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Yes. ‘Safe withdrawal rate’ is the annual fraction of an investment which one can sell while maintaining the principal’s value, adjusted for inflation. That might sound very complex, so here’s an attempt to explain it simply. If one has $24,000 and spend $600/month, then after 40 months there will be nothing at all left. On the other hand, if one invested that $24,000 in Treasury bonds one would have something like $26,229. So (ignoring inflation) one could spend ($24,000 - $26,229)/40 = $55.72 each month, and still have $24,000. Why would one want to do that? Because one could keep going, investing the money, collecting the interest and paying one’s expenses: that $24,000 can last forever, paying $55.72 a month. Now, in real life one can’t ignore inflation, and that $24,000 will be worth less than $22,000 in 40 months. In real life inflation tends to outpace the risk-free rate of return one can get lending money to the U.S. Treasury. So one needs to get more return by taking one more risk, for example by investing in the stock market as a whole. But that exposes one to economic downturns. To make a long story short (too late!) folks have run the numbers and figured that one can conservatively invest one’s money in some broad indices, withdraw about 3–4% a year and maintain the post-inflation value of one’s capital. More than that, and one runs out of capital; less than that, and the capital continues to increase, but you have less money to spend today. If Jellyfin wants to be able to pay their $600 (in 2024 dollars) hosting bill forever, they need to invest $240,000 today. And then they’ll never need to ask for money again (assuming all sorts of things, like no decade-long recession, no world war, an asteroid doesn’t crash into the Earth and so forth). For the same reason, an American making the average wage of $63,795 needs a $2.2 million nest egg to never work again. |