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A friend and I were chatting it up yesterday. We came up to discussing the economy and how much it would take in this day in time to live comfortably with very little physical effort for the rest of your life. My friend claims that given as little as $300,000, He could live off it fairly comfortable, between investments and annuities without touching hardly any of the original $300,000. I think he is full of it and it would take closer to a million to accomplish that in this age. We defined comfortable as $3000 a month in expenses.

So I pose this hypothetical question. If someone were to walk up to you today and offer to give just you enough money so that you didn't HAVE to work anymore, How much would you ask for?

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motuwallet (Jan. 23, 2012 @ 11:09p) |

Are you saying you'd stop working if you lost 90% of your fortune?

larrymoencurly (Jan. 23, 2012 @ 11:20p) |

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$300,000 * .03 = $9000
Can you live on $9000 a year? Then yes

Well sure, If all your going to do is live off the cash. And where do you get .03? personally I can't see getting a significant amount of cash and not investing it. This is the reason I stated "between investments and annuities".

it depends on your age and life expectancy obviously, any debts you have, recurring expenses, etc.

In summary, you're asking about a retirement calculator - google retirement calculator and you and your friend can have fun playing with different scenarios

Obviously that guy doesn't support a family and probably has no intention of starting one if he thinks $300K could last him the rest of his life.

I suppose if I was 110 years old, then $300K would be plenty.

ellory said:   $300,000 * .03 = $9000
Can you live on $9000 a year? Then yes


Hmmm...how safely can you get that 3% (regardless of the initial principle)? And what happens when inflation starts to eat into the principle?

I've always though that number was $5m, but then I'm lazy and wouldn't have to work hard to make sure I didn't spend more than the interest generated would provide. I think at $5m, I could live on half the interest and build the nest egg with the other half.

The trick is not to increase your return, but reduce your expenses to an absolute minimum.

Now this is under the assumption one is single, No kids. live say the next 60 years.

Even if you could find an investment that returns 10% annually after inflation you'd be living off the equivalent of $30k/year for the rest of your life. Your friend doesn't know what he's talking about.

With a long time horizon that allows for high risk, strictly speaking in nominal terms, and if inflation were flat from here till the end of your life, you could potentially live on the dividends from $300,000, but I think you'd need more like $500,000 to be comfortable. Unfortunately, however, inflation will eat into your returns very quickly if you don't reinvest your dividends, meaning you could only live like that for about 6-10 years probably before you hit your breaking point.

You could live for nothing. Look at homeless people. Now if you want to "live comfortably" that's a different story, but everyone's definition of "living comfortably" is also going to be different so this is going to be a very hard value to agree on.

traker1001 said:    And where do you get .03? Did you do any critical thinking? Did you do any research?

4% is touted as the historical safe withdrawal rate, though in recent years this is being debated as being too high going forward. However, historically a 4% SWR would have lasted you 30 years at any point in history, and 3% SWR would have lasted indefinitely at any point in history.... so far....

So basically your friend is full of crap. The only way that portfolio would be successful is if you gained a return of 12% AFTER inflation; EVERY year. If you can figure out how to do that every year from now until eternity then please by all means I will pay you big bucks for that info.

Firecalc.com, a monte carlo simulator, says that 300,000 with a 36000 annual withdrawal rate is successful 0% of the time over a time horizon of 30 years. Meaning, historically, you would have run out of money before 30 years, EVERY TIME.

Edit: I will say - You can still do it, with $300,000... but you'll have to be pretty frugal about it. Maybe if you had a paid off house worth about $75,000, and about $225,000 to draw 4% from each year... $750 a month... when you have no rent, that's a doable existence, but a far cry from your $3000/mo.

ellory said:   traker1001 said:    And where do you get .03? Did you do any critical thinking? Did you do any research?

I suspect he's been doing his research while reading FWF. It doesn't take a genius to think through those numbers. The first few links you provide make assumptions about the market and inflation that probably aren't true. Past economic conditions do not guarantee that baby boomers won't eat your lunch.

I'm wondering if you looked at those links yourself. The 100% probability was assuming you would only need your capital for 30 years. We're talking about a "retiring early" situation, and I'm guessing that these guys are looking more at 30 years as the minimum rather than the maximum. If these guys are in their 30s (your guess is as good as mine), then they might need 40-60 years of preservation of their capital. I think that 100% number drops to a much lower percentage, and your only hope for success is a renewed exponential expansion of the US (or world) economy.

ellory said:   $300,000 * .03 = $9000
Can you live on $9000 a year? Then yes


my great aunt lives in a mobile home in florida on $540 per month, so it can be done. key would be that you're in florida, california, hawaii, or some other state where there are a whole lot of things to do for free (i.e., beach) to occupy your time. That way, you don't have a need to spend money on activities. i probably spend $200+ per month just on golf. also, a plus would be if you were in a place where you could have a garden/farm and grow whatever you needed to live at minimal cost. and, better if you're in a place like hawaii where there are very few natural hazards (hurricanes in FL, earthquakes in CA) to destroy your personal property. although a place like CA might be nice because typically you don't have to travel too far to get items you would need--grocery store/drug store/etc must be walkable.

wpgabriel said:   
I'm wondering if you looked at those links yourself. The 100% probability was assuming you would only need your capital for 30 years. We're talking about a "retiring early" situation, and I'm guessing that these guys are looking more at 30 years as the minimum rather than the maximum. If these guys are in their 30s (your guess is as good as mine), then they might need 40-60 years of preservation of their capital. I think that 100% number drops to a much lower percentage, and your only hope for success is a renewed exponential expansion of the US (or world) economy.
Absolutely I looked at the links. And today was not the first time

I've run Monte Carlo simulations, and aiming at a financial plan that has no reliance on social security and supports nearly 40 years in retirement. I would not even consider retiring with $300,000. Of course its all lifestyle dependent, but I am aiming at an asset base of multiple millions

Also some of us here plan to live much longer then 30 years. I'm 35. My oldest living relative is 99 likely to make 100. So I need to plan on living at least 65 more years. Lets assume 5% inflation. Right now I can live well on 45K. Some of those expenses will go down as my house gets paid off but some like health care will go up. So lets just assume 45K. That means that in 65 years my burn rate will be 1,021,710 a year. Lets also assume 5% interest on investments. This is fair and reasonable. I would be broke in year 7 leaving me 58 years poor. 1Million dollars as very Austin powers as it is would still end up with my being broke in year 23 so 42 years poor. 2Million is better I make it till year 45 so only 20 years poor. 2.925Million would do it but that is not for wealthy and not if unexpected expenses or a failure to get a good return occurs.

lindylady said:   Also some of us here plan to live much longer then 30 years. I'm 35. My oldest living relative is 99 likely to make 100. So I need to plan on living at least 65 more years. Lets assume 5% inflation. Right now I can live well on 45K. Some of those expenses will go down as my house gets paid off but some like health care will go up. So lets just assume 45K. That means that in 65 years my burn rate will be 1,021,710 a year. Lets also assume 5% interest on investments. This is fair and reasonable. I would be broke in year 7 leaving me 58 years poor. 1Million dollars as very Austin powers as it is would still end up with my being broke in year 23 so 42 years poor. 2Million is better I make it till year 45 so only 20 years poor. 2.925Million would do it but that is not for wealthy and not if unexpected expenses or a failure to get a good return occurs.lindlady, I thought I was conservative, but maybe not/ 5% inflation & 5% return is an assumption that drives to an immediate reduction in the nest egg upon beginning withdrawal, since the PV of the assets never increase

I am working with assumption of 4% inflation and 6% investment growth (planning to live to 100)

Ellory, Perhaps those are better numbers perhaps not. I also have no expectation of being able to retire today and never making another cent for the rest of my life. Nor is anyone offering me 3Million to do so. I plan to pay off my house( 15 years left on morgage), buy a boat, and continue living off of my salary and saving a nice chuck for the next several decades before I retire. Sadly, I may also dye earlier then 100 could die today or at 112. But the question is how much would it take for you to retire right now my answer which is conservative but not overly so is 2.925 Million ideally 3Million.

If I get killed by a bus tomorrow, I probably could quit working tonight.

$300,000 would give the typical middle class individual a great deal of financial flexibility but it's nowhere close to financial independence. With that kind of $ I could pay off my house and put away a very significant chunk toward retirement. At that point I could take some pretty crappy paying jobs if they were the kinds of things I enjoyed, but it would not allow me to quit working.

300k today would mean I'd keep working.

To stop working . . . . for me. . . 2 million today

wpgabriel said:   ellory said:   $300,000 * .03 = $9000
Can you live on $9000 a year? Then yes


Hmmm...how safely can you get that 3% (regardless of the initial principle)? And what happens when inflation starts to eat into the principle?

I've always though that number was $5m, but then I'm lazy and wouldn't have to work hard to make sure I didn't spend more than the interest generated would provide. I think at $5m, I could live on half the interest and build the nest egg with the other half.


Probably a conservative real return on investment. Long term gains are widely accepted to be 8-9%; inflation could be assumed to be 3-4%. Also don't forget tax on that 8-9%.

Amount needed per year / 0.03 = Principal needed.

mewhojen said:   If I get killed by a bus tomorrow, I probably could quit working tonight.

I would bet that most Americans can't say the same.

I'd really want 5 million in the bank to stop working now. The idea is that if I'm not working, I would want to be able to do other things, which all cost money. I like traveling and eating and dressing well.

Zaos said:   wpgabriel said:   ellory said:   $300,000 * .03 = $9000
Can you live on $9000 a year? Then yes


Hmmm...how safely can you get that 3% (regardless of the initial principle)? And what happens when inflation starts to eat into the principle?

I've always though that number was $5m, but then I'm lazy and wouldn't have to work hard to make sure I didn't spend more than the interest generated would provide. I think at $5m, I could live on half the interest and build the nest egg with the other half.


Probably a conservative real return on investment. Long term gains are widely accepted to be 8-9%; inflation could be assumed to be 3-4%. Also don't forget tax on that 8-9%.

Amount needed per year / 0.03 = Principal needed.


I believe that historically once you factor in dividends the stock market has returned an average of between 6 and 7 percent after inflation. Obviously there's no guarantee that this trend will continue.

Zaos said:   wpgabriel said:   ellory said:   $300,000 * .03 = $9000
Can you live on $9000 a year? Then yes


Hmmm...how safely can you get that 3% (regardless of the initial principle)? And what happens when inflation starts to eat into the principle?

I've always though that number was $5m, but then I'm lazy and wouldn't have to work hard to make sure I didn't spend more than the interest generated would provide. I think at $5m, I could live on half the interest and build the nest egg with the other half.


Probably a conservative real return on investment. Long term gains are widely accepted to be 8-9%; inflation could be assumed to be 3-4%. Also don't forget tax on that 8-9%.

Amount needed per year / 0.03 = Principal needed.


Long term gains require a large portion of your assets to remain in equities. If you don't want to work again, you can't take on that much risk.

Fault forgotten inflation
Fault expected real return of 12% per year
Fault forgotten tax burden
Fault expected annuity solvency, to achieve a high return you would have a high risk company that could go belly up
Fault forgotten health care expense
This is just a start. Your friend is a fool, don't take any monetary advice from him.

Unemployment and a bad economy!

5-600k

JaxFL said:   Unemployment and a bad economy!

Now there's an idea. If you can stay on unemployment forever with your $300k in the bank, you might be able to survive for a long time. Still not the rest of your life, however.

Democrat or Republican in office?

lindylady said:   Also some of us here plan to live much longer then 30 years.
Not me, I smoke, drink and drive fast. At this rate my money will last far longer than me.

wpgabriel said:   JaxFL said:   Unemployment and a bad economy!

Now there's an idea. If you can stay on unemployment forever with your $300k in the bank, you might be able to survive for a long time. Still not the rest of your life, however.


Actually I missed my humorous point...

That being Unemployed and bad economy = 0

As no matter how little you have you manage.

Stupidly obvious thought - if it takes $600K to reitire comfortably, and 95% of Americans will have 1% of that, what will happen to them? Train wreck ahead.

Just off yourself over the weekend.

$3,000 a month. I could do it. That's about double what I live on now. I own my home and car. No debt. Nobody seems to understand how I do it.

Housing costs money. Are we assuming the payment of X dollars is in addition to what you already have?

0AfterRebates said:   $3,000 a month. I could do it. That's about double what I live on now. I own my home and car. No debt. Nobody seems to understand how I do it.

Progeny is costly, as is old age. 3k or less a month isn't a problem when you are a relatively young health single guy.

JaxFL said:   Democrat or Republican in office?The economy and investments haven't fulfilled the political prejudices of the financial industry, according to the book Stocks For The Long Run (data back to late 19th century), some Wall Street Journal articles, and at least one Barron's cover story, the latter going back to either 1945 or ~1926. However the starting and ending years can greatly affect results, even if changed a little.

Skipping 67 Messages...
dcg9381 said:   I'm cheap. $3M and I'm done.Are you saying you'd stop working if you lost 90% of your fortune?



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