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

[Metric Mouse]

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 ...

Why should what other people think of you, especially after you're dead, ever impact what you do, or how you live your life?

[Villanelle]

I think some people tend to underestimate picking up and moving away from friends, family, support systems, and even local culture.  They do that either because they haven't even experienced that kind of upheaval and change, or because in their personal value systems, those things aren't especially relevant or important.  If you're an extreme introvert or you make strong connections super easily, you don't give half a fuck if you have to pick up and move.  If you adjust easily, it's not really a concern if you move from Manhattan to a suburb of Boise. 

Sure, the OP is a fancypants spender.  I get that for many here (including probably MMM himself), that face punch worthy--epic face punches.  It makes me cringe.  But I also think that cavalierly saying, "just move somewhere cheaper" is kind of ridiculous, too.  Maybe his hopes and dreams are to maintain the strong, meaningful friendships he has with local friends and family.  And yes, he could do that at some level from a homestead on the middle of nowhere.  But it would be a heck of a lot harder.   

[MidWestLove]

The topic may have exhausted itself as people are now talking in circles..  everything said of cause make sense
- plan what you want to do and then do your plan (tax, legal, etc). which OP already seem to be on the top of.
- don't come here (or in fact anywhere) complaining how hard it is to cut it (or would be to cut it) on miserly 250-400k a year especially without the requirement of working to death. you get face punched and extremely well deserved one. just don't do it as it speaks of you as arrogant and ignorant.
- don't come and state Manhattan is the only place that is livable (variant walkable, has good schools ,etc). again ignorant and arrogant , and not specific to Manhattan (could just as much be replaced by Gold Coast of Chicago, Winnetka ,etc.).  saying 'I want it' is ok as that is opinion vs claiming something as fact.
- if you want help/advice, open your eyes a little and hear others. if you are not willing to hear, why are you even here?  step out of your shell

and most important, do what is right for YOU ! I don't want to be morbid but your time (and health) is not guaranteed and never was. be it time for yourself, time to give something back to the world (which rewarded you greatly), time to spend with those you love especially your kid(s), that is time you will NEVER get back.  Shareholders, investors, blah-blah-blah, all of that is noise that would forget you the moment you are no longer useful to them. live your life, that is the point of this site.  try to live every day as your first, your last, and your only one...

[MustacheAndaHalf]

Some differences from most plans: almost all of your money will be in taxable when you retire, with little in 401(k) plans compared to the cash you get from selling the business.  Typically people want a fairly strong bond allocation, but in taxable that gets a bit expensive on taxes.

You should look at Vanguard NY tax-exempt bond fund.  It invests in municipal bonds of NY, so it's exempt from taxes at the Federal and state level.  That keeps some room in your tax bracket for other things.  For diversification, I'd still recommend a national muni fund (tax-exempt for Federal, but not NY state).  Mix according to tax discomfort vs diversification.

States tend to treat dividends as ordinary income, while the IRS gives it a special tax rate.  So you'll need to investigate that, plus the 20%+3.8% you owe on Federal (3.8% Obamacare "net investment income tax").  Or you could delay a bit, and see if that +3.8% disappears for really high incomes (over $250k income triggers "net investment income tax", even if income is all dividends).

Good luck with 4% rule and proceeds from sale of your business.

[dougules]

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.

Wow.  Wow. 

http://www.cbsnews.com/news/americans-immigrate-to-mexico-to-retire-report-better-living-conditions/

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 ...

The Midwest is still expensive by world standards, so you're also making choices to sacrifice some frugality for location.  There's nothing wrong with that, since unlike buying stuff, location is something that might actually make a difference in your happiness.  OP is already at Manhattan-level FI anyway. 

And you're seeing what you like in a place as absolutes.  A lot of people might find your ideal spot to be isolated, still relatively expensive, overly conventional, or OCD about cleanliness.  Everybody has their cup of tea.  New York is really expensive exactly because people really want to be there. 

[tomsang]

My real question comes down to spending based upon the 4% SWR that we all like to think about.

I think many are missing your real question of whether you can retire and spend 4%. 

As mentioned before, taxes, health care, and virtually everything that you will need to pay in the future will come out of your spending number.  When you are in the $10 million Stache area, you will most likely have some taxable income.  Not a problem, but you will need to figure that into your calculations like early retirees figure out their health care costs, cost of cell phone and gym memberships provided by their employer.   

The 4% rule is more interesting as you are talking about retiring very young.  Typically, when MMM and many others are talking about the 4% rule they have a number of safety nets in the background to call on if necessary.  IE if you are spending $25k a year, and you have been retired for a bit and there is a recession that knocks your stocks down significantly you probably can find a minimum wage job at some point to meet any minimum shortfall that you may have.  If you are spending $400,000 a year, then a minimum wage job is not going to cut it.  Social Security for many will be a significant amount of the $25k budget so that is a big added cushion. Again if you are retiring at 35, your Social Security is going to be lower than someone who retires at 67.  The GOP is currently putting legislation to limit Social Security for those retiring in the future.  It probably would not be a big cushion for someone spending $400k a year. 

I would read about what the 4% rule says, what it is and what it isn't.  It was not designed for a 100% success with a retirement of 60+ years.  It most likely will be safe, but your safety nets may be less than others who could dampen a bad year with hobby job income.  I think a big question is how much will you need to lead the lifestyle that makes you and your family happy.  Funding for school for your kids does not last forever.  How much do you actually need each year for the next ten years and how much do you need after the kids move out?  Will you still need the same size house or can you downshift to a smaller house?  If you are not comfortable investing 70%+ in equities you may have issues with a 60 year retirement.  Understanding investments, inflation, sequence of returns, and getting comfortable with investing is key.  I would read and digest as much as possible from Wade Pfau.  His research is very insightful on the 4% rule and Safe Withdrawal Rates.

Good luck! 

[boarder42]

My real question comes down to spending based upon the 4% SWR that we all like to think about.

I think many are missing your real question of whether you can retire and spend 4%. 

As mentioned before, taxes, health care, and virtually everything that you will need to pay in the future will come out of your spending number.  When you are in the $10 million Stache area, you will most likely have some taxable income.  Not a problem, but you will need to figure that into your calculations like early retirees figure out their health care costs, cost of cell phone and gym memberships provided by their employer.   

The 4% rule is more interesting as you are talking about retiring very young.  Typically, when MMM and many others are talking about the 4% rule they have a number of safety nets in the background to call on if necessary.  IE if you are spending $25k a year, and you have been retired for a bit and there is a recession that knocks your stocks down significantly you probably can find a minimum wage job at some point to meet any minimum shortfall that you may have.  If you are spending $400,000 a year, then a minimum wage job is not going to cut it.  Social Security for many will be a significant amount of the $25k budget so that is a big added cushion. Again if you are retiring at 35, your Social Security is going to be lower than someone who retires at 67.  The GOP is currently putting legislation to limit Social Security for those retiring in the future.  It probably would not be a big cushion for someone spending $400k a year. 

I would read about what the 4% rule says, what it is and what it isn't.  It was not designed for a 100% success with a retirement of 60+ years.  It most likely will be safe, but your safety nets may be less than others who could dampen a bad year with hobby job income.  I think a big question is how much will you need to lead the lifestyle that makes you and your family happy.  Funding for school for your kids does not last forever.  How much do you actually need each year for the next ten years and how much do you need after the kids move out?  Will you still need the same size house or can you downshift to a smaller house?  If you are not comfortable investing 70%+ in equities you may have issues with a 60 year retirement.  Understanding investments, inflation, sequence of returns, and getting comfortable with investing is key.  I would read and digest as much as possible from Wade Pfau.  His research is very insightful on the 4% rule and Safe Withdrawal Rates.

Good luck!

when you're not on a barebones budget you have a giant safety net of just cutting some lifestyle in a bad market.

[tomsang]

My real question comes down to spending based upon the 4% SWR that we all like to think about.

I think many are missing your real question of whether you can retire and spend 4%. 

As mentioned before, taxes, health care, and virtually everything that you will need to pay in the future will come out of your spending number.  When you are in the $10 million Stache area, you will most likely have some taxable income.  Not a problem, but you will need to figure that into your calculations like early retirees figure out their health care costs, cost of cell phone and gym memberships provided by their employer.   

The 4% rule is more interesting as you are talking about retiring very young.  Typically, when MMM and many others are talking about the 4% rule they have a number of safety nets in the background to call on if necessary.  IE if you are spending $25k a year, and you have been retired for a bit and there is a recession that knocks your stocks down significantly you probably can find a minimum wage job at some point to meet any minimum shortfall that you may have.  If you are spending $400,000 a year, then a minimum wage job is not going to cut it.  Social Security for many will be a significant amount of the $25k budget so that is a big added cushion. Again if you are retiring at 35, your Social Security is going to be lower than someone who retires at 67.  The GOP is currently putting legislation to limit Social Security for those retiring in the future.  It probably would not be a big cushion for someone spending $400k a year. 

I would read about what the 4% rule says, what it is and what it isn't.  It was not designed for a 100% success with a retirement of 60+ years.  It most likely will be safe, but your safety nets may be less than others who could dampen a bad year with hobby job income.  I think a big question is how much will you need to lead the lifestyle that makes you and your family happy.  Funding for school for your kids does not last forever.  How much do you actually need each year for the next ten years and how much do you need after the kids move out?  Will you still need the same size house or can you downshift to a smaller house?  If you are not comfortable investing 70%+ in equities you may have issues with a 60 year retirement.  Understanding investments, inflation, sequence of returns, and getting comfortable with investing is key.  I would read and digest as much as possible from Wade Pfau.  His research is very insightful on the 4% rule and Safe Withdrawal Rates.

Good luck!

when you're not on a barebones budget you have a giant safety net of just cutting some lifestyle in a bad market.

I agree if you are willing to make the changes. Otherwise, they are just like the rest of the Mustachians without the ability to supplement their lifestyle with side income.  We all could pack it up and head to Panama, Costa Rica or whatever retirement Mecca is in the news if our Stache dropped and we wanted to drop our cost of living dramatically.  We also could pack it up and go to Somalia if we need more extreme measures.  Most of us would not be comfortable moving away from family, friends, familiarity of lifestyle, etc.  Which is why it is probably Mustachian for all of us to move to another country.  The OP appears to be uncomfortable moving out of Manhattan like many of us would feel about leaving our hometown or country.  Cutting the fat should be easier if they are living off of $400k year.  Making the cuts before the Stache is decimated is the key.  Private kindergarten, becomes private high school become private University, with a new BMW, a $250,000 wedding, a $250,000 down payment on a house, etc.  If they are willing to scale their lifestyle back, then all is good.  Will the wife be on board?  What is their budget?  Hopefully, he will stick around and understand what Mustachian is about.     

[ubermom4]

You were brave to post your question and seek advice. We have a slightly different situation but I have had to contemplate similar issues and live in HCOL and lived in Manhattan for much of my life.

 All commenters stating that math is math are completely correct. Numbers don't lie. If you want to stay in the city --hooray! Private school tuition is $50k per year, per child and goes up at around 8%  or so each year (this is averaged but generally true).  I am unsure of the age/condition of your apartment (condo or co-op, etc.) or the quality of the group managing the building (i.e. are they retaining enough funds each year for larger projects that need doing or will be required to do in future years, etc.). These assessments can be quite large and handed down with little warning for budgeting purposes. Obviously, you must have noticed that  not only is COL high, it increases quickly each year -- as will your taxes. My city friends are paying their triple taxes (city, state, feds) at rates of over 50% per year.

You should also realize that many people who stay in the city to raise their kids at private schools end up buying a weekend house (especially if they have the time to use it which you would have). It is nice for the child to be outside, etc.  Here you can think about that hedonic treadmill.

I am totally in favor of your staying in the city but you need to be comfortable with the numbers. Sadly, Manhattan is designed to vacuum all money out of its inhabitants. My suggestion would be to take a little bit of time off after the sale of your business and then look for remunerative work once more. That's the tradeoff you make for choosing to live in the city. Best of luck -- hope this helps.

[zolotiyeruki]

What it really comes down to is this:  How much extra are you willing to pay every year for the privilege of living in Manhattan, compared to a very similar lifestyle in a cheaper location nearby?  I admit that the appreciation of the RE in Manhattan throws a monkey wrench into things, but first of all, your property taxes alone (0.8% in Manhattan) are $56k/year, due to high property values.  Let's go crazy and let's say the alternative is a location where property is cheap enough that your property taxes are $10k/year.  You pay an extra $14k/year in taxes on your $400k withdrawal just to NYC, on top of the 6%+ the state charges you.  Just between those two factors, that's $60k/year.  Let's also say that the alternative location has good public schools, so you save another $50k.  Just with those three items (property taxes, income taxes, the need for private schools) you are literally paying an extra $300 per day to live in Manhattan, without an increase in quality-of-life.

[totoro]

What it really comes down to is this:  How much extra are you willing to pay every year for the privilege of living in Manhattan, compared to a very similar lifestyle in a cheaper location nearby?  I admit that the appreciation of the RE in Manhattan throws a monkey wrench into things, but first of all, your property taxes alone (0.8% in Manhattan) are $56k/year, due to high property values.  Let's go crazy and let's say the alternative is a location where property is cheap enough that your property taxes are $10k/year.  You pay an extra $14k/year in taxes on your $400k withdrawal just to NYC, on top of the 6%+ the state charges you.  Just between those two factors, that's $60k/year.  Let's also say that the alternative location has good public schools, so you save another $50k.  Just with those three items (property taxes, income taxes, the need for private schools) you are literally paying an extra $300 per day to live in Manhattan, without an increase in quality-of-life.

Both sets of grandparents live in Manhattan, his wife "just loves it", and he wants to stay and has stated that he'd rather work a few more years if need be to stay because he also does not want to move.  Seem like quality of life factors.

I also would be willing to pay more and do to live where I live in a HCOL area.  Places are not interchangeable to me because of friends and family and the fact I grew up here.   And appreciation is an interesting thing, in highly desirable places it may outpace the difference in cost of living by a significant margin.

[JPS82]

Hey Everyone -

Thanks for all the great thoughts.  Sorry it took so long for me to reply.  I really appreciate everyone's thoughts here, and especially the negatives - it makes me consider all the options.  I understand that Manhattan is not for everyone, and a lot of people don't understand my choices.  What a lot of posts have said is absolutely true - my whole life is here: friends, family, support system - leaving for my family would be such a major change, and I would really worry about the happiness of my love ones.

As to spending and my personal finical choices - I understand people's anger but I really do see myself as someone who holds to an MMM lifestyle - it just cost 10x the average salary in Manhattan.  People have mentioned before - my son's private school is 50k, our property taxes are about the same, so we are at 100k without blinking.  I completely understand we could back up and have a wonderful life other places in the world.   And if I had to do that I would -- but its not my choice to leave my whole world.

I really want to thank all the people that directly answered my question about the 4% withdrawal.  Once I know where I stand in the next 24 months I will have to spend some time talking with my CPAs and trying to figure out my tax situation to account for the 4%.  I will give some updates in the future to let you know.  I can obviously cut out some fun discretionary amount - but a good education for our children and items like that are obviously a non-negotiable.

Thank you everyone
JPS

[boarder42]

Yep can't get a good education on less than 50k per year. BC money equates to quality.

[Metric Mouse]

Yep can't get a good education on less than 50k per year. BC money equates to quality.

Only people who were educated on less than $50K a year would think that cheap education is good. /S

[financialfreedomsloth]

Yep can't get a good education on less than 50k per year. BC money equates to quality.

Only people who were educated on less than $50K a year would think that cheap education is good. /S

To be faire, good eduction starts in kindergarten, that's where you have to spend the big bucks! I can tell you, those gold plated pampers really do make a difference later on in life!! /S

[clarkfan1979]

It seems like you don't really have a realistic estimate of your expenses, which makes it difficult to answer your ultimate question, which is "can we do it?"

You need to track your expenses for the next 24 months. After 24 months of tracking your expenses, you can do the math and plug in all of your numbers.

As other people have suggested, your expenses will go down a little after you stop working because you won't have any work related expenses. A few people mentioned the nanny being a big cost.

Wanting to stay near family and friends is awesome. I think that is very MMM.

Complaining about mandatory $10 organic milk is pretty much 100% opposite of MMM.