3 ms·

Rich people of HN, is this true? I’d always heard each million is worth about $50k a year. Was that just during boom times, or simply mistaken?

toyg 5y ago
I'm not rich but I talk to a lot of finance people for work. It all depends on the degree of risk you're willing to accept, and it has less to do with booming than with central bank rates.
zeven7 5y ago
It sounds about right to me. The person replying to you is assuming you don't want to spend any of the $2 mil and only live on interest and being very conservative. 5% a year historically makes sense. Years where you don't get that return, you can spend some of the bank to make up the difference. Other years you should get a little extra to add to the bank. During a drought maybe you reduce expenses. But you should still be able to target 100k most years, unless you get really unlucky. (We currently happen to be living in a time where I think you could get really unlucky, 7.5% inflation and all that.)
fortran77 5y ago
Not even close. There's no reliable way to get a fixed income, and inflation is very high.
- mymllnthaccount 5y ago
  >no reliable way to get a fixed income You could buy an annuity from an insurance company. A quick Google search shows that $2mil should buy a 40 year old about $70k/year for the rest of their life.
  - deanmoriarty 5y ago
    That would be an incredibly awful deal for a 40yo, since it’s not inflation adjusted, so in 10 years you’ll be kicking yourself for having converted real assets into fixed nominal returns. Annuities really just work well if you are 80+ and want to insure against longevity risk.
  - fortran77 5y ago
    An annuity would not be a good deal unless you're in extremely good health and over 75 or so.
- toyg 5y ago
  State-issued debt from eurozone countries or the US is essentially risk-free. Any of them defaulting would mean they effectively stopped to print cash, at which point one should probably start growing their own chickens.
seanmcdirmid 5y ago
You mean in bad times when interest rates are higher, you can safely get that much from a million bucks. How during boom times when (at least these days) interest rates are cut to the bone, you’ll have to play the market for any kind of decent return (and take risks associated with).
arn 5y ago
Historically, 4% withdrawal rate is likely to last you at least 30 years with funds invested.* Currently people are pessimistic about stock market returns going forward so it could be lower (3-3.5%). And even lower if you want it to last longer than 30 years. * https://en.wikipedia.org/wiki/Trinity_study https://en.wikipedia.org/wiki/Trinity_study
- toyg 5y ago
  The key is risk. Funds are definitely not risk-free. If you rely on funds to produce cash, chances are that, when 2008 happens, you get to spend a few years living on ramen. Sure, they might recover eventually, but in the meantime you have to sell the car to keep the lights on.
toomuchtodo 5y ago
$40k/year per $1M in invested assets.
tinyhouse 5y ago
> Not even close. There's no reliable way to get a fixed income, and inflation is very high. The market historically has been going up, so at least historically it's been reliable to get a fixed income. I don't think $2M is sufficient to retire very early, mostly because of bad years and that your initial capital loses value over the years, but it can generate a nice income and most people can have something on the side that generates some extra money as needed. With $4M I would be more comfortable retiring at 40 let's say, depending on cost of living of course.
- ycombobreaker 5y ago
  > least historically it's been reliable to get a fixed income "Fixed Income" is more about structurally reliable and consistent returns, rather than historical average returns. An outlier bad year can easily wipe a huge percentage of capital invested in stock--but the younger you are, and the more buffer you have, the less likely this is to be a problem. But don't mistake that for fixed income! Fixed income usually refers to interest rate products, and as mentioned above in this thread, the inflation-adjusted rates have been pretty bad. Pretty much since the start of Quantitative Easing, I believe.

toyg 5y ago

I'm not rich but I talk to a lot of finance people for work. It all depends on the degree of risk you're willing to accept, and it has less to do with booming than with central bank rates.

zeven7 5y ago

It sounds about right to me. The person replying to you is assuming you don't want to spend any of the $2 mil and only live on interest and being very conservative. 5% a year historically makes sense. Years where you don't get that return, you can spend some of the bank to make up the difference. Other years you should get a little extra to add to the bank. During a drought maybe you reduce expenses. But you should still be able to target 100k most years, unless you get really unlucky. (We currently happen to be living in a time where I think you could get really unlucky, 7.5% inflation and all that.)

fortran77 5y ago

Not even close. There's no reliable way to get a fixed income, and inflation is very high.

mymllnthaccount 5y ago
>no reliable way to get a fixed income You could buy an annuity from an insurance company. A quick Google search shows that $2mil should buy a 40 year old about $70k/year for the rest of their life.
- deanmoriarty 5y ago
  That would be an incredibly awful deal for a 40yo, since it’s not inflation adjusted, so in 10 years you’ll be kicking yourself for having converted real assets into fixed nominal returns. Annuities really just work well if you are 80+ and want to insure against longevity risk.
- fortran77 5y ago
  An annuity would not be a good deal unless you're in extremely good health and over 75 or so.
toyg 5y ago
State-issued debt from eurozone countries or the US is essentially risk-free. Any of them defaulting would mean they effectively stopped to print cash, at which point one should probably start growing their own chickens.

seanmcdirmid 5y ago

You mean in bad times when interest rates are higher, you can safely get that much from a million bucks. How during boom times when (at least these days) interest rates are cut to the bone, you’ll have to play the market for any kind of decent return (and take risks associated with).

arn 5y ago

Historically, 4% withdrawal rate is likely to last you at least 30 years with funds invested.* Currently people are pessimistic about stock market returns going forward so it could be lower (3-3.5%). And even lower if you want it to last longer than 30 years. * https://en.wikipedia.org/wiki/Trinity_study https://en.wikipedia.org/wiki/Trinity_study

toyg 5y ago
The key is risk. Funds are definitely not risk-free. If you rely on funds to produce cash, chances are that, when 2008 happens, you get to spend a few years living on ramen. Sure, they might recover eventually, but in the meantime you have to sell the car to keep the lights on.

toomuchtodo 5y ago

$40k/year per $1M in invested assets.

tinyhouse 5y ago

> Not even close. There's no reliable way to get a fixed income, and inflation is very high. The market historically has been going up, so at least historically it's been reliable to get a fixed income. I don't think $2M is sufficient to retire very early, mostly because of bad years and that your initial capital loses value over the years, but it can generate a nice income and most people can have something on the side that generates some extra money as needed. With $4M I would be more comfortable retiring at 40 let's say, depending on cost of living of course.

ycombobreaker 5y ago
> least historically it's been reliable to get a fixed income "Fixed Income" is more about structurally reliable and consistent returns, rather than historical average returns. An outlier bad year can easily wipe a huge percentage of capital invested in stock--but the younger you are, and the more buffer you have, the less likely this is to be a problem. But don't mistake that for fixed income! Fixed income usually refers to interest rate products, and as mentioned above in this thread, the inflation-adjusted rates have been pretty bad. Pretty much since the start of Quantitative Easing, I believe.