Nauma

How American Household Wealth Changed Between 2022 and 2025

Nauma — Mon, 19 Oct 2026 04:18:19 GMT

The Federal Reserve released the 2025 Survey of Consumer Finances (SCF) this month. This survey provides insight into how American households hold their wealth, including cash, retirement accounts, homes, business equity, and debt. The survey is conducted every three years. The summary PDF is available here.

Unfortunately, the report contains only median net worth by age group, while I wanted to look at p25, p50, p75, p90, p95 and p99 values by age group.

Processing the Data

To get this data, I downloaded the raw CSV here (you can find this link in the Summary Extract Public Data table). The file contains three important columns for us:

AGE: the age (in years) of the survey respondent, specifically the head of household as defined by the SCF. It’s the variable the scripts bucket/fit against.
NETWORTH: total assets (financial assets, real estate, business equity, vehicles, retirement accounts, etc.) minus total debt (mortgages, credit cards, loans).

WGT: the survey weight for that respondent, representing how many actual U.S. households they statistically stand in for. Needed because the SCF deliberately oversamples wealthy households, so weighting makes the sample representative of the population.

I then used Claude to write a Python script: https://github.com/stockclubs-io/survey-of-consumer-finances-2025/blob/main/networth_by_age.py

The script gave me the following data:

The raw 5-year bucket calculations work, but they are noisy at the extremes because each bucket contains too few respondents. This creates anomalies on the chart: the 95th percentile swings by millions between ages 60 and 80, while the 25th percentile dips unexpectedly at ages 55–59.

Household wealth doesn’t fluctuate that wildly in 5-year intervals. These spikes and drops are statistical sampling noise, not genuine economic trends.

Smoothing the Data: Weighted Quantile Regression with Flexible Splines

To eliminate the sampling noise of isolated 5-year buckets, I switched to weighted quantile regression using B-splines.

Instead of dividing respondents into 5-year age groups, this approach treats age as a continuous spectrum. The flexible splines (specifically, cubic B-splines) act like a flexible curve anchored at demographic milestones, allowing smooth, organic curves to take shape across lifetimes rather than forcing the data into straight lines.

Meanwhile, weighted quantile regression fits curves directly to each percentile threshold, from p25 up to p99, while applying the Fed’s survey weights so every household represents its real share of the U.S. population.

The code is here: https://github.com/stockclubs-io/survey-of-consumer-finances-2025/blob/main/networth_by_age_smoothed.py

Evaluating these continuous curves at the midpoint of each 5-year bracket irons out spikes and drops, leaving a realistic trajectory of American net worth:

What has changed since 2022?

Comparing net worth data from 2022 and 2025 shows an interesting trend: wealth growth has been uneven across age groups and net worth percentiles.

While wealthier households generally saw their net worth increase, households closer to the median experienced little growth or even declines. Both datasets express net worth in inflation-adjusted 2025 dollars, allowing us to compare changes in purchasing power directly.

Median net worth has largely stagnated. For households between ages 30 and 49, median net worth declined between 4% and 18%. For households aged 50–74, median net worth remained relatively flat.

Wealthier households, especially those in their 40s and 50s, experienced substantial gains. The 95th percentile saw some of the largest increases:

Ages 40–44: from $2.15M to $3.15M (+47%)
Ages 45–49: from $3.21M to $4.72M (+47%)
Ages 50–54: from $4.66M to $6.10M (+31%)
Ages 55–59: from $6.27M to $7.07M (+13%)

The 99th percentile also increased substantially for households in their 40s and 50s, although gains were less consistent across other age groups.

The gap between median and wealthy households has widened. For households aged 45–49, median net worth (P50) declined from $225,000 in 2022 to $215,000 in 2025, a decrease of 4.4%. Meanwhile, the 95th-percentile net worth (P95) increased from $3.21 million to $4.72 million, a gain of 46.9%. As a result, the ratio between P95 and median net worth increased from 14.3x in 2022 to 22.0x in 2025, representing a 53.8% increase.

A similar pattern appears among households aged 40–44, where the ratio increased from 12x to 18x.

Households aged 75–80 saw increases across all measured percentiles. Median net worth rose from $389K to $488K (+25%), while the 25th percentile increased from $97K to $139K (+43%). This contrasts with younger households, where the bottom quartile and median generally experienced weaker outcomes.

What can we conclude?

The data suggests that the financial gap between typical households and wealthier households has widened, particularly among people in their 40s and 50s.

However, there are important limitations. These figures compare different households within the same age groups in 2022 and 2025, rather than tracking the same families over time.

About The Author

Alex Sukhanov, founder of Nauma, a financial planning platform built for people in tech and high-net-worth families. Alex previously worked at Google and started Nauma to help more people in tech make better financial decisions and achieve more in their lives. You can reach out to Alex on linkedin.

Nauma is supported entirely by its users: no commissions, no affiliate incentives, and no financial products to sell. Built as an independent software platform rather than a traditional advisory firm, Nauma is designed to give tech professionals the tools and modeling clarity to evaluate their own equity, tax, and retirement scenarios.

Washington’s 2028 Income Tax Bill Surprising Design Problems

Nauma — Wed, 23 Sep 2026 19:51:45 GMT

I was working on adding Washington State’s new 9.9% tax on income over $1 million, starting in 2028, to Nauma’s tax engine. While testing the changes, I found a cliff built into the tax law that could cause some taxpayers to overpay their state taxes by about $27K if they’re not careful.

That discovery led me to take a closer look at the bill, which takes effect on January 1, 2028, its mechanics, and its implications for tax planning for high earners living in Washington State. This post explains my findings and their impact.

The Families Behind the $1M Income Number

While $1M may sound like an extremely high income, and the new bill is intended to target wealthy people, the way it is structured means it can also affect some otherwise ordinary high-earning families. A few examples:

A married couple where both spouses work as senior or staff engineers and each earns $500K–$600K a year.
A tech startup employee who worked at a company for 5-7years, received relatively modest cash compensation, took significant risks, and was fortunate to see their equity appreciate and become liquid.

These are not necessarily the super-rich, but hardworking professionals who invested years in their education, became experts in their fields, and took meaningful career risks to achieve this income.

Problem #1: Capital Gains Cliff

Who is affected: High earners making $1M+ and realizing capital gains the same year.
Potential impact: Overpaying ~$30K in taxes if realizing capital gains without tax planning.

Washington already has a 7% capital gains tax on gains over $278K and a 9.9% tax on gains over $1M. The new income tax is 9.9% on income over $1M, based on federal AGI with adjustments. To avoid double-taxing capital gains, the 2028 bill first removes all long-term capital gains from income, then adds back the WA-taxed gain plus the $278K deduction. This is described in Section 302.

Here is the problem I see. The bill says the add-back “applies only to taxpayers owing tax under chapter 82.87 RCW” — the capital gains tax. That gives us two scenarios:

Capital gain is under ~$278K. You owe no capital gains tax, so nothing gets added back and the gain never enters the income-tax base.
Capital gain is even $1 over $278K. You owe capital gains tax, so the *entire* gain gets added back, including the first $278K that was previously excluded.

Example: single filer, $1.2M in wages, using the 2025 deduction amount.

Scenario-1:

Long-term gain: $277,000
Capital gains tax: $0
Income-tax base: $1,200,000
Total WA tax: $19,800

Scenario-2

Long-term gain: $279,000
Capital gains tax: $70
Income-tax base: $1,479,000
Total WA tax: $47,421

A $2,000 larger gain in Scenario-2 therefore costs about $27,600 more in tax because 9.9% × $279,000 of additional income suddenly becomes taxable. This only affects taxpayers whose other income is already above $1M.

Problem #2: Threshold indexing for inflation

Who is affected: Financial Advisors and Tax Planners
Potential impact: Miscalculating thresholds and making clients overpay ~$30K in taxes

Starting in 2028, the Washington tax code has two thresholds that currently have the same value of $1M, but have different rules for inflation indexing:

The $1M capital-gains threshold is not indexed for inflation. RCW 82.87.040 says “the portion of an individual’s Washington capital gains exceeding $1,000,000” and never mentions indexing. RCW 82.87.150 lists only four indexed items: the education trust distribution, the standard deduction, the family business revenue amount, and the charitable donation limits.
The $1M income-tax threshold is indexed for inflation. It’s a standard deduction defined in Section 314. Section 316 describes how it adjusts standard deduction every odd October from 2029 by CPI-W, rounded to the nearest $1,000.

This difference shows up in financial projections and makes tax planning more complicated for families living in Washington State. Tax professionals need to account for it when developing financial plans, while tax-planning software developers need to spend additional time implementing and maintaining this nuance in their software. This added complexity ultimately translates into additional costs in both time and capital.

Here is how these two thresholds diverge over time. Calculation for 2038:

Problem #3: The Marriage Penalty

Who is affected: Married couples with income over $1M.
Potential impact: Overpaying up to $99K in taxes for ordinary income and $19.5K for capital gains

The $1M deduction is per person, but for spouses it’s shared. The federal system roughly doubles the standard deduction and the lower brackets for joint filers, so the marriage penalty is relatively limited. WA does not. Section 314 says: “in the case of spouses or state registered domestic partners, their combined standard deduction is $1,000,000, regardless of whether they file joint or separate returns.”

How large it can get:

The most a couple can lose is 9.9% x $1M = $99K a year, in 2028 dollars. That happens when both partners individually have over $1M.
For capital gains, the equivalent is 7% x $278K, about $19,500, when both partners have gains above the deduction.

How the Bill Can Be Improved

The issues above do not necessarily require redesigning the entire tax. They could be addressed with relatively small changes. If these changes affect state revenue, the thresholds or tax rates could be adjusted to maintain the same overall revenue level for Washington state.

Eliminate the capital-gains cliff. This could be accomplished either by adding back only the portion of the gain above the $278K deduction or by always adding back the full gain, even when it is below the deduction.
Consider progressive brackets. Multiple and separate tax brackets for ordinary and capital gain income could create a smoother transition than moving directly from no tax to a 9.9% marginal rate above the threshold.
Reduce the marriage penalty. Married couples should receive a higher threshold than single taxpayers, potentially twice the individual amount.
Use consistent inflation indexing. The $1M income-tax threshold and the $1M capital-gains threshold should follow the same indexing rules so they do not gradually diverge over time.

These changes would make the tax more predictable and easier for taxpayers, advisors, and software developers to understand and model.

Initiative 645

There is also a more fundamental question: will this tax actually take effect in 2028?

Opponents of the tax have put forward Initiative 645 (IP26-645), a ballot measure backed by organizations such as Let’s Go Washington. If voters approve it on November 3, 2026, I-645 would repeal the new 9.9% income tax and prohibit Washington state and local governments from imposing taxes measured by individual income.

The policy debate surrounding Initiative 645 centers on contrasting views of economic growth and state revenue:

Arguments for Initiative 645 (Repeal): Supporters argue that establishing an income tax framework creates a precedent, raising concerns that future legislatures could lower the $1M deduction threshold to tax middle-class incomes. Proponents also contend that taxing high earners risks driving entrepreneurs, business owners, and senior technical talent out of state, hurting overall economic growth.

Arguments against Initiative 645 (Retention): Opponents, including public education advocates like the WA State PTA, highlight that repealing the tax would reduce state revenue by an estimated $11.4 billion over fiscal years 2027 through 2031. They argue this funding is crucial for supporting K-12 education, higher education, healthcare, and early learning, while helping rebalance Washington’s historically regressive tax structure.

These are ultimately policy questions for Washington voters. From a financial-planning perspective, however, the practical issue is simpler: families need to plan based on the law that currently exists, while recognizing that the rules may change before 2028.

As of September 2026, Senate Bill 6346 has been signed into law and is scheduled to take effect on January 1, 2028. Nauma’s tax engine therefore models the tax as currently enacted. If I-645 passes and the law is repealed, we will update the model accordingly.

About The Author

Startup Tender Offers: How ISO Decisions Can Change Your Tax Bill

Nauma — Sun, 13 Sep 2026 21:55:09 GMT

An early-stage private company announces a tender offer. The company is willing to buy up to 90,000 shares from you as an employee. Price per share is set at $24.50.

You own common stock purchased years ago and also have several vested ISO stock option grants with different strike prices and vested number of options. You have been working for the company for 5 years now, making $150K/year, live in California and file your taxes as Married Filing Jointly.

How would you approach this problem?

What would you do differently if you knew that your decision could affect this year’s tax bill by $500K and your projected net worth by $1.6M?

Starting With The Right Questions

How many shares the employee is willing to sell is the question the company wants answered. It is tempting to immediately focus on the 90,000-share limit, but better questions to answer first are:

How much money do I need today? Even if the employee believes strongly in the company, they may have financial goals they need to fund: buying a new house, sending their children to a reputable school, or taking care of their parents.

What happens if I do nothing? Unless the employee is leaving the company and has a strict Post-Termination Exercise Period (PTEP) after which the options expire, or they are concerned about the company’s prospects, they may have the option to simply ignore this tender offer.

Keeping the stock options unexercised prevents the family from starting the required 5-year QSBS holding period, but it can also be a safer way to retain exposure to the company’s potential upside without putting additional personal capital at risk.

How many shares of this company do I want to own after the tender offer? That is fundamentally an investment-risk question, and it helps reframe the problem from what the company wants to what the family needs. We previously discussed how an individual can answer such questions in the post “How Much of a Single Stock Can I Have in My Portfolio?“

For instance, if the employee already owns 100,000 shares purchased several years earlier. They could decide to:

reduce their exposure to, say, 50,000 shares,
maintain their existing 100,000-share exposure, or
increase their exposure because they remain highly confident in the company.

Knowing the desired exposure, strike price of the stock option grants and tender offer share price, the family can then plan how to maximize their income while achieving the desired number of shares and managing their risks properly.

Identifying Options

For this example, assume the family wants to continue owning 100,000 shares after the tender offer, but they are willing to participate in the tender and sell 90,000 shares back to the company to generate liquidity and fund their financial goals. They have a few ways to get there:

Sell their existing shares from the CS-30 grant and then exercise 90,000 stock options to bring their ownership back to 100,000 shares.
Keep their existing shares from the CS-30 grant as is, but exercise and immediately sell shares from their stock option grants (ES-12, ES-130, and ES-429).

What option would you choose?

Option-1: Sell Existing Shares

In the first option, the family sells 90,000 shares they already own from the CS-30 grant.

At the tender offer price of $24.50 per share, the family receives 90,000 × $24.50 = $2,205,000. The cost basis of these shares is $40,500. Because the shares were acquired more than one year ago, the gain is treated as a long-term capital gain. In this example, the shares are not QSBS eligible.

After selling 90,000 existing shares, they therefore exercise 90,000 vested ISO stock options and keep the newly acquired shares. They exercise:

65,128 options from ES-12 at a $0.45 strike price, requiring approximately $29,308
24,872 options from ES-130 at a $0.97 strike price, requiring approximately $24,126

The total capital required to exercise the options is $53,434.

The important part is that the family does not sell these newly exercised ISO shares. That creates a large Alternative Minimum Tax adjustment.

In the projection, the family pays approximately:

$408K in federal long-term capital gains tax
$670K in federal AMT
$78K in Net Investment Income Tax
$67K in California AMT
plus other applicable federal and California taxes

The total estimated tax liability for the year reaches approximately $1.5M. The family’s net annual cash flow is $771K.

Option-2: Keep Existing Shares

Now, instead of selling the existing CS-30 shares, the family keeps all 100,000 of them. They still want to participate in the tender offer and sell 90,000 shares, so they exercise vested ISOs and immediately sell the newly acquired shares back to the company.

The exercise cost is still $53,434, and the shares are still sold for approximately $2.205M.

But the tax treatment changes significantly. Because the ISO shares are sold immediately after exercise, the transaction becomes a disqualifying disposition. In this simplified example, where the shares are sold at approximately the same price as their fair market value at exercise, the difference between the strike price and the share price is treated primarily as ordinary income.

In the projection, the family pays approximately:

$762K in federal ordinary income tax
$245K in state ordinary income tax

The total estimated tax liability for the year is approximately $1M. Family Net Annual Cash Flow is $1.2M

Comparing Scenarios

At first glance, Option-1 looks like the obvious choice: the family already owns shares that qualify for long-term capital gains treatment, while exercising and immediately selling ISO shares creates ordinary income. Since long-term capital gains are generally taxed at lower federal rates than ordinary income, it is natural to assume that selling the existing shares should minimize taxes.

While Option-1 uses lower long-term capital gains rates, coupling the sale with an immediate exercise-and-hold of 90,000 ISOs creates a paper gain (ISO bargain element), triggering federal and California AMT.

Option 2 triggers higher ordinary income through a disqualifying disposition. However, because the ISO shares are exercised and sold in the same tax year, those shares do not generate the same ISO-related AMT adjustment.

It’s important to highlight that paying $670K in AMT does not necessarily create a permanent cost. The ISO exercise may generate a Minimum Tax Credit that can potentially offset regular tax in future years. The exercise also increases the shares’ AMT basis.

Evaluating the Long-Term Trade-offs

I modeled both strategies using the same hypothetical family and the same assumptions for income, spending, retirement, and investment growth.Under these assumptions:

Option 1: projected terminal net worth of approximately $2.6M
Option 2: projected terminal net worth of approximately $4.2M

That is a difference of $1.6M in projected terminal net worth. These numbers are not predictions of what will happen. They are hypothetical model outputs to illustrate how a change in today’s tax and cash-flow position can propagate through a long-term financial plan.

Illustrative Projection Model: This hypothetical example uses a deterministic financial projection with 6% annual pre-retirement investment growth, 4% annual post-retirement investment growth, and 2% inflation. 100,000 shares are then not used in net worth calculations. The results shown are hypothetical, are not actual results.

Selling long-term shares may look more tax-efficient in isolation, but once ISO exercises, AMT, state taxes, cash flow, and long-term compounding are taken into account, the result can change completely.

In this example, both strategies leave the family owning approximately the same number of company shares immediately after the tender offer, yet they produce approximately a $500K difference in estimated current-year taxes and, under the assumptions used in this projection, a $1.6M difference in projected terminal net worth.

A decision involving taxes and equity compensation today can materially affect the rest of a long-term financial plan. Financial projections make those interactions visible so the family can evaluate the trade-offs rather than relying on a single tax rate.

About The Author

Why Auto-Selling RSUs Doesn’t Eliminate Stock Exposure

Nauma — Fri, 04 Sep 2026 01:35:27 GMT

People typically build wealth through equity.

Business owners benefit directly from the uncapped access to the income of their companies. Startup founders and early employees create significant wealth when their companies are acquired or go public. The same is true for employees at large public companies who receive RSUs, even if they decide to auto-sell every share as soon as it vests.

The last group sometimes misses the fact that their success is still caused by equity despite them choosing to auto-sell their shares.

Consider this example,

Senior Software Engineer at Meta/Facebook
Total comp = $470K/year, where $221K (47%) is equity
Equity grant has a four-year vesting schedule
The engineer is not comfortable taking the company risk and enrolls in autosale

When $221K is granted, it is converted into META shares. These shares vest over four years, with 25% of the grant vesting each year. This gives the stock time to appreciate before it vests and is sold automatically. By the end of the four years, the engineer’s initial grant of $221K often becomes significantly more valuable. Each annual portion, initially worth $55,250 ($221K / 4), can grow to $157,000.

Why? Because these successful companies have been growing much faster than the market. Below is average annual growth of FAANG companies stock for the the last 10 years (2017-2026):

🟠 META - 23.20% annual growth
🟠 AMZN - 25.64% annual growth
🟠 AAPL - 29.57% annual growth
🟠 NFLX - 26.81% annual growth
🟠 GOOG - 27.09% annual growth

DISCLAIMER: Company examples are used for illustrative purposes and are not recommendations to buy, sell, or hold any security.

If the engineer stays for more than four years and has multiple grants, their compensation in one year can look like this:

$217K: Base salary
$31K: Annual target bonus
$157K: Equity grant #1, appreciated over four years
$120K: Equity grant #2, appreciated over three years
$92K: Equity grant #3, appreciated over two years
$71K: Equity grant #4, appreciated over one year

Total = $688K

If, instead of equity, the engineer had received cash ($55K/year), or if the company’s stock had remained flat, their total compensation after four years would have been $468K. That’s $220K less pre-tax, or approximately $119.3K less after tax.

Why: At $468K/year in total compensation, their take-home pay would be approximately $319.2K/year. At $688K/year, their take-home pay would be approximately $438.5K/year. That’s a difference of $119.3K per year.

Now imagine that this engineer remains employed for 10 years and manages their wealth well by investing the additional income in a diversified portfolio earning a 7% annual return. Over 10 years, that additional income could generate approximately $1.6M in additional wealth.

This extra net worth is the result of the RSUs appreciating between grant and vesting, even if the engineer enrolled in auto-sale and sold the shares immediately upon vesting.

This math works in the opposite direction as well

If you join a stagnating company or a company whose stock has appreciated significantly in recent years (Intel in 2000, Tesla in 2021, or Nvidia in 2023), and you receive equity compensation, there is a chance that your actual compensation will end up being lower for exactly the same reason: by the time the stock vests, it may be worth less.

The company itself might be great, but if its stock is overvalued when your equity is granted, that can negatively affect your personal wealth building trajectory.

What is the takeaway?

If you are closer to retirement, this is a good reminder that our net worth is not always strictly determined by our talent, work ethic, and knowledge. While these qualities are positively correlated with wealth, external factors (including the performance of your employer’s stock) can also have a significant impact, especially in tech.

If you’re still building wealth and plan to do so while staying employed, understanding how equity compensation works (especially at early-stage companies) is important.

About The Author

DISCLAIMER: For educational and illustrative purposes only. Tickers and historical performance figures (2017–2026) are presented for structural context, not as investment advice or endorsements. Past performance is no guarantee of future results. Hypothetical growth projections do not reflect actual market returns. Nauma is a financial technology company, not a registered investment adviser.

The Math of CRUTs: Philanthropy vs. Tax Mitigation

Nauma — Tue, 11 Aug 2026 04:18:28 GMT

“I’m retiring now and plan to sell my appreciated stock to cover my future expenses. The asset has a low cost basis. If I sell it today, it will trigger high capital gains taxes, which I want to avoid. I would like to use a CRUT to diversify in a tax-efficient way.”

This is a common scenario in conversations about retirement and tax planning. Taxes are high, especially in California, and it’s a real pain for many families to sell appreciated assets to get liquidity.

CRUTs show up in conversations with financial advisors when different strategies, including charitable giving, are discussed. In reality, a CRUT may not be the right strategy for these families, particularly when the primary motivation is reducing taxes rather than charitable giving.

There are four potential issues with the story above.

Mistake #1: Assuming charitable giving leaves you with more net worth than simple sale

Charitable giving strategies, such as DAFs, QCDs, or CRUTs, are designed to allow donors to give more. This is different from the family ending up with a higher net worth.

The main benefit is letting the donor family avoid paying capital gains taxes when giving appreciated assets away and providing a charitable deduction that can be used to reduce their taxable income over the next five years. A CRUT additionally pays the beneficiary (the donor family) a fixed percentage of the trust’s value every year, but the amount is limited by strict IRS rules.

In many scenarios, the tax benefits and CRUT distributions do not fully compensate the donor family for the value ultimately committed to charity.

The family that is originally worried about taxes may have a more fundamental problem: they don’t know how much they need in the first place. Talking about charitable giving at this stage is a bit premature. The family needs to take a step back to create a financial plan and consider their net worth as a three-bucket system:

Money to maintain the family standard of living and enjoy life.
Money to leave to children, grandchildren, or other heirs.
Money to make an impact on the world through philanthropy.

Each family balances these buckets differently. It makes sense to discuss philanthropy and tax planning once these three buckets are defined in the financial plan and the family has a reasonable understanding of what they and their heirs need.

Mistake #2: Comparing the wrong numbers

Most CRUT calculators online are primarily designed to test compliance with IRC §664(d), including whether the charitable remainder requirements are satisfied and whether the payout rate falls within the 5%–50% range.

Some calculators go further and estimate the terminal value of the trust, often presenting the results as a “Sell vs. CRUT” comparison. Whether intentional or not, showing only these two scenarios can create the wrong impression. A user may conclude that using a CRUT will leave the family with a higher net worth than simply selling the asset.

In reality, the comparison often being shown is:

Donor Value + Trust Remainder > Simple Sale

But the trust remainder ultimately belongs to charity, not the donor family. If we exclude that charitable remainder and compare only the value retained by the donor family, the relationship is often:

Donor Value < Simple Sale

It’s important to confirm what exactly is being shown by a calculator. Here, the chart separates the results into three series, making the destination of the projected assets easier to see:

Simple Sale (green)
CRUT: Donor Value (blue)
CRUT: Trust Remainder (orange)

The next problem with calculators is that they often assume CRUT payouts are reinvested. In reality, many families consider using a CRUT to generate income in retirement and plan to spend the distributions.

In this case, the model should actually compare the following scenarios:

I use a CRUT, receive a constant percentage payout, and the remainder goes to charity at the end.
I simply sell the assets, withdraw the same amount from my existing portfolio each year (and pay taxes), and then donate all the remaining money to charity.

If the family uses a CRUT, the charity often receives more, because capital gain taxes are not paid but being reinvested:

Mistake #3: Assuming you’ll use the full deduction

When the family contributes assets to a CRUT, they generate an upfront charitable income tax deduction in the year the trust is funded. The deduction value is equal to the present value of the remaining interest that will eventually pass to charity.

Retirees may expect the deduction to produce significant tax savings, but the actual benefit depends on whether and when the deduction can be used. In practice, families frequently fail to maximize this benefit due to 3 major constraints:

Retirement Income Drop: If a CRUT is created near retirement, lower future AGI may prevent the family from using the full deduction.
AGI Limits: Deductions for appreciated assets are generally limited to 30% of AGI for public charities and 20% for private foundations.
5-Year Carryforward: Unused deductions can be carried forward for up to 5 additional years.

To increase the likelihood that the deduction can be used before the carryforward expires, it should be incorporated into a multi-year tax plan. Strategies like executing Roth IRA conversions, recognizing deferred compensation, or timing other capital gains can increase your AGI, allowing you to absorb the full deduction while effectively filling up lower tax brackets.

Another option to maximize charitable deduction utility instead of increasing income in the next 5 years would be increasing Unitrust Payout Rate. That will automatically reduce the present value of the trust remainder and reduce charitable deduction.

Without a proactive multi-year tax plan, the promised tax savings of a CRUT often end up larger on paper than in reality.

Mistake #4: Ignoring decades of fees

Establishing and maintaining a CRUT may involve legal, administrative, tax-preparation, trustee, and investment-management expenses. These costs should be included in any comparison because not every simplified calculator incorporates all of them.

When evaluating whether a CRUT actually leaves your family better off than a standard sale, these ongoing friction costs create a compounding drag on returns over time:

Upfront Setup Costs: Drafting a custom CRUT agreement, establishing trust tax IDs, and securing required independent appraisals (which are mandatory for non-publicly traded assets like real estate or private equity) typically run between $5,000 and $15,000+ in legal and accounting fees.
Annual Tax Compliance & Administration: CRUTs cannot file standard individual or grant-trust returns. They require specialized annual filings on IRS Form 5227 (Split-Interest Trust Information Return), Schedule K-1 distributions for beneficiaries, and complex 4-tier accounting rules. Professional tax preparation generally costs $1,500 to $4,000 every single year.
Investment & Corporate Trustee Fees: If you use an institutional trustee or hire a fiduciary to manage the trust’s portfolio, annual management fees typically range from 0.5% to 1.5% of the trust’s total asset value. Over a 20- to 30-year retirement, an extra 1% to 2% in annual administrative and management fees can materially reduce projected portfolio values. Because your annual unitrust payout is calculated as a fixed percentage of the trust’s value each year, these fees directly reduce the actual cash income distributed to your household.

Let’s consider a hypothetical scenario:

Concentrated Stock Value = $2M
Cost Basis = $300K
LTCG = 30.8% (Federal + NIIT + CA State)
CRUT: 20 years, payout rate 10%
Market returns: 12.38% return, 15.43% volatility (S&P 500 historical returns)

Without investment & corporate trustee fees, the terminal portfolio value P50 results:

Sell Now = $15.3M
CRUT (no fees) = $15M + $2.5M = $17.5M
CRUT (1% fees) = $14M + $2M = $16M

Conclusion

A CRUT is a powerful instrument for intentional philanthropy. It helps the family give more and provides some tax benefits, but it is not a tax-elimination loophole. If your primary objective is maximizing the net worth passed to your family, other strategies may be a better choice once you account for trust remainders going to charity, unabsorbed income tax deductions, and compounding administrative fees.

You can run your own scenarios and compare projected donor-retained value side-by-side using our Interactive CRUT vs. Simple Sale Calculator.

About The Author

How Much of a Single Stock Can I Have in My Portfolio?

Nauma — Sun, 02 Aug 2026 23:46:31 GMT

A common mistake in financial planning is telling that everyone should enroll in RSU auto-sale. People giving that advice implicitly assume that everyone else has the same low risk tolerance as them.

It’s a binary view of the world: on one end, entrepreneurs with sky-high risk tolerance who start companies and work for equity; on the other, everyone else, who supposedly can’t tolerate being invested in their employer and therefore should sell immediately.

Reality isn’t binary. Many people in tech are comfortable taking meaningful risk, even if they’re not founders, and genuinely want to be invested in the companies they work for. What they often lack isn’t risk tolerance, but the tools to understand whether they’re taking the right amount of investment risk.

The real question then becomes: how much exposure is appropriate and how does it fit into the rest of the portfolio?

Would You Buy a MANGOS stock today with cash?

Asking people willing to take more risk “If your RSUs vested today as cash, would you use that cash to buy this stock at today’s price?” is not really helpful because their answer is either “Yes” or “I don’t know.”

It might be straightforward for someone working at a barely growing company, but for employees at Meta, Google or any other MANGOS company who have seen peers build wealth by simply holding their RSUs, the question “Should I buy more META?” is no easier than “Should I sell my current META shares?”

How are these people supposed to make a decision?

Deciding what to do with concentrated, highly appreciated stock can be even harder than deciding what to do with a recently vested grant. A low cost basis, combined with high income and high taxes in states where successful VC-backed tech companies are based, often leads people to choose the easiest option at the moment: doing nothing.

When the market keeps rising and potential risks to future wealth are not fully understood, doing nothing can easily become the default strategy. The problem is that stocks do not always go up. Some of them go down and never recover.

Preparing for such scenarios in a financial plan is crucial for people who want to take risks with their savings. Yes, risks, let’s be honest: when we add individual stocks to a portfolio, we are making a bet.

Rules of Thumb

There are attempts to answer the question, “How much of a single stock can you have in your portfolio?” by offering simple rules of thumb. Recommendations normally range between 1% and 15% of the portfolio and often more reflect personal views and risk tolerance of the person answering the question rather than one asking it.

In reality, the answer to the question is in the range between 0% and 100%. We can demonstrate that by considering a hypothetical and exaggerated example.

Let’s consider a family that has already created a financial plan. They estimate that they need a total portfolio of $5 million to support all their financial goals. Their plan accounts for inflation, taxes, and temporary spikes in spending caused by home renovations, college expenses, medical bills, and travel. It also assumes conservative but steady investment returns.

If the family’s total savings, excluding their primary residence, are $5 million today, they have no room to make bets unless they are willing to sacrifice some of their financial goals. For this family, the appropriate allocation to an individual stock would be 0%.

Now, let’s consider the opposite situation. The family consists of entrepreneurs who built a successful business that is worth $1 billion today, and they still own 10% of it. If the company’s market capitalization cannot fall below $50 million and its stock is liquid, they could theoretically hold 100% of their portfolio in this stock. Even in the worst-case scenario, if their portfolio fell from its current value of $100 million to $5 million, they would still be able to cover all the major future expenses included in their financial plan.

Rules of thumb don’t work because everyone’s situation is different.

How Do You Answer The Question Yourself?

Deciding how much of an individual stock to hold is part of the portfolio construction process. We can’t tell whether a portfolio is well constructed, or whether its allocation to a single stock is reasonable, until we understand the purpose of the money.

That is why we need to create a financial plan first. Once we have a plan, we can evaluate the risks more clearly. Specifically, we can ask what would happen to the family’s financial goals if a particular investment account loses 80% to 90% of its value and never recovers. This is a simple and effective way to assess the risk of holding an individual stock and taking on idiosyncratic risk.

At the end of the day, our priority is to achieve our financial goals. Not to beat the market.

A financial projection that maps major future income and expenses onto a timeline gives you a clearer picture of how your net worth could evolve. As a scenario planning tool, Nauma automates these baseline estimates by factoring in standard inflation, estimated state level taxes, and basic account structures. This gives you an interactive sandbox for testing different choices instead of relying on generalized advice.

Once you have completed your financial projection, you can go to “Assets & Liabilities” and model different scenarios, including a 90% decline (or any other percentage you consider reasonable) in the value of your stock plan account containing vested RSU shares:

You will be able to see whether your plan still holds after a 90% decline in the value of your RSUs and whether you have the risk capacity to keep an individual stock in your portfolio. When testing different scenarios, keep in mind that it is always wise to use conservative assumptions, even if you strongly believe in the company and its future.

In this hypothetical simulation, the model projects the family ending with a net worth of $9.2 million if their $732,000 RSU position drops 90% today and assuming remaining funds earn baseline market returns. If they diversify immediately, the same mathematical model projects an end state of $16.3 million. While these figures are illustrative projections based on simplified growth assumptions, the model shows the pessimistic outcome and it helps the family understand the risk of holding individual stock better.

In an optimistic scenario, if the company’s stock outperforms the market, the family’s net worth could be much higher than it would be with a diversified portfolio. In general, holding individual stocks makes financial planning more difficult because it widens the range of possible outcomes. In some cases, that uncertainty may be tolerable; in others, it may create a significant risk for the family.

Once you have identified a concentration level you are comfortable with, the next step is to create a plan for diversifying your portfolio if you find that your allocation to a single stock is too high. We will discuss this process and the related tax-planning considerations in future posts.

About The Author

Financial Planning for Families With Special Needs

Nauma — Thu, 16 Jul 2026 23:19:33 GMT

Financial planning is complex for any family. To create a plan a family can rely on, they need to understand how inflation, investment returns, taxes, and future income and expenses may affect their finances. Families with special needs face an additional challenge: their assets often need to support at least two major goals: the parents’ retirement and their child’s needs for the rest of the child’s life.

Families must plan for both goals while navigating complex government benefit programs, tax considerations, asset protection, and estate planning. While raising a typically developing child in California may cost between $400K and $800K, depending on the family’s preferences, the cost of raising a child with special needs may range from $1M to $2.4M, depending on the level of support required.

On top of that, raising a child with special needs requires extraordinary effort, patience, and love. Parents in these families often need to work much harder to keep everything running. When they also need to create financial and estate plans, they can quickly become overwhelmed by the complexity.

Complexity

We have been working with families raising children with special needs and have witnessed firsthand both the challenges they face and the complexity they need to navigate.

To secure their child’s future, families often rely on public benefits such as Supplemental Security Income (SSI) and Medicaid, known as Medi-Cal in California. These programs provide support and health insurance but are governed by strict eligibility rules that frequently change.

For SSI, an individual generally cannot have more than $2,000 in countable assets.
California Medi-Cal asset limit is $130K in 2026, with a planned reduction to $21K in 2027. Income generally must remain below 138% of the federal poverty level (FPL), or about $1,836 per month.

To navigate these restrictions, families need to coordinate their savings and use specialized tools: ABLE accounts and third-party special needs trusts (SNTs).

A third-party SNT is a common way to hold family wealth after the parents’ deaths while preserving the beneficiary’s eligibility for public benefits. However, it also creates tax-planning complexity. Non-grantor trusts are subject to compressed tax brackets. While an individual does not reach the 37% federal tax bracket until taxable income exceeds approximately $640K, an irrevocable non-grantor trust reaches the same bracket at approximately $16K.

Creating trusts to protect assets and preserve eligibility for public benefits requires each family to become the author of its own family constitution.

Whether they want to or not, families often need to learn many estate-planning terms and determine how to establish proper checks and balances in their trusts to prevent unwanted trust takeovers by beneficiaries, as well as abuse and poor governance when professional private fiduciaries (PPFs) are involved.

These are not easy tasks for a family that needs to work hard just to keep up.

Thoughts on Navigating the Complexity

I’ve recently been involved in reviewing and analyzing various trust documents for clients, including irrevocable non-grantor special needs trusts (SNTs), dynasty trusts, and revocable living trusts (RLTs). I’ve also participated in meetings with estate attorneys to discuss these documents and their provisions.

Estate planning is one of the most complex legal disciplines, and attorneys spend many years developing expertise in this area. That said, a willingness to learn, the time spent carefully reading legal documents, and common sense can take us surprisingly far.

I’ve put together some thoughts and observations based on my ongoing experience in this space.

1. Financial Planning Before Estate Planning

Attorneys typically have limited time to spend with each client, and their hourly rates are high. It is therefore helpful to have an up-to-date family financial plan and projection available before beginning the estate planning process. This information can help the estate attorney tailor the documents to the family’s circumstances and avoid unnecessary complexity that may cost the family additional time and money in the future.

When an estate attorney does not have a clear picture of how the family’s finances may change over time, it can be difficult to decide which provisions are necessary in the estate plan. For example, the family’s projected estate size can help determine whether the plan should include estate-tax or generation-skipping transfer tax provisions, such as exemption allocation, a bypass trust, or continuing trusts for descendants. Whether these provisions are appropriate depends on the family’s projected assets, beneficiaries, and broader circumstances.

Another example is having the RLT become irrevocable upon the first death, sometimes referred to as an administrative trust, followed by the transfer of assets into a new revocable living trust for the surviving spouse. This structure is often used in blended families to protect the interests of children from prior marriages. Whether an administrative trust is necessary depends on the family’s circumstances, but it can require additional work to retitle assets when inheritances are distributed and assets are transferred from the administrative trust to the surviving spouse’s new RLT.

Some families may also have substantial savings in tax-deferred accounts. Understanding how these accounts are expected to change over time can help the family plan transfers to irrevocable trusts while reducing the impact of compressed trust tax brackets. For example, the estate plan can direct taxable and tax-deferred accounts to different beneficiaries based on their tax situation. Without this information, an estate attorney may default to an equal distribution among the children without fully considering the tax implications.

2. Keeping Documents In Sync

A fairly common situation is that a family first creates a simple revocable living trust, often through a service provided by an employer, and then hires another attorney a few years later to establish a third-party SNT or a dynasty trust.

Surprisingly, the RLT documents are not always reviewed and updated to reflect the family’s changing needs or the creation of new trusts. In some cases, estate attorneys decline to update documents drafted by another attorney. There are two common reasons for this:

Liability: If Attorney B changes a trust created by Attorney A, Attorney B may take on some responsibility for the entire document. If the original trust contains a serious mistake, Attorney B could still be pulled into a future lawsuit.
Efficiency: Reviewing and understanding another attorney’s documents can take more time, and cost the client more, than creating new documents from scratch.

One effective way to identify these issues is to create an asset flowchart based on the legal documents and verify that the assets will move as intended.

3. Thinking About Conflicts of Interest

In one meeting, a paralegal said, “But we, as a law firm, would be representing the trustee, not the beneficiaries.” The comment was made quickly while discussing another topic, but it caught my attention.

The paralegal was technically correct: once an irrevocable trust is established and funded, the trustee, not the beneficiaries, will hire the estate planning firm to help administer the trust. However, today it’s the family who is hiring the estate attorney to draft documents. Their primary goal is to protect beneficiaries (their children).

Not all the trust documents I have reviewed appear to have been drafted with that goal as the top priority. The documents discussed in that meeting gave the trustee broad discretion and, in some areas, limited protections that would otherwise apply under the California Prudent Investor Act. The documents:

Allow the trustee to invest in almost any asset, including private equity, use margin accounts, and start businesses, even when the trustee has a personal conflict of interest. No duty to diversify.
Include no protections against fee stacking.
Do not require the trustee to provide annual or quarterly reports to the trust protector or beneficiaries.
Allow the trustee to use trust assets to defend against claims brought against the trustee.

For this reason, I still believe the best way to ensure that trust documents reflect the family’s goals is to read each document in full. Some documents may be 50 to 70 pages long, and a family may need to review two or three of them. Even so, a careful review can help identify provisions that could create serious problems later.

This is especially important because, once an irrevocable trust is established, changing it may be difficult, expensive, or sometimes impossible.

4. Experts should talk

The financial planner, CPA, and estate attorney should have a way to communicate throughout the planning process.

Coordination can be more difficult when the professionals are hired separately. They may be reluctant to contact one another without the client’s approval or may be concerned about creating additional billable work. Firms that offer financial planning, tax, and legal services under one roof may have a coordination advantage, particularly when they provide clear roles and predictable pricing.

At the same time, working with independent professionals can provide an important system of checks and balances. Each professional can review the recommendations of the others from a different perspective and help ensure that the overall plan serves the family’s interests.

In either model, the quality of the outcome depends heavily on how well the professionals share relevant information and coordinate their recommendations.

5. Complexity should be justified

The financial planning industry often falls into two self-serving extremes. One is unnecessary complexity used to justify high fees. The other is oversimplification used by advisors who prefer standard, high-volume processes over plans tailored to each family. Both approaches put the advisor’s business model ahead of the client’s needs.

The better approach is family-first: plans should be as simple as possible, but as complex as necessary.

Simplicity should be the default. Complexity should be added only when it provides a clear and meaningful benefit to the family, not to create more fees or show expertise. This approach requires more effort and better questions, but it leads to stronger and more effective plans.

About The Author

Nauma is supported entirely by its users with no commissions and no affiliate incentives. It is designed to give people clarity on taxes, equity compensation and retirement planning.

When Relying on Federal Tax Brackets in a Roth Conversion Optimizer Can Be Misleading

Nauma — Wed, 24 Jun 2026 20:19:26 GMT

Strategically moving assets from tax-deferred accounts, such as traditional IRAs or 401(k)s, into tax-free Roth accounts may reduce future Required Minimum Distributions (RMDs), lower a family’s total lifetime tax bill, and reduce taxes when passing wealth to heirs.

But doing this manually is incredibly difficult. Roth conversions require setting aside funds in taxable accounts to pay the resulting taxes, especially if the conversions are done before age 59½. This creates additional pressure on taxable accounts and may lead to liquidity issues if the family stopped working early. A family may find itself in a situation where it technically has assets, but those assets are not available to cover current needs because they are held in illiquid retirement accounts, deferred compensation, real estate, or PE/VC funds.

For people over age 59½, the main challenge often comes from health insurance. They may need to keep MAGI, or Modified Adjusted Gross Income, below certain thresholds to qualify for ACA premium subsidies and avoid IRMAA surcharges when they switch to Medicare.

In both cases, it can be hard to tell whether Roth conversions actually increase family wealth because a direct comparison is often not straightforward: assets in tax-deferred accounts are not equivalent to assets in tax-free accounts.

If you do Roth conversions without a clear strategy, you are left in the dark about whether the strategy is actually optimal.

Roth Conversion Optimizer

To solve this, we just built a new feature: the Roth Conversion Optimizer. We have added an “Optimize Roth Conversions” button directly inside your financial projection dashboard. When you click it, the system prompts you to choose an optimization strategy. Currently, the platform supports the Tax Brackets strategy.

When you select this strategy and input a target federal tax bracket (for example, 22%), our solver runs a binary search algorithm across the years between your specified start and end dates. It automatically calculates the exact amount needed to increase your taxable income and execute Roth conversions right up to the ceiling of that specific federal tax bracket.

However, as we rolled this tool out, it highlighted a financial planning lesson: blindly optimizing for federal tax brackets, one of the most common approaches in financial planning tools, and ignoring state and foreign taxes can backfire and cost millions of dollars.

Problem #1: The Interstate Move (California to Florida)

To see why optimizing solely for a federal tax bracket can backfire, let’s look at a case study of a family currently living in California that plans to relocate to Florida in 2045. If we blindly run the optimizer to fill the 22% federal tax bracket across the entire projection, the results look highly counterintuitive:

Current Strategy: Manual Roth Conversions

Total lifetime tax paid: $4.6 million
Terminal net worth: $29.5 million

Optimized Strategy: Filling the 22% Federal Bracket

Total lifetime tax paid: $4.9 million
Terminal net worth: $25.1 million

Why did an “optimizer” make this family $4.4 million poorer?

Because the family lives in California before 2045, accelerating income through early Roth conversions subjects them to California’s high progressive state tax rates. During the conversion years, their state tax bill increases from a baseline of $14,000 to nearly $60,000. Since they plan to move to tax-free Florida later, accelerating income while still living in California destroys value. The direct tax cost is higher, and the assets used to pay those taxes no longer remain invested and compounding.

Problem #2: The Expat Double-Tax Friction (Retiring Abroad)

The problem becomes even more pronounced for families planning to leave the U.S. and retire abroad. Let’s look at another example. Instead of moving to Florida, the family decides to relocate to a country with a high-tax regime, such as a flat 20% income tax rate starting at the first dollar of income, with no standard deduction.

Because they are U.S. citizens, they remain subject to U.S. federal income tax on their global income, including Roth conversions. At the same time, they may also be subject to the local tax laws of the foreign country.

When we run the 22% federal bracket optimizer on this international track, the numbers look like this:

Current Strategy: Manual Roth Conversions

Total lifetime tax paid: $7.8 million

Optimized Strategy: Filling the 22% Federal Bracket

Total lifetime tax paid: $6.3 million

At first glance, you might think, “Great! The optimizer saved them $1.5 million in taxes.” But that conclusion would be premature. The solver is still blind to the international context. It is only looking at U.S. federal tax brackets and ignoring the 20% foreign tax overlay. It does not account for how the destination country treats Roth conversions, whether that country recognizes the tax-free status of Roth accounts, or how foreign tax credits apply.

Using a standard, single-dimensional federal bracket optimizer when relocating abroad is a roll of the dice. It may produce a good result, or it may create an unexpected global tax bill.

A federal tax bracket optimizer may work reasonably well for families who plan to retire in their current tax environment. Families considering interstate moves or retirement abroad should be much more careful.

Verifying Roth Conversions

If you choose to apply an optimized strategy, you can audit the tool’s precision by clicking into any specific year on your timeline and reviewing the granular tax details. If you set the target bracket to 22%, you should generally see no taxable income above the 22% tax bracket in the year the optimizer adds a Roth conversion.

You may occasionally notice a tiny amount, such as $27 or $50, appearing in the next highest tax bracket. This is by design. To maintain high performance, our solver uses a binary search algorithm with a precision threshold of $100. The algorithm stops searching once it gets within $100 of the target, which means a small number of dollars may spill into the next bracket.

If you require absolute, single-dollar precision for your models, let us know and we can tighten the threshold.

What We Are Building Next: Terminal Wealth Optimization

This feature illustrates well why standard, single-dimensional federal tax bracket optimization is an incomplete tool for high-net-worth families with dynamic lives. True financial optimization cannot look at federal brackets in isolation.

To build a more robust optimization engine, we are developing a solver that optimizes against Terminal Wealth: maximizing the exact amount of money you have left at the end of your life expectancy. To do that, the next iteration of our optimizer will factor in the comprehensive, multi-jurisdictional tax picture simultaneously:

Federal Income Taxes
Progressive State Income Taxes
Foreign/Expat Tax Treaties and Local Rates

By calculating how these compounding layers interact with specific life events, such as moving states or retiring abroad, Nauma will be able to estimate the net impact of cross-border tax friction on a family’s portfolio and solve for a more efficient Roth conversion strategy.

About the Author: Alex Sukhanov, founder of Nauma, a financial planning platform built for people in tech and high-net-worth families. Alex previously worked at Google and started Nauma to help more people in tech make better financial decisions and achieve more in their lives. You can reach out to Alex on linkedin.

Nauma is supported entirely by its users with no commissions and no affiliate incentives. It is designed to give people clarity on taxes, equity compensation and retirement planning.

Disclaimer: Nauma projections are hypothetical and not guarantees of future results. Tax laws may change, and estimates may not reflect future legislative updates. This content is for educational purposes only and is not tax or investment advice.

Exchange Funds and Expected Market Returns

Nauma — Sat, 13 Jun 2026 19:06:28 GMT

The challenge with using swap (exchange) funds is that the highest demand happens during booms like the one we experience today: successful company’ stocks appreciate to levels that make many employees uncomfortable having their wealth concentrated in one name. But the benefit of using exchange funds highly depends on the expected stock market returns, which are normally lower over the next 5-15 years after a boom.

Consider an example: concentrated stock value = $1.5M, cost basis = $885K, current and future LTCG tax rate are expected to be the same = 30.8% (20% federal + 3.8% NIIT + 7% WA State). Expected Market Return = 12.38%, expected Volatility = 15.43% (S&P 500). Duration = 7 years (standard IRS requirement)

We consider two scenarios:

Exchange fund: the investor uses an exchange fund, waits seven years, and then sells everything to get cash.
Simple sell: the investor sells the stock now, invests in a diversified portfolio, waits seven years, and then sells again.

We finish both scenarios with a full liquidation to make them comparable.

Monte Carlo P50 (median market returns) gives us:

Simple Sell Scenario = $2.46M
Exchange Fund = $2.54M
Exchange Fund Benefit = $80K

Monte Carlo P5 (Pessimistic Market Returns) gives us:

Simple Sell Scenario = $1.46M
Exchange Fund = $1.43M
Exchange Fund Benefit = -$28K

Between 2000 and 2016, QQQ remained flat, with a 0% return. Today, the Shiller P/E ratio, or cyclically adjusted price-to-earnings ratio, is at a level comparable to the dot-com bubble, which makes some people believe that investment returns will be lower over the next five to ten years.

At that level of return, exchange funds may add very little value compared to simply selling.

With all that said, there is a problem with this thinking: by adding the sell step at the end of the seven-year period to make both scenarios comparable, we oversimplify the problem. In reality, people who use exchange funds get optionality: they can continue to manage that position and diversify without triggering taxes in the future, especially if they stop working during that period and gain access to the 0% LTCG tax bracket. People who sell appreciated stock today don’t have that privilege: they lock in their gains and pay the taxes today.

Tax-efficient diversification is not a one-time solution, but a multi-year process.

The Safe Withdrawal Rate: Do You Need Bonds in Retirement?

Nauma — Thu, 04 Jun 2026 19:43:31 GMT

Karsten Jeske did a great analysis of safe withdrawal rates on his blog and created this table by writing a script that loops through all possible combinations of retirement dates and estimates the probability of a portfolio not running out of money using a constant withdrawal rate between 3.00% and 5.00% (inflation-adjusted).

Karsten used historical stock and bond returns from 1871 to 2016 and tested his model across different stock/bond allocations: 0%, 25%, 50%, 75%, and 100% stocks, as well as different retirement durations: 30, 40, 50, and 60 years. While the information is dense, the table is highly readable and uncovers great insights:

The more stocks the portfolio has, the higher the chances of it not running out of money given all other factors the same.
The 0% stock portfolio performs poorly across almost all longer horizons.
Going from 4.00% to 5.00% may sound like a small change, but the success-rate drop can be large.

One of the most common questions people ask when they look at this table is: “If portfolios with 0% bond exposure have historically had a higher chance of surviving, why don’t we use them and simply ignore bonds in retirement?”

It’s a legitimate question.

Traditional Retirement Portfolios

While historical data over multi-decade horizons demonstrates that equities provide better long-term compounding and frequently yield higher mathematical success rates, institutional wealth management continues to use bonds in retirement portfolios for the following reasons:

1. The Mitigation of Sequence of Returns Risk (SRR)

If a market crash happens while we are saving for retirement, it creates a buying opportunity. But if a crash happens right after we retire, we are forced to sell stocks at a loss to pay for living expenses. This permanently shrinks the portfolio and makes it incredibly hard to recover. Bonds act as a financial cushion, allowing us to spend fixed income during a downturn while giving the stocks time to bounce back.

Historically, bonds have demonstrated low or negative correlation to equities. Adding bonds in the portfolio increases risk-adjusted returns and chances of not running out of money in retirement.

2. Behavioral Finance and Capitulation Risk

While the Karsten spreadsheet model assumes a perfectly rational agent who can withstand a 50% drop in net worth without altering their strategy, real-world wealth management must account for human psychology. This introduces capitulation risk: the probability that an investor will panic during a prolonged market crash and liquidate their portfolio at or near the absolute bottom.

Portfolio Glide Path in Financial Models

When we look at Karsten’s table, we are looking at static allocations. The model assumes you pick one specific asset mix like 100% Stocks or 50% Stocks and blindly hold it for 30 to 60 years.

This creates a frustrating financial paradox:

If you go 100% Stocks: You maximize long-term compounding, but you expose yourself to a catastrophic Sequence of Returns Risk in the first few years of retirement.

If you go 50% Stocks: You protect yourself against a near-term crash, but over a 50-to-60-year retirement, your success rate plummets because your portfolio lacks the growth engine required to outpace long-term inflation.

But what if you didn’t have to choose a static row? What if your portfolio could adapt dynamically over time? Instead of keeping asset allocation locked, a portfolio glide path dynamically shifts your exposure based on where you are in your retirement timeline. You can pick a more aggressive allocation If you are a 10+ years away from your retirement, and reduce portfolio stock exposure over time as you get closer to the time when you need the money.

Karsten introduces Rising Equity Glide Path (or Bond Tent) in his safe withdrawal rate series. He argues that the investor can enter retirement conservative (e.g., 60/40) to survive Sequence of Returns Risk, and then increase equity exposure (gliding back up to 80% or 100% stocks) inside retirement.

Stock Only vs Custom Portfolio Glide Results

Designing a portfolio glide path is an individual decision based on the investor’s risk tolerance and financial plans. The results will heavily depend on the family’s net worth, future income and expenses, and taxes.

To see how these dynamics play out, we ran a hypothetical scenario through the Nauma platform:

Family M49 and F48. Live in California. Two kids (11 and 14)
Net Worth $6M ($2.4M taxable, $1.6M Tax-Deferred, and $490K in tax-free accounts)
Current Income $720K, Total expenses $254K, taxes $250K
They currently plan to work for another 8 years

The results are quite interesting. For their retirement fund, the Aggressive portfolio (95% equity, 5% cash) had a 94% success rate when tested in a Monte Carlo simulation, while a Portfolio Glide Path (95% equity → 60% equity for the rest of the plan) had a 93% success rate. This is in line with Karsten’s findings, despite some differences in the market data. Karsten used data from 1871 to 2016, while Nauma uses data from 1992 to the present.

Aggressive Portfolio:

Portfolio Glide Path:

While the overall success rates appear nearly identical, looking under the hood at the distribution of outcomes reveals the true strategic trade-off.

At the overall household level (Module 4) where all financial goals are blended together, the Aggressive portfolio showed better results across all percentiles except p1 and p2. To clarify, the p1 percentile means that among 10,000 Monte Carlo simulation runs, 99% of runs, or 9,900 runs, demonstrated better performance.

The table below illustrates the projected ending value of the entire blended household portfolio across different simulation percentiles:

With this data, the family can now make a significantly more informed decision about whether they want to use a Portfolio Glide Path or stick with an Aggressive, equity-heavy portfolio.

When using the Portfolio Glide Path, the simulation demonstrated greater resilience in worst-case economic scenarios, such as the 2000 Dot-Com bust or the 2008 Financial Crisis, resulting in improved p1 and p2 metrics. The opportunity cost of that downside protection, however, is a roughly 2x lower median portfolio value at the end of their financial plan ($53.1M vs. $106.8M).

How to Configure Portfolio Glide Paths

There are two options for how you can configure your own Portfolio Glide Path in Nauma.

The platform offers planning at both the household and goal levels and provides two ways to create and manage custom portfolio glide paths. If you are working on your financial projection in Module 4, go to Parameters, set Investment Return Calculations to Monte Carlo Simulation, and then select Manage Portfolio Glide Paths in the newly appearing Model Portfolio field.

If you are setting your financial goals in Module 5 and working at the fund level, click the Model Portfolio dropdown and scroll down to Manage Portfolio Glide Paths.

Portfolio Glide Paths are owned by the Financial Projection and shared across Module 4 and Module 5. This means you can reuse a Portfolio Glide Path created in your financial projection later when you start working on your financial goals.

Context Over Cookie-Cutter Advice

Generic financial advice is almost always engineered for the lowest common denominator, pushing conservative allocations because they must work safely for the masses. But high-net-worth tech families often possess unique cash flow structures, equity compensation buffers, and higher personal risk tolerances that make equity-heavy strategies a natural avenue to explore for them.

The main challenge for these families is not knowing their true risk tolerance unless they have already lived through several market cycles and seen how they actually react. Most people know, intellectually, that they should not sell when the market crashes. They answer risk-tolerance questionnaires logically and describe what they would do in a hypothetical downturn. But when a real market crash happens, emotions often take over, and people make very different decisions.

Adding non-correlated assets, such as bonds or managed futures, may reduce portfolio volatility and help investors avoid panic selling. But that benefit comes at a cost.

Nauma is supported entirely by its users with no commissions and no affiliate incentives. It is designed to give people clarity on taxes, equity compensation and retirement planning.

Understanding Taxes in Long-Term Financial Projections

Nauma — Fri, 15 May 2026 19:55:06 GMT

One of our users recently reached out with a question: They are working on their financial plan and currently have an approximately $500K+ withdrawal from a taxable account in 2037, but the model estimates $0 in taxes. This unusually low tax made them skeptical and they asked us to look at their financial plan together.

My first thought was that it’s a bug in our tax software unless the user already has or expects to generate significant capital loss carryover which would let them offset their 2037 capital gains and reduce their taxes.

And then we found an interesting insight which we all initially missed.

Current Situation

We started by reviewing their current assets. The total value of their taxable accounts was $1.1M, with a cost basis of $860K.

I normally check whether the cost basis is entered correctly for brokerage accounts before reviewing financial projections. Withdrawals from taxable accounts are generally taxed on the difference between the current value and the cost basis. If the cost basis is missing or entered incorrectly, the model may estimate long-term capital gains taxes incorrectly.

Not entering cost basis is one of the most common mistakes that can affect the model output. While it is technically possible to skip it, I recommend calculating and entering it whenever possible.

Cost basis needs to be entered only when accounts are added manually. Brokerage accounts connected through Plaid have their cost basis calculated automatically by Nauma.

Then we looked at their existing accumulated capital loss carryovers.

In the U.S., if your capital losses exceed your capital gains, you can generally use the excess loss to reduce ordinary income by up to $3,000 per year. Any remaining unused loss is carried forward to future years, where it can be used to reduce future capital gain income and taxes.

Short- and long-term capital losses are tracked separately. They are also tracked separately at the federal and state levels. Due to differences in state taxation, federal and state capital loss carryovers may diverge over time.

To review the current capital loss carryover, I went to Current Income & Expenses in the left menu, scrolled down, and clicked the Tax Settings button. The next page showed that the user did not have any capital loss carryover entered that could impact their future capital gains:

Financial Projection

A financial projection is where mistakes are easy to make, and even small errors can compound over time. That is why it is important to spend time reviewing the data and understanding the assumptions behind the projection.

The user plans to save aggressively over the next 10 years, and their income supports that plan. In Nauma, all unallocated savings are directed to taxable accounts by default, shown as dark green bars. Based on the projection, their total taxable account contributions between 2026 and 2037 are $2.49M.

That increases the cost basis of their taxable accounts from the current $860K to $3.35M in 2037.

The projection uses Monte Carlo simulation to model investment returns. In this case, the user selected the bottom 10th percentile, which is a conservative assumption. It means that 90% of all simulation runs generated higher returns.

Nauma runs these simulations using the selected model portfolio and historical return data from 1992 to the present. Model portfolios are built using stocks represented by VTSMX, bonds represented by VBMFX, and cash represented by 3-month Treasury bills.

Demo account screenshot:

To see the total value of their taxable accounts, we went to the Net Worth tab and clicked the year we wanted to analyze. In this projection, the total value of their taxable accounts is expected to grow to $5.1M in 2037, with a cost basis of $3.35M, as estimated earlier:

When the $500K withdrawal happens in 2037, the model estimates the cost basis of that withdrawal as:

$500K × $3.35M / $5.1M = $328K

That means the realized gain is approximately:

$500K - $328K = $172K

At first glance, that gain appears high enough to create a tax bill. It is higher than today’s standard deduction plus the 0% long-term capital gains bracket:

$32,200 + $98,900 = $131,100

So, should they expect to pay taxes?

In this case, no.

The challenge with estimating income taxes in long-term financial projections is that the IRS adjusts tax brackets and the standard deduction for inflation every year. A $131.1K threshold today would be equivalent to approximately $181.4K in 2037, assuming 3% annual inflation.

As a result, the user’s estimated $172K realized gain is fully covered by the inflation-adjusted standard deduction and 0% long-term capital gains bracket in 2037.

Takeaway

The model applied inflation-adjustment logic to estimate the potential capital gains tax. However, it did not clearly communicate that logic to the user, which made the result feel suspicious.

To address this, we added a Tax Details button to help users review the assumptions behind the calculations and verify the results. To get there, click the Taxes tab and then the View Tax Details button.

The button opens a new screen within a projection with a Sankey diagram. The diagram breaks down income taxes by category:

FICA Tax
Federal Tax
State Tax
Foreign Tax (if enabled)

For each tax category, it shows how much of each tax bracket is filled and how much tax is paid within that bracket in that specific year.

To make the assumptions easier to review, we also added tables below the Sankey diagram showing the standard deduction and the actual tax bracket ranges used by the model for that year.

Ordinary income and long-term capital gains tax brackets are shown separately because they follow different tax rules and thresholds. This makes it easier to understand how the model calculates taxable income, applies deductions, fills each bracket, and estimates the resulting tax liability.

The same view is also available for state taxes.

Visualize Your Own Future

If you have been looking at your own projections and wondering whether the results are correct, you can now dive into the new Sankey diagrams and tax bracket tables in your Nauma account. Whether the model shows a $0 tax bill or a significant liability, you now have the tools to see exactly why those numbers exist.

Nauma is supported entirely by its users with no commissions and no affiliate incentives. It is designed to give people clarity on taxes, equity compensation and retirement planning.

Why Financial Goals Should Come Before Investment Strategy

Nauma — Fri, 08 May 2026 01:58:23 GMT

Financial goals are often mentioned in investing and tax discussions, but rarely well defined. For most families, these goals are too vague to actually influence a portfolio or a tax strategy. Unless a family works with a professional financial planner and pays tens of thousands of dollars, their plan and financial goals are likely non-existent.

This creates an unfortunate reality: most people are stuck with cookie-cutter advice and adopt a “more is better” approach: maximizing income and investment returns, without considering the trade-offs.

The problem with chasing “more” is that it eventually buries our purpose. Chasing higher income often translates into doing work that is not aligned with our internal values and often requires doing more of that over time. Higher investment returns come with additional risk and volatility which create stress and ongoing concerns about the markets. By constantly looking for the next peak, we fail to enjoy the present and miss the life we’re working so hard to fund.

Discussing portfolios, tax brackets, or estate planning is meaningless until a family articulates their priorities and both partners are aligned. Defining direction takes time and effort, but gives clarity, lowers stress, and ironically, yields better long-term financial results.

The Failure of the “Single Portfolio”

The standard financial planning approach today is the “Single Portfolio”: combining everything together, creating one net worth projection, and running a Monte Carlo simulation for the entire household. This solves the basic question of whether the family has enough, but it ignores the fulfillment problem. The Single Portfolio approach offers little guidance on how to actually use wealth to create a meaningful life while the family still has the health to enjoy it.

It’s hard to tell from a 94% portfolio success rate whether the family can upgrade their house next year, send their kids to a more expensive school in two years, or continuously support a charity they care about. The number does not reveal whether the children are eventually receiving an inheritance aligned with the family’s expectations around generational wealth.

A lack of understanding and uncertainty makes families more conservative. As a result, they stay longer at jobs they no longer need, spend less time with their aging parents, and avoid taking risks such as changing careers or starting their own businesses.

Modern Financial Planning

As prosperity continues to grow, more families are expected to worry less about whether they will have enough money in retirement and more about how to manage their wealth effectively to maximize life experiences. Even today, many families struggle to navigate between under-saving and over-saving, and it is not a trivial problem for most families.

One of the biggest risks facing high-income families today is reaching their 90s with millions of dollars and realizing they could have had more meaningful experiences earlier in life: when they were younger, their loved ones were still around, and they still wanted to do those things.

Separating financial goals helps.

By estimating how much of the family’s current assets should be allocated toward each goal, they can identify their “Not Allocated Funds.” Seeing their “Not Allocated Funds” today helps families realize they can do more. It is often the most powerful insight, more important than any tax optimization or investment strategy that tends to dominate financial conversations.

Aligning Investment Risk & Taxes

When we treat the entire net worth as a single portfolio, we are forced into a middle-of-the-road risk profile that is often too conservative for long-term legacy goals and too aggressive for short-term needs. This “average” approach creates constant anxiety: a market downturn feels like a threat to next year’s vacation, even though the funds for that vacation should never have been exposed to the S&P 500 in the first place.

By providing tax-advantaged accounts with different tax treatments for specific goals such as retirement, education, healthcare, and charity, the government makes financial planning more complicated. In a “Single Portfolio” framework, it becomes difficult to determine an optimal contribution strategy because some accounts are tax-free while others are tax-deferred. The complexity of the U.S. tax code makes financial planning harder, but separating financial goals reduces this complexity and helps lower the risk of both under-saving and over-saving while taking tax provisioning into account.

Account Organization

It is impossible to know whether a portfolio is “good” if we do not understand the purpose of the money and when it will be used. Once goals are mapped to specific accounts, families can evaluate whether their portfolio is actually aligned with those goals.

While some people prefer the simplicity of having fewer accounts, the clarity gained from goal-based organization usually far outweighs the administrative burden of managing a few additional accounts.

We are receiving feedback from people who say that organizing their investment accounts by goal has helped reduce stress, especially during major life transitions such as leaving high-paying jobs and becoming households that rely on savings to cover expenses. Having dedicated accounts with clear estimates helped them adopt a “set it and forget it” approach.

Managing an account associated with five different goals, on the other hand, is harder:

Why Goal-Based Planning Is Not Widely Adopted

Despite its benefits, goal-based planning is still not the standard approach for most families.

For DIY investors, the challenge is rarely motivation. Many people genuinely want to make thoughtful decisions about their future, but lack the tools and expertise required to estimate future expenses and construct investment strategies aligned with different goals. Estimating retirement spending, future education costs, healthcare needs, taxes requires a level of planning that most spreadsheets and budgeting apps simply do not provide.

As a result, many investors default to a simple approach: maximizing savings and hoping that “more” will eventually create security. Unfortunately, we do not see this approach working well in practice: people with more than $15M in net worth ask questions very similar to those asked by people with $1M in net worth: “Do I have enough?” Stress does not go away with higher net worth.

The traditional wealth management industry has a different problem: incentives. Most wealth managers operate under the Assets Under Management (AUM) model, where revenue grows as client portfolios grow. This naturally creates a system that rewards asset accumulation and long-term portfolio growth above almost everything else.

Under this model, advising a client to spend more, retire earlier, help their children financially, take a career break, or pursue a lower-paying but more meaningful path can directly reduce the advisor’s future revenue. Even when advisors genuinely care about their clients, the structure itself creates a bias toward preserving and compounding assets indefinitely.

Goal-based planning requires a fundamentally different mindset. Instead of treating wealth accumulation as the final objective, it treats money as a tool designed to support specific outcomes, experiences, and values throughout a family’s life.

Nauma is supported entirely by its users with no commissions and no affiliate incentives. It is designed to give people clarity on taxes, equity compensation and retirement planning.

“Average” Life Expectancy in Financial Planning

Nauma — Wed, 29 Apr 2026 23:30:35 GMT

I’ve recently come across several financial plans on our platform where 80, or a similar age, was used for the plan’s duration. When I asked how this value was decided during the review, the owners said they simply relied on average life expectancy.

The average life expectancy in the US currently sits at around 79 years (2024 data). This breaks down to 81.4 years for females and 76.5 years for males.

But is it actually a good idea to use average life expectancy when building a financial plan?

To answer this question, I built a chart.

I took the data from the Actuarial Life Table 2022 available on the Social Security Administration website and created a chart that calculates the probability of family members being alive in any given year based on their birthday and gender. The chart also calculates the “family probability”, the likelihood of all selected family members being alive in a given year.

Then I considered a sample family: Steven (49) and Sophia (47), who also have parents Li (80) and Chen (77). Sophia turns 79 (the average life expectancy) in 2057. Assuming both Steven and Sophia have average health, here are their odds of making it to 2057:

Probability both Steven and Sophia make it: 36.8%
Probability only Steven makes it: 52.5%
Probability only Sophia makes it: 70.1%

Now we can see how misleading the “average” can be. Financial projections using 79 as an end date can create significant issues, particularly for younger female spouses, leading to flawed financial decisions.

When it comes to financial planning, it is always better to be conservative. That means planning for:

Slower income growth
Higher expenses
Lower investment returns
A longer life

It’s also worth noting that life expectancy is likely to increase. Currently, the United States has the lowest life expectancy among peer countries; as healthcare evolves, that gap may close, pushing these “averages” even higher.

One More Insight: The Value of Time

When families add their parents’ information to Nauma, they often discover an insight that goes beyond retirement balances. It’s a sobering reminder of how limited our time with our parents actually is.

Take Steven’s parents, Li (80) and Chen (77). While Steven and Sophia are focused on their own “average” life expectancy decades away, the chart reveals a much more immediate timeline for the people they care about. It’s easy to assume our parents will always be there for the next big milestone, but the actuarial math tells a different story.

For Li and Chen, the probability that both will still be around drops significantly in just a few short years:

2028: 82.3% (Both are likely still here)
2031: 56.5% (A coin flip)
2034: 33.7%
2037: 16.3%

Seeing these numbers usually shifts the conversation. It moves from “how do we fund our 80s?” to “how do we make the most of the next five to ten years while everyone is still here?”

This data isn’t meant to be grim, but to help families prioritize the time they have left.

Setting Life Expectancy in Nauma

If you are just starting to use Nauma, you can set the Expected Lifespan for each family member in their Family Profile. Newly created financial projections will use these values to create corresponding milestones and set the correct duration for your plan.

If you already have financial projections created, you may want to review and adjust them. To do this, go to Financial Projections -> Milestones and update the dates there.

Life Expectancy & Portfolio Success

When we set financial goals and look at “portfolio success” probabilities, it’s important to remember that these calculations only measure the likelihood of the portfolio not running out of money. They don’t account for whether you will actually need the money.

For example: If our retirement fund has a 93% probability of success and the probability of both partners being alive in 2068 is only 5%, then the chance of the portfolio failing while both partners are alive is very small: 7% x 5% = 0.35%.

However, the probability that only Sophia is alive in 2068 is 33.1%. Therefore, the probability that the portfolio fails while Sophia is still alive is 7% x 33.1% = 2.3%.

When doing these calculations, you must keep both probabilities in mind to understand your true overall risk.

Planning for the “Tail End”

As the data shows, there is a significant chance that those relying on statistical averages will outlive their savings. To build a plan that stands the test of time, keep these principles in mind:

Plan for Longevity, Not the Median: The “average” life expectancy as a starting point, building a “buffer” into your plan by projecting into your 90s (or beyond) will help reduce the risk of outliving assets.
Account for Joint Probability: If you are part of a couple, the odds of at least one of you surviving well past the average are much higher than for a couple. Your plan needs to protect the surviving spouse.

If you’re using Nauma, take a moment today to review your family profile. Adjusting your expected lifespan to a more conservative age, such as 90 or 95, can provide a much clearer picture of your long-term success rate.

Integrating VPFs into a Holistic Financial Plan

Nauma — Tue, 21 Apr 2026 01:41:16 GMT

I continue to study how advanced tax planning strategies affect financial planning and portfolio risk management. In this blog post we’ll deep dive into risk management when using Variable Prepaid Forward (VPF) contracts.

If you would like to make yourself familiar with VPFs first, I recommend reading our previous posts. They should give you a good overview and prepare for this blog post:

VPF is a complex strategy which affects both portfolio expected returns and volatility. It’s often paired with other strategies such as Long/Short Direct Indexing which intentionally increases idiosyncratic risk within the portfolio to maximize tax-loss harvesting opportunities. This complexity makes answering the question “How much do I need to allocate for my retirement?” more difficult.

Most financial planning software assumes that an investment portfolio is some combination of stocks and bonds with constant standard deviation (volatility). It’s not the case when VPF contracts are used.

How do we estimate Portfolio Success and decide the initial fund allocation for a retirement fund if we’re enrolled in a VPF contract?

Risk & Returns Tradeoffs

Both portfolio expected returns and volatility affect the size of our retirement portfolio needed to cover our future living expenses:

Higher investment returns allow us to reduce initial fund allocation.
Higher volatility in the portfolio requires us to increase initial fund allocation.

In the accumulation phase, volatility is our friend (dollar-cost averaging, direct indexing), but in retirement, it’s one of the biggest threats. If the market drops while we are working, we simply wait for it to recover. But if the market drops while we are withdrawing funds for our lifestyle, we are effectively “locking in” those losses.

Expected returns and volatility have positive correlation, but the relationship is not linear and complex strategies such as VPF make both expected returns and volatility change over time.

VPF Volatility

In my previous post Analyzing VPFs as a Leveraged Diversification Tool I argued that portfolio volatility is higher during the VPF contract. While it’s true, it’s overall portfolio volatility. It can be ignored because the stock used in the VPF contract is essentially locked and can’t be used to cover living expenses.

It’s only diversified portfolio volatility (money that we invested using prepaid amount) which matters. The exception is only the year when we deliver the concentrated stock to the bank: we may deliver fewer shares and by that get additional profit. We also may or may not need to liquidate part of the diversified portfolio to pay capital gain taxes after delivering the concentrated stock.

These events create a temporary spike in portfolio volatility that year. Liquid Portfolio volatility is the only volatility that the investor who uses the portfolio to cover their living expenses should care about.

VPF Monte Carlo Calculator

To understand the nuances of portfolio risk management when using VPF contracts, I implemented a VPF Contract Calculator. We use it to compare two hypothetical scenarios:

The investor sells their concentrated stock right away, pays taxes and invests in a diversified portfolio
The investor uses VPF. The cash payment received from the bank is invested in the same diversified portfolio

In the second scenario, the investor delivers a variable number of shares (depending on the stock performance in a simulation run), pays taxes and if there are any shares of concentrated stock left, they sell them and invest in the same diversified portfolio. If concentrated stock doesn’t perform well, the capital gain taxes are paid by selling some portion of the diversified portfolio.

We run Monte Carlo simulations for both cases and estimate the probability of the investor making more money when using VPF.

The calculator has three sections for input parameters. Each of them impacts the probability of the investor increasing their overall returns when using VPF contracts:

Main Parameters include the concentrated stock current value, cost basis and marginal LTCG tax rate. These parameters define the benefit of delaying paying capital gains. In the current version of the calculator we assume the current and future LTCG tax rates are the same, but in reality they may differ. Lower future tax rate significantly increases the benefit of VPF.
VPF Contract Parameters: You get them from the bank when you negotiate the terms. You can use SOFR Swap rates as an implied interest rate and then convert that into cash payment for a given VPF contract duration. Floor and Cap are parameters of the Collar.
Market Assumptions: Both concentrated stock and diversified portfolio expected returns & volatility impact the probability of the investor making money when using VPF contracts. The S&P 500 historical data is used for diversified portfolio default values. As I show it below, correlation between concentrated stock and diversified portfolio also affects the results.

The right panel shows a few charts:

Total Portfolio Value Over Time includes both concentrated stock and diversified portfolio value for VPF contract. Technically, the concentrated stock remains the part of your portfolio until it’s delivered to the bank.
Liquid Portfolio Value Over Time chart excludes the concentrated stock, but you can notice spikes in VPF portfolio value at “VPF Expiry” year. It’s caused by additional concentrated stock profit and taxes.
Liquid Portfolio Annual Return and Liquid Portfolio Annual Volatility: using monte carlo results we calculate average (mean) portfolio return and volatility. Monte Carlo is configured to run 10K simulations.

Annual Volatility Chart demonstrates the spike at “VPF Expiry” year I was discussing above:

The most important value we’ll be looking at when analyzing different VPF parameters is P(VPF beats Sell): probability that the investor makes more money when using a VPF contract. It represents the % of monte carlo runs when the VPF portfolio ended up having more money than a simple sale.

Important insights

Experimenting with model parameters gives us a few important insights which help us understand how VPF contracts work and avoid mistakes when negotiating contract terms with banks:

Concentrated Stock Expected Growth Rate: Using VPF contract makes sense only if the investor believes that the concentrated stock will continue to grow over the next N years. If we set both return and volatility to 0% for concentrated stock, P(VPF beats Sell) = 30.5% for the given set of parameters.

Why: delaying capital gains is beneficial if saved money continues to grow.

Duration of the VPF contract. Longer VPF contract duration increases the chances of the investor making money.

2 Year contract: P(VPF beats Sell) = 65.5%
4 Year contract: P(VPF beats Sell) = 83.0%
6 Year contract: P(VPF beats Sell) = 92.0%
8 Year contract: P(VPF beats Sell) = 95.7%

Why: Longer durations maximize the benefit of tax deferral. The longer you delay the capital gains tax, the more time your ‘prepaid’ cash has to compound in a diversified portfolio.

Important: VPF Cash Payment will reduce as the duration of VPF contract increases. The real P will probably be lower.

Cost Basis of Concentrated Stock. VPF is more beneficial for concentrated stock with a low cost basis and investors with high marginal LTCG tax brackets. For the default parameters:

$250K Cost Basis: P(VPF beats Sell) = 87.9%
$1M Cost Basis: P(VPF beats Sell) = 80.8%
$2M Cost Basis: P(VPF beats Sell) = 63.1%
$3M Cost Basis: P(VPF beats Sell) = 50.4% (~ coin flip)

Why: the lower cost basis, the higher taxes we pay when we sell the stock.

Floor, Cap and Cash Payment. Lowering the Floor (the strike price of the put protection) appears to increase the probability of success in the model:

100% VPF Floor: P(VPF beats Sell) = 88.3%
80% VPF Floor: P(VPF beats Sell) = 95.0%

In practice, it doesn’t happen. In the real world, the Floor, Cap, and Cash Payment act as three corners of a triangle. If you move one, the others must move to compensate.

The bank’s upfront cash payment is essentially the Present Value (PV) of the Floor.

A 100% Floor means the bank is collateralizing the full current value of the stock, allowing them to give you a higher cash payment (85-90%).
An 80% Floor means you are only collateralizing 80% of the value. In this scenario, the bank will give you significantly less cash upfront (65-70%).

It is very easy for a bank to offer terms that look ‘safer’ on the surface but actually undermine the strategy, making it less likely that the VPF will outperform a simple sale. When evaluating a contract, never look at the Cap or Floor in isolation, always treat the Prepaid Cash Percentage and the Floor as a linked pair.

VPF & Financial Planning

Now when we understand how expected returns and volatility change over time when using VPF contracts, we can start integrating this strategy into our financial plan. I believe that the right approach to integrate complex tax planning strategies in a financial plan is importing calculated expected return and volatility for each year and then testing that portfolio in a Monte Carlo simulation against expected contributions & withdrawals and initial fund allocation.

Conclusion

Navigating the intersection of tax optimization and retirement readiness requires moving beyond the static assumptions of traditional financial modeling. As we have explored, VPF contracts introduce a unique volatility profile, characterized by a period of relative stability in the liquid portfolio followed by a sharp “settlement spike” at expiry.

The Monte Carlo analysis highlights that the effectiveness of a VPF is not a binary “good or bad” decision; it is a highly sensitive calculation that depends on your specific cost basis, the duration of the contract, and the negotiated collar terms.

Ultimately, VPFs are sophisticated tools for deferred tax liability management and leveraged diversification, but they cannot exist in a vacuum. Integrating year-by-year volatility and return expectations into a holistic financial plan is the only way to ensure that while you are optimizing for taxes today, you are also protecting your lifestyle against the sequence of returns risk.

Nauma is supported entirely by its users with no commissions and no affiliate incentives. It is designed to give people clarity on taxes, equity compensation and retirement planning.

Important Disclosures & Risk Warnings

VPF contracts involve significant risks, including counterparty risk, liquidity risk, and the potential for total loss of the underlying collateral. These strategies are generally intended for sophisticated, high-net-worth investors.

The Monte Carlo simulations presented are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Actual results will vary, perhaps significantly.

This post is for educational purposes only. Always consult with a qualified tax professional before entering into a VPF or Direct Indexing strategy.

Analyzing VPFs as a Leveraged Diversification Tool

Nauma — Fri, 03 Apr 2026 20:18:43 GMT

In the previous post, we discussed how using a Variable Prepaid Forward (VPF) contract can help investors looking to use highly appreciated stock to cover their large upcoming expenses. It could be buying a property, starting a new business or gifting assets to heirs. We are talking about $1M+ transactions.

A VPF reduces downside risk relative to simply holding the appreciated stock and using a Securities-Based Line of Credit (SBLOC) and allows delaying the payment of capital gain taxes. You can learn why delaying realizing capital gains is important here.

At the same time, VPF should be considered as a riskier strategy than simply selling the stock today to cover the large expense. If the stock doesn’t grow in the next N years (the duration of the VPF contract), the investor loses money equal to the VPF discount (normally 15-20%).

VPF Contracts as a Diversification Tool

But what happens if the investor enters into a VPF contract, but instead of using the money received from the bank to cover their upcoming expenses, they invest the proceeds? How much investment risk do they actually take?

It turns out that in this case the VPF contract acts as leverage: the investor continues to own the concentrated stock for the next N years, and at the same time they are also invested in the market. It could be a simple total stock market fund or more aggressive Long/Short direct indexing strategy, but the important thing is that they are invested twice:

Concentrated Stock: investment risk is limited by Floor, upside is limited by Cap
Diversified Portfolio: No Floor and Cap but portfolio is diversified

The investor should know that during the VPF contract they are taking more investment risk in their portfolio. Depending on their financial goals (their future expenses) and their current savings, exposing themselves to additional investment risk may be either a good or bad idea.

When estimating potential benefits of using the VPF contract as a diversification tool, the investor needs to take into account not only the expected return of concentrated stock but also expected return of the diversified portfolio. These two may or may not move in the same direction and it significantly impacts the benefit of the strategy:

The investor makes money using a VPF contract only when the concentrated stock is expected to grow. If the stock remains flat or drops significantly in the next N years, the investor loses money equal to VPF discount minus diversified portfolio return. Consider this example:

Stock Provided to Bank = $1.3M
Cost Basis = $250K
VPF Cash Payment = 85%

if the concentrated stock does not grow (0%), but diversified portfolio generated 10% annually, the total loss is $1.3M x 15% - $54.2K = $140.7K, where

$1.3M x 15% = VPF fees
$54.2K = 10% annual return generated by diversified portfolio over 5 years

What is the best use case for VPF?

Using this strategy makes sense when the investor thinks that the concentrated stock will continue to go up in the next N years (duration of the VPF contract), but they can’t accept the amount of risk that comes with holding this individual stock. There are two components when it comes to risk management

Risk tolerance - how much risk the investor is comfortable taking emotionally (psychology).
Risk capacity - how much risk the investor can afford to take financially (financial goals).

For instance, if the investor has a net worth of $8.8M and for all of their financial goals they need $6M today, they can’t have a concentrated position of $4M. If this concentrated stock drops 90% and never recovers, it’ll affect the investor’s financial goals.

In the next example, if the concentrated stock appreciates 10% annually, but the diversified portfolio stays flat (0% annual return), the investor receives extra $344.7K profit after fees when using VPF compared to simply selling the stock today. Why? In the model the stock continues to appreciate 10% annually and money not paid as taxes continues to appreciate over the next 5 years.

Yes, the investor will pay more in taxes eventually ($563.6K 5 years from now instead of $323.4K today) but even with that they make more money.

Benefits, Investment Risk and Fees

When we make a decision about using a financial strategy or product, we need to understand all three aspects:

Expected Benefit
Investment Risk
Fees

VPF benefit depends on the current value and cost basis of the concentrated stock, marginal long term capital gain tax rate, expected return of the concentrated stock in the next N years and parameters of the VPF contract (floor, cap, duration and cash payment). A simple deterministic model to estimate the benefit can be built in Google Spreadsheets by comparing two scenarios:

Simply sell the concentrated stock today and pay taxes
Use VPF contract and pay taxes N years from now when delivering the stock

In contrast to most other financial products, VPF contract fees are the easiest to calculate: it’s the difference between the current stock value and cash payment you receive in return today from the bank. The 15-20% discount represents the fees. The fees are determined by the duration of the contract and interest rates.

Calculating the investment risk is the hardest part when making a decision to use VPF contracts in the portfolio. During the contract (N years) the investment risk is elevated, because the VPF contract acts as leverage and the portfolio contains approximately 54% concentrated stock and 46% diversified portfolio (only 85% of current concentrated stock is delivered by the bank as a payment and then invested in a diversified portfolio).

There is a formula to calculate the overall portfolio volatility (measure of investment risk) for N stocks:

where,

w[i] = weight of stock i
sigma[i] = standard deviation of stock i
ρ[i,j] = correlation between stock i and stock j

The challenge is that by setting Floor and Cap for the concentrated stock we affect both standard deviation of the stock and its correlation with other stocks in the portfolio. The right (and simplest) approach would be to run Monte Carlo simulation with Cap and Floor, and it’s a topic for a separate blog post.

To get started, the investor should know that their investment risk (standard deviation) in the portfolio is higher during the VPF contact:

Conclusion

The Variable Prepaid Forward (VPF) contract is a sophisticated financial instrument which could be used by investors managing concentrated, highly appreciated stock positions. It enables the transition toward a diversified portfolio while deferring the significant capital gains taxes.

The Tax Arbitrage: The primary “win” is keeping money that would have gone to the IRS working for you for an additional N years. If your diversified portfolio or the concentrated stock performs well, the compounding effect on those deferred taxes can be substantial.

Leverage: VPF isn’t just a hedge, it’s a form of leverage. By reinvesting the proceeds while still holding the capped/floored stock, you are effectively “double-exposed.” This is why understanding your Risk Capacity (how much you can afford to lose without ruining your goals) is important as well as your emotional risk tolerance.

The Growth Prerequisite: A VPF is rarely a winning strategy for a stock you expect to stagnate. Because of the 15-20% fee, you generally need the concentrated stock to appreciate or the diversified portfolio to significantly outperform the cost of the contract to break even.

Nauma is supported entirely by its users with no commissions and no affiliate incentives. It is designed to give people clarity on taxes, equity compensation and retirement planning.

Using Claude to File Taxes: Does It Save You Time or Money?

Nauma — Mon, 30 Mar 2026 04:56:04 GMT

I spent some time today experimenting with claude-tax-filing skill to generate a tax return. Here are my takeaways:

It is remarkable that the tool can generate legit PDF forms.
There are accuracy issues and mistakes in the generated forms.
This UX may work only for those who try to avoid paying filing fees (aside from the Claude subscription and postage) and have a significant amount of time to review, correct, sign and send these forms.

Running Claude

I used the simplest possible test case: Single, no children, and only one W-2. I excluded 1099s, K-1s, or any other complexities.

To begin, you simply run Claude and instruct it to use the skill. It then guides you through a series of predefined questions, including where to find your W-2, 1099, and other forms on your local machine.

use this skill: https://github.com/robbalian/claude-tax-filing/blob/main/skills/tax-filing/SKILL.md

Note, that you can’t use this skill in the browser because of security limitations:

I currently use a $20/month Claude subscription, which is usually sufficient for my tactical needs like brainstorming technical designs or refactoring code. However, generating this “simple” return (consisting only of Form 1040 and Form 540) consumed 95% of my daily quota. This suggests that for a tax return with any real-world data, a $200/month subscription would likely be necessary.

It took Claude about 30 minutes to follow the instructions in the skill file, which included:

Researching IRS.gov and FTB.ca.gov to retrieve federal and state tax brackets and standard deductions.
Computing Federal and State returns using Python.
Downloading blank PDF forms from the IRS website.
Filling the forms using the computed data.

I ran Claude without the --dangerously-skip-permissions flag, meaning I had to manually review and confirm every script and bash command execution.

Reviewing The Results

While the Federal return looked accurate for my simple case, the California State Return (Form 540) contained a notable error. Claude mistakenly entered the total tax which belongs on Line 64 into Line 40 (Nonrefundable Child and Dependent Care Expenses).

Looking at the generated Python script, the bug was easy to spot:

As long as a human is responsible for verifying the data and fixing bugs, this is a manageable issue. However, the bigger hurdle is the final step. Claude suggests printing the forms, signing them by hand, and mailing them to the IRS. Anyone who has dealt with the IRS knows that preparing a physical package, driving to the post office, and paying for certified mail is a time-consuming chore.

The Value Proposition

It is hard to justify this workflow when TurboTax can handle everything, including e-filing and instant notifications of acceptance, in one click for roughly $200.

For anyone earning more than $50/hour, the math doesn’t add up. Between a $200/month Claude subscription, $20 in postage, and 2–3 hours of manual verification and mailing, the “free” route becomes very expensive. For reference, the median Google Software Engineer salary in the Bay Area is approximately $330k/year, or roughly $158/hour.

Data correctness, e-filing, and time savings are TurboTax’s core value propositions, and Claude doesn’t disrupt them yet. Until the IRS allows everyone to e-file directly and Claude guarantees filing accuracy, TurboTax’s business model is safe.

ESPP vs. Mega Backdoor Roth: The Problem With “Always Take the Free Money”

Nauma — Fri, 27 Mar 2026 18:51:46 GMT

Families with high incomes and disciplined spending should ideally leverage every available wealth-building tool from 401(k) matching and ESPPs to tax-advantaged accounts like the Roth 401(k) and Roth IRA. However, cash flow constraints often force a choice. Because strategies like the ESPP and Mega Backdoor Roth require direct payroll deductions, a limited paycheck or competing financial priorities may make it impossible to maximize both. In these cases, families need to choose a strategy they want to prioritize.

Online guides including FAANGFire often suggest prioritizing ESPP arguing that it’s basically free money. But does the greedy algorithm always work when we plan our contributions?

The Hidden Cost of ESPP

The problem with the Employee Stock Purchase Plan (ESPP) is that while it may look like “free money,” it can distract from a more impactful tax strategy: the Mega Backdoor Roth.

People who prioritize ESPP over the mega backdoor may be missing two key points:

If they sell the stock without waiting two years from the grant date, the gain is taxed as ordinary income.
The proceeds often end up in taxable brokerage accounts, where future gains are also taxed.

In reality, the decision between ESPP and the mega backdoor depends on a family’s needs. If they don’t need access to the money anytime soon, focusing on the mega backdoor and ignoring ESPP might be a better strategy if they can’t afford to do both.

Consider this example:

Family lives in California
Household income is $600K
Marginal ordinary income tax = 44.3% (federal 35%, CA 9.3%)
Marginal capital gain tax = 33.10% (federal 20%, CA 9.3%, NIIT 3.8%)
Employer offers 15% ESPP discount
Employer offers a 401(k) plan with mega backdoor support

To make two scenarios comparable, we assume that the family can allocate only $21,250/year from their paycheck and must choose between ESPP and the mega backdoor. Here’s how the numbers work out over 15 years:

Scenario 1: Do Mega Backdoor for 15 years using total stock market index

Total contributions over 15 years = $318,750
Total gains after 15 years = $432,517
Taxable gains = $0
Total portfolio value = $751,267

Scenario 2: Do ESPP for 15 years, sell ESPP as it vests and buy Total stock market

Total Contributions into ESPP = $318,750
ESPP Distribution = $375,000
Contributions into taxable account (after tax) = $350,081
Total gains after 15 years = $450,112
Capital Gain tax paid when withdrawing money = $148,987
Total value after tax = $676,125

Mega backdoor comes out ahead for this family if they don’t need short-term liquidity:

Higher portfolio value: $751K vs $676K
Money ends up in a tax-free vs taxable account
Less hustle: No need to sell ESPP and buy VTI every vest

Now let’s imagine, the family doesn’t need to sell the assets and use the money immediately after 15 years. They quit their jobs but keep the money invested without touching for another 15 years.

Scenario 1: Mega Backdoor portfolio

Total portfolio value at year 15 = $751,267
Cost Basis = N/A
Growth Rate = 10.13%
Total portfolio value at year 30 = $3,194,323

Scenario 2: ESPP Portfolio in Taxable Account

Total portfolio value at year 15 = $825,112
Cost Basis = $375,000
Growth Rate = 10.13%
Total portfolio value at year 30 = $3,508,306
Capital Gain tax paid when withdrawing money = $1,037,124
Total value after tax = $2,096,181

The difference between the two scenarios would be $3.1M - $2M = $1.1M after tax

Look Back Provision Changes The Math

The previous comparison assumes a flat 15% discount on the current stock price. However, most top-tier ESPP plans include a “Look-back” provision. This allows you to purchase the stock at a discount of either the price at the beginning of the offering period or the end, whichever is lower. In a rising market, this isn’t just a 15% gain, it can be a 50% or even 100% gain in a single six-month window.

Among top companies, only Microsoft doesn’t have a “Look-back” provision.

How can it be Mitigated

The “paycheck squeeze” is the primary barrier preventing families from maximizing both strategies simultaneously. Once you understand the potential challenges and long-term effects of different strategies on your wealth, you can build a more effective plan.

If your base salary cannot support the combined deductions for both a maximum ESPP and a Mega Backdoor Roth contribution, you have a few options:

Pick one strategy that benefits your family the most. For some families it would be ESPP, for others it might be a mega backdoor. Understanding long-term trade-offs can help you make a better decision and avoid local optimums when building your wealth. This is the simplest approach.

Use the “ESPP Carousel”. ESPP is a liquid asset that can be used 6 months later to cover living expenses. Once the first ESPP period vests, sell the shares immediately. Use those proceeds to supplement your next six months of suppressed paychecks. The biggest hurdle is the initial 6-month accumulation period where your take-home pay is significantly reduced.

401k Bonus Front-Loading. Many FAANG-style companies allow you to set a separate, higher contribution percentage for your annual or sign-on bonuses. You can direct your performance bonus toward your 401(k) and Mega Backdoor Roth. By hitting your limits early in the year, you free up your remaining paychecks to focus entirely on ESPP.

Use RSU to cover living expenses. If you receive Restricted Stock Units, instead of thinking of them as your savings, you can treat them as a “paycheck supplement.” This allows you to “teleport” your RSU value into a tax-free Roth environment.

Conclusion

An ESPP is a great benefit, but if you find yourself in a situation where you need to choose between an ESPP and a Mega Backdoor Roth, you should be aware of the long-term benefits of the Mega Backdoor Roth. The ‘Greedy Algorithm’ sometimes fails when it optimizes for an immediate 15% gain while ignoring the decades of tax-free compounding offered by a Mega Backdoor Roth.

P.S. If you want to explore these trade-offs using your own inputs, tools like Nauma are designed to help you build and stress-test different scenarios.

For those who want help going deeper, we also work with a small number of clients to build custom models tailored to their career, family, and risk profile. We currently have limited availability in May and June. Details are here.

The Hidden Risk in “Safe” Investment Portfolios

Nauma — Fri, 20 Mar 2026 20:32:05 GMT

A beginner investor decided to set up a small educational fund in July 2021. They planned to earn an MBA in three years and expected to use the money in 2024. They took a standard Vanguard quiz, which suggested creating a conservative portfolio with 20% stocks and 80% bonds given their timeline.

The investor followed the Boglehead approach and chose low-cost broad-market index funds:

BND - Vanguard Total Bond Market Index Fund
VTI - Vanguard Total Stock Market Index Fund

Between July 2021 and April 2024, BND lost 18.48% and VTI gained 11.07%. The conservative portfolio, despite the investor’s attempts to preserve capital, lost 12.57%.

It’s a tough pill to swallow when an investor follows a “conservative” playbook and still ends up in the red. They did everything by the book: low-cost index funds, a Boglehead philosophy, and a high bond allocation to “protect” their capital for a short-term goal. Why did this happen?

Interest Rates and Bonds

Between 2021 and 2023, the Federal Reserve aggressively raised interest rates to fight inflation. This change broke the inverse correlation between stocks and bonds and created a textbook effect: when interest rates go up, existing bond prices go down.

In July 2021, interest rates were near zero. When the Federal Reserve began aggressively raising rates in 2022, existing bonds (like those in BND) became less valuable because new bonds were being issued with much higher payouts.

This investor fell into a trap that catches many: confusing “conservative” with “risk-free.” While bonds are generally less volatile than stocks, they carry a specific type of risk called interest rate risk, which is measured by a metric called duration.

The duration of a bond fund measures its sensitivity to interest rate changes. A rule of thumb is that for every 1% rise in interest rates, a bond fund will lose value equal to its duration. Because rates rose so quickly and significantly in 2022, BND took a massive hit that its small dividend yield couldn’t offset. In 2021, BND had an average duration of approximately 6.7 years.

6.7 years x 5% rate hike = 33.5% theoretical price drop.

While the interest payments (yields) collected along the way helped offset some of that loss, the sheer speed of the rate hikes led to the worst year for bonds in modern history.

Short-Term vs. Long-Term Bonds

The difference between bond types usually comes down to the trade-off between yield (the paycheck) and volatility (the price swings).

How to Avoid This

The investor’s mistake wasn’t buying bonds; it was buying the wrong duration for their timeline. This is a concept called Liability Matching. If you need the money in three years, you have a “3-year liability.” If you buy a fund like BND with a 7-year duration, you are mismatched. You are taking seven years’ worth of interest rate risk for a three-year goal.

Some options how it can be avoided:

Match Duration to Timeline: If your goal is two years away, your bond duration should be roughly two years. Look for “Short-Term Bond Funds” (like BSV) instead of “Total Market” funds.

Use Defined-Maturity Instruments: For a 2024 goal, the investor could have bought a Certificate of Deposit (CD) or a Treasury Bill that matured in early 2024. This locks in a guaranteed return and eliminates price volatility.

Cash is a Position: For goals less than two years away, High-Yield Savings Accounts (HYSA) or Money Market Funds are often “safer” than bond funds because their duration is effectively zero.

Conclusion

The Vanguard quiz logic relies on a traditional premise: Bonds = Stability and Stocks = Growth. While this is usually true, it assumes a “normal” interest rate environment. What occurred between 2021 and 2024 was an outlier—one of the worst bond markets in decades.

This didn’t happen because the investor did something “wrong.” They followed a standard framework. It happened because interest rates rose faster than expected, and the investor held “total market” bonds with a high duration, making them highly sensitive to those rate hikes.

To avoid this in the future, investors should focus on Liability Matching. By choosing assets that mature exactly when the bills come due—such as T-Bills, CDs, or ultra-short-term bond funds—you remove the guesswork. This ensures that a “conservative” portfolio actually functions as a “protected” one.

I’m Alex Sukhanov, founder of Nauma, a financial planning platform built for people in tech and high-net-worth families. I previously worked at Google. I started Nauma to help people think clearly about complex financial decisions while avoiding hidden incentives, commissions, or generic advice to just invest more.

Nauma is supported entirely by its users with no commissions and no affiliate incentives. It is designed to give people clarity on taxes, equity compensation, retirement, and planning for the future.

Updating Your Financial Plan After a Layoff

Nauma — Sun, 01 Mar 2026 21:46:18 GMT

Families who have a financial plan in place experience less stress if they are affected by layoffs. Understanding their financial situation helps them think clearly and more broadly about their career and consider less traditional paths such as taking time to recharge, learning new skills and trying an idea they’ve always been thinking about.

Uncertainty and lack of understanding of the financial situation, on the other hand, push people without a plan to find another job as quickly as possible. In the challenging market like today (February 2026) it’s hard. The number of available well-paying and interesting positions is far less than the number of people looking to get them. High competition turns into a frustrating experience: days spent filling meaningless online applications and no interviews.

Layoffs are stressful and emotional. No matter how prepared someone is, it can still feel like rejection. Going through a prolonged job search in an extremely tough market can further erode confidence. This vulnerability makes it easy to fall into a trap: accepting any available job, even if it’s not well aligned with career goals and professional interests.

Taking a step back and reassessing the situation is a better approach.

What is a Financial Plan?

A good financial plan includes a list of family goals and the actions the family should take to achieve them with a desired probability. That’s it.

If a family can clearly articulate:

Their major upcoming life events (having kids, moving parents, buying a house, starting a company)
How much each life event will approximately cost (accounting for inflation)
How much they need to save today to cover those future costs
How much they should reserve for taxes, given how they use tax-advantaged accounts
The probability of success based on their portfolio and contribution/withdrawal schedule

…then they have a plan.

Otherwise, the family is operating blindly, and major unexpected events such as layoffs, a market crash, or an unexpected loss can create significant stress which potentially lead to reactive mistakes.

Consider an example: The family lives in California. Their net worth (excluding primary residence) is $4.8M. They estimate that their total expenses to cover their retirement needs are $10.5M. To cover these future expenses, they already allocated $2.6M from current savings and plan to maximize their retirement contributions until 2036. They are looking to get an 8.2% target return.

The family separated their other goals. They have two children who will go to college. They estimated that the total school & college expenses are around $440K per child and in order to cover these expenses the family needs to allocate $228K-$275K from their savings and then contribute 10K+15K = $25K/year.

They also have other goals which they can see on the dashboard. This family has a plan.

Are We Trying to Predict the Future?

Financial Planning is not an attempt to predict future life events, investment returns, inflation and taxes. Instead, it’s an attempt to articulate family preferences, making sure that these preferences are reasonable and then identifying steps that should be taken to achieve the things they want. Financial planning is about setting direction and being intentional about money.

Most assumptions about the future are wrong and mistakes tend to accumulate over time. That said, regular updates of the financial plan help mitigate that and adjust the trajectory based on the information received from the real world. This approach makes financial plans useful and helps see issues early before they become big problems for the family.

If the plan doesn’t hold anymore, the family adjusts their financial goals by either:

changing their income (staying employed longer or changing a job)
adjusting expenses
changing investment risk and expected return in the investment portfolio

Updating Income & Expenses

Finding a new job takes time, and it’s a good idea to be conservative when doing financial planning and assume that finding a new job may take not 3-6 months but 12-18 months. For that, the family go to their financial projection and make the following changes:

Set the current job to stop now
Estimate and add severance package
Start a similar job 12-18 months from now

Companies normally share severance package details in advance. The family takes that information, estimates the severance payment and adds it as an ordinary W-2 income so the model could properly estimate their income taxes:

Before adding a new job, it’s a good idea to look if the projection still holds. Many people who spent decades in tech and worked at successful companies whose stock significantly appreciated are already financially independent, especially if they are willing to cut some of their discretionary expenses:

When the second job is added, the family can see their updated annual budget and reserve funds to cover the budget deficit. This specific family now has a small deficit in the next 2 years and they won’t be able to save:

2026 = $13K annual deficit (previously, $159K profit)
2027 = $35K annual deficit (previously, $178K profit)

Updating Financial Goals

Now, when the expected income is updated and future expenses are decided by the family, they want to recalculate their financial goals. From the projection, they already know that they won’t be able to save. That said, they still may contribute into their 401K and IRA accounts as the second partner still works and contributions to 401K reduce taxable income. That said, it’s going to be more of a transfer from taxable to tax-deferred and tax-free accounts rather than saving because the family is expected to spend more than they make in 2026/2027.

The family reduces their 401K contributions and plans to continue them starting September 2027. That makes the fund p5 percentile to run out of money in 2061. The family is targeting 95% success chance for their fund and fund duration is until partners turn 95 years old:

The family has three options now:

They either can increase their initial fund allocation
They can delay their retirement and withdrawals from the fund by 1-2 years
They can do nothing and accept lower chances (92%) of success instead of initially planned 95%.

The family has $1M not allocated towards any financial goal at the moment, so they simply can increase their allocation from $750K in taxable accounts to $800K to make their plan balanced again:

Then they review their Success Chances in Monte Carlo Simulation and adjust allocations and contributions if they think their success chances are too high or too low. It’s natural to want to have a 100% success rate when setting financial goals. But the truth is that when it comes to investing, 100% chances is a signal that the investor is either over-saving for their financial goal or under-investing which most of the time leads to regrets in the future.

As investors, we would like to take a reasonable amount of risk. For each financial goal and person it’s going to be different.

Preparing Funds

Now the family should prepare their funds and make sure their portfolio reflects that. For that they can go back to Financial Projection and review their “Withdrawals”. The family is expected to have a deficit of $13K in 2026 and $35K in 2027. But because they would like to continue contributing into their 401 and IRA accounts, they’ll need to withdraw $63K and $106K in 2026 and 2027 accordingly from their taxable accounts.

They know that they should keep these amounts in low-risk and liquid funds available for withdrawals:

Conclusion

A layoff is a significant life event, but it does not have to be a financial catastrophe. The difference between a stressful job hunt and a strategic career pivot lies in the clarity of the plan. As we have explored, a robust financial plan serves three critical functions:

Emotional Stability: It replaces the “scarcity mindset” with data, allowing you to reject unsuitable roles and wait for the right opportunity.
Agility: By modeling “what-if” scenarios (such as extended unemployment or reduced contributions), you can identify which levers to pull, whether that is cutting discretionary spending or reallocating taxable assets.
Intentionality: It forces a conversation about what truly matters. If a family discovers they are already near financial independence, a layoff might not be a setback at all—it might be the nudge needed to start a business or focus on long-delayed personal goals.

Ultimately, the best time to build a financial plan is when things are going well, but the best time to use it is when they aren’t.

P.S. If you want to explore these trade-offs using your own inputs, tools like Nauma are designed to help you build and stress-test different scenarios.

For those who want help going deeper, we also work with a small number of clients to build custom models tailored to their career, family, and risk profile. We currently have availability in April and May 2026. Details are here.

CRUT: Turning Concentrated Stock into Lifetime Income

Nauma — Fri, 20 Feb 2026 06:25:36 GMT

A Charitable Remainder Unitrust (CRUT) is sometimes suggested by financial advisors as a tool to diversify away from a concentrated stock position in a tax-efficient way while also providing lifetime income. This tool is often considered by charitably inclined families who are already planning to give away part of their net worth to causes they care about.

Here is how it works:

An appreciated asset is moved into an irrevocable trust
You receive a charitable income tax deduction in the year of the gift
The trust sells the stock and reinvests it without paying immediate taxes
Each year, you receive a fixed percentage of the trust value (usually 5-8%)
When you pass away, whatever remains in the trust goes to one or more charities you’ve designated.

Here are some nuances:

Once you fund a CRUT, the assets are no longer part of your estate and cannot be taken back. This can reduce estate taxes, but creditor protection varies by state.
CRUT distributions to beneficiaries are taxable. A CRUT generally defers capital gains taxes but does not eliminate them.
The charitable income tax deduction is based on the present value of the remainder interest going to charity. There is a specific IRS formula used to calculate it.
The maximum charitable deduction is limited to 30% of AGI when donating appreciated stock, and you can carry forward any unused portion for up to five years.
Your chosen charities receive the remaining funds only after the CRUT term ends, which may be 20+ years from the date the trust is established.

Why CRUTs Exist

Before 1969, charitable giving through trusts was something of a “Wild West,” leading to potential abuses in which donors took large tax deductions while charities ultimately received very little. To address this, Congress passed the Tax Reform Act of 1969. This landmark legislation created the formal structures we use today, including the CRUT.

The government had two main goals in mind:

Encourage Philanthropy: Lawmakers wanted to provide an incentive (significant tax deductions) to encourage wealthy individuals to fund nonprofits and private foundations.

Ensure Integrity: By creating the 10% remainder rule, the IRS ensured that charities would receive a meaningful benefit. The law mandates that, based on actuarial calculations, the charity must be projected to receive at least 10% of the initial value of the trust.

Types of Charitable Remainder Unitrusts

Depending on your liquidity needs and the type of assets you are donating (e.g., public stock vs. real estate), you might choose one of these common structures:

Standard CRUT (S-CRUT): The most straightforward version. You receive a fixed percentage of the trust’s value annually, regardless of whether the trust earned enough income that year. If the trust doesn’t have the cash, it may have to sell assets to pay you.
Net Income CRUT (NICRUT): The trust pays the lesser of the fixed percentage or the actual net income earned by the trust. This is safer for the trust if it holds illiquid assets that don’t produce immediate cash flow.
Net Income with Makeup CRUT (NIMCRUT): Similar to a NICRUT, but if the trust pays out less than the fixed percentage in lean years, it “remembers” the deficit. It can make up those underpayments in future years when the trust has excess income.
Flip CRUT: This starts as a NIMCRUT (perfect for unmarketable assets like real estate) and “flips” into a Standard CRUT after a specific triggering event, such as the sale of the asset.

The CRUT Math

Suppose you have a $3M concentrated stock position with a $300K cost basis. You are a high earner in California with $750K of annual ordinary income.

Option A: Sell the Stock Personally

If you sell the stock today, you face a “triple threat” of taxes on the $2.7M gain:

Federal capital gains tax (20%) = $540K
Net Investment Income Tax (3.8%) = $102.6K
California state tax (12.3%) = $332K

Total tax: 36.1%, or approximately $974.7K

Net proceeds to reinvest: about $2.03M

Option B: The CRUT Strategy

If instead you contribute the appreciated stock to a CRUT, the trust can sell the shares without paying immediate capital gains taxes. The full $3M remains invested.

The capital gains are not eliminated, they are deferred and recognized over time as distributions are made to beneficiaries. It is important to emphasize that a CRUT is a tax-deferral strategy, not a tax-elimination strategy. Here is a simple explanation how deferring capital gains helps.

In addition to tax deferral, you receive a charitable income tax deduction. Under the IRC rules, the deduction is subject to limits. Because the family is donating appreciated stock, the annual deduction is capped at 30% of their Adjusted Gross Income (AGI).

With $750K of AGI, you may deduct up to $225K per year. If the calculated value of the charitable remainder interest is, for example, $800K, you can deduct $225K in Year 1 and carry forward the remaining amount for up to five additional years.

At a $750K income level, your effective tax rate is about 37.13% and total income tax is $278K. By reducing your AGI by $225K, you reduce your total income tax from $278K to $162K which results in a $116K saving in year one. You’ll continue reducing your taxable income until you fully use your charitable income tax deduction which depends on CRUT parameters.

Family Income and Taxes without Charitable Income Tax Deduction

Family Income and Taxes with Charitable Income Tax Deduction Applied

At the same time, you begin receiving annual distributions from the trust. This is where the “unitrust” feature of a CRUT comes into play. Unlike an annuity that pays a fixed dollar amount, a CRUT payout is a fixed percentage of the trust’s value, which is revalued each year (typically on January 1).

If the trust grows, your payout increases. If the market declines, your payout decreases. Here is how the math works in our $3 million example, assuming a 7% payout rate and a 10% annual return:

Year 1:

The trust starts at $3,000,000.

Payout: 7% of $3,000,000 = $210,000.

Year 2:

Assuming the trust earns 10% ($300,000) and pays out $210,000, the new value is $3,090,000.

Payout: 7% of $3,090,000 = $216,300.

Because the assets grow tax-deferred inside the trust, compounding applies to the full $3M rather than the $2.03M you would have had left after a personal sale. Over 20 years, this difference in working capital can result in potentially higher cumulative income, depending on market returns, payout rate, fees, and tax circumstances.

Although the trust itself does not pay income taxes, beneficiaries owe income tax when distributions are received. CRUT taxation follows a tier system, meaning some distributions may be taxed as ordinary income and others as capital gains, depending on the trust’s accumulated tax balances.

Financial Goals Before Tax Optimizations

Before diving into the legal paperwork, you should step back and look at the “big picture.” A CRUT is a tax planning strategy designed to help families with charitable aspirations achieve their financial goals. However, the family must clearly understand those goals before deciding whether to use a CRUT and which assets to contribute.

There are three high-level buckets:

Lifestyle Bucket: Money you need to maintain your standard of living and enjoy your life.
Legacy Bucket: Money you want to leave to children, grandchildren, or other heirs.
Philanthropy Bucket: Money you want to use to make an impact on the world.

Each family balances these buckets differently. Because a CRUT is irrevocable, funding one is effectively a permanent decision to move assets from the unallocated or undecided bucket into the “Lifestyle” and “Philanthropy” buckets. You receive income for yourself now, and the charity receives the remainder later, but your heirs generally will not receive those specific assets.

Before deciding whether to use a CRUT, you would like to project your net worth, income, and expenses using financial planning software, determine how much investment risk you are willing to take, and only then evaluate tax-planning strategies.

Starting with complicated strategies without clear goals and alignment with your partner often leads to unnecessary stress and uncertainty later.

CRUT is not a DIY strategy

A CRUT may be a good strategy if the family decides that they want to donate a portion of its net worth to charity and is comfortable with the fact that the charity will receive the remaining funds after the donors pass away.

While the benefits are high, the strategy is complex. This is not a DIY project. Setting up and maintaining a CRUT requires a coordinated team:

Estate Attorney: To draft the trust document and ensure it complies with state and federal laws.
CPA: To handle the specialized annual tax filings (Form 5227) and track the “four-tier” accounting rules for distributions.
Financial Advisor (CFP): To manage the internal investments and ensure the payout rate aligns with your long-term cash flow needs.

Between legal setup fees and ongoing administrative costs, a CRUT typically makes the most sense for assets valued at $500,000 or more. If the numbers support it, a CRUT remains one of the most powerful ways to do well while doing good.