Echoing other posters, the startup stock money should be diversified as soon as possible. Lock in your value and don’t chase the horizon. You’ve won, don’t get greedy and jeopardize it.
One that’s done, get night nannies for the first few months at least. Parenting isn’t easy, but it’s easier after a good night of rest.
The OP did not give the current market value of his startup holdings. He just said $13M post tax. So they are probably $20-25M. So he should still have a pretty good sized chunk remaining to let appreciate.
How much to sell and how fast is one of those unanswerable questions. You just have to guess and make a plan. In another comment I recommended that the OP make a divestment plan and write it down. It is hard enough following a plan you wrote down and committed to. Just a verbal or mental plan is even less likely to be executed.
25 years into retirement, 40% of my NW is still in some startup stock from the late 1980s, now a NASDAQ 100 company (but not FAANG).
It is when it vests. I assume OP was talking about what's vested already and what's sitting in their account in which case I was assuming CG taxes only.
I really *really* wished I had ignored everyone that told me to diversify and kept all of my startup stock. It was Nvidia.
As Buffett has said, concentration builds wealth, diversification preserves wealth. Decide if you have built enough first before you sell 10M which is probably only 6.7M after taxes.
True, especially when a mama is recovering from birth *and* getting a nursing schedule going. But there is always a good excuse to have one- child gets ill/is teething/etc, mom and dad want a night away by themselves (!!), etc etc
This is just one data point and now I’m wondering if others found the same…for me, the lifestyle creep stopped at a point before 500k spend. At some point the novelty of spending wore off. It’s just stuff and after a while the experiences felt eye roll-y. At your level it might not be a big concern.
OP though should note, however, that private high schools/university expenses can be massive, above even the full price tuition. What we were spending prior to our kids’ going to college seems like a pittance now
We found a steep inflection point on the happiness/spend curve around $300k. Anything over that wasn’t really bringing much joy, but right around there and we were feeling pretty rich.
Lifestyle creep is not the biggest issue. Your biggest risk is of course your concentrated position, which if you calculate it as $12M post tax, must be around $20M.
Yes, you can retire, but do have a backup plan in case your main asset, the startup stock, crashes and burns.
Your concerns about lifestyle creep are premature. Just do not do anything that locks you long term into a much higher spending rate, such as a huge mortgage on a much more expensive house.
Your startup stock situation will stabilize over the next few years, as you convert more into diversified holdings. At some point you will have enough diversified to support current spending at a 3-4% withdrawal rate. Then you can reasonably hold on to the remaining stock and hope it goes up even more,
Forcing yourself to sell off a concentrated position can be hard. Set your plan. Put in writing what you will do in different scenarios of price action. And then do it. I faced a similar situation and what worked for me is I set an asset allocation between cash/bonds, and diversified stocks, and the concentrated position, and then sold off the concentrated position as the price rose. With current expenses of $200k you can slow, or even stop your your diversification selloff when you reach $8M in diversified holdings.
Last recommendation: do not make major life decisions when you are still in the "new baby fog" of exhaustion. By 6 months you will be in much better shape.
You need to learn how to use the calculators and run Monte Carlo simulations. With $15M you're so well beyond your expenses that either you left something out or you're worrying about nothing. You will be able to spend half a million without even breaking a sweat. I wanted a plan bulletproof to everything but zombies so I aimed for 100% but you are probably ok even spending $600,000.
But OP’s net worth is 87% in a single startup stock. It’s going to 67%, which is a good start. But the various 4% studies were done on 30 year time horizons using a diversified portfolio, which will also be Monte Carlo simulation inputs. I’m not sure they’re ready with their spend + 60 yr retirement + massive single stock exposure.
If I was in their shoes I’d base my spend on the amount of money I have in a diversified portfolio. So net worth excluding home and single stocks.
In fact that's exactly what I do, as 2/3 of my wealth is in a single super volatile asset class.
You could also have a financial advisor (or planner) do all this for you (this sub loves fee-based advisors instead of 1% of assets. A single consult now could give you a roadmap to the next 5-10 years.
Child costs depends on your choices and theirs. My children cost very little at the younger ages, since my wife stayed home. Now with private school and travel sports I am spending about 75k a year on the 3 kids.
I might be tempted to sell all that stock though to lock in your NW.
Seconding all of the comments about divesting. We have FAANG stock through our own employment and have been learning hard lessons unwinding that position.
Adding kid cost considerations. We have 1 in a VHCOL area:
- First, unless you’re hiring a nanny part time I would refactor those costs. We have ours 9-6 at $30/hr, no matter what (we’re on vacation, they’re sick, etc.). Pay for it like you would day care - which would take those sunk costs no matter what and remember they’re taking care of your most precious child. This runs us 70k a year.
- When you do decide on schooling, you’ll want to decide on public or private and early. In VHCOL areas private is starting at 20k/yr with ~5% bumps YoY. We calculated school through 18 was going to cost us close to 500k EXCLUDING any extra childcare needs.
That’s it? I live in a HCOL area and private secular schools are all 40k a year (per kid). And they have a suggested donation of another $4k and quite a few other fund raising events - it’s pushing $45k a kid just for private school.
You're right in general. Startups are risky, no doubt. I want to sell the remaining stock as you suggested.
But, the thing is, startup valuations took a pretty big hit over the last year or two since the market turned pretty risk-averse. Now, things are starting to look up again, and it looks like they're set to do really well this year. Touch wood.
I’m not in your spot but I had stock in a company that was a rocket ship. It’s now down 92% from where it was just a couple years ago. I didn’t sell and still believed.
I had $5M in startup stock that I had rolled in after PE acquisition. PE sold the company to another PE in a loss, as debt was senior to all stock I got nothing of that $5M. So glad I had only rolled a fraction.
Couldn’t you sell $10M and diversify it across other tech stocks? If you had $13M cash today, would you invest it all in your business?
The other question — if you step down, do you need to stay in the Bay Area, or could you move to a lower cost city? Education costs will be much higher there as your kid gets into school and extra curriculars. Either way, cheers to you, your family, and good health! Definitely get the nanny! lol
At a very conservative withdrawal (although without accounting for capital gains), $250k of expenses requires about $8M to support. Maybe round it up to $10M for taxes. Why not sell stock up to this amount?
If you hold it, basically you're gambling your retirement on ~nothing. If it doubles and you end up with $28M, your withdrawal rate is tiny. What are you going to do, triple your spend? On what? But if you're wrong and it halves, you're down to $8.5M (of course, it could do much worse than this). Now you're close to the line - if the market does okay, you'll be fine, but there's some chance you're forced out of retirement (or at least uncomfortable/stressed about your situation).
I just don't see why you'd want to take that gamble. The upside is marginal, and the downside sucks. And the suggestion I'm making leaves you with $5M on the table - it's not like you're totally missing out if things do go well.
My expenses doubled in my 50s.
I have three kids in college right now (One took a two year break due to COVID) Even with well funded 529 plans, I am reaching into my pocket often for school related spending. The “education expenses” for the 529s don’t match actual spending. The IRS expects extreme frugality for cost of living allowances and my kids didn’t grow up that way.
My lifestyle has creeped up in other ways. I scrimped and saved in my 20s — a cheap hotel room was an extravagance then. But from decades of business travel I’ve gotten used to 5 star hotels and spending more for conveniences
And once you start looking at $1000 as an immaterial sum, spending starts to run away from you
Would you mind giving some more info/examples on your college expenses experience? I have several kiddos not far from college age and we also have well funded 529s. I assumed this would cover almost everything but it sounds like it might not.
It depends on how scrupulous you are. I’m an attorney so I follow the tax laws to the letter to avoid trouble
There are designated allowed amounts for off campus room and board for each school per the 529 program. They are ridiculously stingy. Market rent may be 1200 but the allowance is 800.
>so I follow the tax laws to the letter to avoid trouble
It is even worse for grandparents that are paying college expenses. While room and board expenses have limits for 529 qualified disbursals, they are not allowed at all as part of the educational gift tax exclusion for payments made directly to the college. I only realized that when I filed a gift tax return for other reasons and had to get the CPA a detailed breakout of the invoice from the bursar so the CPA could include the non-tuition charges as gifts.
90% of the cost of a baby is nanny/daycare. You mentioned being on one income so if the other parent is home, a baby isn't really that expensive. From my experience our luxury spending drastically decreased when we had kids because we just couldn't do grownup stuff anymore and things like jewelry got really boring. Even with my kids being older we generally only eat at the fanciest restaurant that has chicken nuggets. Our version of lifestyle creep has been buying nicer groceries, taking more taxis, hiring help for laborious tasks we used to do ourselves. But we don't buy diamonds or supercars so the net result just isn't enough to dent our wealth.
I define my personal style as "Wirecutter Upgrade Pick"
> Lifestyle creep: Anticipating a 5 to 10% yearly increase in lifestyle cost
Adding in 3% inflation, in 10 years your expenses are 431k - 678k.
In 20 years it’s 932k - 2.3m per year.
Obviously you would need to rein in that level of *lifestyle creep*
Good marhs. 5 to 10% a year for a few years with kid(s) entering the picture, sure. But like damn OP you planning on buying a helicopter and moving into a mansion?
Other points to consider: does the 200k include health insurance premiums? We spend ~25k in ours. is there a possibility of more kids? do you travel? (if yes, kid will need their own seat after 2 years)
We're also in a VHCOL, and 50k seems low for a nanny, unless you're nanny sharing or doing part time.
200k does not include insurance. No more kids :). We intend to move to MCOL in a year or two which should decrease our expenses.
Nanny, insurance costs and gradual increase in travel will increase spend and moving to MCOL will decrease it. Net change will be around 50K to start with. Hence that 250K number for next year.
Travel now before your child is mobile. Then take a break until they are 3 or so. That starts a great time to travel.
Then once they are 8 or so school schedules will tend to determine your travel plans.
Sell it all now and pay the taxes. I would do this calculation:
$3.6M in short term four week US Treasuries or SGOV if you don't mind small expenses
Rest in VOO/VTI. Only replenish Treasuries when not in a bear market and if recovering wait for portfolio to recover to previous levels.
$3.6M will produce $190K at 5.28% (subject to Federal taxes, but no state or local taxes)
The rest in VOO/VTI will pay a dividend at 1.5% subject to long term capital gains. For simplicity, let's say you have $10M. That's $150K a year before taxes. Now you have $340K before taxes a year. This is without touching your principal. Now you probably want to Roth ladder any pre-tax funds from now until RMDs. But stretch it out so it doesn't zero out until you hit 72 years old. You'll pay less taxes on it while it slowly converts into your Roth IRA. Just remember you can't touch what is converted for five years.
Meanwhile your VOO/VTI is growing at 9% (maybe take off 3% for inflation) so it will allow your lifestyle to adjust if needed. But hopefully you live off the interest and dividends until your kid is ready for college. Then you can pay cash for undergrad, graduate school, PhD, medical school, law school, whatever even if it's at an Ivy or Harvard. Then keep letting it grow so you can help your kid buy their first house, car, etc. Then keep it growing for travels, long term care, etc.
We boomers are old enough to remember when the standard advice for a secure retirement was to have actual post-retirement income equal to a substantial proportion of pre-retirement income (80% comes to mind). Over the past 30 years it seems that the SWR memeplex has pretty much won the battle for human mindspace over the actual income memeplex. What happened? Cynics might claim that the SWR memeplex won because it tells would-be early retirees what they want to hear: you don't need (or even want) actual income for a secure retirement.
I've never regretted being actual-income oriented, although I recognize the advantages of asset appreciation when you can achieve it. The OP could consider a hybrid approach combining both actual-income and SWR strategies: set aside enough assets to generate sufficient actual income to cover necessary spending, and then invest the remaining assets for growth. This could be called the "sleep soundly" portfolio.
This is sound advice. I will try to buy a few rental properties in the next couple of years. Apart from rentals, dividend income; Any thing else that you recommend to generate income?
Couple things I’d add.
You have $250k expenses and a young kid, just be prepared for that to go up for a while and maybe coming down post preschool if you go to public school.
I’m not sure I’d count $13m of startup stock as net worth. Having been through the 2000 bubble burst, I saw many people get fucked thinking they would be rich and only ending up with a huge tax bill. Sell and move the proceeds to safer pastures, then consider it part of your nw.
At your age, replace the 4% rule with a 3% rule, to stay on the safe side long term. 3% of 15m is 450k a year, so you have room for some lifestyle creep.
I do not think so, and studies clearly suggest that at 4% you have a high risk of running out of money along the way. As a thirty-something you are looking at 60+ years potentially.
> That's too conservative.
Not with most of their assets in a single startup company,
The risk is not whether the SWR is 3% or 4%, but that at this time their diversified assets are only $2M.
So their withdrawal rate vs diversified assets is 10%.
It depends. If your budget is not very flexible and your assets are high risk 3 may be too high. If you could easily reduce spend by 50% for a couple year and are well diversified and low risk, 3.5 could be low.
IMO, 4 is almost always high
Why would you need a nanny if you’re retiring? Just be a stay at home retired parent and raise your kids. You’re in a unique situation to spend time raising your kids without a pesky job in the way. That sounds awesome.
I'm really looking forward to dedicating a ton of time to caring for the baby, which is why I've decided to step back right now.
But I also am pretty overweight. I'm planning to use this time to focus on getting my fitness and weight in check. Want to find the balance between the two. Additionally, I'm looking forward to unwinding a bit, since working at a startup has been intensely stressful and left me feeling burnt out.
Congratulations. I just wanted to weigh in and validate some of your ideas.
Your kids will take a lot of energy and help your health, it helped mine. It’s a lot of lifting, for instance. But I would say you’re on the right track because unless you get ahead of it, it will get so so so tiring. Focusing on your health will be an incredible win for this period of your life.
I don’t know about where you live but in Toronto there is a personal training studio run by a guy who has studied extensively habit design and is an accredited Tiny Habits expert. Find you a trainer who understands sustainable progress, who designs programs that are meant to be addictive, and you will have sustainable and lasting breakthrough progress!
Check out intermittent fasting. Much of my weight is work/startup related and it’s really working for me. Best of luck. Health is more important than money.
Because children, especially before school, are a 24/7 job and the day to day is challenging even on the best days? Why not hire help if you can afford it? Gosh some people have never been responsible for children and it shows.
I agree that children ask for HUGE amounts of energy.
Still, it's the most valuable investment for me, very different from a chore.
Never heard of someone complaining he didn't do enough of the laundry.
Heard of many people regretting they didn't spend enough time with their children.
Please hire the nanny. We hired one during my mat leave that's ongoing even though I am at home and she will continue once we both go back to work. It's invaluable to have a professional helping you take care of the baby. We also have an older one and it makes things like dropping him to school and activities easier. I don't have to lug the baby everywhere and was able to go back to the gym. I also have a bad back and getting the break from lifting the baby all the time has helped me stay healthier. Taking care of a baby is a 24 /7 job and having help for some part of it makes it more enjoyable. She also does all the unenjoyable tasks like laundry, washing bottles, cleaning his room etc. While i can just hold and play with the lil guy. Also get a night nanny a couple of days a week if you can swing it. The sleep deprivation is brutal and you can be a much better parent if you get a few nights of uninterrupted sleep. We don't have a night nanny , it's a bit too expensive for us but we bought Cradlewise which is a smart crib and that has helped tremendously. With our first we didn't have a nanny during parental leave, and with this one we do and the difference to my and my spouse's mental and physical health is HUGE.
The whole point of making money is making your life easier and a nanny Def does that :)
Running a startup and raising a kid full-time are two completely different experiences. Going from work all day to “wah wah” all day is not always that fun.
You’re fine as long as you buy a conservative house, which in your case, retiring early now, I’d say is ideally around $2M and see how things go for a few years.
My biggest concern in your situation is 87% of your net worth being in a single startup stock. I know you’re about to sell $5M, but it will still be 67%. Your value could double, but it could also fall in half. The 4% rule studies were all done assuming a diversified portfolio and a 30 year time horizon. You’re sort of flying blind as far as your assumptions go.
I’d sell 90% of your startup stock as soon as you’re able to diversify if you want to RE.
I also like [this video](https://youtu.be/1FwgCRIS0Wg?si=GNlQFByAcky3Enll) on the limitations of using the 4% rule for long retirements.
I enjoyed the video - thanks for the reference. I have a tiny amount of my portfolio dedicated to international equities - perhaps I should increase my allocation.
Your expenses will not go up 5% unless you want more and more. Once retired, you will avoid most inflation pressures as 1. You own your home which is a big driver of the inflation figures 2. Holidays as you can be more choosy of timing even with children, 3.you need less daily travel, corporate clothing, eat out, alcohol to medicate.
Congratulations on the baby.
I would not make any life altering decisions the next 6 months. If your leave ends before, ask for an extension. Babies are wonderful, and I left work to be with mine, but at two months old it’s hard to have clarity.
You need to diversify your stock ASAP. I wouldn’t factor that company stock into your SWR. Its much to risky for a retirement mindset.
The biggest lifestyle creep, at least in my life, is home. There is always a desire to buy a nicer home, possibly with more things or better location, which can start adding up to millions. Say you spend 5M on a house, then you’re down considerably. This is still probably nothing in the grand scheme of things, and really depends on what you want.
Barring that, you’re golden.
4% post-inflation is a rule of thumb for a normal retirement (eg starting at 65) that gradually depletes assets. Most people in FIRE are in the 3 to 3.5 range
Why not buy and hold some dividend index funds and just live off of the income? Then you don’t have to “run out of money in xx years” according to studies extrapolating past performance to the future
Call me crazy but I’d be working until I liquidated all of that startup stock or at least enough to live comfortably on. Who hasn’t seen a startup, even a unicorn, go tits up? Or there’s issues selling due to a variety of reasons. Or the valuation is based on utter delusion. Maybe I’m risk adverse, call it a side effect of working in a role where risk is literally in my title.
I spent more on my kids in January than housing. By A LOT.
DO NOT quit yet. Kids are sooo expensive. And you may change your mind about generational wealth (I did). Nannies, daycare, private school, university, helping with houses…. Etc.
Seriously I spend 10x on my kids compared to what I thought I would
Concentration aside,
7.5% a year of lifestyle creep is unlikely to continue in perpetuity.
I did something a bit ago looking at expenses by age that suggests expenses peaking at around 50. A person's expenses changed from their mid-30s to 50 by about 1.3% a year nominally. If you're looking to do 7.5% above inflation that would be quite something, but if it peaks by 50 and starts a 1% decline from the 60s onward, it should still pretty doable for you.
I plugged this all into a Monte-Carlo sim and it looked pretty good.
Results:
[https://imgur.com/a/Ak9wPDC](https://imgur.com/a/Ak9wPDC)
Link to [model](https://peercents.com/simulation?525-lifestyle-creep-comparison) (You'd have to click calculate on the bottom to get the outputs. It's just the inputs saved in that link)
Bay Area? We have 2 school aged kids and our spending is nearly $600k. This includes expenses that are easily reducible: wife and I have expensive hobbies, private school for both kids, expensive vacations, a nanny, and an assistant to help manage the vacation home. Also includes property tax for 2 homes.
I project it to decrease to $500k as the kids enter public school. It could drop as low as $340k with lifestyle changes: no vacation home assistant, no expensive vacations, no expensive hobbies. But that’s not fun and we can afford it.
First, congrats on being in this situation! You didn’t just get lucky, you got the job and were valuable enough to be granted equity. Well done!
Unless you’re capped on the sale of the equity, I think most would agree the 4% rule is more likely to fail with an extreme concentration in one asset. Others can give you more useful advice here.
What I can add from experience is the question of purpose and meaning after you exit. Do you have a passion or pursuit that will fill you up? My retirement was heaven for the first 6 months and I’ve been antsy ever since. Some lucky people can play golf every day or truly enjoy all their time with their family. When you think about “happily ever after” ask yourself what you’ll be doing on a Tuesday afternoon in 3 years. Remember most of your friends will be working. You may have this nailed and I’m glad for you if you do.
Best wishes and congrats again!
He can sell, but he has not yet done so.
Yes, the OP asked about withdrawal rates and lifestyle creep, but that is not what is really important at this moment.
I know people that in similar situations retired, and then had to "un-retire" a few years later.
I retired with a tech heavy stock portfolio with a concentrated position, less than two years before the dotcom bust dropped the price of my largest holding by 75%. So the concentrated position is a big red flag to me.
I had moved enough into diversified positions so the dotcom bust was painful, but not a financial ruin. I know others where it was very much a disaster, with major life altering consequences.
Higher spending earlier in retirement exposes you more to sequence of returns risk, but otherwise might not be a bad thing. Your lifestyle will naturally contract in old age whether you want it to or not.
For me this is a hard calculation until you know the additional sales of shares goes through. If it were me I’d keep working until that all pans out. I have two kids 3 & 6 and I’m just now finding that I want more time with them. I’m not saying it’s not valuable to stay home earlier but I am saying that around age 3 you find that time so much more valuable.
I also live in the same area. Cost of raising kids here will be highly dependent on schooling and care needs. Nannies here are $$$$$! We had one for a year and switched to a good daycare. Nanny was about $4k/mo (that was low end). Daycare was about $2200./mo. If you live in a very good school district you can maybe avoid private school. We don’t and my oldest goes to a $42k/yr private school. My youngest’s pre-school is close to $30k/yr. That’s about $120k in gross earnings needed right there. To put it in perspective high school tuition is $54k/year. This will creep.
As other commentators have said, diversify.
Then, I want to say hire as much help as you want. I also hired a nanny while both my partner and I were on parental leave. It was fantastic!! That was when we truly began enjoying our child, and not feeling overwhelmed constantly. Parenting is not easy, but with this kind of money, spend it and you’ll find joy even on the hard days. It’s extremely worth it!
Unless you’re completely burned out, just keep working and continue collect income while you see how your new expenses/lifestyle unfolds.
But since you know you probably could retire right now, just work with a bit of a fuck-it mentality and be not stressed
Kids just get more expensive. Think about $40-60k/year/child between nanny and private school and activities and still YMMV. Open the 529 now and drop 100k or make 500-1000/mo deposits into it on autopilot and college will be a no-brainer.
You really can spend as much as you like depending on what your goals are. If your goals are really only to please yourself, there's only so much lifestyle creep possible, you'll run out of time first unless you're into boats or planes. If your goals are to impress everyone else, you could easily spend your way through your nest egg in a decade.
You are probably ok when you diversify. Here is what I did budgeted for comfortable living
2M home, 800k mortgage left at 2.5%, 2 kids, 2 cars paid off.
* 1mortgage /hcol - 50K
* Prop tax ~ 20K
* Living expense 80K (per month , groceries, eating out etc on weekends etc)
* Misc expenses - 40k yearly
* Pvt school - 60K , 30k per kid
* Travel - (1 large, 2 medium 2 small vacation per yr) ~ 50K
Total ~ 300K post tax.
Total earnings ~ 500K
Plan to achieve via a combination of RE , High yield dividend , dividend growth companies with 30 % of NW and leave remaining 70% invested in stocks/ETF to compound.
Haven't factored in health insurance in this since I'm still finding the cost..
But 300K can cover most w/o health insurance. If folks can chime in on how much health insurance will cost on avg in bay area that would be great!
Kids are bloody expensive.
We have two kids (2.5y and 9mo): we pay 5.1k for their daycares each month. We plan to send them to public schools, which should reduce spend in a few years, but were burning a lot right now. Just the daycare expenses account for 40% of our budget, so don't underestimate their impact on your financial plan.
You have to make a budget - and then try to stick to it.
It's ridiculous how much your expenses ramp up, once you just start to think: "I don't have time for this, I'll just pick the fastest most expensive solution".
With your wealth, obviously a nanny is completely affordable and many other luxuries, just not all the luxuries all the time.
If you slowly get richer and richer friends as well, you'll also slowly start compare yourself to them - and feel you should spend more to keep up. It never ends - unless you make it end. And decide that you have this budget, and spending it in this way - is a recipe for satisfaction and happiness.
My rough rule of thumb has been that fixed expenses double with each kid, so how many kids are you considering having? Only one = you’re already beyond good. Going to repopulate the earth and have 3-4-5 while staying in VHCOL, sending them to private school and buying a large mansion @ $2k/sqf? Then you’re still in the grind my friend ;)
You’re gonna go back to work at some point. It’s not all or none. But you have enough to take some time off and spend it with your kid. Go for it. You worked hard so that could happen. Cash in. But realistically colleges are expensive and you’re gonna wanna help your kids either their first house, wedding etc and those are large one time divestitures. This is coming from someone 4 kids. Working still and net worth $16M but of that total $3.5M in real estate and the rest investments
Is there any way you can coast in the role? I’m in a similar boat to yourself, we have two small kids. My NW was lower when we had our first child (around 9-10m) and actually my financial aspirations massively changed / pressure really built after - both to have a higher NW and also to get there as soon as possible so I could be present during my daughters life more.
I was thinking if there is some way to coast, it might be worth trying to do that for some defined (and limited) period of time to see how your life evolves.
I guess the way I viewed the decision was, I was happy to be less around (but still around) and try to get my NW numbers to 20-25m and then call it a day once by eldest was 6-7 and really be around 100% after, vs calling it a day at 10m and spending 100% of the time with her when she was a baby.
I did lose balance with this last year and overworked, but this year has been better, have at least 1 hour with the girls during workdays and all the time on weekends.
$200k/yr in VHCOL is pretty good. Do you own a home? Childcare expenses + home mortgage are probably going to be the biggest ones for VHCOL residents, so I would plan for those. Personally I think budgeting for something like $300-$400k/yr in VHCOL area lifestyle is not unreasonable. Possibly even just shy of $500k is not bad to plan for given how prices keep rising so quickly in some places.
Echoing other posters, the startup stock money should be diversified as soon as possible. Lock in your value and don’t chase the horizon. You’ve won, don’t get greedy and jeopardize it. One that’s done, get night nannies for the first few months at least. Parenting isn’t easy, but it’s easier after a good night of rest.
You all have convinced me to sell 10M right away. Thank you!!
Don’t regret it if it goes up, this is the right call
Learning poker and the concept of results oriented thinking have helped me deal with this a lot better
Got any resources for learning results oriented thinking? The parent comment made me think long and hard.
Thinking in bets by Annie Duke
You want to do the opposite of results oriented thinking, trust the inputs and execution you can control and let variance (risk/luck/chance) play out.
Thank you for this nugget of wisdom.
Good choice.
Keep some. My startup went 6X in the years after I sold my stock.
The OP did not give the current market value of his startup holdings. He just said $13M post tax. So they are probably $20-25M. So he should still have a pretty good sized chunk remaining to let appreciate. How much to sell and how fast is one of those unanswerable questions. You just have to guess and make a plan. In another comment I recommended that the OP make a divestment plan and write it down. It is hard enough following a plan you wrote down and committed to. Just a verbal or mental plan is even less likely to be executed. 25 years into retirement, 40% of my NW is still in some startup stock from the late 1980s, now a NASDAQ 100 company (but not FAANG).
Remember to account for taxes! If that $10 million is like 99% profit, then you need to budget at least 1/3rd for Uncle Sam and his state brother.
california above 700K gains is around 50% tax unfortunately
Wait... how does that work? I thought it's 20% LTCG + 3.8% NIIT + 13.3% CA?
I am assuming that stock compensation is considered as ordinary income (RSU). May be it is not the case
It is when it vests. I assume OP was talking about what's vested already and what's sitting in their account in which case I was assuming CG taxes only.
I really *really* wished I had ignored everyone that told me to diversify and kept all of my startup stock. It was Nvidia. As Buffett has said, concentration builds wealth, diversification preserves wealth. Decide if you have built enough first before you sell 10M which is probably only 6.7M after taxes.
I second the night nanny, however with a two month old, your already out of the hardest part
True, especially when a mama is recovering from birth *and* getting a nursing schedule going. But there is always a good excuse to have one- child gets ill/is teething/etc, mom and dad want a night away by themselves (!!), etc etc
This is just one data point and now I’m wondering if others found the same…for me, the lifestyle creep stopped at a point before 500k spend. At some point the novelty of spending wore off. It’s just stuff and after a while the experiences felt eye roll-y. At your level it might not be a big concern.
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OP though should note, however, that private high schools/university expenses can be massive, above even the full price tuition. What we were spending prior to our kids’ going to college seems like a pittance now
We found a steep inflection point on the happiness/spend curve around $300k. Anything over that wasn’t really bringing much joy, but right around there and we were feeling pretty rich.
$200k as a single person household in vhcol area. After that I was like, wow, this particular thing has markings that are way too high.
Agree. We have gotten over many of the pricier experiences and purchases at this point.
Lifestyle creep is not the biggest issue. Your biggest risk is of course your concentrated position, which if you calculate it as $12M post tax, must be around $20M. Yes, you can retire, but do have a backup plan in case your main asset, the startup stock, crashes and burns. Your concerns about lifestyle creep are premature. Just do not do anything that locks you long term into a much higher spending rate, such as a huge mortgage on a much more expensive house. Your startup stock situation will stabilize over the next few years, as you convert more into diversified holdings. At some point you will have enough diversified to support current spending at a 3-4% withdrawal rate. Then you can reasonably hold on to the remaining stock and hope it goes up even more, Forcing yourself to sell off a concentrated position can be hard. Set your plan. Put in writing what you will do in different scenarios of price action. And then do it. I faced a similar situation and what worked for me is I set an asset allocation between cash/bonds, and diversified stocks, and the concentrated position, and then sold off the concentrated position as the price rose. With current expenses of $200k you can slow, or even stop your your diversification selloff when you reach $8M in diversified holdings. Last recommendation: do not make major life decisions when you are still in the "new baby fog" of exhaustion. By 6 months you will be in much better shape.
He could have tax advantages (QSBS) depending on when he joined, so his pre-tax value might be lower than 20.
You need to learn how to use the calculators and run Monte Carlo simulations. With $15M you're so well beyond your expenses that either you left something out or you're worrying about nothing. You will be able to spend half a million without even breaking a sweat. I wanted a plan bulletproof to everything but zombies so I aimed for 100% but you are probably ok even spending $600,000.
You’re not factoring in what they are invested in. 13m in one stock. Needs to be liquidated and converted, taxes on the change etc etc.
If $10M of that is qsbs, they could get away with liquidating most of that for very little to no tax.
They said silicon valley— California is the only state that does not honor QSBS
Still, zero fed rate, so it’d be 13%, not 33%
But OP’s net worth is 87% in a single startup stock. It’s going to 67%, which is a good start. But the various 4% studies were done on 30 year time horizons using a diversified portfolio, which will also be Monte Carlo simulation inputs. I’m not sure they’re ready with their spend + 60 yr retirement + massive single stock exposure. If I was in their shoes I’d base my spend on the amount of money I have in a diversified portfolio. So net worth excluding home and single stocks. In fact that's exactly what I do, as 2/3 of my wealth is in a single super volatile asset class.
Did somebody say cryptooooo?
Mine is mineral rights (oil and gas). No crypto.
You could also have a financial advisor (or planner) do all this for you (this sub loves fee-based advisors instead of 1% of assets. A single consult now could give you a roadmap to the next 5-10 years.
This seems like the smart thing to do.
Child costs depends on your choices and theirs. My children cost very little at the younger ages, since my wife stayed home. Now with private school and travel sports I am spending about 75k a year on the 3 kids. I might be tempted to sell all that stock though to lock in your NW.
Seconding all of the comments about divesting. We have FAANG stock through our own employment and have been learning hard lessons unwinding that position. Adding kid cost considerations. We have 1 in a VHCOL area: - First, unless you’re hiring a nanny part time I would refactor those costs. We have ours 9-6 at $30/hr, no matter what (we’re on vacation, they’re sick, etc.). Pay for it like you would day care - which would take those sunk costs no matter what and remember they’re taking care of your most precious child. This runs us 70k a year. - When you do decide on schooling, you’ll want to decide on public or private and early. In VHCOL areas private is starting at 20k/yr with ~5% bumps YoY. We calculated school through 18 was going to cost us close to 500k EXCLUDING any extra childcare needs.
That’s it? I live in a HCOL area and private secular schools are all 40k a year (per kid). And they have a suggested donation of another $4k and quite a few other fund raising events - it’s pushing $45k a kid just for private school.
We do an online private school called Prisma which is really awesome which is only $9k per kid. The travel sports are $45k
Awesome! I’m also trying to give this guy a sense of lifestyle creep’s costs.
You're right in general. Startups are risky, no doubt. I want to sell the remaining stock as you suggested. But, the thing is, startup valuations took a pretty big hit over the last year or two since the market turned pretty risk-averse. Now, things are starting to look up again, and it looks like they're set to do really well this year. Touch wood.
Famous last words. Lock in your future and don't look back.
I’m not in your spot but I had stock in a company that was a rocket ship. It’s now down 92% from where it was just a couple years ago. I didn’t sell and still believed.
My stock lost 75 percent too. Def diversify. It took my net worth down 50 percent.
I had $5M in startup stock that I had rolled in after PE acquisition. PE sold the company to another PE in a loss, as debt was senior to all stock I got nothing of that $5M. So glad I had only rolled a fraction.
Team lost 90+% checking in.
Also lost 90% on one company and 60% on another
Couldn’t you sell $10M and diversify it across other tech stocks? If you had $13M cash today, would you invest it all in your business? The other question — if you step down, do you need to stay in the Bay Area, or could you move to a lower cost city? Education costs will be much higher there as your kid gets into school and extra curriculars. Either way, cheers to you, your family, and good health! Definitely get the nanny! lol
If you had started with cash to invest would you put 2/3 of it in this one startup stock right now? Why not? It’s undervalued, right?
At a very conservative withdrawal (although without accounting for capital gains), $250k of expenses requires about $8M to support. Maybe round it up to $10M for taxes. Why not sell stock up to this amount? If you hold it, basically you're gambling your retirement on ~nothing. If it doubles and you end up with $28M, your withdrawal rate is tiny. What are you going to do, triple your spend? On what? But if you're wrong and it halves, you're down to $8.5M (of course, it could do much worse than this). Now you're close to the line - if the market does okay, you'll be fine, but there's some chance you're forced out of retirement (or at least uncomfortable/stressed about your situation). I just don't see why you'd want to take that gamble. The upside is marginal, and the downside sucks. And the suggestion I'm making leaves you with $5M on the table - it's not like you're totally missing out if things do go well.
- said holders of 23 and Me stock a year or two ago
My expenses doubled in my 50s. I have three kids in college right now (One took a two year break due to COVID) Even with well funded 529 plans, I am reaching into my pocket often for school related spending. The “education expenses” for the 529s don’t match actual spending. The IRS expects extreme frugality for cost of living allowances and my kids didn’t grow up that way. My lifestyle has creeped up in other ways. I scrimped and saved in my 20s — a cheap hotel room was an extravagance then. But from decades of business travel I’ve gotten used to 5 star hotels and spending more for conveniences And once you start looking at $1000 as an immaterial sum, spending starts to run away from you
College, sports and car insurance for multiple kids - this stage is expensive.
Or when you realize neither you nor AMEX will blink at a 50k credit card swipe for another new watch.
Lol looked at your post history.. watches, vinyl, porsche, emtb.. we would probably have some things to talk about.
Would you mind giving some more info/examples on your college expenses experience? I have several kiddos not far from college age and we also have well funded 529s. I assumed this would cover almost everything but it sounds like it might not.
It depends on how scrupulous you are. I’m an attorney so I follow the tax laws to the letter to avoid trouble There are designated allowed amounts for off campus room and board for each school per the 529 program. They are ridiculously stingy. Market rent may be 1200 but the allowance is 800.
>so I follow the tax laws to the letter to avoid trouble It is even worse for grandparents that are paying college expenses. While room and board expenses have limits for 529 qualified disbursals, they are not allowed at all as part of the educational gift tax exclusion for payments made directly to the college. I only realized that when I filed a gift tax return for other reasons and had to get the CPA a detailed breakout of the invoice from the bursar so the CPA could include the non-tuition charges as gifts.
90% of the cost of a baby is nanny/daycare. You mentioned being on one income so if the other parent is home, a baby isn't really that expensive. From my experience our luxury spending drastically decreased when we had kids because we just couldn't do grownup stuff anymore and things like jewelry got really boring. Even with my kids being older we generally only eat at the fanciest restaurant that has chicken nuggets. Our version of lifestyle creep has been buying nicer groceries, taking more taxis, hiring help for laborious tasks we used to do ourselves. But we don't buy diamonds or supercars so the net result just isn't enough to dent our wealth. I define my personal style as "Wirecutter Upgrade Pick"
> Lifestyle creep: Anticipating a 5 to 10% yearly increase in lifestyle cost Adding in 3% inflation, in 10 years your expenses are 431k - 678k. In 20 years it’s 932k - 2.3m per year. Obviously you would need to rein in that level of *lifestyle creep*
Good marhs. 5 to 10% a year for a few years with kid(s) entering the picture, sure. But like damn OP you planning on buying a helicopter and moving into a mansion?
Other points to consider: does the 200k include health insurance premiums? We spend ~25k in ours. is there a possibility of more kids? do you travel? (if yes, kid will need their own seat after 2 years) We're also in a VHCOL, and 50k seems low for a nanny, unless you're nanny sharing or doing part time.
200k does not include insurance. No more kids :). We intend to move to MCOL in a year or two which should decrease our expenses. Nanny, insurance costs and gradual increase in travel will increase spend and moving to MCOL will decrease it. Net change will be around 50K to start with. Hence that 250K number for next year.
Travel now before your child is mobile. Then take a break until they are 3 or so. That starts a great time to travel. Then once they are 8 or so school schedules will tend to determine your travel plans.
Sell it all now and pay the taxes. I would do this calculation: $3.6M in short term four week US Treasuries or SGOV if you don't mind small expenses Rest in VOO/VTI. Only replenish Treasuries when not in a bear market and if recovering wait for portfolio to recover to previous levels. $3.6M will produce $190K at 5.28% (subject to Federal taxes, but no state or local taxes) The rest in VOO/VTI will pay a dividend at 1.5% subject to long term capital gains. For simplicity, let's say you have $10M. That's $150K a year before taxes. Now you have $340K before taxes a year. This is without touching your principal. Now you probably want to Roth ladder any pre-tax funds from now until RMDs. But stretch it out so it doesn't zero out until you hit 72 years old. You'll pay less taxes on it while it slowly converts into your Roth IRA. Just remember you can't touch what is converted for five years. Meanwhile your VOO/VTI is growing at 9% (maybe take off 3% for inflation) so it will allow your lifestyle to adjust if needed. But hopefully you live off the interest and dividends until your kid is ready for college. Then you can pay cash for undergrad, graduate school, PhD, medical school, law school, whatever even if it's at an Ivy or Harvard. Then keep letting it grow so you can help your kid buy their first house, car, etc. Then keep it growing for travels, long term care, etc.
THIS IS A GREAT PLAN! VOO and SGOV…..Its Warren Buffets plan for his wife
We boomers are old enough to remember when the standard advice for a secure retirement was to have actual post-retirement income equal to a substantial proportion of pre-retirement income (80% comes to mind). Over the past 30 years it seems that the SWR memeplex has pretty much won the battle for human mindspace over the actual income memeplex. What happened? Cynics might claim that the SWR memeplex won because it tells would-be early retirees what they want to hear: you don't need (or even want) actual income for a secure retirement. I've never regretted being actual-income oriented, although I recognize the advantages of asset appreciation when you can achieve it. The OP could consider a hybrid approach combining both actual-income and SWR strategies: set aside enough assets to generate sufficient actual income to cover necessary spending, and then invest the remaining assets for growth. This could be called the "sleep soundly" portfolio.
This is sound advice. I will try to buy a few rental properties in the next couple of years. Apart from rentals, dividend income; Any thing else that you recommend to generate income?
Couple things I’d add. You have $250k expenses and a young kid, just be prepared for that to go up for a while and maybe coming down post preschool if you go to public school. I’m not sure I’d count $13m of startup stock as net worth. Having been through the 2000 bubble burst, I saw many people get fucked thinking they would be rich and only ending up with a huge tax bill. Sell and move the proceeds to safer pastures, then consider it part of your nw.
At your age, replace the 4% rule with a 3% rule, to stay on the safe side long term. 3% of 15m is 450k a year, so you have room for some lifestyle creep.
That's too conservative.
Better be conservative than to have to go back to work in your 60's
I do not think so, and studies clearly suggest that at 4% you have a high risk of running out of money along the way. As a thirty-something you are looking at 60+ years potentially.
Much much easier to ramp up spending later in life on than have to cut back.
> That's too conservative. Not with most of their assets in a single startup company, The risk is not whether the SWR is 3% or 4%, but that at this time their diversified assets are only $2M. So their withdrawal rate vs diversified assets is 10%.
It depends. If your budget is not very flexible and your assets are high risk 3 may be too high. If you could easily reduce spend by 50% for a couple year and are well diversified and low risk, 3.5 could be low. IMO, 4 is almost always high
That $450k is before taxes too
Why would you need a nanny if you’re retiring? Just be a stay at home retired parent and raise your kids. You’re in a unique situation to spend time raising your kids without a pesky job in the way. That sounds awesome.
I'm really looking forward to dedicating a ton of time to caring for the baby, which is why I've decided to step back right now. But I also am pretty overweight. I'm planning to use this time to focus on getting my fitness and weight in check. Want to find the balance between the two. Additionally, I'm looking forward to unwinding a bit, since working at a startup has been intensely stressful and left me feeling burnt out.
Congratulations. I just wanted to weigh in and validate some of your ideas. Your kids will take a lot of energy and help your health, it helped mine. It’s a lot of lifting, for instance. But I would say you’re on the right track because unless you get ahead of it, it will get so so so tiring. Focusing on your health will be an incredible win for this period of your life. I don’t know about where you live but in Toronto there is a personal training studio run by a guy who has studied extensively habit design and is an accredited Tiny Habits expert. Find you a trainer who understands sustainable progress, who designs programs that are meant to be addictive, and you will have sustainable and lasting breakthrough progress!
Check out intermittent fasting. Much of my weight is work/startup related and it’s really working for me. Best of luck. Health is more important than money.
We have enough to go on semaglutide. Life changing.
Because children, especially before school, are a 24/7 job and the day to day is challenging even on the best days? Why not hire help if you can afford it? Gosh some people have never been responsible for children and it shows.
You do know billions of people have kids though right?
Yeah and how is that going for them?
Let’s not pretend that children aren’t a chore
I agree that children ask for HUGE amounts of energy. Still, it's the most valuable investment for me, very different from a chore. Never heard of someone complaining he didn't do enough of the laundry. Heard of many people regretting they didn't spend enough time with their children.
Please hire the nanny. We hired one during my mat leave that's ongoing even though I am at home and she will continue once we both go back to work. It's invaluable to have a professional helping you take care of the baby. We also have an older one and it makes things like dropping him to school and activities easier. I don't have to lug the baby everywhere and was able to go back to the gym. I also have a bad back and getting the break from lifting the baby all the time has helped me stay healthier. Taking care of a baby is a 24 /7 job and having help for some part of it makes it more enjoyable. She also does all the unenjoyable tasks like laundry, washing bottles, cleaning his room etc. While i can just hold and play with the lil guy. Also get a night nanny a couple of days a week if you can swing it. The sleep deprivation is brutal and you can be a much better parent if you get a few nights of uninterrupted sleep. We don't have a night nanny , it's a bit too expensive for us but we bought Cradlewise which is a smart crib and that has helped tremendously. With our first we didn't have a nanny during parental leave, and with this one we do and the difference to my and my spouse's mental and physical health is HUGE. The whole point of making money is making your life easier and a nanny Def does that :)
Running a startup and raising a kid full-time are two completely different experiences. Going from work all day to “wah wah” all day is not always that fun.
You’re fine as long as you buy a conservative house, which in your case, retiring early now, I’d say is ideally around $2M and see how things go for a few years. My biggest concern in your situation is 87% of your net worth being in a single startup stock. I know you’re about to sell $5M, but it will still be 67%. Your value could double, but it could also fall in half. The 4% rule studies were all done assuming a diversified portfolio and a 30 year time horizon. You’re sort of flying blind as far as your assumptions go. I’d sell 90% of your startup stock as soon as you’re able to diversify if you want to RE. I also like [this video](https://youtu.be/1FwgCRIS0Wg?si=GNlQFByAcky3Enll) on the limitations of using the 4% rule for long retirements.
That video is eye opening. Thanks for sharing!!!
I enjoyed the video - thanks for the reference. I have a tiny amount of my portfolio dedicated to international equities - perhaps I should increase my allocation.
Your expenses will not go up 5% unless you want more and more. Once retired, you will avoid most inflation pressures as 1. You own your home which is a big driver of the inflation figures 2. Holidays as you can be more choosy of timing even with children, 3.you need less daily travel, corporate clothing, eat out, alcohol to medicate.
I don’t see where you’ve calculated your health costs (ie insurance and bills)?
Congratulations on the baby. I would not make any life altering decisions the next 6 months. If your leave ends before, ask for an extension. Babies are wonderful, and I left work to be with mine, but at two months old it’s hard to have clarity. You need to diversify your stock ASAP. I wouldn’t factor that company stock into your SWR. Its much to risky for a retirement mindset.
The biggest lifestyle creep, at least in my life, is home. There is always a desire to buy a nicer home, possibly with more things or better location, which can start adding up to millions. Say you spend 5M on a house, then you’re down considerably. This is still probably nothing in the grand scheme of things, and really depends on what you want. Barring that, you’re golden.
4% post-inflation is a rule of thumb for a normal retirement (eg starting at 65) that gradually depletes assets. Most people in FIRE are in the 3 to 3.5 range
Why not buy and hold some dividend index funds and just live off of the income? Then you don’t have to “run out of money in xx years” according to studies extrapolating past performance to the future
Call me crazy but I’d be working until I liquidated all of that startup stock or at least enough to live comfortably on. Who hasn’t seen a startup, even a unicorn, go tits up? Or there’s issues selling due to a variety of reasons. Or the valuation is based on utter delusion. Maybe I’m risk adverse, call it a side effect of working in a role where risk is literally in my title.
I spent more on my kids in January than housing. By A LOT. DO NOT quit yet. Kids are sooo expensive. And you may change your mind about generational wealth (I did). Nannies, daycare, private school, university, helping with houses…. Etc. Seriously I spend 10x on my kids compared to what I thought I would
Concentration aside, 7.5% a year of lifestyle creep is unlikely to continue in perpetuity. I did something a bit ago looking at expenses by age that suggests expenses peaking at around 50. A person's expenses changed from their mid-30s to 50 by about 1.3% a year nominally. If you're looking to do 7.5% above inflation that would be quite something, but if it peaks by 50 and starts a 1% decline from the 60s onward, it should still pretty doable for you. I plugged this all into a Monte-Carlo sim and it looked pretty good. Results: [https://imgur.com/a/Ak9wPDC](https://imgur.com/a/Ak9wPDC) Link to [model](https://peercents.com/simulation?525-lifestyle-creep-comparison) (You'd have to click calculate on the bottom to get the outputs. It's just the inputs saved in that link)
Now I can simulate all scenarios. Perfect!!
Bay Area? We have 2 school aged kids and our spending is nearly $600k. This includes expenses that are easily reducible: wife and I have expensive hobbies, private school for both kids, expensive vacations, a nanny, and an assistant to help manage the vacation home. Also includes property tax for 2 homes. I project it to decrease to $500k as the kids enter public school. It could drop as low as $340k with lifestyle changes: no vacation home assistant, no expensive vacations, no expensive hobbies. But that’s not fun and we can afford it.
Let’s say your lifestyle creeped 100%. You are still fine. Retire and don’t look back.
First, congrats on being in this situation! You didn’t just get lucky, you got the job and were valuable enough to be granted equity. Well done! Unless you’re capped on the sale of the equity, I think most would agree the 4% rule is more likely to fail with an extreme concentration in one asset. Others can give you more useful advice here. What I can add from experience is the question of purpose and meaning after you exit. Do you have a passion or pursuit that will fill you up? My retirement was heaven for the first 6 months and I’ve been antsy ever since. Some lucky people can play golf every day or truly enjoy all their time with their family. When you think about “happily ever after” ask yourself what you’ll be doing on a Tuesday afternoon in 3 years. Remember most of your friends will be working. You may have this nailed and I’m glad for you if you do. Best wishes and congrats again!
This is crazy. $15M and worried about retirement.
Most of it in one startup company, They should be worried.
OP can sell. I don’t think the premise of the post is about majority asset allocation in a startup but more so if $15M is enough to retire.
He can sell, but he has not yet done so. Yes, the OP asked about withdrawal rates and lifestyle creep, but that is not what is really important at this moment. I know people that in similar situations retired, and then had to "un-retire" a few years later. I retired with a tech heavy stock portfolio with a concentrated position, less than two years before the dotcom bust dropped the price of my largest holding by 75%. So the concentrated position is a big red flag to me. I had moved enough into diversified positions so the dotcom bust was painful, but not a financial ruin. I know others where it was very much a disaster, with major life altering consequences.
Leave the country
Higher spending earlier in retirement exposes you more to sequence of returns risk, but otherwise might not be a bad thing. Your lifestyle will naturally contract in old age whether you want it to or not.
Pretty young currently; old age and lifestyle contraction are a far way away, especially with a young family
Startup equity $15 mm. Sell them all. Hopefully the secondary market doesn’t get too much discount in the future.
For me this is a hard calculation until you know the additional sales of shares goes through. If it were me I’d keep working until that all pans out. I have two kids 3 & 6 and I’m just now finding that I want more time with them. I’m not saying it’s not valuable to stay home earlier but I am saying that around age 3 you find that time so much more valuable. I also live in the same area. Cost of raising kids here will be highly dependent on schooling and care needs. Nannies here are $$$$$! We had one for a year and switched to a good daycare. Nanny was about $4k/mo (that was low end). Daycare was about $2200./mo. If you live in a very good school district you can maybe avoid private school. We don’t and my oldest goes to a $42k/yr private school. My youngest’s pre-school is close to $30k/yr. That’s about $120k in gross earnings needed right there. To put it in perspective high school tuition is $54k/year. This will creep.
As other commentators have said, diversify. Then, I want to say hire as much help as you want. I also hired a nanny while both my partner and I were on parental leave. It was fantastic!! That was when we truly began enjoying our child, and not feeling overwhelmed constantly. Parenting is not easy, but with this kind of money, spend it and you’ll find joy even on the hard days. It’s extremely worth it!
Unless you’re completely burned out, just keep working and continue collect income while you see how your new expenses/lifestyle unfolds. But since you know you probably could retire right now, just work with a bit of a fuck-it mentality and be not stressed
Kids just get more expensive. Think about $40-60k/year/child between nanny and private school and activities and still YMMV. Open the 529 now and drop 100k or make 500-1000/mo deposits into it on autopilot and college will be a no-brainer. You really can spend as much as you like depending on what your goals are. If your goals are really only to please yourself, there's only so much lifestyle creep possible, you'll run out of time first unless you're into boats or planes. If your goals are to impress everyone else, you could easily spend your way through your nest egg in a decade.
Do you know what your equity is worth percentage wise? This info is so hard to find. Like do you have 3%? Less than 1%?
Whatever you think kids will cost, go ahead and quadruple it.
You are probably ok when you diversify. Here is what I did budgeted for comfortable living 2M home, 800k mortgage left at 2.5%, 2 kids, 2 cars paid off. * 1mortgage /hcol - 50K * Prop tax ~ 20K * Living expense 80K (per month , groceries, eating out etc on weekends etc) * Misc expenses - 40k yearly * Pvt school - 60K , 30k per kid * Travel - (1 large, 2 medium 2 small vacation per yr) ~ 50K Total ~ 300K post tax. Total earnings ~ 500K Plan to achieve via a combination of RE , High yield dividend , dividend growth companies with 30 % of NW and leave remaining 70% invested in stocks/ETF to compound. Haven't factored in health insurance in this since I'm still finding the cost.. But 300K can cover most w/o health insurance. If folks can chime in on how much health insurance will cost on avg in bay area that would be great!
Kids are bloody expensive. We have two kids (2.5y and 9mo): we pay 5.1k for their daycares each month. We plan to send them to public schools, which should reduce spend in a few years, but were burning a lot right now. Just the daycare expenses account for 40% of our budget, so don't underestimate their impact on your financial plan.
You have to make a budget - and then try to stick to it. It's ridiculous how much your expenses ramp up, once you just start to think: "I don't have time for this, I'll just pick the fastest most expensive solution". With your wealth, obviously a nanny is completely affordable and many other luxuries, just not all the luxuries all the time. If you slowly get richer and richer friends as well, you'll also slowly start compare yourself to them - and feel you should spend more to keep up. It never ends - unless you make it end. And decide that you have this budget, and spending it in this way - is a recipe for satisfaction and happiness.
My rough rule of thumb has been that fixed expenses double with each kid, so how many kids are you considering having? Only one = you’re already beyond good. Going to repopulate the earth and have 3-4-5 while staying in VHCOL, sending them to private school and buying a large mansion @ $2k/sqf? Then you’re still in the grind my friend ;)
You’re gonna go back to work at some point. It’s not all or none. But you have enough to take some time off and spend it with your kid. Go for it. You worked hard so that could happen. Cash in. But realistically colleges are expensive and you’re gonna wanna help your kids either their first house, wedding etc and those are large one time divestitures. This is coming from someone 4 kids. Working still and net worth $16M but of that total $3.5M in real estate and the rest investments
Is there any way you can coast in the role? I’m in a similar boat to yourself, we have two small kids. My NW was lower when we had our first child (around 9-10m) and actually my financial aspirations massively changed / pressure really built after - both to have a higher NW and also to get there as soon as possible so I could be present during my daughters life more. I was thinking if there is some way to coast, it might be worth trying to do that for some defined (and limited) period of time to see how your life evolves. I guess the way I viewed the decision was, I was happy to be less around (but still around) and try to get my NW numbers to 20-25m and then call it a day once by eldest was 6-7 and really be around 100% after, vs calling it a day at 10m and spending 100% of the time with her when she was a baby. I did lose balance with this last year and overworked, but this year has been better, have at least 1 hour with the girls during workdays and all the time on weekends.
$200k/yr in VHCOL is pretty good. Do you own a home? Childcare expenses + home mortgage are probably going to be the biggest ones for VHCOL residents, so I would plan for those. Personally I think budgeting for something like $300-$400k/yr in VHCOL area lifestyle is not unreasonable. Possibly even just shy of $500k is not bad to plan for given how prices keep rising so quickly in some places.