These are all choices. Nobody really tells new parents this, but it may take years before you know all the issues that need addressing. My profession doesnt allow easy returns due to expiring certifications (mainly security clearances) so its a one way door in my situation. Summary. Your decisions are yours alone and we are in no way responsible for your actions. If you are an accredited investor, take a look atCrowdStreet. Parenting certainly is a lot of work and I readily admit that my wife takes on the lions share of that work during the week but when we are both home, its a pretty even split since we view parenting as a team sport. Yes, not just diversity of race, sexual orientation, etc, either. She is now a Sophomore in college and when we converted the fund to something more conservative just as we were about to make the first-semester payment last year, the fund had ~320K in it. Mega Millions After Taxes: How Much Will the Winner Get? | Kiplinger ), +$10000 (emergency, unplanned expenses). Yes I do agree that people seem to overemphasize one part of the childhood over the other and its a bit of a futile argument. What the heck, thats a terrible deal! We have planned for working wife to retire next August. State income tax is 0%, versus 13% in CA, but no way could we make the same income. Kids are very expensive I know because I had one two years ago and I see how my budget has exploded. Thanks for sharing. Granted, Im a slob engineer, so thats low for a manager type, but come on, what are these people, fashion icons of the FIRE community? That being said it certainly is more than necessary if we were trying to cut back! Yes, youre missing the opportunity to take advantage of the 529 plans tax deferral compounding over the next 17 years. More Taxable income $87,050. How said for my kid, whose parents and grandparents are born and raised Californians and homeowners paying lots of taxes, and she probably wont even get the benefit of going to one of those schools. Yeah, they bought near the bottom. I certainly faced it when I moved my household from Silicon Valley to LA, and again from LA to Atlanta both times within mini-retirements. Where does your imagination take you? You will keep working as long as paying you money. Updated to include income tax calculations for 2022 form 1040 and, 2023 Estimated form 1040-ES, for status Single, Married Filing Jointly, Married Filing Separately, or Head of Household. Salary Calculator Results. Question 1. I sense that youre instinctively reacting to $5MM being outrageous and that Andy and Sam are way off base. The surgeon was gobsmacked. Babies dont know how to swim, and the earliest is around 3 years old. All within reason of course. 1. Your email address will not be published. Kindle Edition. If thats the case, one of them should keep the job. The winner of the May 8th $213 million dollar Powerball jackpot has yet to come forward. California weather is great but they still need a 300 a month health club? Jerry worked in management consulting for 23 years and Linda worked in digital marketing for 15 years. Her desire to make you happy may easily outweigh her desire to spend money. Museums and cultural activities are often cheap/free. I have options. I dont think you can honestly argue that they need to keep saving that amount in perpetuity just to be comfortable, especially when you consider that not all parents completely pay for their childrens educations, and there are always loans and scholarships. I totally agree with this as we have $6.5mm in financial assets, 1.45mm house in Connecticut no mortgage, $300k house VT and $1.3mm set aside for three kids ages 8, 7 & 5 for education. Grandparents paying for meals out or just cooking dinner for 3 generations at least weekly. Donations to school/charity 50 month I believe it is a faulty premise. Tax Tip: Before you receive one dollar, the IRS automatically takes 25 percent of your winnings as tax money. Also, just one of the classes for child will be $100 and not all. Without those expenses this family would have a affluent lifestyle with $49k extra a year. When is enough enough? Beware retirement early crowd not to underestimate expenses. Some good points but I dont know if I agree on every single one. Renting is much less so- there are plenty of 2 bedrooms for $3500 a month in Manhattan if you can live in such a space. Im not going to cry for their financial struggles any time soon. Lets call a spade a spade and admit theyre living an above middle class lifestyle. A terrible underestimate. I figured 5 million net worth (including real estate and retirement accounts) would be more than enough to exit the rat race. I love these type of profile features! Estimate your I just checked the Schwab website and you can get a 20 year AA rated muni bond paying 4.46 percent. Easily $2K more a month between the years of childcare, private school, college, etc. To social with other kids? Cable/Netflix 50 month 4) 10k/year is a lot for vacations and clubs on $170k post-tax or 6% of your income. They can use this 800 dollars*12 months* 12 year from age 6 and will have ~120 k cash. Ive lowered the effective rate to 10% for federal and 7% for state. Question on the college savings: where did they come from? My comment was about people choosing to spend a good chunk of their income on food delivery and child assistance when they both stay home with one child, and then claiming that they barely have enough to make ends meet. I think it is a bad idea for the child and for the parents. And sorry if I didnt make it clear from this posts title that this was about an early retirement couple. You read that right. In flyover country, you could probably cut this budget by 75%. Honestly, I will never buy a house where I have to pay more than 1.25% in property tax. But Barely enough to retire implies having just enough for the bare essentials. Makes me glad I dont live there :), Or, you can calculate what the MPG is for their SUV stuck in stop and go LA traffic ;). I think its quite discouraging to people who may never make this much to use these as average numbers. Do people really consider greater diversity as a factor for where they are choosing to live? BTW I feed 6,,4 adults and 2 kids. Paid off her loans last year and quit. 10M(usd) is an arbitrary number They came up with when talking retirement. If you are used to living with the majority of people who look like you and have the same customs every day, diversity is actually a negative for your homogeneous self. This analysis unfortunately doesnt deal with what happens once someone graduates to being an empty nester. The difference between HCOL and LCOL is day and night. Found it crazy how the numbers come out. Very curious. for some numbers. Fast forward 4 years and $1.3m growing at 3% would be $1.45m. Manhattan is at least 30% more expensive than San Francisco. Your title is perfect and I didnt mean to throw shade. If you also invest in California municipal bonds, you wont pay any taxes this income. Income Tax Calculator Many working families would kill for that level of paid child care, and often have to rely on friends on family or coordinate work schedules to raise kids. Had a nanny until my child went to pre-school. When did you guys retire and at what age? DISCLAIMER: Financial Samurai exists to thought provoke and learn from the community. We also subscribe to Netflix. It was only after becoming a parent myself did a get a better look into how much of this assistance actually happens. I dont think you get a great return for that amount of money. Its all the nice to haves that will move the needle. That means sometimes its higher (up to 15%) and sometimes lower (down to 5% perhaps). They could order less food delivery. With the stock market in real estate market the way it is now, paying down debt sounds better and better. Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. Queens is still cheap, but were talking Manhattan. Prior to retiring, Jerry was earning a base salary of $300,000 + $100,000 $200,000 in bonus. So thats about $113,000 a year in gross income that is required for both to retire early, or $2.8M at a 4% rate of return. Living in a $600K house with a $10M NW is quite a nice ratio. Ah, its amazing how everybody arrives at different numbers based on our own experiences! + $4000 (utilities and phones) Tips For Maximizing Tax Deductible Donations. Here in Connecticut, we pay 2% property tax plus 6% state income tax. Had heard of Financial Samurai there and elsewhere, but never checked it out. What are they learning? We live in Miami! As the kids have gotten older, grandparents will take them for weeks at a time in the summer as well giving us time for getaways a couple of times during the school year. I cant imagine I would NEED that much money every month and would see myself likely not withdrawing even huge chunks of it each month anyway. They need to make sure their daughter's prescription is correct to help her eyes align properly during development. Its to stay busy and keep social connections, and isnt included in the spending budget. But the couple is older now, and its unlikely a 2nd child will come. Once I became a dad in 2017, I wanted to dramatically simplify my life. Say what you want about J&Ls pending but they iving entirely off of investments and no significant assistance from their parents. Sometimes they use that time to go on dates, other times they use those hours to have me time to get away from each other. Generosity of time to me is priceless (especially the relationship my children have with both grandparents) and Id take it over any monetary contribution. Health insurance is 18k a year if not working. If you have friends and family with similar amounts of income and savings, they will be living much much better than this. OK, enough reading blogs, dreaming, back to work for me. Lottery Tax Calculator: How Your Winnings Are Taxed - TaxAct Blog I used to live in the DC area for 4 years. Education $255.99 Its just a completely different world. There are daycare facilities that you essentially pay for the days the kid is actually here, and not just a fixed price every month. may seem over the top to someit does not to me. Blah, blah, blah just tell me a number, they demand. I dont agree in this case because their policy is very cheap. Hi Sam! These people are crazy to think they need to spend so much. California Tax Calculator 2022-2023: Estimate Your Taxes - Forbes I think whats cheaper in Manhattan is not needing a car, better schools than SF, and somewhat cheaper rentals. 4% of $700,000 is $28,000 and they are paying $38,904. I think people are misunderstanding the 4% rule. Republicans advance $3.5 billion income tax cut in state budget Admittedly I have not read all of the comments above, so this has probably been mentioned. Admittedly, some are poor, and some are not diverse, but most are. Is that the definition of racism? Even the Cal State schools are tougher to get in, and it takes longer to graduate due to classes being impacted. Most of us have to shill out the $1,500 per month in childcare : o Lets hope our kids get full-ride scholarships. So expensive out there. How Much Tax Is Taken From a Scratch Ticket? - The Nest Seriously, that is a superpower. I dont see a 529 plan contribution. The older they get, and now that they have a daughter, the better value the policy is for the set premium. + $27000 (health insurance, umbrella, life, etc.) This not only reduced the cost significantly but gave me the encouragement and knowledge to work for a teaching credential. Absolutely! Factor in that along with the standard deduction, and you greatly reduce your tax liability. Daycare is the ocean? I would love feedback on my questions/observations in case there are some holes in the logic. The only issue I have is not with you, its with people that spend 200k a year and say thats the minimum to live a middle class lifestyle. After 40 years as a teacher, and enjoying every moment, I retired at 77. Freelancing or self employment would be other options but maybe tough to break in with a multi year resume gap. Family with 1 child living in Austin that loves the blog. How many kids do you have and how much are you spending/saving for them? 3.5 Utilities gas water electric mobile broadband skyTV Netflix While I think this is a great position to be in as a prent, not everyone gets these advantages. I am fortunate though that my wife is not a big spender, and we dont like to spend on everything nice for our children. More likely to meet people who were born in other countries and share their experiences and perspectives. Looking at this (the high cost city analysis) I have a couple observations: 1) Are they not saving anything for the kids college education? My taxes are 1/3 his in my million dollar home because of prop 13. I dont understand why Californians not just move to ChangMai!! Based on simple math, $5,000,000 in after-tax investments at a 4% annual return will generate $200,000 a year in gross income. Would You Accept $1,000,000 To Avoid Private School For Public School? Dont worry, most people cant afford to retire to raise their kids. I was tempted to put in their real vehicle, but I feared too much backlash by the masses if this post ever got out. It might sound ridiculous to you. Nothing wrong with that. I spend less than you and have a significantly higher net worth, but I am still watching the budget. 1) Healthcare young, healthy and lots of wealth why pay for a Platinum plan? :). Then they see one big list like this and say AWWWW come on you dont need this, or this, or this, or that when in reality, everyone is going to need some amount over their bare necessity number to lead a financially secure and high quality retirement. You make a good point. Ours is about $350/per person per month. In all, there are 9 official income tax brackets in California, with rates ranging from as low as 1% up to 12.3%. Say it is currently 120k, save $6.7k per year and let growth cover inflation. But, I dont like seeing my wife do without knowing I have millions in the bank. Its probably b/c she thrifty and hardly ever shops or wants anything. Didnt think I mentioned those. If you could have incredible meals cooked for you every day and save 1 to 2 hours to nap, or to take care of your kids, how much would you be willing to spend? We all follow different traditions and have different values EVEN though we all have the same color of skin. Always take advantage of tax advantageous plans if you can. IRS.gov Form 1040-ES for specific information about estimated tax for the self-employed. If there's one thing we've learned during the global pandemic, it's that overweight/obese people are more susceptible to the virus. If the $5 million is all tied up in your primary residence, then you certainly won't have enough capital to generate enough passive income for retirement. Why do they need 2 million life insurance when they have 6 million in the bank? Flexibility to attend school activities. I know in our part of the country, meat prices can fluctuate by $3 a pound from week to week. There are plenty of areas throughout the US with 3M populations where it is very cheap to live well. J&L live in a modest 1,600 sqft, 3 bedroom, 2 bathroom home at the edge of Santa Monica. It is interesting how people who are working have consistently forgotten to include health insurance as a large cost if they stop working. They would surely be upper middle class even in their HCOL areas. This compensation comes from two main sources. The couple can have all of the me time when the child is at school and does not need to spend >800 dollars on the childcare. At no point did I ever tell someone who is retired how to live their life. This of course means paying more copays and deductibles. Income tax rates and calculation of taxes - Oxford University Press They will remember you were on an important conference call and couldnt help with their math homework even though you were physically there after school. Wow, $2K/month! I am concerned about that. You can ALWAYS find things that feel like absolute necessities if you look hard enough. Why not live in a great area with great area, culture, and food? Something you cant get back very easily once it is gone. Vin added 16k for health care insurance. Thank God Singapore only has two seasonshot and hotterso lets just say, to be practical, youll only spend four thousand per look. Once I quit work to stay home with our first child, I decided I could still contribute to our household budget by controlling our food expenses. Roughly most people seem to agree upon a minimum of at least $10m to $20m. Knopf Doubleday Publishing Group. I think its a full time job (not non-stop, kids sleep, nap, play on their own, watch Disney) and added help if one or both are working would certainly be reasonable. Los Angeles does have some of the best food variety in the country. Last point would be the side hustle you suggest that 40 years of work experience this couple has would easily convert to some high margin consulting work their childcare cost is $69/hour (36,000/520 hours per year) why not plan for another 10 hours of care per week and seek a consulting gig that could easily fetch far more than $69/hour? If you have two kids, that is $ 1 M right up there. Food & Dining $632.83 If you value spending time with family and not working, it is definitely doable and the best way to get there is to start investing early! If they picked up even a minimum wage part-time job just to supplement their income, they would be rolling in extra cash and looking for ways to spend it (heck, theyd probably spend less on staycations as a result, saving more in the process). I think an interesting comparison would be to explore the grandparent-assistance angle. IRS Tax Tables and Tax Rate Schedules and Forms. Ok, ok, ok: were not as warm as So Cal but our winters are pretty mild. It is impossible to not feel at least a little jealous. Powerball payout calculator: How much would you get after taxes - WOFL Indeed. What amount would you feel comfortable spending? But its also a very luxurious lifestyle that theyve chosen. Related: Consumers Stand Up For Your Rights! This feeling of comfort is underestimated by the majority.. This is what the majority of my parents and grand parents generations did after living in NYC for so long. As a result, their annual income would decrease from $200k to $172k (or $133,120 after-tax based on your the calculation method in the blog, excluding child tax credit). Indeed 5M saving keeping the same LA are not enough. This post is so grounded in reality, specially for the demographic of your readers and what they aspire to be. The average income tax rate in 2020 was 13.6 percent. After our daughter was born we started investing $800/mo. I fully expect self-driving cars to be on the road in 10-12 years. It would be one of the greatest blessings of my life. With a 2m w/ 1m mortgage Youre looking at a 11-13m net worth. Spending $225,000 annually would be roughly 2.25% of my current net-worth. it makes for a boring and sheltered life. And my healthcare costs are way higher as this budget has 0 for dental and routine vision care and doesnt account for copays. I am a full time dad with 2 kids age 4 and 6 months. You are not a stay at home dad are you? B you are a very good writer, just like Sam, and I feel like I have a lot in common with you. Im just highlighting what things cost in a big city with kids. Thats great you have the capability to cook most of the meals and take care of three children. Their income would go down due to paying off the mortgage: $5mm 700k = $4.3mm. I had a lot of freedom as a kid when cellphone was non-existent so they cant reach me most of the day! With an 8-month-old daughter, they've decided not to mess around and maintain a gold health insurance plan. Roth, and some taxed at zero, i.e. Go once a week and then take the kid to the beach or a public/friends pool for further acclimation. 5) people can and most do spend down their assets at some point. Having lived in both southern and northern cal, I completely understand. I would expect that saving $250-300k would be plenty. I can safely say plenty of households living in DC and Boston can empathize with these numbers. 1.3M+ homes are not normal homes in almost any location, I could see the argument for SF or NYC just because the burbs are much more difficult to access, but certainly not DC, Boston, Miami, etc. Nick, thanks to your feedback, I updated the chart with the line item Gas & Maintenance..