Example: A corporation had taxable income of $500,000 in a year. TLDR: 4% seems abnormally low, at least if youre banking on 100 years of S&P 500 performance history. There are a lot of benefits of living in high cost areas but it does take a lot of cashflow and savings to do so stress free and for the long term. Let the assets grow in normal accounts and pay for college out of the normal budget if necessary. What are they learning? On the other days, they go to the local science museum, where they have an annual family membership for $150. 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. 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. Some of the reasons include: higher pay, more job opportunities, greater diversity, sometimes better weather, amazing food selection, and family to name a few. Just about the only place where assets are safe from the CSS profile is in retirement counts and pensions. This should easily fund 2 years of education with appreciation. With a 2m w/ 1m mortgage Youre looking at a 11-13m net worth. Weve already spent four hundred and seventy thousand of Simons salary, which leaves just thirty thousand for everything else. But theres a spectrum of living in early retirement, depending on how comfortable you want to be. So Ive got to find a balance. I think your post highlights that if the plan is to retire in the next 20 years, a goal of 10 million is probably a safer bet. Get myself a car finally, and a nice house. Or perhaps I am missing something? I am a doc who attended (not that I would recommend medicine to anyone), and among my fellow public school buddies I count a world-famous novelist, multiple physicians and lawyers, several Wall Street types, a couple of Broadway directors, and two Emmy winners. Using their 5 million figure this investment would return 223k a year double tax free. If you are an accredited investor, take a look atCrowdStreet. . Plus, the 4% rule is based on a worst case scenario. But let's go with 4% anyway. Sure, here you go: Financial Samurai 2018-2019 Passive Income Update. Effective . Mega Millions Payout Calculator & Charts for After Taxes - Heavy.com One note: Im pretty sure the effective federal rate on passive income would be much less than 15%. 4) What if one or all of their parents get sick and need to move in with them? Home Depot Workers Reach $72.5 Million Deal to End Wage Lawsuit If you're interested in . YMMV. Makes SF look reasonably priced. Babies dont know how to swim, and the earliest is around 3 years old. I think whats cheaper in Manhattan is not needing a car, better schools than SF, and somewhat cheaper rentals. While I understand the concept of FIRE, my husband and I were a traditional couple. When you are non-white living in the United States, the answer is YES!!! I expect our health insurance rate to go up at least 5% a year, forever. Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. Hi Jeff C, I think your college saving numbers are pretty spot on. A reasonable 2 bdrm in the village, Tribeca, midtown, UES/UWS is going for about $1k-$2k/sq ft, for non-prime properties. To give you an idea of what $200,000 a year in passive income can cover, let's profile Jerry, a Financial Samurai reader's budget. I have no regrets about this arrangement. Ill take out the popcorn and watch from the sideline on this one. B you are a very good writer, just like Sam, and I feel like I have a lot in common with you. Check out the latest chart with the tax numbers and net income figure. Now, what are we going to do about your own upkeep? And theyve had it for at least seven years, With 13 years left to go. Just went to Texas have two brothers who live there. You dont have kids. I found its one thing to accumulate a lot of money, and its another thing to decide to no longer keep accumulating a lot of money. Their daughter not only sees a pediatrician every three months, but also an ophthalmologist every three months. I think its quite discouraging to people who may never make this much to use these as average numbers. Heres what went wrong. So id probably be hovering around 2-3% at the end of the day without even thinking about it. Part time can definitely work, but well-paying part-time jobs with schedules flexible enough to accommodate the school calendar are very hard to come by. LA is just too expensive. That would smooth the edges of this budget, allow for a ton of time to spend with the little one (without suffocating the poor thing), keep their self worth high, . There are still ways to save money for sure but just consider that youre not far off from living at the SAME level as Mr/Mrs 5MM. if you spend down some They could move to a lower cost area of the country, but theyd rather stay warm all year round, rather than face brutal Midwest winters. Where does your imagination take you? Removing just these two expenses of $5200 will reduce their expenses to $8300 and reduce the taxes ~1000. But yeah, I cooked all meals while raising 3 kids, because I felt with my husband working so hard, it was THE LEAST I COULD DO TO HELP OUT WITH THE FAMILY, since I wasnt earning a dime outside of the home. Most people will retire on far less even in these HCOL areas (look at median income in LA or SF), and more power to them! Does this couple really want to make changes? US Salary Calculator - Salary After Tax Once I quit work to stay home with our first child, I decided I could still contribute to our household budget by controlling our food expenses. We raised our children while working and except for paying for preschool or the occasional babysitter for a night out never wanted or needed to pay for daycare? I totally agree with this as we have $6.5mm in financial assets, 1.45mm house in Connecticut no mortgage, $300k house VT and $1.3mm set aside for three kids ages 8, 7 & 5 for education. It might sound ridiculous to you. Based on above, almost seems to be the antithesis of MMM. So expensive out there. One of SFs good qualities. 4) Food budget and entertainment budget is high. But the costs dont seem that expensive overall and the cost for activities Im all for. 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 . The missing principal payment is not considered a luxury by Mr/Mrs $5MM. Credible is an online mortgage marketplace where qualified lenders compete for your business. Didnt think I mentioned those. :), I knew Cali was expensive, but damn! I dont think you can honestly argue that they need to keep saving that amount in perpetuity just to be comfortable, especially when you consider that not all parents completely pay for their childrens educations, and there are always loans and scholarships. My house is assessed for less than theirs and my property taxes are 75% higher! Pure bull. My parents live overseas and this is the way it works for them. There are many ways to make this cheaper. People should always take a vantage of opportunity, otherwise theyre just leaving money on the table. Always interested in suggestions as theres only so much space you can put in a headline. We have a separate pot for college savings. But everybody does have different tastes and expectations. Also, being non-white, youre less like to get the But where are you REALLY from?, Where did you learn to speak English?- type questions. It does make a difference to lifestyle to have a diverse outlooks and knowledge of the world. Finally, they've decided to stay local for the first two to three years of their daughter's life. You may be way overestimating the tax liability. They can use this 800 dollars*12 months* 12 year from age 6 and will have ~120 k cash. 529 plan +$24,000 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. It says in the budget its a Honda Accord. I think people underestimate the huge trend towards freelancing. I dont think a child would have any fire to be independent at all if the parents helicopter around him/her like that. Sam, I love your blog as it is one of the few I can relate to. It sounds like youre calculating things for living in the lap of luxury, which can certainly be pricey! Particularly when we can very comfortably afford to live the same lifestyle as others around us. Easily $2K more a month between the years of childcare, private school, college, etc. 7.0 Depreciation on vehicles, road tax, MOT, service Auto & Transport $666.15 But he also has a working spouse. I agree with you on considering excessive attention given to kids, having your own identity and self worth and letting your wife and kids have theirs, considering your wifes and your kids material wants/needs, and the over-analysis and theoretical nature of these budgets that seem perfectly reasonable to all us (very nice job Sam with your research as usual) but leave you wondering about the life happens stuff and complexities. If thats the case, one of them should keep the job. So enjoy your good luck. It really shocked me how even though the couple out-earned us by about 3x while working, we still live a very similar (actually better) lifestyle. Philly is pricey for families because the schools are really, really bad. Im pretty sure $5mil puts you in the top 1 or 2% of the nation for net worth. Im not arguing with the numbers, I live outside of DC which is just as expensive. Everyone leads their life the way want to and spends money on whats important, but its hard not to be judgey when some of the expenses and analysis makes your eyes pop out. Frankly $2M @ 4% is also easyjust do it in Malaysia or Panama. In flyover country, you could probably cut this budget by 75%. It should be most half of that and you could easily cut that to $10/day. Their income would go down due to paying off the mortgage: $5mm 700k = $4.3mm. My goal is to retire by age 45 with $2.5 million net worth. Most of your income should be taxed at LT capital gains (or tax free if you have muni bonds). We pay around $1200/mo. It is not easy, but for a motivated risk taker, you can make $200k+ a year doing something that doesnt feel like work most of the time. They will remember when the bus driver called in sick in 7th grade and their friends parents came right away but they were stuck at school for an extra 45 minutes while you were fighting traffic. Mega Millions After Taxes: How Much Will the Winner Get? | Kiplinger Hindsight is always 20/20. If the $5 million is all tied up in your primary residence, then you certainly won't have enough capital to generate enough passive income for retirement. We helped my son with a downpayment on his house and we have helped them to pay for other expenses as well. Enter your IRA contributions for 2022. We have a household income of $147,000. While I would never consider myself middle class, most people would from the outside. If they move an hour inland, their COL would be a lot cheaper. 2 bdrms in the building start at $8k. Medical insurance/costs, 5 Home food and drinks ( 2 people) I think theres this myth that all these things are needed just to be comfortable, and that they are just standard parts of the American middle class lifestyle, but I remember growing up seeing how hard my parents in particular had to work to concurrently provide about half the vacations and luxuries this family enjoys on an annual basis. Assume it had 50k miles on it when they bought it (3 years old) thats approximately 44 years before that car hits 250k miles. I was referring to auto, homeowners, earthquake (in CA), umbrella, life, disability, etc. What is $1.35 billion after taxes? What you pay if you win Mega Millions In other words, I keep seeing this 4% number being thrown around, but it does not seem to match anything hes told me. Just noting it covers a lot less of the blue zones then Sam indicated. Daycare is the ocean? https://www.calculatorsoup.com - Online Calculators. 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. My last child graduates college this year and while she will need a little support in grad school, it wont be the $65K/year I was spending on her private university more like $10K to help her with living expenses so she doesnt have to go into debt. They are finally coming over in a couple weeks and Im looking forward to their visit. Maybe your perspective can help other people who are in your similar situation. Utilities 300 month This takes expenses down to a still cozy $80k/year in spending and down to $2mil needed at 4% rule. I offer a spreadsheet and Monte Carlo analysis which they promptly decline or ignore. Everything is preference, there are other diverse places outside of Cali and New York. Looking at that house in Santa Monica, my house would be about $3 million there. If we are using anecdotes, I will take the other end. Enter your total 401k retirement contributions for 2022. Many FIRE blogs say rely on government subsidies for health care premiums. Tuition costs go up 7% a year at colleges. I mean honestly wed have to spend money just to spend it. Home insurance and utility bills are also much higher than SV. Powerball payout calculator: How much would you get after taxes - WOFL We swap with others when we both want to go out or have a date in after putting our 3 kids to bed at night. I would guess at least a few of the cant believe they spend so much naysayers get similar support. I wouldnt replace the 5, because that wasnt the point I was trying to make in the original comment. Tax Calculator: 2022-2023 Refund and Tax Estimator - NerdWallet Im fairly comfortable with my level of spending (although it is a crazy amount of money). Here in Connecticut, we pay 2% property tax plus 6% state income tax. Id plan to invest the equivalent of the most expensive in-state school. We have access to more content than we could possibly consume in a lifetime. Ive written a new post with some of his comments. This analysis unfortunately doesnt deal with what happens once someone graduates to being an empty nester. 529 is a good tax minimization investment vehicle. You're expected to pay the rest of your tax bill on that prize money when you file your return. So if we assume 10%, and then assume taxes, you land at 6% to be conservative. Because of this and their savings rate they could both retire early. If you win the $630 million Mega Millions jackpot, here's the tax bill It burns you out! You could get Affordable Care Act subsidies if your household income is below a certain threshold. Sorry after rereading my comment I can see it sounds way more aggressive than I wanted it to. Right on. Im completely different than all of my (close knit) friends and in a completely different place than most of them socioecnomically. Sorry I know you run a business and these articles are more or less designed as click bait and I can respect that but I live in the peninsula just south of SF, literally smack dab in the middle of the 4 most expensive zip codes in the country. No Dining out? There isnt a breakdown of passive income sources, so its hard to estimate, but unless all of the passive income counts as earned income (poor decision) the tax expense should be much lower. So many studies discuss the importance of nurture during the first 5 years, and we believe it. And this is all from me agreeing with the commenters $10M statement? I have two siblings. My taxes are 1/3 his in my million dollar home because of prop 13. Using your example, I can easily get expenses down to $92K just by eliminating the mortgage, childcare, and college funding. To help support our reporting work, and to continue our ability to provide this content for free to our readers, we receive compensation from the companies that advertise on the Forbes Advisor site. Were talking $10,000 a month for 15 to 20 hours of work a week. With kids, in my opinion, it is much worse. Thats eighty thousand a year for wardrobe. I prepared all the meals including school lunches. I should start a whole series of what you thought versus reality. Thatd be interesting! You can ALWAYS find things that feel like absolute necessities if you look hard enough. Did your OA cause anything else, like nystagmus or strabismus? It is our key asset class to remain retired / stay-at-home-parents to two young children. China, Russia are America's adversaries - yet they get US tax dollars I think it would be ideal to find non-tech and non-finance FIRE experiences as it appears underrepresented in the community. Without kids, $2 M might be enough. Its also a bit odd to have all these children lessons for an 8 month old. 18-hour cities are faster growing cities with lower valuations. It is still an option to me. A lot of this has been touched on in the comments already regarding some of the luxuries included in the breakdown. The money also grows tax-free so that you only pay income tax when you withdraw it, at which point it has (hopefully) grown substantially. Personally, I think that it is worth while for one of the adults work and receive healthcare. Stay on the righteous path and think long and hard before making any financial transaction! If your total itemized deductions are less than the standard deduction, the calculator will use the standard deduction. Particularly the parents. I live in the nicest area of Columbus (in my opinion at least). Track your finances for free with Empower. Their $5 million after-tax portfolio could easily shrink by 10% 20%. Food at $1800 and a good amount is spent on delivery? Something you cant get back very easily once it is gone. That was on top of the city's base transfer tax. I also noticed that the cash on cash yield on the mortgage is about 5.6% ($38,904/$700,000), so if youre withdrawal rate is 4% youd improve your cash flow position by paying off the mortgage early (may not be a financially optimal decision though with a 3.75% interest rate, but neither is retiring early). This alone would add another $60,900 yearly to the income statement without touching principal. Some genuinely do not have these opportunities (I recognize that), but many people do and they simply waste them (while making excuse after excuse). I guess so would my truck :). How About Retiring On $2 Million In An Expensive City? Why do they need to send their daughter to day care? Youre crazy, or seriously misinformed if you think Manhattan is cheaper than SF. They are almost unheard of in my area. Even with a conservative 50/50 portfolio you would historically have earned 8.3% per year. With their draw at 4%, moving $700k from investments to equity means after-tax income -$21k/y (plus one-time capital gains tax hit if any) but expenses -$39k/y, freeing up $1500/mo with no lifestyle change at all. Retiring early without kids is a walk in the park compared to trying to retire early with kids. real estate in Santa Monica this Home is well below market value and while it may not appreciate at the rates we have seen, a very conservative 3% appreciation rate per year is still a reasonable expectation. Returns might not be as good as they have been. For an 8 month old? No need to debate your budget (although the 529 funding seems excessive if youre targeting state school), but Id take a hard look at your tax numbers and also look at paying off the mortgage. A large amount of the increased real estate prices in places like Manhattan or SF are actually due to diversity. Nobody really tells new parents this, but it may take years before you know all the issues that need addressing. I could continue doing what I do for the next 30 years and would be fine with that. By the time you finish BTNT you will gain at least 100X more value than its cost. This post is so grounded in reality, specially for the demographic of your readers and what they aspire to be. I think Uber like services will be all over the place by 2030 and the price will be extremely low given the cost only being the car depreciation and profit for the company instead of paying drivers. You say your cost is small and a rounding error. Retirement age: 60. More We have a son and a daughter who is an RN. ago I hardly claim to be an expert at any of this, but my financial advisor is one of the top american express financial advisors in San Diego, and my best friend. We also subscribe to Netflix. April, 27 2023 14 min As seen on: Table of contents: What if I snapped my fingers and granted you a $5 million net worth lifestyle? I think rough rule of thumb you need about $10k/mo per person in Manhattan.