Author Topic: Race to $1,000,000  (Read 21309 times)

chucklesmcgee

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Race to $1,000,000
« on: February 16, 2013, 09:29:08 AM »
I'm trying to hit a net worth of a cool mil this year. My company has really taken off and I think I can do this. Why a mil? It'll put me comfortably in the FI area at my current expenses. And our base-10 counting scheme puts some sort of psychological significance on hitting 7 figures.

Here's the current rough assessment from Mint:

$265,477.12      Assets (including conservative $5000 estimate for car)
$23,722.90      Debts (interest free credit card debt)
$241,754.22      Net Worth

I'll be posting every week or so with updates. Join in with your race to whatever net worth goal you have this year. No complainypants allowed.

arebelspy

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Re: Race to $1,000,000
« Reply #1 on: February 16, 2013, 09:44:46 AM »
241k to 1MM in 10 months?  That'd be pretty badass.

Would that 1MM be liquid/portfolio, or would it include valuation of the business?  If so, are you counting the current valuation in your current NW?

Good luck!

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.

chucklesmcgee

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Re: Race to $1,000,000
« Reply #2 on: February 16, 2013, 09:50:28 AM »
241k to 1MM in 10 months?  That'd be pretty badass.

Would that 1MM be liquid/portfolio, or would it include valuation of the business?  If so, are you counting the current valuation in your current NW?

Good luck!

1MM liquid/portfolio. I'm not counting the business valuation in my current NW.

edit: Net worth includes amount in business checking account and debts on business credit card. It does not include value of inventory or intrinsic value of the business.
« Last Edit: February 16, 2013, 11:19:22 AM by chucklesmcgee »

Paul der Krake

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Re: Race to $1,000,000
« Reply #3 on: February 16, 2013, 09:50:55 AM »
Very impressive indeed, hats off to you good Sir. Have you considered taking the early payout in the reasonably near future and getting a sweet lump sum for the sale of your business?

My own goals for 2013 are a lot more predictable, being salaried and all.

chucklesmcgee

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Re: Race to $1,000,000
« Reply #4 on: February 16, 2013, 11:21:50 AM »
Very impressive indeed, hats off to you good Sir. Have you considered taking the early payout in the reasonably near future and getting a sweet lump sum for the sale of your business?

My own goals for 2013 are a lot more predictable, being salaried and all.

My business is run 4 hour work week style and I expect a pretty favorable sales growth in the next few years. So I don't see too much benefit in selling in the near future unless I'm offered some astounding sum.

JamesL

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Re: Race to $1,000,000
« Reply #5 on: February 16, 2013, 12:18:40 PM »
Wow that's exciting. Entrepreneurship at it's greatest. Good for you! Most people will never hit a million, let alone in a year.

Kriegsspiel

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Re: Race to $1,000,000
« Reply #6 on: February 16, 2013, 12:58:19 PM »
That is very cool brother, good luck to you.

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Re: Race to $1,000,000
« Reply #7 on: February 16, 2013, 06:01:48 PM »
Last time I recall you mentioning it, didn't you say your business was grossing in the $350k range?  You are really ramping up if you can hit $1M in personal net worth in a year.  Sales must be increasing dramatically and the margins must be fattening up as well.

galaxie

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Re: Race to $1,000,000
« Reply #8 on: February 17, 2013, 07:57:30 AM »
We're at $375k right now, and can probably hit half a million by next February.  Let's say that's the goal.

Self-employed-swami

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Re: Race to $1,000,000
« Reply #9 on: February 17, 2013, 09:22:24 AM »
I just hit $300,000 in gross sales for my business, and that's in just over 2 years of operating.  Nicely done sir!

Zaga

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Re: Race to $1,000,000
« Reply #10 on: February 17, 2013, 11:25:54 AM »
This thread made me go and check, not counting our home equity or cars (because that's just how I measure things) our net worth today is $70,000.  The goal was $100K by the end of 2013, maybe I should shoot for higher than that!

chucklesmcgee

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Re: Race to $1,000,000
« Reply #11 on: February 17, 2013, 11:32:33 AM »
Sales must be increasing dramatically and the margins must be fattening up as well.

Yup. Revenue last year was $550,000, but only 10k in January- $70k by December. Despite running out of inventory for half the month in January we cleared $58k. Just over halfway through February we've cleared 53k in revenue. And we haven't even launched our newest product yet.
« Last Edit: February 17, 2013, 12:23:42 PM by chucklesmcgee »

bigchrisb

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Re: Race to $1,000,000
« Reply #12 on: February 18, 2013, 10:33:32 PM »
I'll join you in this one.  However, I'm a bit closer, and on a somewhat slower trajectory.  Current net worth is $970,000, and I'm aiming for $1M in June based on my saving / debt repayment rates.  In reality, because I'm highly leveraged to stocks, when I hit a million will depend more on the movements of the share market than anything else.

Good luck to all on this challenge!

chucklesmcgee

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Re: Race to $1,000,000
« Reply #13 on: March 15, 2013, 09:53:48 AM »
Updates:

$297,191.99 Assets
$15,965.29 Debts
$281,226.70 Net Worth


Might come up a little short if I keep up this pace. Still, adding $40k/month to one's stash is nothing to sneeze at.

chucklesmcgee

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Re: Race to $1,000,000
« Reply #14 on: April 08, 2013, 11:11:19 AM »
Oof. Tax bill's coming in at around $75k...that's a spicy meatball.

meadow lark

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Re: Race to $1,000,000
« Reply #15 on: April 09, 2013, 12:22:42 PM »
Oof is right.  But I am enjoying your rise vicariously.  Good luck.

Self-employed-swami

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Re: Race to $1,000,000
« Reply #16 on: April 14, 2013, 07:53:40 AM »
Uggh.  I am doing my taxes today, and while I (hopefully) won't owe $75,000, I might be in for an unpleasant surprise as well. Eek!

chucklesmcgee

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Re: Race to $1,000,000
« Reply #17 on: May 14, 2013, 04:47:03 PM »
Ick, well all my tax checks just cleared. Also had medical expenses of around $4000 due to a broken leg in December and a high deductible plan. Revenues took a bit of a hit as well due to some inventory issues. Everything's back up and running though!


$228,693.62 Assets
$22,439.36 Debts
$206,254.26 Net Worth

footenote

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Re: Race to $1,000,000
« Reply #18 on: May 14, 2013, 05:22:51 PM »
Congratulations on your publicly declared aspiration, Chuckles! Catching up and impressed by your "stretch goal" (as we called it at GE). Thanks for continuing to update us

chucklesmcgee

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Re: Race to $1,000,000
« Reply #19 on: June 24, 2013, 11:42:48 AM »
Well, business has picked up again. Been making some investments into new products and will continue that, so my net worth may appear a bit lower shortly. Also doing some serious travel, which does cut into the stashe growth.

$261,480.81 Assets
$30,578.13 Debts
$230,902.68 Net Worth

arebelspy

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Re: Race to $1,000,000
« Reply #20 on: June 24, 2013, 01:21:42 PM »
Well, business has picked up again. Been making some investments into new products and will continue that, so my net worth may appear a bit lower shortly. Also doing some serious travel, which does cut into the stashe growth.

$261,480.81 Assets
$30,578.13 Debts
$230,902.68 Net Worth

Okay, so it's down 10k over 4 months (rather than needing to be up ~300k to be on pace to hit 1MM).  Obviously not ideal, but speed bumps happen and if business is picking up now, that's awesome!

Are you still hoping to hit this goal somehow, or do you have a new one (500k maybe)?
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.

chucklesmcgee

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Re: Race to $1,000,000
« Reply #21 on: June 26, 2013, 08:30:53 PM »

Okay, so it's down 10k over 4 months (rather than needing to be up ~300k to be on pace to hit 1MM).  Obviously not ideal, but speed bumps happen and if business is picking up now, that's awesome!

Are you still hoping to hit this goal somehow, or do you have a new one (500k maybe)?

Admittedly, ~70k was due to taxes, so I probably should have included that in my initial networth as a liability.

Probably not, considering that my schedule will permit me to climb Mt. Vinson...which runs $40k+. I'm doing a serious re-evaluation of my finances and spending habits as well. Generally the point of FI is to avoid needing to do some boring and not-enjoyable work. With a 4HWW-style company setup, it's not as though work is quite such a bother and I rather like the company. Doing things like deferring on things important to me (like these expeditions) for the sake of hitting FI sooner is a little less compelling.

While I've been skeptical of the sustainability of my company, I realize that investments in the company (new products, a better site) will give drastically better returns over bleeding the corporate checking account for profit distributions and investing that in the stock market. I may very well be able to increase my revenue 10 times through some strategic introductions of new products.

As a result I'll likely be spending a bit more and investing more into the company (which really is tough to quantify net worth wise). We'll see where it goes and go fromt here.

arebelspy

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Re: Race to $1,000,000
« Reply #22 on: December 28, 2013, 08:00:44 AM »
Even if it didn't happen (hey, big audacious goals aren't necessarily always feasible!), I'd love to get an end of year report and hear what you're shooting for in 2014!
« Last Edit: December 28, 2013, 08:02:38 AM by arebelspy »
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.

prestojx

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Re: Race to $1,000,000
« Reply #23 on: December 29, 2013, 03:42:30 PM »
Probably not, considering that my schedule will permit me to climb Mt. Vinson...which runs $40k+.

I climbed the Vinson Massif several years ago. It was an incredible experience even though there was a serious tragedy on our trip.

If you go, good luck!

chucklesmcgee

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Re: Race to $1,000,000
« Reply #24 on: January 11, 2014, 07:36:45 PM »
Even if it didn't happen (hey, big audacious goals aren't necessarily always feasible!), I'd love to get an end of year report and hear what you're shooting for in 2014!

So the grand total is about $607,000 now, some of it thanks to Bitcoin. Not too shabby!

I'm not so sure I feel quite the need to accumulate an enormous stache at the moment. The interest from my investments should now more than cover what I consider core expenses- routine, recurring costs that are part of my lifestyle- rent, utilities, car repair costs, gym membership, groceries and eating out. Of course these fantastic trips consume far more than that, but that's where the business comes in.

I think I'll continue to save and invest, but I'm not sure I feel the need to set goals anymore. In a way, that sort of net-worth over-focus me a little short-sighted: I noticed over the last year I would feel much better about taking out money from the company as dividends and investing it in the stock market as opposed to re-investing in the company itself because I don't include the intrinsic value of the business in calculations of my net worth.

I think keeping the general Mustachian philosophy while not getting too over-focused with a goal is best. Short of buying a house/condo in a few years I'm not really sure what else  I really need or want the money for. Obviously I'll keep saving, but for now I'm content that I'm financially secure no matter which way the wind blows.

arebelspy

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Re: Race to $1,000,000
« Reply #25 on: January 12, 2014, 08:43:30 AM »
Cool, thanks for the update. Best of luck!
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.

Workinghard

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Re: Race to $1,000,000
« Reply #26 on: January 17, 2014, 05:16:53 AM »
I wish we could hit 1m this year, but it ain't gonna happen.  I'm hoping we can in 2016, the year my dh retires.  It didn't help that I didn't work for 10 years. 

Congrats to those who have reached their goal!

Bateaux

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Re: Race to $1,000,000
« Reply #27 on: February 12, 2014, 11:16:49 AM »
we crossed the 1mm mark last year and are completely debt free.   I plan to retire in 2018 with about 2 mm.  I dont know what we will do then.  Maybe cruise on a sailboat.

Gray Matter

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Re: Race to $1,000,000
« Reply #28 on: February 12, 2014, 02:39:04 PM »
I thought we had reached it, then I discovered that the aggregator was double counting some of DH's figures (funds that had been moved from one account to another).  Ugh.  Should hopefully reach it by the end of the year if the markets behave, but they've been acting a bit like my middle child lately.

dragoncar

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Re: Race to $1,000,000
« Reply #29 on: February 12, 2014, 03:07:51 PM »
I'm not near $1 million, but I keep track of a hypothetical "what if I had put all my savings into the S&P 500" chart.  That's getting close, so if the market keeps making new highs, I might be celebrating in a parallel universe (in which I'm a better investor).

Bateaux

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Re: Race to $1,000,000
« Reply #30 on: February 13, 2014, 06:32:33 AM »
I don't think I can go full Mustachian.  I'm going to need at least 2 million working for me before I retire.  I do not feel rich or comfortable having passed the 1 million mark.  I admire those who can make it work on less.

dragoncar

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Re: Race to $1,000,000
« Reply #31 on: February 13, 2014, 08:18:34 AM »
I don't think I can go full Mustachian.  I'm going to need at least 2 million working for me before I retire.  I do not feel rich or comfortable having passed the 1 million mark.  I admire those who can make it work on less.

$2 million isn't even partial-mustachian.  At that point, you are withdrawing far more than the median American household earns in a year.  I think it goes like this:

$6k (full ERE) ----- $24k (full mustachian) ---- $60k (median family income) --- $80k (bedpan and catheter) --- and beyond!


Note that MMM isn't exactly full mustachian, as we've discussed that his imputed rent bumps his expenses to around $50k, which are probably similar to the median family income.

CommonCents

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Re: Race to $1,000,000
« Reply #32 on: February 20, 2014, 12:12:06 PM »
I don't think I can go full Mustachian.  I'm going to need at least 2 million working for me before I retire.  I do not feel rich or comfortable having passed the 1 million mark.  I admire those who can make it work on less.

$2 million isn't even partial-mustachian.  At that point, you are withdrawing far more than the median American household earns in a year.  I think it goes like this:

$6k (full ERE) ----- $24k (full mustachian) ---- $60k (median family income) --- $80k (bedpan and catheter) --- and beyond!


Note that MMM isn't exactly full mustachian, as we've discussed that his imputed rent bumps his expenses to around $50k, which are probably similar to the median family income.

You're assuming he plans to spend all of the spinoff (rather than save for the "rainy day" or possible later health issues, donate, or collect up to give a huge nest egg to someone after he dies, etc.)  My DH thinks we need something like $2M (or more!) too, because he believes in a 3% withdrawal rate and padding on the annual expenses side as well to feel comfortable.  I'm hoping to run some numbers in a year or two and show him differently.  But he's a huge pessimistic...and worries about health costs in old age, social security going away entirely, cost of having kids, taxes changing so we're taxed heavily on stash, etc.  You name it, he fears it. 

4alpacas

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Re: Race to $1,000,000
« Reply #33 on: February 20, 2014, 12:36:01 PM »
I don't think I can go full Mustachian.  I'm going to need at least 2 million working for me before I retire.  I do not feel rich or comfortable having passed the 1 million mark.  I admire those who can make it work on less.

$2 million isn't even partial-mustachian.  At that point, you are withdrawing far more than the median American household earns in a year.  I think it goes like this:

$6k (full ERE) ----- $24k (full mustachian) ---- $60k (median family income) --- $80k (bedpan and catheter) --- and beyond!


Note that MMM isn't exactly full mustachian, as we've discussed that his imputed rent bumps his expenses to around $50k, which are probably similar to the median family income.

You're assuming he plans to spend all of the spinoff (rather than save for the "rainy day" or possible later health issues, donate, or collect up to give a huge nest egg to someone after he dies, etc.)  My DH thinks we need something like $2M (or more!) too, because he believes in a 3% withdrawal rate and padding on the annual expenses side as well to feel comfortable.  I'm hoping to run some numbers in a year or two and show him differently.  But he's a huge pessimistic...and worries about health costs in old age, social security going away entirely, cost of having kids, taxes changing so we're taxed heavily on stash, etc.  You name it, he fears it.

I'm in the same boat, CommonCents.  I doubt we'll even pull 3% from our nest egg, but my DH prepares for the worst.  I have to admit that I like the idea of having the extra security. 

I should also mention that we will be FI before we RE...but we'll still hit our $2.2M goal before we're 50.

EscapeVelocity2020

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Re: Race to $1,000,000
« Reply #34 on: February 20, 2014, 12:44:46 PM »
I'm hoping to run some numbers in a year or two and show him differently.  But he's a huge pessimistic...and worries about health costs in old age, social security going away entirely, cost of having kids, taxes changing so we're taxed heavily on stash, etc.  You name it, he fears it.

Sounds a lot like me.  I stumbled into being FI (thanks again 2013!) and now I've got sweaty palms when I think about handing in my 2 weeks notice.  I'm dealing with it by dividing and conquering my fears.  One interesting thought, going from 1 MM net worth to 2 MM does not give you twice the disposable income (although the 4% rule leads you to believe it would).  I calculated through the increased taxes and how ACA treats the higher income by offering less subsidy, and 'only' got ~27k more per year in spending.  Another couple 'problems' about thinking 2 MM is 'twice as safe' - social security will cover less of your expected spend (if it's 80k vs. 40k) and portfolio volatility (of the 2008/9 variety) will have a larger impact on your quality of life if you are accustomed to spending 80k vs. 40k.

Not that having 2MM isn't better than 1MM, but it should be pursued in order to lower the SWR (e.g. to 2% vs. 4%).  I'm still thinking that 1MM is a pretty number, except for one thing.  I really want to pay a significant portion of my children's college expenses (if I'm going to retire early).  Talk about a tough liability to quantify!

dragoncar

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Re: Race to $1,000,000
« Reply #35 on: February 20, 2014, 01:06:53 PM »
I don't think I can go full Mustachian.  I'm going to need at least 2 million working for me before I retire.  I do not feel rich or comfortable having passed the 1 million mark.  I admire those who can make it work on less.

$2 million isn't even partial-mustachian.  At that point, you are withdrawing far more than the median American household earns in a year.  I think it goes like this:

$6k (full ERE) ----- $24k (full mustachian) ---- $60k (median family income) --- $80k (bedpan and catheter) --- and beyond!


Note that MMM isn't exactly full mustachian, as we've discussed that his imputed rent bumps his expenses to around $50k, which are probably similar to the median family income.

You're assuming he plans to spend all of the spinoff (rather than save for the "rainy day" or possible later health issues, donate, or collect up to give a huge nest egg to someone after he dies, etc.)  My DH thinks we need something like $2M (or more!) too, because he believes in a 3% withdrawal rate and padding on the annual expenses side as well to feel comfortable.  I'm hoping to run some numbers in a year or two and show him differently.  But he's a huge pessimistic...and worries about health costs in old age, social security going away entirely, cost of having kids, taxes changing so we're taxed heavily on stash, etc.  You name it, he fears it.

If you're saving the spinoff "for a rainy day," you don't need the $2 million.

CommonCents

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Re: Race to $1,000,000
« Reply #36 on: February 20, 2014, 01:14:35 PM »
I'm hoping to run some numbers in a year or two and show him differently.  But he's a huge pessimistic...and worries about health costs in old age, social security going away entirely, cost of having kids, taxes changing so we're taxed heavily on stash, etc.  You name it, he fears it.

Sounds a lot like me.  I stumbled into being FI (thanks again 2013!) and now I've got sweaty palms when I think about handing in my 2 weeks notice.  I'm dealing with it by dividing and conquering my fears.  One interesting thought, going from 1 MM net worth to 2 MM does not give you twice the disposable income (although the 4% rule leads you to believe it would).  I calculated through the increased taxes and how ACA treats the higher income by offering less subsidy, and 'only' got ~27k more per year in spending.  Another couple 'problems' about thinking 2 MM is 'twice as safe' - social security will cover less of your expected spend (if it's 80k vs. 40k) and portfolio volatility (of the 2008/9 variety) will have a larger impact on your quality of life if you are accustomed to spending 80k vs. 40k.

Not that having 2MM isn't better than 1MM, but it should be pursued in order to lower the SWR (e.g. to 2% vs. 4%).  I'm still thinking that 1MM is a pretty number, except for one thing.  I really want to pay a significant portion of my children's college expenses (if I'm going to retire early).  Talk about a tough liability to quantify!

Interesting.  Makes sense.  In our case, the SS difference actually doesn't actually matter, as he won't consider it in calculating if we can retire early.  He thinks that's the only safe way to handle that situation.  (I'm hoping he'll reconsider using a smaller figure later.) 

foobar

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Re: Race to $1,000,000
« Reply #37 on: February 22, 2014, 12:15:29 PM »
Your doing it wrong:) If you have 2 million dollars, you don't have higher income, you just spend more of your principal to keep your income down.  You shouldn't pay any dollars in federal taxes or affect your ACA subs. Can't talk about state tax issue.  Obviously that gets hard if all your money is in taxable account (even total stock market funds tend to have yields of ~2%+ but even there 40k of income shouldn't affect your subsidies much.

In  a bunch of years (~20 or so if all do you do is take out 80k/yr, ~40 if you only need to take out half) you have hit the point where all you have is capital gains but my impression is that ACA subsidies are worth a lot more than medicare cost sharing. Obviously you would need to run your numbers and see what fits your situation best. 

Yeah SS will cover less but you weren't really counting on that anyway in your calculations.




I'm hoping to run some numbers in a year or two and show him differently.  But he's a huge pessimistic...and worries about health costs in old age, social security going away entirely, cost of having kids, taxes changing so we're taxed heavily on stash, etc.  You name it, he fears it.

Sounds a lot like me.  I stumbled into being FI (thanks again 2013!) and now I've got sweaty palms when I think about handing in my 2 weeks notice.  I'm dealing with it by dividing and conquering my fears.  One interesting thought, going from 1 MM net worth to 2 MM does not give you twice the disposable income (although the 4% rule leads you to believe it would).  I calculated through the increased taxes and how ACA treats the higher income by offering less subsidy, and 'only' got ~27k more per year in spending.  Another couple 'problems' about thinking 2 MM is 'twice as safe' - social security will cover less of your expected spend (if it's 80k vs. 40k) and portfolio volatility (of the 2008/9 variety) will have a larger impact on your quality of life if you are accustomed to spending 80k vs. 40k.

Not that having 2MM isn't better than 1MM, but it should be pursued in order to lower the SWR (e.g. to 2% vs. 4%).  I'm still thinking that 1MM is a pretty number, except for one thing.  I really want to pay a significant portion of my children's college expenses (if I'm going to retire early).  Talk about a tough liability to quantify!

EscapeVelocity2020

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Re: Race to $1,000,000
« Reply #38 on: February 22, 2014, 07:54:28 PM »
Not exactly sure who you were responding to, but I agree with the idea that having after tax principal to withdraw manages the tax issue, I'm thinking more about 401k and capital gains.  Have a look at my much more thorough treatment on my blog post on the topic, http://escapevelocity2020.com/tag/retirement-fragility/.  I'm not trying to promote my blog, but I can go into details better there.  I'd love to hear your thoughts after you read it!  I'm thinking most ER folks will get to a million with their tax advantaged, company-matched 401k as opposed to actually earning and saving a million after-tax dollars.  And doubly true for a two-million dollar portfolio :)

Your doing it wrong:) If you have 2 million dollars, you don't have higher income, you just spend more of your principal to keep your income down.  You shouldn't pay any dollars in federal taxes or affect your ACA subs. Can't talk about state tax issue.  Obviously that gets hard if all your money is in taxable account (even total stock market funds tend to have yields of ~2%+ but even there 40k of income shouldn't affect your subsidies much.

In  a bunch of years (~20 or so if all do you do is take out 80k/yr, ~40 if you only need to take out half) you have hit the point where all you have is capital gains but my impression is that ACA subsidies are worth a lot more than medicare cost sharing. Obviously you would need to run your numbers and see what fits your situation best. 

Yeah SS will cover less but you weren't really counting on that anyway in your calculations.




I'm hoping to run some numbers in a year or two and show him differently.  But he's a huge pessimistic...and worries about health costs in old age, social security going away entirely, cost of having kids, taxes changing so we're taxed heavily on stash, etc.  You name it, he fears it.

Sounds a lot like me.  I stumbled into being FI (thanks again 2013!) and now I've got sweaty palms when I think about handing in my 2 weeks notice.  I'm dealing with it by dividing and conquering my fears.  One interesting thought, going from 1 MM net worth to 2 MM does not give you twice the disposable income (although the 4% rule leads you to believe it would).  I calculated through the increased taxes and how ACA treats the higher income by offering less subsidy, and 'only' got ~27k more per year in spending.  Another couple 'problems' about thinking 2 MM is 'twice as safe' - social security will cover less of your expected spend (if it's 80k vs. 40k) and portfolio volatility (of the 2008/9 variety) will have a larger impact on your quality of life if you are accustomed to spending 80k vs. 40k.

Not that having 2MM isn't better than 1MM, but it should be pursued in order to lower the SWR (e.g. to 2% vs. 4%).  I'm still thinking that 1MM is a pretty number, except for one thing.  I really want to pay a significant portion of my children's college expenses (if I'm going to retire early).  Talk about a tough liability to quantify!

« Last Edit: February 22, 2014, 08:22:52 PM by EscapeVelocity2020 »

foobar

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Re: Race to $1,000,000
« Reply #39 on: February 23, 2014, 08:43:50 AM »
I think most ER (people retiring at 65 are different) are more like 50/50 as they hit the plan max long before they stop saving. It would take working for 20 years and contributing 40k (2 couple each maxing out and getting a match) to get 1 million in a 401(k) and close to 30 to get to 2 million.  Hard to work 30 years and early retire.:)

But as always a lot depends on your assumption. 2 million in a roth, 2 million in cash, 2million with a cost basis of 0, owning a 2 million dollar house and 2 million in a 401(k) are all 2 million dollars but in reality they all have different values. 

As far as lifestyle fragility, it depends.  Yeah it is great when you have guaranteed source of income (SS) that covers your needs.  But that isn't the ER family.  Imagine 2 40 year olds each living in a house with a 200k mortgage (call it 1 k/month) and 3k of property taxes for a total of 15k per year of expenses. The market then drops. Would you rather be the guy trying to live on 5k after housing or they guy trying to live on 25k? It is a lot easier to cut out trips to Europe and eating out than to have to find cheaper living arrangements.

The key with spending is to realize that all isn't created equal. You can cut cable, stop eating out, stop traveling,  and so on very easily.  Moving on the other hand is a lot harder.


The lower SS payments (i.e. if I retire with only 20 years versus 35) is actually one of the big risks of retiring early in my mind.  Make it to 58 and I be able to collect ~50k/yr starting at age 67. That is well over what I need. Retire at 40 on the other hand and I am looking at 25k/yr at 67 which is doable but it might mean not being able to visit the grandkids as much as I might like.  In theory you shouldn't need either amounts. The question is will theory match reality:)




Not exactly sure who you were responding to, but I agree with the idea that having after tax principal to withdraw manages the tax issue, I'm thinking more about 401k and capital gains.  Have a look at my much more thorough treatment on my blog post on the topic, http://escapevelocity2020.com/tag/retirement-fragility/.  I'm not trying to promote my blog, but I can go into details better there.  I'd love to hear your thoughts after you read it!  I'm thinking most ER folks will get to a million with their tax advantaged, company-matched 401k as opposed to actually earning and saving a million after-tax dollars.  And doubly true for a two-million dollar portfolio :)

Your doing it wrong:) If you have 2 million dollars, you don't have higher income, you just spend more of your principal to keep your income down.  You shouldn't pay any dollars in federal taxes or affect your ACA subs. Can't talk about state tax issue.  Obviously that gets hard if all your money is in taxable account (even total stock market funds tend to have yields of ~2%+ but even there 40k of income shouldn't affect your subsidies much.

In  a bunch of years (~20 or so if all do you do is take out 80k/yr, ~40 if you only need to take out half) you have hit the point where all you have is capital gains but my impression is that ACA subsidies are worth a lot more than medicare cost sharing. Obviously you would need to run your numbers and see what fits your situation best. 

Yeah SS will cover less but you weren't really counting on that anyway in your calculations.




I'm hoping to run some numbers in a year or two and show him differently.  But he's a huge pessimistic...and worries about health costs in old age, social security going away entirely, cost of having kids, taxes changing so we're taxed heavily on stash, etc.  You name it, he fears it.

Sounds a lot like me.  I stumbled into being FI (thanks again 2013!) and now I've got sweaty palms when I think about handing in my 2 weeks notice.  I'm dealing with it by dividing and conquering my fears.  One interesting thought, going from 1 MM net worth to 2 MM does not give you twice the disposable income (although the 4% rule leads you to believe it would).  I calculated through the increased taxes and how ACA treats the higher income by offering less subsidy, and 'only' got ~27k more per year in spending.  Another couple 'problems' about thinking 2 MM is 'twice as safe' - social security will cover less of your expected spend (if it's 80k vs. 40k) and portfolio volatility (of the 2008/9 variety) will have a larger impact on your quality of life if you are accustomed to spending 80k vs. 40k.

Not that having 2MM isn't better than 1MM, but it should be pursued in order to lower the SWR (e.g. to 2% vs. 4%).  I'm still thinking that 1MM is a pretty number, except for one thing.  I really want to pay a significant portion of my children's college expenses (if I'm going to retire early).  Talk about a tough liability to quantify!

EscapeVelocity2020

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Re: Race to $1,000,000
« Reply #40 on: February 23, 2014, 03:07:45 PM »
Thanks for the comments Foob.  After this nice run since 2009, my wife and I (40 y.o.) have the majority of our investments in 401k's and t-IRAs (~75/25), so I'm not so sure most ER folk will be 50/50, unless you count in home equity (which I don't since we plan to stay in the eventually paid off house).  In my experience, after-tax investments just didn't accumulate and grow as quickly, and the dividends, income, and capital gains have a tax drag while the 401k doesn't. 

Since the 401k is automatic and saves on taxes, I always maxed out and had very little left over for taxable early in my career.  Only recently am I at a point where I put more in after-tax investments than pre-tax, but I'm also planning to ER, so I think ER might actually limit people getting to 50/50.  I do view growing my after-tax balance as having a big effect to help me manage taxes in ER. 

But I also worry a little about how to spread a large 401k balance to limit tax.  If I use a 72t, I can get ~10k/yr but am stuck paying tax on it after the 40k in interest and dividends.  If I roll it into Roth, I pay tax and don't get access to it for 5 years, and I've had that ugly situation before where the balances go down after paying tax and the joys of re-classifying back and forth.  Ugh.


I think most ER (people retiring at 65 are different) are more like 50/50 as they hit the plan max long before they stop saving. It would take working for 20 years and contributing 40k (2 couple each maxing out and getting a match) to get 1 million in a 401(k) and close to 30 to get to 2 million.  Hard to work 30 years and early retire.:)

But as always a lot depends on your assumption. 2 million in a roth, 2 million in cash, 2million with a cost basis of 0, owning a 2 million dollar house and 2 million in a 401(k) are all 2 million dollars but in reality they all have different values. 

As far as lifestyle fragility, it depends.  Yeah it is great when you have guaranteed source of income (SS) that covers your needs.  But that isn't the ER family.  Imagine 2 40 year olds each living in a house with a 200k mortgage (call it 1 k/month) and 3k of property taxes for a total of 15k per year of expenses. The market then drops. Would you rather be the guy trying to live on 5k after housing or they guy trying to live on 25k? It is a lot easier to cut out trips to Europe and eating out than to have to find cheaper living arrangements.

The key with spending is to realize that all isn't created equal. You can cut cable, stop eating out, stop traveling,  and so on very easily.  Moving on the other hand is a lot harder.

The lower SS payments (i.e. if I retire with only 20 years versus 35) is actually one of the big risks of retiring early in my mind.  Make it to 58 and I be able to collect ~50k/yr starting at age 67. That is well over what I need. Retire at 40 on the other hand and I am looking at 25k/yr at 67 which is doable but it might mean not being able to visit the grandkids as much as I might like.  In theory you shouldn't need either amounts. The question is will theory match reality:)


foobar

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Re: Race to $1,000,000
« Reply #41 on: February 23, 2014, 06:45:00 PM »
It is strictly an income thing and where your spend your money thing. Make 150k like MMM and save 40% of your income, and you end up with a huge taxable account. Make 100k and save 30k as a couple and you can end up with pretty much all of it in tax deferred. Pay down you mortgage instead of investing  and you can end up house rich, taxable account poor. The tax drag is really low as you shouldn't be investing in things that have lots of dividends, capital gains, or interest. See a total stock fund and see how little they pay in tax drag.

With the 401(k), you just have to just have to realize those balance are inflated by 10% because of the tax deferral. It is pretty much impossible to get all the money out tax free once you get up north of a million dollars. Taking out ~20k/yr doesn't help you much when the account is going up by 40k/yr:). Pay the 10% tax and move on. The question is when to to do it. Do you wait til your 65 to max out your ACA, do you do it for a couple of years in your 40s to have that money compound in a roth instead of the traditional 401(k). Or do you do some combo.  That is really going to come down to your assumptions and balances


And another thought I had when I was out running. Do you realize that 2 million versus 1 million actually gives you 3x+ the disposable income? Guy making 40k has 25k of fixed expenses and 15k of disposable income. Guy making 80 (lets assume he pays 10k in taxes) has 75-25 = 50k in disposable income.   It matches my experience on how easy it is to save more of your net salary as it increases.


Thanks for the comments Foob.  After this nice run since 2009, my wife and I (40 y.o.) have the majority of our investments in 401k's and t-IRAs (~75/25), so I'm not so sure most ER folk will be 50/50, unless you count in home equity (which I don't since we plan to stay in the eventually paid off house).  In my experience, after-tax investments just didn't accumulate and grow as quickly, and the dividends, income, and capital gains have a tax drag while the 401k doesn't. 

Since the 401k is automatic and saves on taxes, I always maxed out and had very little left over for taxable early in my career.  Only recently am I at a point where I put more in after-tax investments than pre-tax, but I'm also planning to ER, so I think ER might actually limit people getting to 50/50.  I do view growing my after-tax balance as having a big effect to help me manage taxes in ER. 

But I also worry a little about how to spread a large 401k balance to limit tax.  If I use a 72t, I can get ~10k/yr but am stuck paying tax on it after the 40k in interest and dividends.  If I roll it into Roth, I pay tax and don't get access to it for 5 years, and I've had that ugly situation before where the balances go down after paying tax and the joys of re-classifying back and forth.  Ugh.


I think most ER (people retiring at 65 are different) are more like 50/50 as they hit the plan max long before they stop saving. It would take working for 20 years and contributing 40k (2 couple each maxing out and getting a match) to get 1 million in a 401(k) and close to 30 to get to 2 million.  Hard to work 30 years and early retire.:)

But as always a lot depends on your assumption. 2 million in a roth, 2 million in cash, 2million with a cost basis of 0, owning a 2 million dollar house and 2 million in a 401(k) are all 2 million dollars but in reality they all have different values. 

As far as lifestyle fragility, it depends.  Yeah it is great when you have guaranteed source of income (SS) that covers your needs.  But that isn't the ER family.  Imagine 2 40 year olds each living in a house with a 200k mortgage (call it 1 k/month) and 3k of property taxes for a total of 15k per year of expenses. The market then drops. Would you rather be the guy trying to live on 5k after housing or they guy trying to live on 25k? It is a lot easier to cut out trips to Europe and eating out than to have to find cheaper living arrangements.

The key with spending is to realize that all isn't created equal. You can cut cable, stop eating out, stop traveling,  and so on very easily.  Moving on the other hand is a lot harder.

The lower SS payments (i.e. if I retire with only 20 years versus 35) is actually one of the big risks of retiring early in my mind.  Make it to 58 and I be able to collect ~50k/yr starting at age 67. That is well over what I need. Retire at 40 on the other hand and I am looking at 25k/yr at 67 which is doable but it might mean not being able to visit the grandkids as much as I might like.  In theory you shouldn't need either amounts. The question is will theory match reality:)


EscapeVelocity2020

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Re: Race to $1,000,000
« Reply #42 on: February 23, 2014, 08:38:25 PM »
True that having over 100k income and 30k expenses would lead to 50/50, but even the reader case study just posted has a similar 75/25 tax-deferred/taxable ratio.  And I agree that I should have minimized dividends and interest in my after tax accounts, but then I'll get socked with capital gains, so I stick with what I've got which is less efficient than a lower yield broad market fund, but also gives me higher FI confidence with the higher yield. 

I'd say that's a pretty big leap that a 2MM net worth individual has the same non-discretionary expenses as a 1MM person, and I'd imagine it would take a large portfolio hit to convince them to cut back to what the 1MM guy cuts to.  My experience is that people match their lifestyle to their portfolio, and are unwilling to part with the toys and social circles they have become accustomed to, until they have to.  The accumulation phase is very different than the draw-down, so I wouldn't apply the experience of saving more as salary increases with how you will treat spending if you keep seeing your balances going up and up as you get older.  Market volatility is usually faster, especially on the downside, than lifestyle adjustment, but they do eventually come back in line one way or the other :)

foobar

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Re: Race to $1,000,000
« Reply #43 on: February 24, 2014, 06:46:27 AM »
That example family is a prime example of how high earners end up with a ton of taxable savings
Tax Deferred: 245k
Taxable: 163k+54k+ 200k in house +217k for the roth= 634k in taxable savings

 Now this family is stuck a bit by the fact that they are a 1 earner or those 401(k) numbers could be a lot higher. I do love the delusion though that 6k or 11k is going to pay for a lot of a kids college cost. Compounding doesn't help much when the cost is also compounding at 5%+/yr:)


Everything is a leap. Maybe your friends all move when they get raises to get houses to match their new salary but most people I know stick with the house they have until things like more kids suggest they need space.  People tend to get tied to locations by friends, schools, and habits. But lets say they choose to live a more expensive life and spend 40k on fixed expenses (over 50% more money). They still have 2x the discretionary income to spend on stuff that is easy to cut out.  If you like 70 and retired you might not want to be cutting stuff out (time is running out). If your 45 on the other hand you can put off that trip to the galapagos for another couple of years.



True that having over 100k income and 30k expenses would lead to 50/50, but even the reader case study just posted has a similar 75/25 tax-deferred/taxable ratio.  And I agree that I should have minimized dividends and interest in my after tax accounts, but then I'll get socked with capital gains, so I stick with what I've got which is less efficient than a lower yield broad market fund, but also gives me higher FI confidence with the higher yield. 

I'd say that's a pretty big leap that a 2MM net worth individual has the same non-discretionary expenses as a 1MM person, and I'd imagine it would take a large portfolio hit to convince them to cut back to what the 1MM guy cuts to.  My experience is that people match their lifestyle to their portfolio, and are unwilling to part with the toys and social circles they have become accustomed to, until they have to.  The accumulation phase is very different than the draw-down, so I wouldn't apply the experience of saving more as salary increases with how you will treat spending if you keep seeing your balances going up and up as you get older.  Market volatility is usually faster, especially on the downside, than lifestyle adjustment, but they do eventually come back in line one way or the other :)

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Re: Race to $1,000,000
« Reply #44 on: February 24, 2014, 08:32:43 AM »
I somehow missed they had been converting the traditional to Roth. Backdoor Roth really helps, but that should be the last retirement fund that they tap.

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Re: Race to $1,000,000
« Reply #45 on: February 24, 2014, 03:31:05 PM »
You're assuming he plans to spend all of the spinoff (rather than save for the "rainy day" or possible later health issues, donate, or collect up to give a huge nest egg to someone after he dies, etc.)  My DH thinks we need something like $2M (or more!) too, because he believes in a 3% withdrawal rate and padding on the annual expenses side as well to feel comfortable.  I'm hoping to run some numbers in a year or two and show him differently.  But he's a huge pessimistic...and worries about health costs in old age, social security going away entirely, cost of having kids, taxes changing so we're taxed heavily on stash, etc.  You name it, he fears it.

I'm in the same boat, CommonCents.  I doubt we'll even pull 3% from our nest egg, but my DH prepares for the worst.  I have to admit that I like the idea of having the extra security. 

I should also mention that we will be FI before we RE...but we'll still hit our $2.2M goal before we're 50.

4alpacas & CommonCents (& anyone else thinking 3% SWR) - I struggle to understand how this could not last an eternity so help me out here if I'm missing something.

Let's assume you have $1M invested in dividend paying funds and you utilize a 3% SWR netting you $30K/year in spending money. If the dividend paying funds tend to pay 2% dividends, this equals $20K/year. This means you either need your investments to increase by 1% in value each year (after inflation), or you will be drawing down your portfolio by 1%/year.

So now let's assume the market does no better than to just keep up with inflation. An example would be a 3% increase in value with a 3% inflation rate. In this scenario, keeping your expenses at an inflation adjusted $30K/year, it would take you exactly 100 years to burn through your portfolio since you would draw 1%/year.

Barring many, many crazy unforeseen medical expenses, or a never before seen 15 year straight decline in the market, how else would you ever run out of money? Has anyone run something like this through CFireSim?

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Re: Race to $1,000,000
« Reply #46 on: February 24, 2014, 04:16:44 PM »
Drawing down your principal means you get fewer dividends next year, because you don't own those stocks any more. Once 50% is gone, your dividends are down to $10,000 a year, so your withdrawal of $30,000 reduces your principal by $20,000, which is 2% of your initial principal, not 1%. You certainly would not last 100 years; it would be gone after 55.5 years.

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Re: Race to $1,000,000
« Reply #47 on: February 24, 2014, 04:24:38 PM »
Drawing down your principal means you get fewer dividends next year, because you don't own those stocks any more. Once 50% is gone, your dividends are down to $10,000 a year, so your withdrawal of $30,000 reduces your principal by $20,000, which is 2% of your initial principal, not 1%. You certainly would not last 100 years; it would be gone after 55.5 years.

Right good point, so thanks for the correction but...... that still leaves 55.5 years. It you retire at 35 that puts you at 90.5 years old. I still fail to see how the 3% SWR entails any risk other than catastrophic circumstances which are nearly impossible to plan for.

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Re: Race to $1,000,000
« Reply #48 on: February 24, 2014, 07:03:57 PM »
One 'likely' way 3% could theoretically fail going forward is when a bear market cuts the portfolio down and inflation is higher than equity yield.  Just because equities go down doesn't necessarily mean that stocks will cut their dividend, but some individual blue chip stocks definitely did cut in 2008/9 (GE went from 0.31 to 0.10, http://www.nasdaq.com/symbol/ge/dividend-history).  Even if overall diversified fund yield stays high (because of the drop in value), inflation erodes that too.  So basically, inflation will start to dictate if the original 3% is enough, and you might hit a point where you are substituting goods at a very painful level to keep your personal inflation rate within that original 3% SWR (remember that Bush song, 'Everything Zen', where they sing something about it costing 'a million dollars a steak'?).

But academically, I agree that a 3% SWR seems pretty bulletproof if you are willing to do whatever it takes to ride out the bumps (rice & beans when you once ate steak).  The market has come back every time so far, and if you can do 2%, you should be even more bulletproof!  More seriously, there are plenty of good strategies on variable withdrawal rates, adjusting to portfolio performance (or lack thereof) that seem to be more realistic to how people actually treat the draw-down phase.  When times are good (like now), money is 'cheaper' and should be spent a little more freely, and when the rain clouds come in, you baton down the hatches and enjoy what you bought a year or two ago.
« Last Edit: February 24, 2014, 08:59:03 PM by EscapeVelocity2020 »

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Re: Race to $1,000,000
« Reply #49 on: February 24, 2014, 08:44:01 PM »
The dividend stuff is just noise.  If you stocks generate 20k by going up in value or by returning 20k in dividends just doesn't matter. It is all about the value of the investments increasing faster than you can spend the money.

At 3% history suggests you good. However how would you feel if you retired in 1972 and 9 years later your  1 million dollar account was down to 420k (50/50 stock/bond) in real dollars. Not many people would be feeling good. We then go on the best 18 year stock run ever but you never get back to your 1 million dollar account. Up it to 4% and your broke. I am guessing the 2000 year retirees might be facing a similar situation. The have the advantage of not having faced killer inflation but now are at a point where both bonds and stocks seem overvalued (i.e. interest rates are going up and p/e seem high) and they didn't have a decade of growth to build a cushion.

Someone needs to for a cfiresim for the japanese stock market:)



4alpacas & CommonCents (& anyone else thinking 3% SWR) - I struggle to understand how this could not last an eternity so help me out here if I'm missing something.

Let's assume you have $1M invested in dividend paying funds and you utilize a 3% SWR netting you $30K/year in spending money. If the dividend paying funds tend to pay 2% dividends, this equals $20K/year. This means you either need your investments to increase by 1% in value each year (after inflation), or you will be drawing down your portfolio by 1%/year.

So now let's assume the market does no better than to just keep up with inflation. An example would be a 3% increase in value with a 3% inflation rate. In this scenario, keeping your expenses at an inflation adjusted $30K/year, it would take you exactly 100 years to burn through your portfolio since you would draw 1%/year.

Barring many, many crazy unforeseen medical expenses, or a never before seen 15 year straight decline in the market, how else would you ever run out of money? Has anyone run something like this through CFireSim?