5+ Million Dollars Net Worth- SWR of 4% - Does Taxes change Answer

[JPS82]

All -

I was wondering if all the people on the forum think a SWR of 4% still applies to people with net worth above 5 Million dollars.  If I have a 10 million dollar net can I really spend 400k per year.  I feel like taxes change for UHNW individuals.  Whats your thoughts?

JPS

[jim555]

The 4% should include taxes.

[chasesfish]

I think it would still apply, especially if you earn most of your income through long-term capital gains and dividends at a lower rate.  If you retired, would you still need to pay a Nanny?   What is your net worth outside of your apartment?  WWhat is your net worth outside of your apartment?  That does the state/local income tax rate come out to in Manhattan now?  What about real estate taxes?

Is there anything in particular that's keeping you in New York City if you stopped working  There are some nice havens throughout the country where you could have a similar lifestyle/neighbors with a lower cost of living,  (lookup Highland Park/University Park, Texas)

I think you can do it if your liquid assets are $7mil -- $8mil.  One option to test it is to go check Fidelity and see what a replacement annuity would cost if you bought it up front in a lump sump.

[JPS82]

Wow - quick answers - I figured my post would go unnoticed.  Honestly I got a little embarrassed and took off some of the personal stuff off the post.

I live in NYC metro because my wife and my families are all here.  Our son is between 2-3 years old and he is the first grandkid so everyone wants to see him.

I am in the tech industry so my shareholders and clients are in the area.  I sold most of my business this past summer and will sell the remainder in the next 2 years.  I could leave the area but my whole life is here, friends, family, etc... and my wife just loves the walkability of Manhattan - you really have to go to Europe or South America to find other cities that you can really just walk or use public transportation.

Lets say I can buy and apartment outright after I sell the company and have 10 million liquid -- I still worry after taxes you really have about 250k left to spend.   Obviously things like the nanny will stop after I stop working, and he gets a little older, but you can't send a kid to public school in NYC unless they test into Bronx Sci. or Beacon etc etc.  Cost of living is very high -- Organic Milk at the local bodega is $10+ dollars per gallon.

With that said I still believe the MMM values hold up -- its just enhanced in both ways living in NYC.  I wouldn't have been able to build this kind of business in other parts of the world so income/expenses are both higher.  I could leave as I said - and it might be a back-up plan - but I would like to stay.

Thanks for the thoughts

JPS

[jim555]

NY/NYC taxes are so high.  Is it really worth to cost to stay?  My frugal side is talking.

[pbkmaine]

If it were me, I would look for a co-op or condo on the small side with reasonable maintenance charges. School, taxes and food will be expensive, but a lot of people live in NYC on surprisingly little. How much do your yearly costs run now? Swapping nanny costs out for private school costs should enable you to make a decent educated guess.

[financialfreedomsloth]

I live in NYC metro because my wife and my families are all here.  Our son is between 2-3 years old and he is the first grandkid so everyone wants to see him.

And I bet there are a lot off cheaper places (tax and property wise) about an hour drive from NYC. They can come out and relax in your garden in the weekends and then see the grandkid.

I am in the tech industry so my shareholders and clients are in the area.  I sold most of my business this past summer and will sell the remainder in the next 2 years.

No they are not, you are selling the business, you will no longer have any shareholders or clients. I am sorry to be the one to have to break this news to you....

I could leave the area but my whole life is here, friends, family, etc...

Your present work life is in NY. Isn’t the point of selling your business to have a different life? Why else would you sell? I mean, you have your own, profitable business. If you want to keep your life as it is now, then do not sell the business, do not retire! But selling the business and then expecting the same life after you have sold your business does not make any sense.

and my wife just loves the walkability of Manhattan - you really have to go to Europe or South America to find other cities that you can really just walk or use public transportation.

Bullshit, your wife loves manhatten. Plenty of places that are walkable or bike able. USA is a big country, there are a lot of cities, there a lot of cool places outside of cities. Most of it pretty walkable. She loves manhatten. Don't make up excuses.

Cost of living is very high -- Organic Milk at the local bodega is $10+ dollars per gallon.

That is insane! Bodega, lets call it a shop because thats what it is. Also, organic milk? As opposed to the what? Synthetic milk we pump out of the soil or what? The word organic is marketing, it means whatever the marketing guys has decided it should mean which usually is whatever gets them the best mark up. Actually you shouldn't be drinking any milk at all, humans are not supposed to be able to drink milk, those who can are the genetic mutation ones (http://www.pcrm.org/health/diets/vegdiets/what-is-lactose-intolerance : Indeed, milk does not offer any nutrients that cannot be found in a healthier form in other foods. Surprisingly, milk-drinking does not even appear to prevent osteoporosis, its major selling point). Boom, i just lowered your cost of living by 20 or 30 dollars a week.

but I would like to stay.

There you have it; You would like to stay, so does your wife apparently. Everything else is just excuses you are looking for to justify you want to stay in manhatten. That’s ok. But perhaps you will have to work again due to the high cost of living there. Is working again worth it to stay in New York? Perhaps it is fear, have you ever lived anywhere else than New york? Perhaps the next summer holidays you can go life somewhere else for 2 months. Not go on holiday somewhere else but go live somewhere for two months, rent a house, go grocery shopping. Live life outside off Manhattan and then you will know for sure if you can leave Manhattan or not. Most people in the world do not live in Manhatten, and guess what? They are ok with it.

[JPS82]

Life is really about making yourself and the ones you love happy.  For our family living in downtown Manhattan does it - we barely ever drive or get in a car.  I bike around NY mostly and walk anywhere I need to go.  My real question comes down to spending based upon the 4% SWR that we all like to think about.

I have been very fortunate to build a successful business that has allowed my family to live in an extremely expensive part of the world.  Whether or not you agree with that decision - the question I really have is if I have 5/7.5/10 million liquid can I really spend 4% of that annually without earning more money if I am 35 years old.

I completely understand that I can change where I live, live in a smaller place, or make a number of decisions that will decrease my annual burn.  The question is more lifestyle - and if the 4% SWR applies at higher annual net worth.  I would rather work for a couple more years and put away more and retire at 40 years old then decrease my lifestyle.  Personal choice, and I understand it might not be the same for everyone on the forum.  But I really respect everyone here and I am curious about your thoughts.

Thanks for the time
JPS

[terran]

I have been very fortunate to build a successful business that has allowed my family to live in an extremely expensive part of the world.  Whether or not you agree with that decision - the question I really have is if I have 5/7.5/10 million liquid can I really spend 4% of that annually without earning more money if I am 35 years old.

The answer to your question (as has been said above) is both yes and no. Taxes are a form of spending and are therefore inherently included in the 4% rule. If you have $10M and believe the 4% rule (remember, the study it is based on looked at a 30 year retirement, so whether it holds true for longer and for the current economic environment is another question with lots of recent discussion you can find on the forum), then you can spend $400,000, but that includes spending on taxes required at that level of income. Think of the 4% rule as telling you your gross income, not your net income. 

[Guesl982374]

JPS - Another thing to consider about the 4% rule is that it is based on withdrawing 4% of the initial principle and then indexing that amount for inflation on going, regardless of what the market does. If someone is 'retiring' on $20K/yr on a $500K liquid investment, there is a lot less fat to cut from their budget than someone retiring on $200K (including taxes) on a $5M investment. If you keep your fixed/essential costs to 2 or 3% of the initial principle, you can flex the luxury/travel/nanny/whatever up and down depending on what the market does - i.e. if the market pull back 20%, Cut 10-20% out of your budget for one year by delaying the remodel, avoiding the latest Birkin, or delaying the 1 month trip to Europe for 12-18 months.

[Classical_Liberal]

I think the general 4% is still valid, although the way you invest should change to maximize tax benefits since taxes are of more concern to you (are a bigger portion of budget) than the typical mustachian.  Higher levels of assets also allow you different (debatably better) investment opportunities.  Tax free investments like muni bonds become more attractive as well.

[Goldielocks]

I think the general 4% is still valid, although the way you invest should change to maximize tax benefits since taxes are of more concern to you (are a bigger portion of budget) than the typical mustachian.  Higher levels of assets also allow you different (debatably better) investment opportunities.  Tax free investments like muni bonds become more attractive as well.

This is a long the lines of what I was thinking -- there are many ways to optimize taxes when the amount of investment income is this high.   So much, that it pays for itself to talk to a tax accountant CPA now to start planning, and especially within a year or two of the planned money/ retirement.   They can pre-set it up so that the investments do not all generate fully taxed income.

 Using capital gains instead, is one simple example... but also sale of business structuring and even corporate trusts to help divide the income across family members.  Perhaps kids trust are paid out directly, which is used to pay for the nanny, and taxed at their rate?  Other options...

Anyway...   lots of opportunity to reduce tax rate to that of the "average" FIRE.

[chasesfish]

I would also add that it may be worth your while to tiptoe into some private real estate investments.  By tiptoe I mean do it really, really slowly.   There are tons of sharks out there ready to eat a novice, but if you can find a couple really solid investors that take on partners on deals, it would also be worth exploring at your income level.   You're an accredited investor at your asset level, just take it on in very small bites.

Congrats on the success and if you want to live in Manhattan, hell, live in Manhattan.  You earned it.   You'll probably be okay if you keep your expenses around $300,000 before accounting for income taxes. 

[Letj]

I have been very fortunate to build a successful business that has allowed my family to live in an extremely expensive part of the world.  Whether or not you agree with that decision - the question I really have is if I have 5/7.5/10 million liquid can I really spend 4% of that annually without earning more money if I am 35 years old.

The answer to your question (as has been said above) is both yes and no. Taxes are a form of spending and are therefore inherently included in the 4% rule. If you have $10M and believe the 4% rule (remember, the study it is based on looked at a 30 year retirement, so whether it holds true for longer and for the current economic environment is another question with lots of recent discussion you can find on the forum), then you can spend $400,000, but that includes spending on taxes required at that level of income. Think of the 4% rule as telling you your gross income, not your net income.

Yes he would incur taxes but only on the capital gains or income portion of his withdrawal.

[arebelspy]

The 4% should include taxes.

Bingo.

Yes, you can withdraw 4% of 5MM.  Then you pay your expenses from that. Taxes are an expense.

If you only need 50k, you can have a 1% WR, pay zero taxes, and spend all 50k.  Or whatever.  But if you need $200k to SPEND, not counting taxes, you'll need to calculate what total you'd need to pull out to pay the taxes on it and support that spending, and then accumulate 25x that.

Many of us can ignore taxes, because our effective tax rate is around zero.  But that's just a happy coincidence--in all cases, taxes should count as part of your expenses when calculating your "number."

[smoghat]

If you have your own business and have a good accountant, you should be able to find some ways to incur major losses. Look at that other NYC resident Donald Trump, he's done very well with all of his bankruptcies. Seriously though, the more you have the more you should be able to deduct. It's not that hard. You just need to make it sound reasonable. Want to buy a yacht and sale around the world with your family? Probably can't deduct that. Did you make $20,000 from a book that you wrote about the experience. Well, then, you might have a case.

As far as NYC, you are definitely rationalizing. I live in Montclair and retired over the last year on over $4.5 million in securities and the like. I also have a house worth over $1 million with over 3,000 square feet. I could easily walk to most things I wanted to do and if walkability was a prime factor, I could buy another equally nice house that would be in an even more walkable area (we chose to live on a hill for more privacy, the view, and the architecture of the house we bought).

I'll be the first to say there are extravagances living here…  Like the taxes, about $25k a year. But I have two kids and they both go to public school, so it's a LOT cheaper to pay the taxes then to send them to private school (not to mention, take deductible, see above about losses). I moved here when I was employed in the city, so I played the arbitrage game, living in a less expensive area and commuting to a more expensive area. My kids' friends are from a diverse economic background, which I think is important for them, but many of them are from families where hard work has led to financial success. That's a worthwhile lesson right there. I grew up in a rural environment where such lessons were few and far between, so I think that's important. Will they get into good schools if they get good grades in their (public) high school? Oh ya, they will, no question. So that's worth it right there. Did I join the country club? No. Did I join the $7,000 a summer swim and racket club? No again. Am I still seeing my contacts in the city now that I'm retired? No. And why should I? I am retired. They have to live their lives, I live mine. I garden, I read stoic philosophy, I have my own projects in art and music, I go to the gym, cycle, and run. After all, I'm retired at 49.

By removing yourself from Manhattan you will find yourself needing it less and less. Otherwise you may yet find it impossible to retire. Maybe that's fine. 35 is pretty young. You can start another business. But then again, it could also go bust and cost you a lot of money… 

As for that bodega. Stop shopping at that bodega. That's insane. I've bought produce at Fairway in the city before they opened up out here. It's much cheaper there and a bodega is by definition full of rats. You can also order Fresh Direct. Even Ronnybrook is $5.49 a half gallon and that stuff is crazy expensive. So reality check, don't shop at the bodega again. Ever.

[marty998]

I'll only say you need to seek good, professional advice.

Highly unlikely you will find anything appropriate from a couple of forum posts from people like us who don't have that sort of cash to play with.

[arebelspy]

Professional advice is good, but keep in mind their biases, and what they are selling.

And don't forget that math is math.

[totoro]

Do you need more than the after tax amount 4% would generate annually?   Have you run the numbers?  Maybe you need to do a budget including tax calculations.

If you do need more you may want to consider more active investments, and you might also want to plan ahead and set up a trust for your family if you haven't already. 

With that kind of capital you should be able to exceed 4% if you are willing to invest in business and RE and have some of the associated stresses of a partly non-passive portfolio.

If would be worth it for you to consult an accountant who advises those with significant assets as tax planning can save you a lot of money.

[financialfreedomsloth]

I'll only say you need to seek good, professional advice.

Highly unlikely you will find anything appropriate from a couple of forum posts from people like us who don't have that sort of cash to play with.

We offer a different perspective.

His initial question has been anwsered: taxes should be included in the 4% he spends.

In my opinion it is always good to have some basic premises challenged. Do you really want to keep on living in manhatten? Do you want that level of lifestyle?
Some discover they actually do not want it and shave off years of their work time. Determining that yes, you do want it is also ok because now that person has a better view on how much he/she will need or clearly understands the consequence of his/her choice: more years working.

Perhaps sometimes I come off a bit strong but I would never judge a person for making well informed decisions and clearly knowing and accepting the consequences of that decision (well except the organic milk at a bodega thingy, that's just downright silly ;-). Own the choices you make!

Professional advise about early retirment: I do not think it excists and I also think it will never exist because it is deeply personal for each person. Some go the extreme route, living off a couple of 1000 USD a year, living and travelling in a van with a stash that is only 200.000 USD. Some move to countries who have way lower cost of living. Others want a decent house but chose a cheap location within their country and some will want to stay in Manhatten. The how and when of early retirement is something each person has to figure for himself. And the only thing you can do is look around and read how other people did it and apply the relevant bits of their journey to your own life/situation. Perhaps a meet up with other moustachians in NYC could be helpful also for JPS? I noticed a thread in the meetup and social event section of the forum...

[Fishingmn]

Disagree with those pushing you to leave NYC. If that's where your friends and family are at and you really like living there it makes no sense to leave. Being near family & friends is far more valuable to most people's happiness.

As for the 4% SWR at your age - I would aim for lower but I'm conservative. I'm much older (54) and recently semi-retired and we are starting at a 3% rate for the first few years. The high PE, Bogle warnings and all the talk about the importance of market performance in the years closest to retirement make me want to start with less risk.

[boarder42]

Disagree with those pushing you to leave NYC. If that's where your friends and family are at and you really like living there it makes no sense to leave. Being near family & friends is far more valuable to most people's happiness.

As for the 4% SWR at your age - I would aim for lower but I'm conservative. I'm much older (54) and recently semi-retired and we are starting at a 3% rate for the first few years. The high PE, Bogle warnings and all the talk about the importance of market performance in the years closest to retirement make me want to start with less risk.

this is incredibly overly conservative.  3% how many extra years did you have to work to get there you likely could have quit 5-10 years earlier at a 4% SWR.  glad you have a crystal ball but based on historic returns even 3.5% has never failed and has grown a stash and more than 50% of the time 4% grows a stash indefinitely.  and you're 54 you get SSA in a few years.  to each his own but "conservative" doesnt really explain this.  IMO around here this is extremely conservative ... but your generation typically identified with your jobs leading you to work much longer anyways.

on to the OP .. this is a really simple black and white case for the most part 4% includes your taxes.  but you have to have an insanely high buffer in which you could trim fat if the first few years were rough.  also no reason to buy a condo or house outright.  jumbo loan rates are still low.  financing the property will lead to more flexibility and success than owning it outright.  but you are in a weird tax situation where it may actually make sense to own it out right - but at the end of the day this is all one big math equation that can be solved.

[JPS82]

Hey Everyone -

Thank you everyone for giving me your perspective and thoughts - it really helps in my quest of thinking about when to FIRE.  Someone mentioned an MMM group in NYC that I didn't know about - curious about that.

Just a little more perspective on my situation - I just sold a big portion of my company over the summer, and in the next 24 months, the last portion should be sold.  I have been working on it for over 7+ years now and I am not actually sure what my total final # will be.  (difficult to explain terms of sale - but earn-out / metrics - means bulk of cash comes at final close date).  I know that after taxes I am looking at somewhere between 5-10 million.  My apartment is probably worth similar range - but I really would like to keep it.  I could rent it out for 20-30k a month so if I really screw everything up my family could live on that. 

I have some great CPA/Accountant/Legal professionals - I have do audited financial statement, disclosure, etc for shareholders, so I am pretty sure I will minimize taxes to the amount legally allowed, but afterworlds like most of you I will be left with some final number and no longer have income, job, healthcare, etc etc. 

I could start another company, do consulting, etc -- but would much rather find a passion and not have to worry about money.   I have used my extra cash-flow over the years to pay off an amazing apartment in NYC that is perfect for my family -so although I could sell it -- I currently plan on staying.   I have very little cash on top of that -the cash from the sale will really come after the 24 month (est.) final sale.  So I am just reading and planning -- never been in a position of just having a bunch of cash and no income.  Scary and fun - exciting and interesting - really appreciate everyone's perspective.

Thanks for all your thoughts everyone

JPS

[boarder42]

you need to do a case study at this point. to see where your money is going and what you need.

maybe ARS can weigh in but renting an appartment worth 7MM for 20-30k per month is awful ROI the market returns close to 500k annually on avg for 7MM invested.

[JPS82]

Boarder42 -

The apartment is for personal use - not an investment decision.  Also keep in mind that Manhattan ROI on RE is extremely low because appreciation is traditionally very high -apartment is already up 30+% in less then 5 years.  The macro-perspective for Manhattan property is very strong.  Brexit, China outflow, currency flux -- I think its safe to say that my apartment will continue to appreciate nicely, and for Manhattan has very low overhead. 

Again I think of it more as a safety net, place to live, etc -- then a straight forward investment.  As I start my FIRE life soon -its also nice to know if I screw up I have something to fall back on.  Don't know if I will stay here forever - but probably till my child graduates HS

JPS

[boarder42]

you're mixing 20 different things and betting on real estate appreciation is a gamble not an investment.  you seem to have come here with a question and are combative to most responses.  there is a wealth of knowledge here to be tapped.  you can tap it or not but you're currently an excuse factory.

you can have more and live a badass life.  i live an ultra luxurious life by MMM money standards at a projected FIRE number of around 80k per year including taxes in the midwest.  but you can optimize things and stretch dollars farther.  my lifestyle for the avg person in my town would cost around double that or everything we make a year.  but it doesnt.  thanks in part to how i was raised and to the wealth of information that can be obtained here to optimize spending. 10 dollars for milk is absurd.

[totoro]

I agree with you JPS82: appreciation markets are different than rental return markets.   I also agree that RE in an appreciation market can be a good bet if you otherwise have the income to live on.   Our market has, on an inflation-adjusted basis, returned 4% annually. 

I think the issue you have on this thread is that there are many people who have not run the numbers or thought through the issues at 5-10 million net worth.  This changes many things.   At this level of net worth you can earn more than 4% safely with some active management.  In addition, you can ex. buy an apartment for long-term appreciation and current enjoyment and still have enough to live on.

Our net worth is lower than yours but high enough that we have run through various scenarios, some of which are different than a simple 4% withdrawal rate.  For example, it is better for us to have a family trust and a corporation to dividend and flow through income to other family members.  Even in retirement it makes sense to hold some property in a corporation for income management and tax planning purposes. 

Find out how others with this level of wealth are planning by talking with someone who assists with wealth management as a profession - not a fund manager but someone with an accounting and/or legal designation.

[boarder42]

I agree with you JPS82: appreciation markets are different than rental return markets.   I also agree that RE in an appreciation market can be a good bet if you otherwise have the income to live on.   Our market has, on an inflation-adjusted basis, returned 4% annually. 

I think the issue you have on this thread is that there are many people who have not run the numbers or thought through the issues at 5-10 million net worth.  This changes many things.   At this level of net worth you can earn more than 4% safely with some active management.  In addition, you can ex. buy an apartment for long-term appreciation and current enjoyment and still have enough to live on.

Our net worth is lower than yours but high enough that we have run through various scenarios, some of which are different than a simple 4% withdrawal rate.  For example, it is better for us to have a family trust and a corporation to dividend and flow through income to other family members.  Even in retirement it makes sense to hold some property in a corporation for income management and tax planning purposes. 

Find out how others with this level of wealth are planning by talking with someone who assists with wealth management as a profession - not a fund manager but someone with an accounting and/or legal designation.

the problem i have is he's all over the place.  i can rent it but i own it to live in and for appreciation.  how do taxes work ... there are piles for him to learn but he's not very open to it and shuts down advice. pretty much at every turn.. its quite obvious he's lost but i'm not sure if he came here just to get an answer of it doesnt work at your income level or what ... but at the end of the day its all math every bit of it is math.  and he needs to learn and understand the math himself or find a CPA who understands it all and will actually look out for all his best interests. 

my apt went up 30% last year is like saying i bought 7MM worth of stock XYZ last year and it went up 30%.  50% of your NW is tied up in an asset that could go to 1MM dollars.

[Mmm_Donuts]

I agree with you JPS82: appreciation markets are different than rental return markets.   I also agree that RE in an appreciation market can be a good bet if you otherwise have the income to live on.   Our market has, on an inflation-adjusted basis, returned 4% annually. 

I think the issue you have on this thread is that there are many people who have not run the numbers or thought through the issues at 5-10 million net worth.  This changes many things.   At this level of net worth you can earn more than 4% safely with some active management.  In addition, you can ex. buy an apartment for long-term appreciation and current enjoyment and still have enough to live on.

Our net worth is lower than yours but high enough that we have run through various scenarios, some of which are different than a simple 4% withdrawal rate.  For example, it is better for us to have a family trust and a corporation to dividend and flow through income to other family members.  Even in retirement it makes sense to hold some property in a corporation for income management and tax planning purposes. 

Find out how others with this level of wealth are planning by talking with someone who assists with wealth management as a profession - not a fund manager but someone with an accounting and/or legal designation.

the problem i have is he's all over the place.  i can rent it but i own it to live in and for appreciation.  how do taxes work ... there are piles for him to learn but he's not very open to it and shuts down advice. pretty much at every turn.. its quite obvious he's lost but i'm not sure if he came here just to get an answer of it doesnt work at your income level or what ... but at the end of the day its all math every bit of it is math.  and he needs to learn and understand the math himself or find a CPA who understands it all and will actually look out for all his best interests. 

my apt went up 30% last year is like saying i bought 7MM worth of stock XYZ last year and it went up 30%.  50% of your NW is tied up in an asset that could go to 1MM dollars.

The OP doesn't sound lost at all, IMO. He likes where he's living, and sees the apartment as a place to live rather than purely an investment. Obviously stocks have had better returns over the past 8 years, but he lives there and enjoys living there. Not everything is about the money.

His comment about possibly renting it out was in a worst case desperate scenario. It doesn't sound like he's seriously considering that at this point.

And I hope he doesn't do a case study - doesn't sound necessary, if he can figure out a way to keep his expenses including taxes between 200-400k a year. Honestly... I think people here just enjoy picking on wealthy folks! There's no reason for him to sell his apartment AND start cutting his expenses to 50k a year.

To the OP, congrats on your successes. You've earned a wonderful retirement.

[boarder42]

I agree with you JPS82: appreciation markets are different than rental return markets.   I also agree that RE in an appreciation market can be a good bet if you otherwise have the income to live on.   Our market has, on an inflation-adjusted basis, returned 4% annually. 

I think the issue you have on this thread is that there are many people who have not run the numbers or thought through the issues at 5-10 million net worth.  This changes many things.   At this level of net worth you can earn more than 4% safely with some active management.  In addition, you can ex. buy an apartment for long-term appreciation and current enjoyment and still have enough to live on.

Our net worth is lower than yours but high enough that we have run through various scenarios, some of which are different than a simple 4% withdrawal rate.  For example, it is better for us to have a family trust and a corporation to dividend and flow through income to other family members.  Even in retirement it makes sense to hold some property in a corporation for income management and tax planning purposes. 

Find out how others with this level of wealth are planning by talking with someone who assists with wealth management as a profession - not a fund manager but someone with an accounting and/or legal designation.

the problem i have is he's all over the place.  i can rent it but i own it to live in and for appreciation.  how do taxes work ... there are piles for him to learn but he's not very open to it and shuts down advice. pretty much at every turn.. its quite obvious he's lost but i'm not sure if he came here just to get an answer of it doesnt work at your income level or what ... but at the end of the day its all math every bit of it is math.  and he needs to learn and understand the math himself or find a CPA who understands it all and will actually look out for all his best interests. 

my apt went up 30% last year is like saying i bought 7MM worth of stock XYZ last year and it went up 30%.  50% of your NW is tied up in an asset that could go to 1MM dollars.

The OP doesn't sound lost at all, IMO. He likes where he's living, and sees the apartment as a place to live rather than purely an investment. Obviously stocks have had better returns over the past 8 years, but he lives there and enjoys living there. Not everything is about the money.

His comment about possibly renting it out was in a worst case desperate scenario. It doesn't sound like he's seriously considering that at this point.

And I hope he doesn't do a case study - doesn't sound necessary, if he can figure out a way to keep his expenses including taxes between 200-400k a year. Honestly... I think people here just enjoy picking on wealthy folks! There's no reason for him to sell his apartment AND start cutting his expenses to 50k a year.

To the OP, congrats on your successes. You've earned a wonderful retirement.

where did i recommend any of those things.  i live on a grossly non mustachian budget that is probably similar to the OPs just in Missouri not NYC so COL is lower so numbers are lower.  doesnt mean there isnt room for improvement and optimization that can be found in a case study.  a 200 dollar a month cell phone bill isnt nessary regardless of where you live.  200 a month internet and cable the same.  10 dollar organic milk not necessary.  (numbers made up minus the milk which OP posted as a need in his life). 

money and math dont magically work different at 5MM vs 1MM.

[dougules]

Why so much venom towards Manhattan?  This guy can clearly afford it no problem. 

[Guesl982374]

The macro-perspective for Manhattan property is very strong.  Brexit, China outflow, currency flux -- I think its safe to say that my apartment will continue to appreciate nicely, and for Manhattan has very low overhead. 

What about climate change that is most likely going to put Manhattan underwater? Cash out and then rent in NYC for as long as it makes sense.

http://choices.climatecentral.org/#12/40.7708/-73.9735?compare=temperatures&carbon-end-yr=2100&scenario-a=warming-4&scenario-b=warming-2

[Papa bear]

OP. Check out the forums at early-retirement.org as well.  There is more of a cohort of people in your situation than on these boards.


Sent from my iPhone using Tapatalk

[Mariposa]

Agree: congrats to the OP for your success. With a ~$7mil apartment and ~$5-10mil in liquid assets in addition, you are more than done, even in Manhattan.

I don't understand the venom towards Manhattan, either. We moved to Queens after our baby, but we would have stayed in Manhattan if it weren't for the prohibitive housing cost. The OP doesn't have that problem, though. As other people have said, on a $250k budget, you would have plenty of room to trim costs if necessary. There are plenty of good public elementary schools in NYC (and bad ones, too). You should look into what is available before assuming you're going to have to pay $44k a year for Dalton. High school is a different matter, but that's only 4 years, and your kid MIGHT test into Stuyvesant?

I've paid something like $10 for milk in Manhattan before, but not on a regular basis. If we didn't have to pay for housing, my family could live very comfortably in Manhattan for not more than $80k a year. That would include full-time childcare, healthcare and other insurance, eating out 2x a week, 4 vacations a year. OP says that maintenance costs for his place are reasonable. This could be well north of $2k a month for a $7mil place in Manhattan, though, so that cost has to be figured in as well.

[soccerluvof4]

I agree with you JPS82: appreciation markets are different than rental return markets.   I also agree that RE in an appreciation market can be a good bet if you otherwise have the income to live on.   Our market has, on an inflation-adjusted basis, returned 4% annually. 

I think the issue you have on this thread is that there are many people who have not run the numbers or thought through the issues at 5-10 million net worth.  This changes many things.   At this level of net worth you can earn more than 4% safely with some active management.  In addition, you can ex. buy an apartment for long-term appreciation and current enjoyment and still have enough to live on.

Our net worth is lower than yours but high enough that we have run through various scenarios, some of which are different than a simple 4% withdrawal rate.  For example, it is better for us to have a family trust and a corporation to dividend and flow through income to other family members.  Even in retirement it makes sense to hold some property in a corporation for income management and tax planning purposes. 

Find out how others with this level of wealth are planning by talking with someone who assists with wealth management as a profession - not a fund manager but someone with an accounting and/or legal designation.

the problem i have is he's all over the place.  i can rent it but i own it to live in and for appreciation.  how do taxes work ... there are piles for him to learn but he's not very open to it and shuts down advice. pretty much at every turn.. its quite obvious he's lost but i'm not sure if he came here just to get an answer of it doesnt work at your income level or what ... but at the end of the day its all math every bit of it is math.  and he needs to learn and understand the math himself or find a CPA who understands it all and will actually look out for all his best interests. 

my apt went up 30% last year is like saying i bought 7MM worth of stock XYZ last year and it went up 30%.  50% of your NW is tied up in an asset that could go to 1MM dollars.

The OP doesn't sound lost at all, IMO. He likes where he's living, and sees the apartment as a place to live rather than purely an investment. Obviously stocks have had better returns over the past 8 years, but he lives there and enjoys living there. Not everything is about the money.

His comment about possibly renting it out was in a worst case desperate scenario. It doesn't sound like he's seriously considering that at this point.

And I hope he doesn't do a case study - doesn't sound necessary, if he can figure out a way to keep his expenses including taxes between 200-400k a year. Honestly... I think people here just enjoy picking on wealthy folks! There's no reason for him to sell his apartment AND start cutting his expenses to 50k a year.

To the OP, congrats on your successes. You've earned a wonderful retirement.

I second this ^ its easy for others to tell you to move and all that BUT to be fire'd is a compromise of things you are willing and not willing to give up and for everyone that is different. As arebelspy stated the math is the math. If you get that to work then you are in good shape based on what you are trying to do. If not then you need need to decide what you are willing to give up to stay where you are or live the life you want OR find additional income source. Good Luck to you, you have had great success and have a "great problem" to resolve if one at all.

[Villanelle]

As has been covered, 4% is 4%, regardless of the underlying numbers, but taxes are an expense. 

I'd sit down with a tax professional and see what the picture looks like.  Then I'd take that information and compare it to my willingness to make other cuts if the 4% starts looking ugly.  If I felt pretty comfortable with my willingness to make cuts if needed, fine.  If not, I might be slightly concerned with a 4% SWR.  I tend to be conservative, and if taxes were going to comprise a major part of the FIRE budget (and maybe they won't, which is why that meeting with a tax professional is so important), I'd worry that tax rates could well rise.  And if I didn't think my family would be willing to make the necessary cuts if that happened an I needed to get down to a 3.5% or even 3% SWR for a while, I'd work longer.  But this is all going to be individual comfort levels, just as plenty of people here aim for higher or lower SWRs. 

[MonkeyJenga]

Hi! Here is the thread for NYC meetups: http://forum.mrmoneymustache.com/meetups-and-social-events/nyc-meetup-on-sunday-june-22nd/msg1356569/#new

I would post on there and click Notify to get new replies emailed if you want a heads up on gatherings. People have talked about a January meeting but nothing's been finalized.

[jdfergason]

Congratulations on starting and selling a successful business!  Out of curiosity what did your business do?  I've always had a bit of an entrepreneurial flare but never quite committed to my own business ... just small side gigs.

As others have mentioned the 4% SWR applies at any income level; however, it is a measure of how much you can withdraw not spend.  You have to take the effect of taxes into account and subtract that from the withdrawal to get to the amount you can actually spend.  In my humble opinion taxes are too high and penalize hard work as Milton Friedman put it: "We have a system that increasingly taxes work and subsidizes nonwork."

You seem to be doing a good job thinking through what really matters to you.  It's 100% OK to want to live in Manhattan if that's what makes you happy and it sounds like you have considered it and it does make you happy!  Like you and your wife I love cities that are walkable.  The US just doesn't have the same level of walkability that European cities do.  I think it has something to do with most of the country being built when fast personal transit was available.  At any rate there are some decent walkable cities, maybe some of these would be fun to visit with your new found time!

1) Washington D.C.
2) Minneapolis
3) Seattle
4) Oakland (surprising I know)
5) Philadelphia
6) NYC
7) Boston
8) Chicago
9) San Francisco

It's mostly big expensive cities where space comes at a premium so things are packed tighter.

Never mind those folks on these forums that cannot understand your lifestyle choices.  Sometimes these forums can get a bit over-zelous about frugality / not working.  It amazes me how much mustachianism can be like a religion at times; complete with zealots and evangelist! 

You are doing a great job; keep up the good work! 

[jim555]

Why so much venom towards Manhattan?  This guy can clearly afford it no problem.

This is a frugalist board and Manhattan is like the the opposite of frugal.  To each his own.

The taxes are absurd in NYC.  Why stay when you could just as easily move some place else and save a boatload of cash?  That is my thought on it.
You could hire another butler or something with all the money you would save.

[dougules]

Why so much venom towards Manhattan?  This guy can clearly afford it no problem.

This is a frugalist board and Manhattan is like the the opposite of frugal.  To each his own.

The taxes are absurd in NYC.  Why stay when you could just as easily move some place else and save a boatload of cash?  That is my thought on it.
You could hire another butler or something with all the money you would save.

If you're going to run with that logic you'll need to move to a truly LCOL area like Mexico or the Philippines.  Developed countries in general are the opposite of frugal. 

[Metric Mouse]

Why so much venom towards Manhattan?  This guy can clearly afford it no problem.

This is a frugalist board and Manhattan is like the the opposite of frugal.  To each his own.

The taxes are absurd in NYC.  Why stay when you could just as easily move some place else and save a boatload of cash?  That is my thought on it.
You could hire another butler or something with all the money you would save.

If you're going to run with that logic you'll need to move to a truly LCOL area like Mexico or the Philippines.  Developed countries in general are the opposite of frugal.

And then one could hire a butler for their butler!

[jim555]

It is kinda worth it to stay in a first world country since I don't want to get thrown out of a helicopter or wait five years for a trial on bogus charges.

[Metric Mouse]

It is kinda worth it to stay in a first world country since I don't want to get thrown out of a helicopter or wait five years for a trial on bogus charges.

Neither of those would be particularly enjoyable in any country.

[NoNonsenseLandlord]

You cannot count the RE equity until you sell.  Ans there are a LOT of taxes when you do sell.

I have a sizable income from my rentals.  They are mostly paid off, and my NW is a decent figure.  However, you cannot buy a cup of coffee with a $7M apartment.

Sell the personal residence and move somewhere you can spend the money.  Or cash out with a HELOC or refi.

[jdfergason]

However, you cannot buy a cup of coffee with a $7M apartment.

Not true!  I'd be happy to sell you a cup of coffee for a $7M apartment.

[MidWestLove]

As others said - ultimately it is what makes you happy (even if it is Manhattan). Work your earn out years, earn it out and then see what drives you.

There you see strong responses is that crazy mental block OP seem to have that turns him into a mental slave - "I must must must live in Manhattan as no life exists outside of it" (no education, no nature, no walking, no food, no nothing, just post nuclear war desert landscape I guess) and that is clearly wrong. There are amazing schools , hospitals, universities, cultural events, nature, and everything else EVERYWHERE outside of NYC (and Manhattan in particular). Your kid or grandkid will do just fine outside of NYC and would probably be way better not living in that overcrowded, extremely dirty, very expensive ...hole.

Similarly, it is natural for some of us to be taken aback when individual is concerned about being about to 'afford' to live on many multiple annual median _household_ US income. That will get you  questions of what the f$ck are you doin, bro if you can not live on 6X income of entire American family? is there some unlawful substance problem that requires feeding? nobody "requires" that level of spending ! and that is independent of your feelings, family, etc.
 
so my challenge to OP is two fold
- cut the BS of woe is me and X level of spending is required because of ABC. No it is not, never was, or will be.  it may be wanted , but never required.  think of why you want it and what it means for YOU. for you, not for your family, or any other external requirements (even your wife).

- this site is much more about thinking of what you want to do with your life, which is fairly short when it comes to it. what do you want to be said on your gravestone ? He lived in Manhattan?? or you want to be remembered and impact others in some other way besides holiday gifts in envelops to bunch of servants around you?  what are your dreams, hopes, and desires? who are real you and not the businessman role you had to play? where you want to be? what you want to have done before your time passes (as it will for all of us)?

you have incredible advantages that 99.99% of the world population does not have. don't squander it ...

[totoro]

>not for your family, or any other external requirements (even your wife)

Totally disagree.  What makes my family happy contributes to my happiness.  I would not make a choice that did not consider my family as the priority.

It is a bit difficult for me to understand why people are telling the OP to do something other than what he wants to do when he clearly has the means to do what he is choosing and he was not asking for lifestyle advice.

And his question was a math question, which has presumably been answered.

[minority_finance_mo]

It's a little crazy to me that no one has balked at the fact that OP doesn't know if 250K a year is going to cut it with his current spending. I know you asked a tax question, but it would be irresponsible not to point out the massive facepunch you need with your current spending rate. Maybe start there?

[totoro]

It's a little crazy to me that no one has balked at the fact that OP doesn't know if 250K a year is going to cut it with his current spending. I know you asked a tax question, but it would be irresponsible not to point out the massive facepunch you need with your current spending rate. Maybe start there?

Why? He has already stated,

"I would rather work for a couple more years and put away more and retire at 40 years old then decrease my lifestyle."

His question was whether the taxes on 4% of 5-12 million change the net.  It is a math question.  I don't know the answer exactly in the US, but in Canada it does change things. 

If you have this type of equity in Canada you need some tax planning.  If the $400,000 per year counts as income you'll pay 161k in taxes - dividends and it drops to 95k.  Keep it in the corporation and set up a trust and the income can be split among family members and the tax rate reduced.  My guess is that the states has similar ways to legally plan for capital management so the OP needs to seek out advice on this.  There are many other legal ways to increase the net.

As far as reducing spending - if he has 10 million and a paid off place I'm not sure why he needs to do this?

If I was him I might contact rootofgood and ask for some pointers.

[arebelspy]

>not for your family, or any other external requirements (even your wife)

Totally disagree.  What makes my family happy contributes to my happiness.  I would not make a choice that did not consider my family as the priority.

I think we're quibbling, but I'd argue that then it's for you.

But you don't have to do it for them if you don't want to.