5 ms·

I'm curious as to why you chose $5M and not another number like $3M or $2M? Is that the (gross) magic number to change your life financially? Edit: fixed typo.

aditya 16y ago
Yeah, with $5M in the bank you can live off the interest "forever" - ideally you'd spread the risk and stuff but with anything less than that amount it's hard to call yourself financially independent...
- boucher 16y ago
  Of course, a $5 million exit is not $5 million in the bank. Depending on where you live, and a lot of other factors about the sale, it could mean as little as <$3 million after taxes (avg. case probably being around $4 million).
  - nostrademons 16y ago
    I'm curious whether stock-swap acquisitions get taxed as income or capital gains. If it's capital gains, can you hold the acquiring company's stock until you're fully vested, then quit and sell while unemployed to take advantage of the long-term capital gains rates in a really low bracket? (Which, last time I checked, were something like 5%.) What's your cost basis then? Is it the initial par value when you formed the original company?
  - vicaya 16y ago
    I'd assume all founders would know about 83b election (us founders anyway.) to cap the tax rate at 15% (long term capital gain)
    - rdl 16y ago
      By 15% you actually now (as of next year) mean 20% + 3.8% + (state tax, such as California's 10.3%)
- johnswamps 16y ago
  That's nonsense. If you have 5M in the bank, you can take out 200K (4%) every year and still never run out of money. Surely you can get by with a little bit less than that and still be financially independent? Honestly you can probably get by with just 1M if you're single, but 2M would be more realistic.
  - wheels 16y ago
    That ignores inflation, which is 3%-ish annually in the US. The number is less than $5m, but it's not $1m assuming you're reasonably young.
    - johnswamps 16y ago
      That does not ignore inflation. You need just 7% returns on your investments (stock market has historically returned around 10%, but some of your money will be in lower return assets) to be able to take out 4% per year (pre-tax). 1M would be theoretically possible, the problem is that a decade of bad returns could cause you to run out of money.
  - jkent 16y ago
    Banks generally don't pay 4%. Stock market returns and capital isn't protected. Though I am sure 4% can be achieved for little risk...
    - johnswamps 16y ago
      I was just repeating aditya's phrase. It's a common expression and does not literally mean that you have deposited the money in a bank.

aditya 16y ago

Yeah, with $5M in the bank you can live off the interest "forever" - ideally you'd spread the risk and stuff but with anything less than that amount it's hard to call yourself financially independent...

boucher 16y ago
Of course, a $5 million exit is not $5 million in the bank. Depending on where you live, and a lot of other factors about the sale, it could mean as little as <$3 million after taxes (avg. case probably being around $4 million).
- nostrademons 16y ago
  I'm curious whether stock-swap acquisitions get taxed as income or capital gains. If it's capital gains, can you hold the acquiring company's stock until you're fully vested, then quit and sell while unemployed to take advantage of the long-term capital gains rates in a really low bracket? (Which, last time I checked, were something like 5%.) What's your cost basis then? Is it the initial par value when you formed the original company?
- vicaya 16y ago
  I'd assume all founders would know about 83b election (us founders anyway.) to cap the tax rate at 15% (long term capital gain)
  - rdl 16y ago
    By 15% you actually now (as of next year) mean 20% + 3.8% + (state tax, such as California's 10.3%)
johnswamps 16y ago
That's nonsense. If you have 5M in the bank, you can take out 200K (4%) every year and still never run out of money. Surely you can get by with a little bit less than that and still be financially independent? Honestly you can probably get by with just 1M if you're single, but 2M would be more realistic.
- wheels 16y ago
  That ignores inflation, which is 3%-ish annually in the US. The number is less than $5m, but it's not $1m assuming you're reasonably young.
  - johnswamps 16y ago
    That does not ignore inflation. You need just 7% returns on your investments (stock market has historically returned around 10%, but some of your money will be in lower return assets) to be able to take out 4% per year (pre-tax). 1M would be theoretically possible, the problem is that a decade of bad returns could cause you to run out of money.
- jkent 16y ago
  Banks generally don't pay 4%. Stock market returns and capital isn't protected. Though I am sure 4% can be achieved for little risk...
  - johnswamps 16y ago
    I was just repeating aditya's phrase. It's a common expression and does not literally mean that you have deposited the money in a bank.