> recommended employing your children starting from the age they are able to do household chores, which offers a double benefit of reducing a parent’s taxable income while building an investment-accruing tax shelter for the 7-year-old
In case anyone was wondering, you cannot reduce your taxable income by paying your child to clean your house (I am a former tax lawyer). Could you pay your teenager to work for your company, and reduce the corporate income? Yes, subject to child labor laws — and you still have to pay payroll and income taxes.
Alternatively, you and your spouse can just straight up give your kid $36,000 per year as a gift (with no deduction, but also no income/payroll tax burden).
Having a 7-year-old on the payroll seems like a great way to get audited.
One problem with this is that we have no idea what the tax code will look like in 50+ years, when the kid is pulling money out. It’s quite possible that Roth accounts (which are funded with post tax contributions) will no longer be tax free for withdrawals, for example. I could easily see this being walked back for high-income folks, as a way to pay off the enormous debt we are currently incurring.
Yeah. I've always heard this as: make your child a board member and then have them put their money in a Roth. No idea if that's an easy path to an audit
The article seriously downplays the role of luck here but it isn't wrong. If you live judiciously and save as much as you can by doing so, you reach a point where you can live judiciously without going into the office every day.
The common thread is that just because you can buy something, or can qualify for a particular mortgage, doesn't mean you should if you're goal is to "retire" early. One of the engineers I worked at Sun with told me that once he had enough value in Sun stock he just decided it was enough. He never moved out of his "starter" house (small 3 bedroom) and always drove his budget/no-options economy car at least 100,000 miles. And his idea of a "great vacation" was camping in the Sierras. So it didn't take much for him to get there and in the middle of the dot com "boom" he sold all his stock, paid his taxes, paid off his house, and retired.
The part the article doesn't talk about enough is the whole "why do you want to be rich?" question. People look at me funny when I ask them that, but as the article mentioned you can only take so many vacations, movies, what have you. People fail at retirement all the time, feeling like their life is being wasted now that they aren't "doing" anything. In my experience, unless you've got the ability to self-motivate to do something you are really interested in that helps you grow, you may find yourself wanting to go back to work.
An interesting thing about going back to work though, if you don't need the job you can be really honest about how you see things and how much time you are willing to spend in the office. I have met a number of engineering managers who don't do well when the only tool in their toolbox is "If you don't, I'll fire you."[1]
So many people have a very very complex relationship with money. Too many use it as a "score" to reinforce their own self image. When it becomes apparent to me that someone is in that mindset, if I'm in a place to do so I ask them if someone who won the PowerBall lottery is better than they are because they would be richer. Most can see how non-nonsensical that is, but it helps to step back and remind yourself that net worth has exactly zero relationship to how good a person you are.
[1] If you're one of those managers reach out, I can coach you to becoming a better manager and charge reasonable rates to do so.
I found the book "Scarcity: While having too little means so much" very informative in that regard. The fundamental principle is that when something is scarce, one doesn't always make rational choices. And while the conversation is generally around money, it applies equally to any finite resource. I found a lot of wisdom in that book when substituting "time" for "money." That is because running around with a scarcity mindset around time puts some of the exact same mechanisms into play.
Winter's coming and you need a coat, you don't have much money and so you buy the cheap coat that costs $40 instead of the expensive coat that costs $60, 2/3rds through winter your coat fails and you buy another cheap coat for $40. You're out $80 for the winter vs being out $60.
A time example works similarly, when time is scarce you choose not to invest enough time into something (cleaning, fixing something, reading, whatever) and by making that choice, over a wider period you end up spending more time on this task because you're making up for not doing enough when you could have.
For me the trigger is anytime I think "I should do <x> but I don't have enough <y> to do it, correctly but I can get by using only a small amount of <y> if I do it this other way." That is a scarcity based decision not a reasoned one.
The deal for me is to look at the situation with a wider lens to see what the longer term resource requirement is and working from that. It does result in what can feel like a "riskier" choice, but when I track those choices I find making the non-scarcity driven decision is usually the better choice.
So here is the thing, if you have a 'safety net' you really don't have 'scarcity'. These effects manifest in the presence of the stress that you can't "undo" or may not survive the decision you make. That is what pushes the decision down into the "fight or flight"/"survival" part of your brain which is very focused on surviving "right now".
The book's entire premise is that you can end up making decisions in that mode that end up having worse outcomes.
We joke about companies that make choices to survive to the next quarter that end up killing the company long term, but it is the organizational equivalent effect.
Using the winter coat example, make it winter, you're homeless, and you have exactly $60 on you and two coat choices. If you buy the $60 coat you have to figure out how to get more money to eat, which could not pan out and you could starve, if you buy the $40 coat you know you can eat at least for a little while before you have to get more money. So that choice is survival based. If you get the expensive coat, then the next thing you work on is replacing your money supply. It either works and you survive or fails and you starve.[1]
One of the interesting things about basic income programs is that it provides a safety net which allows people to make better choices because they are not in survival mode.
Another revelation for me was that I had not previously realized that while I accepted people making bad choices under the influence of drugs or alcohol, it had not occurred to me that survival stress could be just as debilitating!
"Why did this person do this thing? Oh, they were drunk." that was easy but
"Why did this person make this clearly stupid choice? Oh, they afraid of dying." that wasn't at all understood by me early on.
[1] The reality will be somewhere in the middle but that is the nature of the human mind to see the worst outcomes as most probable.
> The common thread is that just because you can buy something, or can qualify for a particular mortgage, doesn't mean you should if you're goal is to "retire" early. One of the engineers I worked at Sun with told me that once he had enough value in Sun stock he just decided it was enough. He never moved out of his "starter" house (small 3 bedroom) and always drove his budget/no-options economy car at least 100,000 miles. And his idea of a "great vacation" was camping in the Sierras. So it didn't take much for him to get there and in the middle of the dot com "boom" he sold all his stock, paid his taxes, paid off his house, and retired.
My problem with the FIRE and /r/of communities is that their loudest proponents shun anyone who _doesn't_ want to live like this.
Anyone who wants new cars, nice vacations (don't you dare mention flying business class!), and nice houses are anathema to these folks, even if you can clearly (a) afford it and (b) continue to save towards retirement, albeit less aggressively.
This is why I like the /r/fatFIRE community instead. They acknowledge that one can want to retire early (or just retire at a normal age, but with thick assets) and live a nice life while getting there IF you are willing/able to push for higher income jobs.
I mean, that's just called being rich, which is great work if you can get it, but kinda rude because not everyone can just pull themselves up by their bootstraps.
If we’re talking FIRE instead of FatFIRE, I think if you go the Mr Money Moustache or Millionaire Next Door route it’s much less about luck and more about financial discipline which as you’ve implied is very difficult. Many of its successful disciples only make 5 figures. They’re just retiring in their 40s and 50s and not in their 20s.
My stepdad saved, as much as he could, so he and my mom could enjoy at the level or slightly less, retired 18 months ago and was proud. Retired at 71. Died this January past. Got less than 2 years.
Sure—not every comment that breaks the site guidelines is equally bad, although if you take the context into account the GP comment was pretty vicious.
As it happens, I banned both of those accounts elsewhere:
If there's an assumption in your comment that moderation ought to be consistent, this is not possible because we can't moderate what we don't see, and we don't come close to seeing everything.
It's interesting to me how the mainstream news organizations are supposed to be synthesizing a constant stream of the latest and most important information, and yet breaking news happens faster on social media and the think pieces, such as this one, are basically rehashes of Reddit comments from 10 years ago.
Absurdly long pieces about utterly irrelevant pieces are the norm from the Grey Lady these days.
I remember my early research classes (~2001), when they were upheld by my teachers to be the creme de la creme of publications. My how times have changed.
Oh I literally suffer reading through these and trying to understand the conclusion... "When she strolled across her cozy room in her velveteen slippers, each step a deliberate promenade through a mosaic of chiaroscuro shadows..." - just get to the point already!!!
"Enough" is a function of how much you have and how much you need. 25x annual spend is a common heuristic for the required net worth before you can safely retire. And the older you are, the less margin of safety you need. 4% of $1.3 million is $52k, which is enough to live quite comfortably in many places.
If you've got $1.3 M in savings, chances are you can keep your healthcare MAGI above the Medicaid income threshold and below the threshold for a large ACA subsidy. If your savings is invested, you can make choices that lead to more or less realized income, depending on where you are. At least in early retirement, I'd expect some return of investment rather than all realized capital gains and dividends.
Also, depending on where you live, that might be ok for an unsubsidized exchange plan too, if you're just worried about affording health insurance. Actually use it to the out of pocket max most years, and you'd be cutting it close, especially if you have substantial living expenses, suffer an expensive injury or illness that's not covered, or need to get help with daily activities. OTOH, planning to use your assets to get into a situation where medicaid will cover you when your assets run out is a realistic plan, even if it's not a great outcome.
I've got some numbers in an older comment[1]:
> In my county, if I were 64 years old, assigned male at birth, I'm looking at about $17,000/year for a Blue Cross Bronze plan (less costly options available), with $9,200 out of pocket max.
I'm using 64 years old rather than 49, to give an idea of the increased cost as the retiree ages, and assuming things kind of stay even with inflation (because I have to make some assumptions to budget, not because they're good assumptions!) $17k/year on $1.3m is 1.3% of portfolio, so maybe a third of a safe withdrawal rate (depending on yet more assumptions) significant, but manageable. If you end up paying the full out of pocket max every year, that's more like 2% of the portfolio, and is like half of your safe withdrawal rate. I wouldn't want to retire with half of my budget spoken for, but depends on the situation.
Of course, personally, I retired at the end of 2019, and then got roped into working part time again at the end of 2022. If my financials were on the wrong track, it seems like I'd have lots of options; there's also plenty of retail work available in my community.
If you don’t have major health problems requiring specific doctors, and depending on your place of residence, Medicaid could be a good option too. I had very positive experiences with Medi-Cal in Santa Clara County around 7 years ago: my HMO referred me to every specialist I requested, and the cost to me was always $0.
>> Aren't there diminishing returns with Social Security ? so at some cutoff you are NOT getting more regardless of how much more you work
Yes, Social Security is highly progressive. As I understand it, it takes your average monthly income over your 35 highest paying years, indexed for inflation, and pays you (2024 numbers) 90% of your monthly income up to $1,174, 32% of your monthly income from $1,175 to $7,078, and 15% of your monthly income above $7,078. There's also a cap on the Social Security tax and so a cap on the monthly income that is considered.
People refer to those as "bend points" in Social Security benefits, and there is a greatly reduced incentive to continue contributing to Social Security after reaching the second bend point. Someone who is 49 today likely started working as a teenager and would have close to 35 years of income credits (and so only a few "zero" years in the calculations). If they spent much time in a high paying job they would be close to or past the second bend point.
There is a maximum. It's also the case that your social security income is capped, too. I think that a person earning a million dollars a year for 35 years doesn't look any different to social security than someone earning 200k a year for 35 years, because both are well over the income cap.
I haven't read any of the FIRE stuff, but I wonder if it ignores social security. I'd argue that you can't say you're Financially Independent if your early retirement planning is dependent on social security; it's your money (...right), but there are rules around it, and those rules change.
If you've got $5 million at 60, you've probably qualified for medicare and a significant social security payment.
With $5 million, it shouldn't be hard to cover your medical expenses for 5 years, and in 2-10 years you'll get regular payments from Social Security.
I'm sure there's some people who would struggle with $5M at 60, but they'd need to have some pretty specific circumstances. It should be clearly enough for most. IMHO, $5M is likely enough for most at any age, but maybe not in an area with high housing costs.
When the math is clear, there's no uncertainty and fear.
I have more than enough, and I don't worry about running out.
If I had $5M at 60, I would feel the same way. It's clearly more than enough. If I then went on to have $1M at 70, I would worry. The earlier case of $1.3M at 49 seems reasonable to worry about.
If $5M at 60 isn't enough, there's probably no reasonable number that is enough, and there's no sense worrying about it, because there's no action to be taken.
If you haven't figured out how to not worry about things you can't take action about, maybe you've misspent your 60 years. But, there's not much action to take about that either.
> Since there is an upper limit to money’s effect on joy — studies have shown that global happiness tops out at income levels of about $75,000 a year — chasing infinite wealth may be psychologically futile.
A few years ago I saw that this figure was admitted to be an understatement for folks who live in coastal cities. This was also before COVID-era inflation hit. I'd think in the SF area, the number would be closer to triple this, or possibly higher.
I'm wondering if dude is still clearing $250k/month with that police scanner app.
He reminds me of this user on /r/fatFIRE (a variant of this movement many of us here would better identify with) named /u/rajuapps who claims to have achieved $100M in net worth by starting with pumping out apps on the App Store. I believe it; I really like his Tesla Remote app!
Many folks struck serious gold in the early days of App Stores; I wish I tried my hand at it. (I was trying my hand at building a "things to do" startup during this time; didn't pan out, but I learned a lot.)
Anyway; honestly, I feel unbelievably lucky to work jobs that I really like AND have the flexibility to change jobs when I start to dislike it.
It's no surprise that FIRE is so popular. So many people work jobs that suck. SO. MANY. PEOPLE.
Many people also have no idea what they want to do when they "grow up."
Saving enough money to figure that question out OR to take a break from the grind until they're ready to do what they really want to do is a fantastic goal.
His story is so luck dependent even by FIRE standards. he may as well joined uber in 2010 too or been an early investor or early founder in some other start-up. FIRE is more about being an employee and investing/saving than creating a start-up. Although anyone can do the FIRE lifestyle.
I went this route, but question the wisdom of it as I age. My grandma is 103 in a nursing home. I don’t know how all of that would have been navigated without her kids helping to get that setup and working on her behalf.
This is why the world is starting to suffer from the age demographic bomb as we speak. Retirees are starting to outnumber working adults. Soon they will outnumber everyone and the financial sustainability of pensions like social security and socialized healthcare like Medicare will come into question. The problem becomes worse when voters are no longer ok with using immigration to mitigate it.
This surely helps. Until your kids are 5 or so, you don't know if you'll have huge birth-related medical bills, unexpected disabilities/chronic illnesses, or special needs that require moving to an expensive school district.
And even assuming everything is good on that front, you're still looking at $300-400k in college tuition (in 2024 dollars) if you let your kids pick any school. You can tell them that you can only afford a community college or inexpensive public school, but how many parents would feel comfortable doing that after retiring at a very young age?
I guess you can bundle the message with a reminder that the reason you were around a ton when they were growing up was because you FIRE'd, but given how oppositional teens can be, I'd expect that this would cause resentment in a lot of cases.
I always wonder why it doesn't make sense to just have them learn German or French and then have them study in continental Europe. Living standard is the same, tuition cost is mostly non-existent and living abroad, if just for a year, will make you a better person.
Total cost for a bachelor + master is maybe 5 years with a cost of 1.5k per month maximum (this is considered rich for students), so you're at 18k per year or 90k total.
I had a few friends in high school go to French and English schools. Seemed to work out pretty well generally, although one had a hard time finding a job. Ended up getting a PhD from an ivy though
> learn German or French and then have them study in continental Europe. Living standard is the same
If you’re in a position to do this, the median European living standard is a huge step down. (You’ll also need to do extra work to make up for the network degradation.)
How many thirtysomethings in Europe are considering retirement? (Whose parents couldn’t do the same.)
I’m a bit of a mutt, but I hold Swiss and American citizenship. The European economic model is set up for stability, not massive accrual of wealth. One of the things that wealth lets you do is travel frequently to Europe, to see and experience its beautiful cities and culture. But in terms of living space, amenities, access to services, et cetera, an upper-middle class American commands resources on par with Europe’s rich. Rich Americans, on par with Europe’s remaining aristocracy.
Switzerland is a bit weird in that respect and loves working even more than the US does. You’re not a good Swiss if you’re not working 0800–1800 and loving it.
The rest of Europe is much more chill with work. There is also much better healthcare/insurance and retirement safety nets so maybe people done feel as much of an urge to quit early?
> The European economic model is set up for stability, not massive accrual of wealth.
The American system is set up for transfer of wealth not accrual. You can FIRE with a couple millions dollars and it takes just one or two events to take all of that from you without you having a choice. How many thirtysomethings in Europe are buried under hundreds of thousands of Euros in medical and student loan debt?
I think I'd rather pay of my half million mortgage while being protected in many many ways than facing complete wipeout just because "muh freedom".
> American system is set up for transfer of wealth not accrual
Simply untrue when you look at the money made in stock options.
The transfer happens from the lower and middle to the elite; the same occurs in Europe, where the ultra rich pay almost no taxes after accounting for tailor-made subsidies. (To say nothing of Europe’s own mass of FIRE millionaires.)
> I'd rather pay of my half million mortgage while being protected in many many ways than facing complete wipeout
You’re not at risk of wipe-out from those risks in and above the upper-middle class, i.e the group who could reasonably support sending a child overseas for schooling. (Total emigration is a separate question.)
> And even assuming everything is good on that front, you're still looking at $300-400k in college tuition (in 2024 dollars) if you let your kids pick any school.
When people ask if I want a second kid I reply that my current child costs me around 64k a year and I cannot afford a second!
28k for a neighborhood daycare, 36k for college savings, and that is baseline before anything else.
Stevens is a great school, but NYU across the street has a more prestigious brand. They are even more expensive than this.
$300-400k in tuition alone is very realistic...unless you go to an in-state school. Penn State is $20k if you're in state, and that includes studying Comp. Eng. at University Park.
Given the current tuition rates of state colleges, and factoring the average increases in tuition over the past 10-15 years, it is expected that public universities will have an average 4 year tuition of over 300k in 18 years.
Note that some private universities are already at this price!
Actual tuition and fees paid have dropped in real dollars over the last 20 years. Nameplate tuition is meaningless as the average student pays less than $5,000 in tuition at 4-year public schools. The average student gets more than $8k in grants. Room and board remains high, but still nothing near 300k.
If you have citations supporting your 300k claim, I'd like to see it. Note that I'm looking for actual tuition net of grant-based financial aid for middle class families, not what out-of-state multi-millionaire families pay.
> Nameplate tuition is meaningless as the average student pays less than $5,000 in tuition at 4-year public schools.
The problem here is any parents capable of saving 30k a year for college are in an income bracket that instantly disqualifies their kids from getting any tuition assistance.
Heck back in 2002 I had a mom who drove a school bus and a dad retired on disability and they made enough money between them that I qualified for 0 assistance. We were very much "working class".
I just checked my local public university (University of Washington) and they list out of state costs as around 64k a year. 22k of that is non-tuition related expenses.
The university of Austin is 66k for 2 semesters. That will easily be 400k+ total for a bachelors in a other 18 years.
> Note that I'm looking for actual tuition net of grant-based financial aid for middle class families,
Not relevant to my situation. My wife and I make enough money that we cannot count on our son getting any assistance.
Also your entire premise is easily falsified by the number of students taking out large student loans. If the average tuition is only 5k, we wouldn't have a student loan problem in this country.
The same college board organization says students graduate with an average debt of 29,400.
If college really only cost 5k a semester, that doesn't seem right. Baristas could literally pay their way through college with zero debt. Heck one good summer internship at a large company would pay for all of college.
Tuition is not the only cost; room and board are significant, and go to those loans too. If you take the average loan balance, divide by 4, you get about $8k/yr, which is pretty close to rent for a single student in many college towns.
75% of students attend state schools. If astudent chooses to go to an out-of-state school for $64k a year when there is a state college in your state that runs 1/3 of that, is that on them? Why should the taxpayers of Washington state subsidize the educational costs of students from Indiana?
The University of Washington is an absurdly competitive school to get into for certain majors, so it is very reasonable to expect that even highly performing students might have to go to an out of state school if they want to go to a tier 1 public university.
It also depends on the major, as students may want to go to a university that is well regarded for what they want to learn.
None of which changes the fact that college tuition prices go up at an obscene rate, while at the same time colleges are getting rid of tenured professors and instead hiring adjunct professors who get paid barely livable wages.
The thing is, if you have a nest egg big enough to FIRE, colleges won’t consider you “middle class”. They’ll consider you loaded and expect you to pay full freight.
If you’re fired you probably have at least a million. These schools look at your assets, not just income. They’re not giving significant aid to kids whose parents are millionaires
Vanderbilt hit $100k recently, and most competitive schools cost over $75k. You don’t know when you’re 40 if your 5 year old is going to want to go to one of them.
I heard s/Neighbors/grandparent's neighbors' kids/ from age 19 onwards, such as independent corporate tax accountants and startup neighbor. It was expected that I should've been a billionaire by 31 or otherwise I was a disappointment and failure. Anyone can readily hazard a guess how well that worked out.
In the end: money doesn't buy life, imagination, happiness, prestige, or satisfaction, but it buys some freedom. While you'll never get meaningfully rich working for someone else, it is far steadier (usually) but it doesn't include a retirement plan anymore. And, current wages are insufficient to create the same standard of living as previous generations (example: I would need $400k TC to live where my grandparents lived).
In case anyone was wondering, you cannot reduce your taxable income by paying your child to clean your house (I am a former tax lawyer). Could you pay your teenager to work for your company, and reduce the corporate income? Yes, subject to child labor laws — and you still have to pay payroll and income taxes.
Alternatively, you and your spouse can just straight up give your kid $36,000 per year as a gift (with no deduction, but also no income/payroll tax burden).
Having a 7-year-old on the payroll seems like a great way to get audited.