Hacker News Reader

Comment by MuffinFlavored | Hacker News Reader

How many people here under 35 would really stop working if they had $1.5m-$2m?

With the recent bout of inflation/concerns about government's ability to maintain debt-to-GDP ratio + interest payments, I'd be worried that you're pretty much forced to constantly be worried about having to return to the workforce in some capacity (part time) eventually.

Working 20-30 hours a week in whatever industry it takes to make an extra $40k-$50k/yr to get by doesn't sound so bad.

There's something too daunting about the concept of "stop working, instead of seeing your net worth go up, you see it go backwards as you start to pull it/spend it during your otherwise prime earning years" I just can't convince myself is realistic for me (and maybe others) to actually pull off. Talk about online is one thing, but actually do/pull off?

View on HN

If your net worth starts decreasing when you retire you retired a decade too early. I know "I want to spend just enough in retirement that my last check bounces" is a funny joke and all but you have no idea how long you'll live, and no financial advisor worth the paper their business card is printed on would suggest you spend more than your investments earn in retirement.

>no financial advisor worth the paper their business card is printed on would suggest you spend more than your investments earn in retirement.

Sounds like you have never heard of the 4% rule[0]. Further, there are reasons to withdraw funds above ordinary living expenses, such as for gifts and donations.

>you have no idea how long you'll live,

Of course you do, within a range of probability. And there is insurance available to minimize the risk of uncertainty.

[0]https://www.fool.com/retirement/strategies/withdrawal/4-perc...

How does the 4% rule work if you are invested in index funds that yield a dividend? Let's say you have a 2% dividend. Do you let the dividend reinvest and then trigger a sale for 1% of your portfolio quarterly (4 quarters * 1 % = 4% a year) or do you make the dividends not reinvest, they pay you 0.5% a quarter, you need to pull the other 0.5% a quarter by selling off?

Does it really matter from a tax perspective?

>Does it really matter from a tax perspective?

Most likely, no.

If you are in a tax-deferred account (IRA/401k) then all the money distributed is going to be taxed at ordinary income tax rates.

If you are in a regular brokerage investment account, then both your long term capital gains and qualified dividends are taxed at the same favorable rate.

I don't see the point in re-investing dividends if you are going to take out cash in the same amount within less than a year.

If dividends are earned, they'll be recorded on your 1099. From a tax perspective, it shouldn't matter if you use use them to automatically buy more shares in the same index fund, have them flow to a money market account at the broker, or transfer the amount to your checking account.

The difference is cash flow. Obviously if your only income source is dividends, at some point you'll have to sell some of the underlying asset for the cash.

4% is just a rule of thumb to give you an idea of what your savings should be relative to annual spending.

> How does the 4% rule work if you are invested in index funds that yield a dividend?

The simplest method: look at your portfolio's worth on January 1, and take out the appropriate amount. Let the remainder ride.

So roughly:

* Year 1: take out 4%

* Year 2: Year 1 amount + inflation from Year 1

* Year 3: Year 2 amount + inflation from Year 2

* […]

* Year N: Year (N-1) amount + inflation from Year (N-1)

> And there is insurance available to minimize the risk of uncertainty.

Is there? I haven't heard of this but admittedly had not thought of researching into it.

It would be a game changer to be able to buy an insurance policy that guarantees a monthly payment indexed to inflation starting at age, say, 85 until death.

That's an IPA (inflation-protected annuity), which are or can be a life annuity, paying until death. But I wouldn't say they're always the best choice.

There are at least two scenarios where that's definitely not true.

(1) Planned, time-limited expenses that decrease net worth. For example, a child's college education. If you've budgeted for it, this is fine.

(2) General market wobbles. My net worth increases or decreases by tens of thousands in a day, just because of what the market did. (No, I don't have all of my assets in the market, but enough.) If the long term trend is downward and/or not keeping up with inflation, that would be a worry, but a dip here and there is also fine.

Is net-worth decrease a problem outside of these scenarios? Even that depends. It's probably still "no" if there are more income sources (e.g. social security, inheritance from parents) that haven't kicked in yet and will make Number Go Up again when they do. Less obviously, if you're going to run out of money at 150, that's not likely to be a problem. If it's at 75, that very likely is a problem.

It really is possible to save too much, though few do. Telling people to plan for an infinite retirement, which is basically what you're doing, is also bad advice. There's no virtue in scrimping and saving more than you really need to.

> If your net worth starts decreasing when you retire you retired a decade too early. […] and no financial advisor worth the paper their business card is printed on would suggest you spend more than your investments earn in retirement.

Completely wrong:

* https://en.wikipedia.org/wiki/Trinity_study

* https://en.wikipedia.org/wiki/William_Bengen

Principal liquidation is just fine and has lots of theoretical/historical analysis to support it, with (tens of) millions of people doing it as we speak.

> If your net worth starts decreasing when you retire you retired a decade too early.

Every quarter you drawdown your networth decreases to cover your expenses. Then you hope it maintains/stays the same by the stock market predictably reliably recovering from your 1%/quarter (4% drawdown/year) sale/gets offset by dividends, etc.

To me it seems it might be noise but there is for sure a period where your net worth decreases as you spend your "nest egg". Especially more so if the market doesn't just go straight up over time on average.

>Working 20-30 hours a week in whatever industry it takes to make an extra $40k-$50k/yr to get by doesn't sound so bad.

I guess I question what these part-time, low stress jobs that pay median US annual wages are. They're presumably not driving for Uber or working in retail over the holidays.

If someone already has some sort of consulting/freelancing business, you can probably dial things back a bit. But it doesn't seem straightforward in general.

I do agree in general that deciding to step away from a full-time professional job --especially later career--is something you can't necessarily undo.

I'm 42. I have a number that when I hit it, I will stop because the math covers the rest of my life comfortably. It's not $2m but it's not a big number. At that point, I will spend all my time either tending to my small farm or with my family, enjoying the world.

Yeah, I hope to "retire" at 50. Then find some part time job that's lower stress.

I don't know what your job/jobs/current culture/past cultures have been like. Obviously every job will have some problems but... being unhappy 40 hours a week+ and then thinking about your job on/off when you step away/not being able to disconnect seems like an "inefficient" way to use your "precious 20s-30s-40s-50s", especially if you could operate at a lower-stress level (less politics, less people being mean/rude, etc.)

But... it's just a cruel side effect of needing to afford to live, right? Plain and simple?

Yes, I would feel scared to see my bank balance decrease. At any age.

To not worry about that, I'd want at least $5mm in the bank, but I would still work just to keep myself sane.

and what sucks is, as time goes on, that's $5m today, not $5m 5-10 years from now

"it's never enough"

I'll raise that number to 10 million.

Meaning, there's a decent chance to make it, but I wouldn't trust it. We're talking about crossing 30-35 years, in an exponentially changing world that is exceptionally volatile.

There will be multiple financial crashes. A swift change in government. A currency change. Hyper inflation. Almost anything is on the table in that time span.

I had a number and blew past it then set a bigger number and went past it too. I just enjoy doing cool technical stuff and working with interesting people. I’ve got an age now, 55, when I plan to retire, but even then I’m not sure I really want to not work. Thing is, I’ve always loved computers and doing awesome stuff with them, and it’s easier to do that in an organization. Thing is I’m starting to get more into electronics and embedded systems as I get older, and have some ideas about open source ultra low cost easy to self maintain and build irrigation and farm automation systems in developing countries. So I plan to shift my focus around 55 to less tech for techs sake and more tech for humanities sake, without regard for compensation.

I sort of let things drag out the past few years. Partly because of COVID (it's not like I could travel) and partly for other reasons. I wouldn't have been unhappy to get a severance or even just get pushed out at some point. But I used up a bunch of vacation time I had saved up and pretty much gliding to a comfortable endpoint. I didn't really need to additional money but figure I might as well take it if I can given working isn't really getting in the way of other activities.

Genuine question: why wait til 55?

There are tons and tons of really cool technical problems and projects out there that aren't financially lucrative but have huge positive benefits for people.

Having an experienced person volunteering to work on something would make a world of difference to many of these projects that have tangibly positive effects on people but struggle with funding.

Mostly I’m building replacement income. I’ve saved up enough to retire on an annuitized drawdown on my savings, but I would rather keep those assets as liquid assets and acquire income generating assets over the next decade or so. That way I can live in the places I want to, have money set aside I can take risks with, and otherwise live a carefree life without adjusting anything in my lifestyle. Essentially I want to be self sustaining on an annualized basis rather than on some projected drawdown basis.

Plus I’ve landed in well paying gigs that I enjoy and don’t want to stop building big things for big bucks yet. I’ll do my smaller dreams next, I think I’m ready to slow down and focus on something smaller next.

Me. Once I own my house my expenses are 30k a year. Even 1.5 mil easily covers that.

How do you plan on setting up the $1.5m?

90% invested, 10% cash?

what are the investments going to look like? 100% index funds? What if the market doesn't return 7-10%? What's your plan, draw down 4% a year, 1% a quarter?

S&P500 index fund has a 1.5% dividend, so you only need to draw 4 - 1.5 = 2.5% (0.625% a quarter), unless you'd let the dividends reinvest and then sell them off.

You can get treasuries/bonds yielding 4-5% for short term now, not sure about a 15-30 year outlook.

Annunities and other weird things (high dividend yield ETFs) are an option but anything other than trying to find 4%+ is not without risks.

Plus your expenses are $30k now. In 2020, what were they? $25k? They won't be $30k forever (as you know).

I just can't imagine being in a position where I need to sell off 1% of my portfolio quarterly to live no matter the conditions of the market. The stock market can perform like crap for years at a time. Your net worth in stocks can drawdown up to 40-50% in 'worst case scenarios'

All I need is 2% plus inflation and taxes. SP500 dividend as you said is already 1.5 so we're pretty close. There are stocks that have div yield of 6+%, there are bonds, SP500 buybacks plus dividends are like 4% so if you sell the buyback amount and keep dividends you're there as long as the businesses grow at least as much as inflation. Of course there are risks but I like my chances.

Until you have a significant health issue that can drastically increase expenses, depending on insurance of course. Even with good coverage, you might be on the hook for bills that your provider denied coverage for.

$30K also sounds pretty low. House taxes/insurance/utilities/etc. aren't free and you need to budget at least something for maintenance. For most people in the US, automobile. Food even if you don't eat out a lot. Certainly there will be healthcare costs--even with Medicare.

My total home costs are just less than 10k after mortgage principal+interest. I don't have a car. You're both right though my medical costs will definitely increase.

You don't have to stop working. There are many interesting jobs that do not pay very well. Having a few million in your pocket give you the privilege to consider those jobs.

I'm 28 and I have ~$1.4 mil in assets (no house, just stocks / balanced portfolio). I've definitely considered not working for a while, I could easily take a year off and still support my wife and I. It's definitely allowed me to pursue jobs that I wouldn't take if I didn't have such a safety net.

I would absolutely retire today if I had $1.5 million in investments. I'm in my mid 30s.

"you're pretty much forced to constantly be worried..."

This is a feature of capitalism, not a bug. Capitalists benefit by having a large pool of laborers desperate to sell their labor.

http://pricedingold.com

Reply on news.ycombinator.com