Hell, even if you managed a year or two, you’re still walking away with tens of millions that’s pretty close to financial security for the rest of your life.
I think there's a part of the HN population that has delusions of becoming billionaires one day, so they talk about tens of millions like it's not much. They'll likely never have either.
Financial security in the Bay Area requires a house there ($2-3M, nowadays) plus $COST_OF_LIVING/4%. This is easily $5M net worth. It's in "two Googlers and a successful exit at some point earlier" territory.
Granted, this threshold is less than $10M, but it isn't orders of magnitude less
All of which is to say that it is basically impossible to stay in the Bay long-term unless you make an absolute fuckton of money.
Well, you do have two other options.
One is to commute in 2hr or more every day. Which a lot of service workers have to do.
The other is to share a house or apartment with roommates (if you're single) or with another family (surprisingly common, because what else can you do?).
These are both lifestyle decisions that differ substantially from what most people think of as "normal", past your 20s.
What I'm saying is, merely living a "normal middle class" lifestyle in the Bay requires absurd money. So I can understand why people act like absurd money is normal.
You don't need $5M to be "safe" in the Bay Area. You do need some money - enough to afford to get a mortgage on a place to stay - but once you get past that, things get easier. The thing is, it takes money to start making money. It takes money to start to be able to afford the things that will make your cost of living go down. It does suck, but it's not $5M.
I used to work in car sales in the bay area. Basically every car salesman and every mechanic at a franchise car dealership owns a home. Maybe they drive 30-75 minutes to work, but they are 25-35 and own a home in California. The older ones own a home within 15 minutes of their job.
That they bought themselves? What's the cheapest home available within an Hour of SF, 500k or more? Do you really think a car salesman barely pushing 100k a year can swing that? Or are you implying that car salesman in the Bay are making top 1% salaries?
I wasn't talking about car salesman that work in SF proper. Yes, 1 hour from there is basically still pretty expensive. But if you can work anywhere 30 minutes outside SF, and then live another 45 further, you own a home.
And yes any decent car salesperson is making $100k. I made on average $250k but I was a bit better than top 1%, and I know a few that made more. I suppose you could say I only socialize with high performers. Sure every car dealer also has a few people that struggle to pay their apartment rent.
The industry is setup for an good salesperson to support a family. If you can outperform average by 2x, which is possible if you're really on it, you can make 2x+ that amount.
Same applies to mechanics that are good at their craft.
If you put $5M in index funds, you’d grow it by about $400k a year (8%) on average, to start. It’s hard to imagine going broke with that by doing “normal middle class” things. For added security, one could add in a part-time job.
8% is extremely optimistic. 4% is more like it, maybe even 3.5%. I'll use 4% for what follows. That's $200k. Take out 20% LTCG, now you're at $160k.
Rent is like $3k/mo, so $36k/yr. Say you have modest living expenses of another $34k/yr. Now you're at $70k/yr to break even. That leaves you with $90k to save/compound.
So, ok, you're doing very well as a renter with $5M invested, even in the Bay Area. And, given that you have more than twice the income you need, you'd probably be ok with only $2-2.5M. As in, breaking even with passive income.
Which would work so long as you don't want to own a house, and so long as markets don't melt down. That extra security seems to cost extra.
Sure, but if you retired in 1997 to live off the interest on an investment in the S&P 500, by 2008 you'd have made an annual return of... 0%.
If you used cromd's figures of $5M in funds and lifestyle expenses of $400k/year you'd have spent ~80% of the principal (although you'd probably have reigned in your spending unless you were mad)
A boat doesn't just need to survive the harbour's average water level - it needs to survive low tide and high tide.
4% is the historical number you could take out for expenses in the worst case scenario. IMO it’s not pricing in modern existential threats, such as a war that crosses the ocean, or existing regulatory differences that make it more difficult for larger firms.
Yeah, maybe 4% is all one could manage to withdraw to survive the longest downturns. I haven't dug into that much. But, people are maybe debating different things - some are likely talking complete early retirement whereas my comment was more about "financial security" (or at least the claim it's "basically impossible to stay in the Bay long-term unless you make an absolute fuckton of money").
For me, financial security means something more like: money will be low on my list of problems. I could get more money by turning my attention there. I might have to work, but it could be some low-stress job, and losing it isn't a big deal. I could afford extra care for an elderly parent. I won't be knocked out by most random things that pop up, specific to my personal life, though I can't control what happens to my country etc.
For some, it means they don't have to work at all, and can't be ruined by market downturns that last decades. And further for some others, it means they can survive wars and societal collapse.
I think both are valid to wish for, though at a certain point it's a burden on yourself to control things you can't control. If there's a 1.1% chance of widespread nuclear war in our lifetime, and you want to be 99% certain your lifestyle won't take a hit, one needs to save and spend a ton to be able to weather it all.
Come on, do some math on this. Any engineer at FAANG, even excluding their stock grants, will probably have close to 10M in retirement accounts by the time they retire given max contributions and historical returns.
Oh I agree 100%, personally it’s more money than I’d know what to do with, but I’m also aware that there’s a chunk of users here who’s respond with “well after tax this that, etc etc” with some justification as to why it’s not quite enough, so I thought I’d attempt to cover all bases hahaha.
Most people spend proportionally to what they earn, so I don't see why one year salary should necessarily provide the lifetime of financial security, regardless of what that salary is.
There comes a point where it becomes increasingly difficult to "spend what you earn." I mean, you can do it with dedicated effort, of course, but even if you're very in-the-bubble, it's hard to think of buying ultra-expensive commodities (boats, art, highly expensive cars), or your third or fourth house, or other things that can plausibly eat up tens of millions of dollars in a year, in the same category as, like, "Well of course I want to send my children to a swanky private school instead of public."
Depends on the people. If you want to be safe to retire early, it is a good idea to keep living humbly while you are making a lot of mone and not adopt the Jet Set life.
I've seen example of people selling their company, retiring early and stay low-mid budget. One particular example is very wealthy but live in a small house, drive a 10y old compact hatchback car. You wouldn't know his fortune just by looking at his habits. He enjoy more a BBQ with his neighbors than going to expensive places to eat and help around when someone in the village needs an additional hand. He is still probably spending a lot more than I do traveling on holidays and he has nicer furnitures but he is still doing it like most people do, only a few weeks a year when the kids are out of school. What he has is the ability to justify buying expensive but sturdy stuff that last, instead of things that break and have to be replaced on a regular basis.
But it’s a bit ridiculous to get 42 million USD and not be satisfied. And the original comment is ridiculous to suggest that it’s not sufficient compensation.
If your salary was $25k/year (a respectable amount for the majority of world population), would $1M seem like a lifetime financial stability? I think so. Yet if your salary is $250k/year, it probably wouldn't, and this would sound ridiculous to people who make $25k/year.
If you make 25k/year getting 1M is almost as good as getting 42M, because you are not used to thinking about anything you can do with 42M that you can't do with 1M. However, if your salary has been 10M/year, you most likely can easily see many ways to spend 42M, which are not something you think about often when you make 250k/year.
Most people on $250k are just trying to “survive” (as in, have a house and a family) in a high cost-of-living area. If a house costs $2M then $250k is only just sufficient after deducting taxes and living expenses. Their spending is not so different from someone earning $25k in a low cost-of-living area.
There’s nowhere in the world where the cost of living requires $10M/year. To spend that much money you are forced to spend it on high-end luxuries. Of course there are people who could easily consume that amount of money, but most people on that income would put it into investment instead of consumption.
Financial freedom is supposed to cover more than just some standard "cost of living" in a given area. It should let you maintain your lifestyle without having to work for it. Maintaining the lifestyle includes keeping your spending habits, so if you have been spending 10M/year, then achieving financial freedom would mean you can keep spending that much for the rest of your life.
It's a different question how many people actually spend 10M/year - I have no data about that, but I can easily see myself spending that much if my income has been 40M/year for several years. To me personally spending that money would not necessarily mean buying some high-end luxuries. It would probably involve trying to make some changes in the world and influence things. But yes, luxuries and interesting experiences too. If you're interested in this question, try finding more information about lives of famous rich people.
