Hello from Manhattan

[escape_nyc]

It seems we may never retire. Late 30s couple with 2yr old and newborn. High earners (500k+, but maybe not high in Manhattan), high taxes (50%), high spend rate (120-150k). I know the answer is to get out of NYC when we decide to pull the plug, which is fine by us. But we can't find our jobs anywhere else and are essentially stuck here, its hard to walk away from the high income and yearly savings despite our high COL. I don't hate my job to be clear, and actually enjoy it, but cannot find an equivalent job and pay anywhere else (highly specialized). We would love to move to CA, where at least you get better weather, lifestyle, natural beauty, outdoor activities for the high taxes you pay (besides we'd be retired in theory and not paying too much tax as the only income would be from our portfolio). We have no pensions (extremely common on this forum for some reason), no windfalls, no inheritances. The issue is when I put together an annual budget even for a lower COL area far away from NYC (anywhere is lower than Manhattan) I still get a figure around 110k-150k..
Approximate Monthly Budget in a lower COL area (say in CA or FL):
Housing: $3000
Cars (insurance, gas, etc.) $300
Child supplies: $300
Utilities (cellphones, internet, Hulu/Netflix, electricity, gas) : $300
Household supplies: $200
Insurance (medical, disability, life, home, umbrella) : $2000
Groceries: $1000
Discretionary (eating out, shopping, etc.): $1000
Vacations/travel: $1500
Total (X 12): $115,200
Assuming a portfolio that needs to last 50yrs, at 125k annual spending,
that works out to about $6.25mm!! We don't have that kind of money and probably won't until we are 50+. I understand that people here retire on smaller portfolios (of course many have pensions). I'd like to get some feedback on what we can do to speed things up, including dissecting the rough budget above. Cheers.

 

[rodi]

NYC is expensive... no doubt. But a lot of people manage to live there semi-frugally. You have an after tax income of $250k (assuming 50% of your $500k income). You currently spend between 120k and 150k... so you should be saving between 100 and 130k/year.

With compounding you will be surprised how quickly you get to your goal. If you stay focused and save that extra money and don't spend it.

I like NYC - but prefer the CA lifestyle... If you have a paid for house it can be fairly inexpensive here. I have 2 kids at home (so family of 4) and we're living on $84k/year in a comfortable middle class lifestyle. It's about choices -for me spending a bit less, and being free of work meant a lot more than having extra meals in restaurants or flying in the front of the plane.

 

[daylatedollarshort]

We compared our budget to the Consumer Expenditure Survey, line by line, to see where our spending was high. Median income in CA is $60K so most households somehow seem to manage it on less than your proposed budget.

Consumer Expenditures Survey (CEX)

California isn't too expensive if you have a paid off house or live outside the major job zones, and the weather and most of the beaches and parks are free.

One thing it is easy to cut your budget when you are not working, but harder to do if you both work full time. My husband learned to cook since not working full time. Today he made grass fed beef (bought on sale for half price and stockpiled in the chest freezer) in the crock pot cooked in French onion soup, mashed potatoes from scratch ($1.99 for a 10 pound bag), with gravy and veggies from Costco. And he drank clearance wine from Grocery Outlet while making it.

A few years ago he would not be home from work yet at this time and when he did get home if he was lucky a Panda Express meal would be waiting for him because I would have been busy working and running car pools myself.

If you make $500K now can you do contract work part of the year or work part -time to make ~$100K, or even $60K would cut your portfolio WR in half, even with your current budget.

 

[rodi]

Another point. You assume you need 6.25M to support 50 years of 1.25k expenses.
Do you really think, long term, that investments won't stay ahead of inflation? Most folks assume an average return is higher than an average inflation in the long run.

 

[Brat]

While your job is highly specialized there are doubtless positions on the west coast that are similar.

There is a participant in the forum whose position is highly specialized in the financial industry, formerly from your neck of the woods, who is now working remotely from CO on his own terms.

Even former NYC garment industry folks can be found at NIKE.

 

[ER1970]

We are in the same boat, and I agree $6mm is the minimum if you want to retire with the same/similar lifestyle and convenience as you enjoy now. But I also agree with rodi, that by saving the extra $$ (!) and investing right you will get there in no time. We did it (but still having OMY syndrome of course) with a combined salary only slightly above yours and no kids. I used to think we'd never be able to retire but we are close, in our mid 40s/50s. I'd say retiring in NYC w/o at least $5mm would be hard, even for a 50+ retiree, but CA may be different... However you do have a young child so schools may still be expensive if you go for a private school in CA.
The bottom line is that you WILL get there. Maybe not when you are 40, but instead in your 50s. Nothing wrong with that, it is still considered "early retirement" in this country.

 

[pb4uski]

$6.25 million is way too much, even for a 50 year retirement because it assumes a 0% real return. Assuming a 2.5% real return (which is still conservative), the pv of $115k/year for 50 years discounted at 2.5% is ~$3.25 million. Also, if you plug $3.25 million and $115k/year of spending onto firecalc, it indicates a 98.9% success rate.

And if you reduce that for the impact of SS, it will be even lower than $3.25 million.

Get hold of a copy of Quicken Deluxe (or higher) and plug your numbers into the Lifetime Planner included therein or spend some time with firecalc and you'll see that you only need half of what you think you need and with some tweaks to your spending perhaps even less than that. IOW, if you can tweak your spending down by 25% then you would only need $2.5 million).

So if you get real on returns, dial down your spending, save and invest and reduce the retirement time horizon from 50 years you can do it.

 

[photoguy]

$6.25 million is way too much, even for a 50 year retirement because it assumes a 0% real return. Assuming a 2.5% real return (which is still conservative), the pv of $115k/year for 50 years discounted at 2.5% is ~$3.25 million. Also, if you plug $3.25 million and $115k/year of spending onto firecalc, it indicates a 98.9% success rate.

+1

125k withdrawal on 6.25M is a 2% WR which is probably much lower than it needs to be. Even a 3% WR gives a *huge* buffer compared to the standard 4% WR suggested by various studies.

The issue is when I put together an annual budget even for a lower COL area far away from NYC (anywhere is lower than Manhattan) I still get a figure around 110k-150k..
Approximate Monthly Budget in a lower COL area (say in CA or FL):
Housing: $3000
Cars (insurance, gas, etc.) $300
Child supplies: $300
Utilities (cellphones, internet, Hulu/Netflix, electricity, gas) : $300
Household supplies: $200
Insurance (medical, disability, life, home, umbrella) : $2000
Groceries: $1000
Discretionary (eating out, shopping, etc.): $1000
Vacations/travel: $1500
Total (X 12): $115,200

How accurate do you expect your budget to be? I'm asking because (1) there's a lot of room to reduce these numbers and still be comfortable even in HCOL areas in California and (2) it seem to be missing some items which would add to the budget

For example, 3k month for housing at 50x implies 1.8M devoted to housing. You can definitely get nice houses for much less than that especially if you do not need to commute to a job and of course townhouse/condos go for even less. Of course this really depends on location -- in some places even 1.8M may not be enough.

There are also no taxes or college education expenses in the list. Nor does there appear to be capital expenditures (such as purchasing cars).

Did you price out out insurance on the CoveredCA for your family? FYI the subsidy limit for 4 is about 95k/year which you could probably meet without any reductions (assuming your funds are coming from taxable accounts). Note: I wouldn't depend on the subsidy staying but it's nice if you can take advantage of it.

One thing that might help is actually tracking your current expenses (if you are not already doing so).

Most people even in CA retire on much less than 6.25M. So it can be done -- it's just a matter of getting your costs under control.

 

[mystang52]

In the interim, is commuting a consideration? The extra costs of commuting are usually more than compensated by the lower COL in any of the suburbs.

 

[daylatedollarshort]

At your ages downshifting might be a lot easier to pull off than never working again. I don't know any field other than IT, but in the Bay Area a lot of the non-management programmer jobs pay $100K a year or more, so a two income household could each work half time and with a paid off house and optimized expenses still live pretty well on $100K, not even counting SS or any portfolio withdrawals.

One of our kids' friends does contract app development from home and with a low overhead lifestyle makes enough to just have to work sporadically.

 

[38Chevy454]

Expensive preferences = high expenses. Think about if you really need that big of a house, all those groceries, that much discretionary or that much travel. I do agree it may be tough to lower your current COL, but once you get enough and pb4uski provided the realistic amount you should target, you can reduce your expenses to less than what your budget has. It is all about choices and your preferences.

 

[Live And Learn]

Assuming a portfolio that needs to last 50yrs, at 125k annual spending,
that works out to about $6.25mm!! We don't have that kind of money and probably won't until we are 50+. I understand that people here retire on smaller portfolios (of course many have pensions). I'd like to get some feedback on what we can do to speed things up, including dissecting the rough budget above. Cheers.

A couple of comments. You are in your 30's - take a deep breath. You have a long life ahead of you and will have a long retirement. If you think you will have $6mm when you are 50+ (lets call it 55) that is early retirement. Since in reality you probably need closer to $3.3mm then you'll be there before you are 50 as long as you live below your means and max out your savings. Breath in, breath out ....

 

[FIREd]

Take a step back. You make good money and you actually have a shot at $6M+ in your 50s. By any measure, you could be well on your way to a comfortable early retirement, even in a higher-than-average COL area. If you don't want to wait that long to retire, then you have to revisit your lifestyle. You may have to cut your travel or discretionary budget for example. Or live in a more modest house. Or move to Arizona instead of California.

My wife and I are on the same boat - high income, high yearly savings, in expensive and heavily-taxed San Francisco. Sometimes it feels we'll never have enough to stay here. California might be affordable for those who purchased their house long ago, but the newcomers get creamed on real estate. Wherever we end up, money is just too good right now to quit.

 

[Blue65]

Did you ever think of commuting from So Ct, Long Island, Westchester or NJ? My expenses are substantially lower than yours with similar income. This might be an interim step for you to see if you could live with lower expenses without moving too far away. I would take a look again at your expenses and see if you could chop more. I live on LI and work in Manhattan and every year I look for a company to beat up or make a change to save money in a utility. I should probably need about 45k year in retirement. Don't forget that there are city income taxes in NYC, a lower income tax rate in CT, and programs for seniors to help with property taxes in NY.


Sent from my iPad using Early Retirement Forum

 

[escape_nyc]

Many good ideas..

Thanks all - for great suggestions, ideas and critique.
We actually live quite modestly by U.S. standards, its just that even basic stuff costs more here. Housing costs in a modest 1000 sq.ft. rental apt take up half the 120k budget. We don't eat out at fancy restaurants, don't buy expensive clothes, drive an old good car we plan to keep driving, vacations are nowhere near lavish either (I laughed when you said front of the plane). We cook at home a lot and actually prefer it with small children. We are not materialistic, try to be minimalists and hate collecting junk items with no utility. I'd say we live a great balance between frugal and comfortable. Really the only thing we could cut down on is on rent (would save about 20k at most), but that would lead to a commute which would drastically lower our quality of life. We live way below our means and save a lot.
I've gone with the 6.25m estimate as I like to look at close to worst case scenarios, hyperinflation, stock market crashes, Japanese style lost decades of recession and deflation, dollar collapse, etc. Compounding can be great, but awful if its against you as well. Photoguy - you are right we should include capital expenditures and college, as well as taxes, which is which I went with the 125k/year rough figure, assuming we are able to cut elsewhere. Vacations/travel are not really option. TBH we'd rather not retire if we can't travel around the world/country (we travel modestly) for 1-2 months a year when FIRED.
Many mentioned CA being affordable if the house is paid for, but of course thats not how it would work out for me as I don't own a house in CA! I'd love to live in San Diego, Central California Coast or even the Bay Area, but don't know where I could find a small modest 1500-2500 sqft house/townhouse for around 500k-750k in a nice neighborhood with great schools and ethnic and social diversity.
Contracting is not an option. Employment in another industry also not that straightforward. I would not mind retraining to gain employment that pays modestly.
I know we are young(ish) and will get there eventually, but its frustrating as like FIREd says "money is just too good right now to quit" - it would be really silly for us to quit. At the same time the high taxes and ridiculous costs for a modest basic existence with no horizon in sight make it a harder pill to swallow.

 

[Meadbh]

You are in your 30s and despite high expenses and two little kids, are managing to save a substantial chunk of change. Be patient. Meanwhile, live life but be open to making lifestyle changes. For example, why do you need two cars in NYC? Look at expenses critically. And consider states other than California. For example, Oregon is a beautiful state with no sales tax and Portland is "where young people go to retire". Of course, 20 years from now, lots could have changed.

 

[daylatedollarshort]

Many mentioned CA being affordable if the house is paid for, but of course thats not how it would work out for me as I don't own a house in CA! I'd love to live in San Diego, Central California Coast or even the Bay Area, but don't know where I could find a small modest 1500-2500 sqft house/townhouse for around 500k-750k in a nice neighborhood with great schools and ethnic and social diversity.

If you aren't commuting to a job you can live further out in the Bay Area easily for that price range. I picked this house at random off Redfin. We have friends that lived near here and it is a low crime, bedroom type suburb with most of the schools at least 8 - 9 on a scale of 1 - 10.

https://www.redfin.com/CA/Benicia/300-Panorama-Ct-94510/home/2370047

 

[FUEGO]

Would it be possible to move somewhere lower COL and take a fat pay cut? Maybe coastal CA or maybe some other large-ish city? You know your industry better than we do, but there are lots of opportunities out there. You might be able to earn half what you do now, slash your tax burden way down, and spend much less than you do while enjoying a higher quality of life and saving almost what you do now.

Otherwise, I would try to economize where you are. Move to the NYC burbs and accept a crappy commute. Or keep earning and saving all you can.

One thing is certain, you can probably live the lifestyle you have now on much less than you're paying today if you relocate to a lower COL area for early retirement.

 

[daylatedollarshort]

There is a book called Retire on Less Than You Think by Fred Brock where he shows how a family living on something like $100K a year in New York can live on $40K in Arizona. The book is a bit older now but the proportions may still hold true, if not the absolute dollars.

Or just moving to a smaller town in coastal California is cheaper, like San Louis Obispo. Sacramento is even less expensive. It is sunny but flatter and not on the coast, but San Francisco and the Sierras Foothills are only about an hour's drive away.

 

[kimcdougc]

If you aren't commuting to a job you can live further out in the Bay Area easily for that price range. I picked this house at random off Redfin. We have friends that lived near here and it is a low crime, bedroom type suburb with most of the schools at least 8 - 9 on a scale of 1 - 10.

https://www.redfin.com/CA/Benicia/300-Panorama-Ct-94510/home/2370047

Sold! What a lovely home.

 

[haha]

Thanks all - for great suggestions, ideas and critique.
We actually live quite modestly by U.S. standards,

I am afraid that will not be good enough. Our goal here is to live modestly by Mumbai standards.

Ha

 

[lhamo]

At a total of $4000/month your estimated monthly spending on groceries/insurance/discretionary all seem very high. I know groceries in Manhattan are expensive, but there are ways of bringing that down considerably without sacrificing quality. Costco is great. Ethnic grocery stores in Queens are great (subway out and cab back if needed).


What kind of insurance do you have that costs $2000/month for a family of three?

 

[Brat]

You really should consider the Dunthorpe neighborhood just south of Portland's city limits. Riverdale School District This real estate search tool is handy, just enter Riverdale in the elementary school field. Listed homes start at $800,000. RMLS.com™ Regional Multiple Listing Service - Residential Search

You can find less expensive homes and outstanding schools in Portland, just type in Ainsworth in the elementary school field above.


You won't find much ethnic or racial diversity in Oregon when compared to NYC or the Bay Area. I used to take my kids on business trips so that they can see that 'things are different'. My grandchildren have attended a private school in Portland (pre K) where 3/4 of the kids have Indian ethnicity - basically the children of Intel engineers. Our ethnic composition is driven by employment opportunities.

 

[Brat]

I am afraid that will not be good enough. Our goal here is to live modestly by Mumbai standards.

Ha

Mumbai isn't all that cheap if you want American/European living standard. Bangalore can be downright expensive.

 

[jim584672]

110k-150k for expenses? My base expenses are 15k and I am on Long Island.
I find your number to be amazing.