Rich But Middle Class

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Rich_but_middleclass
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Rich But Middle Class

Post by Rich_but_middleclass »

Long-time lurker, first-time poster. This is long, but hopefully some of you will find it interesting and can comment.

We are a dual-income family with three children living in a very HCOL area. As the subject-line states, we are by almost any measure income-rich, but feel middle class in our community as well as from a net worth perspective (relative to our annual expenses), and are wondering when we will be able to be financially independent.

Some quick facts:
- Dual income: doctor + professional daytrader (small proprietary trading firm), both early 40s
- Children: 3 girls (triplets) who will be starting 1st grade at a private school in the fall
- Annual (pre-tax) income: average of last 5 years AGI has been $920k, ranging from $630k to $1.3mm (last year in 2015); doctor income very stable at around $350k/year - daytrader income highly dependent on performance (and the financial markets)
- Unvested deferred compensation: $750k - vests roughly 1/3 each year, and get more every year
- Annual household expenses: for 2016 expected to be $320k (excluding principal payments on primary residence)
- Net worth: $4.1mm before taxes, $3.4mm after-tax (assuming highest marginal tax rate for deferred compensation, distributions from 401k/IRA accounts, capital gains on taxable accounts)
- House value: ~$3mm ($1.4mm mortgage balance remaining) - this is for a 'slightly above average' family home in our area.
- Taxable and tax-free (Roth) accounts: $1.1mm
- Tax-deferred accounts and vested deferred compensation: $1.4mm

We live in an area where there is a lot of wealth, both from established families with large inheritances having been passed down over multiple generations, as well vast new wealth created in the last 20 years. Spouse and I are both from small mid-west towns with upper-middle class backgrounds and professional parents who sacrificed a lot to help us succeed, and we never imagined we would attain this type of income in our lifetimes.

We are trying to stay somewhat grounded: we drive very modest cars, take a reasonable (domestic) annual vacation every year, dress casually, rarely eat out or entertain and, other than the private school tuition and a full-time nanny, we don't have expensive tastes or expenditures relative to what our peers in our income bracket and local community spend. We realize that our home cost is many times what even an affluent family in other parts of the country might pay, but this is the price of living where we do; we could move much farther away and save some money (maybe even 40-50% of the cost), but at the expense of extremely long commutes and being in a suburb with lesser amenities and culture. We value our time and the environment/community we surround ourselves with.

Spouse and I enjoy our jobs, but feel that the income from professional daytrading may not be sustainable over the long haul, so are trying to understand when we can be financially secure enough to not need that income while still maintaining our current lifestyle. We would estimate our annual savings to fluctuate from $150-550k a year (including principal payments on mortgage). Total private school tuition for all three girls runs $120k/year; at 37.5% of our annual budget we are clearly prioritizing this in our lives, and don't want to cut this out even if we have to sacrifice in other areas. The full-time nanny, which is necessary given our working hours and the girls' schedules, costs roughly $60k/year (including payroll taxes). We outsource some other services like housekeeping, landscaping etc just to stay sane and feel like we have quality family time (at least while the girls are young) - probably total $15k/year. Lastly, we provide some some financial support (~$20k/year) to our parents, who are retired but not living as large as we are - it's the least we can do since they sacrificed so much to raise us.

Our initial thoughts are that once the mortgaged is paid off (ideally through savings over the coming years rather than liquidating taxable accounts), we could probably get by on the doctor salary alone, as we wouldn't have to pay for the nanny and could in-source some of the other services. We would need to cut back on some other expenses, and wouldn't be saving much, but it seems doable. An outside date for being a single-income (doctor) household, or maybe even completely financially independent (early retirement?) would be 2028, when the girls graduate high school, as having 3 kids in college at the exact same time should allow us to qualify for some financial aid.

Once the girls are out of the nest, we feel we could significantly downsize, if not both retire altogether, and move to a much lower cost of living area. Assuming our savings maintain their current purchasing power (we are conservatively invested in 60/40% stocks/bonds), and our housing needs are covered from the proceeds of sale of our current (expensive) home, we could then live on passive income from investments.

Does this seem reasonable and not too much of a stretch, or are we deluding ourselves into thinking we can manage this type of lifestyle and plan for our daughters' futures on one income? I realize that the numbers are large and that this seems like a very 'high-class' problem to have, and I hope this doesn't come across as a humble-brag or show lack of sensitivity - we are just trying to do our best for our kids and make our way in this world.

Thanks in advance.
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ClevrChico
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Re: Rich But Middle Class

Post by ClevrChico »

With a total net worth of around $5mm, you could move to a low cost area of the Midwest at any time and live like kings on one salary. With top rated public, schools you'd save a lot of educational expenses too.

Expenses matter much more than gross income.
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Wildebeest
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Re: Rich But Middle Class

Post by Wildebeest »

I am not into class distinctions. And in my lexicon rich is not great offense without much defense.

My suggestion would be that for the financial pieces of the puzzle would fall in place, to move to a LCOL region, find a safer job ( only daytrade with OPM if you're stuck on daytrading) and instead of sending 6 year triplets to private school may be find a good public school district or home school.
Last edited by Wildebeest on Sun May 15, 2016 11:14 am, edited 1 time in total.
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stoptothink
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Re: Rich But Middle Class

Post by stoptothink »

ClevrChico wrote:With a total net worth of around $5mm, you could move to a low cost area of the Midwest at any time and live like kings on one salary. With top rated public, schools you'd save a lot of educational expenses too.

Expenses matter much more than gross income.
If income or future income is even a consideration, I don't understand why this isn't being done now. $320k/yr in living expenses, outside of primary residence mortgage is very high regardless of how HCOL the area you live in is. If you moved now, it is very possible for either one of you to never have to work again; even if you want to maintain that lifestyle, the wife would make plenty to maintain it. Move.
livesoft
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Re: Rich But Middle Class

Post by livesoft »

My advice: Delete your initial post and start over. Financially, it doesn't really matter what you do. You are set for life.
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HomerJ
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Re: Rich But Middle Class

Post by HomerJ »

Move and never work again.
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Kenster1
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Re: Rich But Middle Class

Post by Kenster1 »

Wow - Professional Day trading - and the Day trading activities is bringing in an average of around ~$600k per year?

Just out of curiosity - how much $$$ are you working with on the trading activities to earn the avg of $600k or so annually?
Is it all your own money you're floating for the day trading or also money being made trading other people's money?
Last edited by Kenster1 on Sun May 15, 2016 11:03 am, edited 2 times in total.
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HomerJ
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Re: Rich But Middle Class

Post by HomerJ »

Rich_but_middleclass wrote:We are trying to stay somewhat grounded
Move for the kids. How grounded are your kids going to be growing up in that area? Move and you can spend more time with them, by either retiring today or working part-time.

You can buy a nicer house for 1/3 of the cost, in the best public school districts.

And all your money stress will disappear.
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HomerJ
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Re: Rich But Middle Class

Post by HomerJ »

Kenster1 wrote:Wow - Professional Day trading - and the Day trading activities is bringing in an average of around ~$600k per year?

Just out of curiosity - how much $$$ are you working with on the trading activities to earn the avg of $600k or so annually?
I'm guessing the one spouse works for a High-Frequency Trading firm... Not doing it on their own.
nanosour
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Re: Rich But Middle Class

Post by nanosour »

This seems to be a question of what is more important to you; you lifestyle or financial independence? With your current lifestyle, I suspect it will be a long time before you are financially independent. Especially considering the unknowable income/loss from "professional" day trading. That is a risky proposition which probably worked out OK during post 2009 bull market, but one never knows where the markets are going.

I think you're kidding yourself it you believe you're living a middle class lifestyle. Only the upper-class pays 120K/year for 1st grade education. And just a peek into the future, it's highly doubtful you will ever qualify for need-based financial aid when the girls get to college age. I can see them getting merit aid, but be advised, the Ivies don't offer merit aid.

There is good news. Once the girls are all launched, you'll be right about 60 years old and with high probability will be financial independent. :sharebeer :sharebeer
mwm158
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Re: Rich But Middle Class

Post by mwm158 »

This is a joke, right?
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reriodan
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Re: Rich But Middle Class

Post by reriodan »

Retire tomorrow and move the next day.
uncaD
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Re: Rich But Middle Class

Post by uncaD »

yikes
KlangFool
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Re: Rich But Middle Class

Post by KlangFool »

OP,

1) You live in a 3 million dollar house.

2) You spend 320K per year.

3) Your AGI = 920K per year

4) Your net worth excluding the house is 2.5 million

You spend too much. You save too little. On top of that, you live in neighborhood that makes you feel POOR even after spending 320K per year.

WHY are you doing this to yourself and your family?

Move and be financially independent. In fact, you could travel everywhere and never work another extra single day. Life is TOO SHORT to be wasted feeding an expensive house.

KlangFool
sambb
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Re: Rich But Middle Class

Post by sambb »

With AGI average of 920k, and expenses of 320k, i would keep on saving and doing what you are doing. Just dont inflate your lifestyle anymore
beezquimby
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Re: Rich But Middle Class

Post by beezquimby »

so you are spending about 120 a year after tuition, child care and house payments, just wondering what kind of budget is that, what do you spend your money on.

I'm taking your post at face value, however I've never heard of a day trader making a steady income like that. others may want to weigh in on that.

-BQ
Rich_but_middleclass wrote:Long-time lurker, first-time poster. This is long, but hopefully some of you will find it interesting and can comment.

We are a dual-income family with three children living in a very HCOL area. As the subject-line states, we are by almost any measure income-rich, but feel middle class in our community as well as from a net worth perspective (relative to our annual expenses), and are wondering when we will be able to be financially independent.

Some quick facts:
- Dual income: doctor + professional daytrader (small proprietary trading firm), both early 40s
- Children: 3 girls (triplets) who will be starting 1st grade at a private school in the fall
- Annual (pre-tax) income: average of last 5 years AGI has been $920k, ranging from $630k to $1.3mm (last year in 2015); doctor income very stable at around $350k/year - daytrader income highly dependent on performance (and the financial markets)
- Unvested deferred compensation: $750k - vests roughly 1/3 each year, and get more every year
- Annual household expenses: for 2016 expected to be $320k (excluding principal payments on primary residence)
- Net worth: $4.1mm before taxes, $3.4mm after-tax (assuming highest marginal tax rate for deferred compensation, distributions from 401k/IRA accounts, capital gains on taxable accounts)
- House value: ~$3mm ($1.4mm mortgage balance remaining) - this is for a 'slightly above average' family home in our area.
- Taxable and tax-free (Roth) accounts: $1.1mm
- Tax-deferred accounts and vested deferred compensation: $1.4mm

We live in an area where there is a lot of wealth, both from established families with large inheritances having been passed down over multiple generations, as well vast new wealth created in the last 20 years. Spouse and I are both from small mid-west towns with upper-middle class backgrounds and professional parents who sacrificed a lot to help us succeed, and we never imagined we would attain this type of income in our lifetimes.

We are trying to stay somewhat grounded: we drive very modest cars, take a reasonable (domestic) annual vacation every year, dress casually, rarely eat out or entertain and, other than the private school tuition and a full-time nanny, we don't have expensive tastes or expenditures relative to what our peers in our income bracket and local community spend. We realize that our home cost is many times what even an affluent family in other parts of the country might pay, but this is the price of living where we do; we could move much farther away and save some money (maybe even 40-50% of the cost), but at the expense of extremely long commutes and being in a suburb with lesser amenities and culture. We value our time and the environment/community we surround ourselves with.

Spouse and I enjoy our jobs, but feel that the income from professional daytrading may not be sustainable over the long haul, so are trying to understand when we can be financially secure enough to not need that income while still maintaining our current lifestyle. We would estimate our annual savings to fluctuate from $150-550k a year (including principal payments on mortgage). Total private school tuition for all three girls runs $120k/year; at 37.5% of our annual budget we are clearly prioritizing this in our lives, and don't want to cut this out even if we have to sacrifice in other areas. The full-time nanny, which is necessary given our working hours and the girls' schedules, costs roughly $60k/year (including payroll taxes). We outsource some other services like housekeeping, landscaping etc just to stay sane and feel like we have quality family time (at least while the girls are young) - probably total $15k/year. Lastly, we provide some some financial support (~$20k/year) to our parents, who are retired but not living as large as we are - it's the least we can do since they sacrificed so much to raise us.

Our initial thoughts are that once the mortgaged is paid off (ideally through savings over the coming years rather than liquidating taxable accounts), we could probably get by on the doctor salary alone, as we wouldn't have to pay for the nanny and could in-source some of the other services. We would need to cut back on some other expenses, and wouldn't be saving much, but it seems doable. An outside date for being a single-income (doctor) household, or maybe even completely financially independent (early retirement?) would be 2028, when the girls graduate high school, as having 3 kids in college at the exact same time should allow us to qualify for some financial aid.

Once the girls are out of the nest, we feel we could significantly downsize, if not both retire altogether, and move to a much lower cost of living area. Assuming our savings maintain their current purchasing power (we are conservatively invested in 60/40% stocks/bonds), and our housing needs are covered from the proceeds of sale of our current (expensive) home, we could then live on passive income from investments.

Does this seem reasonable and not too much of a stretch, or are we deluding ourselves into thinking we can manage this type of lifestyle and plan for our daughters' futures on one income? I realize that the numbers are large and that this seems like a very 'high-class' problem to have, and I hope this doesn't come across as a humble-brag or show lack of sensitivity - we are just trying to do our best for our kids and make our way in this world.

Thanks in advance.
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HomerJ
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Re: Rich But Middle Class

Post by HomerJ »

I shouldn't have jumped on the "move" bandwagon so quickly.

OP, if you love your lifestyle, and where you live, then you're doing fine and you don't need to move... You should have no problems retiring when your kids are grown, especially if you move to LCOL area... But if you continue to make even close to this kind of money for the next 10-15 years, you will certainly be able to retire even in that same HCOL area.

So if you're looking for re-assurances, you've got it. You guys are in great shape.

(Assumptions: You're not day-trading your own money, right? And are you invested in low-cost stock and index funds or are all your personal investments in 5 different stocks that the day-trading spouse picked? - Because my answer changes if all that money is at risk)

However, I think what many of us are pointing out is that you are ALREADY financial independent if you can bring your expenses down. Make no mistake, you are in the top 1%.

If one or both of you wants to semi-retire/fully retire though, it will be much easier if you move.
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goodenyou
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Re: Rich But Middle Class

Post by goodenyou »

This is probably not the forum for you to get advice. Most here will criticize your choices of day trading and spending. You most likely enjoy living a lifestyle that involves prodigious spending even if it is not conspicuous consumption. Living in extreme HCOL areas with very wealthy people has it's advantages and disadvantages. You are obviously thoughtful enough to realize this because you frequent a blog site that is all about fiscal discipline. You are having a great run and are on a possible pathway to your finish line. Cashing in your chips and "retiring" at the peak of success is always difficult. Many here would do that because they are not in your situation.
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rick2427
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Re: Rich But Middle Class

Post by rick2427 »

OP, you have received good responses from several members but am surprised you have not acknowledged any of them.
Are you really looking for good advice?
KlangFool
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Re: Rich But Middle Class

Post by KlangFool »

OP,

You only live once. My older brother passed full physical exam and was declared as perfect health. Then, he fainted in the bathroom. They found a brain tumor in his head. He died 6 months later.

KlangFool
btenny
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Re: Rich But Middle Class

Post by btenny »

What happens to your lifestyle and house situation if the market crashes next year and your day trading job goes away?? Are you sure you can get another day trading job? If the market crashes and you are unemployed how does your budget work? What expenses can you cut and still not spend savings? I know you are sure of everything at your current salary but remember the market is OLD and way overdue for a downturn just based on history.

I think you need to do some planning and tell us how your lifestyle works if you lose your job. So please do some analysis and tell us how things would work in this scenario. Do you have to sell this big house in that case? If you are forced to sell the house in a downturn or fast sale, what price can you expect? Or if you cannot sell the house will you be forced to take money from saving to fund your $320K lifestyle and the big house? How long can you go if you lose your job and still support this giant nice home?

I guess the point I am making is why not revise your spending to allow you to live on $200K to $250K or so. Downsize to more reasonable neighborhood where you can live on one salary if you are forced to go that way. Maybe if you sell your current home you can pay cash for your next house and stay in the HCOL area and still live fine on this reduced budget. Then you can save a ton if the job keeps going or become a kid minder and enjoy them while they are young. You will not get to play with them for many years. They grow up fast. Plus moving to a slightly cheaper neighborhood gives you a much easier social fit IMO. Kids will fit in better and so forth. Not so many really rich people for neighbors. Just thinking.

Good Luck

PS. I have a friend who had similar circumstances to you 15 years ago. Then the economy crashed, twice. Now he can no longer get big year long high paid consulting gigs. He spent tons of his savings paying on that big house when he was unemployed. So now he is still working at 64 but for a much lower salary and still paying on the giant house he could not sell when the economy went bad. And he could not keep enough savings to retire early.
Last edited by btenny on Sun May 15, 2016 12:14 pm, edited 1 time in total.
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Kenkat
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Re: Rich But Middle Class

Post by Kenkat »

There are so many things that could be said, but I will just settle on a few.

Realize that you are fabulously wealthy but don't feel that way because the people around you are (or seem) even more fabulously wealthy. They could be in debt up to their eyeballs but you just don't know. So, just let that part go.

You seem to be saving money and living beneath what is a very high income. So keep doing that.

You seem worried about sustaining the level of income from the day trading activities. I agree this sounds like a risk - so, to mitigate that risk, I would be very careful that you keep fixed expenses (mortgage, for example) or other things you consider non-negotiable (perhaps your girls' school) within range of the Doctor income. That way, if something happens with the other income source, you are not suddenly in an unsustainable position. Otherwise, commit to saving a good chunk of your income, enjoy your current lifestyle and let the future unfold a little. It sounds to me like you are in pretty fine shape.
joebh
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Re: Rich But Middle Class

Post by joebh »

Rich_but_middleclass wrote:As the subject-line states, we are by almost any measure income-rich, but feel middle class in our community as well as from a net worth perspective (relative to our annual expenses), and are wondering when we will be able to be financially independent.
You will be financially independent when you get your assets sufficiently high enough to cover the lifestyle you choose to live. If you choose to live an affluent lifestyle, then you will need correspondingly more assets to be considered financially independent.

All of this is under your control. You make your choices and you live with the consequences.

You have chosen a lifestyle that you feel makes you "feel middle class". When I was a child, we lived what felt like a middle-class lifestyle, but would be considered by most folks to be far below that. My sense is that pretty much everyone who has some control over their lifestyle feels middle-class. After all, you've chose where to live and how to live and you are comparing it to the community you have chosen.
joebh
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Re: Rich But Middle Class

Post by joebh »

KlangFool wrote:You only live once. My older brother passed full physical exam and was declared as perfect health. Then, he fainted in the bathroom. They found a brain tumor in his head. He died 6 months later.
Sorry about your brother.

But does this YOLO philosophy mean you should live your life like you only have 6 months to go? Otherwise, I don't see your point?
KlangFool
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Re: Rich But Middle Class

Post by KlangFool »

joebh wrote:
KlangFool wrote:You only live once. My older brother passed full physical exam and was declared as perfect health. Then, he fainted in the bathroom. They found a brain tumor in his head. He died 6 months later.
Sorry about your brother.

But does this YOLO philosophy mean you should live your life like you only have 6 months to go? Otherwise, I don't see your point?
joebh,

OP has ENOUGH MONEY to be financially independent NOW if he get rid of the 3 million dollar HOUSE. So, he is trading his LIFE /FREEDOM for THE HOUSE. I hope that it is worth it for him and he does not live to regret that.

KlangFool
joebh
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Re: Rich But Middle Class

Post by joebh »

KlangFool wrote:
joebh wrote:
KlangFool wrote:You only live once. My older brother passed full physical exam and was declared as perfect health. Then, he fainted in the bathroom. They found a brain tumor in his head. He died 6 months later.
Sorry about your brother.

But does this YOLO philosophy mean you should live your life like you only have 6 months to go? Otherwise, I don't see your point?
OP has ENOUGH MONEY to be financially independent NOW if he get rid of the 3 million dollar HOUSE. So, he is trading his LIFE /FREEDOM for THE HOUSE. I hope that it is worth it for him and he does not live to regret that.
I understand.

But as the OP indicated this house is just "a 'slightly above average' family home in our area." But you only live once so that says "enjoy the house" now because in 6 months you might nor be around to enjoy it, right?

You aren't asking the OP to give up immediate pleasures for something more than 6 months down the road?
BBSpartan
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Re: Rich But Middle Class

Post by BBSpartan »

If you haven't been reading the White Coat Investor site (whitecoatinvestor.com), get started.
The site offers too much good financial advice for physicians concerned with their money to be missing it.
jharkin
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Re: Rich But Middle Class

Post by jharkin »

livesoft wrote:My advice: Delete your initial post and start over. Financially, it doesn't really matter what you do. You are set for life.
+1. You probably already know this, but you guys make in a year what the average American family makes in a lifetime of work. You could probably retire tomorrow and have a guaranteed income for life still in the top 1-5% of households.
Blender
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Re: Rich But Middle Class

Post by Blender »

Well, you came here looking for advice and/or reassurance so I'm going to give you some of mine. I hope it doesn't offend you because that is not my goal.

1) Hate to break it to you, but you are living anything but a middle income lifestyle. Try living on 1/10th what you make now.

2) It seems you're comparing your financial situation to your neighbors way too much (keeping up w/ the Joneses), you feel you're not as lavish as they are, so you feel something is wrong because your financial situation should be better than it is making the money you're making and not spending as wildly as they do. Stop caring what the neighbors do and what they spend their money on. Instead compare yourself to those who are financially independent and/or are retired early.

3) You are prioritizing $180K/yr for grade school and a nanny. Let me say that again, $180K/yr for GRADE school and a nanny. Even on your excellent income, this is way too much as a percentage. I'm sure the school is great, but assuming the costs stay fixed you'll spend over $1.4 million just putting them just grade school. Instead, what if you (and them?) instead sacrificed for a few years, and instead went to public and/or much cheaper private school (might not exist in your HCOL area) and saved that money putting either of you in a position to retire if you so desired? Which do you think would be better for the kids long term?

4) Don't get your hopes up for financial aid during college, and there is no reason to even think about it because with your incomes and net worth in 12 years college would/could be like the cost of dinner.

5) Ask yourselves, is the lifestyle you're living really making you happy? I'm gleaning from reading some of the language from your post that it isn't. Determine what would really make you happy, then give up everything if need be and do that! And don't be fooled that spending money will make you happy, spending money is often a symptom of being unhappy.

6) You save way too little as a percentage of your incomes, so it's going to be very hard maintaining your lifestyles and become financially independent. You really only have 3 options, 1) Keep doing what your doing - maybe (luck would be needed) achieve FI after many years that can maintain your lifestyle, 2) Stay where you are but significantly cut your lifestyle, you could achieve FI in smaller number of years (my guess is you'll still be comparing yourself to those around you and will be unhappy because of it), or 3) Quit. Quit your jobs - quit your lifestyle - quit the game. Move to a LCOL area and retire, ditch the nanny and spend time with your girls, time with your wife, time as a family. Be FI. Truly be middle-class and live among the middle-class where comparatively you'll feel like your neighbors must feel about you.
protagonist
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Re: Rich But Middle Class

Post by protagonist »

HomerJ wrote:
Rich_but_middleclass wrote:We are trying to stay somewhat grounded
Move for the kids. How grounded are your kids going to be growing up in that area?

+1. GREAT response. I live in a college town in New England with a wide variety of incomes....many very affluent people and many starving artists, and many in between. You can't tell one from another based on the car they drive or the clothes they wear. When I compare my 26 y o daughter's value system with that of my relatives' kids living in communities such as yours in the greater NY metro area, I am SO happy, for my daughter's sake, that we live where we do.

I would also assume your neighborhood, from what you say, probably has a very large tax base and excellent public schools, which makes me wonder why you have to send your kids to private school.

With all the ways you say you save money, remember, your main expenses by far are your mortgage and educational and childcare expenses. By comparison, the amount you save by driving "modest" cars and not eating out much is probably trivial.

I am also astounded that you are making so much money from day trading. You must either be financial geniuses, or very very lucky, or you know something that neither I nor many others on earth know.

If I had 5 million dollars and was 30 years younger, I probably would retire from anything I didn't love , and work not for money but to make a positive difference in the world and that gave me satisfaction, which would assure that my children would learn by example. And I would live somewhere very affordable for people with that kind of money but still really fun. Like where I am now. I would invest my money and let it work for itself. And I wouldn't have to worry about money. But that is me.
Last edited by protagonist on Sun May 15, 2016 1:32 pm, edited 2 times in total.
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LAlearning
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Re: Rich But Middle Class

Post by LAlearning »

You are rich and looking down on the middle class.
I know nothing!
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Toons
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Re: Rich But Middle Class

Post by Toons »

HomerJ wrote:Move and never work again.

+1 :happy
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saltycaper
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Re: Rich But Middle Class

Post by saltycaper »

Rich_but_middleclass wrote:We are a dual-income family with three children living in a very HCOL area. As the subject-line states, we are by almost any measure income-rich, but feel middle class in our community as well as from a net worth perspective (relative to our annual expenses), and are wondering when we will be able to be financially independent.
There is no definition by which you are middle class--income, net worth, or otherwise--and you are already financially independent, if you choose to spend less money. I think some objective re-framing of your situation is in order, assuming this is even a serious post.
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rmelvey
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Re: Rich But Middle Class

Post by rmelvey »

This is not even close to middle class :?

You can do anything you want but not everything you want.
delamer
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Re: Rich But Middle Cla

Post by delamer »

It seems that that you are glossing over the cost of college education for your 3 children. A vague statement that they'll be eligible for financial aid is not a plan. I assume that children who are educated at expensive private schools are not going to be satisfied to go to Podunk U for college (all due respect to any Podunk graduates out there). And, frequently, financial aid means loans, not scholarships. Also, given that at least one of the couple had extensive post-graduate education, are your children going to be on their own for graduate or professional school?

BTW, I hope the physician in the family has excellent disability coverage.

Many people who have posted have told you that they would make different choices if they had the same resources that you do. Obviously, families have different priorities, but a lot of smart people who have thought a lot about their financial security -- and who have no vested interest in your decisions -- are suggesting that you rethink.
afan
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Re: Rich But Middle Class

Post by afan »

You are doing well now, but need to rethink some of your plans.

It hardly makes sense to spend that much for private school now and hope for financial aid for college. No one is going to give you need-based grants with your assets. You could always borrow to cover the costs, but it would make far more sense to save the money now and pay it out then. Loans are still loans and you could not count on need based low rates.

If the trader can find other lucrative work in finance, then it would make far more sense for the doc to become the stay at home. But what you are doing now- paying for a nanny so both high income people can pursue their careers- is the best plan. The doc cannot quit altogether for long without losing the market value of rapidly dated skills.

I would not be so quick to plan on moving later. Your kids will have a base where you are now. They will come back home from college or afterwards to see you, but also to see the friends with whom they grew up. If you move away, they cannot do both on the same trip. You could downsize to a smaller place in the same general area, but you want room for kids and friends to visit when they are in town.

We also live in a high COL area, but even so, you should be able to get a house big enough for 5 people, in a good neighborhood, for a lot less than your place. Dramatically reducing your housing cost now would change the entire picture. Your savings rate would go up, you would not have a huge share of your networth tied up in a single illiquid investment and you could not find yourself in trouble if the housing market takes another downturn.

We set aside money for college starting before the kids were born, but ended up funding it out of current income, leaving the college fund untouched. That meant it rolled over to retirement funds.

You should be able to do the same. The only wild card is whether the finance person can find a more reliable long term source of income. If not, then you should be saving very aggressively now, since you don't know when the gravy train will crash.

I would sell the expensive house now, find a nice place, large enough, good neighborhood, for about half the price, and consider that difference your college fund. Finance person look for high income but more reliable job. Fund a college savings plan. Both keep working, keep the nanny, keep the private schools if they are better than public in your new neighborhood.
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Rich_but_middleclass
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Re: Rich But Middle Class

Post by Rich_but_middleclass »

Thanks for all the replies.

To provide some clarification, professional day trading involves trading the capital of an investment firm (kind of like a hedge fund); the traders get a cut of the p&l while putting the firm's capital at risk. It is not our own savings/investments.

If day trading were to dry up or the industry were to go away altogether, I think replacement job could be found eventually (after retooling) - but would probably come at a much lower salary.

We ended up in this HCOL area due to jobs post college and graduate school. We actually love the culture and environment compared to the towns we grew up in, but nice places to live usually come at a high cost as there is lots competition to live in them (along with high paying jobs).

We'd ideally like to stay in this area and raise our girls here if we can continue to make it work financially. While there are pros and cons to every place, we feel there would be great benefits to growing up in a vibrant, diverse and sophisticated area, rich with history and tradition. We also like that they will be able to interact, compete against and surround themselves with the best and brightest, which should help them to reach their full potential. To us, that is worth retiring early(er) or increasing our quality of life with more material possessions.
sciliz
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Re: Rich But Middle Class

Post by sciliz »

Mathematically, I can see you retiring in 2028, living on 140k (current expenses excepting school and nanny), if you keep saving 150k/year until then. Thats assuming 5.5% returns, 4% drawdown and having a chunk extra to cover college- you will not qualify for financial aid.

What I don't see is a realistic scenario of you making it on the doctor salary alone with 260k in expenses (I subtracted out the Nanny). You'd need to get down below 200k to event stay in the black. In your shoes, I'd bet that means public schools or a long commute.

"Middle class" is going to the grocery store and knowing you can choose two of: healthy, quick, cheap.
"Upper class" is looking at your finances and knowing you can choose two of : private school, "better than average" house in neighborhood with "culture", early retirement.
"Wealthy" is always a million* in net worth greater than me ;-) (*adjust by orders of magnitude until you realize just how nutty the game is)
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Re: Rich But Middle Class

Post by RadAudit »

Rich_but_middleclass wrote:We'd ideally like to stay in this area and raise our girls here if we can continue to make it work financially. While there are pros and cons to every place, we feel there would be great benefits to growing up in a vibrant, diverse and sophisticated area, rich with history and tradition. We also like that they will be able to interact, compete against and surround themselves with the best and brightest, which should help them to reach their full potential. To us, that is worth retiring early(er) or increasing our quality of life with more material possessions.
Worthwhile goal. Hope it works out. Best of luck.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.
EHEngineer
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Re: Rich But Middle Class

Post by EHEngineer »

Hi Rich_but_middleclass,

Welcome to Bogleheads. I think your worries are very normal for people living on extremely high incomes who have not yet saved enough to be financially independent. ie, you recognize that your life is very good, but you are not yet financially independent so the potential of loss of income still looms as a your most significant risk.

As others have pointed out, most everything in your life can be had cheaper elsewhere, excpet this:
... We value our time and the environment/community we surround ourselves with.
FYI: you are in the same situation as every other working stiff, However your Plan B is quite good compared to others.
Consider a 2 earner $92k household, saving $35k/year with a $250k portfolio and $150k in home equity. If this person loses an income, the cannot move to a LCOL area because they already live there, they cannot save on private school tuition (because kids already go public), they already clip coupons, drive old cars, and take camping vacations.

What you need to do is analyze your $400k+ annual expenditures. Make a list of what you will cut, in what order, if your income goes down. Write out a Plan B, C, D, E and so on. Then can be confident that you know the best way handle the risk that every mid-career saver faces.

Some say move now, but I think that is bad advice. They are effectively saying "you should cut expenses because there is a risk you will need to cut expenses." That's the kind of advice you get from people who don't understand how much effort you have put into building the exact life you have built, and which you can currently afford. You are earning well and saving well so keep up the good work, and enjoy the fruits of your success. If your income continue at this pace you will be financially independent in 10-15 years (at current level of expenses).

PS. Make sure you have a good Long Term Disability Insurance policy for your spouse.

Good luck.
Last edited by EHEngineer on Sun May 15, 2016 2:34 pm, edited 3 times in total.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius
randomguy
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Re: Rich But Middle Class

Post by randomguy »

saltycaper wrote:
Rich_but_middleclass wrote:We are a dual-income family with three children living in a very HCOL area. As the subject-line states, we are by almost any measure income-rich, but feel middle class in our community as well as from a net worth perspective (relative to our annual expenses), and are wondering when we will be able to be financially independent.
There is no definition by which you are middle class--income, net worth, or otherwise--and you are already financially independent, if you choose to spend less money. I think some objective re-framing of your situation is in order, assuming this is even a serious post.
Rich people tend to be delusional about their place in the financial pyramid.:) Serious this is the old keeping up with the jones problem. Your 3 million dollar house isn't impressive if the neighbors buy 5 million dollar ones. Making 900k/yr isn't a lot if your neighbor makes 2 million. Your modest 5 series car isn't too impressive if the neighbor buys a 7. And so on.

But lets look at the problem
1) 350k salary
2) 4 million in assets = 160k/year

The numbers suggest that living on 510k is doable. When the kids leave, living on 160k (plus the couple million in house equity) also seems very doable. Obviously you are hoping for more appreciation(turn that 4 million into 6 real) and savings (i.e. 3 or 4 more years of saving 300k/yr) to get even more margin but you really don't need it.

As far as financial aid, you aren't getting any.:) Seriously plug the numbers into a calculator. With a net worth of say 3 million, your FASFA EFC is going to be north of 150k. Most of the really expensive colleges use CSS which will look at things like home equity that FASFA ignores.
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Re: Rich But Middle Class

Post by sambb »

It is interesting reading thoughts on preconceived notions on what someone of a larger income level would consider adequate. TO the OP, only you know how much you want to save and spend. You can't take the money to the grave, but you want to have enough to save and be ok at your higher lifestyle. No problem, you can do it. To maintain your current lifestyle, I would stay the course, and try to save 200k a year, if not a little more.
The top 1% of income worldwide is somewhere in the 30-40k range. So, most people here are in the top 1%, and you should be happy with your success, since you blowing away the worldwide 1%.
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Re: Rich But Middle Class

Post by EHEngineer »

randomguy wrote: ...

But lets look at the problem
1) 350k salary
2) 4 million in assets = 160k/year
$4M includes home equity. You should use $2.5M
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius
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Re: Rich But Middle Class

Post by wander »

People know when they are poor, but they do not know when they are rich.
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Re: Rich But Middle Class

Post by Blender »

EHEngineer wrote:Hi Rich_but_middleclass,
Some say move now, but I think that is bad advice. They are effectively saying "you should cut expenses because there is a risk you will need to cut expenses." That's the kind of advice you get from people who don't understand how much effort you have put into building the exact life you have built, and which you can currently afford. You are earning well and saving well so keep up the good work, and enjoy the fruits of your success. If your income continue at this pace you will be financially independent in 10-15 years (at current level of expenses).
No, they're saying that because he has enough assets to retire and do whatever he wants in non-1% country. But if he values that 1% lifestyle and location above all else then he's in a risky position maintaining it while in his current profession. It'll also likely be a long time to FI at their current burn rate, especially considering their expenses will be going up 120K a year. But, if they're willing to temporarily cut their lifestyle for a couple of years they could potentially save enough to become FI much sooner and retain most of their current lifestyle in perpetuity.
chx
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Re: Rich But Middle Class

Post by chx »

Those numbers don't make sense to me. With that income, why isn't your net worth higher? I would focus on the trouble that you're having at saving.
dltnfs
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Re: Rich But Middle Class

Post by dltnfs »

Is anyone tracking the highest income/consumption that anyone has ever described as "middle class" here? This one's probably nowhere close to the record, but it still seems fun. Maybe a wiki page with an ordered list?

P.S. With careful use of my employer's DCP, I think I might be able to get my AGI for next year under $300k, and I feel really poor now and can anyone help me please with what kind of instant noodles is cheapest? Do you think I should sell my car and get a bus pass?

Seriously, the lifestyle that you could enjoy from savings alone, with zero future income, would inspire envy in most Americans. If things go "terribly wrong" for you in relative terms, due a market downturn, job loss, etc., then you won't by any reasonable definition suffer. You're spending more than most people like to here, but so what? I want to quit my job sometime, and run away and go do something interesting (even though I can't seem to figure out what), so I save money. You seem to like the fancy lifestyle, so you're paying for that. I'd worry more about the effect of that on my children now than whether I could afford it indefinitely (I think; also note that I don't have children).

Maybe the admins can buy hedonictreadmill.com, and split the "emotional support group for the wealthy" threads into that? Then lower middle class people trying to survive and manage a 401(k) on a mere $150k/year won't have to read these things...
EHEngineer
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Re: Rich But Middle Class

Post by EHEngineer »

Blender wrote:
EHEngineer wrote:Hi Rich_but_middleclass,
Some say move now, but I think that is bad advice. They are effectively saying "you should cut expenses because there is a risk you will need to cut expenses." That's the kind of advice you get from people who don't understand how much effort you have put into building the exact life you have built, and which you can currently afford. You are earning well and saving well so keep up the good work, and enjoy the fruits of your success. If your income continue at this pace you will be financially independent in 10-15 years (at current level of expenses).
No, they're saying that because he has enough assets to retire and do whatever he wants in non-1% country. But if he values that 1% lifestyle and location above all else then he's in a risky position maintaining it while in his current profession. It'll also likely be a long time to FI at their current burn rate, especially considering their expenses will be going up 120K a year. But, if they're willing to temporarily cut their lifestyle for a couple of years they could potentially save enough to become FI much sooner and retain most of their current lifestyle in perpetuity.
Please note: OP is saving 25-40% of his income.
As I noted, you could advise any mid-career saver to save more; save 50%, 60% 70% and achieve FI faster!!! But why say that? Because you don't have the same utility function as OP, and you've probably never experienced life at those income and expenditure levels. OP can afford his lifestyle and save amazing percentage of income. I say keep up the good work, and keep on keepin' on.

As a mental exercise, imagine a place where you could live on half of what you are spending. Maybe that's suburban Boise, or rural Mississippi, or rural Mexico. Why don't you move there and achieve FI faster? Because you don't want that life. But somehow you are comfortable making the analogous recommendation to OP.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius
delamer
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Re: Rich But Middle Class

Post by delamer »

Rich_but_middleclass wrote:Thanks for all the replies.

To provide some clarification, professional day trading involves trading the capital of an investment firm (kind of like a hedge fund); the traders get a cut of the p&l while putting the firm's capital at risk. It is not our own savings/investments.

If day trading were to dry up or the industry were to go away altogether, I think replacement job could be found eventually (after retooling) - but would probably come at a much lower salary.

We ended up in this HCOL area due to jobs post college and graduate school. We actually love the culture and environment compared to the towns we grew up in, but nice places to live usually come at a high cost as there is lots competition to live in them (along with high paying jobs).

We'd ideally like to stay in this area and raise our girls here if we can continue to make it work financially. While there are pros and cons to every place, we feel there would be great benefits to growing up in a vibrant, diverse and sophisticated area, rich with history and tradition. We also like that they will be able to interact, compete against and surround themselves with the best and brightest, which should help them to reach their full potential. To us, that is worth retiring early(er) or increasing our quality of life with more material possessions.
We live in an area which is diverse ethnically and has multiple cultural opportunities. The one kind of diversity that is missing is by income. The families range from comfortably middle-class to wealthy. There aren't even any apartment complexes within the feeder area of our local public high school, which my kids attended. It is easy for kids who grow up in such areas to get a warped view of the world; we took steps to keep our kids grounded.

Just food for thought.
Ron Ronnerson
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Re: Rich But Middle Class

Post by Ron Ronnerson »

OP: Your post made me reflect on how perspectives can differ.

Here are my stats (to contrast with yours):

- Dual income in VHCOL Area (very nice part of the Bay Area with excellent schools): teacher + account manager for small business, both early 40s
- Children: 1 girl, aged 2
- Annual (pre-tax) income: $140k.
- Annual household expenses: for 2016 expected to be $85k (including principal payments on primary residence)
- Net worth: $700k
- House value: ~$800k ($400k mortgage balance remaining) - this is for 'an average' townhome in our area (4 bedroom, 4 bathroom, 2150 sq. foot)
- Retirement accounts: $250k (majority in Roth)
- Expected Pension: at age 61 of about $85k/year in 2016 dollars

We save between a quarter and a third of our income, though my pension alone should cover the majority of our expenses. I don't teach summer school or tutor and my wife works 4 days a week (two of which are not full days). We travel often and have a lot of the latest gadgets. We're all healthy, have lots of family time together, a house that is actually a little bit too big for us, live in a wonderful neighborhood and an area with a terrific climate, and have more money than we know what to do with.

We are your opposite: middle class but rich. I'm perplexed how you could feel anything but beyond wealthy but I suppose how you look at things makes a big difference. If anything, I'd say you should spend more money. Go on more vacations as a family and maybe cut back on how many hours you work. Donate some money to causes you support. Try to appreciate what you have and worry less about how you're not even richer.
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