Why $5 Million Is Barely Enough To Retire Early With A Family

Unfortunately, $5 million is barely enough to retire early with a family in a large city. It might sound ridiculous to you. But I assure you that thanks to inflation, retiring early is now tougher than ever before. Not only do you need to accumulate more wealth, you also need to lower your safe withdrawal rate in retirement.

Half the United States population living in expensive coastal cities and other high-cost areas of the country. Yet, there is somehow disbelief and even outrage a family might need multiple millions, let alone $5 million dollars, in order to retire early comfortably.

I recognize the attractiveness of lower-cost areas, hence why I've aggressively invested in the heartland of America. Migration to the heartland is a multi-decade trend I want to be a part of. The global pandemic has really accelerated the work from home trend as well. There is clearly a “fanning out” of America.

However, I hope more folks can also recognize some of the reasons why half the United States population lives in higher cost areas as well. Some of the reasons include: higher pay, more job opportunities, greater diversity, sometimes better weather, amazing food selection, and family to name a few. 

An Average Retirement Life With $5 Million

In my after-tax investment amounts by age for a comfortable retirement, I included a more aggressive after-tax investment chart for those who want to retire in an expensive city like San Francisco, New York, Los Angeles, Washington DC, Boston, San Diego, Seattle, Miami, or now Denver.

Again, not everybody wants to or can relocate to Des Moines and leave their friends and family behind. As a refresher, let's review the high cost of living retirement chart.

Aggressive After-Tax Investment Amounts By Age Chart To Retire Early Comfortably

If you retire at 40 with $2,500,000 in after-tax investments, you'll only be able to generate $100,000 a year in gross income or $75,000 in after-tax income based on a 4% rate of return.

Is this enough? Not according to the Department of Housing and Urban Development, which considers $100,000 a year “low income” for a family of three living in San Francisco, for example.

Yes, you could potentially earn a higher rate of return than 4%, but when you're counting on only your investments to support a family, it's better to have a more conservative portfolio.

Private grade schools and private universities give financial aid to families who make $100,000 a year or less per child. Why is that? Because they agree with the Department of Housing and Urban Development.

Living Off $5 Million In Retirement

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. A more conservative yield or appropriate withdrawal rate is 3%. But let's go with 4% anyway.

To give you an idea of what $200,000 a year in passive income can cover, let's profile Jerry, a Financial Samurai reader's budget. Jerry is 45 years old, has a 8-month-old daughter and a non-working spouse named Linda, 38. They've lived in Los Angeles for the past 20 years. Ironically, Los Angeles is considered one of the happiest cities in America.

Both have decided to retire early in order to spend as much time as possible with their daughter. After both negotiated severance packages equal to $100,000 for Jerry and $60,000 for Linda, they have a combined net worth of roughly $6,300,000 if you include the $600,000 in equity they have in their primary residence, and $700,000 in their combined pre-tax retirement accounts.

Their goal is to never go back to full-time work again and perhaps do some part-time consulting once their daughter goes to kindergarten in five years. Neither parent is doing any sort of side hustling at the moment, contrary to most early retirees I know, including myself.

I've cross-referenced all the numbers based on my family's own household expenses over the past year since we have a toddler and also live in California. All the expense line-items are realistic, if not a little conservative.

Please review J&L's expenses below.

Budget for family of three retiring early off $5 million

Retirement Income Analysis

One of the biggest benefits of earning passive investment income versus job income is a lower federal marginal income tax rate.

J&L's $200,000 in investment income is taxed at a 10% effective federal long term capital gains rate (15% marginal) versus 21% effective (25% marginal) if it had been earned through employment.

After paying an effective 7% (9.3% marginal) in California state income tax, Jerry and Linda's effective federal + state effective tax rate is only ~17% versus ~27% if they were W2 employees. Further, they don't have to pay the 6.2% FICA tax on the first $128,700 in income per person either.

Due to the State And Local Tax (SALT) deduction being capped at $10,000, they're losing out on at least $3,000 in tax refunds they would have received before Trump's Tax Reform Act was passed. It is unclear how much the standard deduction will offset HCOL homeowners until taxes are done.

Because Jerry and Linda want to be completely present parents, they've promised not to do any activity to generate money at least before their daughter goes to pre-school. They're burnt out anyway. As a result, they must be disciplined and stick to their budget if they want to remain retired.

Related: Surviving Off $400,000 A Year President Biden Deems Rich Enough To Raise Taxes

Retirement Budget Analysis

Kids Are Expensive (~$36,000/year)

Retiring early without kids is a walk in the park compared to trying to retire early with kids. Not only do kids cost a lot of money, they also require a lot of your time and energy.

The 10 hours a week of childcare assistance is extremely important so J&L can keep their sanity. 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. Being stay at home parents 24/7 is no joke. But it's getting a little easier every month as their daughter sleeps a little better through the night.

J&L take their daughter to swim class twice a week and gym class once a week. Drowning is one of the leading causes of accidental deaths for children under 5.

On the other days, they go to the local science museum, where they have an annual family membership for $150. They also go to the zoo, where have a $150 annual family membership.

Saving For College Costs A Lot

Despite being able to each contribute $15,000 a year to their daughter's 529 plan, they can really only afford to contribute $11,000 each if they want to maintain their lifestyle.

They don't believe making their daughter a 529 millionaire is a particularly wise move given the possible lack of motivation so much money might cause. Although, sending their daughter to public school in order to have the option to make her a millionaire sounds brilliant.

J&L will start their daughter off in public school to save money and see how she does. If they find she needs a smaller environment with a different style to thrive, then they will consider paying for private grade school.

Personally, I think going to community college for free sounds like a great idea! By the time my youngest goes to college in the year 2038, a 4-year private university will likely cost $750,000 all-in.

Their #1 goal is give their daughter a wonderful foundation so she can be a strong and independent woman.

Property ($4,794/month)

Having a gross monthly property cost of around $4,794 for a single family home in West LA is reasonable believe it or not. J&L live in a modest 1,600 sqft, 3 bedroom, 2 bathroom home at the edge of Santa Monica.

Their house is assessed at around $1.3M, or $400,000 below the median priced home in the area since they are further inland.

J&L have been thinking about upgrading to a remodeled house closer to 2,500 sqft. But such a house in their neighborhood would cost around $2M. They read my Buy Utility, Rent Luxury strategy for real estate investors.

As a result, they have decided to keep costs low and earn a higher rental yield in other parts of the country through real estate crowdfunding and aristocrat dividend stocks instead.

Santa Monica house for $1.4 Million is very average looking - Retiring early on $5 million is tough
Not living large in Santa Monica, CA for $1.395M

Healthcare Premiums ($1,650/month for a platinum plan)

According to the Kaiser Family Foundation, the average annual premium for employer-based family coverage is $19,616 or $1,635 a month. You can see the breakdown of what the average employer and worker pay in the chart below.

Average healthcare premiums 2018
Average healthcare premiums nearly $20,000 for a family

Given J&L no longer have jobs, they bear the entire cost of health insurance. With an 8-month-old daughter, they've decided not to mess around and maintain a gold health insurance plan.

Their daughter not only sees a pediatrician every three months, but also an ophthalmologist every three months. She has ocular albinism and strabismus (intermittent exotropia like Da Vinci).

They need to make sure their daughter's prescription is correct to help her eyes align properly during development. After about age five, the neural pathways that go from the brain to the eyes tend to hardwire.

Health insurance is clearly one of the largest and most necessary expenses early retirees must consider. You could get Affordable Care Act subsidies if your household income is below a certain threshold. However, J&L need the income to live and don't want to draw down principal so early.

For reference, my family of four is paying $2,250/month for a Gold Plan in 2021. I expect our health insurance rate to go up at least 5% a year, forever.

Food ($1,800/month)

J&L value their time more than anything. As a result, they are happy to pay $5 for food delivery and save 1-2 hours cooking in order to spend more time with their daughter. Los Angeles does have some of the best food variety in the country. They also want to eat healthy, which costs more.

Obesity chart
J&L spend more for healthier foods b/c they don't want to die young

Finally, J&L supplement their grocery shopping with Amazon Prime about once a month as well. They still prefer doing their own grocery shopping because they're better at picking out fruit than the delivery guys.

If there's one thing we've learned during the global pandemic, it's that overweight/obese people are more susceptible to the virus. Therefore, spending more money on quality food is worthwhile.

Another thing worthwhile is getting affordable term-life insurance to protect your loved ones and dependents. Check out Policygenius for the best life insurance rates. There is no obligation and it is free to check.

If there's one thing we've all learned during the pandemic, it's the importance and appreciation of life.

With PolicyGenius, my wife was able to double her life insurance coverage and pay less. All these years, she thought she was getting best rate with USAA. However, life insurance rates are so opaque. PolicyGenius helps shine a light on the best rates.

Non-essential Expenses

J&L hardly ever buy new clothing for themselves. They have no need since they don't have to look good in front of anybody for work. If they need to look fancy, they'll wear their old work clothes that still fit 10+ years later because they have maintained their same sizes.

Ryan Gosling has strabismus & that's OK
Ryan Gosling has strabismus & that's OK

J&L feel their $330 sports club expense is well worth it. Los Angeles has a huge fitness culture. The club provides a physical and social outlet three times a week. They've made many friends from the club. Without their health, their wealth is meaningless.

Finally, they've decided to stay local for the first two to three years of their daughter's life. They have so much of Los Angeles, Newport Beach, Big Bear, and San Diego left to explore as a family. Besides, they agree with me that extensive travel before the age of three is a waste of time since their daughter won't remember a thing when she's older.

Budget Adjustments If Necessary To Live Off $5 Million

J&L could cut their expenses by contributing less to their daughter's 529 plan. They could order less food delivery. If they spend less money on childcare, they'd free up an extra $5,000 – $10,000 a year. But they're not sure the additional savings would outweigh the decline in their lifestyle.

Population distribution of where Americans live - Why $5 million is tough to retire on
Half the population lives in the more expensive blue zones

They could move to a lower cost area of the country, but they'd rather stay warm all year round, rather than face brutal Midwest winters.

Further, as a Latino (Jerry) and Asian (Linda) family with a mixed-race daughter, they prefer the diversity of LA that can only be matched by even more expensive places like New York City or San Francisco.

This feeling of comfort is underestimated by the majority. Diversity is one of the reasons why people are migrating to California from the heartland.

See: Main Financial Blindspots On The Road To Financial Independence

Instead, it seems better to just continue sticking to their budget. Then earn supplemental income if they need more money or want to spend more money.

Jerry worked in management consulting for 23 years and Linda worked in digital marketing for 15 years. Prior to retiring, Jerry was earning a base salary of $300,000 + $100,000 – $200,000 in bonus. Linda was earning a $180,000 base salary + $50,000 in stock compensation.

Every $10,000 of supplemental income earned equates to $250,000 in after-tax capital earning a 4% rate of return. J&L could easily consult part-time for a combined 10 hours a week at $100/hour. He would earn $52,000 a year if one of the following concerns come true.

J&L's financial concerns in early retirement include:

Inflation is why $5 million is barely enough to retire earl

1) What if they want and have another child? They will need to reallocate or earn at least another $20,000 a year for basic expenses, college savings, and childcare help.

2) What if the stock market and real estate market roll over? Their $5 million after-tax portfolio could easily shrink by 10% – 20%. This would leav them with passive income of only $160,000 – $180,000. That's not enough to fund their existing lifestyle with one daughter.

3) What if their daughter has future unknown medical issues? Nobody really tells new parents this, but it may take years before you know all the issues that need addressing. For example, autism usually only starts showing signs between 18 – 36 months old.

4) What if one or all of their parents get sick and need to move in with them? All parents are still alive, but not all have long-term care insurance. Housing one or two parents will require extra funds.

Related: How About Retiring On $2 Million In An Expensive City?

Can Always Go Back To Work

Worst case, either Jerry or Linda can go back to work full-time, or they can start eating into their after-tax retirement principal until their daughter goes to kindergarten. This is what some people who fear retiring early forget. You can always return to your old occupation!

Again, please be aware the vast majority of people who espouse FIRE are working hard to make extra income or have a working spouse.

Even though my wife and I are also stay-at-home parents, I continue to publish 2-3X a week on Financial Samurai partly because I enjoy writing, partly out of habit for the past 10 years, but also because this site makes a healthy amount of revenue.

While J&L have settled on $5 million in after-tax investments to raise their family, we're shooting for more just in case our boy doesn't win the SF public school lottery. My fingers and mind still work, so I might as well keep going until they don't.

Different Strokes For Different Folks

Despite detailing the numbers and providing context around J&L's financial situation, I'm sure there will continue to be disbelievers that $5 million or more in after-tax investments is what's required to live a comfortable, but not extravagant lifestyle in a high cost location.

It's also become a national pastime to hate the rich, no matter how hard or long they studied in school, no matter how many hours they've worked a day, no matter how many risks they've taken to provide a better life for their family, and no matter how much in taxes they pay.

Like how more international travel and the mastery of a second language can help to create more harmony, hopefully, this article can help lead to more understanding by those who do not.

$5 million is a lot of money. But the composition of a $5 million net worth matters as well. 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.

If you want to retire early with a couple kids, please shoot to have at least $5 million in invested capital. This is excludes your primary residence. Interest rates are at rock bottom levels. Returns might not be as good as they have been.

If you can't get to $5 million before retiring with kids, then at last find ways to generate supplemental retirement income. Find something you will enjoy doing that makes some extra money. This way, you can cover the gap and do something meaningful in retirement.

Recommendations For Retiring Early And Boosting Wealth

1) Stay on top of your finances like a hawk.

Track your finances for free with Empower. Run your numbers through their Retirement Planner. Check your investments for excessive fees. Make sure your net worth is properly allocated. 

You can do all this for free with Empower. Don't be one of the millions of Americans winging it on their road to financial freedom. If you have $5 million or more, all the reason why you should track your finances closely.

Empower Retirement Planner Tool

2) Invest in real estate to benefit from inflation and diversification.

It’s hard to become a millionaire simply by saving your income. Income growth has simply not caught up to housing costs, college education costs, and health care costs. See the inflation chart above again as evidence. Therefore, in order to benefit from such rising costs, you should invest in real estate.

My favorite way to invest in real estate is through real estate crowdfunding. I’ve invested $810,000 in real estate across the heartland of America. It's great to take advantage of faster growth, lower valuations, and potentially higher returns. Once I became a dad in 2017, I wanted to dramatically simplify my life.

Today, real estate generates roughly $200,000 of our $310,000 annual passive investment income. It is our key asset class to remain retired / stay-at-home-parents to two young children.

Two favorite real estate investing platforms:

My favorite real estate crowdfunding platform is Fundrise. They are one of the largest and oldest platforms having bee found in 2012. Fundrise smartly created private real estate funds to earn income 100% passively. For most people, investing in a diversified eREIT from Fundrise is the smart way to go. Fundrise is free to sign up and explore.

If you are an accredited investor, take a look at CrowdStreet. CrowdStreet enables you to invest in individual commercial real estate deals mostly in 18-hour cities. 18-hour cities are faster growing cities with lower valuations. If you have a lot of capital, you can build your own select real estate fund with CrowdStreet. However, before investing in each deal, make sure to do extensive due diligence on each sponsor.

Due to the rise of the work from home trend thanks to technology and the pandemic, there will likely be a multi-decade trend to lower cost areas of the country. Real estate is the ultimate inflation hedge as rents and property prices go up.

Everybody I know with $5 million or more in net worth invest in real estate. Inflation is elevated post pandemic at around 7%. Therefore, investing in real estate to capture rising rents and properties prices is a wise idea. With negative real mortgage rates, demand for real estate should continue.

3) Read The Best Selling Personal Finance Book

If you want to retire earlier with a family, purchase a hard copy of my new Wall Street Journal bestseller, Buy This, Not That: How To Spend Your Way To Wealth And Freedom. The book is jam packed with unique strategies to help you build your fortune while living your best life. 

Buy This, Not That is a #1 best seller on Amazon. By the time you finish BTNT you will gain at least 100X more value than its cost. After spending 30 years working in finance, writing about finance, and studying finance, I'm certain you will love Buy This, Not That.

Why $5 Million Is barely Enough To Retire Early With A Family is a Financial Samurai original post. I've been writing about achieving financial independence since 2009. Here's how one man retired early with $4 million and two kids. It can be done! But he also has a working spouse.

284 thoughts on “Why $5 Million Is Barely Enough To Retire Early With A Family”

  1. No wonder people are broke and slave away in the rat wheel. Good grief… As I always told my boys when they were growing up, “Well, that’s less competition for the rest of us!”

  2. This analysis unfortunately doesn’t deal with what happens once someone graduates to being an empty nester. I was an empty nester at 53. I paid off the mortgage, my kids were successfully launched. Using your example, I can easily get expenses down to $92K just by eliminating the mortgage, childcare, and college funding. Using your same tax assumptions and the 4% rule, at this point, I would only need $2.7 million to live the same lifesytle and that is being conservative because there are more costs to be cut in clothing, food, etc that I have not considered and I have a cheaper mortgage than your example but I haven’t take that into account either. Also, if you buy weights and a Peloton, you can cut your gym budget quite a bit as well.

    Your analysis really drives people to be overly fearful and to feel they are poor when they are not because it doesn’t take into account the drastic amount that people save once their kids are out of the house.

    Personally, I had $2.4 million when I paid off the mortgage in 2020 and the kids had moved out. I was still working because I wanted to and my savings have grown to $4.4 million today ($3.7 million from growth of the stock market and $700K from additional savings from the fact that as an older person in high tech, I can demand higher compensation now than I did when I was 35).

    But even if I had stopped working at that point, and hadn’t saved all that money from work, I would still have $3.4 million thanks to growth in the market ($3.7 million minus about $92K per year in expenses) . And I know I can’t count on that growth every year, as in 2022.

    Plus, the 4% rule is based on a worst case scenario. 4% is what you absolutely would need if you took the worst year to retire in the last 100 years and used that as your retiring date and were completely inflexible in your spending in bad years and always spent the same.

    All that to say that your projections really leave out an incredible amount of upside that is frankly not all that risky that would actually allow people to retire on much less if they plan their lives even slightly differently than you propose.

  3. I don’t understand. Don’t they retire to spend more time with their daughter? Why do they need to send their daughter to day care? To social with other kids? If that’s the case, one of them should keep the job.

  4. If I had $5 million, I would buy QYLD and get 12% dividend . With income of $600,000, I will move to Texas or Florida with 0 percent tax and much more lower cost of living. If I want mild weather , I will move to North East TN, or Ajijic , Mex and Live like a King. Please let me know if this doesn’t make sense.

  5. Okay, I’ll finally bite and add a comment. You can count me among those arguing that this is an extravagant lifestyle. I read almost the entire page without realizing we were talking about an early retired couple, and my jaw hit the floor when I finally did. I just assumed they were working.

    I’m sorry, but anything more than a babysitter for a couple of hours per month for the occasional parent date night is pretty much by definition extravagant. Being able to have children, not work, and still afford to have someone take care of them while parents run errands throughout the week is practically royalty. 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. That anyone can think this is just barely comfortable blows my mind.

    Then we get to the staycations, entertainment, toys, classes, gym memberships, etc. Any one of these line items by itself is no big deal, but such a collection of recurring expenses is what upper-class families spend for the convenience of being able to enjoy these things while working. A $600 staycation per month is way more than what most high-income working families take, and this retire family almost certainly has the option to take advantage of off-peak pricing for hotels and such. As for the kids’ activities, I would have assumed the presence of the parents would have offset some of the potential spending, as parents often use various clubs and sports to act as a sort of pseudo-daycare, but I guess not. Obviously, I wouldn’t want to deny the kids good activities for their enrichment, but with both parents retired early, I feel like a certain amount of lessons, going to movies, etc. could be offset by going to the park, working out at home, watching Netflix, etc.

    Speaking of Netflix, their subscription budgets are well beyond comfortable. I just got done renewing an Internet-only package with Comcast for $30 per month, which was actually reduced from our previous $35 per month despite getting an upgrade in speed, and it includes Peacock Premium. We also subscribe to Netflix. We have access to more content than we could possibly consume in a lifetime. Our Mint Mobile phone plan also costs $15 per month per line.

    Also, what kind of early retirees contract out landscaping? But okay, whatever, they have the passive income to justify such expenses. I just challenge the notion that anyone who has tons of free time on their hands yet can easily afford to hire landscapers on a recurring basis is barely comfortable. That’s very comfortable. Likewise, there are certain expenses like life insurance and $200 per month for clothes that they could almost certainly cut given that they’re not working. The point of life insurance is to make sure their kids would be taken care of in the event of their death. With such a large nest egg, that’s no longer risk, so they’re essentially just paying the insurance the actuarily disadvantageous premiums just so their kids can be filthy stinking rich in the off chance they die early, which they should be doing everything in their power to prevent given their abundant time and resources to care for their own health. I probably spend less than $200 per year on clothes as a working adult, let alone per month. Granted, I’m a slob engineer, so that’s low for a manager type, but come on, what are these people, fashion icons of the FIRE community?

    Lastly, I wouldn’t really bundle 529 savings or mortgage payments into the same category of living expenses. The mortgage is easy; not only does a big chunk of their payments go to equity, but it will eventually be paid off, and quite frankly, they had the means to pay it off with a couple more years of work, but they have such a large nest egg that they could comfortably (again, there’s that key word) retire early and just keep making payments without worrying about getting foreclosed on. In other words, the recurring spending isn’t really a necessary living expense, they could just pay it off today and eliminate the debt while continuing to enjoy all the other things they spend on. The 529 is a bit trickier to dismiss because technically, those funds are earmarked for upcoming expenses, but ultimately, that’s really a finite expense per child, not a permanently recurring expense, and they’re just front-loading the savings for it. I don’t 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 children’s educations, and there are always loans and scholarships.

    Please don’t get me wrong, my intention is not to criticize this family at all. They did all the right things and are spending money they can comfortably afford. They deserve everything they have. I just don’t think this is anywhere remotely in the realm of middle class. These people are firmly in the wealthy category. They are spending more in early retirement off of purely passive income with no side hustles than most working families. There’s an inherent difference between having to work to afford something and not having to work. I don’t know that there really is an apples-to-apples comparison to be made between a comfortable retired lifestyle and a comfortable working one; all else being equal, the retired one is significantly more luxurious. I think there’s this myth that all these things are needed just to be comfortable, and that they are just standard parts of the American middle class lifestyle, but I remember growing up seeing how hard my parents in particular had to work to concurrently provide about half the vacations and luxuries this family enjoys on an annual basis. It has never been the case that these things were abundant and free and people could just expect them as part of normal life. Most families have to work long hours at reasonably high paying jobs to spend this kind of money while working. This family spends as much as they do without working. I just don’t think there’s any comparison. They are not scraping by. 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, they’d probably spend less on staycations as a result, saving more in the process). I’m not going to cry for their financial struggles any time soon.

    1. All good points. And sorry if I didn’t make it clear from this post’s title that this was about an early retirement couple.

      They are not scraping by. Nor do they want anybody’s pity. I’m just highlighting what things cost in a big city with kids. And with inflation going up and interest rates so low, costs are going higher while it’s harder to generate more passive income.

      One recent post I did write was about Investment Returns surpassing Active Income in this bull market. As a result, the need to work is becoming less and less. Check it out.

      1. I think the expenses are on target. One thing under-estimated was child activities as they get older, “club sports” run $100-$300 per month when they are teens and the medical plans have high deductibles with HSA which forces an extra emergency fund.

        I just started with Fundrise but am very happy so far, IRA and cash accounts.

  6. I hardly claim to be an expert at any of this, but my financial advisor is one of the top american express financial advisors in San Diego, and my best friend. So lots of casual conversations where honesty is assumed. He is aware that i invested early in Cryptocurrency and am currently sitting on about 6.5 million. At the peak of the bull market I was sitting on $20 million.

    I opted to ride that and wait for the next market cycle, so for the past 4 years we’ve had this same discussion over and over and over: what percent is reasonable for me to assume I’ll be able to live off of, as far as passive income. The number has always been 6% after tax. I believe he bases this on the narrative that the S&P 500 has averaged 10% a year for the last 100 years or so. That means sometimes its higher (up to 15%) and sometimes lower (down to 5% perhaps).

    So if we assume 10%, and then assume taxes, you land at 6% to be conservative. At that point, anything LOWER than 6% becomes optional, if I wish to add more to my invested amount each month by NOT taking it out as a distribution. In other words, I keep seeing this 4% number being thrown around, but it does not seem to match anything he’s told me. He says he tends to take 5% for himself, but that is only to offset inflation over decades.

    TLDR: 4% seems abnormally low, at least if you’re banking on 100 years of S&P 500 performance history. I should also note – everyone laughs at me when I tell them I’d just throw it into the S&P because they’re consistently doing higher returns on other types of relatively safe investments.

    Lastly, if I manage to get back to $20m and cash out, that’s roughly $100,000 a month in income at 6%. I can’t imagine I would NEED that much money every month and would see myself likely not withdrawing even huge chunks of it each month anyway. So id probably be hovering around 2-3% at the end of the day without even thinking about it. But it would really REALLY bum me out to hear that I should be redoing all my caclulations based on a measly 4% passive income…. Please say it aint so!

    1. Sounds great. You’ve got to do what you feel comfortable doing. If you’re happy putting all your net worth or most of it into cryptocurrency, then more power to you.

      Depending on your age and your family situation and your desire to provide, I would think $20 million should be enough.

      The first rule of financial independence is to never lose money, especially if you have a pretty large net worth.

    2. I’d like to know if you ended up cashing out or riding further. Would have done well since sept to now.

  7. Ronald Lawrence

    My wife and I live in Oxnard California, a couple miles from the Ocean. We purchased our home in 2010 when the market in our area was substantially lower than today. We live in a 1963 era 1,630 square foot 4 bedroom 2 and a half bath home with a 2 car garage, on a 6,000 square feet lot. We paid just over $300,000 for our home and now homes in our neighborhood are in the $560,000 range. Both my wife and I work for a hospital. We have a household income of $147,000. I have been at the hospital for over 22 years and during that time have contributed at least 6% of my income into our 403B retirement account. I am now contributing 15% of my income with an additional 5% employer match. My wife contributes 8% of her income with a 5% employer match. We have 6 children, with three of them out of the house, one completing his last year of college, and two in High School. As we started late in life with our retirement planning and did not buy the house until I was already 45 years old, we feel we are behind with our goals. Our fault really. I take responsibility for that.

    Our goal is to work until age 75. At that time our home will be paid off. Student loans will be paid off. Our financial planner tells me that we are on track to meet our goals of having a retirement income that will allow us to survive. I am concerned about that. I don’t want to survive, I want to thrive. I also see a realistic need for a minimum of $5 million to live here in Ventura County on the Coast. Even in Oxnard is is not cheap to live. My thought is that I may have to continue to work longer. I have no problem with that as I love what I do. My work gives me great enjoyment. I could continue doing what I do for the next 30 years and would be fine with that. My parents are in their 80’s now and living an amazing life.

    Additionally I have the skill set to run a part time business. I started as a locksmith at the hospital and moved into Project Management. I have over the years worked as a locksmith on the side on my own. It is still an option to me. Additionally I have thought of starting a side business and growing that as a retirement business, having employees run it while I work occasionally. I have options.

    My main idea for commenting is that we on the coast do need more money to maintain a lifestyle that will keep us in a location that we love. And no Florida is not like California. We have few bugs or animals that will kill you in my part of California. Arizona is too hot for us. We want to stay right where we are.

  8. Donald Mountford

    While I accept expenses vary by location, we live in Connecticut, some of the budget assumptions seem strange. Childcare? Why retire early to spend time with family if you’re not with them? We raised our children while working and except for paying for preschool or the occasional babysitter for a night out never wanted or needed to pay for daycare? and 20k for groceries? Go to a farmers coop. Healthy, giving back to local community. I honestly don’t think I could spend that much on groceries if I wanted to? Our family of 4 spends 1/2 that including take out and eating out. Other costs seem in line but I made sure to pay off mortgage before retirement to eliminate that bill and sleep better knowing that even in a recession, our home would be covered..

  9. If any of the bad things you mentioned happened to decrease their passive income, all they would have to do is move to a lower cost big city like Atlanta or Orlando. Still plenty to do there, but would need to make much less in passive income.

  10. I ended up at this post after seeing the headline on CNBC “42-year-old millionaire: I tried to retire early at 34—but failed. Here’s what went wrong”. I didn’t think the reasons would be financial.

    I retired at 45 five years ago and started reading MMM for a while. Had heard of Financial Samurai there and elsewhere, but never checked it out. Based on above, almost seems to be the antithesis of MMM. I am not an MMM devotee and could not go to the extremes suggested there, but a decent bit of info and how to think about things.

    The only way I would live in SF, LA, or NYC is if I moved there when single shortly after grad school. As I told summer interns, if you want to live in NYC, do it right away or you will never think it is worth it ….the higher pay will very rarely make you whole vs. other areas.

    That said, I think the main issue with the sample budget is needs vs. wants and necessity vs. luxury. I’ll take living in SF or LA as non-negotiable, but being able to move (Honolulu as Sam mentions) can alter your view a lot.

    1) Healthcare – young, healthy and lots of wealth – why pay for a Platinum plan? Get a silver and cover the extra costs out of pocket when you do need to go.

    2) Childcare – two non-working parents spend $10k? Wow. This is a luxury. Perhaps spend 4k and 4 hours per week and take turns watching with friends .watching their kids.

    3) College savings – California has one of the best public university systems and cheap, too, compared to many states’ public programs. I’d plan to invest the equivalent of the most expensive in-state school. Say it is currently 120k, save $6.7k per year and let growth cover inflation. Also, people rarely pay sticker price at private schools. You may think that is ridiculous, but even if you want to pay highest, $16k per year is enough.

    4) Food budget and entertainment budget is high.

    5) people can and most do spend down their assets at some point. My goal is not to leave a ton of money to “heirs”.

    Others made comments that echo my thoughts.

    1) agree with poster from Vietnam – kids used to just play without much adult attention after age 8-10 or so. May not be possible in SF.

    2) agree with poster from Maryland – the big coastal cities are not the only ones that offer diversity.

    3) agree with thoughts on Florida – several areas with culture and diversity. Zero income tax, sunny skies, low prop tax, great healthcare (due to all the elderly).

    I think the title should be adjusted to “living a very comfy life”. And, those not in HCOL areas will never be able to understand the thinking in this article and many of the comments. These are all choices. Lastly, someone with 2.5M who generates 100k shouldn’t pay anywhere near 25k in taxes. After 24k deduction, they don’t even get out of the 12% bracket and some should be in un-taxed accounts, e.g. Roth, and some taxed at zero, i.e. dividends and LT cap gains.

    1. I just don’t want to end up like MMM, living on scraps or pretending to live on barely anything while getting divorced with a young son still at home.

      You only have one life to live. You might as well Live your life to the fullest.

      Why not live in a great area with great area, culture, and food? Half the country is submerged under snow during winter.

  11. This post focus on people who don’t want to compromise or make good financial decision. $49k of the budget you show is for a mortgage and childcare due to young children. I don’t think if you are carrying a mortgage and your kids are not in public schools you should be “retiring”.

    Without those expenses this family would have a affluent lifestyle with $49k extra a year.

    If you want to be a FIRE your assumptions on budget should be different.

    Unfortunately there are too many ways to get to this outcome – so it’s tough to provide an analysis that is helpful. In the end, if your goal is FIRE then it’s not the normal path so you need to be creative and flexible – most of all it’s a state of mind… If you want the rat race then keep working or get crazy rich…

  12. I am 53, with $4MM in investments and $2.3 MM in equity in my house in the San Jose area which I bought for $650K in 1998 but because I live less than a mile from the new Apple headquarters, the value ballooned. Proof that sometimes it is better to be lucky than smart. My last child graduates college this year and while she will need a little support in grad school, it won’t be the $65K/year I was spending on her private university – more like $10K to help her with living expenses so she doesn’t have to go into debt.

    I thought that I could retire early with little risk given I pay $1800/mth ( at 3.5% ) with only $280K left on my mortgage and $700 property taxes, which is cheap by the standards here, especially given the example you used above. The other important point is that many people here are “house poor”. It is expensive to buy a house but the equity you build up in your house has value in retirement IF you are willing to move to a less expensive location, or in my case, move from a 2800 square foot house to a town home or condo in the area and take $1MM or so of equity out of the house or even more if I were to move back to Colorado ( which is where I used to live).

    So if I just use your example, but take out the college savings plan and the $2K less per month I pay for my house than your example, I am looking at roughly $120K per year in expenses vs the $166K in your example or ~25% less per year. Does that mean I could retire on $3.75 million which is 75% of $5MM ( note I am not taking taxes into account here which should help my argument)

    However, when I read posts like this one, I feel like I can never retire. It feels as if a $6.3MM net worth, which would certainly put me in the top 1-2% of net worth in the country, is still not enough.

    Perhaps the keys to this post are “WITH A FAMILY” , “RETIRE EARLY” and “COMFORTABLY”. Or perhaps I am missing something? But I read your post and the replies and get the feeling that I still haven’t put enough away.

    I would love to hear other peoples thoughts on this. When is enough enough?



    P.S. I am not planning on retiring because I like the intellectual challenge of my job. But I work in Silicon Valley and there are a lot of a-hole bosses around so just knowing that I could retire would make me feel and sleep better.

    1. I think once your last child graduates, you can retire no problem and live a comfortable life, unless, they become adult kids who ask for continuous handouts. Then that might be a problem.

      $4M at 3% produces $120K/year in passive income pre-tax. You probably won’t need to spend as much as you think. But if you need to spend more, you would eat into principal.

  13. Looking at this (the high cost city analysis) I have a couple observations:

    1) Are they not saving anything for the kid’s college education? I don’t see a 529 plan contribution.

    2) I thought the 4%/3% rule allowed you to withdraw without touching principal – presumably they could draw down on this a little more aggressively and have less in their estate when they pass on.

    3) The assumptions are that they are only drawing from their taxable account. At some point after 59 they are going to be able to take $ out of their taxfree accounts. This analysis seems to ignore that – can’t they take out 4% from the total invested cash rather than just the total of the taxable account?

    4) The “total net worth” doesn’t account for home which presumably could be converted to stock or cash at some point. In these cities housing is easily north of 1m. Really closer to 2-3m.

    Assuming that you can look at the “total pool” of invested assets (which I don’t know why you can’t) my conservative calculation is that we would need 25k a month to live comfortably. That’s 4% of 7.5m or 3% of 10m. With a 2m w/ 1m mortgage You’re looking at a 11-13m net worth.

    I would love feedback on my questions/observations in case there are some holes in the logic.

    1. Christopher Forsyth

      William, I see Sam didn’t reply so I thought I’d address a couple of your points.

      #2, the original research that led to the “4% rule” was based on a withdrawal strategy that took account of spending down principal over time; it was more focussed on identifying the probability of running out of money given the uncertainty of investment returns over time. Off the top of my head I want to say in today’s investment climate with low interest rates, the actual “safe withdrawal rate” is lower than 4%, maybe even less than 3%. Lots of other personal finance blogs have addressed this topic, Google is your friend if you want to dig into the latest thinking. Sam uses a much more straightforward idea of basing the spending rate on the tax-free yield so that you don’t touch principal and can never run out — until or unless rates fall even further, which he addresses in his writings.

      #4, Sam has addressed this in the past, the short answer is “you need a roof over your head” so if you aren’t planning to move to a smaller house or a cheaper city, you can’t cash in the equity in your house. Asterisk on this point would be found in Sam’s own necessity rent luxury, meaning in the context of your question, you could sell your house, capture some equity and use the additional income to rent a similar house, but be prepared to drop back to a lesser house if the financial tides turned.

      Lastly, not sure what expenses other than housing are higher in the “high cost city” but in Phoenix with paid off mortgage (which washes out the housing issue mostly, except for property tax), we are retired and living very comfortably on $15k a month, I would think you could live very nicely on $25k. But everybody does have different tastes and expectations. Sam addressed this recently with his post about retiring early and living at or near the Federal Poverty Level.

  14. Financial Independence

    I agree. $5 mln is barely enough once the kids are out of the house and mortgage is paid.

    Current SP500 dividend is 2% or $100K a year, which will dwindle fast (actual inflation rate is way higher than officially reported by the goverment).

    The trouble is that with the risks, it is never enough. You will keep working as long as paying you money. It is a vicious circle.

    1. Few comments:

      1) LA is one the most expensive places in the country and CA has about the highest tax rate in the country. This same person living in Florida would have 0 mortgage ($600k in equity would be 2x+ the cost of the entire same sq ft home in nearly all of Florida) saving $39k, cut their tax bill by $14k, cut their property tax by $12k. So you are basically paying $65,000 a year POST tax for the “joy” of living in LA vs another sunshine state (38% of your post tax income). Personally I think that insane (and You could move to fly-over country for even cheaper than FL example)

      2) If you are retired, why would you need $10k in childcare assistance? That should be 0. Especially if you have ANY relatives around

      3) 21k/year for food for a retired couple with one kid is nuts. That’s $57/day for food for 3 people! It should be most half of that and you could easily cut that to $10/day.

      4) 10k/year is a lot for vacations and “clubs” on $170k post-tax or 6% of your income. This could easily be less than half this.

      In short, a more realistic budget even in a place like Florida would be half of what’s listed here even with $24k/year for kids schools (which I think college is over-valued now anyway and getting worse). In flyover country, you could probably cut this budget by 75%.

  15. The one area I believe is very underestimated is the fuel and maintenance of the vehicle. If they’re going to retire early I see them driving considerably more than 5,000 miles per year.

    Can anyone elaborate on this with any personal experience? My estimation would be closer to between 15-20K.

  16. We are a family of 4 living in the Bay Area. Sam’s budget seems about right. $5M is the number we’ll need to hit to retire early comfortably with 2 kids. Without kids, $2 M might be enough. It seems really hard for some people from LCOL area to grasp the cost of living a middle class life style in a HCOL area and ask why don’t they just move.

    My husband is from Michigan so we’ve talked about moving there at times. Then the question of diversity, weather, job opportunities, friends, and family always come up. Living in the Bay means I am close to my family, the weather is nice almost all year round, his can switch jobs easily in his field (tech), there are world class restaurants, entertainment, nature everywhere. How do you put a dollar sign on those things. It’s a question we struggle with…so we are staying put for now.

    1. Few people participate in the world class restaurants, entertainment, and nature more than a few times a year. I lived in NYC for 15 years and went to the opera and theaters less than four times a year. I found that most of the people who visited me went to these things more than I could, mostly due to time. You give up lots of time to pay for the privilege’s of living in these places with the thought that all of this stuff is around and why you live there, but few people actually participate in these things as its mostly tourists and unless your doing staycations and playing tourist, you are probably not really doing these things much to justify the increased cost of living.

      1. You make a good point. And it’s true. It’s fun to be a tourist in your own city when friends visit. But harder during a pandemic.

        I’ve tried to use our no-flying since early 2020 to appreciate San Francisco, Sonoma, and surrounding areas in the SF Bay Area more.

  17. If you need $5M to FIRE we’re doomed as a family of 5.

    However, this reminds me of a passage in Crazy Rich Asians – no matter how much you make you always need more:

    “You can’t afford to fall in love with Simon. Let me break it down for you. Let’s be generous and assume that Simon is making a measly eight hundred thousand a year. After taxes and CPF,* his take-home is only about half a million. Where are you going to live on that kind of money? Think about it—you have to factor a million dollars per bedroom, and you need at least three bedrooms, so you are talking three mil for an apartment in Bukit Timah. That’s a hundred and fifty thousand a year in mortgage and property taxes. Then say you have two kids, and you want to send them to proper schools. At thirty thousand a year each for school fees that’s sixty thousand, plus twenty thousand a year each on tutors. That’s one hundred thousand a year on schooling alone. Servants and nannies—two Indonesian or Sri Lankan maids will cost you another thirty thousand, unless you want one of them to be a Swedish or French au pair, then you’re talking eighty thousand a year spent on the help. Now, what are we going to do about your own upkeep? At the very least, you’ll need ten new outfits per season, so you won’t be ashamed to be seen in public. Thank God Singapore only has two seasons—hot and hotter—so let’s just say, to be practical, you’ll only spend four thousand per look. That’s eighty thousand a year for wardrobe. I’ll throw in another twenty thousand for one good handbag and a few pairs of new shoes every season. And then there is your basic maintenance—hair, facials, mani, pedi, brazilian wax, eyebrow wax, massage, chiro, acupuncture, Pilates, yoga, core fusion, personal trainer. That’s another forty thousand a year. We’ve already spent four hundred and seventy thousand of Simon’s salary, which leaves just thirty thousand for everything else. How are you going to put food on the table and clothe your babies with that? How will you ever get away to an Aman resort twice a year? And we haven’t even taken into account your membership dues at Churchill Club and Pulau Club! Don’t you see? It’s impossible for you to marry Simon.

    Kwan, Kevin. Crazy Rich Asians (Crazy Rich Asians Trilogy) (p. 264). Knopf Doubleday Publishing Group. Kindle Edition.

  18. Please direct this family to move to my town: Gaithersburg, Maryland. We have been described as “the most diverse town in the U.S.” with a large Hispanic, Asian & African-American community (as well as white folks like me) ;-). The $600k equity they have will buy them a first-rate single family home in a fine neighborhood with outstanding public schools. I put my two kids through them (as well as being a grad myself back in the day). Ok, ok, ok: we’re not as warm as So Cal but our winters are pretty mild. The money they save on housing can get them a couple of nice trips when it’s cold.

  19. This is actually a bit silly. I’m pretty sure $5mil puts you in the top 1 or 2% of the nation for net worth. If you take that one step further then you are basically saying only maybe .05% of people can retire “comfortably”.

    Yes I get living in a top 5 most expensive city in the country is difficult but not impossible.

      1. Sam – I get that it’s retiring “young”, but I’m sorry $5mil is pretty much elite in the United States at any age.

  20. Nicholas Carter

    The difference between HCOL and LCOL is day and night. This family’s food budget is more than I will spend on all non-debt, non-investment expenses for the whole month. They live “modestly” in 1600 square feet for two adults and a baby: I spent last year up to August living with four other adults in 1400 square feet fairly comfortably. They will spend more on just gym membership and vacations than me and my wife spend on rent at our new apartment.
    I cannot imagine living like this. Like I literally cannot. My anxiety disorder at prices like these would paralyze me every time I tried to buy anything.

  21. Doctors (and my blog readers) are continually asking me about how much they need to retire. What should my number be? I tell them it depends on multiple factors including their age, longevity, willingness to return to work, investment risk tolerance, social security income, health costs, and monthly expenses. I offer a spreadsheet and Monte Carlo analysis which they promptly decline or ignore.

    Blah, blah, blah just tell me a number, they demand.

    Finally, I started telling them $5M. At the risk of going “all Suze” on your readers, I will just say the longer I live the more I think we spend a lot and can’t predict many of life’s changes. Often the doctors (and other high-earners) are used to having or spending 150K – 200K per year and that corresponds to 3% or 4% SWR of $5M.

    For those who have the patience to hear more than one sentence or one number but who don’t want a detailed analysis, I tell them this:

    $1M sounds great. Not enough.
    $2-3M ok with planning & frugality
    $4-5M in good shape
    $6-7M you are set
    $8-10M you are rich. Stop reading this.

  22. Givemeadvicetoo

    Why $10 Million is Barely Enough To Retire Early With A Family…And A Business.

    We’re at $10M NW mid 40’s, with monthly expenses approaching $100K (business and personal). Not sure I’ll be retiring before full retirement age. Beware retirement early crowd not to underestimate expenses. I agree that $5M (invested correctly) is a minimum for those with children, especially those considering retirement in their 30’s. $1M is nowhere near workable.

    Of course most in the RE crowd are just changing careers for flexibility and more passive income, not actually RE. I can appreciate that. As a business owner, I am shifting more of the daily work to employees. As a commercial property owner, I am generating passive revenue this way as well. As an investor, I have a lot of aggressively invested money (shifting out) but also a lot of cautiously invested money (shifting in), such as CD’s as interest rates rise and the markets correct. After a major correction/bear one can always shift back. Yes, it’s market timing and risk mitigation.

    Even if I one day quit working actively and just manage the business/real estate/investments, I don’t consider it RE. Life takes hard work, whether physically or mentally.

    1. Pure bull. Don’t lump the lifestyle you’ve created and then want to sustain in retirement with everyone else in the US. If you can’t live of dividend and interest from $10 million, you have some serious financial issues that need to be addressed or basically don’t ever retire. I could have a killer retirement on 1.5m. Your basically saying homes in San Francisco start at 1 million therefore all us homes start at 1 million.

  23. The budget aside, I want to ask you guys opinions on raising kids in the US.

    I grew up in Vietnam and my parents were working all the times. I had a lot of freedom as a kid when cellphone was non-existent so they can’t reach me most of the day! I had many friendships that still in touch since primary schools (even though I live in the US now) because we spent so much time without parents around. I don’t know what a crazy world we have nowadays that both parents Retire to take care of One child, not counting all the extra classes they want the child to take growing up (I read some comments mentioning it as “mandatory”). Even though college cost is out of control and what they teach there is getting obsolete plus a political correctness culture, most people still want to send their kids there at all cost.

    I don’t think a child would have any fire to be independent at all if the parents helicopter around him/her like that.

    1. Don’t worry, most people can’t afford to retire to raise their kids. I also don’t think that would be detrimental to a child necessarily. Most of us have to shill out the $1,500 per month in childcare : o – Lets hope our kids get full-ride scholarships.

  24. It sounds like you’re calculating things for living in the lap of luxury, which can certainly be pricey! Just cutting some of the more extravagent expenses will cut an easy million off of the requirements, and moving will cut investment requirements down to $2mil or so while still living a life more extravagant than the vast majority of Americans.

    -10000: $24k a year for a 529 plan for a single kid is really high to keep up from birth to college. Even a “modest” 14k/year will set them up wherever they want to go after 529 returns over 18 years, even assuming they have to pay for the full ride without assistance.
    -10296: Childcare assistance can be axed entirely – they are two parents with complete and total flexibility if they so chose, this is a complete luxury.
    -2000: Landscaping/Maintenance can be drastically reduced by only paying for dangerous activities like tree trimming on a ladder and such. Bonus of free light exercise.
    -1560: Life insurance for what? Do they need to maintain the same residence with one fewer person?
    -10000: Food for Three at $1800/month is just lazy. They need to learn to cook, it can be fun!

    So, just trimming some of the more egregious fat a little bit takes them down $34k to $132k/year expenses.

    If they could countenance moving to a LCOL area, they can eliminate the mortgage entirely by buying a nice $400k mansion. Property taxes could drop another $12k or more depending on location. This takes expenses down to a still cozy $80k/year in spending and down to $2mil needed at 4% rule.

    In short, they have more than enough to retire if they want to “only” live an extremely comfortable upper middle class lifestyle.

    1. You didn’t mention the $1000 in staycations, sports clubs and shopping (entertainment) per month… Which I really can’t imagine needing such a high budget allocation for.

      1. I agree. A 24 hour fitness membership for 2 years, purchased from the Costco website is about $750 for the two years if you pay in advance and it works for every 24 hour fitness club. Are they crowded at time? yes. But that is 10x cheaper than joining the Bay Club ( in the San Fran area) if what you are actually looking for is exercise.

        And oh yeah, this is California, you can bicycle and hike almost all year long, even during the rainy season. There are many ways to make this cheaper.

  25. Wealthgames

    What is missing here is their investments, assets, that make them $200k passive income reliably from $5M. Can you edit this post to show that?

  26. Sure! We live in Miami! We are a family of 4. You can profile us, though I think my husband may not like it! Lol!

  27. FinancialEsquire

    A terrible underestimate. I retired 4 years ago and I would say that 10 Million is a requirement for a family of 3-4. Education, food, clothing, taxes. There is no limit. Just the annual maintenance fees alone for our seven vehicles run close to 1 Mil, not counting the gifted personnel paid to service them. Maid service alone is half a Mil per year, what with the mandatory standard minimum of 5 bathrooms, 3 rec rooms (billiards, arcade, shooting range), and 3 patios (including pool and tennis courts). Lawn service is at least cheap at 3.2 thousand a month thanks to migrant losers who work dirt cheap. Nannies, home schooling, security personnel. None of this is accounted for here. We live in a modest apartment with a skyline view of NYC. Being good Christians the Church also requires us to donate 10% of our income. That’s not down there. Neither is bottled water nor air purification fees. There is also the cost of owing a smart home, and a small friendly arsenal.

  28. $1800 a month for food, since we value our time with our daughter. How about you turn off the cell phones, cook together and cut that bill in half. We eat steak a few times a week go out to eat and spend less than half of that. BTW I feed 6,,4 adults and 2 kids. This just seemed head scratchinly odd.

    1. Hi Nicholas, I don’t believe I mentioned how much we spent on food. That being said it certainly is more than “necessary” if we were trying to cut back! But I think what is often missed in these conversations is that not everybody is as tuned in to budgeting/saving as the community is here. I think Sam is merely trying to highlight that for most folks food expenses can creep up without going out to fancy dinners etc, especially if you are not actively monitoring and making an effort. Also, food costs can vary significantly based on where you live. As for your suggestion to turn off the cell phones, it is a good one, and one we already adhere to. All cell phones are off limits between 5-8:30.

  29. I want to reiterate this point since the post is long and there are a lot of comments:

    Please be aware the vast majority of people who espouse FIRE or are FIRE bloggers are working hard to make extra income or have a working spouse. Even though my wife and I are also stay-at-home parents, I continue to publish 2-3X a week on Financial Samurai partly because I enjoy writing, partly out of habit for the past 10 years, but also because this site makes a healthy amount of revenue.

    In other words, don’t confuse FIRE evangelists for only living off their passive income like J&L. We live off our passive income b/c we reached our goal in early 2017. But before then, my wife worked for 2.5 years after I left until she was 34, and I had a large severance supplementing our passive income.

    1. Thank you for your honesty.

      FIRE is, in many ways, a marketing concept for certain blogs (I will say some are more honest and frugal- here’s looking at you, RootofGood) that are selling a certain lifestyle just as surely as Town and Country and Vanity Fair.

      Most supposed FIREers espouse the 4% rule but don’t subscribe to it themselves as they make $$$ blogging, consulting, selling real estate courses etc.

      Thanks for your honesty on this point. We need more of it.

  30. Sam, I love your blog as it is one of the few I can relate to. I’ve been a reader for a few years now and felt compelled to comment on this post. I left work/retired in 2010 at the age of 35 with a NW of approximately 5.4 million. At the time I had two young daughters under the age of 3 and my wife was a stay at home mom. Fast forward almost 9 years and our NW has grown to approximately 10 million. Your budget example is very “accurate” in concept. Sure people might take issues with certain categories and yes people can almost always trim their budgets but I agree that life can be very expensive without being extremely extravagant. Some of the more ardent members of FIRE community don’t always agree with this. We spend about $225,000. We have 2 kids in private school (as of this year) which amounts to $70,000. One, I would consider a necessity due to learning issues. Our health insurance is approximately $25,000, which by the way doesn’t cover dental and orthodontics (braces can cost 3-5 thousand). We don’t have a mortgage on our $600,000 home but our taxes are approximately $15,000. We also pay approximately 15-20k in investment fees each year as well. So we are at $135,000 before we even get into food, utilities, camp, vacations, after school activities, charitable donations, auto repairs, home, car, umbrella insurance, house repairs, etc……

    While I would never consider myself middle class, most people would from the outside. (I loved your stealth wealth article). We live in a very modest house for our location, drive used cars, don’t wear fancy clothes (jeans and t-shirts for me) don’t belong to a country club or own a second home. Our big expenses are private schools, health insurance, financial fees, and vacations.

    I also think it’s a misconception that just because one is “retired” it should be assumed that they have plenty of time to cook, price compare etc. compared to those who are working. I’m heavily involved in several non profits and am out of the House “working” almost every day from 8-4. I try to make sure I can pick up the kids from school and attend their after school events. Often we eat out or pick up prepared meals, or grab something quick from Whole Foods. I’d rather do that and spend time with my family.

    Keep up the great work and enjoy the time with your son. It goes quick. I feel extremely fortunate to have been able to spend so much time with mine.

    1. Thanks for sharing your thoughts! It’s great the bull market has helped investors so much in recent years.

      Living in a $600K house with a $10M NW is quite a nice ratio.

      I do hope others read your feedback to get more perspective.


      1. A lot of my friends Are 45 to 53 “self-made upper middle class” chinese. 10M(usd) is an arbitrary number They came up with when talking retirement. Their household net worth is roughly 5m to 10m (usd). I am way behind (2m) because I didn’t want to live frugal and save and invest like my friends did during younger Years. I don’t regret – lifestyle is a personal choice anyways. To me doing things out of interest is more important than working a high-paid job just so you can retire early. i choose “Live the moment” over working toward one goal after another. that said I don’t spend more than I make, invest while I can without sacrificing life quality.

    2. I feel kind of nervous reading your numbers. I spend less than you and have a significantly higher net worth, but I am still watching the budget. Not sure how much you have invested in stocks, but I wouldn’t feel safe relying on this incredible bull market to continue as it has for the past 10 years. You picked a great time to retire though, I retired in 2007 right before the financial crisis, which makes me somewhat more conservative. If you haven’t kept your skills up (I haven’t), we can’t rely on going back to work in the same capacity.

      1. Hi Joe, Congratulations on having a networth North of ten million!

        I’m fairly comfortable with my level of spending (although it is a crazy amount of money). We used to be around $155,000 until both girls entered private school.

        Spending $225,000 annually would be roughly 2.25% of my current net-worth. I have approximately $240,000 in passive income after taxes. In addition my wife works full time as a learning specialists and brings in an addition $50,000. She LOVES her job and has no desire to “retire.”

        I completely agree that relying on market returns being strong over the next several years is risky.

        What amount would you feel comfortable spending?

  31. They should just pay off their mortgage to open up an additional $10,904 in annual cash flow. 4% of $700,000 is $28,000 and they are paying $38,904.

  32. Matt Carter

    A lot of this has been touched on in the comments already regarding some of the luxuries included in the breakdown. I think it is common to pick these apart in an analysis like this but the point of the article remains I think.

    For instance, I feel they could easily pull 40-50k right off the top of the annual expenses listed here by pulling out true luxuries. Lets say they pull 50 out, well that’s 1.25M less they need in their investments leading to a 3.75M nest egg. Still a big amount to accumulate.

    I prefer to look at it another way, break it down into necessities and luxuries. So when everyone reads this they see- OK XX% of their investment portfolio goes to paying for their Bare Minimums, YY% goes to their financial goals- 529 etc. and ZZ% is for luxuries- eating out etc.

    They key is everyone is going to have wildly different priorities for luxuries and when you get to these levels of income the percentage that goes to this bucket gets large no matter where you live. Then they see one big list like this and say ‘AWWWW come on… you don’t 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.

    Your articles get me thinking every time Sam. Keep it up!

  33. Boulder Hokie


    No need to debate your budget (although the 529 funding seems excessive if you’re targeting state school), but I’d take a hard look at your tax numbers and also look at paying off the mortgage.

    You may be way overestimating the tax liability. Since you’re living off of after tax investments, some of your income will be coming from dividends/interest and rest from liquidating positions. I’d guess that only about 50-66% of the $200k income is actually taxable depending on the investment mix and basis (you’ve already been taxed on the initial basis). Most of your income should be taxed at LT capital gains (or tax free if you have muni bonds). So, if all of your income is capital gains, the first $77,400 of your income would be tax free at the federal level after which you’ll be taxed at 15%. Factor in that along with the standard deduction, and you greatly reduce your tax liability.

    I also noticed that the cash on cash yield on the mortgage is about 5.6% ($38,904/$700,000), so if you’re withdrawal rate is 4% you’d improve your cash flow position by paying off the mortgage early (may not be a financially optimal decision though with a 3.75% interest rate, but neither is retiring early). The upshot of that is you’ll also lower your taxable income even further since you’ll use part of the portfolio to pay off the mortgage (less dividends / interest / gains to tax).

    Make those two tweaks and I’m seeing that you can probably get by on ONLY $3,750,000 and keep the same budget (I’ll shoot you my spreadsheet if you’d like). Who knew California could be such an affordable place to retire?

  34. A conservative, bond-heavy portfolio with a 4% rate of return can be structured to be very tax-advantaged in a high-tax state like California.

    For example, U.S. Treasury bonds aren’t taxed at the state level. You’ll only pay federal taxes, which works out to about a 15% to 20% effective tax rate for interest income up to around $10,000 (individual) or $20,000 (married) per month.

    If you also invest in California municipal bonds, you won’t pay any taxes this income. (Municipal bond income from other states isn’t taxed at the federal level.)

    Qualified dividends (from the stock portion) of your portfolio are also taxed pretty favorably.

    Atogether, you can retire with a few million and still pay less than a 20% effective tax rate.

  35. I’m surprised someone hasn’t mentioned this yet, but I feel they have an investing problem, not a spending problem. I just checked the Schwab website and you can get a 20 year AA rated muni bond paying 4.46 percent. Using their 5 million figure this investment would return 223k a year double tax free. This alone would add another $60,900 yearly to the income statement without touching principal.

    Another way to do it is invest 3.8 million in the same muni giving them their 170k a year and put the remaining 1.2 million in a stock fund. After 20 years their net worth should grow by another 1.5 million.

    1. Great point Bill. And definitely something to consider, especially since rates have gone up.

      I guess for them, and for us, we are still relatively young, so we still have more of a weighting in stocks than bonds.

      Again, their investments and budget isn’t static. If they need more, they will change, and so will we.

  36. As always, a very interesting article. I found the housing expenses reasonable. My concern is with their food budget. I find that totally out of control for three people, one a baby. We are feeding four children over here on about half that amount.
    Before we had children, I just went grocery shopping without looking at weekly ads. 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. You can save a lot of money by buying a freezer and stocking up when food goes on sale. I know in our part of the country, meat prices can fluctuate by $3 a pound from week to week. That’s a big difference!
    That is valiant to want to spend so much time dedicated to your child, but I’m a firm believer that your children learn by seeing and doing. How will your children learn to cook, mow the lawn, etc when all they see is someone else doing the work? Learn to cook now and in a few years your child can join you on the counter to crack the eggs and stir the pancake mix.

  37. Admittedly I have not read all of the comments above, so this has probably been mentioned.

    I wonder how much daycare is compared to paying $858 a month for only 9 hours a week?
    We pay around $1200/mo. (in TX) to send our kid to daycare full time and that includes breakfast, 2 snacks, and lunch, and of course this includes learning activities and recreation.
    I’m assuming there are no relatives around, hence the reason they need this line item?

    It’s also a bit odd to have all these children lessons for an 8 month old. Swimming twice a week?
    Not drowning lessons once a week would seem more practical. That’s what we do.
    Gym time? For an 8 month old? Do you have public parks in CA?

    How much is in the 529 already? I’d just stop contributing to that altogether. They should have plenty to help out in 17 years, should the kid even go to college. Also scholarships, grants, etc.

    CA must be really nice if people are not wanting to relocate to LCOL when they early retire and only skirt by with $5M.

    1. What is the hourly rate for babysitting childcare in TX?

      Babies don’t know how to swim, and the earliest is around 3 years old. These “swim lessons” are really just fun play time to help the baby/toddlers get acclimated.

      1. There are daycare facilities that you essentially pay for the days the kid is actually here, and not just a fixed price every month.
        But this would involve bringing the kid to a daycare, which is probably good for interacting with others their age anyways, instead of being at home with a babysitter.

        Exactly my point on the swimming. Why is twice a week needed? Go once a week and then take the kid to the beach or a public/friends pool for further acclimation. Swimming lessons are expensive.

        1. You are not a stay at home dad are you? Yes, it is understandable that you think taking care of a child is easy if daycare or your wife does it for you, but throwing a baby into the ocean is not good parenting.

  38. Marie Jacobs

    I love a good case study, but think it would be better to recognize whether something called a requirement is really a need or if the same goals can be achieved in a less costly manner. It’s not really required to spend 14 hours a week to make healthy food or to pay for 9 hours of child care. There are great healthy recipes that require much less prep time, not counting time in the oven or instant pot when you don’t have to actively work on it. My husband watches the kids while I go to card club and I watch them while he has a weekend away with his brother. We swap with others when we both want to go out or have a date in after putting our 3 kids to bed at night. Yes, healthy food and time off are required but not necessarily the costlisted above.

    I would also caution parents planning to return to full time work once the kids start school. Much like traveling with a small child, they will not remember you spending all day with them as babies or toddlers or whether they spent all day at daycare. They will remember that you were too busy working to be a regular volunteer in their elementary school classroom like so-and-so’s mom. They will remember when the after school program messed up and sent them on the bus to an empty house twice in first grade. They will remember when the bus driver called in sick in 7th grade and their friends parents came right away but they were stuck at school for an extra 45 minutes while you were fighting traffic. They will find inappropriate things to do after high school days when nobody was home. They will remember you were on an important conference call and couldn’t help with their math homework even though you were physically there after school. They will remember summer and break days you work and they have no school. That’s not to say parents can’t ever work but to point out that a school year is much less time than working full time and older kids also need parents in their lives.

    1. I’ve always thought it is more important to have a parent home for an older kid than a baby for the reasons you stated above. There are so many people who seem to think the opposite (one parent stays home until kid is in kindergarten then goes back to work), but I think kindergarten through high school is a much more important time to have a parent present (obviously reasonable people differ but your post is more in line with my conclusions).

        1. I feel that I lucked out with the ideal work situation – working from home, in a job and for a company that that have been very supportive. Had a nanny until my child went to pre-school. I was able to see my child and work during the day. Now, as they’re in middle school, I’m home when they come home from school (with a snack for them and time to hear about their day). Flexibility to attend school activities. Minimizes the stress in our family tremendously.

        2. Marie Jacobs

          Part time can definitely work, but well-paying part-time jobs with schedules flexible enough to accommodate the school calendar are very hard to come by. They are almost unheard of in my area. I had to create mine by working full time, making myself invaluable to my employer and then offering to either go part time or leave. I still struggle with keeping my work hours down because the business world operates differently (eg: summers, sick days and time zone differences). Freelancing or self employment would be other options but maybe tough to break in with a multi year resume gap.

          1. There’s actually plenty of part-time work here in San Francisco that pays well. Economy is so hard that employers are willing to do anything nowadays. We’re talking $10,000 a month for 15 to 20 hours of work a week.

    2. It makes me sad that you say my boy won’t remember all the time we’ve spent with him the first few years.

      But, we know that our time spent with him will make him a more loving, kind, and intelligent person going forward. So many studies discuss the importance of nurture during the first 5 years, and we believe it.

      1. Sam, there is absolutely no need to feel sad for being a loving, caring, involved parent. Yes I do agree that people seem to overemphasize one part of the childhood over the other and it’s a bit of a futile argument. To the extent that you can free up some time, and care for your child throughout their lives, you are lucky and so are they. I personally want to be in my childrens’ lives for at least a 2-4 hours everyday on average until they are 18, after that I’d be lucky to have more than an hour a month!

      2. Marie Jacobs

        Being an involved parent at any age will benefit your child! You will have lots of memories to share when he’s older and asks about what he was like as a baby and toddler. My point was that parenting is a very long marathon, not just about the first few years. The school years still require a lot of parental involvement, more so because your child will remember it better (and maybe someday tell their therapist). Smart people like you will figure out what the right thing to do will be at the time and more money gives you more options. I just wanted to point it out to those looking ahead.

  39. These numbers seem about right (if they bought their house 5-7 years ago, they could have paid $1.3M, although it would be worth more now).

    They are similar to our numbers, though we have two kids. We are still working full time and so spend more on childcare, less on health insurance, vacations, gyms. My interim goal is to have enough investments/assets to just cover our monthly recurring bills (housing/childcare/transportation/utilities). We are close.

  40. I wish people would stop treating living in a coastal city as some elitist decision.

    I lived in a moderate-sized city in the heartland for few years during my teens and the racism and ostracization was damaging. I moved back as an adult and was physically threatened. I’m not saying the entire heartland is like this. I’m just saying it’s really not that simple as a minority. Living in an expensive coastal town is difficult and most of us will never see a $6 million retirement budget even at 67 but I would prefer balancing wants versus needs and try to stay in my HCOL area.

  41. I think an interesting comparison would be to explore the grandparent-assistance angle. Say what you want about J&L’s pending but they iving entirely off of investments and no significant assistance from their parents.

    It was only after becoming a parent myself did a get a better look into how much of this assistance actually happens. Here are some anecdotal examples that would make a huge difference to a family budget:

    – Grandparents paying for private school for multiple grandkids ($10K + per child)
    – Grandparents paying for most or all of a yearly vacation (renting a large AirBnB for all the kids and grandkids, footing the bill for a family cruise or Disneyworld, etc.)
    – Grandparents providing significant child care while parents work
    – Grandparents paying for meals out or just cooking dinner for 3 generations at least weekly

    We are talking tens of thousands of dollars in value each year! While I think this is a great position to be in as a prent, not everyone gets these advantages. I would guess at least a few of the ‘can’t believe they spend so much’ naysayers get similar support.

    Great post!

    1. Good point. And I’m jealous if there are grandparents spend that much time and money on their grandparents and grandkids. My mom has been a regular contributor to my sons 529 plan. They are finally coming over in a couple weeks and I’m looking forward to their visit.

      If I am blessed to live long enough, I know I will be that doting grandfather. It would be one of the greatest blessings of my life.

      1. We have been very fortunate that both sets of grandparents have been very generous with their time. After first child was born and it was very challenging being a stay at home Mom – having support from grandparents was incredible. 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. Generosity of time to me is priceless (especially the relationship my children have with both grandparents) and I’d take it over any monetary contribution.

  42. Indeed 5M saving keeping the same LA are not enough.
    So….should we all move to Midwest or Costa Rica, Belize or Portugal?


    So…what about if I want the great and healthy (are you really sure?) CA lifestyle?

    Stay in the rat race all your life…there is NO OTHER SOLUTION…unless you cumulate 10 or 20M$…an amount of money you are very unlikely to save even grossing 300-500k$ per year.

    (hoping not to get seriously sick meanwhile…otherwise you American dream will become your worst one wiping out your nice millions in a bank in few months…)

  43. We live in an affluent part of the DC metro area with great schools and high diversity (Ellicott City, #4 best place to live Money Mag). We aren’t frugal and spend way less than $13K/month with THREE kids, piano, ballet, dance, private lessons, swim club, lawn service, 4 cell phones, mortgage, Disney trips, blah blah blah.

    We spend around $8K-$9K/mo.

    From Mint:

    Category Spending
    Mortgage $3,745.77
    Shopping $1,257.30
    Uncategorized $787.00
    Auto & Transport $666.15
    Food & Dining $632.83
    Bills & Utilities $448.94
    Health & Fitness $275.00
    Education $255.99
    Financial $155.20
    Entertainment $144.47
    Total $8,368.65

    The uncategorized is kid stuff (lessons, etc). Shopping is mostly groceries and partially an untamed Amazon habit. Food and Dining is eating out.

    Tack on the $1600 health insurance and we’re still under $10K.

    I’ve been looking at retiring with $5M at 2.5% withdrawal rate. $5M @ 4% with ONE kid is easy peasy. Frankly $2M @ 4% is also easy…just do it in Malaysia or Panama.

    And to answer your next question…we’re waiting 4 years for the two older to kids to hit college and I vest. Then we’re cashing out and going the expat route with the little one. We have a separate pot for college savings.

      1. It is interesting how people who are working have consistently forgotten to include health insurance as a large cost if they stop working. Maybe people simply don’t realize its huge cost, despite the category in my post and the line item in the chart?

        Property taxes are also a must.

        Not sure why Vin forgot that too.

        Hope more people realize these costs and don’t wake up blindsided.

        1. Vin added 16k for health care insurance. I was referring to auto, homeowners, earthquake (in CA), umbrella, life, disability, etc.

          Health care is by far my biggest cost in early retirement. 20k+ annual premiums and rising for a family of 3 in SF Bay Area, and each year I downgrade to a lower cost premium plan. This of course means paying more copays and deductibles. I’ve been early retired for 11 years, a lot of unexpected health issues came up during that time even with relatively good health – sports injuries, C-section for child delivery, appendicitis, child development etc etc. There are also expected costs from preventive maintenance as you age. Then there’s dental appts, cleanings, braces, vision exams, glasses, contact lenses, hearing exams – all of that costs a lot more without employer insurance. So, outlays for non-premium expenses add another 10k or so.

          Many FIRE blogs say rely on government subsidies for health care premiums. If you make over ~$80k for a family of three, you don’t qualify (imagine making $80k and then having to pay $30k in health care costs after tax). I would not be willing to bet my early retirement on continued government largesse, but it seems many FIRE bloggers are willing to take that gamble.

    1. Question on the college savings: where did they come from? If you aren’t saving anymore, how much did you save per month when you were savinng?

  44. Usually when I comment I like to keep it strictly about finance with some humor mixed in…bc it’s all about finance and anyway…but some of the commenters on here should really do a deep dive into their own personal thoughts and see if they hold biases.

    Saying that “all white people” do/act/think a certain way is racist and not constructive in the slightest.

    I still don’t understand why everyone thinks all white/black/Asian/whatever the color of your skin or culture/area you live in dictates how you act or what you say. It’s laughable and inaccuarate.

    I’m completely different than all of my (close knit) friends and in a completely different place than most of them socioecnomically. We all follow different traditions and have different values EVEN though we all have the same color of skin.

    Diversity isn’t restricted to skin color, it is found amongst everyone.

    We should all work and strive to learn about others struggles, strengths, and weaknesses. I believe a little less classification by race and more love for the human race would do America proud.

    1. All good points. Painting people/regions with a broad brush never really works.

      But as a minority, it does feel more comfortable to live in an area where there are more minorities. Most times, you don’t want to stand out.

  45. Josephine Golcher

    I found a few areas to comment on, from the advantage point of age 77 and 55 years of happy marriage with 3 adult children and 2 grandsons.
    While I understand the concept of FIRE, my husband and I were a traditional couple. He went out to work and I stayed home with the children. I have no regrets about this arrangement.
    His job supplied the health benefits for the family. I am not sure that people truly understand the implications of extensive essential healthcare. I have had robust health all my life yet I suffered a massive pulmonary embolism resulting in cardiac arrest after a routine outpatient operation removing wires from an old injury on my knee. The surgeon was “gobsmacked”. A friend suddenly suffered from sepsis, also unexpected. Medicare covered most of my costs. Personally, I think that it is worth while for one of the adults work and receive healthcare. In addition, it is good from children to see their significant adults working.
    My food costs were much lower, about $5000. I prepared all the meals including school lunches. Advantages were that the children loved to help. We even made bread, pastries and cakes. To this day, my children still cook most of their food having learned by example.
    I helped at the local preschool. This not only reduced the cost significantly but gave me the encouragement and knowledge to work for a teaching credential. After 40 years as a teacher, and enjoying every moment, I retired at 77. This gave me maximum social security and ability to max out my 403b. At the moment, I am substituting which gives me an extra $300 a week and still have time for enjoyment.
    My husband did all the yard work and washed the cars aided by little helpers. Again good learning opportunities. He also worked past 70 and maxed out 401b
    We really enjoy our life

    1. Sounds like you gave your children a wonderful start in life. Good work skills, self-sufficiency, and a happy attitude make more difference than $300k in college savings.

      I wouldn’t want to be a substitute teacher in my late 70’s, but it’s wonderful to see people like you active, engaged, and useful in society.

  46. Great post! Found it crazy how the numbers come out. Personally, I do not plan to ever really retire due to the fact that I would be bored out of mind so I never crunched the numbers fully like this.

    Obviously living in HCOL area is going to be harder than retiring in a cheaper area of the country, but the chart really threw me off when you look at how much to retire comfortably. Then the table showing income less expenses = $10 in excess cash at the end of each year is crazy. Imagine saving so much and making six figures in passive income just to have a $10 bill left.

    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!

  47. I think the suburbs of NY have plenty of mixed race and religion people while simultaneously being surprisingly, to me, cheaper to live in. Many of the great CT towns in Fairfield county, and over the border in NY’s Westchester county are cheaper than LA with plenty of diversity. Admittedly, some are poor, and some are not diverse, but most are.

    I think $5 million is a good number. Our number is lower, but we are also planning to retire older, our mid-50s, and our kid will be older as well. We plan on working full time until he’s in high school, and down shifting to lower pay / part time jobs at that point.

    Having spent a few years in other lower cost regions of the US, I can say that there are great places to live that are far cheaper than the great coastal cities. We plan on moving to one of them, and I am looking forward to it. This is what the majority of my parents and grand parents generations did after living in NYC for so long. It burns you out!

    Were I this couple, I would move. LA is just too expensive.

    With a chil

  48. I love these type of profile features! I think it’s fascinating to see how other people spend. There are a lot of benefits of living in high cost areas but it does take a lot of cashflow and savings to do so stress free and for the long term.

  49. This is why I don’t get the leanfire and Mr MM crowd. Unless I want to live in a cabin in Alaska or have a house&inheritance coming my way, I don’t see how you can get by with leanfire.

    We are at $10mm in our 30s but I am aiming for $20mm with 2 residences.

      1. I have my own business for the last 10+ years and timely purchase of stocks & real estate after the great recession.

  50. J&L’s budget is inline with ours ($14K/month). We’re a family of 3 (one kid age 15) and living in bay area, even though we spend ~$2K/month for tutoring, we don’t expect that to come down after the kid goes to college, because it will be replaced by healthcare premium.

    Sure if we replace all the nice vacations with weekend drives and camping, and cook ourselves instead of eating out, and buy clothes at Target instead of J.Crew we can reduce at least half of that.

    1. Wow, $2K/month! What are they learning? Here’s some interesting info I found out from the Harvard / Asian discrimination lawsuit:

      ~5% overall acceptance rate
      ~30% acceptance rate for legacy
      ~40% acceptance rate for children of donors
      ~70%+ if legacy plus donor

      Employers should now ask private U grads whether their parents donated and are legacy.

      1. Paper Tiger

        Wouldn’t it be interesting to look at the average GPAs, class rank and test scores of the group that got admitted within the Legacy/Donor category to all the other groups? You think the standards might be relaxed just a little for that group ;)

      2. ~$2K/month is amortized – language + math + music weekly (~$1K/month), plus summer camps for language + music ($6K each, including plane tickets).

        What are they learning? I’ve no idea. I’ve had zero tutoring myself growing up since only stupid kids needs tutoring from the part of world I came from. Weekends and summers are for horse plays, now even if our kid wants to do free play on weekends or in the summer, all his friends are in some athletic academic music program. It’s quite an experiment we bay area parents are doing here – to see if a generation of heavily tutored kids will have any self motivation when they grow up. Can’t wait to see the end products.

      3. Well, in fairness, if your parent got in, and did well enough to donate a lot to the school, the chances that your IQ is very high is going to be better than your average applicant, plus you are going to be well connected, a factor in your success and for the success of friends you meet there.

        It’s like recruiting the children of professional athletes to college teams: you are simply playing the odds.

  51. Wow- my thought is how frugal this budget is. I live in a lower cost area and we spend about $2500 on food. This budget also doesn’t include money for:
    -private school (they’ll want this given the public schools in LA suck)
    -replacing their car when they need a new one (plus their car choice is very frugal).

    probably more that i’m not thinking of right now. Inspirational though- can’t wait to show this budget to my wife! :)

    1. Hi Sam! I’m with Richard H. I see you have “Gas & Maintenance” for their paid off vehicle in the budget, but I do not see a line item for depreciating the vehicle over say 10yr (or however many miles they expect the car to last divided by the number of miles they drive each year). This would mean they would have to come up with the cash for a new/used car in a single calendar year (drawing more income and thus higher effective tax bracket) as opposed to saving a little bit at a time. Food for thought, wonderful blog. I’ve learned a lot!

    2. If you take care of that car at $4,500 miles/yr you should never have to replace it. Most good Honda Accord’s can easily get you 250k miles. Assume it had 50k miles on it when they bought it (3 years old) that’s approximately 44 years before that car hits 250k miles. I fully expect self-driving cars to be on the road in 10-12 years. Honestly I’m not anticipating ever needing to buy new cars again either. We have a 5 year old car with 32k miles on it and a 3 year old car with 35k miles on it (used for long distance travel). I think Uber like services will be all over the place by 2030 and the price will be extremely low given the cost only being the car depreciation and profit for the company instead of paying drivers.

  52. Ouch – I.took their expenses subtracted out the mortgage since my house is paid off, food what the heck? 0ver 20k I cut it down the middle. Their vacation numbers are more conservative than mine

    No Dining out? Maybe he included that with the food budget. Lately our dining budget is more expensive than our grocery budget.

    My taxes are 1/3 his in my million dollar home because of prop 13. If I move I can buy two homes which we might some day do.

    After subtracting out those items I don’t need I get to my retirement budget of 93k a year.

    I am retired wife retires next year., we have 3,600,000 in liquid assets not counting primary residence.

    That should be enough. We live in the Fremont area of the Bay Area so it’s not as expensive as San Francisco.

    But I certainly know why you want to invest in the heartland of America. Just went to Texas have two brothers who live there. In a blog post I compared the standard of living and Real Estate to California. It’s a heck of a lot cheaper

      1. ha ha yes household work – hard but a must definitely encouraging her My children are on their own now but we still help them. We helped my son with a downpayment on his house and we have helped them to pay for other expenses as well. It is also customary for us to pay for meals when we all go out. We have a son and a daughter who is an RN. I would say we probably budget a couple thousand a month for our kids. Every so often there is a major expense we help them with. I always make sure it fits within our own budget as well.

        We have planned for working wife to retire next August.

  53. I’m generally on board with the idea that people need to save much more than they expect to retire. That said, stay at home parents paying for childcare seems out of line. Maybe a babysitter for an occasional date night, but constant help seems unnecessary for all but the most hands-off parents.

    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. Since the couple is not working it would be easy to leave the prime home corridors needed by commuters and get a house for half that cost, NYC and SF likely excluded.

    I think looking and employer cost of Healthcare isn’t accurate since they would be on ACA. What’s ACA for those areas? Ours is about $350/per person per month.

    Lastly, if the couple has $6m in assets do they really need to do a 529? I wouldn’t. Let the assets grow in normal accounts and pay for college out of the normal budget if necessary.

    Boom, $5k/mo saved and I didn’t even complain about the staycations!

    1. You think 9 hours of childcare assistance a week is out of line, or 3 hours a day for three days?

      If so, please share how you and your wife split up the childcare hours. Are you a stay at home dad? Childcare is literally non-stop 24/7 for the first couple of years.

      529 is a good tax minimization investment vehicle. Everybody should contribute something if they have kids. How are you saving for your kids education?

      1. Hi Sam,

        Wife is SAHM. I think it’s 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. In this scenario we’re looking at a couple that has no job between them, and they still can’t watch the kid(s)? Seems bourgeois, and while that may describe some FIRE couples I don’t think it’s most.

        I don’t think everyone should contribute to a 529, in fact I think most should not contribute to a 529. To me it’s a flawed tool to use only if you really have too much income and need to get it off your taxes. If this couple is worth 5-6mil they may have paper losses (RE depreciation, tax loss harvesting, or other tax planning) to reduce income taxes making it worthwhile to realize income and save it in a taxable account. My preferred method is to do nothing because no one knows what college will look like in 15-20 years, or if my kid(s) will use the funds, so saving in a limiting account doesn’t make sense. Keep your savings rate above 10% on 500k/yr and you’ll always have enough money for college (if needed), no need to complicate it by putting money in an account that charges a penalty if you don’t use it correctly. Maybe we get Universal Savings Accounts in the US with tax cuts 2.0 this winter and that’s the better way, but until then I’d just save separately. The tax benefit isn’t worth the hassle and risk of penalty for unused funds in my opinion.

        1. Thanks for sharing. I guarantee you that she would love to get some help for several hours a week. I do really think it’s worth trying to be a full-time dad for several months to see how much energy and work it really takes.

          It’s really hard to know how something is until you can experience it yourself. I’d love to hear about your thoughts on financial independence and expenses and so forth after you leave your job as well. I should start a whole series of “what you thought versus reality.” That’d be interesting!

          1. That could be true regarding help, but in our situation she’s (me too but I defer to her on in house decisions) not comfortable with someone other than family watching the kid before they learn to speak.

            The FI series would be interesting. I think it would be ideal to find non-tech and non-finance FIRE experiences as it appears underrepresented in the community. Personally, we’ve passed our FI number, and planned to quit at that point but obviously hasn’t happened. Decided to keep working to pad the stats and ease my fears. My profession doesn’t allow easy returns due to expiring certifications (mainly security clearances) so it’s a one way door in my situation. Love the blog, good luck with everything!

    2. Paper Tiger

      “Lastly, if the couple has $6m in assets do they really need to do a 529?”

      Do they need to? Probably not. Does it make sense when you’ve spent 18 years accumulating 250K-300K not having to pay taxes on those gains by doing it within a 529 vs. paying on those gains outside of a 529? Absolutely!

      1. My thoughts exactly. People should always take a vantage of opportunity, otherwise they’re just leaving money on the table.

  54. I don’t understand why Californians not just move to ChangMai!! j/k

    Having lived in both southern and northern cal, I completely understand. Well articulated argument.

  55. The college savings rate is over the top. Even though college costs are very high even for a public in-state institution there is no need to save $1M. Also, college costs can’t continue to rise at the same rate they have the last 20 years over the next 20 years. There would be a college education bubble bust since it would eat up too much of even the wealthiest families budget. I would expect that saving $250-300k would be plenty. If there schooling costs more then they can pay their own way for the difference. They could save around $850 per month to hit that goal.

    1. It costs about $70,000 a year in tuition alone today at some of the top private universities. Can you imagine what it’ll cost in 18 years when their daughter goes to school?

      I pray to goodness my son get me scholarships or is wise enough to go to a state school and learn all the things he needs to do before having to go to college.

      1. Maybe I missed it because I have a lowly state college education, but why is there this assumed need that your kids have to go to Stanford/Yale/Harvard, or that your kids are even capable of getting into a top 5-10 private uni? Or that being financially capable of sending your kids to the top private universities is in-line with a middle class or a “just getting by/barely enough lifestyle”?

        1. Just to jump in here- we had a very bright child – and could afford to send him to the best school he could get into because we knew it was probably ( though not always) a ticket to becoming a high earner via the prestige factor. Luckily it worked and he really distinguished himself, graduating with high honors etc Now works on Wall Street making 7 figures a year and loves what he does. Probably wouldn’t have been recruited out of college had he gone to a less prestigious school. Our $200,000 investment paid off (at least for him!)

          1. If we are using anecdotes, I will take the other end. I have two siblings. One went to an elite law school instead of taking a full-ride to a very good state law school. Ended up $150k in debt and decided in the end she hated being a lawyer. Paid off her loans last year and quit. My brother went to a top 2 Computer Science Master’s program instead of a state school with a very good program (although closer to top 50) and went $100k in debt and likes what he does, is making good money, etc. but isn’t working at FB, Google, or Netflix. Hindsight is always 20/20.

      2. Based on your assets, you will never be eligible for needed-based financial aid. Note top private colleges do not give merit-based scholarship.

        Yes, ivies claim that if your income is less than $100,000/yr, your kids will get a free ride. What they do not tell you is they will check your net assets. Colleges consider your NET Assets not income when deciding whether your kids will get grants (free money) or not.

        1. How on earth will colleges be able to unearth all of someone’s assets? There is no public database where you punch in a number and out come all of one’s assets. Hard to value private investments for example.

          Is it an honor system that applicants must declare everything to a college when applying?

          1. Hi Sam, I did some research on this before so I thought I would provide some links. Colleges don’t “know” your assets when you apply, BUT if you are applying for financial aid then you need to provide all your assets. The FAFSA which most public universities use can be pretty good at concealing assets (for example primary home value, businesses – so you could theoretically look “poor” on the FAFSA but have a high net worth in real life). But most private schools do not only use the FAFSA they also use the CSS profile, which is much more extensive in it’s review of all types of assets, and makes hiding assets extremely difficult. (Most of these links are from 2016 when I did this research but I imagine the rules are still pretty similar). Just about the only place where assets are safe from the CSS profile is in retirement counts and pensions.




      3. if you live on in CA you used to be able to rely on being able to go to a UC for a great education at a very reasonable cost. Now even the lowest ranked UCs are very difficult to get into. I live in one of the top performing school districts in Southern California and personally know 4.0++ kids who didn’t even get wait listed at the lower tier UCs. And forget about UCLA or Cal.
        Even the Cal State schools are tougher to get in, and it takes longer to graduate due to classes being impacted.
        How said for my kid, whose parents and grandparents are born and raised Californians and homeowners paying lots of taxes, and she probably won’t even get the benefit of going to one of those schools.

    2. Paper Tiger

      Hi Jeff C, I think your college saving numbers are pretty spot on. After our daughter was born we started investing $800/mo. in a 529 S&P500 index fund. 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. Fortunately, that should be enough to pay for both her BS and MS degrees to out of state, highly-rated public universities.

      1. Nice job saving to give your daughter a big head start Paper Tiger! I think a highly rates state school is the way to go (Purdue, UCLA, Michigan). If my daughter wants go to a school that is $70k per year I’m letting her pay for some of it. I don’t think you get a great return for that amount of money.

  56. Some good points but I don’t know if I agree on every single one. I’ll take out the popcorn and watch from the sideline on this one. :)

  57. I knew Cali was expensive, but damn! gas is up to $18/gallon? Makes me glad I don’t live there :)

    1. Or, you can calculate what the MPG is for their SUV stuck in stop and go LA traffic ;)

      Ah, it’s amazing how everybody arrives at different numbers based on our own experiences!

      1. It says in the budget it’s a Honda Accord. Which is it? An SUV or a 2015 Honda Accord? Even if I take the low end of the fuel economy for the 2015 Honda Accord it’s $15.90/gallon.

          1. Their car is what might cause backlash issues? I guess so would my truck :)

            I’m having trouble understanding why any one child would need $600k for their college education. I sure hope that’s not what the going rate when my kids that are both around that age hit college. I certainly won’t be able to afford to pay $1.2 million for their degrees. I also don’t really understand the need for a $2M term life insurance policy when their nest egg already covers living expenses for 3, surely an adult death would lower the cost of a few things like food, clothing, health insurance, etc. Not sure why an additional $2M would be necessary at that point.

            You are right, in the grand scheme of things if the gas budget is off a bit it won’t move the needle. It’s all the nice to have’s that will move the needle. It’s just an easy mathematical formula to back into.

            The one line item that I thought was low was vacations. Clearly not FI yet, but when I get there in a 7ish years, my goal is to have about 15% of our yearly post-tax expenses budgeted towards vacations.

  58. As someone who has lived in San Francisco, I think this budget is very fair and dare I say modest. After making a good living for several years you are more than likely going to have some lifestyle inflation. So the club membership, food delivery, etc. may seem over the top to some–it does not to me. If you have friends and family with similar amounts of income and savings, they will be living much much better than this. It is impossible to not feel at least a little jealous. Also, no matter how disciplined you are, you always want the best for your children. It hurts to see other kids have more than yours and get to experience better things in life. This is much more so when you have $6,000,000+ in the bank. You know you can “afford” to give your kid anything. You are choosing not to. It seems selfish at times even if you know in the long run it may be the right thing to do. For men, this is also true for our wives. I know many on this site have frugal spouses and they don’t “want” the finer things in life. Mine is certainly willing to live without. But, I don’t like seeing my wife do without knowing I have millions in the bank. All within reason of course.

    My point is simple: this budget doesn’t have any “extra” built into it. No lavish vacations, nice cars, big charitable donations, … Of course nobody needs that, but it is hard to wrap your brain around not being able to have it when you have so many millions in the bank. Real life isn’t a theoretical exercise. I think the more we account for real life, the better we can plan for the future.

    Personally, looking at budgets like this and running similar financial scenarios is what has pushed me to focus more on finding something I enjoy doing that makes money, rather than even considering checking out. It is not easy, but for a motivated risk taker, you can make $200k+ a year doing something that doesn’t feel like work most of the time. Sam writes on a blog he loves, I represent clients in a very specialized litigation practice at my own small firm, others have a successful app, the list goes on and on. Some genuinely do not have these opportunities (I recognize that), but many people do and they simply waste them (while making excuse after excuse).

    I still think it is a better life plan to put together enough money to quit your “job” and find your passion. Do it well and it will more than likely produce more money than you ever believed possible (and maybe with a lot less effort than you are assuming). The ability to keep your nest egg growing while bringing in an income doing something you love results in a lot more freedom than the budget allows in this post.

    Finally, with all do respect, I’m not sure anyone should spend virtually every waking hour with their kid. I’m not sure it is healthy for the kid. Too much of anything is never a good thing. I see zero reason why this couple doesn’t each have a side gig right now that amounts to 20 hours a week at a minimum. That would smooth the edges of this budget, allow for a ton of time to spend with the little one (without suffocating the poor thing), keep their self worth high, …. the benefits list goes on and on. I’m reasonably confident that I would not be the person I am today if I grew up watching my parents run around all day catering to my every need. I know their heart is in the right place, but …..

    1. We definitely live in a LCOL area, but our income has more than doubled over the past few years into what I would consider a similar range when you account for COL to the original couple and the only expense in our budget that has gone up is child care as we added a second baby to daycare. We are on pace to spend about 26% of our gross income this year.

    2. I would agree B….having 3 teenagers- there’s something to be said for them watching my spouse work hard at something they love and do well at it. I agree- you can’t cater to every little thing your kid does- not healthy for sure. I think it’s healthy for your kids to see a balance of working and liking a career and providing for the family. Balance is always a good thing.

    3. Sam, this is an excellent post. A bit click-baity some would claim, but I would disagree. This post is so grounded in reality, specially for the demographic of your readers and what they aspire to be.
      B – your reply is excellent. I agree with your assessment.
      There isn’t a lot of extra built into this budget. The sort of people who would accumulate $5 million by their 40s would be highly educated displined savers and investors who have avoided major financial pitfalls and catastrophes. They would surely be upper middle class even in their HCOL areas.
      My plan was our family was to retire in a HCOL area (SD) in our 40s. I figured 5 million net worth (including real estate and retirement accounts) would be more than enough to exit the rat race. But once you start running the numbers you see that even a modest lifestyle (compared to our lifestyle while working full time in a HCOL earning big bucks, avoiding lifestyle creep, yet still enjoying life) would require more than 5 million in net worth. I will share the numbers I came up with for what I consider an UMC lifestyle, so that Sam and others can use this as a data point:

      1.5 million for a 4 bedroom 2000 square foot house within 5 miles from the coast
      1 million in retirement accounts
      500k in 529s for 2 children
      100k car fund for 2 cars and future cars to replace
      5.5 million to generate $165k a year at 3% return

      165k per year = $115k after taxes (30% taxes for federal + CA) =
      $20000 (real estate taxes, insurance, maintenance)
      + $6000 (children’s extra-curriculars, supplies, clothes)
      + $4000 (car related expenses)
      + $4000 (utilities and phones)
      + $27000 (health insurance, umbrella, life, etc.)
      +$2000 (groceries)
      + $42000 (discretionary = 2 international vacations, a few local vacations, eating out once a week, shopping for clothes, etc.), +$10000 (emergency, unplanned expenses)

      So about $8.6 million dollars!

      OK, enough reading blogs, dreaming, back to work for me.

      1. Some indicative British numbers for comparison.

        Home £500k (200 sq ft)

        Bills in £’000 (use long term exchange rate of ~1.5$ per £ for ease)

        £2.5 Property/council tax
        £3.5 Utilities – gas water electric mobile broadband skyTV Netflix
        £1.2 Insurance Vehicles, house
        £7.0 Depreciation on vehicles, road tax, MOT, service
        £3. Fuel for vehicles (130 pence/litre)
        £1. Home repairs (not improvements)
        £0. Medical insurance/costs

        £5 Home food and drinks ( 2 people)
        £6 Entertainment /Eating out/gym
        £15 Travelling/Holidays/Trips
        £2 Xmas/birthdays
        £14 other
        £60k Total (35 discretionary)

        So £2.5m assuming 3% plus house cost.

        Children have left home, almost no support!


    4. Thanks for sharing. Why do you say $6M+ in the bank? Is that b/c that’s what J&L have?

      It’s interesting, but I’ve NEVER thought about it being painful to not get my wife the finest XYZ b/c we have money. It’s probably b/c she thrifty and hardly ever shops or wants anything.

      I can see how I’ll be spending whatever on my kid. But the costs don’t seem that expensive overall… and the cost for activities I’m all for.

      1. Sam,

        The 8.6 million figure is what I’ve calculated independently in the recent past. Yes it has a lot of built in cushio, but better safe than sorry.

        I’m a bit confused about the comments of spending for your wife and children. Didn’t think I mentioned those. Those are personal and I pass no judgement on other people’s spending habits. I am fortunate though that my wife is not a big spender, and we don’t like to spend on everything ‘nice’ for our children. Yes we pick and choose some extracurriculars, and that stuff can get expensive. Spending time with our children is the highest priority, and we can teach them something ourselves we’d rather do that than hire a professional.

      2. $6M+ was referring to J&L. Environment is likely a factor. San Francisco is a pretty laid back city (or at least it was five years ago when I lived there). The hippies and techies are not very materialistic. One of SF’s good qualities. My wife and I now live in a much more materialistic city in an upscale building. My wife is cool, but she is still a girl’s girl. She notices nice handbags, fancy shoes, etc. Hopefully this doesn’t come off as too sexist, but women can be pretty mean sometimes. Some (likely insecure) women will make a point to make other women feel bad when they are not as “trendy.” It’s like high school never ended. On the flip side, my wife and I like living in a city and I like the security that comes with the building we live in. It’s also in a nice part of the city, which in turn makes it safer. We also have numerous amenities that are important to us. It’s obviously a “first world problem,” but I don’t like the idea of my wife feeling bad or being made to feel bad. Particularly when we can very comfortably afford to live the same lifestyle as others around us. I’ve simply chosen to spend our extra money on traveling the world, which we do extensively. I’m also very concerned with lifestyle inflation. So I do my best to keep things in check. It isn’t always as easy as some make it sound though when you factor in the desires of others that you love.

        With kids, in my opinion, it is much worse. They are defenseless on many levels (my wife is most certainly not). Sure, you can send your kid to a public school and let him or her blend in just fine with a FIRE lifestyle. But, try sending that kid to a fancy private school in Walmart clothes. If your kid is a girl, and you try that, the scars will run deep even later in life. Kids can be very cruel. You’ve essentially set your kid up to fail in my opinion. But, the alternative, is for your child to get a lesser education and have less advantages when it comes to getting into a great college. Everything is cheap when the kid is 3. It is much more complex when they are 10 or 16.

        I suppose my point is that these “theoretical budgets” are interesting. They also work great when your kid is 3. It is also a great idea to have a 529 plan with a million dollars in it for college. But, J&L might want to put some thought into what comes between 3 years old and 18 when the kid leaves for college. Personally, (and I suspect I may be alone on this one) I think it is selfish for J&L to retire and live off this budget when they have the capacity to do much more and still spend tons of time with their kid. They can provide a much better life for themselves and their child if they keep working. The premise is that the child will be better off if the parents have unlimited time to spend with him or her. I believe it is a faulty premise. I think it is a bad idea for the child and for the parents. Particularly the parents. Adults need their own identity. Life cannot revolve entirely around a child. It leads to suffocating the very thing you love most in the world. Plus, the child will grow up very quickly and soon want to spend time with their friends over the parents. The parents will feel “lost” when this happens even though this is exactly what should happen. They may have also destroyed their career prospects and done lasting damage to their self worth. Something you can’t get back very easily once it is gone.

        I’ve likely spent way too much time thinking about budgets, FI, etc. I also spend too much time reading FI blogs. The reoccurring theme I keep seeing over and over is that the authors (and commenters) are so dialed into the numbers they lose track of reality. Then often times they wonder why the “plan” didn’t work or they are not as happy as they thought they would be. I wondered the same in early FI. My conclusion is folks forget to factor in life and all of its wonderful complexities. Start adding those factors to the budget and you may find that you end up with a very different plan, but one that actually works and leads to greater happiness.

        With that said, to each his or her own. If this works for J&L, and they are happy, they should keep doing it. I just believe they might actually be happier in the long run, ironically, if they weren’t quite so focused. 6M+ in the bank buys a truly amazing life, beyond the hopes and dreams of 99% of others in this world. This budget and the life it appears to offer is average at best and kind of depressing to be honest when you consider what it could look like if both parents worked at least a little.

        P.S. It might be that your wife wants more than you think, but she loves you and wants to support you in your FI goals. Her desire to make you happy may easily outweigh her desire to spend money. Took me awhile to figure that one out. Doesn’t necessarily mean she wouldn’t prefer the finer things in life if she genuinely believed it wouldn’t bother you. Could also be she is wired exactly like you. In that case, congrats on winning the spouse lottery. :)

        1. B – you are a very good writer, just like Sam, and I feel like I have a lot in common with you. I agree with you on considering excessive attention given to kids, having your own identity and self worth and letting your wife and kids have theirs, considering your wife’s and your kids’ material wants/needs, and the over-analysis and theoretical nature of these budgets that seem perfectly reasonable to all us (very nice job Sam with your research as usual) but leave you wondering about the ‘life happens’ stuff and complexities. As a result many of us may choose to find something we actually enjoy doing (or perhaps have already being doing all along like in my case), dial it down a little with the hours and pressure, spend more time with family and continue building more income+wealth to keep up with unseen expenses in the future – not all of us are this lucky. Start a blog!

        2. I think B’s comment is one of the most exceptionally written of all the replies across all the articles on this website and that it deserves its own post and review. Lots of issues touched on that go beyond the numbers and are more about life and happiness, themes that are touched on in a variety of Sam’s other articles.

  59. We live in Silicon Valley and I would say these costs ring true. I do think there is optimization to be found here, but I would imagine J&L are in the same boat as us – track and adjust if needed. I will add that while HCOL areas do have incremental costs, housing is the big one. Handle that and you have a lot of flexibility. Only way to do that is to buy modestly and accept that a 3/2 ranch is enough, and keep your tax base low. In CA, prop 13 will help you long term.

    we did look at moving to TX several years back to have kids close to family. You can get a lot more house, but property tax is higher (higher % on less value house). Home insurance and utility bills are also much higher than SV. State income tax is 0%, versus 13% in CA, but no way could we make the same income.

    Biggest factors ended up being the weather and the diversity we had grown to love. Everyone has their own preferences, but wanted to note that these were real factors for us.

  60. Sam, I’d very interested in hearing Jerry’s logic for investing in a 529 plan when he has a net worth of $6.3 million. Could he not just set aside a lump sum from their existing portfolio and allow it to compound until their child reaches college age?

    Setting aside just $0.1 million at birth from their $6.3 million portfolio should compound to $250,000+ by age 18, which is more than enough for four years at even the most expensive private universities. This would reduce their annual expenses by $24,000 per year, meaning they’d need $600,000 less to retire on.

    Am I missing some sort of tax benefit that changes the math?

    1. Yes, you’re missing the opportunity to take advantage of the 529 plan’s tax deferral compounding over the next 17 years. Always take advantage of tax advantageous plans if you can.

      Also, high net worth investors often have long-term investments they want to buy and hold, or are illiquid.

      When you want to big huge wealth, you want to do so by increasing your wealth with NEW money, not rebalancing your wealth for different needs.

  61. Simple Money Man

    Very well laid out breakdown of expenses and scenarios. I live about 30 minutes north of Washington DC. I’ll say that there are pockets of towns and neighborhoods where a good deal can be found and you can still have a “city” type of lifestyle and be relatively close to a major city as well. These city/suburb developments offer many of the things (i.e., food options, activities and entertainment, diversity etc.) that big cities do and all with a “slower” pace of life.

  62. Your numbers are very persuasive for a high cost location. But for those of us blessed to have been born and have lived our lives in a low cost location, but were paid high level compensation, life is much less expensive. The most we ever spent in our lives, even putting three kids through college, was about $80,000 to $100,000 a year and our slightly early retired living expenses, no kids at home, is still about $100 k pretax or $80 post tax. Some years I made over four times that amount but it never impacted our spending. And that includes ritzy vacations like our hiking trip in Italy last week and our country club membership. It also covers $16K in health insurance, expensive long term care insurance and a lot of unnecessary term life insurance(because my wife likes having it). We have enough saved to easily generate $200k a year but it appears there is absolutely no way we could possibly spend that much since we spend on everything we want now. When family and friends are conveniently located in a low cost rural area I think you have an inherent advantage in the early retirement game, but of course that isn’t something you get to decide, that’s much more a matter of fate.

  63. Sam,

    I love reading FS and allows find extremely useful information in all of your posts but there are 2 issues I see with this analysis and this is coming from a father of an 18 month old living in a DC suburb with one stay at home parent:

    1. The childcare cost seems pretty exorbitant considering the parents are both stay at home. My wife and I have not paid a dime for childcare, mainly because we want to be the ones raising our daughter and are fortunate enough to have the opportunity to do so with my wife staying at home. Additionally, we both recognize that in the DMV, childcare costs can often equal the salary of a part time job (roughly $2400 per month) and therefore have decided that being a stay at home parent is the equivalent to earning roughly $30000 tax free.

    2. The monthly food budget is crazy high. I know that trying to cook while having a young child to watch can be quite hectic but in my experience, it is not unreasonable to cook at least 5 days a week with the occasional take out or delivery meal. And before anyone jumps all over me for that statement, just know that I am the one who does all of the cooking in my family and that is in addition to working 40+ hours each week. Currently, my wife and I are spending close to half of what this analysis says and that still allows for almost $250 a week in food costs.

    Finally, I think that the “landscaping” cost for as 3 bed/2ba house should be nowhere near 150 month simply because the yard size can’t possibly require that kind of maintenance. I understand that some people might be “yard-work averse” but that seems like a very impractical expense at a cost of 1800 per year.

    All that being said, I appreciate all of the information you provide Sam! Keep up the great work!

    1. Hi Fire Dad, can you elaborate more on how you and your partner split child care? Are you a stay at home dad too?

      Because both my wife and I are stay at home parents, and it is still a lot of work for both of us. Perhaps it’s because I still spend time writing, commenting etc on FS.


      1. Sam,

        I still work full time in addition to running a side business at home. My wife and I just split the duties while we are both at home during the evenings and on the weekends. I have even begun involving my daughter in my entrepreneurial ventures by taking her along when I work on my business on the weekends.

        Parenting certainly is a lot of work and I readily admit that my wife takes on the lion’s share of that work during the week but when we are both home, it’s a pretty even split since we view parenting as a team sport.


        FIRE Dad

  64. Sorry I know you run a business and these articles are more or less designed as click bait and I can respect that but I live in the peninsula just south of SF, literally smack dab in the middle of the 4 most expensive zip codes in the country. More expensive than sf, more expensive than anywhere in southern california, and more expensive than ny. My wife and I own property and pay a mortgage, we have 2 new cars we are paying for (subaru and prius) and still paying off my wifes student loans. We live life to the fullest doing whatever we want and our annual spending budget is right around 90k/yr. This will drop to 65-70k once the cars and student loans are paid for. For us to spend more than this it would require us to buy $20 bottle of wine at the grocery store instead of $10-12 and go to nice restaurants everytime we eat out instead of mid level, etc. I mean honestly we’d have to spend money just to spend it. These people are crazy to think they need to spend so much. That being said both me and my wife paid 100% of our own way thru school and plan to have our kids do the same. I just dont get why people spoil their kids and call it a mandatory expense.

    1. Hi Sean, this is great. Can you share your budget? Specifically, your cost of housing, healthcare costs, and kid expenses.

      When did you guys retire and at what age?

      Maybe I can learn some money saving strategies from you since we are neighbors.

      BTW: Any recommendations for alternative titles? Always interested in suggestions as there’s only so much space you can put in a headline.


      1. Sorry after rereading my comment I can see it sounds way more aggressive than I wanted it to.

        Our cost of housing is 2900/mo which includes taxes, hoa and mortgage, we only owe another $600k and currently paying an interest only loan as I prefer the principle payment portion to be invested in equity markets instead of our place. Our healthcare costs are a rounding error and not even worth mentioning, we are both healthy young 30s. We dont have any kids yet but anticipating an additional $2k/mo spend since wife will be stay at home which would bring our annual budget back up to 90k or so.

        We arent retired yet, but I see what you did there. Kudos. We are 31 and worth ~$1m.

        I dont think you need money saving tips, your net worth is multiples higher than ours and your larger spending is justified. IE we bought a forester and I believe you bought an x5? Nothing wrong with that.

        Your title is perfect and I didnt mean to throw shade. You run a business and that would be like telling a toy company to use dark packaging instead of bright packaging, nothing wrong with it. The only issue I have is not with you, it’s with people that spend 200k a year and say thats the minimum to live a middle class lifestyle. Let’s call a spade a spade and admit they’re living an above middle class lifestyle.

        I obviously love the work you’re doing here and look up to you and what you’ve done and hope I can do something similar with my life, so again I’m sorry for the initial aggressive tone to my first post.

        1. It’s OK. I encounter aggressive people all the time online and sometimes off-line. I used to also get into some serious fist fights growing up to defend my honor.

          Now, I just want to learn different perspectives. Maybe your perspective can help other people who are in your similar situation.

          One thing you wrote that is of particular interest is health care cost. You say your cost is small and a rounding error. How would you suggest a family who does not have an employer also have a small health care cost while also generating enough income to provide for a family?

          Do you have a health insurance company that charges less premium based on your health? If so, can you give me their name because my wife and I are pretty healthy as well, but the way the American healthcare system is set up, the healthy and those who make over 400% the poverty rate are the ones subsidizing the less healthy and the less wealthy.

          Saving us money on health care cost would be much appreciated! And of course, I’ll write a post about it.

        2. So you don’t have kids and you’re not retired, yet you’re trying to tell people with kids how little they cost, and people who are retired how they should spend their money and feel? Am I living in the twilight zone?

          The reason why your health care cost is so cheap is because your employer is paying for it dummy. Do you really not understand that if you don’t have a job you have to pay for it yourself?

          1. Wow I see your reading comprehension skills are negligible. At no point did I ever tell someone who is retired how to live their life. All I was simply trying to say was I think it’s important for us to distinguish the difference between middle class (my family, with a much smaller annual spend) and upper class. Health insurance is 18k a year if not working. So you’re saying 2 kids will add 80k to our annual budget in order to maintain our actual middle class lifestyle? You sound like someone trying to justify your outrageous lifestyle and attacking me personally for reasons that make no sense. I’ll make it more clear for you: the family depicted here is not living middle class family life, which is ultimately the only point I was trying to make. I get the article isn’t even saying they’re middle class, but to say $5m isnt enough I assume that would mean for a middle class family. Otherwise we could say $50m isn’t enough (to hang with elites).

            1. Sean,

              First piece of advice – if you’re gonna dish it, you gotta take it. By your own admission, you’re abrasive so grow a thicker skin when facing a critic.

              Second, learn to objectively evaluate an opposing thought. I sense that you’re instinctively reacting to $5MM being outrageous and that Andy and Sam are way off base. For example, consider the following points:

              – You’re only paying interest on your mortgage. The missing principal payment is not considered a luxury by Mr/Mrs $5MM. That is just an investment decision. It does not equate to lifestyle creep. In fact, it’s considered the normative. This would add $20K a year ($600K/30 years) to your budget = $110K
              – You don’t have kids. This is a valid point. Kids are very expensive – I know because I had one two years ago and I see how my budget has exploded. Easily $2K more a month between the years of childcare, private school, college, etc. Another $24K + $110K = $134K
              – Then, again by your own admission, you have sponsored healthcare which adds another $20K taking your budget up to $154K.
              – Some counterpoints are that your car payment is factored in for now and may come off in the future. Well that depends on how long you decide to keep it and what your financing structure is. Unfortunately I don’t have that information so it’s only safe to keep it as is.

              Now, assuming you’re a law abiding citizen who contributes to their taxes, that’s an income of $190K+ annually. At a 4% drawdown which is considered conservative you need $4.8MM+.

              There are still ways to save money for sure but just consider that you’re not far off from living at the SAME level as Mr/Mrs 5MM.

              Moral of the story:

              “Take the plank out of your own eye before you remove the speck from your brothers”

            2. Sean,

              Kids are very expensive! My kids played premium soccer and the cost $5000/yr plus expenses to travel to various tournament from U10 – U16. You may ask why they should play club soccer. The reason is if they do not, they may not be able to play at high school varsity teams. This is almost the “have-to” have expenses.

              How about college expenses? My nephew is going to Boston College. The total cost for 4 years is expected to be $400,000 plus other misc expenditure. If you have two kids, that is $ 1 M right up there.

              You may ask why not public university. Since Sam and you live CA, UCB and UCLA are very good schools. But they are no longer that cheap anymore, isn’t it?


            3. Sean,

              Their expenses spent on kids will only GO UP! You want your kids to play varsity tennis in high school? How about private lesson? Going rate in New England $100 – $120/hr. Semi-private $70 – $80/hr. You figure.

      2. Ya, I’d be interested in that budget too! This budget overall is right where my budget is at in early retirement, although allocations are different. For example, my food costs are at 1,000 a month for a family of three, my gym membership is 130, I don’t have a mortgage, and my property taxes are lower (bought early). But I spend way more on travel and vacations. And my healthcare costs are way higher as this budget has 0 for dental and routine vision care and doesn’t account for copays. I only have the Silver plan. I think in almost all cases, the lowest cost plans are more cost-effective overall than the platinum, since there is a max out of pocket that limits your expenses. Platinum would have cost me more than 30,000 a year, so not sure the number given in this budget is accurate.

  65. I have a read a few of these posts you have done and I find it eye opening and also wonder if it is all real or there is some poetic license built in to get a reaction? Everyone leads their life the way want to and spends money on what’s important, but it’s hard not to be judgey when some of the expenses and “analysis” makes your eyes pop out. Does this couple really want to make changes? I have been a Stay at Home parent with my first child and a working parent when my second was born, yes it’s ALL hard, but you move forward and do it, knowing it all goes by very quickly. So, where can they cut the fat? $850 for a babysitter? Yes, everyone needs time off, so swap with your spouse. Time for just the two of you? Find some friends to swap once a week in watching each others kids. Food at $1800 and a good amount is spent on delivery? Learn to cook, even simple meals, teach yourself and your child the importance of learning how to take care of yourself in a healthy manner. For all of the early retirees with young kids – would love to track them and have a follow up in 5 year increments to see how things actually materialized. Wish them the best, hoping their combined brainpower can help the figure out how to make it work!

    1. Totally agree with you! I stayed home and now my kids are teenagers. You need to cut costs and stick around the house to make sure your kids are behaving. Personally…I would not want to raise kids in LA…just sayin’….it seems kids grow up too fast there.

    2. I think the big difference between you and them is that you seem to have always had one spouse working. That provides a lot of security.

      Even with all their expenses, they are still in the green. And if they go over, they can cut back. It’s not a static budget.

  66. I thought you were pretty conservative on everything but the food budget for a HCOL area (all the food delivery does seem silly with two stay at home parents). Child expenses are going to go up a lot in the next few years, even for just one child, because this couple is clearly high achieving or they wouldn’t have a $5m net worth, and they’ll want to give their kid the best chance in life. 9 hours of babysitting a week so they can go on a weekly date night and pursue a hobby or sport of their own hardly seems out of line. I would conclude that unless they want to move to somewhere more affordable, they should probably be doing some consulting, especially if a second child is a possibility. I guess $5m just isn’t what it used to be! In the meantime, I’ll keep plugging away at my day job.

  67. Great title as always but there’s no way in hell you can get a $1.3m 3 bed house at edge of sm in today’s market! Probably closer to $1.8-2 mil and will be extremely competitive bc of the good school districts in sm and wla.

    If you want to buy in that range/size, you gotta come live with the poor folk like me in picfair village :)

  68. Interesting post Sam, I’m glad I live in a LCOL area. One note: I’m pretty sure the effective federal rate on passive income would be much less than 15%. Earned income of $200,000 would produce an effective federal tax rate of approximately 15% for 2018, but long-term capital gains and qualified dividends have very favorable rates when compared to income. There isn’t a breakdown of passive income sources, so it’s hard to estimate, but unless all of the passive income counts as earned income (poor decision) the tax expense should be much lower.

  69. Recovering Engineer

    That’s a pretty tight budget without much room for unforeseen expenses. They really should be thinking about allocating money for home repairs as well since I’m assuming they are in an older home. I am jealous of their property taxes though. That’s one area where CA has NY beat. My house is assessed for less than theirs and my property taxes are 75% higher!

      1. You are lucky! Here in Connecticut, we pay 2% property tax plus 6% state income tax. It is just expensive!

        1. Recovering Engineer

          Agreed. I’m paying ~2.5% in New York and there are other villages nearby that are 3% or so in property taxes plus the 6% income tax. It is almost as if the state governments are trying everything in their power to incentivize successful people with money to leave the state.

  70. “They could move to a lower cost area of the country, but they’d rather stay warm all year round, rather than face brutal Midwest winters. Further, as a Latino (Jerry) and Asian (Linda) family with a mixed-race daughter, they prefer the diversity of LA that can only be matched by even more expensive places like New York City or San Francisco. This feeling of comfort is underestimated by the majority.”

    The argument of “We like it here you wouldn’t understand” could be a little myopic.
    What about the millions of people that happily live in diverse areas that are not the the High COL mentioned above?

    In the interest of being thorough, Why not go over what it would take to retire in a lower cost of living area? (Dallas, Atlanta, Kansas City, Phoenix, Nashville, Orlando, ETC)
    There are plenty of areas throughout the US with 3M populations where it is very cheap to live well.

    1. Takes time to profile different folks. I think this article may have taken 10 hours to write as I had to also put together the chart.

      If youd like to volunteer a guest post with your numbers, city, story etc to fill out these cities, let me know.

  71. That’s lifestyle inflation for ya. They’re used to living on a high budget and don’t want to cut back. Lots of people live for a lot less in the LA area. Santa Monica is very expensive. If they move an hour inland, their COL would be a lot cheaper.
    Childcare is temporary unless they’re going to send the kid to private school.
    $300/m for a health club is pretty steep, but I can understand. At my kid’s soccer practice, most of the parents are in a high-class health club like that. The initiation fee is $12,000 and the membership fee is around $300/m. You don’t want to hang out with poor people when you’re rich.

  72. Sabbaticalia

    Another thought on the budget: simply pay off the mortgage with lower-yielding investments, especially those with harvestable tax losses. With their draw at 4%, moving $700k from investments to equity means after-tax income -$21k/y (plus one-time capital gains tax hit if any) but expenses -$39k/y, freeing up $1500/mo with no lifestyle change at all. There’s the buffer for a second child, drawn-out stock market blahs, and/or building up against child health issues or parent health issues.

    Seems, to me, like the largest of the low-hanging fruit available to consider.

    1. That’s definitely a good idea. But when neither parent has a job, departing with 700,000 in investments or cash becomes a little bit more difficult. But it does make sense. They would have to pay off their entire mortgage to have that cash flow generation and not just part of it.

      With the stock market in real estate market the way it is now, paying down debt sounds better and better.

      1. Recovering Engineer

        I think people are misunderstanding the 4% rule. You don’t withdraw 4% because your portfolio earns only 4% per year. In the MEDIAN case using the 4% rule you end up with double your principal 30 years later, only in the absolutely worst case in history do you end up spending down all of your money at a 4% withdrawal rate.

        If they pay off the house now they immediately free up that cash flow but they are sacrificing the investment returns on that $700,000 in perpetuity. Even with a conservative 50/50 portfolio you would historically have earned 8.3% per year. Compound that over the 20 years or so they probably have left on the mortgage and your $700k becomes $3.45M. You are giving up $2.75M in investment gains to save $360k in monthly payments over 20 years.

      2. Sabbaticalia

        True, “when neither parent has a job, departing with 700,000 in investments or cash becomes a little bit more difficult”. 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”. That’s why I said “available to consider”.

        It’s still low-hanging fruit: shuffle ~$700k on the balance sheet (from equities to equity, as it were :-), 14% of taxable portfolio modulo capital-gains taxes; this converts break-even on $13.5k/mo expenses (0% saving rate) to netting +$1500/mo on $10k/mo expenses (15% saving rate); it adds buffer for desired second-child and feared potential parent-care; the household becomes debt-free, an underappreciated status; and it makes no other effect on an existing but young and unoptimized FI situation.

        Other optimizations, yet to be chosen and implemented, would add to the saving rate, and thus the buffer against negative impacts they cannot control (but can mitigate). Addressing the most expensive line items and the “usual suspects” garnered me 25-35% expense reductions at each move; I think they could get that easily too.

  73. Hi – I think this couple can pull it off for the following reasons, especially if they’re agreeing that this is an experiment until their daughter turns ~4 and then they’ll reassess their situation.

    – the 4% rule is a guide, not a law. If they’re experimenting with this new lifestyle for only a few years, they can afford to draw down 4, 5, even 6% per year from their principle and only lose a very small portion of their actual net worth
    – real estate in Santa Monica – this Home is well below market value and while it may not appreciate at the rates we have seen, a very conservative 3% appreciation rate per year is still a reasonable expectation. Fast forward 4 years and $1.3m growing at 3% would be $1.45m. And note that this is an assessed value – market rate could be much higher, but likely won’t be much lower.
    – $700k in retirement accounts – this account should not grow at only 4% per year. The couple is still young and can easily invest this in a moderately aggressive portfolio for 20 years (or longer depending on how their post-tax money performs during that time) – a 6% return on the $700k should see balance grow to $2m+ by year 21.

    They’ve chosen a HCOL location and will need to stay disciplined on their spending – and also be realistic that market performance will fluctuate over time. But they’ve already worked for a combined ~40 years and have amassed a good chunk of money. If they want to take a calculated risk and are committed to reassessing their plan in 3-4 years – then I’m confident they can afford to make this work.

    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?

    1. In my post, I wrote they can easily earn $100 an hour doing part-time consulting. They can probably charge closer to $200 an hour. Just check out Upwork.The freelance opportunities are endless.

      At one point in 2014, I was freelancing with three companies for a total of $30,000 a month. I think people underestimate the huge trend towards freelancing.

    2. Some of the commenters have correctly stated that this couple will have never enough. The budget is filled of random ideas that they don’t spend much on the clothes, vacation but have 1800 dollars for food. Also, just one of the classes for child will be $100 and not all.

      What happens to this budget once child/children turns 5? 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. If I were them, I would not worry about putting $2k on the education every month. They can use this 800 dollars*12 months* 12 year from age 6 and will have ~120 k cash. This should easily fund 2 years of education with appreciation. One can always pay 3 rd and 4 th year with your investment gains, loan and $800*4*12~40k during college.
      Also, you have to take out the mortgage from the monthly budget equation. It is unnecessarily increasing expenses or they can pay off 700k mortgage.
      Removing just these two expenses of $5200 will reduce their expenses to $8300 and reduce the taxes ~1000. This bring the total monthly expense to ~10400. @ 4% withdrawal, this couple need 2.6 mil + 700 k or 3.3 Mil. Once you have 2 million and a home paid, possibilities are endless.
      So enjoy your good luck.

      1. Except that when their child turns to 5, he/she will need to take all kinds of classes (music, sports etc). That adds up!

  74. With all due respect, this article leaves a lot to be desired. Why do they need 2 million life insurance when they have 6 million in the bank? Why do they need to pay into a 529 plan when they have 6 million in the bank? Why do they need to pay a mortgage at 3.75% when they can pay off the loan? California weather is great but they still need a 300 a month health club? They want to spend more time with there kid so they order food delivery, but they need to pay for daycare to keep there sanity!?! And the picture of the house, if that is how there lawn looks and they are paying 2000 a year for lawn care for that? LOL, ok.

    1. Yep, however you look at it the whole post was full of ridiculously high figures and contradictions in the reasons for justifying certain expenditures.

    2. 1) To generate a rate of return greater than the risk free right, you don’t have most of that money in the bank. You have that money and investments.

      2) their mortgage rate is low compared to the risk-free return now. Having liquidity is important in retirement.

      3) Yes, getting 10 hours or so of help a week is good for a relationship. How many hours a week do you spend taking care of your kids?

      1. I take exception to your point #2. If their “nest egg” is to last a lifetime, I would suggest caution when borrowing money for a mortgage and investing that capital in the market. It might not seem risky in the midst of a 10 year bull market. However, if you have a large mortgage ($700 k), and the market goes down 20% you lose $140K. Leverage can be dangerous . I know you might counter that the market will go back up and they are long term investors. Two examples – look at the Japanese NIKKEI hit an all time high in 1989 (38,957) and is now at 22,000 level. Second example is Dow Jones first finished above 1,000 in 1972 and then didn’t permanently stay about 1,000 until 1982. Point is sequence of returns matter and market sometimes goes sideways for long stretches. More prudent to pay off 3.75% + PMI. Lock in risk free return and they will still have lots of capital to risk

    3. David, you are spot on. They can easily free up thousands in cashflow per year with your recommendations. Plus, the new tax rules would provide for $2k in child tax credit. At minimum, here is what they can do:

      Life insurance +$1,560
      529 plan +$24,000
      Mortgage pmt +$38,904
      Child tax credit +$2,000
      Total = $66,464

      Their income would go down due to paying off the mortgage: $5mm – 700k = $4.3mm. 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).

      $133,120 (new after-tax annual income) – $154,400 (old after-tax annual income) + $66,464 (cash flow savings) = $45,184 increase in annual cash flow

      1. Child tax credit! Awesome $2,000 find!

        “The beginning credit phaseout for the child tax credit increases in 2018 to $200,000 ($400,000 for joint filers). The phaseout also applies to the new $500 credit for other dependents.”

        This will be a new one for those doing their 2018 taxes in 2019 since the income threshold was much lower in the past. Right on. I knew I’d find actionable stuff in their budget.

        I, personally, would not remove their term life insurance. It’s inexpensive and with a daughter to raise, no way.

        What’s your situation?

        Related: How Much Life Insurance Needs When Having A Baby

        1. Sam, life insurance is used for replacing your future earned income in the event you pass away unexpectedly. In this situation, both parents retired and the $5mm (or $4.3mm in my scenario) after-tax funds are already in the bank. Therefore, there is no need for life insurance because the money is there. Do you agree?

          I am 36 year old, my wife is 29 and we have a 6 month old baby. We live in a LCOL city with no state income tax and I earn $220k (my wife stays at home with the baby and will likely continue to do so for now). Roughly 20% of my income goes to taxes, 30% goes to living expenses and 50% goes to increasing our net worth (including 401k, unspent HSA contributions and the equity portion of mortgage payments). We have a balanced life — I work 40-45 hours/week, we have a monthly housekeeper, we eat out 1-2 times per week and go on multiple vacations per year — but we also watch our spending. We have a new vehicle (with the latest safety features for the baby) and an 11-year old vehicle. We live in a $400k 2,300 sq. ft house with $120k in equity. I started earning a decent income 6 years ago when I received an MBA from a top-ranked b-school so my net worth of ~$500k is small given my current income & savings rate, but growing. My goal is to retire by age 45 with $2.5 million net worth.

          I have a significant amount of cash patiently waiting to take advantage of the next downturn, which I feel is coming soon.

          1. I don’t agree in this case because their policy is very cheap. And they’ve had it for at least seven years, With 13 years left to go. The older they get, and now that they have a daughter, the better “value” the policy is for the set premium.

            Glad things are going well for you. I hope you guys bought some life insurance.

    1. I live in the nicest area of Columbus (in my opinion at least). Our spending budget is $7k/month or $84k/year. We have a mortgage, buy organic groceries, go to nice restaurants, have health club memberships, and go on multiple overseas vacations/cruises each year.

      1. Cool. So that’s 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.

        How many kids do you have and how much are you spending/saving for them?


        1. I have 2 kids (ages 4 years and 6 months), and that $7k/month budget includes everything related to the kids apart from college savings. If needed, we could cut that down to $5k/month and live really well (but without the nice vacations).

          We save an additional $36k/year, and $6k of that is college savings. That seems adequate to me over an 18 year investment time frame.

          1. Good stuff. Do you have $2.8M in after-tax investments to support your lifestyle, and would you dare retire now to spend more time with your kids if you did?

            I found it’s one thing to accumulate a lot of money, and it’s another thing to decide to no longer keep accumulating a lot of money. Everybody’s got to come to a decision on how much is enough. The more money you make, I think the harder it is to quit or negotiate a severance.

            1. Yes, I retired early and am a full time dad. The only “work” that we do is maybe 1-2 days a week depending. It’s to stay busy and keep social connections, and isn’t included in the spending budget.

              A lot of the framework came from this site.

            2. I agree. The more money you make the harder it is to quit and say enough is enough. I’m recently retired in my early 50’s but my wife is still working because we still have our youngest at home for another 4 years before she’s off to college. My wife’s logic is our daughter is gone each day from 7:30 until about 5:00 pm(after school sports/clubs) so she might as well work full time. The passive income off of our nest egg will keep us easily in the top 1% of income earners for the rest of our lives but my wife is not yet comfortable with retirement.

  75. I think your post highlights that if the plan is to retire in the next 20 years, a goal of 10 million is probably a safer bet.

    The cost of healthcare is easily my biggest concern once I retire. Without moving to more of a socialist style medical system, I imagine the costs will only increase. Even with healthcare basics taken care of by the government, you’re still going to want a cash horde available to see specialists when required.

    My parents live overseas and this is the way it works for them. Pretty much for anything investigative that requires a specialist requires out of pocket expenditure. You’ll probably die before your turn in the queue if you rely on only the government option.

  76. I have to be honest. I believe your vision is clouded here by living in one of the three hubs in the US with the highest cost of living. I live in a blue zone and my costs don’t begin to compare to someone who lives in San Fran or LA. We joke to move to California from the east coast outside New York City you’d need to double income. While there certainly are reasons for you to stay in California, in the vast majority of the US your costs are fantasy land. You don’t need to move to Iowa.

    1. I have to agree. I also live in a blue zone, so its not like I’m in the middle of Iowa. My costs are nowhere NEAR what you experience in San Fran or LA.

      I think there needs to be a post for San Fran/LA/New York, and then ‘Everyone else in the Blue zone’.

      My house is in a blue zone, about 20 minutes driving to a fairly large midwestern city, and is worth about $400k. Looking at that house in Santa Monica, my house would be about $3 million there. It’s just a completely different world….

      1. If you own a $400,000 house, then perhaps you don’t live in a high cost of living area.

        What do your expenses look like?

      2. Yet there are a lot of people living in expensive cities, so it has utility on its own. Common conversation in Manhattan is how much you need to retire comfortable in Manhattan. Roughly most people seem to agree upon a minimum of at least $10m to $20m. This is inline with that idea.

        What many people are missing is that if you are the type of person that can earn $500k/yr at 28 and $1m/yr at 35 and can actually save $5m by 40, you will probably have slightly different expenses/lifestyle/mindset than people making less than $300k/yr.

          1. Disagree.

            NYC has vastly better public schools, you don’t need a car, and housing is actually cheaper than SF. There are nice 2 bedroom rentals in decent areas for 2500 a month, and you can easily buy in the Bronx or Queens for 500k for plenty of space. Museums and cultural activities are often cheap/free. I would say the biggest expense is childcare, but that only lasts a few years.

            Don’t knock NYC publics. I am a doc who attended (not that I would recommend medicine to anyone), and among my fellow public school buddies I count a world-famous novelist, multiple physicians and lawyers, several Wall Street types, a couple of Broadway directors, and two Emmy winners.

            If you want your kid to attend private school (pointless in NYC IMHO), join a club, and live in an UES penthouse, sure you’ll need more.

            I’m afraid you sound like Suze Orman here- many people raise kids on far, far less in NYC, and their kids do great.

            1. How am I knocking public schools in my short comment? I think there are some great public schools in Manhattan and NYC, and my newphew goes to one that’s ranked top 25 in the country.

              I’m talking specifically Manhattan, not all of NYC compared to SF. You really think Manhattan is cheaper than SF? Property in Manhattan can easily go for $2,000-$4,000 / foot, whereas in SF it’s more like $1,000-$1,500/sqft for similar quality and location. Go do some research and let me know about Manhattan property prices, food, etc and let me know.

              Btw, what does Suze Orman sound like? And this is all from me agreeing with the commenter’s $10M statement?

              Tell us about your family situation, financials, and current status as a laborer or retiree.

              See: https://www.financialsamurai.com/how-do-people-to-live-a-comfortable-life-making-less-than-100000-in-expensive-cities-like-new-york/

            2. You’re crazy, or seriously misinformed if you think Manhattan is cheaper than SF.

              As someone who owns property in both cities, it’s not even close. Manhattan is at least 30% more expensive than San Francisco. Queens is still cheap, but we’re talking Manhattan.

              You’re clearly projecting your own thoughts and insecurities.

          2. Agreed buying in Manhattan is insane.

            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. I haven’t lived in SF, but rentals there seem MUCH more expensive. There are also lots of 2 bedrooms for well under a million, but I agree that’s pricey.

            I think what’s cheaper in Manhattan is not needing a car, better schools than SF, and somewhat cheaper rentals. YMMV.

            1. I live in a 1 bdrm that is $5,500. 2 bdrms in the building start at $8k.

              Not sure what neighborhoods you are talking about. I think you are talking about non-prime neighborhoods, which is an entirely different conversation than most people with $10m talk about.

              Also, where in midtown or downtown are 2 bdrms for well under a million? I’ve been investing in RE for a while, this is not true at all. A reasonable 2 bdrm in the village, Tribeca, midtown, UES/UWS is going for about $1k-$2k/sq ft, for non-prime properties. 1,500 sq ft with a small balcony or shared rooftop, 2 bdrm, 2 ba, you are definitely looking at $2-3m minimum, on the higher end with a doorman.

              I think rough rule of thumb – you need about $10k/mo per person in Manhattan. Parents and 1 kid, budget $30k/mo after tax.

            2. So, I would NEVER buy in Tribeca, or anywhere downtown, or much of the East Side because it’s in a flood zone and I like to live above water. Some people like those neighborhoods, but I like to stay dry! If you read climate and real estate projections, the future of Manhattan is north and west.

              I personally prefer Upper Manhattan as it’s hillier, more diverse, has more parks, and is closer to the Hudson Valley; there are plenty of apartments listed for rent and for sale at the numbers I quoted. I have lived in and enjoyed those neighborhoods. Others may want a less diverse area or feel the need to keep up with the Joneses. Sure, you can spend 100k a month to live in Manhattan. You can spend an infinite amount of money anywhere. But you don’t have to.

              While I live elsewhere now, I don’t know anyone in Manhattan paying 10 or 30k a month to live. And they are pretty happy.

              If people want to spend 30k a month and shell out for private school and a doorman, fancy restaurants, and private clubs, sure, they can do that. But some of us are into diversity, art, music, parks, museums, and TKTS theater. And that’s not so pricey.

        1. I definitely agree the post is useful to some highly populated areas of the country. If you live there leaving is also a high bar. I get it. Just noting it covers a lot less of the blue zones then Sam indicated. Cities like Boston, Philadelphia, And DC are clearly blue on the map but from personal experience not in the same price league as SF.

            1. Philly is pricey for families because the schools are really, really bad. Private is pretty much obligatory.

  77. One other comment – this couple, with their combined income, were high earners. Because of this and their savings rate they could both retire early. The big factor in the scenario you have painted is that they only have 1 child to support. Throw in one or two more children and I think with college expenses at a high priced private school, their financial picture begins to look a bit less rosy. Not sure if financial aid would be a factor or not but having one child basically enables this lifestyle.

    1. Yes, I mention the “concern” of having a second child towards the end, which would increase their costs by perhaps $20K/year.

      But the couple is older now, and it’s unlikely a 2nd child will come.

  78. Hi Sam, it is really funny how close this family is to mine (our daughter is 9 months old and I am the one with ocular albinism) but the major difference is that we live in a low cost of living area and are about 4 years younger. It really shocked me how even though the couple out-earned us by about 3x while working, we still live a very similar (actually better) lifestyle. Would you ever be interested in seeing what the budget looks like for a 1 income (pharmacist) family living in a LCoL area that has saved aggressively?

  79. You’re talking about 2 full time stay at home parents, with absolutely nothing else to do, spending 10% of their after tax income on “child care assistance” and food delivery………..that’s ridiculous when you say that $5 million is barely enough. If that’s the logic, then $500 million is barely enough after you factor in the private jet, yacht and household staff.

    1. Do you do the cooking? How many kids do you have?

      Somehow I’m guessing you are not a full-time dad.

      1. I’m not judging their lifestyle, just criticizing the framework for analyzing it. The main point is that there’s a big difference between “having barely enough” and choosing to spend all of your money.

        1. People like that will never have enough money. If they had $50 million, that wouldn’t be enough to support the lifestyle they’ve come to expect (lifestyle inflation). This whole article is insulting to the 99.99999% of people in the world who will never see that much money in five lifetimes.

          1. I agree with that sentiment. Most people will retire on far less even in these HCOL areas (look at median income in LA or SF), and more power to them! I think it’s quite discouraging to people who may never make this much to use these as average numbers.

        2. The missing equation you must share is what does your wife do? Does she stay at home or does she work?

          Where do you live is another huge factor.

          1. I’m not sure how that is the missing part of the equation in this thread. 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. You can ALWAYS find things that feel like absolute necessities if you look hard enough. It’s basic lifestyle inflation.

            It’s absolutely fine to spend all of your sustainable income in retirement, it’s completely up to you. If you have the cash and it’s important to you then go for it. But don’t claim that things are tight, or that you’re barely getting by, when you’re spending money on luxuries like this.

            (Also, what exactly do you and your wife do for work, finances, etc?)

    2. Joshua,

      Curious how you would title the article then? That is, what would you replace the 5 with in the statement: “Why $5 Million Is Barely Enough To Retire Early With A Family”?

      Also, what would the number be in a non-HCOL area… as in how low could the number go with reasonable comfort – ie without going full mr money mustache?


      1. If it was up to me (and it’s definitely not up to me), I would change the word “Why” to “When” in the title. I wouldn’t replace the 5, because that wasn’t the point I was trying to make in the original comment. The issue that I had with the original title (and the article) is that it implies these people are just making ends meet.

        Yes, it’s a HCOL area. But it’s also a very luxurious lifestyle that they’ve chosen. Like I said earlier in the thread, it’s 100% OK to spend all of your sustainable cash flow in retirement. But “Barely enough to retire” implies having just enough for the bare essentials. That’s obviously not the case here.

  80. Is that really what 1.3 million gets in Santa Monica?! What the heck, that’s a terrible deal!

    The most worrisome wild card besides health insurance would be elderly parents. Would love to hear an interview for Houston because I always thought Houston was pretty inexpensive compare to the coastal giants.

    1. Yes, I live in West LA near the SM border and that is about right. However, SM and WLA are very expensive even relation to the rest of Los Angeles because there are a lot of high paying jobs and it is hard to get to if you don’t live close on the Westside. In fact, SM has something like 2 jobs for every adult. That creates a lot of pressure on housing.

      If the couple was retired they’d do much better in other parts of LA since they are paying a premium for living close to all the big jobs when they don’t even work any longer.

    2. Also, the home pictured is actually a 5 unit apartment building. For $1.3M you can get a better looking, although not extravagent home.

  81. My only criticism of your budget is with the food spending. Two adults at home with just one child can’t cook from scratch most of the time and rely on takeout just a few times a week? Come on, they can easily slash this food budget by 40%. I was home with 3 kids and had a spouse who worked 60 hours a week or more and cooked almost everyday myself . The rest is pretty fair. And you don’t plug in for major home repairs – so there’s that to consider .

    I’m smelling Suze Orman lingering around this post!!

    1. The home maintenance and landscaping repairs are there and a line item. How much did you end up spending for food a month for your family? That’s great you have the capability to cook most of the meals and take care of three children. Seriously, that is a superpower.

      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? Did you have to cook all the meals out of necessity or Due to discipline and frugality.

      At least they don’t have housecleaning expenses!

      1. You are missing following items from budget
        Cell phone 100 Month
        Utilities 300 month
        Cable/Netflix 50 month
        Going out fun movies etc 100 month
        Donations to school/charity 50 month
        Toys hobbies for adults and kid 100 month
        This couple is delusional.

        1. The couple is delusional because they think they only need $5 million to retire when they haven’t even include all the expenses you just listed?

          Yeah, $8M is probably more reasonable.

      2. I saw the home maintenance and repairs line item; too low . But yeah, I cooked all meals while raising 3 kids, because I felt with my husband working so hard, it was THE LEAST I COULD DO TO HELP OUT WITH THE FAMILY, since I wasn’t earning a dime outside of the home. He is a doctor, made a good living, but I felt that I needed to contribute somehow. Did have cleaning help and the kids went to pre-school from age 3 on, so I did not have all 3 at home at once.

        1. I like the attitude! But you have done a lot by bearing the children, and being a homemaker is a full-time job and a damn hard one as well.

          this is why I’ve been struggling so much recently. I’m on a quest to generate more passive income, which means work is required. At the same time, I want to spend at least six hours with my boy during the day and evening. So I’ve got to find a balance.

          Days often start at 6 AM and don’t end until midnight. But I try to get a 30 minute to an hour nap after lunch when my boy is napping as well.

      3. Families can cook their own food while working. If this family can’t handle it while retired perhaps they should spend some money on some kind of time management class!

  82. It really is eye-opening what the numbers really turn out to be for someone living in a HCOL area, California especially with its additional incredibly progressive high income tax and expensive property tax due to the home value.

    As you pointed out there are some areas where the expenses could be trimmed (most notably the food delivery service) but even that doesn’t put that much a dent into the overall expenses. And for folks with more than 1 child in the above scenario you would actually be losing ground (or give up on 529 contributions all together).

    For me I’m happy with my LCOL area. It helped me get to where I am, but I do understand the appeal for living in HCOL area for some, especially if family is nearby.

    Look forward to seeing this series continue (need to add an expensive city in Hawaii as well to the mix)

  83. Do people really consider “greater diversity” as a factor for where they are choosing to live?

    1. This is a blindspot white people have when they say, “just move to the Midwest and save lots of money!“

      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.

      Plenty of people want to live healthier lifestyles with more cultural diversity.

      There is understandably also a lot of pushback against diversity if you are white because it takes away what you’ve always known.

      1. Can’t imagine how this would go over if a “white” person had made this statement… just sayin…

        And.. I am not white.

      2. Aaron DelSignore

        And vice versa Andrew. Everything is preference, there are other “diverse” places outside of Cali and New York. I think you need to tone down your “anti white”, racist, elitist, wanna be victim California mentality. Your hate and entitlement are beginning to “infect” great areas like Nevada now too.

      1. I am white and value diversity in a living environment. I don’t want to live in a place where everyone looks like me, thinks like me, etc. — it makes for a boring and sheltered life. I don’t think I am alone in this thinking.

    2. Yes, not just diversity of race, sexual orientation, etc, either. Diversity of thought, travel, differentiated industries, food, cultural options, hobbies, etc. I lived in the midwest most of my childhood. Almost the entire male the population spends its weekends watching sports. Live in NYC now and don’t have to deal with that, can find plenty of people doing interesting things outside of watching other men play sports because there is a diversity of viewpoints.

      A large amount of the increased real estate prices in places like Manhattan or SF are actually due to diversity. In my case, I’d rather pay $5k per month for a 1-bdrm in a large vibrant coastal city than live for free in the midwest.

    3. Oh yes, I love a mix. I am white female, live in Vancouver, Dutch-Russian descent, love our high Asian population plus all the others, whether visible or not. My friends and neighbours are from everywhere, some new immigrants or generations ago. Also, indigenous reserve very near me right in the middle of the city. Lucky me. It does make a difference to lifestyle to have a diverse outlooks and knowledge of the world. I love learning new customs and manners too.

    4. No, it’s inherently racist. Good people are good people, doesn’t matter the race. If the checklist for a good location includes summarizing the races of the people in the area then you definitely need to look in the mirror and figure out why you’re classifying by race at all. Is it because these people replying prefer to be around certain races of people over others? Obviously, yes. Is that the definition of racism? Also, yes.

    5. YES, that is a big part of why I live where I live!

      I used to live in Central Ohio where the #1 and #2 hobbies seem to be drinking and watching football. I don’t enjoy either of those activities.

      With greater diversity, you’re more likely to meet people who have interesting hobbies. More likely to meet people who were born in other countries and share their experiences and perspectives.

      Also, being non-white, you’re less like to get the “But where are you REALLY from?”, “Where did you learn to speak English?”- type questions. Because even the white people around here are used to more diversity.

      Not saying people from racially homogenous areas are inherently bad or racist. They were just raised where everyone looked the same, which is part of the problem

      1. Umm I’ve always lived in diverse areas and I get asked “where are you really from” by basically everyone all the time. This is not a homogenous white person thing.

    6. If you yourself were “racially diverse”, it could be a huge part of your decision where to live.

      Likewise, if all you needed was football, baseball, hockey, NASCAR, drag racing, 4×4 trucks, ATV’s, camping, hot dogs, cheeseburgers and beer to keep you happy there are lots of inexpensive places to live where you will be more than satisfied. Might not even have to leave your living room except to use the BBQ on the porch.

  84. Oooh get the popcorn on this one, I foresee a great comments section ;)

    I think the key here is the word “comfortably”, which you left out in the title after the word “early” but included at the end of the second paragraph. I’m not arguing with the numbers, I live outside of DC which is just as expensive. But there’s a spectrum of “living” in early retirement, depending on how ‘comfortable’ you want to be.

    1. 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. I’m 47, wife is 37, and our portfolio yield is 3.3%. I could stomach a 3.5% withdrawal rate but that is not enough to cover our household budget of $275k, which is quite frugal where we live in Fairfield County, and still have money for things like new furniture, rugs, refinish floors, landscaping projects etc. Until the kids are out of the house, I like to have $50k of flex money in the budget.

      People in the Midwest scoff at $275k as being frugal, but with real estate/ property taxes of $40k, health insurance of $30k and $25k on kids activities you can’t take a vacation or two or go out with friends on under $200k around here. I think a rich lifestyle is at least $500k household income, and $15-20mm in net worth if you want to retire rich. $5mm is bare minimum, $10mm you have some luxuries but still must watch the budget, $15mm you begin to move into the zone of a “rich” lifestyle, but in NYC it’s even higher, maybe $20mm…

      1. EightDigitFI

        I agree with this fully. Being a “Millionaire” was someone who was rich back in the day, but adjusting for inflation effects, a rich person (a “millionaire”) just after WWII, now equates to ~ $10Mil in today’s dollars.

        This level gives one the flexibility to “do what you want” in terms of traveling, eating out, nice cars, etc. without being excessively extravagant ( like no yachts and Rolls Royces).

        One might be able to retire comfortably on something far less (location being a key factor) but one really couldn’t consider themselves ‘rich’ or fully/completely financially independent until around this amount in my opinion…

          1. Is the goal simply to retire early, ie replace your w2 income with passive income? Or is the goal to be as WEALTHY as possible?

            If you’re shooting for $5mil, $10mil, or whatever big number, that is chasing wealth. Financial Independence happens around $2mil. Yes no job or employment and enough money to live the high life requires the big numbers you are mentioning…..

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