4 ms·

Assuming a 4% return, 2.5MM absolutely does yield 100k per year, forever. Yes inflation will eat away at the value of that 100k over time, but that's less of a

• forrestthewoods 8y ago
  > have something left over each year to reinvest. Right. So my question is how much can you withdraw to indefinitely draw the same inflation adjusted value?
  • selectodude 8y ago
    The annualized return on the S&P 500 since its inception is 10 percent. Adjusted for inflation it's 6.5-7 percent. In the last 20 years, it's 5.9 percent. Adjusted for inflation it's 4.37 percent. So withdrawing 4 percent per year would be reasonable and keep up with inflation. It gets slightly more complex when you think about taking money out during down years is much larger impact than during good years, but that's an exercise for the reader.
  • CompelTechnic 8y ago
    check firecalc.com for historical likelihood of portfolio success, given a starting nest egg and an annual withdrawal rate. The 4% withdrawal rate mentioned above is very likely to succeed for an indefinite period, and 3% is essentially impossible. This is all assuming 85% US equities and 15% bonds, and that the future looks vaguely like the past 150 years. Despite all the skepticism above, the 4% claims are true. Not 100% chance of indefinite success, but close enough to be actionable. You can also google the "trinity study" for more info.
    • forrestthewoods 8y ago
      $100,000 per year for 50 years with a $2,500,000 base has a 79.67% success rate. So pretty likely. But not guaranteed. And for sure not indefinite. Not if you pull the same 4% during down years. My dream is 5,000,000 and a paid off house. I can live off 3% of that for sure.
    • zaccus 8y ago
      85% in equities during retirement is a bad idea.
      • CompelTechnic 8y ago
        The longer the duration, the more it is a good idea to be heavy in equities. This can be teased out of the data on firecalc.
        • zaccus 8y ago
          If you're buying equities and leaving them alone for decades, sure. But if you're retired and depending on your investments for an income, being 85% in equities is insane. One prolonged bear market could wipe you out.
  • zaccus 8y ago
    I'm talking about a fixed income, like bond dividends, annuities, etc. It doesn't adjust for inflation; that's a separate problem. Just saying that if you can get a 4% return on 2.5MM, which is on the high side of realistic, that's a 100k indefinite fixed income.
    • forrestthewoods 8y ago
      > It doesn't adjust for inflation; that's a separate problem. It’s my only question.