Do you really, REALLY need to spend that much to truly be happy?
All figures annual
Pre-Tax Income: $1.2mm
Taxes: $360k
Expenses: $450k
Net Worth: $4.2mm
Do you really, REALLY need to spend that much to truly be happy?
As someone making ~24k/yr and saving a large portion of it, I can't even imagine what you could spend 450k a year on. That's just... Totally completely beyond me.
Assuming the above scenario, at what point would it be safe to assume we could completely rely on investment income alone and not have to earn a wage?TheNewNormal2015, welcome to the forums.
Id shoot for about $10 million....it seems like a good round number for you guys.
Good job....you won the game.
Honestly though.....do you think this site is really for you? Maybe try the Boglehead forum? How your money is invested should be the real issue at this point since you dont feel any need to reduce spending.
Are you paying needless fees? Are you as efficient with the taxes as you could be?
Outside of our housing, childcare and education expenses (private schools) we are actually not very luxurious. And all three categories will decrease substantially or be eliminated completely upon kids leaving home and graduating from college.
Our grocery bill is $1000 a month for the five of us plus a nanny, and we don't have a lot of other really crazy expenses for this high cost of living area. I purposely have not broken down other expense line items as I am sure it would be quite shocking for many readers on this forum, but the reality is it is really easy to spend a lot of money on what feels like 'necessities'.
As mentioned our costs would decrease $200k a year if we paid off our house (I.e. Principal and interest expense) and property taxes and upkeep make up a big chunk of the remaining expenses.
Interestingly we feel that working an extra year or two after FI would really help us increase our quality of life, as we are in our peak earning years and by then almost all of the earnings would go straight to investments, which ultimately lead to higher per year income stream upon RE.
I purposely have not broken down other expense line items as I am sure it would be quite shocking for many readers on this forum, but the reality is it is really easy to spend a lot of money on what feels like 'necessities'.
Can I ask the really stupid question here? If you're paying that much for a house, isn't it in an area where private schools aren't necessary? I've worked in two different big cities and there are usually pockets of very high dollar houses that don't require the private school tuition as well.
As Mr. Frugalwoods put it, you must love your job like I love pizza! And you can also retire immediately if you want to
So odd. Says its 90% Latino enrollmentCan I ask the really stupid question here? If you're paying that much for a house, isn't it in an area where private schools aren't necessary? I've worked in two different big cities and there are usually pockets of very high dollar houses that don't require the private school tuition as well.
As Mr. Frugalwoods put it, you must love your job like I love pizza! And you can also retire immediately if you want to
I have no idea where the OP lives, but I think this is one of the most interesting school/neighborhood combos:
https://www.redfin.com/city/820/CA/Atherton/real-estate#!sf=1%2C2&v=8&sst=3®ion_id=113613®ion_type=7&market=sanfrancisco (https://www.redfin.com/city/820/CA/Atherton/real-estate#!sf=1%2C2&v=8&sst=3®ion_id=113613®ion_type=7&market=sanfrancisco)
Selby Lane is rated a 3, but the houses are $4M-$14M. This isn't a joke. You just put your kids in private school if you live in that section of Atherton.
So odd. Says its 90% Latino enrollmentCan I ask the really stupid question here? If you're paying that much for a house, isn't it in an area where private schools aren't necessary? I've worked in two different big cities and there are usually pockets of very high dollar houses that don't require the private school tuition as well.
As Mr. Frugalwoods put it, you must love your job like I love pizza! And you can also retire immediately if you want to
I have no idea where the OP lives, but I think this is one of the most interesting school/neighborhood combos:
https://www.redfin.com/city/820/CA/Atherton/real-estate#!sf=1%2C2&v=8&sst=3®ion_id=113613®ion_type=7&market=sanfrancisco (https://www.redfin.com/city/820/CA/Atherton/real-estate#!sf=1%2C2&v=8&sst=3®ion_id=113613®ion_type=7&market=sanfrancisco)
Selby Lane is rated a 3, but the houses are $4M-$14M. This isn't a joke. You just put your kids in private school if you live in that section of Atherton.
So odd. Says its 90% Latino enrollmentCan I ask the really stupid question here? If you're paying that much for a house, isn't it in an area where private schools aren't necessary? I've worked in two different big cities and there are usually pockets of very high dollar houses that don't require the private school tuition as well.
As Mr. Frugalwoods put it, you must love your job like I love pizza! And you can also retire immediately if you want to
I have no idea where the OP lives, but I think this is one of the most interesting school/neighborhood combos:
https://www.redfin.com/city/820/CA/Atherton/real-estate#!sf=1%2C2&v=8&sst=3®ion_id=113613®ion_type=7&market=sanfrancisco (https://www.redfin.com/city/820/CA/Atherton/real-estate#!sf=1%2C2&v=8&sst=3®ion_id=113613®ion_type=7&market=sanfrancisco)
Selby Lane is rated a 3, but the houses are $4M-$14M. This isn't a joke. You just put your kids in private school if you live in that section of Atherton.
Yes. The school is districted across Atherton and Redwood City, and parts of Redwood City are highly latino. It's gentrifying, but a lot of people in that school district from Redwood City also send their kids to private schools. It's kind of hard to overcome the perception that it is essentially a low-performing Spanish immersion program.
Outside of our housing, childcare and education expenses (private schools) we are actually not very luxurious. And all three categories will decrease substantially or be eliminated completely upon kids leaving home and graduating from college.
Our grocery bill is $1000 a month for the five of us plus a nanny, and we don't have a lot of other really crazy expenses for this high cost of living area. I purposely have not broken down other expense line items as I am sure it would be quite shocking for many readers on this forum, but the reality is it is really easy to spend a lot of money on what feels like 'necessities'.
As mentioned our costs would decrease $200k a year if we paid off our house (I.e. Principal and interest expense) and property taxes and upkeep make up a big chunk of the remaining expenses.
Interestingly we feel that working an extra year or two after FI would really help us increase our quality of life, as we are in our peak earning years and by then almost all of the earnings would go straight to investments, which ultimately lead to higher per year income stream upon RE.
Can I ask the really stupid question here? If you're paying that much for a house, isn't it in an area where private schools aren't necessary? I've worked in two different big cities and there are usually pockets of very high dollar houses that don't require the private school tuition as well.
As Mr. Frugalwoods put it, you must love your job like I love pizza! And you can also retire immediately if you want to
I purposely have not broken down other expense line items as I am sure it would be quite shocking for many readers on this forum, but the reality is it is really easy to spend a lot of money on what feels like 'necessities'.
Sure, and the reality is also that it's really easy to not spend money on things that aren't necessities, once you learn to differentiate and downgrade. I feel like your choice to not break down your spending here isn't to avoid "shocking many readers", but has more to do with asking for advice from a crowd of people that understand the differences between wants and needs that you might not want to acknowledge.
+1 Check out Bogleheads.org
What do you do? You don't need to give location or anything, I'm just really curious how you get that firehose of cash.
Retire now. Ditch the house. You could easily cut 75% and not really change much other than where you live and where the kids go to school.
I am reminded of this article:
http://www.nytimes.com/2009/02/08/fashion/08halfmill.html
Assuming the above scenario, at what point would it be safe to assume we could completely rely on investment income alone and not have to earn a wage?TheNewNormal2015, welcome to the forums.
Have you tried either www.cfiresim.com or the spreadsheet in How To Write a Case Study (http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-%27case-study%27-topic/msg274228/#msg274228) to evaluate your position?
Good luck!
Can I ask the really stupid question here? If you're paying that much for a house, isn't it in an area where private schools aren't necessary? I've worked in two different big cities and there are usually pockets of very high dollar houses that don't require the private school tuition as well.
As Mr. Frugalwoods put it, you must love your job like I love pizza! And you can also retire immediately if you want to
I have no idea where the OP lives, but I think this is one of the most interesting school/neighborhood combos:
https://www.redfin.com/city/820/CA/Atherton/real-estate#!sf=1%2C2&v=8&sst=3®ion_id=113613®ion_type=7&market=sanfrancisco (https://www.redfin.com/city/820/CA/Atherton/real-estate#!sf=1%2C2&v=8&sst=3®ion_id=113613®ion_type=7&market=sanfrancisco)
Selby Lane is rated a 3, but the houses are $4M-$14M. This isn't a joke. You just put your kids in private school if you live in that section of Atherton.
What do you do? You don't need to give location or anything, I'm just really curious how you get that firehose of cash.
Retire now. Ditch the house. You could easily cut 75% and not really change much other than where you live and where the kids go to school.
I am an executive at a large company. The best way to describe to 30 Rock fans would be a nicer, younger less cutthroat Jack Donaghy.
Long-time MMM blog reader, recent lurker, first-time posterI was about to feel really really bad about myself, as we are 3 years older than you two with only about 40% of the NW. Then I realized we have 20% of the income, and I don't feel so bad.
Age: 43 and 41
Children: 3, ages 13, 10 and 8
Location: somewhere very expensive in USA
All figures annual
Pre-Tax Income: $1.2mm
Taxes: $360k
Expenses: $450k
Net Worth: $4.2mm
Without getting into too much detail, we have an expensive home which is valued at a little more than our net worth, and a lot of the expenses go towards servicing the debt and paying off the mortgage. We estimate that by 2020, when our first child goes off to college, our annual expenses would drop to $250k if between now and then we purposed all annual discretionary income to pay down principal and sold existing investments to completely pay off the mortgage balance. For simplicity assume straight-line decrease in annual expenses, or $40k a year lower: $450k in 2015, $410k in 2016, $370k in 2017, $330k in 2018, $290k in 2019, $250k in 2020 when the house is owned outright.
I would conservatively estimate that our income will remain constant at $1.2mm pre-tax, $840k post-tax over the next 10 years.
We estimate that in 2020 our net worth would conservatively be $6.5mm in today's dollars, assuming market returns that are in line with inflation (0% real). By 2025, with all kids out of the house, we would look to downsize to a residence worth roughly 1/3 of our current home, giving us liquid investments (both taxable and tax-deferred) of a combined $5mm. We also estimate that annual expenses starting in 2024 would decline to $200k, then $150k in 2028, as the kids each graduate from college.
Assuming the above scenario, at what point would it be safe to assume we could completely rely on investment income alone and not have to earn a wage?
Still curious, OP, whether and where you would consider "retiring" to, if you could do it now. You could still put the kids in private school using your stash. Even at $40K/yr, you have 23 student/years= $1M plus, say another $720K ($60Kx3x4) for college. That would leave you with $2.5M plus whatever you got if you sold your house, which I'm assuming is a minimum of 20%x4.2M=840K.
So, let's say you moved somewhere cheaper where a nice house cost $1M, you could still live on:
$4.2M - $1M private school - $720K college - $1M new house + $840K min house sales=$2.3M.
At 4-5% that's $92K-$115K/yr which leaves maybe $72K-$92K to retire quietly somewhere less expensive right now. Thoughts?
Long-time MMM blog reader, recent lurker, first-time posterI was about to feel really really bad about myself, as we are 3 years older than you two with only about 40% of the NW. Then I realized we have 20% of the income, and I don't feel so bad.
Age: 43 and 41
Children: 3, ages 13, 10 and 8
Location: somewhere very expensive in USA
All figures annual
Pre-Tax Income: $1.2mm
Taxes: $360k
Expenses: $450k
Net Worth: $4.2mm
Without getting into too much detail, we have an expensive home which is valued at a little more than our net worth, and a lot of the expenses go towards servicing the debt and paying off the mortgage. We estimate that by 2020, when our first child goes off to college, our annual expenses would drop to $250k if between now and then we purposed all annual discretionary income to pay down principal and sold existing investments to completely pay off the mortgage balance. For simplicity assume straight-line decrease in annual expenses, or $40k a year lower: $450k in 2015, $410k in 2016, $370k in 2017, $330k in 2018, $290k in 2019, $250k in 2020 when the house is owned outright.
I would conservatively estimate that our income will remain constant at $1.2mm pre-tax, $840k post-tax over the next 10 years.
We estimate that in 2020 our net worth would conservatively be $6.5mm in today's dollars, assuming market returns that are in line with inflation (0% real). By 2025, with all kids out of the house, we would look to downsize to a residence worth roughly 1/3 of our current home, giving us liquid investments (both taxable and tax-deferred) of a combined $5mm. We also estimate that annual expenses starting in 2024 would decline to $200k, then $150k in 2028, as the kids each graduate from college.
Assuming the above scenario, at what point would it be safe to assume we could completely rely on investment income alone and not have to earn a wage?
We have the same grocery bill though. I should do better, we aren't feeding as many people.
I'll let the others let you know when you can retire. The key for me has been to have "FU" money. The job market being what it is, we are fine. But there's always a possibility that one of us loses a job and becomes "unemployable" (aka, too old, we are in our 40s, after all. I see people have hard times maintaining a particular level of job in their 50's). I expect if I retire before my youngest graduates from college (I'll be 64 then, spouse 66), it will be not of my choosing.
All figures annual
Pre-Tax Income: $1.2mm
Taxes: $360k
Expenses: $450k
Net Worth: $4.2mm
Please please tell me how you're only paying 30% taxes with that income?!? We're paying 26% taxes and making way less than you.
Please please tell me how you're only paying 30% taxes with that income?!? We're paying 26% taxes and making way less than you.
Probably many small reasons including mortgage interest, but I imagine the big one is Social Security Taxes. For 2014, the maximum amount of taxable earnings was $117,000. So he is only paying the 6.2% on a fraction of his income whereas most of us pay it on our whole income.
Good point, but if there's something else I'm missing, please let me know! The taxes are really getting to me, especially knowing that being self-employed, I get to add 15% to the top of the 30% we're already paying on my husband's salary. It's a real disincentive to go back to work. :(
Part of their comp could be stock instead of straight W2 cash and OP is counting the value as income.
Please please tell me how you're only paying 30% taxes with that income?!? We're paying 26% taxes and making way less than you.
Probably many small reasons including mortgage interest, but I imagine the big one is Social Security Taxes. For 2014, the maximum amount of taxable earnings was $117,000. So he is only paying the 6.2% on a fraction of his income whereas most of us pay it on our whole income.
Good point, but if there's something else I'm missing, please let me know! The taxes are really getting to me, especially knowing that being self-employed, I get to add 15% to the top of the 30% we're already paying on my husband's salary. It's a real disincentive to go back to work. :(
| Category | Monthly amt. | Comments | Annual |
| Salary/Wages | $90,000 | $1,080,000 | |
| Healthcare Flex Savings Acct. (FSA) | $105 | $1,258 | |
| FICA base salary/wages | $89,895 | $1,078,742 | |
| 401(k) / 403(b) / 457(b) / TSP /etc. | $1,500 | At maximum | $18,000 |
| Income subject to IRS tax | $88,395 | $1,060,742 | |
| Qualified dividends | $10,000 | $120,000 | |
| Federal Adj. Gross Inc. | $98,395 | $1,180,742 | |
| Federal tax | $22,128 | 2015 rates, item. ded., 2 exemptions | $265,541 |
| State/City tax | $7,872 | Guess, using 8.00% * Fed. AGI | $94,459 |
| Soc. Sec. | $612 | Assumes 1 earner paying | $7,347 |
| Medicare | $1,963 | $23,550 | |
| Total income taxes | $32,575 | $390,900 | |
| Add Health care reimb. | $105 | $1,258 | |
| Income before other expenses | $65,925 | $791,100 | |
| Monthly Expenses: | |||
| Mortgage | $26,841 | $322,093 | |
| Property Tax | $5,000 | $60,000 | |
| Charitable contributions | $2,000 | $24,000 | |
| Non-mortgage total | $7,000 | $84,000 | |
| Total Expense | $33,841 | $406,093 |
I think I was thinking about stock options? Isn't that how CEOs can say "My salary is $1" but then they're paid almost entirely in stock? Not really familiar with these things, just thought it might be what's going on. OP's salary could be ~600K but then gets another 600K in options.
Thanks for the possible refinements.Below is a quick rough guesstimate that gets federal + state income taxes to $360K. Many other possible ways to get there.
The maximum mortgage principal upon which the interest is deducible is 1 million dollars. Assuming 4% interest, the most he could deduct per month for mortgage interest is $3333, or $40,000 annually. That's dramatically smaller than your estimate of $322,093. (See IRS Publication 936 (http://www.irs.gov/publications/p936/ar02.html).)
But it gets even worse because since his AGI is so high, his itemised deductions are reduced by roughly $25,000. (See Line 29 of Sch. A.)
Furthermore, since his AGI is over $374,700, he cannot claim any exemptions, so he would have 0, not 2.
You also apparently did not include Additional Medicare Tax, which would be an additional approximately $6,750 of tax on top of everything else.
The state tax estimate is also low for either NYC or California. The real average rate would be more like 11-12%.
In summary, OP's taxes seemed low to me too. The figure may be accurate, but it would involve more complicated techniques than disclosed in the above chart.
- state tax estimate would be high for Texas (0%).
I assumed you were making these by hand for each post.That would be waaaay too much work. ;)
Well darn it. We could just move to Texas and pay NO state taxes? That sounds fantastic. What's the downside?Fire ants.
Charitable contributions $24,000
- state tax estimate would be high for Texas (0%).
Well darn it. We could just move to Texas and pay NO state taxes? That sounds fantastic. What's the downside?
You know, MA is nicknamed Taxachusetts, but MA doesn't even compete compared to California.... Or probably New York either.
I think I was thinking about stock options? Isn't that how CEOs can say "My salary is $1" but then they're paid almost entirely in stock? Not really familiar with these things, just thought it might be what's going on. OP's salary could be ~600K but then gets another 600K in options.
Stock is generally W2'd.