$10 million+ - Still Working and LBYM

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NYCguy
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$10 million+ - Still Working and LBYM

Post by NYCguy » Sat Sep 30, 2017 6:24 pm

I am interested in the experiences of members who have made the net worth three comma club and are still working.

1. Assuming you are LBYM, how has significant wealth changed your spending habits over time?

2. Assuming you are LBYM, could you stop earning money today and support your current spending level?

3. Has significant wealth changed your views on asset allocation or the construction of your retirement portfolio?

Here are our facts. We live in a HCOLA. We have two teenagers in private school. Income has ranged from $80,000 twenty five years ago to $3 million today. Net worth is approximately $15 million - broken down $8 million in personal real estate and $7 million in financial assets. No debt. Annual expenses excluding income taxes are approximately $550,000 broken down as follows: $100,000 tuition, $150,000 charity, $50,000 business related expenses, $75,000 upkeep of house, $50,000 vacations and $125,000 on kids sports, dining, groceries etc. We pay approximately $1.3 million in federal, state and local taxes. That leaves approximately $1.25 million of investment money of which $350,000 goes to tax-deferred accounts and $900,000 to taxable accounts.

1. We have always lived below our means. When we first made $500,000 a year our annual expenses excluding taxes were $150,000 a year. When we were making $1.5 million we were spending $350,000 year. When our net worth crossed $10 million I definitely became more relaxed about spending significant money on vacations and increased charitable giving.

2. No. To support our current spending level I calculate we would need about $20 million of financial assets at a 4% withdrawl rate to yield $800,000 per year pretax which would translate into $500,000 a year after tax. Obviously we could significantly reduce our spending and live comfortably on the financial assets we have and sell down our personal real estate, but by at least one measure we could benefit by living even further below our means.

3. Not yet. We have a 70/30 asset allocation. Given that real estate represents over 50% of our current net worth, I have not decided how I should view that in terms of our asset allocation. Given that we are likely to be in a top tax bracket in retirement and will face significant RMDs I am tempted to squeeze as much out of qualified dividend and capital gains income but that exposes us to a sequence of returns problem at retirement.

The good news is that notwithstanding my business being a 24 7 365 commitment, I generally enjoy it. Given that it took us 10 years to amass our first $1 million, it would be hard to walk away from a career that is generating more than that annually.

Yes, I recognize we have been extraordinarily blessed and lucky. We started 25 years ago with $100,000 in debt. I never imagined we would have the financial success we enjoy. I am interested in how those who are similarly situated think about these issues so I can reflect upon my own actions.

Thank you
Last edited by NYCguy on Sat Sep 30, 2017 8:52 pm, edited 1 time in total.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

lotusflower
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Re: 3 Comma Club - Still Working and LBYM

Post by lotusflower » Sat Sep 30, 2017 6:32 pm

NYCguy wrote:
Sat Sep 30, 2017 6:24 pm
...the net worth three comma club ... Net worth is approximately $15 million
I think that once you bag the next $985,000,000 and earn your third comma, you can stop working. Keep at it!

ThriftyPhD
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Re: 3 Comma Club - Still Working and LBYM

Post by ThriftyPhD » Sat Sep 30, 2017 6:33 pm

Three comma club is $1 billion. $1,000,000,000. While $15 million is impressive, you've got a little ways to go :).

John Laurens
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Re: 3 Comma Club - Still Working and LBYM

Post by John Laurens » Sat Sep 30, 2017 6:36 pm

Be patient. Not sure how many billionaires we have on bogleheads.org but they may not check the board frequently.

Regards,
John

PFInterest
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Re: 3 Comma Club - Still Working and LBYM

Post by PFInterest » Sat Sep 30, 2017 6:38 pm

1. We have always lived below our means. When we first made $500,000 a year our annual expenses excluding taxes were $150,000 a year. When we were making $1.5 million we were spending $350,000 year.

while technically you are correct about LBYM....if 15MM doesnt support your spending then you are still doing something wrong.
and as already noted, you are still missing a comma.

NYCguy
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Re: 3 Comma Club - Still Working and LBYM

Post by NYCguy » Sat Sep 30, 2017 6:41 pm

All right, I feel like a dummy. How can I edit the title of my post?
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

ResearchMed
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Re: 3 Comma Club - Still Working and LBYM

Post by ResearchMed » Sat Sep 30, 2017 6:42 pm

NYCguy wrote:
Sat Sep 30, 2017 6:24 pm
I am interested in the experiences of members who have made the net worth three comma club and are still working.

1. Assuming you are LBYM, how has significant wealth changed your spending habits over time?

2. Assuming you are LBYM, could you stop earning money today and support your current spending level?

3. Has significant wealth changed your views on asset allocation or the construction of your retirement portfolio?

Here are our facts. We live in a HCOLA. We have two teenagers in private school. Income has ranged from $80,000 twenty five years ago to $3 million today. Net worth is approximately $15 million - broken down $8 million in personal real estate and $7 million in financial assets. No debt. Annual expenses excluding income taxes are approximately $550,000 broken down as follows: $100,000 tuition, $150,000 charity, $50,000 business related expenses, $75,000 upkeep of house, $50,000 vacations and $125,000 on kids sports, dining, groceries etc. We pay approximately $1.3 million in federal, state and local taxes. That leaves approximately $1.25 million of investment money of which $350,000 goes to tax-deferred accounts and $900,000 to taxable accounts.

1. We have always lived below our means. When we first made $500,000 a year our annual expenses excluding taxes were $150,000 a year. When we were making $1.5 million we were spending $350,000 year. When our net worth crossed $10 million I definitely became more relaxed about spending significant money on vacations and increased charitable giving.

2. No. To support our current spending level I calculate we would need about $20 million of financial assets at a 4% withdrawl rate to yield $800,000 per year pretax which would translate into $500,000 a year after tax. Obviously we could significantly reduce our spending and live comfortably on the financial assets we have and sell down our personal real estate, but by at least one measure we could benefit by living even further below our means.

3. Not yet. We have a 70/30 asset allocation. Given that real estate represents over 50% of our current net worth, I have not decided how I should view that in terms of our asset allocation. Given that we are likely to be in a top tax bracket in retirement and will face significant RMDs I am tempted to squeeze as much out of qualified dividend and capital gains income but that exposes us to a sequence of returns problem at retirement.

The good news is that notwithstanding my business being a 24 7 365 commitment, I generally enjoy it. Given that it took us 10 years to amass our first $1 million, it would be hard to walk away from a career that is generating more than that annually.

Yes, I recognize we have been extraordinarily blessed and lucky. We started 25 years ago with $100,000 in debt. I never imagined we would have the financial success we enjoy. I am interested in how those who are similarly situated think about these issues so I can reflect upon my own actions.

Thank you
Do we have any 3-comma-club members here on Bogleheads?
If so, are there "enough" to be able to discern any behavior patterns?

Also, I'd suspect that most billionaires didn't "just work" to get there. Probably more like some startups and a LOT of luck as well.

And at a very conservative 4%, they could spend $40 million per year at the "entry level" billionaire level.
Seems likely one could support most lifestyles okay...

RM
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John Laurens
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Re: 3 Comma Club - Still Working and LBYM

Post by John Laurens » Sat Sep 30, 2017 6:46 pm

Russian Oligarch here. Yes still working. My brother Dimitri and I have tried to spend, spend, spend but when you’re in the 3 comma club it’s almost impossible to not LBYM. Now off to bribe a HOS (head of state).

Dasvidaniya,
John

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Re: 3 Comma Club - Still Working and LBYM

Post by Jags4186 » Sat Sep 30, 2017 7:01 pm

NYCguy wrote:
Sat Sep 30, 2017 6:41 pm
All right, I feel like a dummy. How can I edit the title of my post?
You don’t. You accept the ridicule for messing up a humblebrag post. ;-)

PFInterest
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Re: 3 Comma Club - Still Working and LBYM

Post by PFInterest » Sat Sep 30, 2017 7:02 pm

Jags4186 wrote:
Sat Sep 30, 2017 7:01 pm
NYCguy wrote:
Sat Sep 30, 2017 6:41 pm
All right, I feel like a dummy. How can I edit the title of my post?
You don’t. You accept the ridicule for messing up a humblebrag post. ;-)
:sharebeer

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ram
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Re: 3 Comma Club - Still Working and LBYM

Post by ram » Sat Sep 30, 2017 7:11 pm

Convert it to Yen and you are in the 3 comma club. (I need to convert to Zimbabwean dollar to reach the 3 comma club :) ).
We used to live on 110 to 120% of our income when I made 40K. (had gone back for additional medical training/ fellowship).
Now that we make >400K /yr we spend somewhat more freely. But only 30 to 50% of post tax income. It is higher percentage in the years that we buy a car etc.
We have gone from used toyota to used lexus. My wife recently asked the board for recommendations on $500 kitchen knives which was unthinkable 10 yrs ago. The asset allocation has become somewhat more conservative as we have elected to decrease the working life span based on higher than anticipated NW at this stage of life. Overall nothing major. Which is what I think most of the answers will be.
Ram

Archimedes
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Re: 3 Comma Club - Still Working and LBYM

Post by Archimedes » Sat Sep 30, 2017 7:13 pm

NYCguy wrote:
Sat Sep 30, 2017 6:24 pm
I am interested in the experiences of members who have made the net worth three comma club and are still working.
I think what you meant to write is that you are in the 8 figure club (>10M in net worth).

When you get to 8 figures, you have lots of choices. I had a negative net worth when I was 30, made 2 commas at 40, and then started my own business which has been incredibly successful. I am very fortunate. I continue to work not because I have to, but because I feel the need to be actively engaged in life and to be making an important contribution.

Does Elon Musk need to work to pay his bills? With your net worth you should be doing what is meaningful and feels important to you. Are you spending your days doing what you value?

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Re: 3 Comma Club - Still Working and LBYM

Post by John Laurens » Sat Sep 30, 2017 7:14 pm

26 y/o Silicon Valley “SnapFace” founder here. I feel your pain. Back when I was worth 300 million 6 months ago, Life was so easy. Now after the IPO, the pressures of my peers to keep up with the Ellisons and Zuckerbergs have really got me looking at my budget. It’s tough ya know. Well off to Vegas in my G650.

Ciao,
John

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Re: 3 Comma Club - Still Working and LBYM

Post by nisiprius » Sat Sep 30, 2017 7:24 pm

NYCguy wrote:
Sat Sep 30, 2017 6:41 pm
All right, I feel like a dummy. How can I edit the title of my post?
Just go to your post and click the little pencil icon. Not only can you edit the text of your post, you can edit the subject line. The subject line of the first post is the subject line for the whole thread. Anyway, don't feel like too much of a dummy--of course, everybody knew what you meant.
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Re: 3 Comma Club - Still Working and LBYM

Post by LadyGeek » Sat Sep 30, 2017 7:25 pm

^^^ Nisiprius beat me to the post. :)

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Re: 3 Comma Club - Still Working and LBYM

Post by ebrasmus21 » Sat Sep 30, 2017 7:30 pm

ram wrote:
Sat Sep 30, 2017 7:11 pm
Convert it to Yen and you are in the 3 comma club. (I need to convert to Zimbabwean dollar to reach the 3 comma club :) ).
We used to live on 110 to 120% of our income when I made 40K. (had gone back for additional medical training/ fellowship).
Now that we make >400K /yr we spend somewhat more freely. But only 30 to 50% of post tax income. It is higher percentage in the years that we buy a car etc.
We have gone from used toyota to used lexus. My wife recently asked the board for recommendations on $500 kitchen knives which was unthinkable 10 yrs ago. The asset allocation has become somewhat more conservative as we have elected to decrease the working life span based on higher than anticipated NW at this stage of life. Overall nothing major. Which is what I think most of the answers will be.
I read "convert it to Yen" and immediately started laughing. Thank you for such a humors post.

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Re: 3 Comma Club - Still Working and LBYM

Post by Wildebeest » Sat Sep 30, 2017 7:55 pm

deleted.
Last edited by Wildebeest on Sun Oct 01, 2017 7:04 pm, edited 1 time in total.
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Re: 3 Comma Club - Still Working and LBYM

Post by Mel Lindauer » Sat Sep 30, 2017 8:00 pm

NYCguy wrote:
Sat Sep 30, 2017 6:41 pm
All right, I feel like a dummy. How can I edit the title of my post?
I took care of changing the title for you.
Best Regards - Mel | | Semper Fi

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Re: 2 Comma Club - Still Working and LBYM

Post by nedsaid » Sat Sep 30, 2017 8:48 pm

The only Billionaire that I am aware of who has posted here is Cliff Asness. Don't think he will post and share his experiences.
A fool and his money are good for business.

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Re: $10 million+ - Still Working and LBYM

Post by TomatoTomahto » Sat Sep 30, 2017 9:20 pm

@NYCguy, I’m curious about your assets. $8M in personal real estate is a large portion of a $15M net worth. Can you elaborate?

NYCguy
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Re: $10 million+ - Still Working and LBYM

Post by NYCguy » Sat Sep 30, 2017 10:25 pm

TomatoTomahto wrote:
Sat Sep 30, 2017 9:20 pm
@NYCguy, I’m curious about your assets. $8M in personal real estate is a large portion of a $15M net worth. Can you elaborate?
$1 million is tied up in a property helping elderly family-long story. They cover the cost of carry but it ties up capital.

$7 million is a conservative net value of our primary residence after deducting cap gains and selling costs. We purchased it in distress and have about $2 million in net gains.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

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Re: $10 million+ - Still Working and LBYM

Post by finite_difference » Sat Sep 30, 2017 10:36 pm

TomatoTomahto wrote:
Sat Sep 30, 2017 9:20 pm
@NYCguy, I’m curious about your assets. $8M in personal real estate is a large portion of a $15M net worth. Can you elaborate?
From what I hear, that buys you a 2 bedroom apartment in Manhattan, or a nice closet in San Francisco :happy

In a way ~$500k spending per year sounds crazy, but I can easily see how it adds up. If you subtract the private tuition, charity, and upkeep (e.g. property tax/HOA/condo fees) then you’re at “only” around $200k in spending which is high but not that crazy.

Those must be some crazy vacations though. I would find it would difficult to spend that much unless you are flying in a private jet. Even at $1000 per night that’s a lot of nights. It’ll be hard to fly Coach once you are used to First Class/PJ. Maybe business class. That would save a little bit :)

I would personally not bother working more just so I could support spending at a level of $500k per year but that’s me. I’d continue working if I enjoyed it though.
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Re: $10 million+ - Still Working and LBYM

Post by White Coat Investor » Sat Sep 30, 2017 11:13 pm

NYCguy wrote:
Sat Sep 30, 2017 6:24 pm
I am interested in the experiences of members who have made the net worth three comma club and are still working.

1. Assuming you are LBYM, how has significant wealth changed your spending habits over time?

2. Assuming you are LBYM, could you stop earning money today and support your current spending level?

3. Has significant wealth changed your views on asset allocation or the construction of your retirement portfolio?

Here are our facts. We live in a HCOLA. We have two teenagers in private school. Income has ranged from $80,000 twenty five years ago to $3 million today. Net worth is approximately $15 million - broken down $8 million in personal real estate and $7 million in financial assets. No debt. Annual expenses excluding income taxes are approximately $550,000 broken down as follows: $100,000 tuition, $150,000 charity, $50,000 business related expenses, $75,000 upkeep of house, $50,000 vacations and $125,000 on kids sports, dining, groceries etc. We pay approximately $1.3 million in federal, state and local taxes. That leaves approximately $1.25 million of investment money of which $350,000 goes to tax-deferred accounts and $900,000 to taxable accounts.

1. We have always lived below our means. When we first made $500,000 a year our annual expenses excluding taxes were $150,000 a year. When we were making $1.5 million we were spending $350,000 year. When our net worth crossed $10 million I definitely became more relaxed about spending significant money on vacations and increased charitable giving.

2. No. To support our current spending level I calculate we would need about $20 million of financial assets at a 4% withdrawl rate to yield $800,000 per year pretax which would translate into $500,000 a year after tax. Obviously we could significantly reduce our spending and live comfortably on the financial assets we have and sell down our personal real estate, but by at least one measure we could benefit by living even further below our means.

3. Not yet. We have a 70/30 asset allocation. Given that real estate represents over 50% of our current net worth, I have not decided how I should view that in terms of our asset allocation. Given that we are likely to be in a top tax bracket in retirement and will face significant RMDs I am tempted to squeeze as much out of qualified dividend and capital gains income but that exposes us to a sequence of returns problem at retirement.

The good news is that notwithstanding my business being a 24 7 365 commitment, I generally enjoy it. Given that it took us 10 years to amass our first $1 million, it would be hard to walk away from a career that is generating more than that annually.

Yes, I recognize we have been extraordinarily blessed and lucky. We started 25 years ago with $100,000 in debt. I never imagined we would have the financial success we enjoy. I am interested in how those who are similarly situated think about these issues so I can reflect upon my own actions.

Thank you
First, let it be known we're not quite there. I don't have any doubt that we will be though unless I somehow start hating work in the next few years. I'm not even sure we're financially independent at our desired level of spending yet, but we're making decisions as though we are. But I think I can probably throw in a few cents that might be useful.

1. We spend more and anticipate spending and especially giving more now and later.

2. Yes, depending on what we could get for our small business. That's the really tricky thing for our financial planning currently.

3. Not really. There have been some minor changes over the years, but we haven't either dialed the risk back or ramped up the risk due to being wealthier earlier in life than we anticipated.

One problem we do anticipate as we move toward the 8 figure club is an estate tax issue. My previous plan to deal with this issue (which we never expected to have to deal with) was just to give away everything over the estate tax limit. That's really hard to do if you don't have significant money in a taxable account. I mean, imagine a hypothetical situation where a couple was worth $12M. But $2 Million is in retirement accounts, $1 Million is in the house, $8 Million is tied up in the family farm, and only $1 Million is in taxable accounts. Do you really want to give away your entire taxable account if you're only 50?

One advantage we do have over you is we don't live in a HCOLA. I don't think our house is worth 1/10th what yours is. Our liquidity/estate tax issues pale in comparison to yours.
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Re: $10 million+ - Still Working and LBYM

Post by EddyB » Sat Sep 30, 2017 11:42 pm

White Coat Investor wrote:
Sat Sep 30, 2017 11:13 pm
One problem we do anticipate as we move toward the 8 figure club is an estate tax issue. My previous plan to deal with this issue (which we never expected to have to deal with) was just to give away everything over the estate tax limit. That's really hard to do if you don't have significant money in a taxable account. I mean, imagine a hypothetical situation where a couple was worth $12M. But $2 Million is in retirement accounts, $1 Million is in the house, $8 Million is tied up in the family farm, and only $1 Million is in taxable accounts. Do you really want to give away your entire taxable account if you're only 50?
I may not understand what you're suggesting, but beyond the annual gift tax exclusion (presently $14,000 per person), your gifts would also count against your lifetime gift tax exemption ($5 million/person in 2011 dollars). So even if you gave away the million bucks in the taxable account (e.g., to your kids?), that will decrease the threshold beyond which your estate would owe gift taxes. Or if you mean to give it to charity, you'd only need to leave the gift as a bequest to exclude it from your (federal) taxable estate---no need to donate it at 50.

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Re: $10 million+ - Still Working and LBYM

Post by EnjoyIt » Sun Oct 01, 2017 3:51 am

I don't think your question needs to be $10million+ or any other actual figure. basically what I think you are asking is "When one's wealth reaches financial independence, how does it affect/change your life?"

1) How did it change our spending habits? Outside of an estate tax issue for us, as we near financial independence we tactfully increase our spending and thereby keep financial independence just slightly out of reach. Allow me to elaborate. For example if today we spend $100k/yr using the 4% withdrawal we would be financially independent with $2.5 million. Therefor as we near $2.4 million we may tactfully increase our spending up to $110k/year. At a net worth of $2.6 million we may increase our spending up another $10k. This is just an example and does not reflect our real finances. We basically keep financial independence a year to two of compound interest away or if need be easily drop back to that lower spending level and retire. Some examples of our lifestyle creep has been.
a) Longer and costlier vacations such as flying business class overseas.
b) Getting a maid
c) upgrading our home
d) Willing to eat at more expensive restaurants
Our biggest lifestyle creep has been spending more money on vacations

2) Can we stop spending today and support our current spending habits? Please see #1 above. We would not be able to keep current spending habits, but we can easily retire today and just stop flying business class for example.

3) Has our wealth changed our asset allocation? No, not yet. At some point in the near future we plan on semi retiring and allowing compound interest do its thing while we still earn a reasonable income working a whole lot less. At that point we will go from 70/30 to 60/40.

I notice you said you enjoy your work except that you are on 24/7, 365 days a year. It sounds like you are tolerate that for now. I am sure that type of demand will get very stressful and tiring at some point so don't allow your lifestyle creep to go overboard. I think having an escape plan is crucial. For example, if you are willing to cut your charity a little, cut your travel a little, and do some of the home maintenance yourself, you can likely retire today.

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Re: $10 million+ - Still Working and LBYM

Post by NYCguy » Sun Oct 01, 2017 6:44 am

White Coat Investor wrote:
Sat Sep 30, 2017 11:13 pm
One problem we do anticipate as we move toward the 8 figure club is an estate tax issue. My previous plan to deal with this issue (which we never expected to have to deal with) was just to give away everything over the estate tax limit. That's really hard to do if you don't have significant money in a taxable account. I mean, imagine a hypothetical situation where a couple was worth $12M. But $2 Million is in retirement accounts, $1 Million is in the house, $8 Million is tied up in the family farm, and only $1 Million is in taxable accounts. Do you really want to give away your entire taxable account if you're only 50?
One advantage we do have over you is we don't live in a HCOLA. I don't think our house is worth 1/10th what yours is. Our liquidity/estate tax issues pale in comparison to yours.
Thanks for sharing. If you have not already done so, you should consult with the trustand estates attorney. I believe there are trusts that your heirs can elect to put your farm or other assets into you at time of death that will significantly defer the estate tax problem. This does need to be established while you were alive but nothing would go into the trust until death.

I am sure others on the board know much more about this.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

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Re: $10 million+ - Still Working and LBYM

Post by The Wizard » Sun Oct 01, 2017 6:54 am

EnjoyIt wrote:
Sun Oct 01, 2017 3:51 am
I don't think your question needs to be $10million+ or any other actual figure. basically what I think you are asking is "When one's wealth reaches financial independence, how does it affect/change your life?"
For most of us, I think $10M+ in financial assets is three to five times a generous definition of Financial Independence.

The OP however, figures he needs $800,000 in pretax income to maintain current lifestyle, which is like five times what I generously need, but as a single person, no dependents.

So I'm not quite sure what question we should be addressing here: achieving FI? Or working a decade or two additional and achieving X times FI?
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Re: $10 million+ - Still Working and LBYM

Post by snackdog » Sun Oct 01, 2017 7:12 am

Nothing special about 8 figures (or 10 figures) if you spend too much. Michael Jackson spent more than he earned. OP has only managed to save investment account of 2.3x annual earnings over 25 years which strikes me as quite low. Perhaps it has all been re-invested into a business which can be sold for a huge sum? Real estate portion of net worth is also way too high (>50%) and will skew property taxes upward.

We are near 8 figures, but saved 15x earnings and 60x spending over 20 years. Still working but not spending much more than we ever did (don't own a vehicle even) and using same asset allocation. I would say our spending over 20 years has tripled in nominal terms. Income has jumped order of magnitude.

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Re: $10 million+ - Still Working and LBYM

Post by NYCguy » Sun Oct 01, 2017 7:14 am

finite_difference wrote:
Sat Sep 30, 2017 10:36 pm
TomatoTomahto wrote:
Sat Sep 30, 2017 9:20 pm
@NYCguy, I’m curious about your assets. $8M in personal real estate is a large portion of a $15M net worth. Can you elaborate?
From what I hear, that buys you a 2 bedroom apartment in Manhattan, or a nice closet in San Francisco :happy

In a way ~$500k spending per year sounds crazy, but I can easily see how it adds up. If you subtract the private tuition, charity, and upkeep (e.g. property tax/HOA/condo fees) then you’re at “only” around $200k in spending which is high but not that crazy.

Those must be some crazy vacations though. I would find it would difficult to spend that much unless you are flying in a private jet. Even at $1000 per night that’s a lot of nights. It’ll be hard to fly Coach once you are used to First Class/PJ. Maybe business class. That would save a little bit :)

I would personally not bother working more just so I could support spending at a level of $500k per year but that’s me. I’d continue working if I enjoyed it though.
Thanks. We fly coach but various members of the family or the whole family traveling at least 10 times a year to visit interesting places and other family members. I occasionally fly business class when I have to go in to the office after a redeye. Clearly there is plenty of flat in a budget that could be cut.

What I recognize is that any “Plan B“ for our family will necessitate selling our primary residence.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

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Re: $10 million+ - Still Working and LBYM

Post by TomatoTomahto » Sun Oct 01, 2017 7:32 am

snackdog wrote:
Sun Oct 01, 2017 7:12 am
OP has only managed to save investment account of 2.3x annual earnings over 25 years which strikes me as quite low.
Perhaps you missed the part where OP said that 25 years ago they made 80k, rising to $3M today. It’s not quite fair to say that they’ve only saved 2.3x annual earnings over 25 years. Reminds me of the laughable situation where financial firms quote a salary multiple you should have in savings, leading to “I was fine last year, but I got a raise, so I’m woefully behind again.”

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Re: $10 million+ - Still Working and LBYM

Post by TomatoTomahto » Sun Oct 01, 2017 8:39 am

1. Assuming you are LBYM, how has significant wealth changed your spending habits over time?
I'm not sure that it has changed our spending habits as much as it has made us feel differently about the habits. For example, we had a nanny that we really liked, and converted her gradually to a housekeeper/pet sitter. We pay her a very reasonable and living wage, but we haven't "needed" her for some time. She is loyal and honest, treats our pets as her own, and we just don't have the heart to fire her. She cleans the house much more than it needs to be cleaned, and she continues to do that, I think, in part because she doesn't want a handout. We figure that we will keep her until we sell the house and move away, and we no longer feel sheepish about it.
2. Assuming you are LBYM, could you stop earning money today and support your current spending level?
I think so. Savings rate would go down.

Kids are roughly halfway through the college tuition expense. Since we are full-pay, it is not a small amount, say $200k+/year. One falls off the payroll next year. This is a significant part of our spending, second behind taxes. Deferred compensation would carry us through the college tuition years.
3. Has significant wealth changed your views on asset allocation or the construction of your retirement portfolio?
I no longer do a percentage-based AA. It was becoming a bit of a fixation. We have, currently, $2.5M in Fixed Income (mostly TBM), which I'm comfortable with, but will probably increase as much of it is in tax-deferred accounts. So, over the next year, maybe we'll go to $3-$3.5M in Fixed Income. That money is enough, with SS and pensions, to live comfortably, especially if we leave the HCOL area we are currently in. Additional assets go to equities (TSM, PRIMECAP, and increasingly VTIAX, VTMGX, and VEMAX), mostly in taxable. I like that I don't have to think about it much.

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Re: $10 million+ - Still Working and LBYM

Post by BanquetBeer » Sun Oct 01, 2017 8:42 am

I'm confused - didn't you say like 250k of your 500k expenses are on your kids? Do you plan on supporting them indefinitely?

Sounds like you should look at buckets:

1) living expenses based on empty next expenses starting now using a conservative SWR

2) additional money(added to #1) to carry you through your kids expenses until they graduate college.

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Re: $10 million+ - Still Working and LBYM

Post by goodenyou » Sun Oct 01, 2017 10:06 am

We are peaking in spending with 2 college kids and one soon to enter. Young adult children are very expensive. We are finding that excessive spending on trying to maintain a large home with tremendous maintenance, property taxes, gardeners, pool maintenance is not how we want to spend money. Earning enough to maintain our lifestyle is not the problem. The challenge is continuing to rely on investment returns to maintain our living accommodations. High cost housing with excessive space is no longer a priority.
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Re: $10 million+ - Still Working and LBYM

Post by tfb » Sun Oct 01, 2017 10:10 am

NYCguy wrote:
Sat Sep 30, 2017 6:24 pm
To support our current spending level I calculate we would need about $20 million of financial assets at a 4% withdrawl rate to yield $800,000 per year pretax which would translate into $500,000 a year after tax.
The $100k tuition and part of the $125,000 on kids sports don't continue forever. If you redo the math, you would see you don't need as much. Even for a goal of $20 million, with your $1.25 million new investment per year, plus earnings on existing investments, you will be there practically in 2-3 years.
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Re: $10 million+ - Still Working and LBYM

Post by goodenyou » Sun Oct 01, 2017 10:42 am

tfb wrote:
Sun Oct 01, 2017 10:10 am
NYCguy wrote:
Sat Sep 30, 2017 6:24 pm
To support our current spending level I calculate we would need about $20 million of financial assets at a 4% withdrawl rate to yield $800,000 per year pretax which would translate into $500,000 a year after tax.
The $100k tuition and part of the $125,000 on kids sports don't continue forever. If you redo the math, you would see you don't need as much. Even for a goal of $20 million, with your $1.25 million new investment per year, plus earnings on existing investments, you will be there practically in 2-3 years.
I may be missing something, but the OP will have to grow $7M in assets to $20M in order to generate $800k. Unless, of course, the $8M personal real estate is going to be sold and the OP will move into a significantly lower priced home(s).
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Re: $10 million+ - Still Working and LBYM

Post by sailaway » Sun Oct 01, 2017 10:55 am

Wealth is relative for most people. The vast majority will wonder why someone with more than they ever expect to have are still working.

For some, it is math. Your math shows that you can't really support your current lifestyle without continuing to work.

For some it is Calvinistic ethics. You work to to be productive.

For some it is aspirational. You are currently accumulating, but what if you wanted to be a jet setter?

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Re: $10 million+ - Still Working and LBYM

Post by mnnice » Sun Oct 01, 2017 11:35 am

I'm waiting for KlangFool to mention house poor :wink:

I do get that people end up in situations with a very heavy portions of their net worth tied up in a primary residence more or less on accident. I can't fathom doing it on purpose, but I assume that the OP had his or her reasons.

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Re: $10 million+ - Still Working and LBYM

Post by TomatoTomahto » Sun Oct 01, 2017 11:53 am

mnnice wrote:
Sun Oct 01, 2017 11:35 am
I'm waiting for KlangFool to mention house poor :wink:

I do get that people end up in situations with a very heavy portions of their net worth tied up in a primary residence more or less on accident. I can't fathom doing it on purpose, but I assume that the OP had his or her reasons.
OP can speak for himself, but in the meantime ...
OP said the house was in some distress, and it is in a HCOL area, so not unlikely that he spent a couple million on a house, fixed it up with another million or two, and then the market raised the price.

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Re: $10 million+ - Still Working and LBYM

Post by NYCguy » Sun Oct 01, 2017 11:58 am

TomatoTomahto wrote:
Sun Oct 01, 2017 7:32 am
snackdog wrote:
Sun Oct 01, 2017 7:12 am
OP has only managed to save investment account of 2.3x annual earnings over 25 years which strikes me as quite low.
Perhaps you missed the part where OP said that 25 years ago they made 80k, rising to $3M today. It’s not quite fair to say that they’ve only saved 2.3x annual earnings over 25 years. Reminds me of the laughable situation where financial firms quote a salary multiple you should have in savings, leading to “I was fine last year, but I got a raise, so I’m woefully behind again.”
Thank you for making that point. I also think the correct measure is net worth not investment account size. Clearly we are “house poor“ but we have managed to save $15 million. We also started $100,000 in debt and it took a few years at a lower salary to dig out of that hole.

I calculate that our weighted average income over 24 year period was $1 million and our weighted average expenses have been about $250,000. Our weighted average tax burden was approximately $350,000 which would leave $400,000 annually to invest. I am thrilled that we have done as well as we have but clearly there are people on this board who put up much better ratios then we have.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

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Re: $10 million+ - Still Working and LBYM

Post by IngognitoUSA » Sun Oct 01, 2017 11:58 am

What kind of business, does it support a lot of jobs. I presume you can sell it and the buyer will keep all the employees, however I cringe when business changes hands and people who helped along the way are replaced.

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Re: $10 million+ - Still Working and LBYM

Post by stan1 » Sun Oct 01, 2017 12:31 pm

You are at the point where it becomes a personal decision not a financial one. What do you want to do? You can do just about whatever you like. I agree a big consideration is likely to be your partners/employees as they are part of your success.

You need a good estate planning attorney who has significant experience working with business owners in NYC.

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Re: $10 million+ - Still Working and LBYM

Post by NYCguy » Sun Oct 01, 2017 12:47 pm

TomatoTomahto wrote:
Sun Oct 01, 2017 11:53 am
mnnice wrote:
Sun Oct 01, 2017 11:35 am
I'm waiting for KlangFool to mention house poor :wink:

I do get that people end up in situations with a very heavy portions of their net worth tied up in a primary residence more or less on accident. I can't fathom doing it on purpose, but I assume that the OP had his or her reasons.
OP can speak for himself, but in the meantime ...
OP said the house was in some distress, and it is in a HCOL area, so not unlikely that he spent a couple million on a house, fixed it up with another million or two, and then the market raised the price.
That is all correct. The decision to purchase a very expensive house in distress was a tactical financial decision, not an accident. It has worked out pretty well for us so far both financially and as a lifestyle choice. If my business continues to thrive we will reach $20 million in financial assets in the next 5 to 10 years and our children will be out of college in 10 years so those expenses should diminish. When we chose to purchase the big house we always knew that a plan b would likely require us to sell it.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

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Re: $10 million+ - Still Working and LBYM

Post by NYCguy » Sun Oct 01, 2017 12:55 pm

stan1 wrote:
Sun Oct 01, 2017 12:31 pm
You are at the point where it becomes a personal decision not a financial one. What do you want to do? You can do just about whatever you like. I agree a big consideration is likely to be your partners/employees as they are part of your success.

You need a good estate planning attorney who has significant experience working with business owners in NYC.
What motivates me to try and kill it everyday is my family and the future success of my business partners and employees. If it were about me, I would do something else even though I am happy with my business.

When I am done I won’t have anything to sell. I just walk away from the cash flow - and the stress. The remaining partners will run the business.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

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Re: $10 million+ - Still Working and LBYM

Post by NYCguy » Sun Oct 01, 2017 12:58 pm

goodenyou wrote:
Sun Oct 01, 2017 10:06 am
We are peaking in spending with 2 college kids and one soon to enter. Young adult children are very expensive. We are finding that excessive spending on trying to maintain a large home with tremendous maintenance, property taxes, gardeners, pool maintenance is not how we want to spend money. Earning enough to maintain our lifestyle is not the problem. The challenge is continuing to rely on investment returns to maintain our living accommodations. High cost housing with excessive space is no longer a priority.
Maybe the answer for both of us is simplifying our financial lifestyle once the kids are settled.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

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Re: $10 million+ - Still Working and LBYM

Post by NYCguy » Sun Oct 01, 2017 1:01 pm

IngognitoUSA wrote:
Sun Oct 01, 2017 11:58 am
What kind of business, does it support a lot of jobs. I presume you can sell it and the buyer will keep all the employees, however I cringe when business changes hands and people who helped along the way are replaced.
We are thousand + employees in the global financial services. My immediate business unit will be affected by my actions but overall the business will not miss a beat.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

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Re: $10 million+ - Still Working and LBYM

Post by caliguy1 » Sun Oct 01, 2017 1:22 pm

I'm in a similar situation as you but differences are:

- My asset allocation for the financial assets is 50/50 (and I'm 35 years old). 70/30 seems way too high when you've already "won the game". Marginal utility of making more vs. losing is off. Many financial advisors, including Larry Swedroe, suggested 30% equities as an absolute MAX at this wealth level. Imagine if we're in a period where the next great depression will hit which took ~20 years to recover back to break even. Granted the probability is low, though.
- I was struggling with how to group in the primary residence as well. The way I look at it is it's not in your portfolio technically but as you said it is a plan B if you do run out of financial assets later in life. For example if there was a huge market crash you could rent it out (since you wouldn't want to sell if prices were depressed) and then rent out a cheaper place separately. Or, if you didn't need such a large place in retirement, you could sell it later on in which case the delta in price would be part of your portfolio for the period between selling and buying a new place.
- I also live in a HCOLA area, which happens to be highly correlated to the US stock market (especially tech companies), so I have much less in US equities and more in international equities as a result. And less in equities overall as a result (for example I would do 60/40 if it was not for my primary residence being a large chunk of my net worth). I know your primary residence is not supposed to affect your portfolio, but I just know psychologically it does. If you say lost a huge chunk of value in the property, even though you were not planning to sell, psychologically it would hurt.

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Re: $10 million+ - Still Working and LBYM

Post by investing1012 » Sun Oct 01, 2017 1:52 pm

Hypothetically speaking if someone was part of the 3 comma club would you still recommend index funds? At that point you'd be paying 400k per year just to have your funds indexed. Might as well just buy stock at that point.

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Re: $10 million+ - Still Working and LBYM

Post by goodenyou » Sun Oct 01, 2017 2:33 pm

NYCguy wrote:
Sun Oct 01, 2017 12:58 pm
goodenyou wrote:
Sun Oct 01, 2017 10:06 am
We are peaking in spending with 2 college kids and one soon to enter. Young adult children are very expensive. We are finding that excessive spending on trying to maintain a large home with tremendous maintenance, property taxes, gardeners, pool maintenance is not how we want to spend money. Earning enough to maintain our lifestyle is not the problem. The challenge is continuing to rely on investment returns to maintain our living accommodations. High cost housing with excessive space is no longer a priority.
Maybe the answer for both of us is simplifying our financial lifestyle once the kids are settled.
That is my plan. If you don't have a high maintenance lifestyle, you have less worries about how to fund it with investments. Although I make a very good living, it is very hard work and a lot of stress. I don't want to stress about maintaining a complex lifestyle. Thankfully, my wife is on the same page.
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Re: $10 million+ - Still Working and LBYM

Post by abuss368 » Sun Oct 01, 2017 2:41 pm

In my opinion that is a high percentage of net worth to have in a primary residence.
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Re: $10 million+ - Still Working and LBYM

Post by livesoft » Sun Oct 01, 2017 2:42 pm

investing1012 wrote:
Sun Oct 01, 2017 1:52 pm
Hypothetically speaking if someone was part of the 3 comma club would you still recommend index funds? At that point you'd be paying 400k per year just to have your funds indexed. Might as well just buy stock at that point.
Why? So you can pay someone $1,000,000 a year to collect dividends from hundreds of individual stocks and reinvest them for you?
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