Is earning $1 million a year, a top 1% income, enough to retire early? Most would say yes. However, some people who earn $1 million a year having a hard time letting that money go.
After all, all you’ve got to do is work one more year and you will make another $1 million! For most people, I’m sure they’d happily sacrifice working at a crap job for another one million dollars.
This article explores when earning $1 million a year isn’t enough to retire early. Many high-income households in big cities are having a difficult time escaping the rate race to do something new.
When Earning $1 Million A Year Isn’t Enough To Retire Early
We know that a $300,000/year household income is pretty middle class if you live in an expensive coastal city like San Francisco or Washington DC.
However, we can all agree that earning $1,000,000 a year or more makes you rich, especially since a top 1% income level starts at roughly $470,000 in 2021. No household earning $1,000,000 or more should ever struggle unless they leveraged up and their investments imploded.
If you make $1,000,000 a year or more, you’re free to celebrate. Just don’t tell anyone lest you want an ax-wielding robber waiting for you in your living room after an evening of fine dining.
Let’s explore the lifestyle of a typical household earning $1 million a year living in New York City. They’ve anonymously shared with me their expenses, and I’ve done my best to tell their story without sharing their exact details.
This post will give you a taste of what it’s like to make $1 million a year. You’ll also get to decide whether making a top 0.1% income is truly worth the price.
Very Profitable Earning $1 Million A Year
After tax cuts were introduced in 2018, making more money has never been more profitable. Not only did the top federal marginal tax rate get cut from 39.6% down to 37%, the income threshold for the top federal marginal tax rate also rose from $418,400 to $500,000 for singles and from $470,700 to $600,000 for married couples.
In other words, there’s never been a better time for earning $1 million a year! However, beware as President Biden is looking to raise the federal marginal income tax rate on households making over $400,000 to 39.7% again.
So, if you’ve been wanting to make over $500,00 a year as an individual or over $600,000 a year as a married couple, now is the time to do it. You’re essentially getting about a $15,000 federal income tax break if you make $1,000,000 now versus in 2017.
But as we are all well aware, the desire for money and prestige tends to corrode lives after a certain point. Once you make over $200,000 as an individual or $350,000 as a family, there is no additional happiness that accrues from making more money.
Instead, lifestyle tends to deteriorate due to longer hours at the office, more stress, poorer physical health, and less family time.
Further, with Joe Biden planning to raise taxes for households making more than $400,000 a year, perhaps making so much is becoming less worth it.
$1 Million A Year Profile
Rachel Chen is one such person who doesn’t know whether the $1 million lifestyle is worth it. At 45, Rachel is one of several portfolio managers at a small hedge fund with $1.5 billion in assets under management.
She toiled as a research analyst on the sell-side for six years before making the leap to buy-side analyst at 28. At 37, she was finally promoted to portfolio manager.
Rachel’s husband, Colin, 43, has been a stay at home dad since their second son was born in 2011. Colin used to make about $350,000 as a strategy consultant, but got tired of all the travel and decided to give up the grind, especially after Rachel started making more.
Colin has been working on a non-fiction book to keep intellectually stimulated. But it’s hard to stay focused with the kids and his wife’s robust earnings.
Income Statement Of A $1 Million A Year Household
Let’s take a look at the Chens’ income statement. As you will see, earning $1 million a year goes fast due to taxes and other living expenses.
Income And Tax Analysis
After maxing out her 401(k) and contributing $6,000 a year to her Health Savings Account, Rachel has a taxable income of $975,500. Her income is in the 37% federal marginal income tax bracket, and she pays an effective federal tax rate of 31%, or $302,405.
Given this household lives in New York City, they pay a State tax rate of 6.85% ($323,200+), and city tax rate of 3.87% ($500,000+). Their effective State and City tax is therefore around 10.71%, or $104,574.
Their total Federal + State + City tax bill a year equals $406,979.
As a W2 wage earner, there’s really no way around this enormous annual tax bill. Due to the SALT (State And Local Tax) limit of $10,000, high-income earners in high income tax states such as California, New York, New Jersey, Connecticut, Oregon, Minnesota, and Iowa lose out. Before 2018, the deduction was unlimited, but subject to Alternative Minimum Tax.
Even though the marriage penalty tax has been abolished for individuals earning up to $300,000 a year who decide to get married, the SALT cap limit of $10,000 is a marriage penalty tax. If you have two unmarried taxpayers both paying $10,000 in SALT, they will get an aggregate $20,000 when they file, whereas if they get married they suddenly lose $10,000 in deductions.
EXPENSE OVERVIEW
Private School Tuition – $100,000/Year
The couple forks out a hefty $100,000 a year for their two sons to attend The Dalton School. Tuition for the 2018 – 2019 school year is $48,450 a student, which includes books, computers/tablets, and lunch. Add a mere $1,550 for fundraisers and miscellaneous stuff and you’re at $50,000 per child.
Given mom and dad went to Yale University, they’d like their children to also go to Yale University. They know that Yale and all the prestigious private schools have a legacy system which gives children of alumni a huge leg up in admittance, no matter their racial or economic background. Some call this affirmative action for rich kids.
Although legacy children have a roughly 3X higher chance of getting admitted than nonlegacy students, there is an understanding that alumni should provide regular donations to stay in good standings. Therefore, Rachel and Colin together donate $5,000 a year.
Finally, the Chens also contribute a maximum gift limit of $60,000 combined to their children’s 529 College Savings Plan. They are fortunate to have paid off their student loans years ago.
Food And Entertainment – $4,583/month
New York City is the best city in America for food and entertainment. Although many in San Francisco might contest this claim, the entertainment part of the equation is truly second to none.
The classic mutton chop at Keens Steakhouse costs $60 before tip and tax. Add on a glass of Cabernet Sauvignon, some creamed spinach, wedge salad, and a 1/2 dozen fresh oysters, and we’re easily talking $150 per person. A meal at one of my favorite restaurants, Le Bernardin, will easily cost $600 for a couple with wine pairing. Have a look yourself.
After a nice meal, the Chens like to hit up a Broadway show. Tickets range from $60 up to $1,500 on average for the latest hot show. But given they aren’t earning multi-millions, they often settle for $250 tickets at most. In other words, a date night out easily costs $1,000+. Good thing they only go to shows about once a quarter because they’re often too busy or too tired to do anything more than have a meal at their favorite local sushi restaurant for $150 total.
When the Chens are not eating out, they’re eating home delivery from GrubHub, or having a simple home cooked meal prepared by Colin. Living in the culinary capital of America is both a blessing and a curse. Both Rachel and Colin are constantly watching their diets and working out so they don’t die prematurely.
Housing – $9,749/month
They own a 5 bedroom, 3 bathroom, 2,700 sqft brownstone in Park Slope, Brooklyn they bought in 2012 for $2,000,000. It was a fortuitous time as their brownstone has appreciated by roughly 40% six years later.
When their first child was born in 2008, they had owned a $1.3 million, two bedroom, one bathroom condo on the Lower East Side bought in 2004. They realized very quickly that they needed more space for two kids. They plan to live in the house until their youngest goes off to university in 11 years.
With a loan-to-value ratio of just 53%, they feel comfortable paying down a $1,500,000 mortgage on her $1,000,000 income. They locked in a 30-year fixed interest rate at 4% in 2013 and can comfortably afford the $7,161 monthly mortgage payment, $2,600 of which goes to paying down principal.
Unfortunately, they’ve also got to pay property tax of $17,556 and home maintenance expenses of about $10,000 a year. Things tend to break or leak with old brownstones. They didn’t truly realize how much more it would cost to maintain a larger home with outdoor space compared to their condo in Manhattan.
With the SALT deduction capped at $10,000, they will be losing out on thousands of dollars of tax deductions. As a result, they’ve diversified into real estate crowdfunding to take advantage of heartland real estate where valuations are cheaper and net rental yields are much higher. Perhaps, one day, they’ll retire in a lower cost of living area as well.
Vehicles And Transportation – $2,842/month
Colin is a car enthusiast, and Rachel appreciates the utility and safety of an SUV for her kids. As a result, they own the newest Range Rover Velar and Porsche 911S. The P380 Dynamic Velar is leased for $850/month. The Porsche 911S costs $1,400/month.
The Chens drive their Velar to the Hamptons many weekends during the summer where they rent a vacation house with friends. Colin drives his Porsche to the country club to play golf a couple times a week while the kids are in school. It’s his way of staying in shape and socializing given most of his peers still work full-time jobs.
Vacations – $40,000/Year
The Chens take three vacations outside of New York City a year plus a combined week’s worth of local vacation scattered through the year. Granted, they are spending more time locally due to the pandemic.
Given Rachel works ~65 hours a week, vacations are extremely valuable to her so she can recharge and spend quality time with family. The thing is, even when she’s on vacation, she’s checking in with her analysts and following global stock markets at all hours.
Rachel has long felt a tremendous amount of guilt for being away from her kids for so long, but she also realizes she’s in an enviable position to maximize her career earnings while the stock market is still hot. Eventually, the market will turn and it will become much harder for her to outperform.
The Chens’ favorite vacation spots are mostly in Europe: Dubrovnik, Almalfi Coast, St. Tropez, Provence, and Mallorca are some of their top destinations. It’s easy to fly to Europe from the East Coast, but every other year, they’ll take a trip back to see extended family in Taiwan. They also love visiting Japan, Thailand, and Vietnam when they can arrange two consecutive weeks off.
Each international trip for a family of four costs roughly $13,500 for the week. The cost can be broken down as follows: $4,000 – $6,000 for economy class flights, $4,000 – $5,000 for 7 nights at a five-star hotel, and $2,000 – $4,000 for food, excursions, and souvenirs.
The remaining $5,000 out of their yearly $40,000 vacation budget is allocated towards being a NYC tourist.
Clothes For Four – $24,000/year
Rachel loves clothes and shoes, and Colin doesn’t mind dressing up nicely to match his lovely wife, although he prefers to wear athletic gear all day. As a fund manager who expects to be taken seriously in a male-dominated industry, Rachel dresses her position.
Her pantsuits from Gucci, Dolce, and Chanel easily cost between $2,000 – $3,500 each. On average, she buys one work suit once a year to keep her threads fresh, although sometimes she buys a couple during holiday sales.
With every power suit must come matching Manolo Blahniks or Jimmy Choos at the cost of between $800 – $1,000 a pair on average. Below is a regular blue satin pump by Manolo for $995 before tax at Nieman Marcus.
After the pumps, Rachel must of course own a work-appropriate tote bag that can cost anywhere from $1,000 – $3,000. She prefers the understated Prada bags with their hard waterproof exterior. Below are some of her clothing examples.
Given Colin is a stay at home dad, he doesn’t need to spend anything on work clothes. However, he does own and appreciate an array of finely cut blazers to go along with his designer jeans and button down shirts for when they go out.
Each custom blazer costs between $1,000 – $1,500 on average. Designer jeans run between $180 – $300, and shirts from the likes of Thomas Pink can range from $80 – $250. He only has one watch, a stainless steel Royal Oak Audemars Piguet he bought for $16,000 years ago.
Charity – $25,000 / Year
The Chens feel extremely fortunate to be in their position as second generation Americans whose parents worked lower income jobs to put them through school. When you are given the opportunity to make it beyond your wildest dreams in the greatest country on Earth, the Chens feel it’s their duty to regularly give roughly 2.5% of their gross income to charity.
Rachel and Colin are particularly passionate about helping foster kids get through a difficult system in order to be given a fair chance at life. They know their sons are extremely fortunate to attend private school, and deep down they feel it is unfair that their kids can have so much, while other kids, through no fault of their own can have so little.
Finally, they donate to organizations that do research on nystagmus, a visual condition their youngest son inherited. Nystagmus is a neurological condition that causes involuntary movement in the eyes, which leads to worse than 20/20 visual acuity, even with the use of glasses, contacts, and surgery.
Net Worth Summary After Earning $1 Million A Year
Rachel has a target of working for 15 more years until her youngest son graduates college. Once both kids are through college, this will free up roughly $200,000 a year in after-tax children related expenses, which is equivalent to roughly $340,000 in gross income based on their 41% effective total tax rate.
After 15 years, the Chens should be able to accumulate at minimum:
- $277,500 in 401(k) plus $150,000 in profit sharing
- $816,495 in after-tax cash
- $500,000 in principal pay down (leaving $1,000,000 left in mortgage)
For a base case net worth increase of roughly $1,600,000 without any appreciation in their investments or house.
Assuming $106,666 in base case net worth growth over 15 years, no compensation increase during this time period, and a current $3,000,000 net worth, including the equity in their primary residence, the Chens will realistically have a $10,000,000 net worth by the time their youngest graduates from college using a 6.2% annual growth rate. She’ll be 60 years old and he’ll be 58.
Once their brownstone is paid off, they’ll save an additional $86,000 a year in after-tax cash flow, equivalent to $145,000 gross based on a 41% effective tax rate.
Therefore, the Chens can afford to maintain their lifestyles earning just $500,000 a year once they no longer have mortgage debt or child expenses.
With a $10 million net worth, all they would need to do is figure out some way to generate a 5% return to live a great retirement and diligently track their finances to make sure there’s no leakage.
They’ve been surprised at how some of their rich friends ended up with so much less because they weren’t aware of their risk exposure during a downturn or how much they were spending.
Not Sure If It’s All Worth It
On paper, everything looks great for the Chens. Yet, Rachel tells me she doesn’t know if it’s worth working 65 hours a week for the next 15 years. Even the finest lobster at Le Bernardin or the most picturesque luxury villa off the Almalfi Coast gets old after a while.
Rachel sees a therapist every other week to help her manage the constant pressure she feels to provide for her family, outperform her peers, and outperform the markets. The market takes no prisoners and every month she starts with incredible anxiety. This type of pressure has begun to pulverize what little peace and quiet she has left inside. She’s also recently begun to develop heart palpitations, which has her worried.
Colin also sees a therapist once a month to help him get through his feelings of unworthiness for being a stay at home father. Although he’s truly a great dad, he often feels gutted to have given up his career. None of his friends, who all work, understand what he’s going through. He feels isolated and occasionally depressed. Sometimes he gets jealous of Rachel’s success, which leads to fights.
Wants To Spend More Time With Family
What Rachel misses most is spending time with her boys, who are growing up too fast for her liking. Like middle age, where she now has a greater sense of her mortality, she knows that she might only have 5-7 years left to spend time with her sons before they would prefer spending all their free time with their friends. Before she knows it, they’ll be off to college where she might be lucky to see them twice a year.
Rachel envies Colin’s time at home. Most of her girlfriends are stay at home moms who take turns hosting playdates when their kids are off. When they’re in school, they often go to brunch at Blue Water Grill with bottomless mimosas over mounds of freshwater oysters.
They recognize they are extremely fortunate, and for the most part, they are happy. The Chens just wonder whether the grind is worth it, especially when they see friends from high school leading happy lives on much less.
Generate A Greater Net Worth
The only way to live a freer life is to drastically reduce expenses, change their lifestyle completely, or accumulate at least 20X their annual expenses in net worth. At their current $500,000 annual burn rate, Rachel will truly need to work another 15 years to finally experience the joys of financial freedom.
If I was Rachel, I’d either ask for a sabbatical or dial back work to 40 hours a week for less compensation if she cannot outperform. Making less money with less stress, fewer hours, and a lower effective tax rate sounds so much more reasonable. They’ll have to cut down on entertainment, clothes, and travel, but they’ll gain back so much more quality time as a family.
At high income levels, retiring early is a choice. Yet so many people cannot or will not because oftentimes, the money is too hard to quit.
How To Retire Earlier On A High Income
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Earning $1 million a year is great, but you’ve got to save most of it and invest it.
Invest In Real Estate
Earning $1 million a year is great, but you need to invest the money wisely as well. Real estate is a core asset class that has proven to build long-term wealth for Americans. Real estate is a tangible asset that provides utility and a steady stream of income if you own rental properties.
Given interest rates have come way down, the value of rental income has gone way up. The reason why is because it now takes a lot more capital to generate the same amount of risk-adjusted income. Yet, real estate prices have not reflected this reality yet, hence the opportunity.
Take a look at my two favorite real estate syndication platforms:
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing.
CrowdStreet: A way for accredited investors earning $1 million a year to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.
Both platforms are free to sign up and explore.
I’ve personally invested $810,000 in real estate syndication across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000.
Found the article quite insightful, as from the age of 12 I feared becoming like this. Trapped and unable to be confident in my financial stability. I sought to be financially literate and began a retirement account at 16. I’m only 19 now, but I’ve been able to max out my Roth IRA contribution every year and intend to continue doing so. Probably won’t be making nearly as much, but hopefully, I can avoid the same mistakes.
It’s a bit pitiful. The exorbitant costs and unwillingness to compromise. Felt rather sad when reading this.
For those of us who are divorced, ‘child support’ is a major financial obligation.
My ex-wife is upset because I convinced our family court judge to let me use a child support trust in the form of a special purpose joint checking account that BOTH parents put money into in order to provide for our children’s needs. This makes providing for the children’s needs a shared responsibility instead of requiring the paying parent to provide a government mandated lifestyle for the children, and by inference, the custodial parent.
My children tell me that their mother is furious because she can no longer spend the ‘child support’ on herself and her live-in boyfriend. I’ve also noticed that the kids are no longer coming to me and telling me that their mother said that I need to pay additional expenses such as school field trips, clothing, haircuts, et cetera because those things are not being paid for out of the child support trust account.
I’ve never had a problem with providing for my children’s needs. I do object to family courts allowing my ex-wife to treat what is supposed to be child support as additional income that she can spend any way she damned well pleases.
I somewhat relate to the story. My wife and I live in Queens, having moved here after having lived in Manhattan for a decade or so. Kid is 25, has a job so those expenses are gone. College was 62k/yr and private school was low 40’s. That sucked up disposable income for many years.
My wife worked as a CFO for a public company making about 250k/yr. I worked on wall street making with a very volatile income, ranging from 150k/yr to 950k/yr depending on which job I had.
We both lost our jobs in ’09 and income dropped to zero.
We’re both immigrants and worked our way through our respective schools (she has a masters in accounting, I have an MBA in finance.) We both worked 65+ hrs week plus work dinners / events at night and on weekends which sounds great if you don’t have to do them but they get pretty old fast.
I started my own business (investment management) in 2012 and the first couple of years lost money on it. Growing assets is hard and compliance is very, very expensive.
We lived off my wife’s income. In the meanwhile we moved to Queens and bought a 2 family, which, in hindsight, was probably one of the best moves we could have made. Our housing expenses are literally a (small) source of income which makes us sleep better at night. I understand that had we taken the same amount of equity and leverage and put in equities the return would have been higher but it provides peace of mind.
Long story short, the business is grew and my wife quit her job to join me (which increases concentration risk) but financially it’s going well. We’re back to making 600 – 800k which may sound like a lot but frankly our lifestyle does not allow us to enjoy it. Working Saturdays and Sundays is par for the course.
And, like other commenters have pointed out, it’s not like we can just work less and take a commensurate decrease in income. You’re either in or you’re not.
Having non-W2 income is good. We can save a lot though our pension plan and a lot of expenses are now business expenses which helps tax efficiency. Given the nature of our business we need to be in NYC so there is really no way around the taxes that come along with that.
We have a modest lifestyle – tenants to take care off and 1500 sqft of living space of us (more then enough). We own a used compact car that we use for business and groceries. We can’t take vacation – we can only take day flights with WiFi because we are expected to be always on call. Vacation is a due diligence trip to Cleveland on Thursday / Friday with the weekend tacked on to come back on Sunday. Travelling coach and staying in mid-priced (200/night or so) hotels.
Having been on the other side of the pay scale (making less than 40k in NYC for the better part of a decade) for years and years I understand the irritation / anger that some people feel when they read a story like this. How can you make over half a mil and not be happy? The answer is pretty straightforward – money is only part of what makes life work (or not). There is way more to life than $$. And especially as you get older and friends around you are starting to have diseases and / or die money takes on a different role.
What keeps us pushing forward is the desire for alternative income sources. We are working on buying rental properties (along with the proper management to take care of them) to provide with sufficient cashflow if this gig disappears. My guess is that we use around 120k/yr of after tax income and the rest is saved. To generate 120k of rental income you’ll need at least 2mm of rental real estate @6% effective yield. 6 may seem low but I think most people underestimate the cost of management and maintenance. Add 10% vacancy and you’re up to 2.2mm worth of assets.
The Chens don’t have a lot of options. She is either a PM or she is not. I completely understand the stress between them on the various issues. I am not crying for them but their life is not a walk in the park, just like most other people. Their issues are just different, not better or worse than those of people who make either more or less than they do.
Very thoughtful comment. It’s a great point that for many of these professions, you’re either in or your out, which presents its own set of binding constraints, which as you note aren’t better or worse than those of others, they’re just different. Very interesting perspective.
Long time reader, great articles.
Question: Is it truly realistic their net worth gets to 10 mio since this assumes their primary residence equity has to increase by 6.2% each year as well? Home prices wont go up 6.2% a year… Or did I interpret the sentence below correctly?
“Assuming $106,666 in base case net worth growth over 15 years, no compensation increase during this time period, and a current $3,000,000 net worth, including the equity in their primary residence, the Chens will realistically have a $10,000,000 net worth by the time their youngest graduates from college using a 6.2% annual growth rate.”
I think we are probably a tough audience here on this website since most of us are probably savers. To me though, it’s only worth it to work hard when I know there is a payout for what I value – which is financial independence.
If what they value is keeping up with the Jones, then they are succeeding. Maybe this *is* their life’s goal, and maybe it’s not. It doesn’t sound like they are very happy – and I don’t know if you can count of this income level until you are 60. I mean, can you keep this pace up? I can barely keep up the facade at my basic corporate job, but I do it and it’s easier because I know nothing in my life will change if I lose it because I have been saving for so long, so the pressure if off.
Just like others have said, I also save more than them on a tiny fraction of what they earn. I work just 9 to 5ish and still feel like I miss out on many things in my daughter’s early school life, unlike my husband who works/earns less than I do. But, I don’t resent him for it, and he doesn’t resent me. It’s just how it’s worked out – and we would both be fine if we reversed roles. Maybe the extremishness (sp?) of the Chen’s life is what breeds those arguments. I wouldn’t pass up the opportunity to earn $1M a year, but I’d cash out after a few years, I know I would.
Good for them though, I hope they make the most of their situation and if they benefit from this post or make changes because of it, I’d love to hear what is now different in their lives and what/when their retirement will look like.
Where does one start to comment on this?
A) 529 amounts are a form of savings so they should be added to the net cash saved, the 401k (any match from her employer? If yes, how much?) and the health savings. As a seperate row item they can also track unrealized investment income (incl. paid off principal and estimated house appreciation) just for giggles.
B) Colin goes to a shrink cause he feels useless but chooses to mooch driving a Porsche to the country club? Is this serious? Why doesn’t he get a job? If he realizes he can no longer hold a high paying high responsibility job, any job would do really. Since when do men stay at home. A job makes a man feel like there is something between his pants (it sure as hell has this effect for me).
C) why so expensive private schools? Any elementary school so close to tuition to a Yale is just ridiculous, have no return on investment, and helps towards nothing other than say how much you pay for private schools.
D) she works 65 hour weeks but she gets 5 weeks off? Isn’t this too much vacation for her industry? Assuming it is not, why not go to cheaper vacations? It is not the experience they are seeking, the price tag is more valuable to Han the experience itself the way I see it.
E) she constantly makes more than $1M? How long has this been th case? What is she going to do when she gets fired or laid off with only $3M saved? And how did they accumulate that amount assuming they were making way less when they started their careers (and presumably burnt the vast majority of those lower earnings if I had to guess based on their appetite to add cost just for the sake of it).
Other notes: property tax rates are low in NY compared to Houston; makes sense given the delta in home prices.
It is obvious that the couple wants to spend that much cause they just enjoying spending. Just like a gambler likes spending all at a casino, a drug addict gives everything for one more high etc. This is not what they have to spend to have a good and luxurious life in NY. I’m no stranger to making money and spending for a high standard of living. I make around 200k as an FP&A Director in a Fortune 500 in Houston, TX. I was promoted last year and before that I made around 140 as a manager. I went to Rice for my MBA and I live with my fiancé (who is employed of course) on the 29th floor of an uptown high rise that I rent for $1,725. I drive a Lincoln Navigator L. I spend about 5.7k a month. This amount has been rising at a 4% CAGR since I got out of grad school 10 years ago. I expect not to go above 9k per month (in today’s money) once kids are added to the mix and we buy a house in a decent suburb (of course the fiancé will keep working and contributing what sh can).
Part of why Colin may not work is if he makes a fraction of what Rachel does, then all of that will essentially be taxed, when you view the income/tax as a whole. But maybe not if he can get a good job with his presumable MBA and loads of contacts. Nonetheless, I am side eyeing him… how’d he get such a good gig from you, girl? The kids are in school full time and there is a load of money spent monthly on extracurriculars for them- so there appears to be sufficient childcare such that he can golf less and take on some more income-generating stress so he can be truly sympathetic to his wife and enable her to downgrade to another job.
The problem with the couple is they are keeping up with the Joneses when they are not as rich as the NY-Jones. Those Dalton parents make well over 1mm/year so Rachel and Colin are on the lower end of that spectrum, but trying to keep up with the rest of the parents. Accept your place on the NY totem pole- y’all haven’t “made it” yet, then reel in the outlandish spending you CANNOT afford. For real, this is vacuous and vomit worthy and I’m a NY attorney.
Part of why Colin may not work is if he makes a fraction of what Rachel does, then all of that will essentially be taxed, when you view the income/tax as a whole. But maybe not if he can get a good job with his presumable MBA and loads of contacts. Nonetheless, I am side eyeing him… how’d he get such a good gig from you, girl?
The problem with the couple is they are keeping up with the Joneses when they are not as rich as the NY-Jones. Those Dalton parents make well over 1mm/year so Rachel and Colin are on the lower end of that spectrum, but trying to keep up with the rest of the parents. Accept your place on the NY totem pole- y’all haven’t “made it” yet, then reel in the outlandish spending you CANNOT afford. For real, this is vacuous and vomit worthy and I’m a NY attorney.
agreed:-)) specially last few words,
Having read the article and all the comments here, I just wanted to add one thing. For all the rather unnecessary spending in the budget, it is a great thing to see that the Chens are contributing 2.5% to charity. I really doubt that most commentators here donate that much in percentage terms to charity, let alone that in absolute terms! Many kudos to them.
Thanks for recognizing their charitable efforts to foster youth and nystagmus research! Not only are they regularly donating $25,000 a year, but they are also paying $400,000+ a year in taxes, which some may consider as also a form of charity since the revenue gets redistributed by the government and they don’t send their kids to public school.
This is truly stunning. Collin is about 2 yards from saying “Enough is enough honey”. I mean seriously, they have a burn rate of $41K per month and they are just about 15 minutes from cardiac events or having an affair and leaving. What a preposterous lifestyle. Rover, Porsche, Piaget, Jimmy Choo, Dolce & Gabana, and on and on. Where is the barf bucket? They should take a pause and go buy tickets to the new movie, “Crazy Rich Asians” and then have a martini afterwards and study how miserably pathetic their lives are. The mere fact they are not on massive amounts of chemistry to keep this charade going is simply amazing.
The only word I have for this is “horrifying”. This is such a tragedy that these two have worked themselves into. I really do feel bad for them in some way – especially the fact that they feel their kids MUST go to Yale and basically repeat their miserable lives. Hopefully the kids find a way to deviate and “escape” the cycle. I fear that it may be too late for the parents.
For perspective, I made $2.4M last year and will do $2.9M this year, have 2 kids, live in Metro Boston and my expenses rarely exceed $10K a month and never exceed $17K. To each their own, but I work 30ish hours a week, spend tons of time with family, and have a great marriage. I’m definitely happy and can pretty much retire right now at 38 if I wanted to – but I won’t because I love owning a business and my industry is a blast to be in.
I was in a similar rut back in 2012 – totally depressed and working as a Management Consultant (Making $200Kish) and was just completely burnt out. I took a sabbatical for 4 months that year, which cleared my head and gave me the idea for my business that I started in 2014 and has made me $8M to date. I think that is what the Dr. ordered for this couple. Scale back for a year, build up a war chest, take some time off to breath – and then set out on their own. Especially the husband. That could truly empower him to hustle and make something happen for the family.
The other alternative (staying put) will likely just continue to lead to a dark place for these two …
That’s a really good insight, Nick. There must be some cognitive dissonance going on, when you are miserable or at least unhappy with your own life but then are also wishing for you kids to begin the same path.
What kind of business do you own that makes you that kind of money in those kind of hours?
I own a digital marketing agency, though the “agency” is really just me and it’s 100% Affiliate Marketing. To be fair, there were much longer hours at first building the business and credibility, but much of it is now passive due to a good track record with big clients, outsourced management by networks, etc.
I’ve been pondering this post for awhile and find it rather irritating. I think we can all agree that there are people in NY who are not receiving government assistance who are feeding a family of four on after-tax income of not much more than $25K–plus paying for housing, transportation, etc. Her stay at home husband, while their children are in school, could be grocery shopping and cooking…and packing her a lunch. The clothing budget is insane–she’s justified her need for very expensive suits…but I think she just likes them. And the kids can certainly be outfitted for less than $1K a year, and her husband as well. The vacation budget is laughable, and saving $60K in the 529s should only need to happen for a couple of years…even for an Ivy League Education. Put $120K in and let the compound interest get to work. My husband and I make north of $400K in the Bay Area (also all W2 income) , and we save more than $100K a year. The mind boggles what we would save making a million. Maybe they should go read MMM if they want to escape the rat race.
Amazing.
I make less than 25% of their income and save more than they do. And I suspect I have way more free time and less stress as well.
Hey, here’s an idea. Stop being mindless consumertrons.
Who spends 25k on Gucci clothes and travels Economy International?
They do. Because to put their kids in first class would be way too much and a waste. Now if they made $1 million and had no kids, then why not.
Still think Crazy Rich Asians had a better story line :)
Well thought out scenario tho .
Now I feel so poor compared to these normal folks in Manhattan
Wow, this seems like a tragedy in the making. High income and high expenses never equal security. We have a seven figure net worth, save about $120,000 a year (and have had this level of savings for about eight years as our income has risen) and spend about $55,000 on annual living expenses. We paid $235,000 for our home (we did remodel), even though we could have afforded quadruple that amount. We drive one 11 year old car and one 7 year old car, plus, I live four miles from work. Our favorite place to eat costs us $15.00 for three slices of pizza, a salad and two drinks. If we decide on pasta instead, still the same $15. While we have easily spent over $5,000 on vacations, it took three years to spend that much – come on. This is all about making the smart choices. Just because you can “afford it” doesn’t mean you should buy it. These expenses are ludicrous. If this family had a net worth of $10,000,000 right now, then maybe this makes way more sense. But thank goodness I’m not the only one who thinks the expenses this family is willingly engaged in makes sense. There’s a lot to say about this situation. Just as an example, the planning it must take just for these exorbitant vacations alone is exhausting. I’m close to mid six figures in North Texas, and just thinking about finding the time to plan these vacations alone…I don’t know where I’d find the hours after working all week. The cars, club memberships…wow. Seems like some lifestyle changes could help with the expenses and time with family. But, at the end of the day, it all boils down to priorities. This scenario doesn’t seem to provide even a nominal sense of security.
I don’t get it. With $1 million a year, they should be able to accumulate $100 million or something. How is it possible?
I turned 41 this month. I am a periodontist in denver and I became an entrepreneur in October of 2014. The 1st 7 1/2 years in my career I worked for a corporation. I had a very free life and I was making great money. I manage to pay off all of my student loans faster than anyone I knew and I got into a very nice house in Denver on a 100% loan. I sold that house October of 2016 made a $200000 profit and was able to buy a $600000 home near my new office at 2.875%.
That same year I purchased the commercial property my offices in also at a great rate and a 15 year loan just like my house.
My relationship ended and I have a 2 and a 1/2 year old daughter..
I have lived on my own since I was 17. Clearly I am not lazy and I’m very smart with my living expenses most of the time.
This article actually reduce my stress. It made me realize that when I cut my hours coming up very soon, I’m probly going to be just fine.. I don’t wanna send my daughter to preschool and leave her there from 8:00 a.m. till 6:30 p.m.
It’s much more difficult than I could have known to balance all of this. I feel that I live in a constant state of guilt. I feel guilty if I’m not constantly there for my patients, guilty if I’m not constantly building strong relationships with my team, guilty if I’m not building enough relationships with my referring doctors, and then of course I do have a daughter, a family out of state, and a lot of friends. I am obligated to take a lot of continuing education and now not only for being a surgeon but also for being a business owner and owner of commercial realestate
There’s just no way for someone to keep up with all of these things. The house I’m currently and I purchased from my boyfriend and I the father of my daughter who moved out last nov. I’m sitting in a great location on a 2.875% mortgage and it would make no sense for me to move at this point. Plus I actually hate moving more than most people, trust me I do.
When Sam published his 1st few articles about becoming a father I understood every single thing he was going through. And reading his articles helps me to feel normal and to know that I’m not alone.
At 41 years old I’m learning to focus on what really matters because I do not wanna look back one day and have any major regrets.
But it’s tough and I have a very aggressive personality to go for the things I want and it’s been difficult for me to see how slow change happens when you have this many big things in your life. I’m learning to take a deep breath. Every time my daughter starts to have a meltdown I look at her and I teach her how to take a deep breath……..her face melts my heart when she dies. I know she is the most value investment I will ever have.
As I get older, I value peace more than just about anything else. And this is not the feeling I am getting with this family. I like to focus on inspiring people to feel good about themselves on my blog and making rational decisions for your well-being.
I have seen too many times in Hollywood and in life where high fixed expenses = BROKE!
You want low fixed expenses so you do not have to stress about earning more money.
I think one thing this family could change would be the amount spent on private school. Why not just hire excellent tutors for cheaper? If they invested that money instead, that would be how she escapes the race sooner.
I am able to save a significant portion of my income (more than 25%) not including investments and have no where near the stress. In my opinion, when it starts to become more work than fun, its time to make changes and move on.
I wish this family all the best.
Thanks,
Miriam Joy
Well this family sure sounds happy!
Earning a million a year and not being able to put more away is a tough concept. Hopefully they trade some Gucci for time with their kids.
The spoiled kids with rich parents but no life lessons are the ones doing the white stuff come college age! Doesn’t matter the prep school you go to when it comes to street smarts either.
But then again I am a product of our fantastically awful public school system…
Wow this makes me sad for the family, the kids can’t be happy either. I can feel the pressure mom is under to provide it makes total sense on why she is dealing with heart palpitations and anxiety. Thank you for sharing, I have a lot of thoughts on this including NY’s system has some of the best public schools in the country but we are all making what we think are the best decisions – even if it’s at the expense of the kids. Are they sure they want to go to Yale (or college at all)? Fascinating.
I think it depends on individuals and their lifestyles. If one is not disciplined financially, no amount of money can be enough. Your expenses will tend to grow to the level of your income. But with careful financial planning and the commitment to stay focused on your financial goal, $1,000,000 is a huge amount.
@Anon – At 50 with the house cost paid, $180k in expenses, $400k salary, and $8mn liquid – you’ve got room to live it up some more while you’re working, unless you’re saving for a second home.
Or are you trying to preserve most of your future gains for your child’s inheritance? Which is totally legit but a different approach than some.
we’ll pay for our kid’s education that’s it. one day our money will all go to charity ( (and our kid already know)
This is not necessarily how this works though…
I make somewhere between 1 and 5M per year in the Valley and feel like I can make some comments here. (and have been for a long time now)
I don’t make 200k a month. I make 30k a month and then every couple a months or so I make couple a hundred k. Sometimes its 200-300k, sometimes its 800-900k. The nice thing with this is that money comes in a big chunk. Generally the attitude of me and my peers is that you live from monthly check and invest the big checks. The big checks make purchases of second home/boat etc simple since you once spent one big check and got it out the system…
Very nice. What is it that you do? Spend the salary, save/invest the bonus was our mantra in finance. But I decided to save/invest every other paycheck as well.
Eng exec at high tech company.
Are these cash bonuses you’re getting? Or just chunks of stock that vest periodically?
Similar advice my son was given by all the pro athlete financial consultants. Live off your endorsement money and invest your league salary/contract bonuses. Made a lot of sense to me.
Hello Sam Dogen, August 16, 2018
My woman and I own a $300,000. 3 bedroom, 2 bath, 2 car garage, private back yard (not to big or small back yard) house in Austin Texas (a high tech city with a river that runs thru the center). Also has most students in university of any in USA…. A warm water lake to swim and boating…… Also a Hawaii type lagoon to swim with a water fall. About 2 million people live in Austin area……. So why not move to Austin, Texas……. Texas does NOT have income tax…. Our Annual property taxes on our house are $300. each month.
In fact, I plan to move from CA to TX after my retirement. If I play my cards right, my income could continue to grow after retirement and hence the freaking CA income tax is a killer. Why should I pay high CA income taxes to support the imbeciles in the state government and the illegal immigrants. Last but not the least, CA’s gross and aggressive infringement of the second amendment is another reason we will move out of CA.
Something about this is really tragic. I think 1million a year is goals, but it doesn’t stretch like in my $40,000 a year daydreams. None of these expenses seemed so outrageous but after taxes and therapy I guess the question is, is it worth it?
I don’t feel sympathy for them but I do empathize with the desire to have the best for your kids, vacation where your friends vacation, and look the part for the position you hold. Isn’t that what all that school was for?
I guess when keeping up with the Jones you always have to remember, the Jones are broke, and probably not having sex…
Congratulations on your story on CNBC online – I woke up this morning and saw it on the main page of Yahoo.com. I know most if not all of what was written from reading you blog for many years but I still really enjoyed.
I felt like an old friend had written the story – of course we have never met.
https://www.cnbc.com/2018/08/15/how-a-family-of-3-lives-in-san-francisco-without-anyone-working-a-job.html
Keep up the great work on this blog and in other sources!
David
Given how ridiculously irresponsible these folks are, I can’t fathom how they can be worth the annual salaries they are paid. It is remarkable that skimming 1 million a year off of other peoples investments is not only a career but one of the largest industries in this country. That’s the real tradgedy here. Beyond that, them blowing it all on clothes and exorbinate vacations just proves they didn’t work hard enough for it.
Another great post Sam!
Since I’ve run the numbers myself, if you start saving from the moment a kid is born, it’s about $1k a month to cover full tuition and living expenses at an Ivy College (Stanford, Princeton, ETC). That comes to $24k annually for 2 kids. Assume this family is playing some catch-up?
Great post Sam. We relocated from NYC to bay area so we are familiar with the expenses and lifestyles in both coasts. I am 50 and single income (~$400K/yr), our monthly expenses are ~$15K and very similar to the Chen’s, except for these differences:
– only ~$300K mortgage (thanks to stock options)
– our kid goes to public school
– we spend less in food + clothing
– private tutoring ~$1K/month
– our liquid net worth (not incl. home) is ~$8M, mostly in company stock & S&P.
The funny thing is: our expenses used to be very low, like $4K/month, but once our net worth increases, it’s easier to live it up and say, well, let’s just have nicer vacations and go to interesting places. But we don’t mean staying at Four Seasons or the Waldorf like that, but more like, Costco vacations with breakfast included, a few times a year would run you up to $40K in total. Until a few years ago we used to prepare our own breakfast & lunch during vacations by shopping at Walmart!
As my grandma used to say, you won’t become poor by eating or clothing, it’s your lack of planning that makes you poor for life. We see families in bay area buying $3M homes with $2M mortgage, and after $1M down payment has nothing left to invest except 401K. The wives didn’t realize they have to work 30 years to pay off the mortgage while working and raising their children and cooking, etc.., we’re like, this is insane: you are just one layoff or sickness away from losing your home, and there’ll be one every 10 years! (In my ~20+ years of working, I’ve been laid off once and would’ve been fired twice more had I not change my jobs before the axes fell).
Fantastic post and congrats to the Chen family for much success. That being said, you either have time or money in life. Obviously there are exceptions to this but this is generally the case. Generally, it is the foregone life experiences (and family time) that people regret more in the long run than foregone material possessions and “status”.
I am a strategy manager and the numbers seems right for consulting. Legend says partners make more than that on average but I do not think the data points are support of said myth.
In any case, thanks a lot for the information you provide on here. I am nearly debt free after my MBA and starting to think about next steps.
Step 1 is to exit consulting as the high burn is fast making the money not worth it. Why stay to become a partner when you can move to industry, which is less demanding, and make more money eventually?
Quality of life is very important
In my family, we laugh and say, “we are WW2 babies with depression parents and immigrant children, we are all cheap!”
Not so, we are frugal. However much is earned, some has to be saved “for a rainy day”.
We home cook nearly all our meals, much better for our health and budget. We are now in the 5th generation of “cookers”.
The local library is free.
We buy pre owned cars.
We paid the mortgage off ASAP and carry no debt.
Even though I taught at a private school for many years, we sent our children to the public school. Better value and excellent teachers. I know, I substitute there in my retirement.
Our children went to the University of California. Superb value and much lower cost. They lived at home, no student loans.
My hobby is the Boy Scouts. Enormous fun.
My husband cleans the pool and cuts the grass. I do have a house cleaner every month.
I am incredibly happy even though I am 77. No financial stress.
“Isn’t enough to retire early” isn’t really an accurate title for the post. This is about a specific couple that chooses to save less than a lot of us would if we were in their shoes. They save around $75k/year including retirement and health savings. If they’ve been doing that for any amount of time they can retire early, especially factoring in the equity in their house. Most people reading this post aren’t stashing away that kind of cash every year.
Would they be ok living the lifestyle that retirement brings? Who knows, but probably not. Still, they have enough to retire early (or they will very soon). They’re just choosing not to.
1) Get a job Colin. If you have time to play golf 3 times a week, you can work. Even if it isn’t a salary commensurate with your “worth”, do something. The kids are in school and you don’t need to sit home twiddling your thumbs.
2) Get rid of the Porsche. Maybe you are a car enthusiast but like many other enthusiasts, you might need to wait until later to realize your car dreams.
3) $1,000 a week for entertainment? Yeah, maybe direct that towards some more family entertainment.
4) Better hope those kids are worth that cost of education. If they don’t earn $500K a year or more, that education will have been wasted money.
5) Rachel and Colin stand to have a good windfall once the kids are out of private school. They will no longer be paying $100k a year in tuition to private school and they will no longer be funding the 529 plans.
Great read. Seems like they would really benefit from meeting with fee only financial advisor for advice simply to agree on their goals/budget/how they picture their ideal lives in 15 years. They obviously are not getting satisfaction out the current spending they have. I bet $1million a year isn’t unusual(maybe even low) when they surround themselves with similar people(country clubs/classmates/hamptons/work) that have similar expectations…It might be good to travel on a trip where they do volunteer work as a family to re-evalutate what is really necessary to be happy and re-evaluate perspective.
Colin could easily start some freelance consulting work since it sounds like he has an expertise and not have to travel…..or start an online business (ecommerce/blog) since he likes to write and could dictate his hours or just buy an already established online business(just look thru some of the active online business marketplaces to get an idea of businesses for sale). He would feel more fulfilled. He could write off more expenses(even home office) as a self employed person and do a solo 401k to have most of his income go into retirement savings and tax efficient investments like NY Muni’s since he is in such a high income tax. He should not fixate on what he should be earning at a job but rather just starting making extra income online(online income can snowball).
They could easily buy out of state rental real estate in maybe a state they like to visit in the USA like Florida that doesn’t have income tax on your rents collected and write off visits and get deductions. The would take advantage of the depreciation writeoffs. If Colin likes owning real estate after testing with a rental he could scale up with out of state rentals and become a “real estate professional” for larger writeoffs. Just have a property manager manage it. Tons of people in biggerpockets invest successfully out of state because they live in high cost of living areas.
Their housing expense isn’t crazy but more people should consider house hacking and find houses where they can rent out a basement or half a nice duplex and have their most of their housing paid for by their tenants(The rents would at least cover their property taxes/insurance/maintenance).
Anyways very interesting post.