Author Topic: Is $4 million enough?  (Read 8121 times)

MsLogica

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Is $4 million enough?
« on: February 24, 2012, 11:32:46 AM »
It turns out MMM has it all wrong!  Or so CNN would like us to believe...

http://www.freemoneyfinance.com/2012/02/4-million-not-enough-to-retire-on-if-youre-young.html

I think the commenter "Terry" is a Mustachian in disguise, with his comment:

"A person who cannot live on $88,000 per year in today's dollars has a spending problem, not an income problem."

It's annoying that the original CNN article does not discuss looking at your Outgoings at all.  It simply assumes you will need a lot of money to live, and proceeds accordingly.

I'm glad this forum is around, and now I can share daft articles like this with people who will understand!

Daffy

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Re: Is $4 million enough?
« Reply #1 on: February 24, 2012, 01:25:18 PM »
"A person who cannot live on $88,000 per year in today's dollars has a spending problem, not an income problem."

That pretty much sums it up, doesn't it?

Ridiculous to think that people can't survive on $4 million. If that were true, then almost nobody would ever retire.

arebelspy

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Re: Is $4 million enough?
« Reply #2 on: February 24, 2012, 02:26:13 PM »
If you can't live on 4 mil NOW, you have a problem.  In the future, you may well need more than that.

For example, how many of you could retire on $157k?  Basically no one in the U.S.?  Someone in 1850 would have laughed at not being able to retire on 157k, as that's equivalent to the 4 million today.

We laugh now and say of course you should be able to retire on 4 million, but one day it will be almost impossible, as that will be only a few years' salary.

In any case, having 4MM now (or in the near future), yes, should be WAY more than enough to retire on, unless you have a spending problem.

/start tangential rant

Free Money Finance is one of the worst financial blogs I know of.  Yes, the CNN article is to blame for the 4MM misconception, but his "commentary" is 3 short statements about that 1) inflation sucks 2) a commenter before said inflation sucks and 3) he'll talk more about it later.

What a ridiculous "author"

/end rant
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shedinator

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Re: Is $4 million enough?
« Reply #3 on: February 24, 2012, 08:55:08 PM »
So, to use their numbers, 4% inflation would mean that the safe withdraw amount from this $4M would be the equivalent of $49,500 in today's dollars. My family is living proof that a family of 3 can live on 40% of that, and MMM and his family are not only surviving, but thriving on half that amount. Even if social security went away completely by 2042, having the equivalent buying power of $49-88k should be more than enough, especially since the person saving that will likely have had the fiscal sense to pay off his/her house and any outstanding debt.

arebelspy

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Re: Is $4 million enough?
« Reply #4 on: February 24, 2012, 09:22:56 PM »
So, to use their numbers, 4% inflation would mean that the safe withdraw amount from this $4M would be the equivalent of $49,500 in today's dollars.

How do you calculate that?

I see a 4% SWR as 160k (and yes, you'd be assuming a return above inflation, any SWR necessarily needs to take inflation into account).
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
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shedinator

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Re: Is $4 million enough?
« Reply #5 on: February 24, 2012, 09:33:21 PM »
So, to use their numbers, 4% inflation would mean that the safe withdraw amount from this $4M would be the equivalent of $49,500 in today's dollars.

How do you calculate that?

I see a 4% SWR as 160k (and yes, you'd be assuming a return above inflation, any SWR necessarily needs to take inflation into account).

From the article:
Quote
That's in 2042 dollars, however. In terms of purchasing power, $160,000 would be the equivalent of about $88,000 today, assuming 2% inflation over the next 30 years, or roughly $49,000, at 4% inflation. Still meaningful sums, but they don't conjure up that feeling of having hit the jackpot that $4 million does.
at a 4% inflation rate, $160,000 then would be the equivalent of $49,500 in today's dollars (inflation-adjusted dollars, if you prefer). All I did was quote the article, didn't bother checking the math, but it looks close to accurate.

arebelspy

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Re: Is $4 million enough?
« Reply #6 on: February 24, 2012, 09:42:27 PM »
at a 4% inflation rate, $160,000 then would be the equivalent of $49,500 in today's dollars (inflation-adjusted dollars, if you prefer). All I did was quote the article, didn't bother checking the math, but it looks close to accurate.

Oh, so the author is ridiculous.

Yes, if you stick your money in cash, then at that point it would be the equivalent of 50k in today's dollars.

Lesson: don't stick your investments into something that has a negative real return.

Like I said, "any SWR necessarily needs to take inflation into account."  The author is assuming you won't have investments that keep pace with inflation, but instead won't be invested at all and will have zero return (and in fact a negative return, once inflation is taken into account).

Ridiculous.

But your point is valid, you should even still be able to live on that!  ;)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

mcneally

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Re: Is $4 million enough?
« Reply #7 on: February 26, 2012, 12:05:25 PM »
arebelspy- The very first sentence of the article says "I hope to have $4 million saved by the time I retire in 30 years" not "I have $4 million right now that will remain in my checking account until I retire in 30 years." 

arebelspy

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Re: Is $4 million enough?
« Reply #8 on: February 26, 2012, 01:42:21 PM »
Right.  I was initially responding to this:
Ridiculous to think that people can't survive on $4 million. If that were true, then almost nobody would ever retire.

And so I mentioned both cases of now and in the future (addressing that comment, and then agreeing with part of the article):

If you can't live on 4 mil NOW, you have a problem.  In the future, you may well need more than that.

Then we got off on a tangent and I forgot, thanks for bringing it back around and correcting me, my mistake.

Regardless, the article is basically fear mongering based on inflation rates.  Trying to project too far into the future is tough, but the bottom line is that your SWR needs to take inflation in to account.  I recommend firecalc.org, which takes inflation into account.

We could just as easily say that your child will never be able to retire cause they'll need 12 million!  It's just silly sensationalist headlines.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.