4 ms·

If you have $1M and have it invested in a no-load S&P tracking fund (historically approx 9%, and hope you don't have a down year), then you'd have $90k/year inc

If you have $1M and have it invested in a no-load S&P tracking fund (historically approx 9%, and hope you don't have a down year), then you'd have $90k/year income on the interest alone. After taxes (long-term capital gains, let's assume the 15% or 20% bracket, unless Biden gets his wish to increase that), most likely around $13,500 (@ 15%) per year, that would be reduced to $76,500/year, which is $6,375/month. On the other hand, if you have a "safe withdrawal rate", as fma suggested, (and which seems to be very wise to protect against down years which could permanently reduce your nest egg) then that income would be halved, requiring approximately double the initial investment to result in a $6k post-tax income. And as far as it being "the idea of living off the interest on your wealth is pretty insane and unattainable", this is just categorically untrue; many mid- to upper-class families in the U.S. with two incomes make in the $300k to $1M range, so even if they only put away 4% to 10% in their 401(k) or other retirement plans for 30 years, they'd easily make that number.

mlyle 5y ago
Safe withdrawal rate accounts for inflation and taxation related effects, too. If you have $1M returning 9% per year, and withdraw $90k/year, you're either going to be spending less in real money in each year -- as inflation reduces the value of $90k and the amount of tax increases each year-- or you're going to be withdrawing more each year and depleting the principal.
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Applejinx 5y ago
"to any remotely normal person'. How normal is this in the grand scheme of things? Roll a million-sided dice and select a random person: let's say, somewhere in the USA to steelman the argument. How often will you get a person in a two-income family where the incomes combine to the $300k and up range? I'm not at all sure $300k will get you to that 'living on your interest' point in all places in the USA, either, and that makes it tougher on the argument. There are plenty of places where $300k will not let you put away a blessed thing in any retirement plan, and those are the places where people earn these 'insane' sums.
- bigyikes 5y ago
  In San Francisco at least, if you make even 100k you can still make significant retirement contributions. I can’t really think of any place where you could not save up on 300k income.

mlyle 5y ago

Safe withdrawal rate accounts for inflation and taxation related effects, too. If you have $1M returning 9% per year, and withdraw $90k/year, you're either going to be spending less in real money in each year -- as inflation reduces the value of $90k and the amount of tax increases each year-- or you're going to be withdrawing more each year and depleting the principal.

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Applejinx 5y ago

"to any remotely normal person'. How normal is this in the grand scheme of things? Roll a million-sided dice and select a random person: let's say, somewhere in the USA to steelman the argument. How often will you get a person in a two-income family where the incomes combine to the $300k and up range? I'm not at all sure $300k will get you to that 'living on your interest' point in all places in the USA, either, and that makes it tougher on the argument. There are plenty of places where $300k will not let you put away a blessed thing in any retirement plan, and those are the places where people earn these 'insane' sums.

bigyikes 5y ago
In San Francisco at least, if you make even 100k you can still make significant retirement contributions. I can’t really think of any place where you could not save up on 300k income.