House poor!

[jerrycates]

Live within what you believe is needed. All the excess are just becoming displays. If you learn to just have what you need, you would not even realize you are saving already.

[disneysteve]

Perhaps you could rent this room to generate some income?

While that is certainly something they could consider, I really don't think a couple earning half a million dollars per year should need to rent out a room to make ends meet. This is not an income problem. It is a spending problem. More income won't fix it.

[Hector]

Its obvious that a lot of users are criticizing OP's spending habits. In the big picture they have 1 million in retirement and around 200k in home equity (after deducting 60k in CC debt).

[KTP]

Its obvious that a lot of users are criticizing OP's spending habits. In the big picture they have 1 million in retirement and around 200k in home equity (after deducting 60k in CC debt).

You are correct, I think we have been perhaps a little too critical of the OP's spending habits. For the most part the attitude on this forum is very much slanted toward saving money, so when we see incomes of near $500K gross we tend to get too excited about how much they could be saving.

But on the other hand, with their current burn rate, 1 million in retirement is not going to last long. At a 4% SWR and their current lifestyle, they will probably want somewhere around 3 to 4 million in their retirement accounts. Certainly not an unobtainable goal though since they are still young.

[jpg7n16]

Its obvious that a lot of users are criticizing OP's spending habits. In the big picture they have 1 million in retirement and around 200k in home equity (after deducting 60k in CC debt).

That's because with their current spending habits, that $1 million will last around 3.25 years.

[Joan.of.the.Arch]

Yes, but that million may be as little as two year's current gross income. To maintain a similar standard of living in her post working years, she is going to need to put away quite a bit more. I think that --in addition to paying her credit card debt and finishing educational obligations to her children-- is why she wants to do better with her money.

[snafu]

Since OP asked for suggestions to help retain more of DH's income and expressed disbelieve at the sums spent around Xmas I believe we were trying to be helpful. I'm surprised that Dr. & Mrs. OP aren't working with a Certified Financial Planner to protect income.

[NorthernCalGal]

FYI - We are projected to have over $4 million in retirement by age 65. And at that time the house should be paid off or we will downsize and pay cash (our 2nd mortgage has 10 more years on it and then we can use that $3,000/mo to accelerate the 1st). In 20 years our current house should be worth well over $2 million. So we would have plenty of money and a paid off house. I think we'll be fine

We have worked with a CFP and unfortunately since my husband is paid on a W-2 (even though he is a shareholder/partner) we cannot offset his income with expenses (which are low anyway). We get hit with the AMT tax and basically they are not any great tax shelters available to us. The best thing is that we can put more than $16,500 tax free dollars away in retirement - the group has a cash balance plan that allows them to do this. So, basically, over $50,000 tax free dollars/year are going into retirement but only $16,500 are coming out of his paycheck.

[LivingAlmostLarge]

$4 million @ a withdrawal rate of 4% is $160k to live on. Right now you are burning at least $120k/year probably closer to $150k with other stuff.

I don't think that's enough to live on. But the saving grace will be downsizing the house. If you sell and downsize that will not only decrease your burn rate, but also increase your retirement pot.

Have you run a monte carlo simulation?

One rule of thumb here is to be saving 15% of income assuming $450k = $90k/year for retirement to be safe. Assuming $500k = $100k/year for retirement savings. Many people here do 15% retirement/5% savings

[disneysteve]

In the big picture they have 1 million in retirement and around 200k in home equity

They are in their late 40's.
They earn $500,000/year.
They have 2 years worth of income in retirement.
They have 30K in liquid savings.
They have 200K in home equity.
They owe $1.2 million on their home.
They have 60K in CC debt.

My wife and I are in our mid-late 40's (46 and 47)
We earn $125,000/year.
We have more than 3 years worth of income in retirement.
We have 85K in liquid savings (plus 42K in college savings).
We have 200K in home equity.
We owe $77,000 on our home.
We have no debt except our mortgage.

Sorry, but the big income and the million dollar retirement account don't impress me. With that money, they could be doing a whole lot better.

[Mr Nice Guy]

Well good luck on your personal financial journey NorCal. Sometimes financial information is a tough pill to swallow, but you are in good hands! I promise!

[jpg7n16]

FYI - We are projected to have over $4 million in retirement by age 65. And at that time the house should be paid off or we will downsize and pay cash (our 2nd mortgage has 10 more years on it and then we can use that $3,000/mo to accelerate the 1st). In 20 years our current house should be worth well over $2 million. So we would have plenty of money and a paid off house. I think we'll be fine

We have worked with a CFP and unfortunately since my husband is paid on a W-2 (even though he is a shareholder/partner) we cannot offset his income with expenses (which are low anyway). We get hit with the AMT tax and basically they are not any great tax shelters available to us. The best thing is that we can put more than $16,500 tax free dollars away in retirement - the group has a cash balance plan that allows them to do this. So, basically, over $50,000 tax free dollars/year are going into retirement but only $16,500 are coming out of his paycheck.

I think the sheer size of these numbers is throwing people off. DS has the right idea by comparing to income and expenses as ratios - to get a better sense of what these numbers truly mean.

$4 million is a lot of money - but is less than 10x your current income. (and since it's in a 401k, then it will be taxed on withdrawal). It's like a $50k income family having $500k. Good but not great, and won't last as long as you think it will - unless you change your spending habits.

$2 million home, is only good if you sell the home, or borrow the equity. It's illiquid.

$50k/year to retirement is a lot of money - but barely 10% of your income.


Our encouragement is mainly to reign in your expenses while you enjoy such a great income. Not live on one meal a day, and stay home every weekend - living a good life doesn't need all that.

If you could free up $50k/year by reducing some of those expenses, you would be on target to have over $7 million - and that's before counting your 401k contributions. With those 401k contributions, you could be up to nearly $10 million. (which would be taxed as withdrawan, but still more than double what you're on pace for right now)

And that's with only cutting 10% of your income.


My point is, I get that $4 million is a lot of money - but by controlling your spending, you could easily have much more than that.

[disneysteve]

I think the sheer size of these numbers is throwing people off.

Exactly the point I was trying to make. Yes, it sounds great to have $1 million in retirement but for a couple earning $500,000 in their late 40s, that isn't enough. When you add up the numbers given, they actually may have a negative net worth.

[LivingAlmostLarge]

I'm curious what the financial planner is saying? Do they project you are saving enough?

Here's a good question to ask. If you make $500k now, how much do you plan on living on in retirement? Will you need $250k/year? If so then work backwards from there to figure out how much you need to retire.

I plan on retiring with 100% of our income. We are living on less than 50% of it now including our mortgage and all spending. Taxes and savings are the other 50%. But I am predicting we want to live even better, but right now i would say that as our incomes rise my DH and I will save the bulk and that should leave us in a good financial position.

[disneysteve]

I'm curious what the financial planner is saying? Do they project you are saving enough?

Very good question.

Here's a good question to ask. If you make $500k now, how much do you plan on living on in retirement? Will you need $250k/year? If so then work backwards from there to figure out how much you need to retire.

Using a 4% withdrawal rate, that would require upwards of $6 million saved.

I plan on retiring with 100% of our income.
I am predicting we want to live even better

Me, too. I'm shooting to replace 100% of income or as close as we can get. Who knows what Social Security will look like 20 or 30 years from now? I don't even count that in my calculations. As long as we are in good health, we want to travel more and have the money to enjoy life. That's the main reason we are willing to scrimp a bit now.