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Author Topic: Reader Case Study: Can We Have It All But Still Retire Early?  (Read 118574 times)

Cromacster

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #50 on: March 11, 2014, 01:37:20 PM »
I think the real question you should ask yourself (besides why you are here), or rather a thought experiment.

If you both lost your jobs today.  What would you do?  What if it took you a year or more to find another job?

Right now with your stated net worth (assuming its liquid) you could continue living as you do for 7.5 months (obviously a very simplified calculation).

I've done this experiment personally, line by line, looking at items I could immediately take away vs the things I need.  I'm usually most interested in the amount of time it would take before I would consider selling my house.
« Last Edit: March 11, 2014, 01:39:22 PM by Cromacster »

smalllife

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #51 on: March 11, 2014, 01:38:14 PM »
Ignoring the kids/private education/etc., you still haven't answered the question "what do you hope to gain by posting?"  You've deflected that question at least twice.

TheRedHead

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #52 on: March 11, 2014, 01:39:45 PM »
I used to work for Wall Street firms before I was laid off/gave it up right before our son arrived. The amount of money spent by my peers was insane (buying city blocks in NY insane) BUT it was totally normal for them. Bonuses were paid in the millions to tens of millions - my group made billions for the firm. My colleagues had been raised to be this successful (wealth-wise). Private boarding schools, the right colleges, knowing to make friends with the 'right' people, etc. groomed from young ages. The one-upmanship that went on in that group was....I use the word insane and it was. If one person had their yard redone, everyone wanted their yard redone. And fancier! More expensive! If someone got a new car, the next guy had to get a better one. It was just the way things were done and if you didn't buy into that game then you were definitely viewed as odd and it was detrimental to your career. I was made fun of by my boss for bringing my lunch everyday.

Leaving that world was literally one of the best things to ever happen to me. Yes I was laid off (knew it was coming) BUT I had planned on quitting anyways to be a SAHM. It took me years to get the desire to always have more/better/fancier out of my system. It's not such an easy thing to just quit because it gets so ingrained in you. There's a desire to fit in and get along that exists in these groups and neighborhoods.

I have no financial advice other than lay offs can and do happen regularly. I was lucky in that I knew mine was coming 6 months out so I had time to prepare. If it all goes to hell can you live on one salary and sustain this lifestyle? My boss (he of the mocking my lunch fame) was laid off from an IB several months after I left to go to another firm. It took him YEARS to find something else. And nothing that paid as well as what he had been making (and spending). He even went 'consultant' for a while which is code for 'can't find a job'. Be prepared.

Lastly, my son will also be going to private school (to the tune of 25k a year which is crazy) but the public schools where we are are atrocious. Also my inlaws are covering the bill but even if they weren't we would pay because it's worth it. There are just some places where sending your kids to a private school makes a ton of sense. My husband attended an excellent one and received a MUCH better education than my public school one. Also, we joined a country club close to us last fall and it's a worthwhile expense for us for a variety of reasons. We all have the things in our lives that are important to us and just because they don't make sense to one person doesn't mean they aren't important to someone else. I'd totally ditch the $85k car though ;)
« Last Edit: March 11, 2014, 01:42:51 PM by TheRedHead »

RMD

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #53 on: March 11, 2014, 01:40:42 PM »
So, you're living the life you want? What is your motivation for being here? Is there anything "worth" giving up for the life that you want? (Which it appears you already have?...continue circle...)

Sorry.  I don't understand your motivation for being here at all.  I don't find your post incredibly "brave", either.  No more brave than anyone else who bares their financial soul. You have money, you're choosing how to spend it...you can choose to retire early or not. Up to you.

ZiziPB

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #54 on: March 11, 2014, 01:42:41 PM »
Quote
So once again what do you expect to get out of the MMM Forums?

OP - so far, you have responded several times defending and justifying your lifestyle but you still have not answered this question.

senecando

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #55 on: March 11, 2014, 01:44:17 PM »
First, I think it's rad you're posting here and that you've read all the posts. Looking at you on the Wheaton/MMM Scale, you've looked at all these people 8 levels above you and given it enough time to post here and think about instead of just brushing them off. That's awesome and super fucking difficult. Congrats!

No seriously, that's really impressive. (I don't quite get the posters throwing digital rocks at you until you say "I just really want to wash my ziplock bags!")

And second, I don't think private school should be the first thing you attack. If you want to live more simply, don't make the first thing you do something that really only affects your children. I don't know if the kids will exactly appreciate the reasoning. The car or the club or switching to simpler vacations--those seem like better first targets to me.

Ambergris

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #56 on: March 11, 2014, 01:49:25 PM »
Thanks for the replies so far

For clarification and in answer to some of the comments so far, we both came from modest earning families but were surrounded by wealthy peers (private schools) growing up, and were probably indoctrinated into a false perception of what the 'good life' is.  So naturally when we started working and earning high incomes we began to accumulate many worldly possessions (along with the shackles they bring with them) and as one by one they were ticked off the list we looked to acquire 'status' by joining clubs and sending our kids to certain schools, things that are not just available by writing a check or swiping a card.  As unhealthy as it all is, I think this is the reality for many people in the northeast who get sucked into the deceptiveness of its call.

I don't think there are necessarily negative career implications from getting off the current track we are on, but perhaps it does lop off some of the potential upside from meeting certain types of 'successful' and interesting people, be it from a networking (business) perspective or just standard human relations.  Some of our closest friends were made in this context and many are individuals who, while extremely rich, are very intelligent, thoughtful and do a lot of good for society.  This is of course in addition to opening opportunities and doors that would not normally be available to us alone (oftentimes it's not what you know, but who).  A lot of the stereotypes of members of country clubs and the wealthy being snobs are unwarranted - there are a**holes everywhere (even among the non-rich) but they are typically a small minority and can be easily avoided (and can oftentimes themselves be very useful from a completely utilitarian perspective as long as one realizes that is the relationship one is signing up for).

As for moving to a lower cost of living area, that is definitely a strong possibility upon retirement (after maximizing income potential during our peak earnings years), if for no other reason that we both think the winters here are bad (this past one has been punishing and is not over yet with more snow coming Thursday).  Considerations include moving somewhere like the west coast upon retirement or, if we do decide to stay in the area, at least being a snowbird (Florida is the typical haven for those in the northeast).  We are leaning towards the former due to efficiency and lower cost, but the thought of going to a new place and starting over completely is daunting.  We also would want to be near our children and wherever their work/life takes them, and the reality is they are probably on track to go to a certain type of college with a limited number of career paths they would ultimately seriously consider (of course we would leave it for them to choose, but I am just commenting on what the typical outcome is, ignoring the outliers, for a lot of kids with their profile: they gravitate to finance, law, medicine, politics, academia, tech).  A lot of the best opportunities for young people in those fields are in this northeast corridor, the one exception being tech. In any event, for now we are pretty established/settled in the area with jobs, kids' schools, friends/community, etc. and we appreciate the rich culture and opportunities of the northeast.

The spending amounts shown were for the last 12 months (before we discovered MMM and came to be open to changing things).  There are also a lot of sunk costs involved with some of them: the six-figure initiation (non-refundable) for the country club, the activities/sports/music our kids enjoy and are now proficient in, etc.  With respect to the landscaping, the honest answer is in the neighborhood we live in you get funny looks if you cut your own grass and do your own yard maintenance.  But the practical reality is I don't have time to cut and maintain 6.4 acres nor the expertise to keep it lush and green (which, again being brutally honest, is kind of the expectation of the area).  Again, sunk costs as we bought the house and are very settled in what for us is really an ideal location.  There are very significant switching costs, besides transactions and broker fees, moving expenses, new furniture (this matches that, which goes with the house, etc - yes it's absurd but this is what we have *already* signed up for).

In reality we are looking for constructive ways we can make the best of our current situation and improve it, and the occasional face punch is a good wake up call as well (love the reference to Lehman).

OK, thanks for blowing my mind WF :).  First, if you are in finance you might have come across behavioral economics, and if you've come across behavioral economics, you might have met the "sunk costs fallacy".  This the idea that because you have put money into something, you act as if it is more important to protect the money you have already paid by continuing to pay more than to maximize your long term financial outcome.  This is the wrong way to think about the problem.  If you don't want to keep the country club membership, don't keep paying more money to keep it going just because you've already paid money to start it.  If you don't want the big house and expensive lawn, don't keep paying the enormous mortgage to keep it going just because you have already paid so much into it.  The money you have paid is gone.

Instead, you need to see it this way: if I give up the country club membership, I won't have to pay X dollars per month/per year.  I will end up with Y amount more in my retirement accounts than if I had kept it.
If I sell the house, I will have to pay X less dollars per month for the next Y years, minus Z dollars in brokers/agent fees, etc; this will mean I have (running out of letters...erm...) N dollars more in my retirement accounts than if I had continued to pay the current mortgage.

Once you recognize this, it is simply a values question: which of my expenditures are in line with my values?  How important is status seeking in my profession?  Which expenses are vital to this and which are not?  We can't tell you the answer to these questions.  Most folks here have a common set of values, which include genuine frugality.  The truth is, from a purely Mustachian perspective, your house, landscaping, food budget, clothes budget, live in help (I presume this is a person) - indeed the whole bloody lot - are all completely insane and could easily be dropped or reduced by 95%.  Anyone with two neurons to rub together could reduce these costs.  Just saying, :)~ 

Sell the house, move to cheap suburb, live in 2000sqft house; 300 dollar a month food budget; 2 cheap cars; 1/2 acre lot; cut grass yourself....blah blah blah...you could have retired completely several years ago.  This is the sort of stuff mustachians do.  We probably can't help you with questions about whether to reduce the home help's hours or shop at merely expensive department stores vs. insanely expensive ones.  We can't tell you whether to go with private school or public.  This is the wrong crowd for the questions you are asking.

BTW, I also agree with the posters above about the values you are transmitting to your children. You show an admirable motivation to protect and invest in them, even at your own expense.  However, there is research that suggests that raising children in a very affluent environment reduces their motivation and desire to succeed and inhibits their future income earning potential (it is unlikely, for example, that your kids will be able to earn as much or more than you do, but they are "baselined" at the level at which you have been living).  Surrounding them at school with extremely wealthy children, with intensely consumerist values, rather than children who are merely upper middle class is also likely not good for them.  I'm with you on the value of education, but the education you receive at school is not just in English, Maths and Science: it is also and education in social relationships and social values.  This would concern me greatly.

bacchi

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #57 on: March 11, 2014, 01:56:09 PM »
I understand what sunk costs are - and if you read carefully each of the examples are actually in fact consistent with the definition

Yet you wrote in the OP,

Quote
but at this point we are pretty well committed (with tons of sunk costs)

Being "well committed" due to sunk costs is exactly the fallacy. Changing requires ignoring the sunk costs. Maybe you aren't ready to change yet?

Exflyboy

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #58 on: March 11, 2014, 01:58:20 PM »
Well even the myth of "Ivy league".. Worse engineering graduate I ever had working for me had a master from an Ivy league school... Completely incompetent.

Doesn't matter though, her connections will probably mean she earn more money than I ever will.

Personally I find more reward mentoring kids who have NOTHING, sometimes not even enough food to eat. (I grew up in the poor East End of London, first of 3 kids to EVER go to University from the school).. yes I started at the bottom and just retired at 52 by scrimping and saving ended up with a fraction of what these people have!

I have multi millionair friends who drive around in Mercedes SUV's, I love making a point that I love being frugal and I don't give a rats ass about their millions.. And guess what.. they find ME valuable as THEIR friend... Clearly I must be worth more than the money I make... I wonder if the OP can say the same?
« Last Edit: March 11, 2014, 02:00:24 PM by frankh »

windawake

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #59 on: March 11, 2014, 02:04:07 PM »
@WF Do you feel like there are changes you're going to make based off of some of the comments that have already been made? It's hard to make more suggestions at this point because some of your replies have made it seem like certain categories are off limits for cutting. And other things seem almost pointless at your level, ie. reducing your food spending by $200/month isn't going to make much of a difference one way or the other.

Perhaps you could post your net worth in the traditional sense of the word, as that bit was a little unclear in your initial post.

Exflyboy

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #60 on: March 11, 2014, 02:05:59 PM »
We have,... You spend too much and if you lose an income or two your screwed!

The good thing is you can cull 95% of your spending (for Gods sake, sell that stupid house!) but you have to be prepared to give your neighbours the middle finger.

unless your prepared to do that and be derided for doing so your kinda stuck in this hi earn/hi spend world.

Personally it doesn't matter to me how much you earn.. good for you, but I think your sitting at the top of a house of cards potentially.. Lots of people have fallen hard from where you are.

You have to decide what do YOU want?.. Buying a Leaf won't make the slightest in your situation

historienne

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #61 on: March 11, 2014, 02:07:50 PM »
So, obviously you are still in the process of figuring out what you want from life.  Which is fine.  However, as someone who's moved in and out of similar circles over the course of my life, I have some thoughts.

First, it's not about the Ivy League degrees.  I have three, many of my friends are people I met at one of those institutions, none of them live like you.  It's about working in finance in New York City.  You say you love your jobs, but maybe there are other industries that you could use your skills in, that wouldn't immerse you in a culture of insane spending?  I've spend time in the bay area tech world, and while there are lots of rich people spending lots of money there, I think there is less pressure to keep up and more diversity of interests. Also, I second the thought on moving to a different city even if you stay in finance. 

Second, on the private schools.  My parents sent me to a fancy private school growing up because I was 'gifted' (or tested well, at least) and the local system was not equipped to handle that.  It was very much a mixed blessing.  Despite being from an upper-middle-class family, I constantly felt poor because all of my classmates were significantly wealthier.  Yes, I did end up at an Ivy League school.  I don't know if I would have made it there if I had not had a private education.  But I was kind of miserable for much of high school, and I am not convinced that was a worthwhile tradeoff.  Plus, as others have mentioned, you are setting your kids up to have a very narrow idea of what "success" looks like, and they may not be naturally drawn to high-paying professions.  Personally, I want my daughter to have the life skills necessary to live off of a middle-class salary, or even less, so that she can have more freedom choosing a profession that appeals to her rather than feeling like she has to make lots of money.  And note that of the professions you list that your children might consider, several of them (politics, academia) do NOT earn you the kind of cash necessary to maintain your current lifestyle.

Finally, a lot of what you spend seems to be motivating by looking good in your peer circle.  That really makes me wonder how satisfying those relationships are.  Are these friends of yours people who would still want to know you if you somehow went bankrupt?  Are they people who you can talk to about your problems as well as your fancy car?  Are they people who would bring you food and sit with you if a family member got ill?   Maybe you just aren't talking about the more personal aspects of these relationships, but your posts don't make it sound like you actually have meaningful friendships with these people.  Networking is all well and good, and I believe you that many of these people are interesting to have conversations with, but are they really your friends?  If so, they should understand if you downsize your house, etc.

Frizhand

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #62 on: March 11, 2014, 02:15:43 PM »
You seem to defend every decision you've made and every dollar you spend.   You have the right to do so since it's your money and it's your life. I think you are either 1) having some fun (as frankh said) or 2) are so far removed from the MMM mindset that you can't see past your own logic.

If you were hoping for a response like, " I was in your shoes until I switched country clubs" or "try cutting your spending on vacations by only going to Paris in May" you've misunderstood this place (IMHO).  To 'get it' you must differentiate between what you WANT and what you NEED.  You (and your kids) don't NEED private school, lawn care, a country club, 3 cars or many many other things you consume. If you WANT them, that's fine but I'm not sure you will get any good advice here because most people here are focused on what they NEED to be happy (and retired).

Indio

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #63 on: March 11, 2014, 02:15:57 PM »
Are you able to "sell" your country club membership? Not sure which club you belong to, but some are structured with equity and non-equity memberships that you could sell.  There are plenty of other camps your kids could go to in the area that are still upscale. It might also give you a chance to meet new friends.

olivia

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #64 on: March 11, 2014, 02:18:11 PM »
Are you just trolling?  You've shot down every suggestion posters have made, with the exception of cutting back on landscaping.  If you're happy with all of your choices, why are you here?  You make plenty of money and have a surplus every month, so if you're happy with all of your choices, keep doing what you're doing and enjoy.

marblejane

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #65 on: March 11, 2014, 02:18:51 PM »
What about cash flow? Are you cash flow positive on your base income? Inclusive of the rental property?

Btw, the comments about sunk costs, as I read them, are primarily about the rental property. Regarding the rental, you keep make vague references to "sunk costs" and the value "not being there" the last time that you placed it on the market. Have you done the analysis of your holding costs versus the anticipated market gains? It might make more sense to sell now at a lower price than you'd like.

payitoff

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #66 on: March 11, 2014, 02:21:27 PM »
ok here's a few questions, i apologize if this has been previously answered, just wanting to help:

the taxes for $24k - are you setting this aside to pay it by end of the year? or is it a monthly amount taken out of your paycheck?
looks like this is your biggest expense.

are you interested in moving back to your old home? there's no point in keeping it when its not giving you a positive cashflow.

maybe if you can sell your old home and use the proceeds to set aside for your year end tax that will free up about $25k per month and you can put it towards your retirement or pay off your home, either way it will save you from $18k - $25k per month. That's about $300,000/year towards your retirement.


do you own a bike? its a good exercise and can save your gas expense since you moved closer to work right?
food looks good!
charity giving helps with your excess funds too, you might want to check charities close to your heart.


Exflyboy

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #67 on: March 11, 2014, 02:23:10 PM »
Yeah I'm done here.. Now I'm late for my shift in serving at our local soup kitchen!

Wonder if my clients will want to talk about the 6 figures they sunk in their country club memberships?

FrugalSpendthrift

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #68 on: March 11, 2014, 02:23:53 PM »
The kids don't pay the bills - we actually don't 'spend' that much in things that they would see in terms of physical consumption and material possessions.
Between the property maintenance, landscaping, live in help, country club, groceries, vacation, utilities, kids activities, shopping, cars, restaurants and entertainment, you are spending $14k per month, without even including the mortgage.  What makes you think your kids don't see any of this consumption?  Just because you have friends that spend much more than you do, doesn't make your level of consumption normal.

You can tell them you cook your own meals and drive an electric car, but you are putting in a lot of effort to make sure the grass looks green and the furniture matches the drapes to impress the neighbors.  This effort will also have an impression on the children.

bacchi

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #69 on: March 11, 2014, 02:24:27 PM »
Btw, the comments about sunk costs, as I read them, are primarily about the rental property.

Nah, it's also about the country club fee, among others.

From the OP,

Quote
There are also a lot of sunk costs involved with some of them: the six-figure initiation (non-refundable) for the country club

This is textbook fallacy. :)


Quote
I hope the other person who commented about 'sunk costs' also reads this (or that you yourself do) before asking about it again in another reply

Yep, I read it. Sorry I wasn't clear but the financial fallacies at least should be obvious, unlike the other more squishy sunk costs, such as education. You probably know that though.

bacchi

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #70 on: March 11, 2014, 02:37:46 PM »
Ah thanks for clarifying and for the education on 'textbook fallacies'

NP. Likewise, thanks for the instruction about NPV projects and externalities.

Good luck with your well committed sunk costs. I hope you find what you really need.

Cromacster

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #71 on: March 11, 2014, 02:41:50 PM »
See below for tips!

Expenses:
Property Maintenance: $2,300 (for both properties combined: snowplowing, budget for anticipated repairs over time, etc.)
Landscaping: $2,000 (both properties, grass cutting, hedges, spring/fall cleanup, 6.4 acres total)
$800 You might incur some upfront costs, but you replace everything with low maintenance native plants that are drought resistant!  Still might need seasonal touch up
Live-In Help: $1,800 (this is salary in addition to room/board)
Country Club: $1,770 (includes all meals, drinks, fees, summer camp)
Groceries/Household Items: $1,640 (this is for 4 adults and 2 children)
Vacations: $1,250 (flights and some hotels are paid via miles/points from credit cards and flights/stays for work travel)
$833 Only two vacations a year!
Utilities: $1,120 (primary residence only: cable/internet/phone/wireless, electricity, natural gas heat, water – quite high due to sprinklers in summer to maintain that nice lush lawn we pay so much for)
$550 You cut the cable, you rip out the lawn and replace it with an drought resistant plants! No more watering! Also, check out IP Daley’s Superguide for cell and internet use!
Kids’ Activities: $685 (all lessons, fees, activities, tutoring)
$200 They go to private school no more tutors needed!
Shopping: $500 (gifts, personal items, miscellaneous – plug account)
$250 Halved! just because your trying to cut back!
Auto Insurance/Maintenance: $480 (3 cars, all 2007 model or newer: 2 for commuting – the above mentioned Leaf and showoff machine, 1 small SUV for the grandparent/nanny to take kids to schools and activities)
Public Transportation: $330 (train tickets, subways)
Gasoline: $230
60$ Guffaw! You take the train, stop driving!
Restaurants/Eating Out: $200
You don’t eat out anymore, you go to the country club!
Entertainment: $80 (Netflix, iTunes, Movies, etc)
$8 Netflix Streaming only, OTA, and the Library
Total Expenses: $59,795 $56,451.33

lagniappe

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #72 on: March 11, 2014, 02:47:30 PM »
I too went to Ivy's and have a salary similar to your household.  My living expenses are substntially lower.  This was a consious choice.  I want to retire at a comfotable level, and I would rather delay the fancy clubs and trips and oversave now.  So rather than three big trips a year, I do one.  No country club with a six figure entrance fee, a great gym and lots of groups that do things I enjoy. 

I would encourage you to think about one thing.  Given the reluctance you have shown to the suggestions that you downsize the lifestyle so far in this thread, are you really going to be able to live on $84,000 per year? Your current spending is more than $700,000 per year.   Talk about big change.

A recast of your expenses is below -  compare to 84 K per year that you say you will spend in retirement. 

Taxes             $295,200   (31.95%)   This will be much lower (maybe zero) in retirement
Mortgages       218,400    (23.6%)    You will still have taxes and insurance on a $1M place. Guess $20-$30K
Maint& Land       51600     (5.6%)      Will be much lower - $8K?
Charity               30,000   (3.25%)     You may still want to give substantially.  Guess $5-10K
CClub/Ent/Rest   24,600                    Are you really giving up the club?  At least 10K, maybe more.
Nanny                  21600                    Goes Away
Groc/ HHold         19680                     Guess at least 7500 after kids are gone
Utilities                13440                     $5K in a lower maintence place
Travel/Vaca         15000                     Likely stay the same
Auto Related       12480                     No idea how many autos you want to keep.  Guess $7.5K
Kid Stuff                8220                      Ideally, once they leave the nest they are self supporting
Shopping              6000                      Assume this include clothing, gifts.  Likely to stay the same

jfer_rose

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #73 on: March 11, 2014, 02:50:11 PM »
Not sure whether it is worth jumping into the fray. But here I go, dipping my toe in.

I wanted to see what your data looked like with the Millionaire Next Door formula that determines whether you are an average accumulator of wealth, under accumulator, or prodigious accumulator of wealth.

Assuming an age of 35, and the 77,000 monthly salary, an average accumulator of wealth would have a $3,234,000 net worth. (The same formula would give an average accumulator of wealth a net worth of $3,234,000 if you took the rental income out of the equation and used the $71,000 monthly figure). That's quite close to your stated "more traditional net worth" of $3.117 million. So if I used the right data, you are an average accumulator of wealth. Me too. But I'm working super hard to become a prodigious accumulator of wealth. Because us MMM'ers shoot for above average. Obviously, up to you if you decide to do the same!

Ambergris

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #74 on: March 11, 2014, 02:51:30 PM »
I understand what sunk costs are - and if you read carefully each of the examples are actually in fact consistent with the definition

Yet you wrote in the OP,

Quote
but at this point we are pretty well committed (with tons of sunk costs)

Being "well committed" due to sunk costs is exactly the fallacy. Changing requires ignoring the sunk costs. Maybe you aren't ready to change yet?
Unlike money, the time/emotions/experiences you have invested with friends/associates/colleagues can't be flipped around without consequence.  If a project is NPV negative due to some externality you can make the case to turn off the lights immediately no matter how much money you have already thrown at it.

Are personal relationships the same?  How about a career?  What about education (and the value in continuity)?  At best, you might be able to make a case that they are still 'sunk' but it's really not as simple as the 'sunk cost' from a purely economic sense.

I hope the other person who commented about 'sunk costs' also reads this (or that you yourself do) before asking about it again in another reply

OK, so the "sunk costs" are not economic, but rather about what happens to relationships if you end the country club membership, the house and so on.  I presumed they were economic because you described the issues with having to pay broker's fees, etc.  Obviously the same does not apply to relationships, since one can't simply replace one relationship with another cheaper one.

You've mentioned in the thread that you use the house to entertain; presumably the club is used to meet people, and that is the value in not cutting it.  OK, then my question is about the relationships - if you need the house and the club to continue these relationships, just how real are they?  Is it just a matter of location - you wouldn't meet up with these folks in a casual way?  If you live in a merely upper middle class neighborhood, would these friends still want to come to dinner?  Are these colleagues you really feel the need to impress by inviting them to a huge house, and you might lose out on future prospects or promotions if this stuff wasn't there?  Do you care all that much about such prospects if you are interested in retiring early?

smalllife

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #75 on: March 11, 2014, 03:03:59 PM »
Expenses:
Taxes (Fed, State, City, SS, Medicare):    $24,600
2 Mortgages (PITI):          $18,200 (Have you done the math on paying these off?  You mentioned that you don't have much in equities due to your jobs and the tax savings don't exist at your income level.)
Charitable Giving:          $2,500
Property Maintenance:   $2,300
Landscaping:   $2,000 (both properties, grass cutting, hedges, spring/fall cleanup, 6.4 acres total)    (Can you look into less time/money intensive landscaping?  Natural forest, rockscape, etc. etc.  Alternatively, you could do you own yard work  . . . or have the kids do it.  You're great at spin - sell it as the "next new thing" among your peers).  Is the rental also in the swanky location (sorry - got tired of trying to go through the OP for the tenth time to find it) or can it's landscaping be seriously curtailed?
Live-In Help:             $1,800 (this is salary in addition to room/board)  Your live-in help only gets $21,600/year after room and board with what you make and they do for you?  I would actually be in favor of increasing this expense, but that's just my non-1%er bias coming out.  Take it or leave it
Country Club:            $1,770 (includes all meals, drinks, fees, summer camp) 
Groceries/Household Items:       $1,640 (this is for 4 adults and 2 children) How much are you eating at the country club?  Do you track this category any tighter (what is groceries, what's toilet paper, and what's "misc" but at the same store)?  Definitely some low hanging fruit but we don't have enough detail and it wouldn't make a dent in your spending, so up to you to look into it some more.
Vacations:   $1,250 (flights and some hotels are paid via miles/points from credit cards and flights/stays for work travel) Is this five star hotels and luxury spas or is this the average person's vacation only to more expensive locations?
Utilities:   $1,120 (primary residence only: cable/internet/phone/wireless, electricity, natural gas heat, water – quite high due to sprinklers in summer to maintain that nice lush lawn we pay so much for)  Split this out - I would be willing to bet 10% of our respective monthly salaries that you are not on the most economical for your actual usage phone/cable/internet/wireless packages.   Note that I didn't even say the most economical!
Kids’ Activities:   $685 (all lessons, fees, activities, tutoring) It's important, keep it.
Shopping:             $500 (gifts, personal items, miscellaneous – plug account)  I am assuming this is you and the missus as I would categorize all kid spending in the above category.  How is this "never spending money on ourselves?
Auto Insurance/Maintenance:   $480 (3 cars, all 2007 model or newer: 2 for commuting – the above mentioned Leaf and showoff machine, 1 small SUV for the grandparent/nanny to take kids to schools and activities)
Public Transportation:         $330 (train tickets, subways)
Gasoline:            $230
Restaurants/Eating Out         $200
Entertainment:            $80 (Netflix, iTunes, Movies, etc)
Total Expenses:            $59,795

I don't see the point in nickel and diming at your income, but if you have to start somewhere . . . . .

BlueHouse

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #76 on: March 11, 2014, 03:17:53 PM »
....(Quote) children and wherever their work/life takes them, and the reality is they are probably on track to go to a certain type of college with a limited number of career paths they would ultimately seriously consider

That sentence made me feel so sad.  Isn't the point to open up opportunities for the kids instead of limiting them?

Exflyboy

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #77 on: March 11, 2014, 03:20:51 PM »
Yeah I'm done here.. Now I'm late for my shift in serving at our local soup kitchen!

Wonder if my clients will want to talk about the 6 figures they sunk in their country club memberships?
We can only hope you treat your 'clients' with more dignity and respect (and less anti-pedantic sarcasm) face to face than you do your fellow forum members posting anonymously on the internet.

Oh if you asked me face to face I'd give you the same response.

My point is not to be-little you, just that hopefully one day you'll wake up and realise how crazy this lifestyle of yours actually is. You have a fabulous income but it is hard for me to take seriously your plight when you simply push back and tell us how you can't make real changes.

You can make any change you want, including selling the house and subsequently drastically cut back on your expenses. Do you really care what the Joneses think?.. If so keep doing what your doing.. if not screw them and spend like these guys.  http://www.mrmoneymustache.com/forum/share-your-badassity/free-at-last!/

You could do this if you wanted to!.. Whats more believe it or not its fun and you could get your kids in on the fun too.

I would sincerely hate for you to come back in a year from now having lost a job with a very different story... In SoCal there were Ferrarri's showing up at food banks during the great recession.. I kid you not.

I had friends who bought Multi million dollar houses in LA and two SUVs on credit.. doing the same thing you are now.. they lost the lot!

I appologise to being sarcastic I really shouldn't do that.. (I'm English we all do this).. but if tomorrow morning you said... "Holy F.. No wonder that guy was being such a Jerk".. and you went out and made real changes.. even if it does limit your careers so what?.. then it was worth it.

If all you are looking at doing is trimming round the edges then you have plenty of ideas already.

Bethersonton

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #78 on: March 11, 2014, 03:22:09 PM »
This is a really tender subject for me right now since last night I watched "Top Gear" go to Myanmar and I got the tiniest glimpse of what 99% of humans on this earth live like and just how privileged I am as a white American even though last year my husband and I made TWO WEEKS of the OPs salary. I mean, my mattress isn't flea-infested and covered in excrement. I hit a switch on the wall and lights come on. Clean, potable water comes out of every faucet. The grocery store has an abundance of food all in one place. I can be an atheist and I won't be killed or arrested for it (touch and go in certain places in Texas, but still), etc.

"Sustainability" comes in many forms, not just monetary. Just for starters: a Nissan Leaf, LEDs, and recycling are never going to offset one month of the OPs sprinkler use. And I'm only picking on that because OP brought it up. (FWIW, I don't find your house size unreasonable at all for 4 adults and 2 kids).

I've been making my life choices recently like this: if every human being on the planet lived like I do, could all 7 billion of us survive? I'm not perfect at all (I drive everywhere and I'm not quite ready to stop flying though we've cut back substantially), but I'm working on it diligently. That, to me, is sustainability. Living simply so others may simply live (Gandhi? not sure).

To the OP: Are you seriously trolling all of us? This thread is insane. I started the day thinking "interesting enough topic" and now I'm telling myself that none of this is real because that's what's going to get me to sleep tonight. To my fellow MMM'ers: roll on with your badass selves.

olivia

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #79 on: March 11, 2014, 03:23:31 PM »
I understand what sunk costs are - and if you read carefully each of the examples are actually in fact consistent with the definition

Yet you wrote in the OP,

Quote
but at this point we are pretty well committed (with tons of sunk costs)

Being "well committed" due to sunk costs is exactly the fallacy. Changing requires ignoring the sunk costs. Maybe you aren't ready to change yet?
Unlike money, the time/emotions/experiences you have invested with friends/associates/colleagues can't be flipped around without consequence.  If a project is NPV negative due to some externality you can make the case to turn off the lights immediately no matter how much money you have already thrown at it.

Are personal relationships the same?  How about a career?  What about education (and the value in continuity)?  At best, you might be able to make a case that they are still 'sunk' but it's really not as simple as the 'sunk cost' from a purely economic sense.

I hope the other person who commented about 'sunk costs' also reads this (or that you yourself do) before asking about it again in another reply

OK, so the "sunk costs" are not economic, but rather about what happens to relationships if you end the country club membership, the house and so on.  I presumed they were economic because you described the issues with having to pay broker's fees, etc.  Obviously the same does not apply to relationships, since one can't simply replace one relationship with another cheaper one.

You've mentioned in the thread that you use the house to entertain; presumably the club is used to meet people, and that is the value in not cutting it.  OK, then my question is about the relationships - if you need the house and the club to continue these relationships, just how real are they?  Is it just a matter of location - you wouldn't meet up with these folks in a casual way?  If you live in a merely upper middle class neighborhood, would these friends still want to come to dinner?  Are these colleagues you really feel the need to impress by inviting them to a huge house, and you might lose out on future prospects or promotions if this stuff wasn't there?  Do you care all that much about such prospects if you are interested in retiring early?
The club is used for social events, and it's great to see friends and familiar faces, but we utilize it the most playing competitive tennis, paddle tennis and golf, as well as using the pool in the summers.

The people we host in our home are close friends we know from various ways: school, hometowns, work, friends from town, kids' friends parents, etc.

We actually don't have a 'huge' house that is impressive with outstanding curb appeal.  At 4000sqft (including finished basement) it is large enough so that the 6 of us can live comfortably and entertain from time to time, but there isn't a single room that isn't utilized often.

Quotes like this are exactly what everyone is commenting on.  4000 square feet is HUGE and unnecessary for 6 people.  I'm sure it's very nice to have, but not necessary.  And your income is huge, too, regardless of whether or not your peers make more.  If you're fine with all of your choices, this is pointless.  If you're not okay with it and want to change, make big changes.  Basically, the answer is you can't have it all, if all is retiring early and continuing at your level of spending.

GregO

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #80 on: March 11, 2014, 03:24:14 PM »
There are a lot of people who are going to make harsh comments.  You've done a good job of not getting frustrated by the comments, I'm sure you anticipated they would come.  There have been a lot of useful comments as well.  If you focus and respond to those, I'm sure there is a lot of good discussion that can occur and everyone can learn from.

[Do you (or have you considered) participating in any eye opening service/volunteer events? Something that puts them face to face with the poverty that they are spared from. I would even recommend swapping out a fancy vacation with one of service. I'm not sure how old your children are, but building houses in a developing country would probably make them feel more fortunate than any sort of lip service on the topic.

I read through (almost) all of the comments, and I think this was probably the best one of all.  You have talked about how important experiences are, and this could be at the top of the list for your family.  The trip wouldn't be that expensive and be highly educational.  But don't go with a charity that has high-income donors.  Find smaller charities that don't have connections. 

I also like the idea of cutting the yard maintenance down.  How old are your kids?  I spent my whole life cutting the grass (7 acres, though not manicured at all) with my dad.  It could be a good experience for your family.  Maybe start with just doing an acre or two.

I also really liked the idea of spending some time living in a less effluent area of NYC.  A year is likely more than you would do, but what about a month or two during the summer when your kids aren't in school?  You could rent out your house and put that money towards retirement while getting a different experience.  I think there are a number of these creative types of things you could do if you think outside the box a little.

EK

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #81 on: March 11, 2014, 03:27:48 PM »
Is anyone else starting to get joet flashbacks?

bacchi

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #82 on: March 11, 2014, 03:48:29 PM »
I think the budget/plan is very realistic when one has already bought all of the main things needed (including primary residence) with no debt at a 3% withdrawal rate.

Case study solved.

Good job everyone.

GregO

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #83 on: March 11, 2014, 04:00:10 PM »
I actually serve on the board of a non-profit organization focused specifically on helping the needy in our community. 

That's great and is good exposure.  I still think it's a great idea to go to a third-world country and serve there as well.  That provides a whole different experience.  It's also very different to spend days or weeks serving in a needy area than it is to spend one day there.  And charities that don't have big donations and budgets attack their goals in different ways, which is great to experience.

alm0stk00l

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #84 on: March 11, 2014, 04:03:55 PM »
btw, what is the appropriate size house (incl basement) for 6 people?

Well I don't make anywhere near what you do, but I am in the 6-figure range and we live at 233sqft/person. That is my wife, my daughter, and I in 700sqft, and I find it accommodates us quite well. I am hoping we can shrink this some actually to help us ignore the urge to acquire more things. YMMV

minimalist

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #85 on: March 11, 2014, 04:10:37 PM »
Based on your current expenses, you need investable assets of $17.9 million to retire early. So no, you cannot retire early and have it all. Your Property Maintenance, Landscaping, Country Club, Utilities, and showoff machine are excessive waste. Almost everything else is "fine" but could be improved upon. Your eating out expense is actually impressive.
Thanks for the comment minimalist.

Retiring early doesn't mean *now*.

There is a 10yr plan that was mentioned in the original post.  Costs go way down when the nest is empty.

Sorry, my head exploded from reading your expenses so I wasn't able to thoroughly read all the details of your post. I think it will be difficult to go from a ~$30k a month lifestyle (which excludes taxes, rental, and education costs) to $7k a month lifestyle, but you can probably work your way there over time if you start caring less about what other people think.
« Last Edit: March 11, 2014, 07:28:11 PM by minimalist »

Cassie

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #86 on: March 11, 2014, 04:18:15 PM »
I think this poster wasted a lot of people's time because she is not interested in changing, etc. I have read stories of people making lots of $ that had a "lightbulb" moment and did make huge changes but sorry to say at the present time she will not be one of them.  I don't think anyone else should waste their life energy on this person.

WageSlave

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #87 on: March 11, 2014, 04:19:21 PM »
the main point we are trying to convey and the question we are trying to ask is what about someone who has already invested a huge amount of time and money building up a certain lifestyle (sunk costs) but then starts to see the light

Get over the whole sunk costs thing; I believe you are using them as a proxy for not wanting to give up the swanky lifestyle.  Yes, at some point, you do just have to walk away, like a child giving up his security blanket or pacifier.  For the child, those things represent a "previous version" of himself, a prior life that he has grown beyond; they are meaningless to him now.  Same for you, if you really want to change your life, then all those sunk costs should look to you like expensive photographs.

Yes, they are sunk costs, but they are sunk like an anchor: there is still a rope to them which continues to drag you down.  So much maintenance to, as you've literally said yourself, keep up appearances.

Correct me if I'm wrong, but what I distilled down from your original post is that expenses are about $60k/month and net savings is about $20k/month.  That's a 25% savings rate.  You're doing better than the average American, for sure, but a more significant savings rate is required to get some traction with this crowd.  And, by my math, you're looking at 14 or 15 years of savings before your portfolio will cover your expenses, and that's assuming a fairly generous 5% real return.

Just like there are assholes at every demographic, there are also wonderful people at every demographic.  You say you want to continue to hang with the wonderful people you've met, and continue to foster those relationships.  I think it's a real test of these peoples' character though, if they continue to desire to be friends with you if you give up all the trappings of conspicuous wealth.  Worst-case, you're forced to seek out new wonderful people at a lower income bracket.  What do you want your kids to see as they grow up?  Their parents living in a "bubble" of other similarly---and blatantly---wealthy people?  Or their parents interacting with lots of different people across all income ranges?

I have friends who I think are also wonderful people.  And I don't think anyone would disagree with my characterization of them being wonderful.  But they are wealthy (not quite at your level, but high) and I already feel some friction as I try to save money while they increasingly flaunt their success.  It's frustrating.  I wouldn't say they are bad people or that they are "wrong", or even that they have poor character; I know they still want to be friends.  But I think a big part of friendship is shared values, and what is your lifestyle, but an expression of your values?  So while I'm sure we will remain friends, it's hard to stay "tight"; and, frankly, there are some subjects where we just can't relate.

I've been having this discussion with my wife: she's on board with the idea of MMM, so long as we can still be "normal".  Normal is living roughly the same way as our friends---our middle class friends, mind you, not our wealthy friends (she already agrees the rich ones aren't "normal").  And I said to her, just look at the stats on how the typical American spends their money (MMM's old colleagues are probably a representative sample).  So I told her, based on the numbers, chances are, middle class people---our friends---spend virtually all their money on "stuff" in one way or another.  McMansions, financed cars, electronic gadgets, regular dining out, big cable plans, long commutes, whatever.  If you're willing to take it to the level MMM has, you're not going to be "normal".  And I'd say that the difference between where you starting from and where you end up is roughly proportional to the amount of growing apart you'll do with your friends.

As I composed this, 40 (!) posts were added, and I see a lot of comments from you along the line of "didn't you read the original post?"  I.e., a lot of people mis-reading (or not reading) the details of your original post.  Maybe give this readership the benefit of the doubt that your original post wasn't clear or, at least, wasn't representative of the typical way such numbers are presented.  At least some of the folks here are making an honest effort to help; why not make their job a little easier and clarify those aspects which are causing a lot of confusion---even if it means repeating yourself---rather than being the disgruntled sysadmin who just says "RTFM".

BlueHouse

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #88 on: March 11, 2014, 04:23:34 PM »
WF listed as one of his reasons for posting was that others may benefit from reading his story.  Well, I don't earn anywhere near that kind of income, but I do share some similar traits:
1.  I recently bought an absurdly large and expensive (for one person) house.  Much more than I currently or will ever need.  But I love it and it has made my life so much better in a number of ways.  I fear every day what would happen if I lost my job and I think of different scenarios to help me keep this house.  I'm not selling it voluntarily.  So wanting to cut costs in other areas so I can keep (and pay off) my offensively expensive (to me) house is just a different priority than most people have.
2.  I am still spending obscene (to me) amounts of money to furnish this house with all new furniture and fancy stuff that I usually have little desire for.  But I want a decorated house that is a joy to come home to.  And then I don't plan on buying any more "house stuff" for 10-15 years.  Really. 
3.  I choose some things that are completely anti-mustachian on a pretty regular basis, but I can afford them because I am somewhat frugal in other areas.  Yes, it will take me longer to get to FI, but in the meantime, my bills are paid and I'm still saving a decent percentage of my income each month.  In order to retire though, I need to have one or both houses paid off.  That's my goal right now. 
4.  I am new here, so while I thought I was frugal all of these years, I am just now beginning to understand how unfrugal I am.  This really is a lesson to me and all the facepunches I've seen could easily be aimed at me.   
5.  I also have my previous home (condo) that is losing $300/month. I rent it out because it is worth less than what I paid for it, and a metro (train) station will be built 3 blocks from it by 2018 -- so I fully expect that the money I lose each month can be offset by an increased value in a few years (at least back to what I paid for it).  Isn't this what an investment is?  and isn't that the situation that WF has with his second home?





WageSlave

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #89 on: March 11, 2014, 04:33:12 PM »
On the house size thing... isn't MMM's new house around 1500 ft^2 (am I remembering right)?  For a family of three, that's 500 ft^2/per person.  Using that as the "rule" for a "right-sized" house, you're allowed 3000 ft^2 for six people.  :)  Although if you drop the live-in help, you can further downsize.  ;)

And I read 6.4 acres?  I grew up in a rural area, so I'm used to large yards, although, in the rural midwest, "lawn care" is a synonym for "mowing".  Our first house was on about three acres, although we only mowed about two, and that alone took about three hours.  I can't imagine how much time goes into professional landscaping of over six acres!  (And now I can't stop thinking about Willy from The Simpsons.)

Anyway, if I understand you right, you're saying, "We have this big outrageous lifestyle now, but we intend to scale back dramatically when we do the early retirement thing".  I think that's a dangerous proposition.  It's one thing to say, "I'll give up cable to save $50/month when I retire."  But you're looking at making huge changes on the order of 10s of thousands of dollars per month.  I can't help but feel that's a recipe for disappointment.

I'm going to go so far as to suggest the hard rule of this lifestyle is live the life now that you want in retirement.  Certainly you're life will be different after retirement, and you won't be able to predict your post-retirement finances with 100% accuracy---but you gotta be in the right ballpark!

anisotropy

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #90 on: March 11, 2014, 04:42:16 PM »
Income:
Gross Income (pre-tax/401k):    $71,000 (base salaries of $34,170, the rest is annual bonus with varying payment/vesting schedules throughout the year; I took the combined average over the last 5 years – our incomes have generally been increasing but obviously fluctuates a bit given one of our jobs is in finance and the wild swings in the market over the last 5 years)
Rental Income:    $6,000 (this just covers our total costs for the rental property before depreciation so net cash flow is $0)
Total Income:   $77,000


my first reaction was 77k counts as high income???? Then I clued in: "oh, thats per month"

congratz! you guys beat us, hoping to be where you are in 10-15 years.

seattlecyclone

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #91 on: March 11, 2014, 05:24:44 PM »
lagniappe - I actually created a separate spreadsheet of anticipated 'post-retirement' expenses (with the main assumption that the kids would no longer be living at home and on their own) to come to the $7k/month total.  I felt it would be too much to put all in one post.  We calculated that every cost would go down significantly (and some, like kids' activities, would be totally eliminated).  Even vacations would be reduced substantially, with trips for 2 instead of 4 (or more) allowing for more travel with dramatically less cost.  And we are considering living in a condo, which would drastically reduce maintenance and landscaping costs.

What's stopping you from moving in the direction of this lifestyle right now? You could trade in your landscaped, six-acre property for a family-sized condo or a city home on a much smaller lot right now. You could take fewer vacations right now. You could sell two of your cars and use public transit more right now (perhaps in conjunction with a move to a home that offers walkable access to transit).

If you plan to live more simply in retirement, why aren't you willing to live like that right now? It's an honest question. My opinion is that you may have a hard time downsizing that much in the future, unless you can clearly articulate the reasons for your current choices and explain why those reasons will no longer apply after you retire.

I think a lot of us may be skeptical of your plans to downsize after retiring, in part because it's the opposite approach many of us are taking. We're skipping out on expensive week-long vacations now so that we can afford to retire early and travel to other places for months at a time, living like a local when we do instead of paying through the nose for five-star service. We're doing our own yard work now because a $2k/month landscaping bill means we need to stash away $600,000 to maintain that part of our lifestyle in retirement, and mowing the lawn is good exercise anyway. The bottom line is that we try to get our base level of spending down to the minimum needed to guarantee a happy life. Why would we be willing to go much lower than that in retirement? Doing so would imply that we either don't actually have enough to happily retire after all, or much of our pre-retirement spending wasn't actually doing anything to make us happier.

Through it all we're paying approximately zero attention to what our neighbors think of our activities. Their opinions don't bring us any closer to meeting our life goals. How much of our time and money should we be willing to spend to make them happy?

If I were in your shoes I would be scared to death of being laid off. Your family's spending is too high to cope with losing a big chunk of your income for an extended period of time. There's no reason to expect there won't be another downturn or some other event between now and your planned retirement age that could permanently affect your ability to earn as much as you currently do. If that happens, what would go first? Would it be the lawn service? The country club? The live-in help? The private schooling? The organic groceries? Why wait for an emergency to make these changes? I think that's another key point of Mustachianism: if you limit your spending to a more baseline level of luxury now, an unexpected job loss no longer needs to be an emergency at all. You'll have enough savings to get by for years without a job if need be, so you can focus your job search on finding something you'll truly enjoy, instead of needing to settle for the highest-paying job you can find before your money runs out.

Weedy Acres

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #92 on: March 11, 2014, 05:32:10 PM »
Some thoughts:

Ignoring taxes, you’re spending about $18K on the mortgages and $17K on other discretionary stuff every month, which is more than your base pay of $34K.  That might be a place to start:  let’s live off our base pay, and bank all our bonuses.  That could help to focus your frugalization efforts, by giving yourselves a ceiling on spending, and then making prioritized choices within that.  You’ve said that you value education first and friends second, so evaluate each line item relative to those, and slice/pare however it makes sense.  Once prioritization method I like is to write each item on an index card, then compare 2 and pick the most important (“if I could only have one of these, which would it be?”).  Put the one above the other, then take a 3rd card, compare it to #2, if it’s lower, put it 3rd, if it’s higher, then compare it to #1, etc. 

BTW, I don’t see the private school tuition listed anywhere. Unless your way of dealing with that is to call it a liability.  I think there’s merit in listing it as an expense, even if you’re committed to it, as it shows the share of your income relative to your other expenses.

There’s been (too) much discussion of sunk cost, but I think it’s valuable to view your spending in terms of opportunity cost.  15 years ago, I was anticipating a $40K bonus, and planned to spend it on a new BMW Z-4.  While I was waiting for the cars to come out, I realized that what I planned to spend on the car would buy an entire Habitat for Humanity house.  That opportunity cost was too big for me, and I couldn't bring myself to buy the car.  Now, I didn’t donate the money to HFH, I saved it, but that probably grew to 6 figures over time, and enabled me to buy a business down the road. 

Consider the opportunity cost of some of your spending.  I know private school tuition is a sacred cow.  But let’s say the $1m you’re planning to spend raises your kids' quality of life by 10% (you know it’s marginal, since they could have an excellent life in your great public schools).  But what if it could also raise the quality of life of 20 inner-city kids by 200% by paying their way through college that they otherwise couldn’t afford.  Pick another line item if that one’s too sore. 

You’re obviously doing great good for your family, and it sounds like you’re working hard to ensure your kids are well grounded.  But you could be doing even more good by looking more extensively outside your family and social circles.  I like your volunteer work, and challenge you to do even more and give even more.  You’re at a paltry 3%.  I’d target raising that to 10%.

Finally, I’d use your vacations, which shouldn’t be tied to your friends/social status, as family adventures to live differently.  With the amounts you’re spending, I’m assuming you’re staying in high-end hotels and being pampered.  On your next vacation, give yourselves a budget like $1000 for the week, and involve the kids in the challenge of vacationing on that budget.  Stay in a Holiday Inn Express (not slumming it by any means), eat from a grocery store instead of restaurants, take local buses around town instead of renting a car, find the free activities to do, etc.  There’s incredible satisfaction and sense of accomplishment—not to mention life skills--from figuring out how to maximize the utility of a dollar.  It also helps you live the point to your kids that happiness isn’t dependent on money.  They can choose to live otherwise later in their lives, but they’ll remember that they know how to do it cheaply and could always go back to that if needed or wanted. 

When I first traveled, in college, I backpacked through 3rd world countries and lived on about $20/day because that's all I had.  I continued to take similar trips into my working life, and even when I had much more money, I enjoyed the challenge of doing it on the cheap.  It’s kind of fun (“this taxi driver that I’m negotiating hard with over 50 cents has no idea I’m a millionaire”).  And it makes living the good life very evident as a conscious choice instead of unavoidable.

Good luck.

ZMonet

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #93 on: March 11, 2014, 05:47:02 PM »
I really do commend your posting on this board and sparking so much discussion.  If nothing else, I think it stretches -- for some maybe the right word is "blows" -- people's minds and lets us view things from a different vantage point.  I also appreciate your commitment to charity, both your monetary giving and your time on the board.

It seems you have given a great deal of thought to your children.  Don't you ever worry about what the effect of all this wealth will be on them?  My wife and I make a fraction of your income but we are continually concerned about the impact that living in nicer accommodations and getting more things will have on her.  We also have reservations about whether getting certain opportunities will make our child think that they are somehow better than those around them.

As an aside, I don't begrudge the income you and your husband make, but there is a problem in this country (or maybe just a by-product of extreme capitalism) when the world of finance pays so much money.  I'm not really sure why finance deserves such high paying salaries, but then again I always am baffled that people make what they make (on all parts of the spectrum).  Again, nothing against you -- it is a game and if the objective is to generate great wealth, you're doing exceedingly well and are on the road to do even better.


historienne

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #94 on: March 11, 2014, 06:43:15 PM »
btw, what is the appropriate size house (incl basement) for 6 people?

Well I don't make anywhere near what you do, but I am in the 6-figure range and we live at 233sqft/person. That is my wife, my daughter, and I in 700sqft, and I find it accommodates us quite well. I am hoping we can shrink this some actually to help us ignore the urge to acquire more things. YMMV

We have five people plus a full time home office (my husband works remotely) in just under 2,000.  And it feels very spacious - we could easily downsize, but we live in a very low COL location so the financial gains would be minimal.

eman resu

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #95 on: March 11, 2014, 07:55:16 PM »
Hi WF,

You are choosing to take on unnecessary risk and expense temporarily to provide a set of circumstances / experiences to your kids. Nothing wrong with that. Seems a majority of the fluff --- country club, landscaping to "fit the neighborhood," etc. --- ties back into maintaining that set.  You wrote that you recognize that your retirement timeline could be negatively affected by this choice, if your income dips. That is what it is.     

The retirement plans seem a bit less decisive.  I know you've provided math, but I inferred (from an admittedly quick read-through) that your expectation is that the changes required to retire early are going to happen more or less organically when the kids leave. You admit you kinda like the "all" in having it all. Do you like the "early" in retiring early as much?  You obviously have the resources to go whichever way you choose, whenever you choose.  So... you just gotta choose, right?
 
   

mgreczyn

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #96 on: March 11, 2014, 07:59:05 PM »
Just to clarify, when you say you want it all you don't really mean EVERYTHING, right?  Just kidding.  I think you may have stumbled into the wrong blog.  The "frugal" rich finance guy blog is here: http://www.financialsamurai.com/  Note that he's loaded, but drives an old POS.
« Last Edit: March 11, 2014, 08:00:39 PM by mgreczyn »

homehandymum

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #97 on: March 11, 2014, 08:05:53 PM »
btw, what is the appropriate size house (incl basement) for 6 people?

Personally, the size of the actual house sounds about right, if you are providing housing for not just your family but two additional adults who need their own space. 

One way to cut the house expense, though, would be to address the 6.5 acres bit.  If you're using the country club for tennis and swimming, then clearly you don't have tennis courts or a pool (and if you do, they are optional extras).  Unless you have a stable with thoroughbred horses on site then your acreage is superfluous.

Can you switch to a mansion with smaller grounds?  Even if the list price is higher than your current home, the grounds maintenance costs would be worth saving.  An entire apartment building?  I have no idea - I'm in another country and a whole different fiscal universe, but it doesn't seem outside the bounds of possibility that you could buy or renovate yourself an urban home with all the space and accessibility you need with no grounds at all.

The only other thing to seriously hit would be travel (as a couple of others have already said).  How you want to change this is up to you, but traveling twice per year, once to a domestic location and once to a non-European location would make savings.  Or even dropping it to once per year for a few years.

My reasoning is this:  In my own life I decided that there was no point making my own laundry powder or using a rubber scraper to get the last of the mayo out of the jar, if we were paying too much for housing and cars.  Looking at your numbers, the equivalent spends (IMO) are acreage and vacations.

Not going to touch your schooling decisions - you've made it clear it is non-negotiable, but aside from that, shifting a kid's school without their buy-in is fraught with pitfalls. 

Don't be too upset by the push-back you're getting here.  Most of us can't even imagine that sort of expenditure without thinking EXPLODING VOLCANO OF WASTEFULNESS   :~)  It's just how we roll.

windawake

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #98 on: March 11, 2014, 08:14:43 PM »
Most of us can't even imagine that sort of expenditure without thinking EXPLODING VOLCANO OF WASTEFULNESS   :~)  It's just how we roll.

+1!!!

Ambergris

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Re: Reader Case Study: Can We Have It All But Still Retire Early?
« Reply #99 on: March 11, 2014, 08:24:10 PM »
btw, what is the appropriate size house (incl basement) for 6 people?
Don't be too upset by the push-back you're getting here.  Most of us can't even imagine that sort of expenditure without thinking EXPLODING VOLCANO OF WASTEFULNESS   :~)  It's just how we roll.

In fact, given that most mustachians say this about anyone spending more than a few thousand dollars a month, to us it looks more like a whole Himalayan mountain range of exploding super sized volcanoes of wastefulness.

Indeed, it goes so far beyond what we are used to that I feel we have to step back in awe and congratulate you on managing to spend all that money in one month.  As Eddie Izzard once said, "you must get up very early in the morning"1.

But...that's just us.

1 See http://www.youtube.com/watch?v=BFtkJd8w5UQ