A couple million of profits from trading doesn't translate to a couple of million in your retirement account, with all taxes paid.
After taxes and after paying for living expenses for MB and family for the last 3 years, $2M could easily be around half-a-million. Depending on where they live, that might be more like a downpayment on a house rather than a funded retirement.
First of all, taxes will be what, a quarter or a third of it. So ok, north of 1M, still enough to retire. Second of all, if you bring in more than a million and spend most of it, down to 500k, in 3 years, then that's on you..
If most of those hit in one year and as short term gains (which algo trading will be), taxes in my state would be around 12% and federally would be around 35%. You're down to just over a million. Paying yourself a salary means 15.3% on whatever your salary is for FICA/Medicare. For a $130K salary for each of 3 years, that's another $60K, taking you to right at a million before you've spent a dime on anything except taxes. Your first box of ramen makes you not a millionaire.
You're going to have to comply with the "reasonable and appropriate" standard. What's "reasonable and appropriate" for an engineer/trader who, through his sole efforts, built a system which produced $2M in profits? It's going to be hard to argue that it's much less than the figure I proposed, but feel free to.
No you misunderstand, I have no idea what you're talking about. If I bring in 2 million I think worst case for me is I declare it all income in which case I have just north of 1 million after tax. Then I keep investing that so it's not sitting cash obviously so then I retire on the returns which is bare minimum of 40k per year if all I could find to invest my million in was a measly 4% per year for some reason. I don't think I'm missing anything and I think it's pretty silly that people think you need more money than that to retire. Inevitably I'm going to get interested in working in some kind of job after a while so then I will have a real income on top of it. In summary there is zero percent chance that I could not retire having brought in one million after tax. Perhaps the main impedance mismatch here is you are talking with an extremely frugal midwesterner..
