If you retire at forty with a million in the bank, how do you make it if you live till 80?
The conventional wisdom in this community is that if you invest a sum of money in equities, you can withdraw a certain percentage annually without ever running out of money. That is, you mostly live off of the growth of your investments. Generally, 4% (inflation adjusted) is considered a safe withdraw rate. So if you have a million dollars, and you can live off of 40K a year or less indefinitely, then you can retire.
Obviously this is a simplification and there are more considerations. Let me know if you have any questions. This is a topic I am passionate about and happy to give my 2 cents on.
One conclusion I've come to is that after people "retire early", they almost never actually stop making money. It just tends to end up being more entrepreneurial stuff that they make money off.
You don't "have to" work, but you "might as well", and all the sudden you may even find yourself in a more lucrative gig than you started with because you changed your focus and found a niche you can fill nicely.
Life is too short to do anything else in my opinion. unless I guess I end up with a family but that's not really in my plans
Anecdotally and ironically, many tech people that do this end up making a loads of money after they "retire". They don't sit on a beach and do nothing. The ability to be highly selective about what they work on, and to defer any compensation, often leads them to invest all their time on software projects they are passionate about, which not infrequently ends up throwing off a large amount of incidental income even though that wasn't the objective per se. I like the term "recreationally employed" to describe this lifestyle. I know many engineers who ended here and some of them make more money "retired" than they did work the 9-to-5 grind at a big company.
This basically means either Southeast Asia, or some parts of Latin America. Asian languages tend to be extremely hard, and it might be a lot easier to sort of blend in with the populace in Latin America. The last thing I want to do in my retirement is draw needless attention to myself.
You realize the median US household income is like $40k/ year right?
The median American household doesn't have all this luxuries.
In the Atlanta area for example, there are plenty of nice 2-3 bedroom houses for $200,000 or even less, which puts your mortgage at $1,000 / mo. That leaves $1,500 / mo for a car, utilities, and food, which is plenty doable. Rent out a room if you want to for more income.
It's hard to figure how much to save for kids college, because the spectrum is so wide. For example, do you plan for the worst case scenario (ivy league, no scholarship or out of state state school, no scholarship) -- $250k and climbing.
Or the best case scenario (they take tons of ap courses and courses at local cc until transferring their jr year to in state school with full tuition scholarship) -- ~$20k?
Maybe try to aim for the midpoint? It's a hard problem.
What I've read that mad sense to me, though, is that kids can borrow for college and you can't borrow for retirement (reverse mortgage notwithstanding).
That would change the employment calculus for a ton of people.
If you want to get sucked into every ad campaign that comes along, you'll end up broke even if you get a huge windfall. Which is in fact exactly what happens to many lottery winners, sports stars, musicians, child actors...
I suspect the problem of sport stars et cetera is that they have to focus most of their time on their career, thus most don't have time to learn about finance (and not being from rich families means they can't simply copy the strategy of their parents), but it is publicly known that they are rich, and there are scammers who specialize on exactly this kind of victim. That is, I suspect that many sport stars will at some moment of their life meet a "financial advisor" with references from fellow sport stars, who offers to take care of their finance, and they go "lucky me, now I can focus 100% on my training", only to find out later that the money is gone.
To get rich, you need two different skills -- one to make money, and one to keep it -- and they both compete for your time. If you only focus on being good at what you do professionally, you may see lot of money flowing through your hands, but the part that you don't spend will somehow disappear anyway.
> Most people who get rich get that way by saving money. That means living on less money than you can make. Indefinitely.
That's true, but it is much easier to save money if you already started with a large amount. With enough starting money, it simply means not spending more than the interest you get (after adjusting for inflation).
I suppose that's one assumption to make. You know that the last time the US GDP grew more than 4% was back in 2000, right? And 2010 worldwide? Both with a continued downward trend since at least the 60's?
(This obviously doesn't preclude >4% ROI, but that in turn means increasing income inequality, and at some point, there's a price to be paid for that)
It has been outpacing GDP because increasingly, production is being concentrated in fewer, larger companies. So right now, they are growing. There are limits to that growth if GDP isn't growing as well - there are only so many smaller companies you can put out of business.
This - investing into SPX, or VFIAX, or any other market aggregate - is a viable strategy in the face of unlimited growth. It's a reasonable mid-term strategy. It's entirely unclear that there will be unchecked economic growth for 40 years. In fact, there's very good reason to assume there won't.
As for "get some portion to work higher yields" - those yields carry risk. They're not just making you more money, you stand a better chance to lose money, too. Which in turn means much less return, even if you manage to maintain 4%.
And to make matters worse, you're timing dependent - if you'd invested $1M in 1999, you would've been back to $1M in 2012. Except, if you'd lived off it for those 13 years, you'd be down to half your initial investment, ~$480K.
FIRE is a high-risk strategy. I'm not saying it can't work out, but over 40 years, there are a lot of things that can happen, and most FIRE proponents have very small safety margins. The crux is that that doesn't seem particularly problematic in your 20s and 30s - worst case, you start again, right? Except "start again" in your 50s, 60s, 70s is a really sucky proposition.
Ultimately, everybody takes their own risks, but let's not underplay those risks.
And there are a dozen TSLA on the horizon.
And the market keeps making new ones.
Historically, about 4% is the safe drawdown rate. FIRE folks tend to be a little more conservative than that, though, because of the even longer time horizon involved with retiring earlier.
Check out a tool like https://www.firecalc.com/ that is designed to run backtested simulations to see if your drawdown rate from your starting assets would historically be safe for your time horizon. The UI is clunky but the math is good.
Its a mix of some big Investment Trusts some wealth protection like Personal Assets RIT and Capital Gearing and a few more speculative bets