Calculate Lara’s net reduction in cash flow, taking all taxes and related expenses into account. Assume a 7% state income tax rate. For background information, the couple does itemize but their property taxes alone are more than 10,000.

Lara is an eye surgeon who typically earns a salary of ~$600,000 per year from the surgical practice, in addition to significant investment income. Her spouse also earns a generous salary. Lara is thinking of cutting back her workload about 25%. She is wondering about the impact of the net loss in income on their lifestyle. She currently pays about $20,000 per year in childcare, and that would be reduced about 25% as well.

Taking all taxes into account, which of the investment alternatives will provide the highest after-tax cash flow of income to be used towards the vacation home at the end of year five? Assume the client lives in a state that does not impose a personal income tax.

Future value factors of interest (5%)

Single sum 1.217

Annuity 5.525

Nina is a taxpayer in the top tax bracket. She has a sum she wishes to invest for five years, and then she will use the net value (after all taxes) for her planned vacation home. Her investment choices are as follows:

• Corporate bond fund paying 25,000 per year
• City of Rochester bond paying 16,000 per year
• Mutual fund (invested in US companies) paying 22,000 dividends per year
• Growth stock, no dividends, but expected gain at end of five years of 125,000