Realistic INCOME question. Thinking of retiring.

[Alan]

Do you happen to have a link or some memories that I could Google? I smell a blog post and a part of a book chapter in this...

It has been 15 years since he brought the quiz home. I have been searching the web on affluenza quizes for teenagers but just cannot find one specific to teenagers.

The quiz he brought home had much to do about what he owned and what was available to him in the home. I answered as when I was 14 (I was the oldest of 3 kids at the time).

Questions such as :

Do you have a cell phone?

Him: No
Me: The family did not have a phone in the house. There was a call box at the bottom of the street to call the doctor and such. (Doctors made house calls back then)

Do you share a bathroom with your parents or siblings?

Him: He shares a bathroom with his sister.
Me: We had no bathroom in the house, we had to use a toilet at the end of the yard. We had a sink and cold water tap in the kitchen. A free standing copper gas fired boiler was in the kitchen. Every Sunday we would lift in the metal bathtub from its nail on a wall in the yard and put in front of the coal fire in the living room where it would be filled with buckets of hot water. 3 kids were then bathed in the same water

How do you get to school?

Him: School bus even though Mom and Dad have a car.
Me: The family did not have a car so I was given the bus fare each week but chose to walk 2.5 miles each way and keep the money. If we lived more than 3 miles away we would have received a free bus pass.

Do you have a TV in your room?

Him: No
Me: No, we only had a small black and white TV for the whole family even though color TVs were readily available.

There were a few other questions but you get the general idea. I'm sure you can think of a few more.

 

[Nords]

Excellent, thanks!

Whatever I write will have to include a link to the Four Yorkshiremen...

 

[Alan]

Whatever I write will have to include a link to the Four Yorkshiremen...

Definitely

 

[NYEXPAT]

You might want to become part of the 10 percenters and get out of Dodge!
1. You could get the returns you require (for foreseeable future).
2. Equal lifestyle for a lower cost. (increase the pot)
3. Better education available
4. choose your climate
5. Broaden yours and your families horizons.
6. Return if/when opportunity returns.

Jus say'in!

 

[WiltonKnight]

FAIR questions, re my spending.

Congrats on the pending sale of your business.

While 230k gross is nice, do you really have working knowledge of your true needs and expenses? Don't be a Lotto winner one day and be broke in a few years.

We are a family of 4 with a SAHM, eat out, have nice things, no debt, and can live fine on less than 75k.

Maybe take some time off and get a better understanding of your expenses and create a budget.

I readily admit that my spending is MUCH higher than the norm. I guess it's all relative....to many people, $230k seems crazy high. BUT, I know more than enough people who would consider $230k somewhat of a failure.

Sadly, I operate on the notion that due to decaying culture, AND fracked up government, things are going to get tough in America, and sometimes only money will help one 'opt out' of the crap:


1.)HEALTH INSURANCE: Budgeting $1,000 per month insurance. Also another $850 in co-pays, deductibles, AND a concierge-doctor retainer fee. I think health care is gonna get VERY crowded in the future, and boutique doctors will be the way to avoid long wait times. $1850 health monthly.

2.)EDUCATION: Budgeting $2500 monthly private schools. Don't know if my kids will have the aptitude, and I KNOW that private schools aren't perfect....but all I know is that my local "high rated" school is starting to teach "self esteem" over the basics, and there's just too many backwards-hat-wearing-trash-talking students I see daily. Private school has some of that, but less.

Right there is $52,200 in yearly spending. So pre-tax I'd need to make $69,000 per year. And while these expenses are not "vital", I don't look on them as vanity via buying designer jeans or something like that.


As said before, I've been fortunate and lived a wonderful lifestyle.I have NO problem with "accepting less" if I HAD to. But I'm uneasy about giving my family less because I WANTED to watch reruns instead of dealing with business life. Some things I've grown used to:


*CARS: A current 12-year perk for me is a new car every 6 months. Certainly that's not sustainable....but I'd like to have 2 nice cars (paid off, of course). But gas-insurance-property taxes means total $1,500 a month.

*FOOD: We love eating out often (3-4 times/week). Never at fancy places, but I like being able to order appetizers, etc without worrying about cost. Ditto grocery: I'd get smarter with Cost-Co, waste, and coupons....but same thing, I'm used to just buying what we want, no worries.


*TRAVEL: Ok, don't need to be at the Four Seasons forever....but I'd like to keep staying at above-average hotels, be able to do all the Disney stuff, etc.
Yearly budget would be around $22,000.


Please don't get the wrong idea of me. I'm not a show-off-yuppy type. Heck, NONE of my neighbors know of our financial success, and we conceal most of our "splurges" from friends. While I have been enjoying luxuries, they've been paid for in-cash, and I've been saving money also so I've never tapped credit to spend frivolously.

 

[WiltonKnight]

I agree with much you say here

Assuming that you were NOT born with a silver spoon in your mouth, I don't think your kids would be deprived at a family spending of $100-120k a year.

More importantly, Dad would be around a lot to go to sports and other activities that your kids end up doing, perhaps volunteering as a coach or whatever and that is worth a bunch in a kid's mind.

No, no silver spoon here. Son of immigrant parents who worked hard. They bought the smallest houses in the best school districts. So i was the only kid with "K Mart" clothes while everyone else had Reeboks and the latest video games. I was picked on every single day by the rich kids....all my life. Never even went to a school dance or football game.

I guess that's a fear of mine. I like living in an upscale suburb with good schools, and while I hate the snobbery that goes with it, I decided that I'd rather raise my kids around snobs than around the backward-hat-wearing crowd.

I don't want to teach my kids that they MUST have expensive clothes to be accepted, but I also don't want to send them to nice schools without ANY of the stuff that the other kids have...hence my higher spending projections.

It's a tightrope. I don't want my kids "entitled", but I refuse to let them be picked on by rich kids for 15 years the way I was. So I'm hoping to "split the difference"....in that I'd buy them SOME of the stuff, but not all. I'd also want them, from a young age to learn budgeting, saving, couponing, etc. I'll insist they do chores, and then real jobs otherwise I'll cut the money off quickly. I'm praying to God almighty that this way, my kids will 'fit in', but also understand what working and planning and saving is about.

 

[WiltonKnight]

thanks

Short answer, I wouldn't want to plan on 7.7% annual returns over a 50-year period.

Also, does the $230k include savings for college for the kids?

I would think about what will make you happy, as well as provide an acceptable lifestyle for your children. It may not be as much as you think. You may find that your children will value time with you more than certain "high-end" material things.

I'm not sure I could have retired in your situation, given your age and the age of your children. I am now ten years older than you with teenagers and I am FIRE'ing this month.

Yes, $230k includes college in that there's a $3,000 monthly education budget worked in to it. Not enough, I know...but when the time comes I thought I'd just take another $500,000 out of my nest-egg and augment the college budget.

 

[REWahoo]

I readily admit that my spending is MUCH higher than the norm. I guess it's all relative....to many people, $230k seems crazy high. BUT, I know more than enough people who would consider $230k somewhat of a failure.

Sadly, I operate on the notion that due to decaying culture, AND fracked up government, things are going to get tough in America, and sometimes only money will help one 'opt out' of the crap:

Good luck to you Wilton. I've got no advice for you that you'd care to hear.

 

[WiltonKnight]

THANK YOU everyone for your replies, keep them coming! You are all very mature, seasoned and wise and it's enriching for me to hear your viewpoints.

For now, I'm not ready to part with the 'lifestyle' forever, so here's what I'm leaning towards. It required relocating which breaks our heart....but I think the pay off is worth it.

1.)Take risk off table. I'm SCARED these days. I'm worried that in event of severe crash, gas crisis, whatever....my business won't make it and then I'm what's called screwed. I've got about $1 mill in the bank, but owe $300 on the house so really I have $700k.

Selling the business pays off mortgage, buys cars, and clears $3 million.

My point is, my $3 million is cash in bank and conservative investments, and easier to safeguard.


2.)There's another (similar) business for sale that I THINK I can get very shortly.

WHY sell my business just to buy another one? Simple.........I'd start out as 30% of the new business.

I'd put $600,000 down to "buy-in". Now, I'd get most of the income and perks I'm used to and sustain the lifestyle......BUT now I'd have $2.4 million in real money for myself. So JUST in case business went to hell.....at least I got $2.4 million instead of food stamps.

3.)Yes, it sucks to have to keep working....but I guess I gotta do that if I want the lifestyle. In the meantime, I can work on investing the $2.4 million for future growth (stocks, real estate, etc)

I don't get the retirement. BUT, I alleviate risk, continue a decent income, and have one hell of a nest-egg.

4.)If I succeed with the new biz, i'd fully own it in 6 years and sell it, then retirement would be more realistic.

IF the new biz didn't materialize, I could take 1-2 years off, hunt for a new business to leverage myself into and for the next few years, I can keep my expenses to a more realistic level and not crush the nest-egg too much.


So I guess in a nutshell, my reason to sell the business is to remove most of the risk from my life, build a nice nest-egg overnight, and be able to leverage into a new business without being "all in" vis a vis personal savings.


Grrrr why can't there me a nice dot-com bubble building now? When most morons could make 20% a year ?

 

[WiltonKnight]

Good luck to you Wilton. I've got no advice for you that you'd care to hear.

Cool, but please note I've eagerly listened to all advice and critique.

If you've got evidence as to why our economic picture is going to get better, why school quality and health quality is going to improve, I'm all ears.

But I remember reading somewhere that taxes are going up, and things are eventually gonna be more austere, public spending-wise.

 

[73ss454]

If you've got evidence as to why our economic picture is going to get better, why school quality and health quality is going to improve, I'm all ears.

Has there ever been a time in history that we didn't have something to worry about. Stop it and go enjoy yourself.

 

[WiltonKnight]

Welcome to the board, WK.

I'm surprised that nobody has mentioned health insurance yet. (You're covered for your spouse's upcoming delivery, right?) Your premiums would probably start out pretty cheaply but you'd have to watch out for emerging issues. In about 25 years you'd have to address the long-term care insurance question.

You need to spend the next few months not just with your family, but teaching yourself about asset allocation and realistic investment returns. You're going to need to learn how to safely annuitize that $3M to provide about five decades of reliable after-tax after-inflation income without consuming the principal. For example, you could put it all in Vanguard's Wellesley and see if your budget would fit within those returns. None of your mentors have a clue how to simultaneously cover all the adjectives in front of the word "income", unless they're running endowments for private universities.

I've been ER'd for nearly 10 years since age 41, and I suspect that sometime during the next 30 years of your life you're going to find some sort of paying hobby or project consulting that will produce at least $25K/year. It might not happen until your kids leave the nest, but I'd say the odds of it happening are at least 60%.


You're inviting yourself to go on a self-imposed guilt trip. Kids that age don't give a rat's ass about the finer material possessions in life. They want you there to spend time with them. If you do a consistent job over the next decade then they still won't care about the finer material possession. They may whine about it, but they won't be deprived.

It's all too easy to spend money on a kid to inspire an entitlement attitude that leads right to affluenza.

Great post, thank you.

I agree that kids don't give a crap about 'nice things'.....BUT, while I was growing up I remember EVERY kid on my school bus having the Levi's jeans, the newest Nintendo game, etc etc etc. And the kids KNEW it. Sadly they also knew I was the K-mart kid and let me know it every day, lol.

I want to find a happy medium for my kids. I want them to have SOME stuff, but I don't want their life to revolve around STUFF.

 

[WiltonKnight]

Has there ever been a time in history that we didn't have something to worry about. Stop it and go enjoy yourself.

You are right. BUT....

When I was 17 in 1992 our country was in recession.

But we weren't worrying about the sustainability of anything from our health system to our financial system.

Our European friends are now forced to bite the austerity bullet.

I think we're next....even if we don't realize it yet. I hope I'm wrong, but there's 20 trillion reasons why I think austerity is coming.

 

[73ss454]

Well, I refuse to sit around worrying about what's going to be. I can only base my assumptions on what's happened in the past since I don't know the future. If it's important to you to keep worrying and working then that's what you have to do. In the mean time I'm going to go back to doing nothing.

 

[pb4uski]

.....BUT, while I was growing up I remember EVERY kid on my school bus having the Levi's jeans, the newest Nintendo game, etc etc etc. And the kids KNEW it. Sadly they also knew I was the K-mart kid and let me know it every day, lol.

And how are those uppity brats doing today? My guess is that a few of the brats have been successful but most are struggling like many Americans. It looks to me like the K-Mart kid has done pretty well.

 

[ScottB]

Kids and money

I'm in your area, similar finances but a few years older, hoping to escape the grind as soon as I can but thinking I need about $6 not $3. Mostly because like you I see lots of risks over the next few decades. I just wanted to toss in one thought. I went to a nice private school as a kid, but in a smaller and less expensive town. I was teased for not having the right clothes and watches and whatnot too but I survived just fine and there were plenty of other kids around in a similar position. I wonder whether a good bit of your budgeting anxiety is being driven by the extraordinary wealth in the DC private school community. Keeping up with those Joneses is a nightmare, especially if you're already paying north of 30k a year per kid in tuition. I really don't think it's necessary. Move to McLean or Potomac or whatever and use the excellent public schools. Your kids will have plenty of peers who are as smart as anyone at Sidwell and don't wear designer clothes. Better yet, if you aren't working why live in this crazy expensive area at all? Plenty of nice places to live in this country that are cheaper and have great schools and good role models for your kids. I bet there are even pockets within a close drive. Prince William? Charlottesville?

 

[travelover]

And how are those uppity brats doing today? My guess is that a few of the brats have been successful but most are struggling like many Americans. It looks to me like the K-Mart kid has done pretty well.

+1. I was from the poor side of town and struggled with my too short pants and not so cool clothes. Fast forward 30 years and at my high school reunion I was one of the most successful people there. I attribute a lot of my relative success to the fact that I didn't have everything handed to me on a silver platter. I wouldn't encourage anyone to make their kids suffer, but too easy a life is no real gift.

 

[devans0]

No doubt about it, kids can be rough on each other. I knew plenty of kids from the poorer side of the tracks practice their own retributions to the rich kids. I do attribute my modest wealth from learning value of money habits in my formative years. My daughter had the burden of aspiring to be rich in a richer area, but being stuck with the wrong (middle to lower middle class mentality) parents.

As I face my fear-of-the-future worries, I live on my guaranteed retirement income and bank my earnings that are above that. It is more austere than I want, so I continue to work until I reach my higher 'number'.

 

[Nords]

Great post, thank you.
I agree that kids don't give a crap about 'nice things'.....BUT, while I was growing up I remember EVERY kid on my school bus having the Levi's jeans, the newest Nintendo game, etc etc etc. And the kids KNEW it. Sadly they also knew I was the K-mart kid and let me know it every day, lol.
I want to find a happy medium for my kids. I want them to have SOME stuff, but I don't want their life to revolve around STUFF.

I readily admit that my spending is MUCH higher than the norm. I guess it's all relative....to many people, $230k seems crazy high. BUT, I know more than enough people who would consider $230k somewhat of a failure.
Please don't get the wrong idea of me. I'm not a show-off-yuppy type.

... I decided that I'd rather raise my kids around snobs than around the backward-hat-wearing crowd.
I don't want to teach my kids that they MUST have expensive clothes to be accepted, but I also don't want to send them to nice schools without ANY of the stuff that the other kids have...hence my higher spending projections.

Cool, but please note I've eagerly listened to all advice and critique.

Well, in that case, let me suggest what REWahoo! is thinking:
Dude, you're a yuppie.

We have members of this board who have retired on less than a third of your net worth, kids & all, and they're quite happy. Fulfilled. Content. They never complain about their kids getting beaten up, either. Maybe your parenting assets would be better spent on martial-arts training instead of juvenile wardrobes.

Your budget is not aligned with your values. You're spending money for things that you don't think are right and that you don't want to do. You're kvetching with what you're being told because you don't agree with it. You're carrying a small chip on your shoulder. For some reason in your first dozen posts you seem to think that we're not sure how to do this ER thing correctly.

You're the only one who can resolve your spending issues. You're spending way too much to solve nonexistent problems. It's not the politics, it's not the fracking, it's not "austerity", and it's not the rich kids beating up people. It's your values, and right now they're being overwhelmed by your fears. When you figure out what's important to you-- to you, not to others-- then you can spend your money where it makes you happy... and you won't have to worry about status symbols.

Until you figure that out then it would probably be best to take an extended vacation to do the reading in books like Zelinski's "How to Retire Happy, Wild, & Free" along with Bernstein's "Four Pillars". You have some serious thinking ahead of you, and you're not going to get much of it done here with a repetitive series of "Yeah, BUT" posts.

Just so you know, we've had similar posts from other members with net worths like yours and concerns like yours. You are not the first to "suffer" from these issues. I sincerely hope that you are the first to resolve them. For some reason the people with smaller net worths seem to have figured out how to solve these problems without the extra million or two.

Danmar, if you're still around here, you might want to take this one!

 

[Spanky]

Until you figure that out then it would probably be best to take an extended vacation to do the reading in books like Zelinski's "How to Retire Happy, Wild, & Free" along with Bernstein's "Four Pillars". You have some serious thinking ahead of you, and you're not going to get much of it done here with a

.. another idea - a Buddhist Retreat could be a way to explore what's important to you.

 

[Danmar]

@Rescueme post #36. Couldn't have said it better myself. The OP was asking about long term returns not spending levels. Obviously if you can't realistically fund a certain spending level, you need to save more or spend less. Once you have the savings though, spending at a conservative SWR ,no matter how high the dollar amount is, is not morally wrong. At least in my view anyway.

 

[Danmar]

Nords. Just read your post referring to me. Have been away for a while but thought I would check in. the OP is very young and I agree needs some time to figure some of this stuff out and decide what's important to him. I wouldn't retire at his age wih his assets but to each their own. It certainly could be done if he wanted to and many have. I didn't read all the posts and maybe he deserved your response but maybe his age and inexperience is showing through? Cheers.

 

[pb4uski]

@Rescueme post #36. Couldn't have said it better myself. The OP was asking about long term returns not spending levels. Obviously if you can't realistically fund a certain spending level, you need to save more or spend less. Once you have the savings though, spending at a conservative SWR ,no matter how high the dollar amount is, is not morally wrong. At least in my view anyway.

+1 We have got way off on a level of spending tangent. While the level of spending is outrageous compared to what many of us live on in retirement, it wasn't the OP's question, which had to do with whether a 7.7% rate of return was sustainable/prudent.

The average annual return for a 60% bond/40% stock portfolio for the period 1926-2010 according to Vanguard was 7.8% and for a 40% bond/60% stock portfolio for the same period was 8.7%. see https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations

So based on historical returns it would seem that a 7.7% long term rate of return is possible. My reluctance would be that this economic downturn is unique and the low interest rate environment is such that we may well have defined a "new normal" where investment returns are significantly lower than returns of the last century. As for me, I'm assuming a 5.5% return for a 40%/60% portfolio in my static projections (and 3% inflation or a real return of 2.5%).

I think OP may be able to retire using a combination of careful and flexible spending and prudent investing with leverage. At the least, I think he should take some time off, enjoy life and his four year old and newborn for a while and think about what he wants to do for the rest of his life and what his values are.

 

[brucethebroker]

I agree with an earlier post-consider rental property, esp. single family homes. I have never earned less than 10-12% on paid off properties, (less if you pay for management help-however, the tax benefits of deductions should offset those costs and then some).

Many real estate people are noting the change in attitudes about home ownership, esp. with the young. Many are afraid to make the investment plunge and will become long term renters. Good long term investment with prices so low and people always needing a roof over their heads.

 

[haha]

Wilton, I do not disagree with many or even most of your points. I may get mocked for this, but overall I think for people who have children to raise well, the world gets tougher every day.

My generation was the top of the hill. More opportunity, more help, somewhat saner government, cheap energy, cheap school tuition, less inter-group conflict. But once the descent is begun, there may be ups and downs, but the course is down. Just like when you start down a mountain. The trail will go up and down, but you know that you will be going down overall for a long while to come.

I share your dislike for backwards caps, and even more for pants worn below the buttocks. When I started high school over 50 years ago I came home after a few days and told my mother, I won't survive being around these hoodlums. So she took on my dad and within a week I was at an elite school where I actually looked up to and respected the very high achieving new classmates I had. Money makes the mare go, regardless of how stridently people may deny this. Also, it cannot be overemphasized that parents have a totally different set of responsibilites from singles or couples without children. If a non-parent wants to drive around in a 15 year old car with 15 year old safety and s/he feels ok with it, big deal. Their decisions are not as far reaching as those of a parent.

I think your ideas about the money it takes are better than most, and definitely more realistic. But investment returns do not respond to our needs, only to background economic reality and starting valuations.

So if you have a good wife, ring the cash register if you want to but go right back to what you know works, and feel good that you are taking care of business.

Ha