A Reddit poster with a household income topping $1 million posted recently to ask about their financial situation. Their goal is to supercharge their savings for the next four years by maxing out retirement accounts and contributing to taxable accounts. After that, they’ll keep investing for retirement for four to six years or so, then hopefully hit a net worth of eight to $10 million so they can reduce their incomes, stop investing, and just earn enough to cover living expenses. 

One issue, though, is the spending they are doing. They currently have outflows of around $360,000 per year, with $100,000 going to their mortgage, $30K to property taxes, $10K to insurance, $100K to their kids’ education, and $120K on other spending like vacations, car payments, and groceries. 

That’s a big amount of spending to do when they have ambitious goals, and the question is whether they are on track to accomplish their objectives or need to rethink their plan.

Is spending $360,000 too much?

For most people, spending $360,000 a year seems like an absolute pipe dream and it may seem like an outlandish amount to spend. The reality, however, is that the general rule of thumb is that you should keep your fixed spending to 50% of your income, discretionary spending to 30%, and save the remaining 20%. So, based on this metric, the Reddit user and his family are actually keeping their spending well below the recommended limit. 

Of course, these guidelines are meant for people with more average incomes, and the family certainly could get by with spending much less. Whether they should do so or not depends on what they want to prioritize. If they hope to be able to scale back on their careers in a decade and want to be fully prepared for retirement, they may want to reduce some of their outflows so they can invest more. 

Getting used to a lifestyle in which they are spending $360K would mean they would need a lot of money invested for retirement. They’d need at least $9 million if they planned to maintain their $360,000 in annual expenditures and hoped to withdraw 4% from their retirement accounts each year. That’s traditionally viewed as a safe withdrawal rate for those who don’t want to run out of money, although some experts now recommend being a little more conservative and withdrawing just 3.7%. 

Still, if they hope to stop saving for retirement entirely in a decade and end up with at least $9 million in the end, they must get serious about saving — especially given that they have just $1 million in a 401(k) and Roth IRA at the moment. 

A lavish lifestyle can make early retirement more complicated

While there is nothing wrong with spending money to enjoy life if you’re making over $1 million, it’s important to realize that once you make certain commitments — like buying a large and expensive house — you’re limiting your future self. Even if the poster pays off his mortgage, for example, he’s going to have high property taxes he’ll have to pay for. Plus, if he’s used to spending $60K a year on travel and staying in nice hotels, he probably won’t be happy in the local low-budget inn as a retiree. 

Ultimately, the best option in this situation would be for the Redditor to talk with a financial advisor both about their needs in retirement due to the high standard of living they’ve established, as well as about how much they really need to invest in order to continue to fund their lifestyle in their later years. Their advisor can help them to see if they’re on track to save enough or if looking for spending cuts is the way to go to build a more secure future.

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