39 and confused

[CaseInPoint]

Originally Posted by cute fuzzy bunny

We are forced to suffer along in our mcmansion, eating expensive food, driving expensive cars, and spending practically all of our time together. Our son will go to whatever school he wants, get help starting a business if he wants to, and when we pass on he'll likely get enough of an inheritance to become financially independent himself.

All on way less than $5m.

But wait, don't order that Ginsoo knife just yet... There's more:

For three years I paid no income taxes at all.

But seriously, fuzzy bunny (did I really just say that?), way to go. If you live a good life and provide well for your family, that's great. I still think the devil's in the details...

[cute fuzzy bunny]

The devil is in knowing when its time to stop.

[Khan]

Originally Posted by CaseInPoint

Agreed 100%. Ultimately, it's about happiness and how one defines "the good life," not a specific dollar amount.

Unfortunately for me, some portion of my happiness and my own perception of a good life, is tied into having financial security in an upper middle class setting.

It's a good thing to have superior people come here and remind the rest of us of our inferior financial and social positions.

Maybe it's really a decision between extreme ER and financial security. I guess that since I've never seen working for a living as being so terrible, I tend to advise people to wait a little longer and amass more money to achieve financial security before ER. But... I now understand that many people do not see having financial security as a prerequisite for ER, and can still be happy.

I have financial security on $30K/year.

[midlifechange]

Excellent discussion over the past several days that I'm sure numerous readers learned from besides myself...I was rooting for everyone except CaseInPoint because my life would be easier if CaseInPoint was wrong...of course, CaseInPoint is doing me and other readers a favor by taking the unpopular view :-) The exact answer is not available...it comes down to risk tollerance and factors out of our control (capital gains tax rates, etc.)

Here's what my father came up with - he already went through FIRE many years ago and is excellent with numbers/logical thinking:

*snip*

Assumptions:
1) You retire now
2) Run out of money at 85
3) 28% Federal tax rate and 5.75% Virginia tax rate
4) $1,350,000 invested ($2,000,000-$200,000(college)-$450,000(house))
5) Total Social Security Income starting @ 62 = $18,502 per year
6) Inflation = 4%

Results:

You need an 8.2% return to have an inflation adjusted after tax income of $60,000 until age 85.

Analysis:

100% stocks historically could give you this but a couple of bad investment years up front could make this impossible. The above analysis is done with averages NOT Monte Carlo so statistical chances of success not available. However, it is a fact that you will need to earn an average yearly return of 8.2% to maintain a $60,000 inflation adjusted after tax income of $60,000 until age 85.

Let me know if you would like me to change any of the assumption.

*snip*

I will have to change his assumptions though on Social Security...I think I should take this out of the equation to be safe. He put in 450K for a house which is most likely realistic since I will be buying in a year (assuming prices continue to decline) and I will most likely have guilt over spending so much for a house...hard to say.

I do plan on working because I am by nature conservative and if I'm enjoying my job or business then I would rather stay in the game than retire.

Knowing these numbers will give me confidence to continue to try and build a second business without worrying about ruining my nest egg too much - he has figured that I now need to earn 8.2%; conversely, if I had a job for the past year I would only need to earn 8.0%...so it has some effect...

[FIREdreamer]

As I posted above, it is unlikely that you would currently fall in the 28% tax bracket if you live on the dividends and capital gains generated by your taxable investments. I would encourage you to determine how your gross income will be generated and then plug in the numbers in a tax calculator (there is a pretty good one on HR Block's website). Off course the tax code changes all the time, but I think you will find out that your tax liability will be a lot lower than you think. To be in the 28% tax bracket it would take an annual taxable income exceeding $131K for a married couple filling jointly in 2008. There is no reason for your taxable income to be that high when all you are looking for is a net annual income of $60K. Right now, with a $65K gross annual income, in the worse case scenario you would be in the 15% tax bracket and you would have to pay about $6400 a year in fed taxes. If part of your income comes from capital gains and/or qualified dividends it goes down from there.

[CaseInPoint]

Originally Posted by Khan

It's a good thing to have superior people come here and remind the rest of us of our inferior financial and social positions.

Khan,

Why would it bother you that I aspire to an upper middle class retirement?

[Marquette]

Originally Posted by CaseInPoint

Khan,

Why would it bother you that I aspire to an upper middle class retirement?

It bothers you that she's grateful you're here?

edit: and would you mind defining upper middle class retirement?

[EagleEye]

People, don't be fooled. That is not the real Khan. The real Khan is, at this moment, in cryogenic freeze on board the SS Botany Bay.

Midlifechange:

I don't think anyone was arguing that $1.3M is the right number. The issue is how much higher you need to go. I think you are about 2/3 of the way there.

FIREdreamer:

Excellent post on the tax liability. Another example of why I really like this board.

[hotwired]

I read a few of the answers, but not all, so please forgive if I repeat. I want to respond because I've been at a couple of the decisions you've been at and made some hard choices and want to share them with you.

1. I am 42 and have 1 million in investments, a house worth 230k and a couple small businesses worth 100k give or take. I will FIRE at 2 Million net worth, including house OR 50 years old whichever comes first, regardless of any calculations.

2. I paid cash for my home EVEN THOUGH I could have a 5% mortgage while investing the 230k in the stock market, theoretically earning 10% - and have a 5% advantage. BUT My wife loves the peace of mind being mortgage free, and I've found, so do I. My new rule is Never make financial decisions based on finances alone.

3. I put 50% of my daughter's estimated colllege needs in a 529 plan and the rest I will fund from elsewhere - My reasoning is that once it's in a 529 Plan it MUST be used for education OR you get nailed with penalties. You can delegate it to someone else, like if your kids don't use it all up, YOU can use it for continuing ed, or put it in a nephews name or something like that, but once it's committed ... it's committed, or so that is MY understanding. But please know I'm not a financial advisor, nor do I even play one on TV.

4. I keep 80% of my money with an advisor - this helps my wife sleep .. while the rest is in Vanguard and I keep 4% in an ameritrade account to work on my stock picking skills.

[CaseInPoint]

Originally Posted by Marquette

edit: and would you mind defining upper middle class retirement?

For me personally, it would entail living in a luxury home located in a neighborhood occupied mostly by upper middle class people (i.e., professionals, executives, etc.) preferably in a gated community, driving a luxury car that can be updated every 5 yrs or so, sending my kids to private school, taking vacations occasionally, belonging to a good gym, having household help, not worrying about food prices or healthcare costs, and having a fair amount of discretionary funds. Most of all, being able to help family and friends financially, not worrying about outliving my money, and having enough to leave an inheritance to my kids that will guarantee them the same or better lifestyle as I had.

I estimate that this can be accomplished here in L.A. by spending approx. $20-25k/mo after-tax.

[cute fuzzy bunny]

Wow. I'm getting pretty much all of that spending about 4-5k a month after tax.

Maybe you're shopping at the wrong stores.

[Khan]

Originally Posted by CaseInPoint

For me personally, it would entail living in a luxury home located in a neighborhood occupied mostly by upper middle class people (i.e., professionals, executives, etc.) preferably in a gated community, driving a luxury car that can be updated every 5 yrs or so, sending my kids to private school, taking vacations occasionally, belonging to a good gym, having household help, not worrying about food prices or healthcare costs, and having a fair amount of discretionary funds. Most of all, being able to help family and friends financially, not worrying about outliving my money, and having enough to leave an inheritance to my kids that will guarantee them the same or better lifestyle as I had.

I estimate that this can be accomplished here in L.A. by spending approx. $20-25k/mo after-tax.

Good luck.

[Want2retire]

Originally Posted by CaseInPoint

I estimate that this can be accomplished here in L.A. by spending approx. $20-25k/mo after-tax.

That sounds like too much work to me!! Who wants to spend all their time divesting themselves of money, anyway. There's more to life.

[Marquette]

Originally Posted by CaseInPoint

I estimate that this can be accomplished here in L.A. by spending approx. $20-25k/mo after-tax.

why estimate? Just look at your trailing 12 months