Somehow, plenty of lottery winners of many times 10 million find themselves broke again only a few years later. A surprising number of sports stars too, once they retire. I don’t know how they do it, but they do.
You still have to spend it. Whether on a house, day to day living expenses or college education.
ok troll. no you don’t have to spend it. that’s the whole point. you live on the income it produces for you, which means you no longer work for your money, it works for you.
Most people with that level of assets will try to live off of the income stream, not spend down the capital, once you’ve bought your house and all the major assets you need, especially if you have kids you want to leave money for.
interesting parallel. one might say they both won the lottery. the easier the money comes, the easier it goes because there is no meaning attached to it. It just showed up one day. people who spend their lives earning their fortune tend to hold on to them.
I wasn’t trolling. I wasn’t thinking along those lines that’s all.
At what age do you reckon you’ll hit ths figure and d’yu think it would have been worth it?
I mean once you pay for your kids college education, if you’ve had the presence of mind to tell them not to major in some nonsense you’ve pretty much bought their financial freedom right?
I will not be able to retire when I have “x” amount of net assets. I will be able to retire when the income stream my assets produce is sufficient for me to not have to work for a salary. The easiest way I can think of to do this is property, because leverage.
If you aren’t going to have children (or want them not to inherit anything), then you can afford to spend down the capital so that (ideally) you get to $0 at exactly the time you die (of course, predicting that date is generally kinda hard).
If you are going to have children, and would like to leave them something, then you are going to need to live off of income that your patrimony can generate.
If LT Treasurys have an interest rate of around 4%, then 500k will pay off about 20k per year. That 20k will likely be taxed. There may also be inflation. Current real interest rates are negative, so unless you take equity exposure or something else, you will effectively have diminishing purchasing power over time.
The alternative is to take more risk in something like equities. With the S&P delivering something aroudn 30% this year, that doesn’t seem so bad, but then you can run into times like 2008-9 where you get a 55% drawdown. Oops.
And large sums of money are likely to get subject to wealth taxes over the long long term, as iniquities of wealth generate political pressures.
So 500k will probably generate about $1250 per month after taxes. You can probably survive on that for a while, provided that you can move in with relatives and don’t have any health problems or need to support a family. Inflation will be your enemy, and there is not much of a margin of safety, should anything go wrong.
With $1M, you might be able to do better, but you’ll still need good health and no family. I think you’d want $2M and then you could get better growth and enough to take on some equity risk. And of course, it would be hard to live a good life in a developed economy. Probably you need closer to $5MM, or maybe $7MM if you want to have children and educate them well. $10MM if you want the ability to get divorced and stay financially independent.
In hindsight it was a stupid thing to say, If you’ve spent your life making so much it makes no sense to run it down.
bchad, I really think using LT Treasuries as the portential investment is getting pretty long in the tooth. While historically these are considered to be risk free assets, in the current environment they are one of the poorest investments available: by most accounts, their weighted expected return would be very low or negative.
It is much more realistic for somebody to take 500k and buy five 300k houses with 2:1 leverage. Rent at ~$2000 with a mortage of around $1000 on a $20 year: that’s $5000 per month, $60k per year. You are paying down the mortgage, which builds equity. Assuming no real change in house values or early principal payment, you make $45k a year (figure 15k in maintenense and other expenses) and in 20 years you own $1.5mm worth of assets and, with no mortgage left to pay, are making $105k a year.
True, it takes some work and vetting of tenants, but it’s a lot better than what I think is an almost certain capital loss in LT treasuries. And, it’s still a lot easier than working full time.
I don’t doubt it is impossible to live on 500k in the first world but $1250 is roughly Rs 70k odd per month. If you were a bachelor you’d prob be saving 30k a month and if you had a family it would probably be hard but doable. I imagine most of the 3’rd world to be like this apart from maybe china with it’s strange housing policies.
This is in current scenario’s of course, 20 years later who knows?
I agree that LT treasuries is not the greatest investment thesis around, but the usual “this is enough to retire comfortably at age < 45” analysis typically uses laddered treasuries as a baseline, much like ALM analysis. If the laddered treasuries generate enough to live on, then any excess gets allocated to riskier assets. If you can reduce your living expenses sufficiently, then you can also start allocating more to risky assets. It’s a conservative strategy, of course, and in this environment, conservative strategies are being badly punished - but it’s not at all clear that risky strategies are suddenly no longer risky.
Your solution in real estate is a good one, but it does mean that you’re a landlord and managing properties rather than kicking back and retired. If you like tending to properties, it’s a good ratio of work vs pay, and both rents and RE prices will tend to go up with inflation. I think that the basic conclusion that you’ll need more than 500k to live well and raise a family still holds, although most people should be able to live on 40-45k per year as long as they are not in an expensive city and in good health.
Will 300k houses generate $2000/mo in rent? I’m not a RE specialist, but something seems off with that figure. Maybe it’s just me being NYC based. (EDIT: I guess that implies a cap rate of 5% = ((24k revenue -9k expenses)/300k price) which seems reasonable off the top of my head).
@Isildurr–you keep saying you could retire on 500k.
Are you talking $500,000 in US dollars? Or are you using some other kind of currency? And does “k” mean “thousand” or something else?
If by “500k”, you mean “500 kilograms of gold”, then I would agree that 500k is enough. I’m not sure that I would stop at $500,000 in the bank.
500,000 USD.
If i was in Europe/ N.America/ Australia i wouldn’t stop at that amount either though Brain wash’s plan if viable would have given me food for thought.
When i say retire, obv you still need to do something. Maybe get a job which lets you work 6 hrs a day or join an NGO that pay’s some amount or maybe teach something that you’re good at or run a shack somewhere in the phillipines whatever…something that will cover your day to day expenses and is just chill.
500K USD would be 3 crores (30 million rupees). You can easily get 6-8% return from saving accounts from Indian banks which comes down to 1.5 lacs to 2.4 lacs of rupees (~3-4K in USD/month) in interest income which is enough for household expenses in not a major city (Mumbai, Delhi etc) in India.
So, if you already have a house and do not want to live a lavish life, retiring is possible with 500K in India.
I don’t know what you want but on 2lac/month you can live in any city in any locality, have a driver/maid, take holidays, put your kids in a good school etc.
Does lac = stacks?
Lacs on lacs over hurr.
I guess the only thing this thread illustrates is that different people have different standards and there is much inequality in the cost of living in the world.
Seeing these bonus amounts makes me want to cry.