unreal at this moment, but all you need to do is buy a horse that you fool yourself into thinking is an investment (riding lessons, outfits for competition, stabling, feeding, vet bills, travel).

Thank you! I can't believe my luck on this one.

Yes, wise words. Before this job, we already lived off around 40% of my take home pay. We've been so frugal and simple for over a decade now, and we didn't have much trouble resisting lifestyle creep with my previous pay raises.

Now, however, this huge raise is really messing with my mind. I'm trying to not let this money change me. But I'm often in situations where I can't tell if I'm being reasonable or not. Like, how can I still feel bothered by spending an extra $50 on something when my takehome pay is $30k a month? On the other hand, I know I'm not going to have this job forever, so I shouldn't totally get used to this salary either.

I think we are going to focus on paying off our mortgage really early, mainly bc it will help us psychologically focus for a bit while we get used to this money.

I know this is such a good problem to have, but it really has taken my breath away.

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[Chris Pascale]

Great job getting such a great job.

Go slow with adding to your fixed expenses; if you come to hate your situation but have a monthly overhead of $20,000 before that next trip to Paris, you're stuck. That kind of overhead might seem unreal at this moment, but all you need to do is buy a horse that you fool yourself into thinking is an investment (riding lessons, outfits for competition, stabling, feeding, vet bills, travel).

Thank you! I can't believe my luck on this one.

........we already lived off around 40% of my take home pay. We've been so frugal and simple for over a decade now.........

......huge raise is really messing with my mind. I'm trying to not let this money change me. But I'm often in situations where I can't tell if I'm being reasonable or not. Like, how can I still feel bothered by spending an extra $50 on something when my takehome pay is $30k a month?

I think we are going to focus on paying off our mortgage really early

So you're living on about $3,000 a month and sometimes you think of splurging at dinner, or on a movie date instead of Netflix, or on a bottle of wine 2 shelves up.

You're also thinking of knocking out your mortgage.

 - Yes, splurge. Ask your spouse for 3 suggestions and you'll also give 3. You might be surprised by what you find.
 - Murder your mortgage and consider if you even want that house anymore. It's okay to move, and it's okay if it's different in either direction.

If you're wondering what kind of good can I do with the cash? First, keep it small, but I'd say:
 - Hire some people (suggestions: cleaners, lawn care, music or art lessons, personal trainer)
 - Help someone in your community by fixing their (porch, windows, gutters......)
 - Take someone grocery shopping; big shopping that includes cleaning supplies and personal care stuff because they are likely scrimping on those areas if they need this kind of help
 - Buy someone a tire when all they can afford is a patch.

In the next 24 months bring on a protege or a group of them. It took my dad 3 tries to find the right guy, but that kid out of college in 1999 was a partner in his firm in 2008. These young professionals are going to have a unique opportunity to be in the vicinity of your integrity, knowledge, skill, passion, commitment, and personal sense of incredible fortune (the luck you mentioned). Build this team to not only become wealthy, but to do something phenomenal, like pass on their integrity, knowledge, skill, passion, commitment, and personal sense of incredible fortune.

Thoughts?

[Ron Scott]

2 thoughts:

1. Make a fresh start. Read or re-read a good investment book (bogleheads guide to investing for example) and then spend an hour with a good tax accountant. Then, write a short plan for yourself for investing and managing your taxes. Then start implementing.

You can always change this later but it’s helpful to write it down clearly and start someplace. The book will help you direct the conversation with the accountant. Prepare for the meeting. Tell the accountant your specific goals and how you’re thinking about the plan. She will answer questions and help you formulate a specific plan for yourself.

2. Work is only partially about the money. More importantly it is about how you spend the majority of your waking hours and how you contribute to the success of a team. In giving you this new job your employer has placed a significant trust and faith in you—and is probably expecting you to be creative and to take them places they cannot go without you. Live up to it! People with high salaries are more likely to be in a position to mold their jobs and determine how they are going to spend their time. Fit this job to your talents. Plan to shape your new environment. Make a series of meaningful accomplishments. Become recognized as someone who matters. Throw yourself into the new job and challenge yourself to see where you can take it.

Many people hate their jobs because they sense a lack of control over how they spend their time at work. “Change” is something that others do and happens to them. Make up your mind to be the person who creates and drives that change.

[Fire2025]

I can't really imagine that kind of money, so I'm not really qualified to give advice, but I did experience an almost doubling of my take home pay this year and here is what I did.

I more than doubled my investment goals, as in, I wrote them out and also created a schedule of how much had to go to my brokerage each week, when I got paid, on payday. FIRE is the best "gift" I will give myself, what other treat can compare with that.

But even with the above said, I'm allowing/allowed myself to make a couple large purchases that were already planned, but would have taken longer or would have been hacked harder, trip to Peru, grafted fruit trees, and a slab for the shed/garage in the backyard.

But I didn't allow myself any reoccurring increases.  I didn't want the extra money to dribble out, I wanted it to be very intensional.  I wasn't perfect and a few little "fun" things also got purchased, but luckily most of those were not "perishable"(ie: food, booze, and cloths).

I guess what I told myself was, I know I can't be perfect, but I can be extremely intensional, savings goals first, speed up long term projects/goals second, and then be very thoughtful with your small purchases.

Good Luck and congratulations on the amazing raise.

[PhilB]

Basically you do the same calculations as before, just with bigger numbers!  You need to work out your personal balance of lifestyle level vs time to FI and act accordingly.  That kind of increase really changes the numbers on any previous calculation you did, so go back to the beginning and challenge yourself on what it is you really want, rather than just plugging the new salary into your existing model.  Good luck!

[mistymoney]

I hear your hidden worry on not earning this salary for the long haul.

you should be able to save to FI on your current spend very quickly, so why not do that and then only increase your yearly spend by what your stache is ale to support, and then when you don't want any more increase, boom your done?

And no need for anxiety on raising the standard of living and not being able to support it indefinitely.

[Dicey]

Many, many mustachians do not "murder" their mortgages, they embrace them, especially during inflationary times.. Who turns their nose up at free money? Feel free to drop in over at the DPOYM Club. We don't bite.

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/

[DaTrill]

Change nothing.  Sounds like you went from around $80k to $320k, which is significant, but nothing compared to pro athletes.  Lifestyle creep is real and once it starts, difficult to stop or slow down.  Change nothing until you have been on the job a few years as there are always unknown unknowns with any job and higher paying jobs tend to have more of these.  Treat each month of income like 4 months in your previous life and the longer you stay at this earning level, the faster you can FIRE or pursue other interests. 

I've had friends in similar situations that went broke after a huge increase in income, assumed it was permanent, but only last a few quarters.  The most extreme example was a sales rep who was given a large area as incentive to move there, a few quarters later, three more reps were in his area and income was slashed.       

[BlueHouse]

When I started earning a high income, I made a few changes:
1.  I started caring about investing, so I joined MMM
2. I wanted to pay my house down AND RECAST the mortgage to lower my monthly payments to something affordable even at my lower income.  I did that and still kept the remaining mortgage even though at this point it might just be easier to write a check. 
3.  Backdoor Roth IRA
4.  Get an FSA if available.
5.  Follow the Investment Order  https://forum.mrmoneymustache.com/investor-alley/investment-order/
6.  No other major changes. 

Do have a written Investment Policy though.  And follow it.  I just can't keep myself from doing exactly what I said I wouldn't do, but my IP has helped me reverse all my stupid decisions before they hurt me.

Congratulations and be proud of yourself! 

[Abe]

Is this a long-term position? What is the likelihood of being fired in the next decade? Keep those in mind when deciding on purchases. My income increased a similar amount after finishing training, but my wife and I didn’t let lifestyle creep upwards. Now the retirement accounts are going up rapidly and despite all the volatility in our economy, we’re somewhat sheltered because of our frugalness. But nothing is permanent; keep your eyes on the prize of early retirement and not depreciating junk.

[Paul der Krake]

In a few months, if not before, you will have internalized that this is your new market value and the numbers won't shock you at all. In fact you will likely find out that there are people doing the same job making 125-200% of whatever your number currently is, and that's going to make you feel weird and confused and maybe even a bit angry. Such is life near the top, the hustle never ends. Welcome to the big leagues.

There's nothing that you can really optimize on W-2 income. Max out your tax-advantaged accounts like before, pay a lot more income tax, that's pretty much it.

[Freedomin5]

Several years ago, I switched jobs with a 7x income increase. We aimed to keep our expenses the same, and really increased our investments. There are fewer jobs at high income levels, so the competition is more fierce, and we treated our income as being less secure. We assumed that it would go away within 3-5 years, so we decided to use the money to turbocharge our journey to FIRE rather than to buy more services/experiences/stuff. We set a monthly savings goal, then felt free to spend whatever was left.

Even with that goal, lifestyle creep did happen, but at a much slower rate than the folks around us who are at a similar income level. And because we paid ourselves first by depositing the majority of our paycheck into our investment account, it helped us to limit our spending. 

[PhilB]

How close were you to FI before this raise?  If you are pretty close (ie you could now get there a year or two) I would be tempted to put my head down and sprint to FI.  If you are very close, you could even end up spending less than you were before in the short term to get there faster!  Once you do get there, if you keep working you can steadily increase your budget in line with your increasing stash without any fear of lifestyle inflation pushing your FIRE date further away as you can get off the train at any point.

[NattyAnn]

Great job getting such a great job.

Go slow with adding to your fixed expenses; if you come to hate your situation but have a monthly overhead of $20,000 before that next trip to Paris, you're stuck. That kind of overhead might seem unreal at this moment, but all you need to do is buy a horse that you fool yourself into thinking is an investment (riding lessons, outfits for competition, stabling, feeding, vet bills, travel).

Thank you! I can't believe my luck on this one.

........we already lived off around 40% of my take home pay. We've been so frugal and simple for over a decade now.........

......huge raise is really messing with my mind. I'm trying to not let this money change me. But I'm often in situations where I can't tell if I'm being reasonable or not. Like, how can I still feel bothered by spending an extra $50 on something when my takehome pay is $30k a month?

I think we are going to focus on paying off our mortgage really early

So you're living on about $3,000 a month and sometimes you think of splurging at dinner, or on a movie date instead of Netflix, or on a bottle of wine 2 shelves up.

You're also thinking of knocking out your mortgage.

 - Yes, splurge. Ask your spouse for 3 suggestions and you'll also give 3. You might be surprised by what you find.
 - Murder your mortgage and consider if you even want that house anymore. It's okay to move, and it's okay if it's different in either direction.

If you're wondering what kind of good can I do with the cash? First, keep it small, but I'd say:
 - Hire some people (suggestions: cleaners, lawn care, music or art lessons, personal trainer)
 - Help someone in your community by fixing their (porch, windows, gutters......)
 - Take someone grocery shopping; big shopping that includes cleaning supplies and personal care stuff because they are likely scrimping on those areas if they need this kind of help
 - Buy someone a tire when all they can afford is a patch.

In the next 24 months bring on a protege or a group of them. It took my dad 3 tries to find the right guy, but that kid out of college in 1999 was a partner in his firm in 2008. These young professionals are going to have a unique opportunity to be in the vicinity of your integrity, knowledge, skill, passion, commitment, and personal sense of incredible fortune (the luck you mentioned). Build this team to not only become wealthy, but to do something phenomenal, like pass on their integrity, knowledge, skill, passion, commitment, and personal sense of incredible fortune.

Thoughts?

Thanks for the thoughts! I love the idea of giving ourselves permission to splurge, but also being really intentional about what specifically we splurge on. Also love the idea about using this as a way to meaningfully help people on my community. Not sure about the protogé idea; I've never really consider something like that before so it is definitely interesting.

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[NattyAnn]

I hear your hidden worry on not earning this salary for the long haul.

you should be able to save to FI on your current spend very quickly, so why not do that and then only increase your yearly spend by what your stache is ale to support, and then when you don't want any more increase, boom your done?

And no need for anxiety on raising the standard of living and not being able to support it indefinitely.

Yes, I'm just not sure how long this job will last; it could be that I'm just not performing at the level they need and get axed. Or I could decide I want to do something different after awhile and leave voluntarily.

My spouse is already retired. If I keep this job I could retire in 2 years, which is shocking to me.

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[NattyAnn]

How close were you to FI before this raise?  If you are pretty close (ie you could now get there a year or two) I would be tempted to put my head down and sprint to FI.  If you are very close, you could even end up spending less than you were before in the short term to get there faster!  Once you do get there, if you keep working you can steadily increase your budget in line with your increasing stash without any fear of lifestyle inflation pushing your FIRE date further away as you can get off the train at any point.

Pretty close! Yeah, if I'm heads down and can keep this job for at least 2 years, I'll be in a position to retire if I feel ready.

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[NattyAnn]

So much wonderful advice, thank you all! I'm trying to figure out where hidden limits might be, with this much money. I feel like I need to reassess all my previous assumptions.

For example, there doesn't seem to be any penalty for dumping tons of money into VFIAX each month (eg no upper limit). Is that correct? I can just put endless amounts of money in there?

Another uncertainty is around gifting. My parents house is in total disrepair. Assuming I can convince them to let me help, I'd love to pay for some high cost maintenance. Does that count towards the IRS gift limitation?

It's stuff like that which has me stressed; I'm just not sure where the limits are, now that I've got so much additional money

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[NattyAnn]

Change nothing.  Sounds like you went from around $80k to $320k, which is significant, but nothing compared to pro athletes.  Lifestyle creep is real and once it starts, difficult to stop or slow down.  Change nothing until you have been on the job a few years as there are always unknown unknowns with any job and higher paying jobs tend to have more of these.  Treat each month of income like 4 months in your previous life and the longer you stay at this earning level, the faster you can FIRE or pursue other interests. 

I've had friends in similar situations that went broke after a huge increase in income, assumed it was permanent, but only last a few quarters.  The most extreme example was a sales rep who was given a large area as incentive to move there, a few quarters later, three more reps were in his area and income was slashed.       

Thanks DaTrill! I went from ~$200k to ~$900k, so still not in pro-athlete territory, but also not too typical in my medium COL area.

Yeah, I agree about mostly changing nothing for the first few years. Assuming I can hang onto this job for 2 years, I'll be able to retire if I want to at that point.

Changing nothing means living the same lifestyle and piling an obscene amount of money into VFIAX. Which I can do, it just makes me feel uneasy... It seems more risky now with so much money. Also, i feel like there is some kind of penalty lurking around the corner that I don't know about because I've never had this much money... Some kind of purchase or trade limit? Is my only concern really capital gains tax, even with that much money?

Paying off the mortgage seems less risky. If we just spend our money paying down the mortgage, I'll still be able to retire in less than 2 years. (Without the mortgage payment we can live off of rental income)

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[seemsright]

Change nothing.  Sounds like you went from around $80k to $320k, which is significant, but nothing compared to pro athletes.  Lifestyle creep is real and once it starts, difficult to stop or slow down.  Change nothing until you have been on the job a few years as there are always unknown unknowns with any job and higher paying jobs tend to have more of these.  Treat each month of income like 4 months in your previous life and the longer you stay at this earning level, the faster you can FIRE or pursue other interests. 

I've had friends in similar situations that went broke after a huge increase in income, assumed it was permanent, but only last a few quarters.  The most extreme example was a sales rep who was given a large area as incentive to move there, a few quarters later, three more reps were in his area and income was slashed.       

Thanks DaTrill! I went from ~$200k to ~$900k, so still not in pro-athlete territory, but also not too typical in my medium COL area.

Yeah, I agree about mostly changing nothing for the first few years. Assuming I can hang onto this job for 2 years, I'll be able to retire if I want to at that point.

Changing nothing means living the same lifestyle and piling an obscene amount of money into VFIAX. Which I can do, it just makes me feel uneasy... It seems more risky now with so much money. Also, i feel like there is some kind of penalty lurking around the corner that I don't know about because I've never had this much money... Some kind of purchase or trade limit? Is my only concern really capital gains tax, even with that much money?

Paying off the mortgage seems less risky. If we just spend our money paying down the mortgage, I'll still be able to retire in less than 2 years. (Without the mortgage payment we can live off of rental income)

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I can tell you from my experience that if you do not allow lifestyle inflation, that it makes life fabulous. Keeping at the same spending rate you currently have, and saving a boat load of cash in one way or another allows for freedom and choice. That in 5 years you get a opportunity to go work for that one thing that you always dreamed of for a fraction of what you are making now and allow compounding take over is a win.

Our savings rate is insane. Out of college we made 44K. The most we have ever spent in a year was 53K. I FIRED when we had out little. Hubby has a easy 40 hour a week gig with a insane benefits package that keeps throwing money at him thinking that is what is making him stay. What they dont know is he is working on his second wind and getting all kinds of licenses and taking on a side gig.

Keep your options open to keep your options open.

[PhilB]

Being only two years from FI really changes the equation regarding the mortgage.  There is no time for the magic of compounding to offset the volatility of stocks in that timescale so I would be very tempted to pay off the mortgage unless you were planning to be leveraged in retirement.

[Dicey]

Thanks DaTrill! I went from ~$200k to ~$900k, so still not in pro-athlete territory, but also not too typical in my medium COL area.
[Snip]
Paying off the mortgage seems less risky. If we just spend our money paying down the mortgage, I'll still be able to retire in less than 2 years. (Without the mortgage payment we can live off of rental income)

Wowza! $900k is less than Pete retired on! That number changes my answer a bit. Killing the mortgage is going to have less of an impact in your case. I would suggest a hybrid approach. Keep making your scheduled payments while you stretch toward your FI number. Once you hit the goal, turn your the firehose of cash income at extinguishing the mortgage. This assures that you hit the number asap, which translates to more freedom should the job situation change.

I highly recommend JL Collins' blog and his book, "A Simple Path to Wealth". His easy-to-understand, mustachian-approved strategies will answer all of your investment questions.

Congratulations!

[RedmondStash]

One thing I'll add: getting a mortgage when you're retired is significantly harder than getting one when employed. Lenders use specific algorithms that don't really take FIRE into account. So if you don't have 3-4 million bucks saved up, nobody wants to lend to you if you're not bringing in a steady paycheck.

So -- if possible -- assess your living situation, figure out where you want to live in retirement, and take out any new mortgages you want while you're still working. This may not be an issue if you can save up enough of a stash that banks will lend to you anyway (or already have), but it's something I knew about but really didn't believe would bite me until it did.

[bryan995]

I am curious type of job/work you do? Normally it would take some time to see such a big salary increase (stock appreciation, hitting sales quotas etc). 200k->900k in one swoop is bonkers!

[Joel]

I’ve had access to payroll at my last three companies and have never even seen someone making that kind of money… not even a CEO! I’m also curious what you do!

[Just Joe]

Change nothing.  Sounds like you went from around $80k to $320k, which is significant, but nothing compared to pro athletes.  Lifestyle creep is real and once it starts, difficult to stop or slow down.  Change nothing until you have been on the job a few years as there are always unknown unknowns with any job and higher paying jobs tend to have more of these.  Treat each month of income like 4 months in your previous life and the longer you stay at this earning level, the faster you can FIRE or pursue other interests. 

I've had friends in similar situations that went broke after a huge increase in income, assumed it was permanent, but only last a few quarters.  The most extreme example was a sales rep who was given a large area as incentive to move there, a few quarters later, three more reps were in his area and income was slashed.       

Came here to say something similar but likely not as effectively. ;)

Use the money to get your life in order. Save most of it. Retire as soon as you want. The income may not last forever.

[use2betrix]

If you were happy with your lifestyle before, it should just accelerate you to FIRE if that’s your goal.

My biggest piece of advice is not to lock yourself into needing that income to support your lifestyle, it could change in a heartbeat. Spend more of you want - but I sure wouldn’t want to lock into some sort of mortgage or similar where I needed that income to make ends meet.

[zolotiyeruki]

I think the first, and best advice, is to not rush into anything.  Keep your lifestyle the same for now.  Wait a few months to let the emotions settle.  Then take time to evaluate what makes you happy, what is most important to you, and what makes the most sense.  Make a plan, and follow it.

That said, a lot of the typical tax advice loses relevance at such a high income.  Backdoor or mega backdoor Roth doesn't move the needle much.  Creating a DAF so you can take advantage of the standard deduction is a drop in the bucket.  You're phased way out of all sorts of things, tax-wise.  So just deduct as much as you can, defer as much income as you can, and take your tax lumps for the next two years.

As for what investment steps to take, the Investment Order thread is still a good guide.  Max out pre-tax contributions, tackle high-interest debt, and plow everything else into a taxable account.  If you're concerned about "losing it all in a market crash," remember that you only lock in losses when you sell.  Or, you could put some percentage in bonds.

[AccidentialMustache]

I’ve had access to payroll at my last three companies and have never even seen someone making that kind of money… not even a CEO! I’m also curious what you do!

I'm not the OP, but I can tell you one way how -- startup goes public and stock is well above the value assumed when shares were granted.

[Dicey]

I’ve had access to payroll at my last three companies and have never even seen someone making that kind of money… not even a CEO! I’m also curious what you do!

I'm not the OP, but I can tell you one way how -- startup goes public and stock is well above the value assumed when shares were granted.

But isn't that a one off? Annual salary implies it's that amount on an annual basis, i.e. repeatedly.

[clifp]

I'd look for a good CPA, who specializes in working with high-income earners.  It is not just about how much you earned but what you keep.  You'll lose a lot of deductions, and but subject to a variety of phase outs (like Roths).  I was a TurboTax sort of guy for almost my entire life.  But 3 years ago I got a got nice windfall ~300K, which put me into the highest bracket also.  I find out a variety of investments that reduce my tax liability greatly. My accountant more than made up for multi-thousand dollar fee.

[Gronnie]

Also curious what OP does for a career.

I'm at that $200k mark and would love to make $900k!

[achvfi]

When I started earning a high income, I made a few changes:
1.  I started caring about investing, so I joined MMM
2. I wanted to pay my house down AND RECAST the mortgage to lower my monthly payments to something affordable even at my lower income.  I did that and still kept the remaining mortgage even though at this point it might just be easier to write a check. 
3.  Backdoor Roth IRA
4.  Get an FSA if available.
5.  Follow the Investment Order  https://forum.mrmoneymustache.com/investor-alley/investment-order/
6.  No other major changes. 

Do have a written Investment Policy though.  And follow it.  I just can't keep myself from doing exactly what I said I wouldn't do, but my IP has helped me reverse all my stupid decisions before they hurt me.

Congratulations and be proud of yourself!

+1 for following investment order

https://forum.mrmoneymustache.com/investor-alley/investment-order/

[magus]

One of the main things to do is take status of your taxes. If you have income besides W2 income, it'll be taxed a lot more than in the past and you may need to increase your withholding.  Similar, any bonuses and stock comp only have 22% fed taxes withheld but may be much higher now. I had a ton at 37% this year but only 22% withheld so I had to increase my withholding massively from my regular income and I'm still going to owe another $35k in April.

Secondly, 401k contribution value goes up a lot since your effectively saving 37% + state income tax rate for each dollar you put in.

Main thing I'd say is allow a bit of increase in your spending rate but largely save the excess. It's really easy to allow lifestyle creep. This is especially important if you are at high risk of this job going away or high turnover company. We increased our standard of living till I hit director level but since then, every big bump in pay I'm saving it all (~65% of my after tax income).

[kenner]

Change nothing.  Sounds like you went from around $80k to $320k, which is significant, but nothing compared to pro athletes.  Lifestyle creep is real and once it starts, difficult to stop or slow down.  Change nothing until you have been on the job a few years as there are always unknown unknowns with any job and higher paying jobs tend to have more of these.  Treat each month of income like 4 months in your previous life and the longer you stay at this earning level, the faster you can FIRE or pursue other interests. 

I've had friends in similar situations that went broke after a huge increase in income, assumed it was permanent, but only last a few quarters.  The most extreme example was a sales rep who was given a large area as incentive to move there, a few quarters later, three more reps were in his area and income was slashed.       

Thanks DaTrill! I went from ~$200k to ~$900k, so still not in pro-athlete territory, but also not too typical in my medium COL area.

Yeah, I agree about mostly changing nothing for the first few years. Assuming I can hang onto this job for 2 years, I'll be able to retire if I want to at that point.

Changing nothing means living the same lifestyle and piling an obscene amount of money into VFIAX. Which I can do, it just makes me feel uneasy... It seems more risky now with so much money. Also, i feel like there is some kind of penalty lurking around the corner that I don't know about because I've never had this much money... Some kind of purchase or trade limit? Is my only concern really capital gains tax, even with that much money?

Paying off the mortgage seems less risky. If we just spend our money paying down the mortgage, I'll still be able to retire in less than 2 years. (Without the mortgage payment we can live off of rental income)

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Just as a heads up, if you were already at ~200,000 and never realized that there were Roth IRA limits, you might want to double check yourself for the last couple years...even assuming you're married and filing jointly the limit for full Roth IRA contribution was 198,000 in 2021 and lower than that in years before that.

[DaTrill]

Change nothing.  Sounds like you went from around $80k to $320k, which is significant, but nothing compared to pro athletes.  Lifestyle creep is real and once it starts, difficult to stop or slow down.  Change nothing until you have been on the job a few years as there are always unknown unknowns with any job and higher paying jobs tend to have more of these.  Treat each month of income like 4 months in your previous life and the longer you stay at this earning level, the faster you can FIRE or pursue other interests. 

I've had friends in similar situations that went broke after a huge increase in income, assumed it was permanent, but only last a few quarters.  The most extreme example was a sales rep who was given a large area as incentive to move there, a few quarters later, three more reps were in his area and income was slashed.       

Thanks DaTrill! I went from ~$200k to ~$900k, so still not in pro-athlete territory, but also not too typical in my medium COL area.

Yeah, I agree about mostly changing nothing for the first few years. Assuming I can hang onto this job for 2 years, I'll be able to retire if I want to at that point.

Changing nothing means living the same lifestyle and piling an obscene amount of money into VFIAX. Which I can do, it just makes me feel uneasy... It seems more risky now with so much money. Also, i feel like there is some kind of penalty lurking around the corner that I don't know about because I've never had this much money... Some kind of purchase or trade limit? Is my only concern really capital gains tax, even with that much money?

Paying off the mortgage seems less risky. If we just spend our money paying down the mortgage, I'll still be able to retire in less than 2 years. (Without the mortgage payment we can live off of rental income)

Sent from my Pixel 3a using Tapatalk

Don't buy mutual funds in taxable accounts, buy ETFs (several similar Vanguard ETFs) due to the preferred capital gains tax treatment.  There are several Vanguard index funds with AUM's nearing $1,000,000,000,000, they can handle your $50k/month orders without issue.   

As many other posters have mentioned, there are few jobs at that income level, most are dubious and/or don't last long.  Lifestyle creep will ruin FIRE plans.  A friend had a similar salary increase, loaded up on property and when salary was normalized (he was apparently the only one who didn't know this was going to happen), went bankrupt as he was house/property rich but cash poor and couldn't keep up with taxes/bills. 

[AccidentialMustache]

But isn't that a one off? Annual salary implies it's that amount on an annual basis, i.e. repeatedly.

Grants generally vest over 4 years in tech. So while it may be a "four off" after 3.6mil (minus taxes), it is probably ideal to have it fall off, in order to squash the OMY syndrome a firehose-of-cash can induce.

[bryan995]

But isn't that a one off? Annual salary implies it's that amount on an annual basis, i.e. repeatedly.

Grants generally vest over 4 years in tech. So while it may be a "four off" after 3.6mil (minus taxes), it is probably ideal to have it fall off, in order to squash the OMY syndrome a firehose-of-cash can induce.

Yes and OP stated it was a new job with 4x the income and he/she is only 4 months in. Likely not equity/rsu related. The chances of a MAANG company hiring someone new from a 200k role and moving them to a 900k role is just about slim to none.

There are folks making 900k+ in tech for sure, but it’s mostly due to stock appreciation. A 4 month old hire won’t have a 900k comp target unless L8+. And L8s know all about taxes and Roth income limits :). 

[lukebuz]

Yes and OP stated it was a new job with 4x the income and he/she is only 4 months in. Likely not equity/rsu related. The chances of a MAANG company hiring someone new from a 200k role and moving them to a 900k role is just about slim to none.

Yeah, come on y'all.  I could smell the troll the moment the thread went up.

Anyone who can make $1M/yr doesn't need the help of this forum.

[AccidentialMustache]

Yes and OP stated it was a new job with 4x the income and he/she is only 4 months in. Likely not equity/rsu related. The chances of a MAANG company hiring someone new from a 200k role and moving them to a 900k role is just about slim to none.

There are folks making 900k+ in tech for sure, but it’s mostly due to stock appreciation. A 4 month old hire won’t have a 900k comp target unless L8+. And L8s know all about taxes and Roth income limits :).

Getting hired a couple months before the IPO works wonders for the appreciation and works as little as 1 day in. You just gotta get a bit lucky. Don't have to be L8+ either, L7 will do it. L6 could, but not with that short of a time-frame -- they'd need to have gotten (smaller target) grants at a lower valuation to make the math work.

Clearly the FAANG won't work for that strategy, they're long post-IPO. That said, making anywhere near 200 at a startup (salary + "worthless" stock) and jumping to FAANG (higher salary + real stock), comp may be closer to 900 than 200, at least based on discussions while trying to recruit friends at FAANG to past startups.

[NattyAnn]

Yes and OP stated it was a new job with 4x the income and he/she is only 4 months in. Likely not equity/rsu related. The chances of a MAANG company hiring someone new from a 200k role and moving them to a 900k role is just about slim to none.

Yeah, come on y'all.  I could smell the troll the moment the thread went up.

Anyone who can make $1M/yr doesn't need the help of this forum.

I don't blame you for thinking I'm a troll, lukebuz. It is a pretty unbelievable situation. Hell, it's my own life, and I'm *still* having a hard time believing it!

You are correct that somebody who is accustomed to making close to $1M a year probably doesn't need the help of this forum. But I'm new money over here, so I definitely need all the help I can get.

Sent from my Pixel 3a using Tapatalk

[NattyAnn]

Yes and OP stated it was a new job with 4x the income and he/she is only 4 months in. Likely not equity/rsu related. The chances of a MAANG company hiring someone new from a 200k role and moving them to a 900k role is just about slim to none.

There are folks making 900k+ in tech for sure, but it’s mostly due to stock appreciation. A 4 month old hire won’t have a 900k comp target unless L8+. And L8s know all about taxes and Roth income limits :).

Getting hired a couple months before the IPO works wonders for the appreciation and works as little as 1 day in. You just gotta get a bit lucky. Don't have to be L8+ either, L7 will do it. L6 could, but not with that short of a time-frame -- they'd need to have gotten (smaller target) grants at a lower valuation to make the math work.

Clearly the FAANG won't work for that strategy, they're long post-IPO. That said, making anywhere near 200 at a startup (salary + "worthless" stock) and jumping to FAANG (higher salary + real stock), comp may be closer to 900 than 200, at least based on discussions while trying to recruit friends at FAANG to past startups.

Yup, you nailed it, AccidentialMustache. I was at a startup making ~$200k, developing kind of a niche skill set. Then a FAANG came along that was, by luck, looking for that exact skill set.

bryan995 the chances of this happening are definitely slim, but not none. :)

I know I'm in a pretty unique spot, but I would say that tech salaries for the big companies are getting really outrageous across the board. The market is nuts right now with everyone switching companies.

[Dicey]

Oh boy, enjoy is while it lasts. Woo-hoo!

[AccidentialMustache]

@NattyAnn you are making me feel like I should be looking. The current stock price (and market jitters over Ukraine) means this year is not going to be pants-on-head like last year was for me.

The problem with that is the company I'm at is otherwise amazing. Well mostly. On-call sucks, but that's fairly team specific, so there's a world where I could try switching teams to one that has its on-call not so bad.

[mathlete]

Hire someone to manage your money for you IMO.

[bryan995]

Yes and OP stated it was a new job with 4x the income and he/she is only 4 months in. Likely not equity/rsu related. The chances of a MAANG company hiring someone new from a 200k role and moving them to a 900k role is just about slim to none.

There are folks making 900k+ in tech for sure, but it’s mostly due to stock appreciation. A 4 month old hire won’t have a 900k comp target unless L8+. And L8s know all about taxes and Roth income limits :).

Getting hired a couple months before the IPO works wonders for the appreciation and works as little as 1 day in. You just gotta get a bit lucky. Don't have to be L8+ either, L7 will do it. L6 could, but not with that short of a time-frame -- they'd need to have gotten (smaller target) grants at a lower valuation to make the math work.

Clearly the FAANG won't work for that strategy, they're long post-IPO. That said, making anywhere near 200 at a startup (salary + "worthless" stock) and jumping to FAANG (higher salary + real stock), comp may be closer to 900 than 200, at least based on discussions while trying to recruit friends at FAANG to past startups.

Yup, you nailed it, AccidentialMustache. I was at a startup making ~$200k, developing kind of a niche skill set. Then a FAANG came along that was, by luck, looking for that exact skill set.

bryan995 the chances of this happening are definitely slim, but not none. :)

I know I'm in a pretty unique spot, but I would say that tech salaries for the big companies are getting really outrageous across the board. The market is nuts right now with everyone switching companies.

Yes agree that is is slim, but not none.

What sort of role did you land at MAANG?  Surely you must be EM or >L7 to have a 900k target, especially after the recent down-turn in the market.
325 base + 2.3M/4? 

ML based? Or what is the focus? :)