Most families have to work long hours at reasonably high paying jobs to spend this kind of money while working. But let's go with 4% anyway. You can get a lot more house, but property tax is higher (higher % on less value house). They live modestly in 1600 square feet for two adults and a baby: I spent last year up to August living with four other adults in 1400 square feet fairly comfortably. I guarantee you that she would love to get some help for several hours a week. But okay, whatever, they have the passive income to justify such expenses. Additionally I have the skill set to run a part time business. This is a luxury. How are you going to put food on the table and clothe your babies with that? Lots of people live for a lot less in the LA area. So if we assume 10%, and then assume taxes, you land at 6% to be conservative. Those are personal and I pass no judgement on other peoples spending habits. How Much Tax Will You Owe On A $1.5 Billion Powerball Jackpot - Forbes I think a rich lifestyle is at least $500k household income, and $15-20mm in net worth if you want to retire rich. Share this Answer Link: help Paste this link in email, text or social media. Kids are crazy expensive b/c parents are crazy about their kids. At that point, anything LOWER than 6% becomes optional, if I wish to add more to my invested amount each month by NOT taking it out as a distribution. I've been writing about achieving financial independence since 2009. Also, the home pictured is actually a 5 unit apartment building. They really should be thinking about allocating money for home repairs as well since Im assuming they are in an older home. There would be a college education bubble bust since it would eat up too much of even the wealthiest families budget. I live in a blue zone and my costs dont begin to compare to someone who lives in San Fran or LA. Its also a bit odd to have all these children lessons for an 8 month old. You sound like someone trying to justify your outrageous lifestyle and attacking me personally for reasons that make no sense. He is a doctor, made a good living, but I felt that I needed to contribute somehow. I dont understand. Thats eighty thousand a year for wardrobe. My parents are in their 80s now and living an amazing life. As a result, they are happy to pay $5 for food delivery and save 1-2 hours cooking in order to spend more time with their daughter. Sure, you can spend 100k a month to live in Manhattan. We helped my son with a downpayment on his house and we have helped them to pay for other expenses as well. My wife is cool, but she is still a girls girl. If so, can you give me their name because my wife and I are pretty healthy as well, but the way the American healthcare system is set up, the healthy and those who make over 400% the poverty rate are the ones subsidizing the less healthy and the less wealthy. He would earn $52,000 a year if one of the following concerns come true. -10296: Childcare assistance can be axed entirely they are two parents with complete and total flexibility if they so chose, this is a complete luxury. Life takes hard work, whether physically or mentally. Spending time with our children is the highest priority, and we can teach them something ourselves wed rather do that than hire a professional. Fast forward 4 years and $1.3m growing at 3% would be $1.45m. Here's how much the Powerball jackpot winner may owe in taxes Saving us money on health care cost would be much appreciated! I would say we probably budget a couple thousand a month for our kids. I want to reiterate this point since the post is long and there are a lot of comments: Please be aware the vast majority of people who espouse FIRE or are FIRE bloggers are working hard to make extra income or have a working spouse. in a 529 S&P500 index fund. The trouble is that with the risks, it is never enough. I still think it is a better life plan to put together enough money to quit your job and find your passion. So id probably be hovering around 2-3% at the end of the day without even thinking about it. Exactly my point on the swimming. If so, please share how you and your wife split up the childcare hours. ), +$10000 (emergency, unplanned expenses). My main idea for commenting is that we on the coast do need more money to maintain a lifestyle that will keep us in a location that we love. And vice versa Andrew. By the time you finish BTNT you will gain at least 100X more value than its cost. Utilities 300 month After our daughter was born we started investing $800/mo. There are daycare facilities that you essentially pay for the days the kid is actually here, and not just a fixed price every month. Youll probably die before your turn in the queue if you rely on only the government option. Personally, (and I suspect I may be alone on this one) I think it is selfish for J&L to retire and live off this budget when they have the capacity to do much more and still spend tons of time with their kid. Not saying people from racially homogenous areas are inherently bad or racist. But because the business holds assets worth $15 million, they're also able to claim $1 million in depreciation expense on those assets. Its all the nice to haves that will move the needle. I think in almost all cases, the lowest cost plans are more cost-effective overall than the platinum, since there is a max out of pocket that limits your expenses. -replacing their car when they need a new one (plus their car choice is very frugal). Food & Dining $632.83 And I'd keep the last three for myself. If you are living in California and earning a gross annual salary of $72,020 , or $6,002 per month, the total amount of taxes and contributions that will be deducted from your salary is $16,442 . They need to make sure their daughter's prescription is correct to help her eyes align properly during development. This is much more so when you have $6,000,000+ in the bank. If this couple is worth 5-6mil they may have paper losses (RE depreciation, tax loss harvesting, or other tax planning) to reduce income taxes making it worthwhile to realize income and save it in a taxable account. I have lived in and enjoyed those neighborhoods. Are they crowded at time? Retired at 35. Lucky me. My comment was about people choosing to spend a good chunk of their income on food delivery and child assistance when they both stay home with one child, and then claiming that they barely have enough to make ends meet. You are choosing not to. Their $5 million after-tax portfolio could easily shrink by 10% 20%. I am fortunate though that my wife is not a big spender, and we dont like to spend on everything nice for our children. In CA, prop 13 will help you long term. Most times, you dont want to stand out. Ive no idea. Now, assuming youre a law abiding citizen who contributes to their taxes, thats an income of $190K+ annually. If I move I can buy two homes which we might some day do. Id like to know if you ended up cashing out or riding further. Lottery Payout Calculator - Lump sum and annuity payouts Question on the college savings: where did they come from? it makes for a boring and sheltered life. You probably wont need to spend as much as you think. I guess so would my truck :). They are one of the largest and oldest platforms having bee found in 2012. For 2023, the 37% rate applies to taxable income. Please let me know if this doesnt make sense. Not only do you need to accumulate more wealth, you also need to lower your safe withdrawal rate in retirement. I think the key here is the word comfortably, which you left out in the title after the word early but included at the end of the second paragraph. Painting people/regions with a broad brush never really works. After 40 years as a teacher, and enjoying every moment, I retired at 77. I think it is common to pick these apart in an analysis like this but the point of the article remains I think. I spend less than you and have a significantly higher net worth, but I am still watching the budget. After 20 years their net worth should grow by another 1.5 million. Although, sending their daughter to public school in order to have the option to make her a millionaire sounds brilliant. FIRE is, in many ways, a marketing concept for certain blogs (I will say some are more honest and frugal- heres looking at you, RootofGood) that are selling a certain lifestyle just as surely as Town and Country and Vanity Fair. Asterisk on this point would be found in Sams own necessity rent luxury, meaning in the context of your question, you could sell your house, capture some equity and use the additional income to rent a similar house, but be prepared to drop back to a lesser house if the financial tides turned. We will love our kids more than anything else in the world. Under the new legislation, New Jersey's top rate, which currently kicks in at $5 million, will now kick in at $1 million. Due to the rise of the work from home trend thanks to technology and the pandemic, there will likely be a multi-decade trend to lower cost areas of the country. Youve got to do what you feel comfortable doing. Its fun to be a tourist in your own city when friends visit. I dont think everyone should contribute to a 529, in fact I think most should not contribute to a 529. I would expect that saving $250-300k would be plenty. As an investor, I have a lot of aggressively invested money (shifting out) but also a lot of cautiously invested money (shifting in), such as CDs as interest rates rise and the markets correct. If you take care of that car at $4,500 miles/yr you should never have to replace it. They've made many friends from the club. (I loved your stealth wealth article). My wife and I live in Oxnard California, a couple miles from the Ocean. But the couple is older now, and its unlikely a 2nd child will come. Because even the white people around here are used to more diversity. Some of the commenters have correctly stated that this couple will have never enough. All the expense line-items are realistic, if not a little conservative. The average tax rate peaks at 25.1 percent for those making between $1.5 million and $2 million. Maybe I missed it because I have a lowly state college education, but why is there this assumed need that your kids have to go to Stanford/Yale/Harvard, or that your kids are even capable of getting into a top 5-10 private uni? They will spend more on just gym membership and vacations than me and my wife spend on rent at our new apartment. After taxes and CPF,* his take-home is only about half a million. Some of the reasons include: higher pay, more job opportunities, greater diversity, sometimes better weather, amazing food selection, and family to name a few. dividends and LT cap gains. After a major correction/bear one can always shift back. Why do they need 2 million life insurance when they have 6 million in the bank? My wife contributes 8% of her income with a 5% employer match. I am retired wife retires next year., we have 3,600,000 in liquid assets not counting primary residence. $2.04 Billion Powerball Winner Takes Home $628 Million After Taxes - Forbes Glad things are going well for you. And that includes ritzy vacations like our hiking trip in Italy last week and our country club membership. for some numbers. P.S. Through some simple investing strategies, though, you can make $5 million last you a very long time. For instance, I feel they could easily pull 40-50k right off the top of the annual expenses listed here by pulling out true luxuries. Im smelling Suze Orman lingering around this post!! I am a full time dad with 2 kids age 4 and 6 months. Food at $1800 and a good amount is spent on delivery? If you also invest in California municipal bonds, you wont pay any taxes this income. I know you might counter that the market will go back up and they are long term investors. None of this is accounted for here. Therefore, in order to benefit from such rising costs, you should invest in real estate. Semi-private $70 $80/hr. $4M at 3% produces $120K/year in passive income pre-tax. I know many on this site have frugal spouses and they dont want the finer things in life. If you live there leaving is also a high bar. We really enjoy our life. Personally, I do not plan to ever really retire due to the fact that I would be bored out of mind so I never crunched the numbers fully like this. How on earth will colleges be able to unearth all of someones assets? It is also a great idea to have a 529 plan with a million dollars in it for college. A more conservative yield or appropriate withdrawal rate is 3%. The only way I would live in SF, LA, or NYC is if I moved there when single shortly after grad school. Also, food costs can vary significantly based on where you live. But it does make sense. Los Angeles does have some of the best food variety in the country. Again good learning opportunities. I havent lived in SF, but rentals there seem MUCH more expensive. The FI series would be interesting. Their income would go down due to paying off the mortgage: $5mm 700k = $4.3mm. After paying an effective 7% (9.3% marginal) in California state income tax, Jerry and Linda's effective federal + state effective tax rate is only ~17% versus ~27% if they were W2 employees. I completely agree that relying on market returns being strong over the next several years is risky. Maybe people simply dont realize its huge cost, despite the category in my post and the line item in the chart? But when neither parent has a job, departing with 700,000 in investments or cash becomes a little bit more difficult. Id love to hear about your thoughts on financial independence and expenses and so forth after you leave your job as well. My point is simple: this budget doesnt have any extra built into it. Children have left home, almost no support! Why do they need to pay a mortgage at 3.75% when they can pay off the loan? Based on your assets, you will never be eligible for needed-based financial aid. Further, they don't have to pay the 6.2% FICA tax on the first $128,700 in income per person either. Your hate and entitlement are beginning to infect great areas like Nevada now too. If they need to look fancy, they'll wear their old work clothes that still fit 10+ years later because they have maintained their same sizes. Keep your savings rate above 10% on 500k/yr and youll always have enough money for college (if needed), no need to complicate it by putting money in an account that charges a penalty if you dont use it correctly. Heres what went wrong. I only have the Silver plan. Even though college costs are very high even for a public in-state institution there is no need to save $1M. Retiring early without kids is a walk in the park compared to trying to retire early with kids. J&L's $200,000 in investment income is taxed at a 10% effective federal long term capital gains rate (15% marginal) versus 21% effective (25% marginal) if it had been earned through employment. Im a bit confused about the comments of spending for your wife and children. No lavish vacations, nice cars, big charitable donations, Of course nobody needs that, but it is hard to wrap your brain around not being able to have it when you have so many millions in the bank. Or that being financially capable of sending your kids to the top private universities is in-line with a middle class or a just getting by/barely enough lifestyle? What to know if you hit the jackpot: Here are the first steps you should take after winning. Not enough. We live in a $400k 2,300 sq. The first rule of financial independence is to never lose money, especially if you have a pretty large net worth. For most people, investing in a diversified eREIT from Fundrise is the smart way to go. I read almost the entire page without realizing we were talking about an early retired couple, and my jaw hit the floor when I finally did. It is unclear how much the $25,900 standard deduction (2022) will offset HCOL homeowners until taxes are done. Many working families would kill for that level of paid child care, and often have to rely on friends on family or coordinate work schedules to raise kids. I guess $5m just isnt what it used to be! Lol! In fact, its considered the normative. principal in the later years youll be fine. Finally, J&L supplement their grocery shopping with Amazon Prime about once a month as well. They also work great when your kid is 3. If I had $5 million, I would buy QYLD and get 12% dividend . I love these type of profile features! if you spend down some It is also customary for us to pay for meals when we all go out. Museums and cultural activities are often cheap/free. Thats $57/day for food for 3 people! As such, we will save and work and invest as much as possible for them. Thats lifestyle inflation for ya. I was referring to auto, homeowners, earthquake (in CA), umbrella, life, disability, etc. To me doing things out of interest is more important than working a high-paid job just so you can retire early. Its basic lifestyle inflation. I could stomach a 3.5% withdrawal rate but that is not enough to cover our household budget of $275k, which is quite frugal where we live in Fairfield County, and still have money for things like new furniture, rugs, refinish floors, landscaping projects etc. Heres some interesting info I found out from the Harvard / Asian discrimination lawsuit: ~5% overall acceptance rate I am concerned about that. You run a business and that would be like telling a toy company to use dark packaging instead of bright packaging, nothing wrong with it. + $4000 (utilities and phones) Even if I take the low end of the fuel economy for the 2015 Honda Accord its $15.90/gallon. This couple is delusional. Even in Oxnard is is not cheap to live. Lock in risk free return and they will still have lots of capital to risk. I agree that $5M (invested correctly) is a minimum for those with children, especially those considering retirement in their 30s. Depending on your age and your family situation and your desire to provide, I would think $20 million should be enough. 2) their mortgage rate is low compared to the risk-free return now. Come on, they can easily slash this food budget by 40%. At least they dont have housecleaning expenses! The one area I believe is very underestimated is the fuel and maintenance of the vehicle. The tax benefit isnt worth the hassle and risk of penalty for unused funds in my opinion. But, the alternative, is for your child to get a lesser education and have less advantages when it comes to getting into a great college. Of course most in the RE crowd are just changing careers for flexibility and more passive income, not actually RE. Jerry worked in management consulting for 23 years and Linda worked in digital marketing for 15 years. If any of the bad things you mentioned happened to decrease their passive income, all they would have to do is move to a lower cost big city like Atlanta or Orlando. Lastly, if I manage to get back to $20m and cash out, thats roughly $100,000 a month in income at 6%. I expect our health insurance rate to go up at least 5% a year, forever. Obviously, I wouldnt want to deny the kids good activities for their enrichment, but with both parents retired early, I feel like a certain amount of lessons, going to movies, etc. This will drop to 65-70k once the cars and student loans are paid for. While there certainly are reasons for you to stay in California, in the vast majority of the US your costs are fantasy land. Some deductions from your paycheck are made post-tax. How about private lesson? This gave me maximum social security and ability to max out my 403b. The money for these accounts comes out of your wages after income tax has already been applied. 2) agree with poster from Maryland the big coastal cities are not the only ones that offer diversity. $133,120 (new after-tax annual income) $154,400 (old after-tax annual income) + $66,464 (cash flow savings) = $45,184 increase in annual cash flow, The beginning credit phaseout for the child tax credit increases in 2018 to $200,000 ($400,000 for joint filers). I have a read a few of these posts you have done and I find it eye opening and also wonder if it is all real or there is some poetic license built in to get a reaction? Fundrise is free to sign up and explore. Take the plank out of your own eye before you remove the speck from your brothers. Again, their investments and budget isnt static. Still a big amount to accumulate. Note that you don't get deductions on the FICA taxes, which are based on the $100,000 salary. My husband watches the kids while I go to card club and I watch them while he has a weekend away with his brother. And note that this is an assessed value market rate could be much higher, but likely wont be much lower. Current SP500 dividend is 2% or $100K a year, which will dwindle fast (actual inflation rate is way higher than officially reported by the goverment). Please dont get me wrong, my intention is not to criticize this family at all. $5 million is a lot of money. They could move to a lower cost area of the country, but they'd rather stay warm all year round, rather than face brutal Midwest winters. I dont think you need money saving tips, your net worth is multiples higher than ours and your larger spending is justified. Obviously, yes. 2) Childcare two non-working parents spend $10k? Answer: Estimated Income Tax: $9,934 Tax Bracket: 22.0% Tax as a percentage of your taxable income: 11.69% Net Income after Tax is paid: $75,066 How could this calculator be better? I plan to do the same. Like how more international travel and the mastery of a second language can help to create more harmony, hopefully, this article can help lead to more understanding by those who do not. I would love to hear other peoples thoughts on this. In that case, congrats on winning the spouse lottery. Because Jerry and Linda want to be completely present parents, they've promised not to do any activity to generate money at least before their daughter goes to pre-school. It helped me get to where I am, but I do understand the appeal for living in HCOL area for some, especially if family is nearby. It is almost as if the state governments are trying everything in their power to incentivize successful people with money to leave the state. These people are firmly in the wealthy category. So when everyone reads this they see- OK XX% of their investment portfolio goes to paying for their Bare Minimums, YY% goes to their financial goals- 529 etc. Honestly Im not anticipating ever needing to buy new cars again either. She LOVES her job and has no desire to retire.. ~70%+ if legacy plus donor. the benefits list goes on and on. Im sorry, but anything more than a babysitter for a couple of hours per month for the occasional parent date night is pretty much by definition extravagant. This is why I dont get the leanfire and Mr MM crowd. At the time I had two young daughters under the age of 3 and my wife was a stay at home mom. You make a good point. But dont claim that things are tight, or that youre barely getting by, when youre spending money on luxuries like this. Time for just the two of you? Im pretty sure $5mil puts you in the top 1 or 2% of the nation for net worth. But I read your post and the replies and get the feeling that I still havent put enough away. Zero income tax, sunny skies, low prop tax, great healthcare (due to all the elderly). Hi Nathan Thnks for commenting. Shopping is mostly groceries and partially an untamed Amazon habit. When you want to big huge wealth, you want to do so by increasing your wealth with NEW money, not rebalancing your wealth for different needs. They also want to eat healthy, which costs more. Nice job saving to give your daughter a big head start Paper Tiger! I also dont really understand the need for a $2M term life insurance policy when their nest egg already covers living expenses for 3, surely an adult death would lower the cost of a few things like food, clothing, health insurance, etc. Our cost of housing is 2900/mo which includes taxes, hoa and mortgage, we only owe another $600k and currently paying an interest only loan as I prefer the principle payment portion to be invested in equity markets instead of our place. OK, enough reading blogs, dreaming, back to work for me. Sure people might take issues with certain categories and yes people can almost always trim their budgets but I agree that life can be very expensive without being extremely extravagant. This calculator will show you what your options are and how much money you'll have after taxes if you take your jackpot with an annuity. Also, what kind of early retirees contract out landscaping? I believe he bases this on the narrative that the S&P 500 has averaged 10% a year for the last 100 years or so. Donations to school/charity 50 month One thing under-estimated was child activities as they get older, club sports run $100-$300 per month when they are teens and the medical plans have high deductibles with HSA which forces an extra emergency fund. You're expected to pay the rest of your tax bill on that prize money when you file your return. Ive simply chosen to spend our extra money on traveling the world, which we do extensively. What many people are missing is that if you are the type of person that can earn $500k/yr at 28 and $1m/yr at 35 and can actually save $5m by 40, you will probably have slightly different expenses/lifestyle/mindset than people making less than $300k/yr. As a result, they have decided to keep costs low and earn a higher rental yield in other parts of the country through real estate crowdfundingand aristocrat dividend stocks instead. -private school (theyll want this given the public schools in LA suck) Bonus of free light exercise. Once you have 2 million and a home paid, possibilities are endless. You know you can afford to give your kid anything. Thats not down there. I certainly wont be able to afford to pay $1.2 million for their degrees. We spend about $225,000. I think Sam is merely trying to highlight that for most folks food expenses can creep up without going out to fancy dinners etc, especially if you are not actively monitoring and making an effort. I feel that I lucked out with the ideal work situation working from home, in a job and for a company that that have been very supportive. This is a tax-efficient way to put money aside. $5 mln is barely enough once the kids are out of the house and mortgage is paid. It should be most half of that and you could easily cut that to $10/day. Related: How About Retiring On $2 Million In An Expensive City? 4) Food budget and entertainment budget is high. When is enough enough? But, J&L might want to put some thought into what comes between 3 years old and 18 when the kid leaves for college. Also, if you buy weights and a Peloton, you can cut your gym budget quite a bit as well. We have 6 children, with three of them out of the house, one completing his last year of college, and two in High School. My nephew is going to Boston College. They can easily free up thousands in cashflow per year with your recommendations. I just believe they might actually be happier in the long run, ironically, if they werent quite so focused. I have two siblings. I started earning a decent income 6 years ago when I received an MBA from a top-ranked b-school so my net worth of ~$500k is small given my current income & savings rate, but growing. When family and friends are conveniently located in a low cost rural area I think you have an inherent advantage in the early retirement game, but of course that isnt something you get to decide, thats much more a matter of fate. The book is jam packed with unique strategies to help you build your fortune while living your best life. My friends and neighbours are from everywhere, some new immigrants or generations ago. Is this enough? Not sure why an additional $2M would be necessary at that point. Even with all their expenses, they are still in the green. Great point Bill. They should just pay off their mortgage to open up an additional $10,904 in annual cash flow. I have no regrets about this arrangement. If they had $50 million, that wouldnt be enough to support the lifestyle theyve come to expect (lifestyle inflation). Since the couple is not working it would be easy to leave the prime home corridors needed by commuters and get a house for half that cost, NYC and SF likely excluded.