24/7 Wall St. Key Points:
- Figuring out whether or not you have enough money to retire is simply a matter of knowing your expenses and calculating how long your current savings will last.
- It’s important to budget in some breathing room for emergencies and adventures.
- Also, read “The Next NVIDIA.”
Recently, I was scrolling through Reddit when I came across an interesting post from a 46-year-old woman who was sharing a dilemma many high-income earners face: Is it financially safe to quit a high-paying job, even when you’re burnt out?
Despite making $500,000 to $600,000 a year and having a net worth of $4.5 million, this user is grappling with the emotional toll of being a single parent and the financial struggles of supporting her lifestyle.
The question she’s asking reveals an important truth: No matter how wealthy someone is, there are always challenges involved.
Here’s a deeper look at her situation and why making the hasty decision to quit could jeopardize her long-term financial security, even with her very high net worth. Before making any major decisions, consulting with a financial professional who can analyze the situation in detail is important.
A Quick Breakdown of Her Finances
The Redditor gave us lots of information about her finances. While her net worth is impressive, it isn’t everything. Here’s where her money is tied up:
- Investments: $4 million
- Home Equity: $400,000 (house her ex lives in)
- Cash: $150,000
- College Fund: $250,000 set aside for her 14-year-old son
Her monthly expenses are quite high, too:
- Alimony: $4,000
- Rent: $4,000
- Everything Else: $6,000
She has seven years left to pay alimony and must wait before her son graduates to sell her house.
Can She Coast on Her Savings?
The big question here is whether or not she can coast on what she’s saved up. Let’s take a look at some numbers:
- Current Monthly Expenses: $14,000/month equals $168,000 annually
- Post-Alimony Monthly Expenses: Assuming other costs stay the same, her monthly expenses could drop to $10,000/month or $120,000 annually after alimony ends.
Now, let’s look at how long her $4 million in investments and $150,000 in cash will last based on these expenses. Assuming a modest investment return of 4% annually, we can project how long these savings will sustain her.
With her current savings and investments, at a safe withdrawal rate of 4%, she could draw around $160,000 annually, which almost covers her $168,000. However, that leaves very little margin for error, emergencies, lifestyle upgrades, or unforeseen expenses, especially over a 50-year period.
Her expenses also won’t drop for another seven years, making this a very tight budget. Furthermore, she may want to have an even lower withdrawal rate, as I recommended previously.
Luckily, she can tap into a consulting gig that makes $100,000 per year, which can help close the gap. However, she would be relying heavily on her savings to maintain her current lifestyle.
A Few Options to Consider
Based on these facts, here are a few options she could consider:
- Keep working a few more years: Given that she only has seven years of alimony payments yet, it may make sense for her to stay at her high-paying job until this expense is done. This would allow her to have some more wiggle room in her budget.
- Scale back rather than quitting: Instead of quitting altogether, it may be possible for her to explore part-time work. This could alleviate some stress while still providing a steady income stream.
- Adjust expenses: She may be able to cut back on lifestyle expenses to create more breathing room in her budget and allow her to quit sooner.
The reality is that, even with $4.5 million, quitting a job too early could have long-term financial consequences. Burnout is real and should be taken seriously. However, there are several alternatives to quitting outright that may allow the Redditor to enjoy some more financial security.
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