5 ms·

a 4% rate of return, on average from the S&P 500 index is reasonable. With 1 million, you could live off of $25000/yr, which is more than enough to live like a

a 4% rate of return, on average from the S&P 500 index is reasonable. With 1 million, you could live off of $25000/yr, which is more than enough to live like a king if you do not have other debt payments. You could rent a $1000/month apartment, pay for a $400/month car, eat $300/month in groceries, and still have thousands and thousands left over.

timr 13y ago
"a 4% rate of return, on average from the S&P 500 index is reasonable." Not if you're depending on using that money in the next ten years. Or if you believe in inflation. A 4% rate of return from an index fund is long-term average behavior, not instantaneous yield. Historically, depending on when you entered the market, a ten-year outlook could have led to anything from a huge gain to a huge loss. If you're the unlucky investor who started saving 66% of your income in the stock market in 1999, you'd still be putting off your retirement today. Also, your definition of "king" is pretty context-dependent. I can assure you that 25k will not allow you to live like royalty in San Francisco. Or, say, if you have children. It's a difficult concept to grasp when you're in your 20s, but most people do tend to reproducing by the time they're in their 30s. Oops. There goes that 25k retirement...
- Afforess 13y ago
  4% return is conservative. 7% is actually the historical average. So my 4% left plenty of room for bad years. RETIRING in San Francisco would be a massive mistake. If you are retired why the hell are you living in a uber-expensive city. Location matters less when you don't have a job. Move up to Oregon. Also if you decide to have children, that is a conscious decision you made to dump your millions down the toilet. I guess some people like kids enough to work an extra 30 years. I sure don't.
  - timr 13y ago
    "4% return is conservative. 7% is actually the historical average. So my 4% left plenty of room for bad years." It's only "conservative" if you don't understand variance. The risk isn't in the value of the average. The risk is in the variation around that average. Like I said: if you invested 66% of your net income in the stock market in 1999, you'd be a long way from retirement today. And if you're tempted to keep arguing this point, you might want to take a moment to consider how I know this. (Hint: the reality of a great many investors trumps your theories of how the stock market works.)
    - Dylan16807 13y ago
      S&P 500 is higher now than it was then. Sure variance can hurt, but investment made from 1994 through 2004 would be doing fine right now.
    - Afforess 13y ago
      You'd still be plenty wealthy due to dividends. Raw price indexes hide the true wealth.
      - dragonwriter 13y ago
        > You'd still be plenty wealthy due to dividends. Not all stocks offer dividends, and not all investors choose stocks with dividends (there are tax disadvantages to returning value via dividends rather than via appreciation of stock value.) Dividends offer a lower risk component of return, but typically in a diversified portfolio you can put some share of the portfolio in a lower-risk investment to have that lower-risk component. So, for growth focused investors that aren't risk sensitive, dividends can be a negative feature, and for investors that are risk sensitive, they aren't essential as there are other ways to tune a portfolio around risk. This makes, at best, only a weakly positive net incentive, and more likely a negative net incentive, for firms to offer dividends.
  - carsongross 13y ago
    "I guess some people like kids enough to work an extra 30 years. I sure don't." http://www.youtube.com/watch?v=icmRCixQrx8 http://www.youtube.com/watch?v=icmRCixQrx8
- nilkn 13y ago
  I agree that his definition of "king" is pushing it, but it's equally silly to ignore the possibility of retiring in any of the cities in the US that are cheaper than San Francisco, i.e., in any of the cities in the US that are not San Francisco and NYC. Honestly, in a middle-of-the-road city like Houston and with full ownership of a car and home, $25k net per year would actually give you a pretty comfortable life--remember that you wouldn't have to save any of that for retirement, because you're already retired. The main hitch is health insurance and/or kids. Also, Firecalc is a good tool for running withdrawal strategies over historical data: http://www.firecalc.com/ http://www.firecalc.com/ It gave very positive results for withdrawing $25k/year on a $1M portfolio for a total of 60 years. Obviously, though, there is no 60 year period starting in 1999 for which the data is fully known, so it has its limits and can be prone to overfitting. It does take inflation into account, by the way (by increasing your withdrawal correspondingly each year).
  - timr 13y ago
    I don't disregard the possibility of retiring in cities other than San Francisco -- I just dispute the notion that a $25k/year "retirement" is anything but silly dreaming by 20-somethings who don't understand what choices life is going to bring their way. Want to have a family? Want to send your kid to college? Want to be ready for the day when you're old and paying for medical problems? You're not living "like a king" on $25k anymore. "[Firecalc] gave very positive results for withdrawing $25k/year on a $1M portfolio for a total of 60 years." Well, again, you're not likely to accumulate a $1M portfolio in a decade on a $100k salary without a nice helping of luck. And not for nothing: that 60-year period encompasses the largest bull market(s) in US stock history. Past performance definitely does not extrapolate in this case.
    - Dylan16807 13y ago
      >Want to have a family? Want to send your kid to college? Marry someone with their own $25k/year and you'll be able to pay for plenty of college. >Want to be ready for the day when you're old and paying for medical problems? Insurance?
- tosseraccount 13y ago
  <i>A 4% rate of return from an index fund is long-term average behavior.</i> Average return for S&P 500 from 1928 to 2012 is 11.3% [ source : http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/... ] Inflation rate averages about 3.2% [ source : http://inflationdata.com/Inflation/Inflation_Rate/Long_Term_Inflation.asp http://inflationdata.com/Inflation/Inflation_Rate/Long_Term_... ] 11.26 - 3.2 = 8.1 % real return. Long term investment in a diversified set of equities is a very good investment and is very likely to secure your future finances.
  - timr 13y ago
    You missed the point: "Average return" != "real return in any arbitrarily chosen 10-year period" It's scary how many of you don't seem to know this. Did you all read the same book on investing and skip everything after the preface, or something?
    - Dylan16807 13y ago
      When you're talking about being retired for fifty years, it's the average that matters.
      - timr 13y ago
        "When you're talking about being retired for fifty years" Yeah. We aren't. This whole thread spawned because the claim was that you can retire in 10 years if you save 66% of your income.
        Dylan16807 13y ago
        >Yeah. We aren't. This whole thread spawned because the claim was that you can retire in 10 years if you save 66% of your income. I don't understand. Retiring after 10 years means you'll be retired for around 50 years, doesn't it?
        13y ago
chad_oliver 13y ago
Don't forget to account for inflation. You're more likely to end up with a 1-2% return in real dollars.

timr 13y ago

"a 4% rate of return, on average from the S&P 500 index is reasonable." Not if you're depending on using that money in the next ten years. Or if you believe in inflation. A 4% rate of return from an index fund is long-term average behavior, not instantaneous yield. Historically, depending on when you entered the market, a ten-year outlook could have led to anything from a huge gain to a huge loss. If you're the unlucky investor who started saving 66% of your income in the stock market in 1999, you'd still be putting off your retirement today. Also, your definition of "king" is pretty context-dependent. I can assure you that 25k will not allow you to live like royalty in San Francisco. Or, say, if you have children. It's a difficult concept to grasp when you're in your 20s, but most people do tend to reproducing by the time they're in their 30s. Oops. There goes that 25k retirement...

Afforess 13y ago
4% return is conservative. 7% is actually the historical average. So my 4% left plenty of room for bad years. RETIRING in San Francisco would be a massive mistake. If you are retired why the hell are you living in a uber-expensive city. Location matters less when you don't have a job. Move up to Oregon. Also if you decide to have children, that is a conscious decision you made to dump your millions down the toilet. I guess some people like kids enough to work an extra 30 years. I sure don't.
- timr 13y ago
  "4% return is conservative. 7% is actually the historical average. So my 4% left plenty of room for bad years." It's only "conservative" if you don't understand variance. The risk isn't in the value of the average. The risk is in the variation around that average. Like I said: if you invested 66% of your net income in the stock market in 1999, you'd be a long way from retirement today. And if you're tempted to keep arguing this point, you might want to take a moment to consider how I know this. (Hint: the reality of a great many investors trumps your theories of how the stock market works.)
  - Dylan16807 13y ago
    S&P 500 is higher now than it was then. Sure variance can hurt, but investment made from 1994 through 2004 would be doing fine right now.
  - Afforess 13y ago
    You'd still be plenty wealthy due to dividends. Raw price indexes hide the true wealth.
    - dragonwriter 13y ago
      > You'd still be plenty wealthy due to dividends. Not all stocks offer dividends, and not all investors choose stocks with dividends (there are tax disadvantages to returning value via dividends rather than via appreciation of stock value.) Dividends offer a lower risk component of return, but typically in a diversified portfolio you can put some share of the portfolio in a lower-risk investment to have that lower-risk component. So, for growth focused investors that aren't risk sensitive, dividends can be a negative feature, and for investors that are risk sensitive, they aren't essential as there are other ways to tune a portfolio around risk. This makes, at best, only a weakly positive net incentive, and more likely a negative net incentive, for firms to offer dividends.
- carsongross 13y ago
  "I guess some people like kids enough to work an extra 30 years. I sure don't." http://www.youtube.com/watch?v=icmRCixQrx8 http://www.youtube.com/watch?v=icmRCixQrx8
nilkn 13y ago
I agree that his definition of "king" is pushing it, but it's equally silly to ignore the possibility of retiring in any of the cities in the US that are cheaper than San Francisco, i.e., in any of the cities in the US that are not San Francisco and NYC. Honestly, in a middle-of-the-road city like Houston and with full ownership of a car and home, $25k net per year would actually give you a pretty comfortable life--remember that you wouldn't have to save any of that for retirement, because you're already retired. The main hitch is health insurance and/or kids. Also, Firecalc is a good tool for running withdrawal strategies over historical data: http://www.firecalc.com/ http://www.firecalc.com/ It gave very positive results for withdrawing $25k/year on a $1M portfolio for a total of 60 years. Obviously, though, there is no 60 year period starting in 1999 for which the data is fully known, so it has its limits and can be prone to overfitting. It does take inflation into account, by the way (by increasing your withdrawal correspondingly each year).
- timr 13y ago
  I don't disregard the possibility of retiring in cities other than San Francisco -- I just dispute the notion that a $25k/year "retirement" is anything but silly dreaming by 20-somethings who don't understand what choices life is going to bring their way. Want to have a family? Want to send your kid to college? Want to be ready for the day when you're old and paying for medical problems? You're not living "like a king" on $25k anymore. "[Firecalc] gave very positive results for withdrawing $25k/year on a $1M portfolio for a total of 60 years." Well, again, you're not likely to accumulate a $1M portfolio in a decade on a $100k salary without a nice helping of luck. And not for nothing: that 60-year period encompasses the largest bull market(s) in US stock history. Past performance definitely does not extrapolate in this case.
  - Dylan16807 13y ago
    >Want to have a family? Want to send your kid to college? Marry someone with their own $25k/year and you'll be able to pay for plenty of college. >Want to be ready for the day when you're old and paying for medical problems? Insurance?
tosseraccount 13y ago
<i>A 4% rate of return from an index fund is long-term average behavior.</i> Average return for S&P 500 from 1928 to 2012 is 11.3% [ source : http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/... ] Inflation rate averages about 3.2% [ source : http://inflationdata.com/Inflation/Inflation_Rate/Long_Term_Inflation.asp http://inflationdata.com/Inflation/Inflation_Rate/Long_Term_... ] 11.26 - 3.2 = 8.1 % real return. Long term investment in a diversified set of equities is a very good investment and is very likely to secure your future finances.
- timr 13y ago
  You missed the point: "Average return" != "real return in any arbitrarily chosen 10-year period" It's scary how many of you don't seem to know this. Did you all read the same book on investing and skip everything after the preface, or something?
  - Dylan16807 13y ago
    When you're talking about being retired for fifty years, it's the average that matters.
    - timr 13y ago
      "When you're talking about being retired for fifty years" Yeah. We aren't. This whole thread spawned because the claim was that you can retire in 10 years if you save 66% of your income.
      - Dylan16807 13y ago
        >Yeah. We aren't. This whole thread spawned because the claim was that you can retire in 10 years if you save 66% of your income. I don't understand. Retiring after 10 years means you'll be retired for around 50 years, doesn't it?
        13y ago

chad_oliver 13y ago

Don't forget to account for inflation. You're more likely to end up with a 1-2% return in real dollars.