6 ms·

$2m in the bank is enough to easily draw $100k/yr from interest, which fits the GP’s “set for life if we make wise choices” IMO. That is way above median income

$2m in the bank is enough to easily draw $100k/yr from interest, which fits the GP’s “set for life if we make wise choices” IMO. That is way above median income in wealthy countries. Assuming you don’t try to live in SF!

guhidalg 4y ago
Even in the US, $100K/yr puts you comfortably above median income. If I had $100K/yr of GUARANTEED income, I would stop working for money and do whatever I felt like for the rest of my life.
- deleted 4y ago
  [deleted]
- Andrew_nenakhov 4y ago
  Yeah, something absurdly fun, like making video games.
  - sgerenser 4y ago
    Reminds me of the parable of the Mexican fisherman: https://www.kevincsnyder.com/the-mexican-fisherman-amazing-short-story/ https://www.kevincsnyder.com/the-mexican-fisherman-amazing-s...
    - antipotoad 4y ago
      Thank you for sharing. A real gem of a story.
- opportune 4y ago
  Up until recently (healthcare reasons) the Adams were basically doing just that. I guess they won’t need to sign/sell little dwarf artworks for DF donators anymore though
- micromacrofoot 4y ago
  the dream of being able to safely fail at any path you choose!
thomaslangston 4y ago
That's using a 5 percent withdrawal rate. A 4 or even 3 percent withdrawal rate is more likely to be sustainable. Those are also rates I see suggested more commonly on retirement planning sites.
- fnordpiglet 4y ago
  You are assuming no compounding. You have to model it as an annuity.
  - ghaff 4y ago
    If you're assuming withdrawing at a safe withdrawal rate you're assuming you're not compounding. You're assuming a safe withdrawal rate from principal/dividends/interest that will, on average, leave the principal constant. Of course, if you're older and are not looking to pass down money you may be fine with drawing down principal to some degree. So, yes, $2m should probably be modeled at about $80K income per year before taxes without touching principal but without building savings. (May be somewhat higher with higher interest rates/inflation.)
    - fnordpiglet 4y ago
      I said an annuity. An annuity would draw the principal down as well, and you generally make a drawdown assumption that leaves you with some safe margin for extended life and maybe some inheritance.
      - treewalking 4y ago
        If you model it as a lifetime annuity with inflation adjustment you are looking at more like 50k/year income at the outset were you to buy today. My understanding is that annuities provide in general a worse return than the so called 4% rule on average.
  - brianwawok 4y ago
    You have compounding but also inflation. You need to slowly raise your draw to keep the same lifestyle.
throwaway2037 4y ago
LOL. Who is getting 5% risk free interest rate on USD? No one. I guess 1% after taxes is a more reasonable expected return. Remember that interest rates on retail deposits were pretty much zero for last 10 years. So, 20K USD per year. But if they can keep it up for next 5 years, then yeah, pretty much can retire on 1% interest rate forever.
- sb8244 4y ago
  Getting 4% right now at a normal bank (no high rate shenanigans) I bet I'll see 5% within next 2 months. Obviously interest rate changes drastically over time.
  - xupybd 4y ago
    https://www.rabobank.co.nz/term-deposits/ https://www.rabobank.co.nz/term-deposits/ 5.50%P.A. here in NZ
- wongarsu 4y ago
  Long term (~50 year) average stock market returns on reasonable indexes (like S&P500) is 10% per year. The only real challenge is a portfolio mix and withdrawal strategy that minimizes the damage from withdrawing during downturns. That's where the 4% rule becomes relevant.
happyopossum 4y ago
> 2m in the bank is enough to easily draw $100k/yr from interest 5% interest hasn’t been avail from a bank in a couple of decades, and the fact that we’re close to it again doesn’t mean it will stay that way… You just can’t get a guaranteed risk-free return of that range indefinitely, which is why a lot of people shoot for 3-4% when they don’t have more capital to invest in riskier but higher return investments.

guhidalg 4y ago

Even in the US, $100K/yr puts you comfortably above median income. If I had $100K/yr of GUARANTEED income, I would stop working for money and do whatever I felt like for the rest of my life.

deleted 4y ago
[deleted]
Andrew_nenakhov 4y ago
Yeah, something absurdly fun, like making video games.
- sgerenser 4y ago
  Reminds me of the parable of the Mexican fisherman: https://www.kevincsnyder.com/the-mexican-fisherman-amazing-short-story/ https://www.kevincsnyder.com/the-mexican-fisherman-amazing-s...
  - antipotoad 4y ago
    Thank you for sharing. A real gem of a story.
opportune 4y ago
Up until recently (healthcare reasons) the Adams were basically doing just that. I guess they won’t need to sign/sell little dwarf artworks for DF donators anymore though
micromacrofoot 4y ago
the dream of being able to safely fail at any path you choose!

thomaslangston 4y ago

That's using a 5 percent withdrawal rate. A 4 or even 3 percent withdrawal rate is more likely to be sustainable. Those are also rates I see suggested more commonly on retirement planning sites.

fnordpiglet 4y ago
You are assuming no compounding. You have to model it as an annuity.
- ghaff 4y ago
  If you're assuming withdrawing at a safe withdrawal rate you're assuming you're not compounding. You're assuming a safe withdrawal rate from principal/dividends/interest that will, on average, leave the principal constant. Of course, if you're older and are not looking to pass down money you may be fine with drawing down principal to some degree. So, yes, $2m should probably be modeled at about $80K income per year before taxes without touching principal but without building savings. (May be somewhat higher with higher interest rates/inflation.)
  - fnordpiglet 4y ago
    I said an annuity. An annuity would draw the principal down as well, and you generally make a drawdown assumption that leaves you with some safe margin for extended life and maybe some inheritance.
    - treewalking 4y ago
      If you model it as a lifetime annuity with inflation adjustment you are looking at more like 50k/year income at the outset were you to buy today. My understanding is that annuities provide in general a worse return than the so called 4% rule on average.
- brianwawok 4y ago
  You have compounding but also inflation. You need to slowly raise your draw to keep the same lifestyle.

throwaway2037 4y ago

LOL. Who is getting 5% risk free interest rate on USD? No one. I guess 1% after taxes is a more reasonable expected return. Remember that interest rates on retail deposits were pretty much zero for last 10 years. So, 20K USD per year. But if they can keep it up for next 5 years, then yeah, pretty much can retire on 1% interest rate forever.

sb8244 4y ago
Getting 4% right now at a normal bank (no high rate shenanigans) I bet I'll see 5% within next 2 months. Obviously interest rate changes drastically over time.
- xupybd 4y ago
  https://www.rabobank.co.nz/term-deposits/ https://www.rabobank.co.nz/term-deposits/ 5.50%P.A. here in NZ
wongarsu 4y ago
Long term (~50 year) average stock market returns on reasonable indexes (like S&P500) is 10% per year. The only real challenge is a portfolio mix and withdrawal strategy that minimizes the damage from withdrawing during downturns. That's where the 4% rule becomes relevant.

happyopossum 4y ago

> 2m in the bank is enough to easily draw $100k/yr from interest 5% interest hasn’t been avail from a bank in a couple of decades, and the fact that we’re close to it again doesn’t mean it will stay that way… You just can’t get a guaranteed risk-free return of that range indefinitely, which is why a lot of people shoot for 3-4% when they don’t have more capital to invest in riskier but higher return investments.