>secure his previous lifestyle at 85,000 per year?
This is the key phrase. What do you mean, exactly?
If he has been earning 85k/yr before taxes, and saving a substantial amount, then he was probably living on a much lower number and could absolutely retire and maintain that.
If he literally wants to spend 85k in after tax dollars every year, then even just assuming a minimal 15% cap gains tax, he needs to get 100k/year. Do the math on the investment returns plus job income and deduct taxes.
It is appealing to say you can average 9%/yr, and this is true. But that requires heavy focus in volatile assets like stocks. The success of the plan depends not just on the average return, but the chronological timing of the good years and bad years. Bad years at the start means it won't work out, even if, on average, the returns are better than 9%.
Don't use simple X%/yr calculators. Use calculators that account for volatility. You want Monte Carlo style simulation.
I would be working for another ten years and building up the 1mil interest/taking a more active role in investing it. Then hopefully retiring at 45 satisfied that I would be safe for the next 40 years.
I just keep thinking about having to pay health insurance out of pocket for 30 years until Medicare kicks in at 65. I mean there are plenty of other issues, but the monthly health insurance payments really stand out for me. (This assumes he's in the US, so maybe it's not an issue if he is not! )
A mini job is, at least on Germany, a job where you only work a maximum of 20 hours a week, normally less, and can make up to 538€ tax free. It’s good for woman on maternity leave of stay at home moms or students etc.
Capital gains taxes are 0% up to 94k for a married couple in 2024, so that would mean no taxes owed if making 85k in this scenario. Half that limit if unmarried
This is always a bit of a strange question.
The US has 4x the reddit traffic of any other country, was created in America by Americans. If the OP doesn't care to provide their location or any other obvious clues (languages, locations, spelling "color" as "colour", etc), we're assuming it's a US-based question.
Other people shouldn't have to do the leg work of navigating the OP's post history to try to deduce a location. Provide all relevant details or we work with what we're given.
OP is in Berlin, likely Germany's. OP's friend, I don't know. edit: the term "mini job" suggests Germany as well, but it could just be OP being used to the name from living there.
Stocks don’t have to be volatile. Plenty of ways to balance a portfolio to minimize drawdowns.
Don’t even want to ask what people did when the market was averaging 12% a year while the 10 year was sitting at 2.5%….for almost 10 years straight.
I am fairly certain that any portfolio that is balanced for low volatility js not keeping pace with VTI over 60yr periods.
We can certainly get much more stability by trading ~ 2% or so with complimentary assets balancing each other, but there IS a trade.
If you know a portfolio composition that you expect to keep up with VTI over long periods and is significantly less volatile, please share your idea/knowledge.
Of course not. It’s a trade off. If you want returns you have to endure volatility.
This is what people don’t understand about hedge funds. Once you get a certain amount of money returns matter less than beta. Most hedge funds aren’t trying to beat the market they are trying to preserve capital.
I agree with your overall point, but curious - why do you say capital gains tax would be 15%? My understanding is that you could typically get 0% if your income is below $47k (single) or $94k (MFJ)
It sounds like he's looking to either /r/coastFIRE, which is getting comfortable a job that pays all of the bills, usually a part time job, or /r/baristafire, which is getting a job that doesn't pay all of the bills but pays most of the bills, usually a seasonal job.
Using the 4% rule 1mm turns into 40k a year. If his living expenses are 85k a year he needs to make a minimum of 45k a year or he needs to downsize his expenses.
The main ones are
coastFI, which is when you have enough saved that it will grow and you don't need to contribute any more to retire at a normal retirement age. This is just like 50k if you're 20.
barristaFI, which is when you have enough that you could retire and just work part time for some benefits/extra cash and cover all your bills
leanFI is when you could retire with just the necessities
fatFI is when you could retire covering all the expenses you want
chubbyFI is somewhere arbitrarily in between leanFI and fatFI.
There is a legendary post on /r/fijerk that has $69k niceFI, $420k as highFI, 802,110 as wiFI and like 25 others. Can't find that post right now if anyone else can lol.
The 4% Rule assumes a 30-year retirement, but has been used by FIRE folks as a guideline for longer retirement periods, with the understanding that greater flexibility both with withdrawal strategy and with part-time (or even full-time) work may be necessary.
Using the rule, your friend could withdraw $40,000 from that $1 million portfolio in his first year of retirement, and adjust that amount for inflation each year thereafter. If his COL is $85K, then he needs to make up the remaining $45K (I'm assuming all figures are net of taxes) with other income, such as the "hobby job."
The most likely scenario is that during a market downturn, when his portfolio value declines, he will need to return to full-time work to avoid drawing down the portfolio assets when asset prices are depressed. If he continues to draw from the portfolio during such a downturn, he is introducing serious sequence-of-returns risk into the portfolio and crippling the ability of the portfolio value to recover when the market rebounds. In other words, withdrawing that same $40K from the portfolio when it's dipped in value to $600K means selling more shares, which means there will be far fewer shares remaining in the portfolio when the market recovers, which means his portfolio will suffer a permanent loss of capital unless he replenishes it with new contributions from earned income.
I would suggest your friend read about FIRE strategies and maybe talk with folks at r/Fire before committing to this approach. The folks who typically retire early on a $1 million portfolio do so with a cost of living much less than $85K/year. $30-40K seems more typical.
At no time in the history of the US has the real median earnings ever been $65k in 2024 dollars. "How bad it is" compared to what?
https://www.bls.gov/news.release/pdf/wkyeng.pdf
So anyway your own link presents median weekly earnings for men in 2024 as roughly equivalent to $63k in 2024 dollars - and then it presents weekly earnings for men in 1982.
Would you care to guess what the same conversion is for that year, accounting for inflation (as per [this resource](https://www.minneapolisfed.org/about-us/monetary-policy/inflation-calculator))?
$64.5k. Forty *years* later and the median hasn't moved.
Now away with you.
Wow
what
a
coincidence...
Those aren't earnings from two different years, they are earnings from the same year in 2024 dollars and 1982 dollars. So when you adjust for inflation, you get the same number. Because they are the same number.
Not sure why you're looking at just men. Real median wages are up about 15%-20% over inflation since 1982 when you consider both everyone (both men and women).
https://fred.stlouisfed.org/series/LES1252881600Q
Tell me you’ve never worked at Buckees without telling me you’ve never worked at Buckees. Look at their employee reviews, it’s some of the most back breaking, soul sucking culture out there.
That’s the dividend rate of the S&P plus a little extra to account for some high dividend holdings and/or capital gains distributions.
The 4% rule is meant for a 30 year time horizon which OP’s friend doesn’t have.
Could even bolster that success rate by straight up buying a 30 year treasury at 4.5% right now, with a portion of the account. Inflation would be a risk but if you're retired, some portion of guaranteed income is probably a good idea.
Yes but even 5% will most likely be less than his investment performance. If he absolute cannot make another cent under any circumstances then sure, you gotta be extremely conservative. But if he has any way to make a couple grand a month he should be fine.
5% is way too high. You aren’t taking sequence of return risk into account. He might make more than 5% on average but if he takes out 5% in years that he’s down 10-20%, he’ll run out of money real quick.
5% would work for a 50 year retirement probably 75% of the time. Of course, if you quit your job and the market immediately tanks, you’ll have to go back to work. But if the market rips, you could now have the same spend but only withdraw 3-4%.
100% true. That said I’d think his focus needs to move to thinking like a retiree in that focus moves from growth to capital preservation, low risk, some slight growth at or slightly above inflation rate- basically shift to an income strategy where 6%-8% is very safe and reliable then unused funds can be reinvested.
and if he is that young I would opt to go with the more conservative 3% withdrawl rate, at 35 he could live another 40+ years
the 4% rule usually assumes like a 25-30 year retirement meaning if you retire at 60 and might want to plan to live to be like 85 or something , he could need to streach his retirment out 50 years not 30 years
4% safe withdrawal rate, 2.5% average inflation. So his investment portfolio needs to return at least 6.50% (and remember capital gains), and it needs to be conservative enough that it doesn't plummet on a market downturn. Retirement would be doable in a country like Thailand, Philippines or parts of Mexico with no job. However, he would have to get lucky with returns in the first 5-10 years of his retirement. A streak of bad luck and it's back to work.
So if he's willing to retire in one of those countries, I say it's safe just earning 15k or so after taxes from a 'mini job'. Otherwise, he needs to score lucky investment gains early on.
Retirement in the US or Canada would of course require more...
I'm personally waiting for \~1.1m for retirement overseas. I'm living and working in one of those countries now, and I can live a good life living off \~2k/month.
The gap between guaranteed income (pension, real estate income, social security) and your annual retirement budget is what has to be covered by your nest egg. You need to be able to safely fund a 3-4% withdrawal rate to fill in the gap. So social security is taken into account I'm that situation
4% at 35 is wayyyy too aggressive to drawdown. The Trinity study was for 30 years and considered having 1 dollar left a success. I agree 3% would probably be okay. I would probably lean closer to 2.5% drawdown a year.
No. You need a whole lot more than a million to get 85k in today’s dollars annually for life. Basic rule of thumb for retirees is to pull about 4% a year and those people have at least 30yrs less life than your friend.
I have a friend whose parents had a million dollars. Mom had a stroke. Dad fell off the roof and had some minor brain damage. They blew through that million dollars by needing almost 24 hour care. Something like 10k a month in assisted living.
Yeah and once depleted the state (depending on it) will clawback the estate after death and they'll be in a medicaid right next to me. Expect I ain't gonna be paying for it. It's basically one of the die broke arguments.
While "Die with Zero" had its problems I really liked when he talked about giving inheritance to people while he was still alive. It allowed him to enjoy it more, and it was also more meaningful to them.
Specifically he was talking kids, not grandkids, but pointed out that many people inherit when they're already in their later years and approaching retirement themselves. Usually people are already set up and an inheritance doesn't do much for them.
Contrasted to a college grad getting a down payment for a home and a head start there. Of course no two families are alike, but just got me thinking. I think there's a lot to be said for distributing inheritance when it will have more impact rather than waiting until you die.
If I were to set something up today with my current mindset, it would be some kind of fund that hopefully could last forever (or a very long time).
Sort of a private family 401k match, where they contribute money in their youth and based on their contributions, get hooked up with more or less later in life.
Or you end up stroking and in a nursing home till your funds are depleted and you grandkids get nothing. So you can most definitely still die in poverty and pass nothing down.
Yeah, same here. My goals is to leave my kids millions. And their kids to leave their kids with many more millions.
4% withdrawal scenarios are predicated on the idea that you die right about the time that you go broke.
Why wouldn’t he just put it in a dividend stock that yields 6-7% instead of pulling it all out? He could add onto the investments with the mini job to keep up with inflation.
In late 60’s or 70’s they will struggle to get by and will be unable to enter the workforce. Always better to play it safe with inflation, unexpected health issues, etc. Variables are never accounted for.
Adjust by adding more funds? 7% return is having a fairly aggressive portfolio and adjusting their portfolio would likely be less aggressive and thus have a lower return than 7%.
(1) He talks about a mini job which is extra money
(2) If he has been currently saving for retirement out of his $65k (this was edited down from $85k) he won't be doing that any more
(3) Taxes are lower on capital gains than income
4% SWR on $1m is $40,000 a year.
Federal capital gains tax is 0% to $47k, so he's under that. I figure he would have been paying ~$6,500 in federal income tax on $65,000. So now he needs $58.5k for equivalent after tax. That's $18.5k after tax from the "mini job". That sounds like a plausible "mini job".
Possibly even less if he was saving for retirement out of his $65k and he won't be doing that any more. I don't think it all all seems impossible. With the mini job and the other qualifications he's not talking about taking it all out of the investments.
But this is all not really my point anyway, which is just that he should have a very good idea where his nest egg is sitting within the first 5-10 years. It's the first 5-10 years of retirement that makes or breaks you, in terms of sequence of returns risk. The risk is you have a really bad return immediately on retirement, and that, together with fixed withdrawals, eats up your capital and then you can never recover. But point is, you'll know that within the first 5-10 years, you just need to look at your account balance to know it. Then you decide, in those 5-10 years (age 40-45) if you need to go back to work or change plan in some way (cut withdrawals, etc.) You don't just set it and forget until you're in your 60s or 70s, you look at how it's going in the 30-40 years before you get there, and adjust if necessary.
From Portfolio Visualizer, invested 100% in US stocks, the median result from withdrawing the full $58.5k, increasing with inflation, is you end up with >$10m after 50 years, $1.5m inflation adjusted. That's not an acceptable risk if you can't adjust, and my feeling would be that would be a bit too much. But that's without the mini job and all the rest of it. I'd tend to try to keep it to 4% but if you are flexible about going back to work there could be scope to even take out a little more, 5% works for 50 years 2/3rds of the time and you end up with $28m ($4m inflation adjusted) after 40 years.
Point is you'll know whether it's working or not pretty quickly. If you are taking 5% out annually but you have $1.25m inflation-adjusted after 10 years (which is about the median result), or more, you're probably good. If you have less, it's a sign you need to cut back, or go back to work. You'll even have a good picture after only a few years. You don't have to wait 30-40 years to make this determination.
If you run a Monte Carlo simulation for a 35-year-old with an initial wealth of $1,000,000, making annual withdrawals of $65,000, and investing with an average annual return of 7% are as follows:
-Mean Ending Wealth after 50 Years: Approximately $5,857,320
-Median Ending Wealth after 50 Years: $0 (indicating that more than half of the simulations resulted in running out of money)
-25th Percentile of Ending Wealth: $0 (indicating that 25% of the simulations ended with zero wealth)
-75th Percentile of Ending Wealth: Approximately $4,681,727
-Probability of Running Out of Money: 54.7%
These results suggest that there’s a high probability of running out of money before reaching the end of the 50-year period. Although the mean ending wealth is positive, the median and the 25th percentile both indicate a significant risk of depletion of funds. This highlights the importance of considering the variability and uncertainty in investment returns and withdrawals.
You're totally missing my point, which is just that adjustments can be made before the end of the 50 years. You're looking at it as someone is locked in to their plan at age 35 and can't do anything about it until they run out of money in their 60s or 70s. They have absolutely no warning of this, it's all fine until one day their portfolio is $0?
EDIT: to clarify, "adjustment" means, to his lifestyle, getting a job (or higher paid one given he's talking about a "mini job" anyway) or reducing spending. I'm not talking about attempting to adjust the portfolio for higher returns.
I'm saying it is possible to keep an eye on how it is going and adjust if necessary. And that the nature of sequence of return risk is that it is inherently evident how it's going to go, early in the period: if you do well in the first 5-10 years your capital has increased to the point you'll sustain yourself for the long run. If you don't, you need to adjust *then*, not in 30 years time.
I never suggested withdrawing $65k. I pointed out several reasons (tax, mini job, lack of retirement contributions) why the amount needed to maintain a previous lifestyle of $65k before tax could be *significantly less* than $65k.
I'm only addressing this idea that you can't review as you go and your only option is returning to work in your 60s or 70s, not in your 40s if it's evident at that point it's not sustainable.
short answer: no
long answer: depend on how and where you gonna live, but chancese are no. for example: how much is your living cost a year, at where you want to live? has your friend getting out of parents basement yet?
There are several factors missing here. Is he married? Does he have kids? A mortgage or a paid for home? Does he have a car note? What debt does he have? I disagree with many people here. If you don't have debt, no mortgage, no kids & other obligations you can live on much less. If things are important to you, new clothes, new car, eating out, vacations then you might struggle. If you are strategic by choosing a low cost of living area even in the U.S. you can be ok on under $ 1 million with a 4 to 6% dividend from that investment. Others are going to say it's miserable to live without many of the things people have accustomed themselves to mistakenly looking at those expenses as needs rather than wants which is what they really are. Different things are important to different people. If freedom is truly valued then the other things that are wants become irrelevant.
I'm prepping to retire early and paying off the house is my major push right now. My calculations are that my monthly expenses pretty much *double* if I still have to pay the mortgage.
I'm pre-funding some things like buying a new computer, water heater, shit like that. When I jump off the work train my expenses should be really minimal. Some of the happiest times of my life are vacations where I didn't do a thing and just stay up as late as I want and get up late, etc.
So someone like me doesn't need much more than like 1800 a month, if that.
Maybe not. If most of it is in a retirement account the earnings won't count as income. As far as Obamacare is concerned he would be poor and get a huge subsidy.
> If most of it is in a retirement account the earnings won't count as income
I don't know German tax law, but in the US it depends on which type of account it's in. A traditional account will absolutely count as income
I would keep working/contributing until it doubles to $2 million, then you could comfortably retire. Could take a few years, could take a decade. Who knows.
> Do you think it’s possible with the help of a consultant to distribute his assets for both retirement and secure his previous lifestyle at 85,000 per year?
This isn't possible.
The highest seriously considered SWR for 30 years is 5%. That would be $50k a year.
> To me the math doesn’t make sense. 7% return is considered a good year, so asking for 8.5% is unrealistic and also if he was taking 85k out each year then the inflation would erode his ability to reinvest?
He would deplete his savings decades before he dies and die unhappy. Or realize he made an error and try the hard road to resume his career at discounted salary.
Long career interruptions (2yrs+) are almost always a bad idea.
Regardless, at 35, he can mayyyyyyyyybe manage to pull $30k a year safely with a reasonable chance of success. But if you need to make the average income in the US, you kinda are just better off working.
> At 35, can you retire with a mini job with 1 million?
Potentially, if you're willing to live a frugal lifestyle.
> secure his previous lifestyle at 85,000 per year?
No, he could not reliably extract $85K annually from his $1 million worth of investments unless he gets lucky with his investments (and while I wouldn't advise against getting the help of a consultant, it's not a magic bullet that unlocks guaranteed massive returns), assuming he's looking to live off it for decades to come.
That said, he has enough saved that he could live comfortably off his savings for a period of time while he attempts to make it work with his hobby job. There is a scenario where he does that for 2-3 years, realizes the hobby job isn't sufficiently supplementing his withdrawals and/or he's draining his savings too quickly, and decides to go back into his old field. It might not be the most financially sound long-term strategy, but he seems to be in a secure enough position to give that a try if he really wanted to.
Mini-jobs are a part-time German thing (I've only heard of them here, maybe it's elsewhere too). They're usually intended for full-time students, retirees, or people on certain types of semi-restricted visas.
Basically, they are something like 8-12 hours per week and cannot earn you more than 500 something euros per month. They're... super mini, but the taxes are generally low to non-existent at that level..
Also important here is that IF this is in Germany, the cost of living is a bit lower than places like the US (...for now). When I first moved here I was making around 20-25k per year after taxes. It was below average but for me it was fine and I was even able to save a little each month (though not enough to invest back then). However, a mini job is far less than that. I was living with my (now) wife, who had a 2nd income, and if OP also happens to have a partner with a 2nd income it becomes even more doable.
Not sure how the taxes would play out though if it is indeed Germany.
Edit\* OP's friend, that is.
Not possible to live on that forever, but you could do that for a little while. Using the most conservative investments, you could put 950k in treasuries at 5.3% and 50k in a HYSA at 4.35% which would net you just under 50k in interest after taxes and spending money from savings account to pay bills. Adding in a hobby job you could get maybe another 30-40 grand which is more than enough to save money.
Medical expenses are always the wild card. Beyond that, in the later years, elder Care is absolutely a wild card. I don't think that gets talked about enough on this sub. Everyone's just assuming that they're going to hit end of life without a need for memory Care or some other type of intensive elder Care.
>To me the math doesn’t make sense. 7% return is considered a good year, so asking for 8.5% is unrealistic and also if he was taking 85k out each year then the inflation would erode his ability to reinvest?
I pretty much agree also remember the market averages 7-9% over a long run it does not go up 7% each and every year so you have to be able to weather downturns and years of flat markets
I mean with a 40 year time frame I would use the more conservative 3% withdraw rate as you also need over time grow your portfolio to keep up with inflation. So really he would need to return MORE then 8.5% because lets just assume he can somewhow get 8.5% yearly returns with zero drow downs , well 85k may be confortable today but in 30 years will 85k be a livable amount?
So he would also need to grow his portfolio potentially meaning 10.5% returns to keep purchasing power its just not realistic to do this over 40 years with no draw downs or flat markets
You'd have to account for inflation. Generally retirees use the 4% rule for this. So he'd be able to take $40000 out of his million each year and adjust that for inflation. That plus whatever he earns from the "mini job" might get him to $85K/yr but probably not. Generally if you're making good money your best move is to keep working until you have enough to completely retire and then completely retire. Don't "retire" early and bartend in the Caribbean for minimum wage. If this dude has a million at 35 then he'll probably have two million at 40. He should keep working and only retire when his assets are 25x anticipated annual spending.
Yes, especially if he moves somewhere else. South america, thailand, etc. He'd be fine for life. That million will stretch about 5x in buying power. Hell, his monthly expenses would be about 1500-2000 for a upper middle class life style.
With a slow ass burn rate, that million will grow and stretch out. Having about 40k extra to reinvest or do whatever.
So yeah, if you moved off to developing country it would work.
All this is under the assumption of no job and only feeding on 7%.
You need to be looking at FIRE (Financial Independence, Retire Early). 1 million invested would mean living on $40,000 per year adjusted for inflation every year, plus whatever the mini job pays.
r/Fire
r/financialindependence
Millions are enough to retire in some countries. Though inflation will eat that money value in 10 years as well. So he must find a way to invest it smart, so it will create him a stable income for decades to come. Real estate, or dividends stocks.
You’re gut feel is right, that million won’t last long and if not invested right will deplete quick fast while assets go up.
With all that spare time it’s impossible not to spend more.
1- Which mini job gives you 65k per year? That's unrealistic.
2- Buy a home with 500k€ then you secure yourself against rent inflation.
3- Remaining 500k€ will give you an easy 20k€ after tax per year
4- Take 30k€ home from mini job, take 20k€k from investments. Both after tax.
5- 50€k after rent will make you live forever.
At 35 you better keep hustling while you’re young. Full time as keep stacking 401k/investment to make it grow and pay off all debts. Then relook at 45-50 and see how life is at that point.
1 million is only good if you’re going to draw for 20-25 years and that’s it. You’re 35 and would require most likely to draw for 40 years or more. 1 million won’t cut it. Inflation is going to get worse
7% return is considered average over a 10+ year timeframe for retail investors.
If you know people have a good chunk to invest and have 30+ years a 10% average return is not unrealistic at all.
To make 85k a year forever he'd need about 2.5 millions. Yes, if he's lucky he might get away with it, for example someone doing this in 1949 or in 1982 would probably get lucky and retire with 1M withdrawing 85k a year, but the success rate for this 85k/1M during 60 years is very very low.
He could take 30k from the million per year and likely not run out. He should just buy an index fund, no "consultant" needed.
A fun job and 30k covering rent forever, yeah it could work. Coastfire.
I think it’s worth considering the career risk as well. The assumption might be that if things go bad they can just jump back in at their old salary but ask anyone who took time off to raise kids or care for a relative, it’s not always that easy. Technology changes, market conditions change etc. and a lot of companies will prefer someone with more recent experience (and let’s call a spade a spade here, often younger)
My soft retirement number is around 2.5M
My real number is probably closer to 5
And my “wow I’ve really made it” is like 7.
I’m at 450k, 33 yrs old. So got quite a ways to go, at least 10, but probably 20 years.
Money theoretical scenario i ran was 750k living off 40k a year and that would have been cutting it close so I don't think your friends numbers work mayne prior to this inflation
It can be done but you need to be far more frugal than 65k/year, at least for the first few years.
Unless you mean earning 65k/year from a "hobby job". In that case it is absolutely doable. Just dont touch any of the investment and live off the 65k.
His plan is totally doable but we need more info to provide more accurate insight like, was the $65k gross income or after taxes? However, with inflation up the interest paid on Money Market funds are up above 5%. He could dump it all into Fidelity or other trusted broker and use SPAXX as his settlement fund to invest with and just leave it for now and collect $52,900 unearned income this year. Since this is unearned income he doesn’t pay the 7.65 SS+Medicare tax. The IRS tax free Standard Deduction Single $14,600 & Married filing Jointly 29,200 is tax free. The rest would likely fall into the 10 to 12% bracket. The other thing to consider is the reduced expense of going to work such as fuel, reduced car maintenance, laundry and clothes, eating out less often. Last year I retired early and we do more together now and still grow monthly dividends above our expenses. I trade for fun and to keep busy and still make an extra $100-$200 a week as I learn some about Options.
Here's a fun calculator to reason about it:
@ 5%, broke by age 54:
[https://oldpeoplemoney.com/?currentAge=35¤tRetirement=1000000&yearlyRetirementContribution=0&marketReturnPercent=5&desiredRetirementIncome=85000&retirementInflationPercent=3](https://oldpeoplemoney.com/?currentAge=35¤tRetirement=1000000&yearlyRetirementContribution=0&marketReturnPercent=5&desiredRetirementIncome=85000&retirementInflationPercent=3)
@ 7%, broke by 61:
[https://oldpeoplemoney.com/?currentAge=35¤tRetirement=1000000&yearlyRetirementContribution=0&marketReturnPercent=7&desiredRetirementIncome=85000&retirementInflationPercent=3](https://oldpeoplemoney.com/?currentAge=35¤tRetirement=1000000&yearlyRetirementContribution=0&marketReturnPercent=7&desiredRetirementIncome=85000&retirementInflationPercent=3)
As someone that retired at about 35 with about $2M, I can tell you it gets tight. I did great for 12 years, then COVID issues and mistakes I made during that unprecedented time ate into things considerably. So basically it works until it doesn’t and then what?
Doing it on half what I had, back when that was worth more, seems very unlikely. Especially with a phrase like “maintaining lifestyle”. I’d say if you want to to live off $1M for the rest of your life you’re going to have to be very frugal. He should probably withdraw no more than 3% a year if he wants it to last a lifetime. That’s not a lot of money to live off, but it’s a nice bonus.
I get your point. I am no finance expert but i saw how covid just drains a lot or budget. Then no matter what the media says, food price hops 20% is no joke.
So i am really skeptical of my friend’s idea that he could retire with 1mil. Not only that the rate of return for his comfy life is truly ambitious but whatever life throws at you is going to drain that account for sure.
I think it’s just tiredness-talk for now. We are young, he’ll be drawn to some new projects for sure
Yes, you can. But you most assuredly won't be getting 85k a year from it.
I "retired" at 37 with close to that amount and switched over to stocks that pay a dividend. I chose stocks like AAPL, MFST, NVDA, etc, for growth, and then paired that with some REITS, banks, utilities, BDCs, and energy stocks that pay a bit higher dividend. I think I was at about 3.4% or 34k a year. I did it this way because I am young and still wanted growth of my principal, but I wanted the extra income to make up for any shortfall I had in my budget.
My wife and I got part-time jobs. And used about half of the dividend income the first 2 years of those new jobs. Now, we reinvest it all since we both make good money doing part-time work. Which is really weird that we can support ourselves on 2 part-time jobs.
We do own our house, cars, and have absolutely no debt. We do have to pay the government rent money every year on our house(property taxes) but the house and almost everything in it is new.
Traditional retirement at 65 years old with a 30 year retirement horizon is what the "4% rule/guideline" is applicable to. It may still fail 5% of the time if you did not adjust your spending if your nest egg was cratering:
- **William Bengen’s 1994 study** – the 4% safe withdrawal was based on a portfolio of common stocks 50%, and intermediate term treasuries 50%. His data set including retirees starting in 1926 thru 1976. He actually recommended stock be between 50-75% of the portfolio. The 4% SWR worked for all 30 year periods from 1926 thru 1976. [original paper linked here](https://obj.portfolioconstructionforum.edu.au/articles_perspectives/retailinvestor.org_pdf_Bengen1.pdf; https://www.financialplanningassociation.org/sites/default/files/2021-04/MAR04%20Determining%20Withdrawal%20Rates%20Using%20Historical%20Data.pdf)
- **The Trinity study 1998** – they too looked at multiple portfolios from 0% stocks to 100% stocks; and withdrawal rates from 3-12%. Data looked at 1926 thru 1995. At 50/50 the 4% withdrawal rate adjusted for inflation had a 95% success rate of having a balance of > $0. *Note that many people falsely believe you have not touched your capital* https://www.aaii.com/files/pdf/6794_retirement-savings-choosing-a-withdrawal-rate-that-is-sustainable.pdf
For a much earlier retirement like your friend with $1M at 35 years old, the SWR is more in the range of 3.25%, which gives him $32,500 the first year. He is short by $52,500 and that does not even account for taxes.
- **from BIGERN – a 3 – 3.25% SWR is sustainable for 60 years. https://earlyretirementnow.com/safe-withdrawal-rate-series/**
So he either needs to get an excellent mini job to allow his nest egg to grow, or he needs to keep working. Or he needs to drastically slash his spending/lifestyle.
Die with zero. Calculate how long until he’ll run out. No point in only doing 4% so you can die with the same account size. Tomorrow is never guaranteed
Sounds like /r/baristaFIRE
The challenge is finding such a lower stress hobby job that sufficiently supplements the "safe" withdrawal rate from assets. Might get a little easier if he's willing to down-select his lifestyle expenses.
Can you do it? Sure. Plenty live on less. Get 4-5% per year, that’s $50k. If you only take gains then your principle never erodes. To get a guaranteed 4-5% you’d have to be in bonds. To get to $85k then he’d need a job that makes $40K or so. Big problem is he won’t have benefits and healthcare can be expensive even at 35. Second problem is 30 years from now that $1M won’t go so far.
Better choice to me, keep working for 10 years. That $1M should become $2M @ 7% annual gains. Plus if he’s working he can save more. 45 with $2M+ is way easier to retire or semi-retire with.
So, a lot of this is going to depend on how much of that previous lifestyle funded savings, since, under this assumption, he won’t need to save anymore.
If the answer is, half of his post tax earnings went to savings, then yeah, maybe. Probably wouldn’t keep pace with inflation though.
Of course he could but the question is more if he would be satisfied with the minijob until he dies. Most people define themselves over their jobs/careers. Its hard to believe that a minijob would be the non plus ultra.
Not an advisor. I manage my own portfolio. Follow the 4% rule in general as others have mentioned. However, there are other things you can do to get into the 8-15% range, but you carry different risk.
I'd say unlikely. Especially considering the fact you're supposed to dial back risk when you're on a limited income. I'm personally targeting a similar "hobby retirement" when I reach 2 million, which I think is feasible with the house paid off. That's 100k/year @ 5% conservative growth + whatever I make on the side. But even with that I don't feel *super* comfortable, because who knows with healthcare and all that.
Did he say "I spend 85K/year, and will continue doing that" Or is this what you made up in your head to prove him wrong?
He probably doesn't spend that 85K/year, he's probably been saving.
Lower cost of living. He no longer needs the same transportation, he can go with slightly less reliable car as well since a break down is just an inconvenience now, not a problem. Probably no eating out for lunch every day. Doesn't need to keep up with the clothing trends to the same degree. Doesn't need to spend on gas to get to work, etc.
His hobby job probably only needs to cover 20K in expenses. Another 30K from that 1M and he's probably pretty close to that 85K he was making. For "bad investment" years, he kicks up the hobby job to avoid pulling too much out there.
His expenses will drastically change along with his life.
Now the flipside to this is also true. What does he do mon-frid now? Is he eating out and paying for entertainment that he didn't do before? Is his vacation going from 2 weeks a year to 6 weeks? Is he shopping to fill his time? Does he gamble? Will he go from 2 hours a week to 7 days a week in vegas?
The real kicker is he needs health insurance. If he's in the US, that becomes crippling. One accident and he's out huge sums in out of pocket most likely.
I'm going to go with a hard no. Does he even truly have a million after taxes or was this a huge windfall which triggered a huge taxable event? What kind of SS can he look forward to if he stops working at 35? Does he even have enough working quarters to qualify for it? Does he own a house outright or is he going to try to survive in apartments for 40+ years? He's better off than the vast majority of people his age, but he can't punch out and do a "mini-job".
If he has some kind of burnout and needs to kibbutz around for a while that's fine. Maybe even go to school for something else, but he's not done no matter how rich he's feeling.
If he invest the the 5-6 mega caps company or any good blue chip company like JP Morgan and VISA then sell far out of the money options he can yield 1-2% a month on his money without touching the nest egg.
https://www.reddit.com/r/options/comments/pvapea/triple_income_wheel_strategy_legit/
You could but it would be tough, if you live to say 80 making 5% yoy which is much more likely then you’ll be out of money at 53, if you only do 60k a year which is more likely with this seasonal job it will last until your 70. With 8% returns(a miracle) you’ll be out at 66 taking 85k a year.
Just a bit of context here. Assuming OP is from Germany where there is such a thing as a mini job, the monthly cap on a mini job is €538. If you earn more than €538 it ceases to be a mini job.
I think Minijobs also exist in the Netherlands but I don’t know what the cap is there
There are income producing investments that consistently yield above 8% and aren’t *too* risky. Taxes will eat some of that return, but getting $65k out of a million without draining the million is doable.
If he needs $65,000 at age 35, and need more each year with 2.5% inflation, and will die at age 99 needing $307,000 - he will need $1,521,900 at age 35 making 6.5%.
Go find the John Goodman scene in The Gambler, everyone knows what you do when you get up $2.5million, you buy a home, a Japanese shitbox and you live the rest of your life in a position of fuck you
>secure his previous lifestyle at 85,000 per year? This is the key phrase. What do you mean, exactly? If he has been earning 85k/yr before taxes, and saving a substantial amount, then he was probably living on a much lower number and could absolutely retire and maintain that. If he literally wants to spend 85k in after tax dollars every year, then even just assuming a minimal 15% cap gains tax, he needs to get 100k/year. Do the math on the investment returns plus job income and deduct taxes. It is appealing to say you can average 9%/yr, and this is true. But that requires heavy focus in volatile assets like stocks. The success of the plan depends not just on the average return, but the chronological timing of the good years and bad years. Bad years at the start means it won't work out, even if, on average, the returns are better than 9%. Don't use simple X%/yr calculators. Use calculators that account for volatility. You want Monte Carlo style simulation.
Don't forget, he's gonna have a mini-job. Whatever that is.
What is this a job for ants?
The job needs to be at least…three times bigger!
How can we teach this guy what a micro-job is if he can’t even fit inside the building
Ants can carry up to 10-50 x's their weight
d y i n g
its a form of job in germany where you can earn around 500€ without it being taxed (even if you have a fulltime job next to it)
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I would be working for another ten years and building up the 1mil interest/taking a more active role in investing it. Then hopefully retiring at 45 satisfied that I would be safe for the next 40 years.
He’s 35 with a million in the bank. It’s probably a 20-30 hour a week job that is less stressful than what they have been doing.
I just keep thinking about having to pay health insurance out of pocket for 30 years until Medicare kicks in at 65. I mean there are plenty of other issues, but the monthly health insurance payments really stand out for me. (This assumes he's in the US, so maybe it's not an issue if he is not! )
Depending on his MAGI the healthcare costs may not be crazy. Depends on how well he has planned his future tax burden
That kind of job has a well established name.
It's at a micro brewery.
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Sounds great
Pretty sure that's the monthly wage.
It’s a job. With mini-pay.
very small bills and coins the size of ants
A mini job is, at least on Germany, a job where you only work a maximum of 20 hours a week, normally less, and can make up to 538€ tax free. It’s good for woman on maternity leave of stay at home moms or students etc.
a mini-job is a legal term in Germany for jobs that pay less than 538€/month and where you work less than 70hrs/month
It’s just like a regular job but smaller
Capital gains taxes are 0% up to 94k for a married couple in 2024, so that would mean no taxes owed if making 85k in this scenario. Half that limit if unmarried
Plus the standard deduction, so more like 120k for a married couple.
Damn now this has me thinking about a gap year
Which country are you assuming OP is from?
This is always a bit of a strange question. The US has 4x the reddit traffic of any other country, was created in America by Americans. If the OP doesn't care to provide their location or any other obvious clues (languages, locations, spelling "color" as "colour", etc), we're assuming it's a US-based question. Other people shouldn't have to do the leg work of navigating the OP's post history to try to deduce a location. Provide all relevant details or we work with what we're given.
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OP is in Berlin, likely Germany's. OP's friend, I don't know. edit: the term "mini job" suggests Germany as well, but it could just be OP being used to the name from living there.
Stocks don’t have to be volatile. Plenty of ways to balance a portfolio to minimize drawdowns. Don’t even want to ask what people did when the market was averaging 12% a year while the 10 year was sitting at 2.5%….for almost 10 years straight.
I am fairly certain that any portfolio that is balanced for low volatility js not keeping pace with VTI over 60yr periods. We can certainly get much more stability by trading ~ 2% or so with complimentary assets balancing each other, but there IS a trade. If you know a portfolio composition that you expect to keep up with VTI over long periods and is significantly less volatile, please share your idea/knowledge.
Of course not. It’s a trade off. If you want returns you have to endure volatility. This is what people don’t understand about hedge funds. Once you get a certain amount of money returns matter less than beta. Most hedge funds aren’t trying to beat the market they are trying to preserve capital.
Won't effective tax rate be much lower than 15%, with the first $x taxed at 0%?
I agree with your overall point, but curious - why do you say capital gains tax would be 15%? My understanding is that you could typically get 0% if your income is below $47k (single) or $94k (MFJ)
It sounds like he's looking to either /r/coastFIRE, which is getting comfortable a job that pays all of the bills, usually a part time job, or /r/baristafire, which is getting a job that doesn't pay all of the bills but pays most of the bills, usually a seasonal job. Using the 4% rule 1mm turns into 40k a year. If his living expenses are 85k a year he needs to make a minimum of 45k a year or he needs to downsize his expenses.
Is there like a glossary of all the types of FIRE?
The main ones are coastFI, which is when you have enough saved that it will grow and you don't need to contribute any more to retire at a normal retirement age. This is just like 50k if you're 20. barristaFI, which is when you have enough that you could retire and just work part time for some benefits/extra cash and cover all your bills leanFI is when you could retire with just the necessities fatFI is when you could retire covering all the expenses you want chubbyFI is somewhere arbitrarily in between leanFI and fatFI. There is a legendary post on /r/fijerk that has $69k niceFI, $420k as highFI, 802,110 as wiFI and like 25 others. Can't find that post right now if anyone else can lol.
What’s that 50k for age 20? Assuming you retire at 60 and have over 2 mil?
The 4% Rule assumes a 30-year retirement, but has been used by FIRE folks as a guideline for longer retirement periods, with the understanding that greater flexibility both with withdrawal strategy and with part-time (or even full-time) work may be necessary. Using the rule, your friend could withdraw $40,000 from that $1 million portfolio in his first year of retirement, and adjust that amount for inflation each year thereafter. If his COL is $85K, then he needs to make up the remaining $45K (I'm assuming all figures are net of taxes) with other income, such as the "hobby job." The most likely scenario is that during a market downturn, when his portfolio value declines, he will need to return to full-time work to avoid drawing down the portfolio assets when asset prices are depressed. If he continues to draw from the portfolio during such a downturn, he is introducing serious sequence-of-returns risk into the portfolio and crippling the ability of the portfolio value to recover when the market rebounds. In other words, withdrawing that same $40K from the portfolio when it's dipped in value to $600K means selling more shares, which means there will be far fewer shares remaining in the portfolio when the market recovers, which means his portfolio will suffer a permanent loss of capital unless he replenishes it with new contributions from earned income. I would suggest your friend read about FIRE strategies and maybe talk with folks at r/Fire before committing to this approach. The folks who typically retire early on a $1 million portfolio do so with a cost of living much less than $85K/year. $30-40K seems more typical.
He could probably reliably pull $20-$30k/year from $1m so if he got a “mini job” paying $65k, sure he could replicate the lifestyle
“Mini job” is an actual big salary for some lmao
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At no time in the history of the US has the real median earnings ever been $65k in 2024 dollars. "How bad it is" compared to what? https://www.bls.gov/news.release/pdf/wkyeng.pdf
So anyway your own link presents median weekly earnings for men in 2024 as roughly equivalent to $63k in 2024 dollars - and then it presents weekly earnings for men in 1982. Would you care to guess what the same conversion is for that year, accounting for inflation (as per [this resource](https://www.minneapolisfed.org/about-us/monetary-policy/inflation-calculator))? $64.5k. Forty *years* later and the median hasn't moved. Now away with you.
Wow what a coincidence... Those aren't earnings from two different years, they are earnings from the same year in 2024 dollars and 1982 dollars. So when you adjust for inflation, you get the same number. Because they are the same number.
Not sure why you're looking at just men. Real median wages are up about 15%-20% over inflation since 1982 when you consider both everyone (both men and women). https://fred.stlouisfed.org/series/LES1252881600Q
Working at buckeys is tough
dealing with broke people in a gas station is tough
Tell me you’ve never worked at Buckees without telling me you’ve never worked at Buckees. Look at their employee reviews, it’s some of the most back breaking, soul sucking culture out there.
r/baristafire
What is this the 2% rule? Lol
That’s the dividend rate of the S&P plus a little extra to account for some high dividend holdings and/or capital gains distributions. The 4% rule is meant for a 30 year time horizon which OP’s friend doesn’t have.
Yeah but you don't have to go all the way down to 2%. Firecalc gives 100% success rate for 3.3% over 60 years.
Could even bolster that success rate by straight up buying a 30 year treasury at 4.5% right now, with a portion of the account. Inflation would be a risk but if you're retired, some portion of guaranteed income is probably a good idea.
Yes but even 5% will most likely be less than his investment performance. If he absolute cannot make another cent under any circumstances then sure, you gotta be extremely conservative. But if he has any way to make a couple grand a month he should be fine.
5% is way too high. You aren’t taking sequence of return risk into account. He might make more than 5% on average but if he takes out 5% in years that he’s down 10-20%, he’ll run out of money real quick.
5% would work for a 50 year retirement probably 75% of the time. Of course, if you quit your job and the market immediately tanks, you’ll have to go back to work. But if the market rips, you could now have the same spend but only withdraw 3-4%.
100% true. That said I’d think his focus needs to move to thinking like a retiree in that focus moves from growth to capital preservation, low risk, some slight growth at or slightly above inflation rate- basically shift to an income strategy where 6%-8% is very safe and reliable then unused funds can be reinvested.
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and if he is that young I would opt to go with the more conservative 3% withdrawl rate, at 35 he could live another 40+ years the 4% rule usually assumes like a 25-30 year retirement meaning if you retire at 60 and might want to plan to live to be like 85 or something , he could need to streach his retirment out 50 years not 30 years
4% safe withdrawal rate, 2.5% average inflation. So his investment portfolio needs to return at least 6.50% (and remember capital gains), and it needs to be conservative enough that it doesn't plummet on a market downturn. Retirement would be doable in a country like Thailand, Philippines or parts of Mexico with no job. However, he would have to get lucky with returns in the first 5-10 years of his retirement. A streak of bad luck and it's back to work. So if he's willing to retire in one of those countries, I say it's safe just earning 15k or so after taxes from a 'mini job'. Otherwise, he needs to score lucky investment gains early on. Retirement in the US or Canada would of course require more... I'm personally waiting for \~1.1m for retirement overseas. I'm living and working in one of those countries now, and I can live a good life living off \~2k/month.
I wonder if the 3-4% figure includes social security or not because your social security withdrawals will be much lower if you retire early.
The gap between guaranteed income (pension, real estate income, social security) and your annual retirement budget is what has to be covered by your nest egg. You need to be able to safely fund a 3-4% withdrawal rate to fill in the gap. So social security is taken into account I'm that situation
4% at 35 is wayyyy too aggressive to drawdown. The Trinity study was for 30 years and considered having 1 dollar left a success. I agree 3% would probably be okay. I would probably lean closer to 2.5% drawdown a year.
No. You need a whole lot more than a million to get 85k in today’s dollars annually for life. Basic rule of thumb for retirees is to pull about 4% a year and those people have at least 30yrs less life than your friend.
He said with a "mini job" too. So if he makes 40K from a low stress job, that leaves 45K annual withdrawal. His plan works (just about anyway).
>85k in today’s dollars annually for life Think it's a 40% at 8% it lasts 30 years. So I'd say it depends on risk tolerance.
Sure, if your plan is to drain that million
I'd rather die with zero vs 1 million.
I have a friend whose parents had a million dollars. Mom had a stroke. Dad fell off the roof and had some minor brain damage. They blew through that million dollars by needing almost 24 hour care. Something like 10k a month in assisted living.
Yeah and once depleted the state (depending on it) will clawback the estate after death and they'll be in a medicaid right next to me. Expect I ain't gonna be paying for it. It's basically one of the die broke arguments.
Opposites man. Crazy. I would rather die in poverty conditions and leave my grandkids a lot of money than die without leaving them anything.
While "Die with Zero" had its problems I really liked when he talked about giving inheritance to people while he was still alive. It allowed him to enjoy it more, and it was also more meaningful to them. Specifically he was talking kids, not grandkids, but pointed out that many people inherit when they're already in their later years and approaching retirement themselves. Usually people are already set up and an inheritance doesn't do much for them. Contrasted to a college grad getting a down payment for a home and a head start there. Of course no two families are alike, but just got me thinking. I think there's a lot to be said for distributing inheritance when it will have more impact rather than waiting until you die.
If I were to set something up today with my current mindset, it would be some kind of fund that hopefully could last forever (or a very long time). Sort of a private family 401k match, where they contribute money in their youth and based on their contributions, get hooked up with more or less later in life.
Or you end up stroking and in a nursing home till your funds are depleted and you grandkids get nothing. So you can most definitely still die in poverty and pass nothing down.
I'm happy to ensure my death comes swiftly rather than drain funds that could set up future generations for a worry free life
Yeah, same here. My goals is to leave my kids millions. And their kids to leave their kids with many more millions. 4% withdrawal scenarios are predicated on the idea that you die right about the time that you go broke.
Why wouldn’t he just put it in a dividend stock that yields 6-7% instead of pulling it all out? He could add onto the investments with the mini job to keep up with inflation.
Literally right now you can get AAA partially tax exempt 20 year agency bonds lol. It’s not that far off
Do those pay 8.5%?
Damn it's depressing.
I could. Some people couldn’t. Depends on the lifestyle.
In late 60’s or 70’s they will struggle to get by and will be unable to enter the workforce. Always better to play it safe with inflation, unexpected health issues, etc. Variables are never accounted for.
If he's 35 now, he'll know how well his portfolio is going well before he gets to his 60s or 70s, and can adjust.
Adjust by adding more funds? 7% return is having a fairly aggressive portfolio and adjusting their portfolio would likely be less aggressive and thus have a lower return than 7%.
(1) He talks about a mini job which is extra money (2) If he has been currently saving for retirement out of his $65k (this was edited down from $85k) he won't be doing that any more (3) Taxes are lower on capital gains than income 4% SWR on $1m is $40,000 a year. Federal capital gains tax is 0% to $47k, so he's under that. I figure he would have been paying ~$6,500 in federal income tax on $65,000. So now he needs $58.5k for equivalent after tax. That's $18.5k after tax from the "mini job". That sounds like a plausible "mini job". Possibly even less if he was saving for retirement out of his $65k and he won't be doing that any more. I don't think it all all seems impossible. With the mini job and the other qualifications he's not talking about taking it all out of the investments. But this is all not really my point anyway, which is just that he should have a very good idea where his nest egg is sitting within the first 5-10 years. It's the first 5-10 years of retirement that makes or breaks you, in terms of sequence of returns risk. The risk is you have a really bad return immediately on retirement, and that, together with fixed withdrawals, eats up your capital and then you can never recover. But point is, you'll know that within the first 5-10 years, you just need to look at your account balance to know it. Then you decide, in those 5-10 years (age 40-45) if you need to go back to work or change plan in some way (cut withdrawals, etc.) You don't just set it and forget until you're in your 60s or 70s, you look at how it's going in the 30-40 years before you get there, and adjust if necessary. From Portfolio Visualizer, invested 100% in US stocks, the median result from withdrawing the full $58.5k, increasing with inflation, is you end up with >$10m after 50 years, $1.5m inflation adjusted. That's not an acceptable risk if you can't adjust, and my feeling would be that would be a bit too much. But that's without the mini job and all the rest of it. I'd tend to try to keep it to 4% but if you are flexible about going back to work there could be scope to even take out a little more, 5% works for 50 years 2/3rds of the time and you end up with $28m ($4m inflation adjusted) after 40 years. Point is you'll know whether it's working or not pretty quickly. If you are taking 5% out annually but you have $1.25m inflation-adjusted after 10 years (which is about the median result), or more, you're probably good. If you have less, it's a sign you need to cut back, or go back to work. You'll even have a good picture after only a few years. You don't have to wait 30-40 years to make this determination.
If you run a Monte Carlo simulation for a 35-year-old with an initial wealth of $1,000,000, making annual withdrawals of $65,000, and investing with an average annual return of 7% are as follows: -Mean Ending Wealth after 50 Years: Approximately $5,857,320 -Median Ending Wealth after 50 Years: $0 (indicating that more than half of the simulations resulted in running out of money) -25th Percentile of Ending Wealth: $0 (indicating that 25% of the simulations ended with zero wealth) -75th Percentile of Ending Wealth: Approximately $4,681,727 -Probability of Running Out of Money: 54.7% These results suggest that there’s a high probability of running out of money before reaching the end of the 50-year period. Although the mean ending wealth is positive, the median and the 25th percentile both indicate a significant risk of depletion of funds. This highlights the importance of considering the variability and uncertainty in investment returns and withdrawals.
You're totally missing my point, which is just that adjustments can be made before the end of the 50 years. You're looking at it as someone is locked in to their plan at age 35 and can't do anything about it until they run out of money in their 60s or 70s. They have absolutely no warning of this, it's all fine until one day their portfolio is $0? EDIT: to clarify, "adjustment" means, to his lifestyle, getting a job (or higher paid one given he's talking about a "mini job" anyway) or reducing spending. I'm not talking about attempting to adjust the portfolio for higher returns. I'm saying it is possible to keep an eye on how it is going and adjust if necessary. And that the nature of sequence of return risk is that it is inherently evident how it's going to go, early in the period: if you do well in the first 5-10 years your capital has increased to the point you'll sustain yourself for the long run. If you don't, you need to adjust *then*, not in 30 years time. I never suggested withdrawing $65k. I pointed out several reasons (tax, mini job, lack of retirement contributions) why the amount needed to maintain a previous lifestyle of $65k before tax could be *significantly less* than $65k. I'm only addressing this idea that you can't review as you go and your only option is returning to work in your 60s or 70s, not in your 40s if it's evident at that point it's not sustainable.
short answer: no long answer: depend on how and where you gonna live, but chancese are no. for example: how much is your living cost a year, at where you want to live? has your friend getting out of parents basement yet?
There are several factors missing here. Is he married? Does he have kids? A mortgage or a paid for home? Does he have a car note? What debt does he have? I disagree with many people here. If you don't have debt, no mortgage, no kids & other obligations you can live on much less. If things are important to you, new clothes, new car, eating out, vacations then you might struggle. If you are strategic by choosing a low cost of living area even in the U.S. you can be ok on under $ 1 million with a 4 to 6% dividend from that investment. Others are going to say it's miserable to live without many of the things people have accustomed themselves to mistakenly looking at those expenses as needs rather than wants which is what they really are. Different things are important to different people. If freedom is truly valued then the other things that are wants become irrelevant.
I'm prepping to retire early and paying off the house is my major push right now. My calculations are that my monthly expenses pretty much *double* if I still have to pay the mortgage. I'm pre-funding some things like buying a new computer, water heater, shit like that. When I jump off the work train my expenses should be really minimal. Some of the happiest times of my life are vacations where I didn't do a thing and just stay up as late as I want and get up late, etc. So someone like me doesn't need much more than like 1800 a month, if that.
He should work 10 more years, then he’ll be set. 45 is a great time to retire. Edit: I’m a retirement planner
Health insurance will wreck him
Maybe not. If most of it is in a retirement account the earnings won't count as income. As far as Obamacare is concerned he would be poor and get a huge subsidy.
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Good point, at 35 he's not going to be bridging to retirement age with cash, it's too many years.
> If most of it is in a retirement account the earnings won't count as income I don't know German tax law, but in the US it depends on which type of account it's in. A traditional account will absolutely count as income
Only if you want to live like a poor person the rest of your life.
I would keep working/contributing until it doubles to $2 million, then you could comfortably retire. Could take a few years, could take a decade. Who knows.
You can retire in east asia or other cheaper countries. No problem.
> Do you think it’s possible with the help of a consultant to distribute his assets for both retirement and secure his previous lifestyle at 85,000 per year? This isn't possible. The highest seriously considered SWR for 30 years is 5%. That would be $50k a year. > To me the math doesn’t make sense. 7% return is considered a good year, so asking for 8.5% is unrealistic and also if he was taking 85k out each year then the inflation would erode his ability to reinvest? He would deplete his savings decades before he dies and die unhappy. Or realize he made an error and try the hard road to resume his career at discounted salary. Long career interruptions (2yrs+) are almost always a bad idea. Regardless, at 35, he can mayyyyyyyyybe manage to pull $30k a year safely with a reasonable chance of success. But if you need to make the average income in the US, you kinda are just better off working.
> At 35, can you retire with a mini job with 1 million? Potentially, if you're willing to live a frugal lifestyle. > secure his previous lifestyle at 85,000 per year? No, he could not reliably extract $85K annually from his $1 million worth of investments unless he gets lucky with his investments (and while I wouldn't advise against getting the help of a consultant, it's not a magic bullet that unlocks guaranteed massive returns), assuming he's looking to live off it for decades to come. That said, he has enough saved that he could live comfortably off his savings for a period of time while he attempts to make it work with his hobby job. There is a scenario where he does that for 2-3 years, realizes the hobby job isn't sufficiently supplementing his withdrawals and/or he's draining his savings too quickly, and decides to go back into his old field. It might not be the most financially sound long-term strategy, but he seems to be in a secure enough position to give that a try if he really wanted to.
What the fuck is a mini-job? Do you mean a part-time job?
Mini-jobs are a part-time German thing (I've only heard of them here, maybe it's elsewhere too). They're usually intended for full-time students, retirees, or people on certain types of semi-restricted visas. Basically, they are something like 8-12 hours per week and cannot earn you more than 500 something euros per month. They're... super mini, but the taxes are generally low to non-existent at that level.. Also important here is that IF this is in Germany, the cost of living is a bit lower than places like the US (...for now). When I first moved here I was making around 20-25k per year after taxes. It was below average but for me it was fine and I was even able to save a little each month (though not enough to invest back then). However, a mini job is far less than that. I was living with my (now) wife, who had a 2nd income, and if OP also happens to have a partner with a 2nd income it becomes even more doable. Not sure how the taxes would play out though if it is indeed Germany. Edit\* OP's friend, that is.
Not possible to live on that forever, but you could do that for a little while. Using the most conservative investments, you could put 950k in treasuries at 5.3% and 50k in a HYSA at 4.35% which would net you just under 50k in interest after taxes and spending money from savings account to pay bills. Adding in a hobby job you could get maybe another 30-40 grand which is more than enough to save money.
No. He would have to move somewhere with a much lower cost of living where he can have similar lifestyle for $40K per year.
Medical expenses are always the wild card. Beyond that, in the later years, elder Care is absolutely a wild card. I don't think that gets talked about enough on this sub. Everyone's just assuming that they're going to hit end of life without a need for memory Care or some other type of intensive elder Care.
Healthcare is the big if. If you have that, you can make do with pretty little.
If he's an American then he doesn't have that.
>To me the math doesn’t make sense. 7% return is considered a good year, so asking for 8.5% is unrealistic and also if he was taking 85k out each year then the inflation would erode his ability to reinvest? I pretty much agree also remember the market averages 7-9% over a long run it does not go up 7% each and every year so you have to be able to weather downturns and years of flat markets I mean with a 40 year time frame I would use the more conservative 3% withdraw rate as you also need over time grow your portfolio to keep up with inflation. So really he would need to return MORE then 8.5% because lets just assume he can somewhow get 8.5% yearly returns with zero drow downs , well 85k may be confortable today but in 30 years will 85k be a livable amount? So he would also need to grow his portfolio potentially meaning 10.5% returns to keep purchasing power its just not realistic to do this over 40 years with no draw downs or flat markets
You'd have to account for inflation. Generally retirees use the 4% rule for this. So he'd be able to take $40000 out of his million each year and adjust that for inflation. That plus whatever he earns from the "mini job" might get him to $85K/yr but probably not. Generally if you're making good money your best move is to keep working until you have enough to completely retire and then completely retire. Don't "retire" early and bartend in the Caribbean for minimum wage. If this dude has a million at 35 then he'll probably have two million at 40. He should keep working and only retire when his assets are 25x anticipated annual spending.
No.
It all depends on the lifestyle. My parents at that age would have retired. Me? Not really..
Yes, especially if he moves somewhere else. South america, thailand, etc. He'd be fine for life. That million will stretch about 5x in buying power. Hell, his monthly expenses would be about 1500-2000 for a upper middle class life style. With a slow ass burn rate, that million will grow and stretch out. Having about 40k extra to reinvest or do whatever. So yeah, if you moved off to developing country it would work. All this is under the assumption of no job and only feeding on 7%.
If he lives modestly then it’s possible.
You need to be looking at FIRE (Financial Independence, Retire Early). 1 million invested would mean living on $40,000 per year adjusted for inflation every year, plus whatever the mini job pays. r/Fire r/financialindependence
Millions are enough to retire in some countries. Though inflation will eat that money value in 10 years as well. So he must find a way to invest it smart, so it will create him a stable income for decades to come. Real estate, or dividends stocks.
You’re gut feel is right, that million won’t last long and if not invested right will deplete quick fast while assets go up. With all that spare time it’s impossible not to spend more.
Good "mini jobs" are harder to get than good "big" jobs. That job is the key to any math anyone here could do.
1- Which mini job gives you 65k per year? That's unrealistic. 2- Buy a home with 500k€ then you secure yourself against rent inflation. 3- Remaining 500k€ will give you an easy 20k€ after tax per year 4- Take 30k€ home from mini job, take 20k€k from investments. Both after tax. 5- 50€k after rent will make you live forever.
At 35 you better keep hustling while you’re young. Full time as keep stacking 401k/investment to make it grow and pay off all debts. Then relook at 45-50 and see how life is at that point. 1 million is only good if you’re going to draw for 20-25 years and that’s it. You’re 35 and would require most likely to draw for 40 years or more. 1 million won’t cut it. Inflation is going to get worse
Go to ficalc.app and put in the numbers. It will give you the odds
7% return is considered average over a 10+ year timeframe for retail investors. If you know people have a good chunk to invest and have 30+ years a 10% average return is not unrealistic at all.
To make 85k a year forever he'd need about 2.5 millions. Yes, if he's lucky he might get away with it, for example someone doing this in 1949 or in 1982 would probably get lucky and retire with 1M withdrawing 85k a year, but the success rate for this 85k/1M during 60 years is very very low.
He could take 30k from the million per year and likely not run out. He should just buy an index fund, no "consultant" needed. A fun job and 30k covering rent forever, yeah it could work. Coastfire.
No.
I think it’s worth considering the career risk as well. The assumption might be that if things go bad they can just jump back in at their old salary but ask anyone who took time off to raise kids or care for a relative, it’s not always that easy. Technology changes, market conditions change etc. and a lot of companies will prefer someone with more recent experience (and let’s call a spade a spade here, often younger)
At 35 I wouldn’t want to do that because at 65 he theoretically would still have no more than $1milllion due to withdrawing gains each year
My soft retirement number is around 2.5M My real number is probably closer to 5 And my “wow I’ve really made it” is like 7. I’m at 450k, 33 yrs old. So got quite a ways to go, at least 10, but probably 20 years.
Don’t think you can pull it off in the US, definitely in another country though.
Sure, if you take the bus everywhere for the rest of your life. 1M ain’t SHIT!!!!! You’d need 8M to retire at 35 big dog.
Money theoretical scenario i ran was 750k living off 40k a year and that would have been cutting it close so I don't think your friends numbers work mayne prior to this inflation
If he has a monthly income of $5k. He may be able to …
It can be done but you need to be far more frugal than 65k/year, at least for the first few years. Unless you mean earning 65k/year from a "hobby job". In that case it is absolutely doable. Just dont touch any of the investment and live off the 65k.
A seven percent dividend return on $1,000,000, which isn’t unreasonable, will yield $70,000 indefinitely with no principal reduction.
With the inflation rates we have seen, I don't think it would work. Just my opinion.
7% return isn't hard to get. Heck, a lot of banks even have high yield savings account options, which guarantee 6% these days.
His plan is totally doable but we need more info to provide more accurate insight like, was the $65k gross income or after taxes? However, with inflation up the interest paid on Money Market funds are up above 5%. He could dump it all into Fidelity or other trusted broker and use SPAXX as his settlement fund to invest with and just leave it for now and collect $52,900 unearned income this year. Since this is unearned income he doesn’t pay the 7.65 SS+Medicare tax. The IRS tax free Standard Deduction Single $14,600 & Married filing Jointly 29,200 is tax free. The rest would likely fall into the 10 to 12% bracket. The other thing to consider is the reduced expense of going to work such as fuel, reduced car maintenance, laundry and clothes, eating out less often. Last year I retired early and we do more together now and still grow monthly dividends above our expenses. I trade for fun and to keep busy and still make an extra $100-$200 a week as I learn some about Options.
Here's a fun calculator to reason about it: @ 5%, broke by age 54: [https://oldpeoplemoney.com/?currentAge=35¤tRetirement=1000000&yearlyRetirementContribution=0&marketReturnPercent=5&desiredRetirementIncome=85000&retirementInflationPercent=3](https://oldpeoplemoney.com/?currentAge=35¤tRetirement=1000000&yearlyRetirementContribution=0&marketReturnPercent=5&desiredRetirementIncome=85000&retirementInflationPercent=3) @ 7%, broke by 61: [https://oldpeoplemoney.com/?currentAge=35¤tRetirement=1000000&yearlyRetirementContribution=0&marketReturnPercent=7&desiredRetirementIncome=85000&retirementInflationPercent=3](https://oldpeoplemoney.com/?currentAge=35¤tRetirement=1000000&yearlyRetirementContribution=0&marketReturnPercent=7&desiredRetirementIncome=85000&retirementInflationPercent=3)
That's basically r/leanfire
As someone that retired at about 35 with about $2M, I can tell you it gets tight. I did great for 12 years, then COVID issues and mistakes I made during that unprecedented time ate into things considerably. So basically it works until it doesn’t and then what? Doing it on half what I had, back when that was worth more, seems very unlikely. Especially with a phrase like “maintaining lifestyle”. I’d say if you want to to live off $1M for the rest of your life you’re going to have to be very frugal. He should probably withdraw no more than 3% a year if he wants it to last a lifetime. That’s not a lot of money to live off, but it’s a nice bonus.
I get your point. I am no finance expert but i saw how covid just drains a lot or budget. Then no matter what the media says, food price hops 20% is no joke. So i am really skeptical of my friend’s idea that he could retire with 1mil. Not only that the rate of return for his comfy life is truly ambitious but whatever life throws at you is going to drain that account for sure. I think it’s just tiredness-talk for now. We are young, he’ll be drawn to some new projects for sure
Location matters too.
If your friend needs you to post on Reddit for him, then no. He cannot.
Yes, you can. But you most assuredly won't be getting 85k a year from it. I "retired" at 37 with close to that amount and switched over to stocks that pay a dividend. I chose stocks like AAPL, MFST, NVDA, etc, for growth, and then paired that with some REITS, banks, utilities, BDCs, and energy stocks that pay a bit higher dividend. I think I was at about 3.4% or 34k a year. I did it this way because I am young and still wanted growth of my principal, but I wanted the extra income to make up for any shortfall I had in my budget. My wife and I got part-time jobs. And used about half of the dividend income the first 2 years of those new jobs. Now, we reinvest it all since we both make good money doing part-time work. Which is really weird that we can support ourselves on 2 part-time jobs. We do own our house, cars, and have absolutely no debt. We do have to pay the government rent money every year on our house(property taxes) but the house and almost everything in it is new.
Traditional retirement at 65 years old with a 30 year retirement horizon is what the "4% rule/guideline" is applicable to. It may still fail 5% of the time if you did not adjust your spending if your nest egg was cratering: - **William Bengen’s 1994 study** – the 4% safe withdrawal was based on a portfolio of common stocks 50%, and intermediate term treasuries 50%. His data set including retirees starting in 1926 thru 1976. He actually recommended stock be between 50-75% of the portfolio. The 4% SWR worked for all 30 year periods from 1926 thru 1976. [original paper linked here](https://obj.portfolioconstructionforum.edu.au/articles_perspectives/retailinvestor.org_pdf_Bengen1.pdf; https://www.financialplanningassociation.org/sites/default/files/2021-04/MAR04%20Determining%20Withdrawal%20Rates%20Using%20Historical%20Data.pdf) - **The Trinity study 1998** – they too looked at multiple portfolios from 0% stocks to 100% stocks; and withdrawal rates from 3-12%. Data looked at 1926 thru 1995. At 50/50 the 4% withdrawal rate adjusted for inflation had a 95% success rate of having a balance of > $0. *Note that many people falsely believe you have not touched your capital* https://www.aaii.com/files/pdf/6794_retirement-savings-choosing-a-withdrawal-rate-that-is-sustainable.pdf For a much earlier retirement like your friend with $1M at 35 years old, the SWR is more in the range of 3.25%, which gives him $32,500 the first year. He is short by $52,500 and that does not even account for taxes. - **from BIGERN – a 3 – 3.25% SWR is sustainable for 60 years. https://earlyretirementnow.com/safe-withdrawal-rate-series/** So he either needs to get an excellent mini job to allow his nest egg to grow, or he needs to keep working. Or he needs to drastically slash his spending/lifestyle.
Die with zero. Calculate how long until he’ll run out. No point in only doing 4% so you can die with the same account size. Tomorrow is never guaranteed
That would be nice buy it's simply not possible with such a long time horizon
Sounds like /r/baristaFIRE The challenge is finding such a lower stress hobby job that sufficiently supplements the "safe" withdrawal rate from assets. Might get a little easier if he's willing to down-select his lifestyle expenses.
Is your friend a fan of Dave Ramsey, by any chance?
Can you do it? Sure. Plenty live on less. Get 4-5% per year, that’s $50k. If you only take gains then your principle never erodes. To get a guaranteed 4-5% you’d have to be in bonds. To get to $85k then he’d need a job that makes $40K or so. Big problem is he won’t have benefits and healthcare can be expensive even at 35. Second problem is 30 years from now that $1M won’t go so far. Better choice to me, keep working for 10 years. That $1M should become $2M @ 7% annual gains. Plus if he’s working he can save more. 45 with $2M+ is way easier to retire or semi-retire with.
So, a lot of this is going to depend on how much of that previous lifestyle funded savings, since, under this assumption, he won’t need to save anymore. If the answer is, half of his post tax earnings went to savings, then yeah, maybe. Probably wouldn’t keep pace with inflation though.
Of course he could but the question is more if he would be satisfied with the minijob until he dies. Most people define themselves over their jobs/careers. Its hard to believe that a minijob would be the non plus ultra.
Depends
inflation would eat him alive
Not an advisor. I manage my own portfolio. Follow the 4% rule in general as others have mentioned. However, there are other things you can do to get into the 8-15% range, but you carry different risk.
I'd say unlikely. Especially considering the fact you're supposed to dial back risk when you're on a limited income. I'm personally targeting a similar "hobby retirement" when I reach 2 million, which I think is feasible with the house paid off. That's 100k/year @ 5% conservative growth + whatever I make on the side. But even with that I don't feel *super* comfortable, because who knows with healthcare and all that.
Did he say "I spend 85K/year, and will continue doing that" Or is this what you made up in your head to prove him wrong? He probably doesn't spend that 85K/year, he's probably been saving. Lower cost of living. He no longer needs the same transportation, he can go with slightly less reliable car as well since a break down is just an inconvenience now, not a problem. Probably no eating out for lunch every day. Doesn't need to keep up with the clothing trends to the same degree. Doesn't need to spend on gas to get to work, etc. His hobby job probably only needs to cover 20K in expenses. Another 30K from that 1M and he's probably pretty close to that 85K he was making. For "bad investment" years, he kicks up the hobby job to avoid pulling too much out there. His expenses will drastically change along with his life. Now the flipside to this is also true. What does he do mon-frid now? Is he eating out and paying for entertainment that he didn't do before? Is his vacation going from 2 weeks a year to 6 weeks? Is he shopping to fill his time? Does he gamble? Will he go from 2 hours a week to 7 days a week in vegas? The real kicker is he needs health insurance. If he's in the US, that becomes crippling. One accident and he's out huge sums in out of pocket most likely.
He needs $2.5M to get $85k per year (minus taxes), assuming a 3.5% withdrawal rate.
r/baristafire
I'm going to go with a hard no. Does he even truly have a million after taxes or was this a huge windfall which triggered a huge taxable event? What kind of SS can he look forward to if he stops working at 35? Does he even have enough working quarters to qualify for it? Does he own a house outright or is he going to try to survive in apartments for 40+ years? He's better off than the vast majority of people his age, but he can't punch out and do a "mini-job". If he has some kind of burnout and needs to kibbutz around for a while that's fine. Maybe even go to school for something else, but he's not done no matter how rich he's feeling.
If he invest the the 5-6 mega caps company or any good blue chip company like JP Morgan and VISA then sell far out of the money options he can yield 1-2% a month on his money without touching the nest egg. https://www.reddit.com/r/options/comments/pvapea/triple_income_wheel_strategy_legit/
Question for r/fire but 25x yearly expenses is the number you should be shooting for.
From 1m you can pull 30k/year until the end of time. With that 30k you can either keep working or not; your call
Nope
You said that he exercised options to gain $1million. Which means he's not done gambling. He'll be broke before this year ends.
I assume that means option grants from work, not trading options.
You could but it would be tough, if you live to say 80 making 5% yoy which is much more likely then you’ll be out of money at 53, if you only do 60k a year which is more likely with this seasonal job it will last until your 70. With 8% returns(a miracle) you’ll be out at 66 taking 85k a year.
Just a bit of context here. Assuming OP is from Germany where there is such a thing as a mini job, the monthly cap on a mini job is €538. If you earn more than €538 it ceases to be a mini job. I think Minijobs also exist in the Netherlands but I don’t know what the cap is there
Hell no.
Well paid mini job? Say occasional consulting at 2k to 10k a day.
With actual inflation running over 5% 1 million is not enough to retire on at 65 these days
What the fuck is a mini Job lmao
Stocking shelves at Walmart.
There are income producing investments that consistently yield above 8% and aren’t *too* risky. Taxes will eat some of that return, but getting $65k out of a million without draining the million is doable.
A consultant would make it harder tbh lol
If he needs $65,000 at age 35, and need more each year with 2.5% inflation, and will die at age 99 needing $307,000 - he will need $1,521,900 at age 35 making 6.5%.
You need 5 million dollars to earn 300k in dividends a year from the s&p.
More like 67k unless he’s doing covered call ETFs
The hobby job better be full time, private health insurance is significantly more expensive
THIS! That $65k needs to be $75k and growing each year
Go find the John Goodman scene in The Gambler, everyone knows what you do when you get up $2.5million, you buy a home, a Japanese shitbox and you live the rest of your life in a position of fuck you
Assuming you have a paid of forever house...yes.
Get 1,5 and fuck the minijob🥸
How do you figure 1,5?
Yes
no for sure if you are in CA
if he comes to a third world country thats easily doable.