11 ms·

Real economic freedom varies by the area you live in, but if you live in major metro areas, where you want to take advantage of all the cultural and entertainme

Real economic freedom varies by the area you live in, but if you live in major metro areas, where you want to take advantage of all the cultural and entertainment offerings they have and also raise children, real economic freedom starts kicking in at around $700,000/year +/- $200k. To make that much without a job, you need roughly $10M in the bank (yielding ~7% growth). That's a lot. A $500k/yr job w/o taxes or spending anything would take 20 years. The only way to get there is to have family money or hit the startup lotto (or actual lotto). These articles are not about true economic freedom at 40, they're about limiting your consumption and being happy about it.

mrpopo 8y ago
Where in the world do you need $700k/y to live relatively freely?... I can't fathom what kind of life you are aspiring to.
- speedplane 8y ago
  Here's a breakdown: - After taxes that $700k turns into $450k. - NYC 3br apartment in a good neighborhood costs ~$3M, which roughly translates into $200k/yr - If you have 3 kids, childcare and/or private school costs $30-50k/kid, say $120k/yr, this will be much higher when they go to college - Good healthcare for a family of 5 (you're not working, so you need to buy it), costs roughly $40k/yr - Basic living expenses of food, clothing, utilities, is another $40k. That leaves about $50k leftover that you can use for vacations, further savings, luxury items, etc. At this rate, you're living very well with a very nice life, but definitely not a like a king.
  - Luc 8y ago
    You forgot the butler and the nannies!
  - lazyjones 8y ago
    I think you're just trolling, but let's assume you really believe NYC is a representative choice for a "major metro area" and not simply one of the most expensive cities in the world to live in. > After taxes that $700k turns into $450k. You're talking about capital income - taxation varies around the world. > NYC 3br apartment in a good neighborhood costs ~$3M, which roughly translates into $200k/yr If you have $10m in the bank, buy the apartment and these $200k/yr will be 0 (just maintenance/running costs) and cost you $210k of your capital income, but pre-tax. You just won $65k/year plus the yearly increase in the apartment's value. > Basic living expenses of food, clothing, utilities, is another $40k. You can't be serious. This is far from "basic".
    - FabHK 8y ago
      Why do you assume the poster was trolling? Yes, taxation varies, but if are resident in NY, you pay taxes on worldwide income, so that's not off the mark. As for buying the apartment: The poster assumes 7% yield on the savings; can the apartment give the same yield? It's not obviously better to purchase it (though the tax shield might make it so). $40k is maybe more than basic, but it's not exactly luxurious for 5. Deduct a phone and computer, and you're left with less than $500 per person per month for food and clothes - that doesn't buy you LV and Hermes.
      - lazyjones 8y ago
        > Why do you assume the poster was trolling? Because NYC isn't exactly the typical "major metro area". > As for buying the apartment: The poster assumes 7% yield on the savings; can the apartment give the same yield? That wasn't the point - they claimed it's $3m or $200k/year (which is approx. 7% yield). By buying it, you don't have to pay $200k/year and lower your pre-tax capital income by that much (7% of the $3m capital income lost), which is much less than $200k.
        brians 8y ago
        Okay. Where else is a major metro? London. Paris. Hong Kong. Singapore. Tokyo. Chicago. Los Angeles. And maybe, maybe San Francisco or Boston. If a metro area don’t have a couple major orchestras, operas, a few major sports teams, and a world class hospital, it’s hard to take “major” seriously.
        lazyjones 8y ago
        Vancouver, Moscow, Berlin, Madrid, Rome, Melbourne, Sydney, Amsterdam... $700k/year for a comfortable retirement with kids is just so far out of touch anywhere else than SF, NYC, maybe London. How can someting like 95%+ of the population who make less even cope? (Manhattan median household income is ~$85k).
        8y ago
brians 8y ago
Not quite. For one thing, that +/- 200k matters a lot. Start out making $100k out of college. Get a 10% raise per year. Save half of everything you make over that initial $100k—like pretending you only got a 5% raise. You’ll be able to retire with $10M in the bank in your early 50s. At 40, you’ll have a couple million in the bank, kids in school, and be able to take modest family vacations without worrying about it. You can absorb health problems, needs for therapy of various sorts—give your kids a great launch. The trick is finding ways to keep that compensation number moving up 10%/year. The first decade is easy. The second... can be done. Past that, I dunno.
- speedplane 8y ago
  > Start out making $100k out of college. Get a 10% raise per year. Save half of everything you make over that initial $100k—like pretending you only got a 5% raise. Do the math, it doesn't work. Starting with $100k at 20, with 5% raises every year gets you to $430k/yr at 50. You're still nowhere near $10M.
  - brians 8y ago
    Get a 10% raise. At 50 you’re at $1.7M/yr. You save 0.8M that year, spend 900k—including paying off your kids’ education. Assuming 5% returns, your savings tick over to $11118263.51. But you’re right that it’s not pretending you only got 5% raises.
- FabHK 8y ago
  A 10% raise per year over 3 decades means 17x your original salary, earning you $1.7m annually by 50. Probably not something you can reliably plan for. That's why it's important to keep consumption in check.
FabHK 8y ago
I'd say you can have substantial freedom (not luxury) with less. But 7% yield is a bit optimistic, because you pay tax on nominal growth. Say, if you achieve 8% nominal growth, have a 37.5% tax rate, you're left with 5%. Now deduct 2% inflation, and you can only take out 3% per year. Thus, your $10m only give you $300k a year (after tax, real), which is enough for 5, I'd say (maybe not in NY, but in many other nice places). However, that assumes 8% nominal return, which is not something I'd bet my retirement on, given current elevated asset values.
- mrhappyunhappy 8y ago
  This 7% being thrown around is not a real return. Adjusted for inflation you’d be lucky to get 4%, assuming you are not collecting when the market is tanking.
  - FabHK 8y ago
    Yes. My claim is that the situation is exacerbated by the fact that you pay taxes on the nominal return; in other words, you need to "pay" inflation out of after-tax return. Thus, your real after-tax return is minuscule; and you should, in my view, calculate only with 2% or max 3% sustainable withdrawal rate to be prudent.
mrhappyunhappy 8y ago
I don’t think FIRE is for families of 5 living in one of the most expensive places.

mrpopo 8y ago

Where in the world do you need $700k/y to live relatively freely?... I can't fathom what kind of life you are aspiring to.

speedplane 8y ago
Here's a breakdown: - After taxes that $700k turns into $450k. - NYC 3br apartment in a good neighborhood costs ~$3M, which roughly translates into $200k/yr - If you have 3 kids, childcare and/or private school costs $30-50k/kid, say $120k/yr, this will be much higher when they go to college - Good healthcare for a family of 5 (you're not working, so you need to buy it), costs roughly $40k/yr - Basic living expenses of food, clothing, utilities, is another $40k. That leaves about $50k leftover that you can use for vacations, further savings, luxury items, etc. At this rate, you're living very well with a very nice life, but definitely not a like a king.
- Luc 8y ago
  You forgot the butler and the nannies!
- lazyjones 8y ago
  I think you're just trolling, but let's assume you really believe NYC is a representative choice for a "major metro area" and not simply one of the most expensive cities in the world to live in. > After taxes that $700k turns into $450k. You're talking about capital income - taxation varies around the world. > NYC 3br apartment in a good neighborhood costs ~$3M, which roughly translates into $200k/yr If you have $10m in the bank, buy the apartment and these $200k/yr will be 0 (just maintenance/running costs) and cost you $210k of your capital income, but pre-tax. You just won $65k/year plus the yearly increase in the apartment's value. > Basic living expenses of food, clothing, utilities, is another $40k. You can't be serious. This is far from "basic".
  - FabHK 8y ago
    Why do you assume the poster was trolling? Yes, taxation varies, but if are resident in NY, you pay taxes on worldwide income, so that's not off the mark. As for buying the apartment: The poster assumes 7% yield on the savings; can the apartment give the same yield? It's not obviously better to purchase it (though the tax shield might make it so). $40k is maybe more than basic, but it's not exactly luxurious for 5. Deduct a phone and computer, and you're left with less than $500 per person per month for food and clothes - that doesn't buy you LV and Hermes.
    - lazyjones 8y ago
      > Why do you assume the poster was trolling? Because NYC isn't exactly the typical "major metro area". > As for buying the apartment: The poster assumes 7% yield on the savings; can the apartment give the same yield? That wasn't the point - they claimed it's $3m or $200k/year (which is approx. 7% yield). By buying it, you don't have to pay $200k/year and lower your pre-tax capital income by that much (7% of the $3m capital income lost), which is much less than $200k.
      - brians 8y ago
        Okay. Where else is a major metro? London. Paris. Hong Kong. Singapore. Tokyo. Chicago. Los Angeles. And maybe, maybe San Francisco or Boston. If a metro area don’t have a couple major orchestras, operas, a few major sports teams, and a world class hospital, it’s hard to take “major” seriously.
        lazyjones 8y ago
        Vancouver, Moscow, Berlin, Madrid, Rome, Melbourne, Sydney, Amsterdam... $700k/year for a comfortable retirement with kids is just so far out of touch anywhere else than SF, NYC, maybe London. How can someting like 95%+ of the population who make less even cope? (Manhattan median household income is ~$85k).
        8y ago

brians 8y ago

Not quite. For one thing, that +/- 200k matters a lot. Start out making $100k out of college. Get a 10% raise per year. Save half of everything you make over that initial $100k—like pretending you only got a 5% raise. You’ll be able to retire with $10M in the bank in your early 50s. At 40, you’ll have a couple million in the bank, kids in school, and be able to take modest family vacations without worrying about it. You can absorb health problems, needs for therapy of various sorts—give your kids a great launch. The trick is finding ways to keep that compensation number moving up 10%/year. The first decade is easy. The second... can be done. Past that, I dunno.

speedplane 8y ago
> Start out making $100k out of college. Get a 10% raise per year. Save half of everything you make over that initial $100k—like pretending you only got a 5% raise. Do the math, it doesn't work. Starting with $100k at 20, with 5% raises every year gets you to $430k/yr at 50. You're still nowhere near $10M.
- brians 8y ago
  Get a 10% raise. At 50 you’re at $1.7M/yr. You save 0.8M that year, spend 900k—including paying off your kids’ education. Assuming 5% returns, your savings tick over to $11118263.51. But you’re right that it’s not pretending you only got 5% raises.
FabHK 8y ago
A 10% raise per year over 3 decades means 17x your original salary, earning you $1.7m annually by 50. Probably not something you can reliably plan for. That's why it's important to keep consumption in check.

FabHK 8y ago

I'd say you can have substantial freedom (not luxury) with less. But 7% yield is a bit optimistic, because you pay tax on nominal growth. Say, if you achieve 8% nominal growth, have a 37.5% tax rate, you're left with 5%. Now deduct 2% inflation, and you can only take out 3% per year. Thus, your $10m only give you $300k a year (after tax, real), which is enough for 5, I'd say (maybe not in NY, but in many other nice places). However, that assumes 8% nominal return, which is not something I'd bet my retirement on, given current elevated asset values.

mrhappyunhappy 8y ago
This 7% being thrown around is not a real return. Adjusted for inflation you’d be lucky to get 4%, assuming you are not collecting when the market is tanking.
- FabHK 8y ago
  Yes. My claim is that the situation is exacerbated by the fact that you pay taxes on the nominal return; in other words, you need to "pay" inflation out of after-tax return. Thus, your real after-tax return is minuscule; and you should, in my view, calculate only with 2% or max 3% sustainable withdrawal rate to be prudent.

mrhappyunhappy 8y ago

I don’t think FIRE is for families of 5 living in one of the most expensive places.