5 ms·
Taking out more than $40k/year erodes your principal though, I thought that was pertymcpert's point? Like, if you've got $800k and can reliably earn 5%, as lon
by alecbenzer 7y ago
Taking out more than $40k/year erodes your principal though, I thought that was pertymcpert's point?
Like, if you've got $800k and can reliably earn 5%, as long as you're withdrawing only $40k you're good. But if you withdraw $41k one year, your principal is now only $799k. Next year if you need $42k, the return from your $799k is only $39,950, so your principal goes down to $796,950, etc.
From a quick spreadsheet, if inflation is 2% annually and you can get 5% on your principal, you deplete your $800k in ~32 years.
Doesn't seem too hard to fix with some supplemental income here and there?
- w-ll 7y agoNot taking a piss, could you share your spreadsheet?
- alecbenzer 7y agohttps://docs.google.com/spreadsheets/d/1RTa0rnMdk8VSPpK7qgklfUEEuLMcWnrFkIafOYQVjeQ/edit?usp=sharing https://docs.google.com/spreadsheets/d/1RTa0rnMdk8VSPpK7qgkl...
- josalhor 7y agoHe is not trying to live off the dividend (as far as I understand), he is trying to live off the principal and the dividend. At the end of the day, if his expected life span is something like 85 years and he accounts for 110 years in savings he would be left with very little principal, but who cares at that point. It is true however that getting that right may be very tricky, because if you miscalculate you have no savings left.
- alecbenzer 7y agoYeah I guess this is fine as long as you account for it. Starting with $800k, $40k expenses, 2% inflation and 5% return, retiring at 35 you end deplete your money at 67, but starting with $1M takes you to 83.