$2m in the bank is enough to easily draw $100k/yr from interest, which fits the GP’s “set for life if we make wise choices” IMO. That is way above median income in wealthy countries. Assuming you don’t try to live in SF!
Even in the US, $100K/yr puts you comfortably above median income. If I had $100K/yr of GUARANTEED income, I would stop working for money and do whatever I felt like for the rest of my life.
Up until recently (healthcare reasons) the Adams were basically doing just that. I guess they won’t need to sign/sell little dwarf artworks for DF donators anymore though
A 4 or even 3 percent withdrawal rate is more likely to be sustainable. Those are also rates I see suggested more commonly on retirement planning sites.
If you're assuming withdrawing at a safe withdrawal rate you're assuming you're not compounding. You're assuming a safe withdrawal rate from principal/dividends/interest that will, on average, leave the principal constant. Of course, if you're older and are not looking to pass down money you may be fine with drawing down principal to some degree.
So, yes, $2m should probably be modeled at about $80K income per year before taxes without touching principal but without building savings.
(May be somewhat higher with higher interest rates/inflation.)
I said an annuity. An annuity would draw the principal down as well, and you generally make a drawdown assumption that leaves you with some safe margin for extended life and maybe some inheritance.
That is not accurate. The 4% withdrawal rate is based on the Trinity Study[1], which showed that it was unlikely to exhaust retirement funds over a 30 year retirement. It already includes compounding and draw down calculations.
There's a whole active debate around exactly what numbers are sufficiently safe over what time horizons and what portfolio mixes. For a fun long read, see ERN's series on safe withdrawal rates https://earlyretirementnow.com/safe-withdrawal-rate-series/
LOL. Who is getting 5% risk free interest rate on USD? No one. I guess 1% after taxes is a more reasonable expected return. Remember that interest rates on retail deposits were pretty much zero for last 10 years. So, 20K USD per year. But if they can keep it up for next 5 years, then yeah, pretty much can retire on 1% interest rate forever.
Long term (~50 year) average stock market returns on reasonable indexes (like S&P500) is 10% per year.
The only real challenge is a portfolio mix and withdrawal strategy that minimizes the damage from withdrawing during downturns. That's where the 4% rule becomes relevant.
> 2m in the bank is enough to easily draw $100k/yr from interest
5% interest hasn’t been avail from a bank in a couple of decades, and the fact that we’re close to it again doesn’t mean it will stay that way…
You just can’t get a guaranteed risk-free return of that range indefinitely, which is why a lot of people shoot for 3-4% when they don’t have more capital to invest in riskier but higher return investments.