Can you be well off following an index?

[sv2007]

You don't think most people can retire on $3 million? Seriously?

With the standard 4% withdrawal rate, that would generate $120,000/year income. Considering the median income today is about $53,000, most people need far less than $3 million to replace their current income.

After tax, maybe $75k/yr? And 4% withdraw probably will cut into principal assuming there is a fixed income portion. That's not the way to build wealth. Wealth is built by not using all the return and let the remainder compound. We are retired with much more than that and frankly, I'm not sure if it is enough. So that's based on actual life.

[Nutria]

After tax, maybe $75k/yr?

28% of $120K is $86,400.

And 4% withdraw probably will cut into principal assuming there is a fixed income portion. That's not the way to build wealth.

Wealth building usually isn't the goal of the post-65 retired years, and 4% per year is a great way to fund 25 years of life.

[disneysteve]

After tax, maybe $75k/yr? And 4% withdraw probably will cut into principal assuming there is a fixed income portion.

First, taxes would not reduce 120K to 75K.
Second, as I said, median income is about 53K and that's pre-tax. Most folks don't need anywhere near 75K post-tax to live well in retirement.
Third, you're not including Social Security income in these calculations.
Fourth, most of us are concerned about building wealth for our own futures, not to fund future generations. It's fine to reduce principal in retirement as long as it's done at a slow enough rate that you don't run out of money. That's the point of the 4% withdrawal rate - to have your money last 25 years or so.

We are retired with much more than that and frankly, I'm not sure if it is enough. So that's based on actual life.

It is great that you became wealthy and retired with much more than $3 million, but if you are questioning if that is enough, perhaps you need to take a good hard look at your lifestyle and spending habits. Your nest egg is generating more income than probably 95% of Americans earn and somehow we all manage just fine.

[disneysteve]

I mentioned Social Security so here are some stats.

24% of retirees live entirely on SS benefits.
36% of retirees get at least 90% of their income from SS.
65% of retirees get the majority of their income from SS.

So only about 1/3 or retirees have savings and investments that generate half or more of their income.

sv2007, I think you have some disconnect with how the vast majority of Americans live.

[Nutria]

sv2007, I think you have some disconnect with how the vast majority of Americans live.

Seeing that he thinks it's easy peasy for the Average Joe+Jane to save $36K/annum, I'd say that there's definitely a disconnect between @sv2007 and reality...

[DaveInPgh]

There's no particular stock that I like, I buy based on fundamentals and change when things look wrong. I don't give specific investment advice, but anybody can do this, and I think Idiot's guide was spot on with the importance of learning the ropes early.

Most of our income isn't from earned income since many years ago; in fact, that's what allowed wife to retire. We gave up $180k/yr on her income alone. My income is slightly higher. Our investment income overtook our jobs a long time ago.

You know you could have easily stated "I did really well with ACME Corporation, but I am not offering investment advice." Instead you didn't mention a single stock that you picked that beat the market.

What stocks made you so wealthy that you now have over $180k/yr in investment income?

Like the others said. You have a disconnect from reality.

[disneysteve]

You know you could have easily stated "I did really well with ACME Corporation, but I am not offering investment advice." Instead you didn't mention a single stock that you picked that beat the market.

I'll kind of side with sv2007 on this one. Many people are uncomfortable sharing specifics of their own portfolio because they don't want people to jump on the bandwagon and buy the same investments just because they've done well. Even though they can state "don't do this just because I did" people will do just that and then get angry when their performance isn't good.

Personally, I don't have a problem with that but many people do and I can respect that.

So here's an investment that I've done very well with over the years. THIS IS NOT INVESTMENT ADVICE but VGHCX has a 10-year avg return of 11.84% and since inception in 1984 has averaged 16.89%. This is one of my largest holdings (well now I've got VGHAX since I have Admiral shares but same deal). That blows away the S&P 500. Great investments are out there. You just have to find them.

[scfr]

Scott Burns' most recent update to his "Life of Riley" Index discusses what this thread is about ... but with empirical data.

Yes, it's true that investment yields are down. And yes it's true that if your dream is to retire super early and live the high life off of just your investment income, that dream is a bit further out of reach.

But look at what happens to the numbers if you plan to work until full retirement age so that you are receiving social security and take regular withdrawals from your nest egg. The number needed to be "well off" in retirement is substantially less.

Here is a link to Scott Burns' article. You need to read (or at least scan) the whole thing to get the complete picture. https://assetbuilder.com/knowledge-c...-lots-of-money

Personally, my traditional investments are more conservative (by the time the money is available for the investment accounts and savings the risk has already been taken in the form of business activities), I plan on only a 2.5% initial withdrawal rate, and I hope to retire at 60. But I'll push my retirement age back if needed. And I certainly don't expect to live "The Life of Riley."

To get back to what I think OP was asking about, I believe that in order to retire very early and live high on the hog without committing crimes to get there, I think you need some combination of being a very high salary worker, saving very aggressively, inheritance, starting and operating a successful business (or businesses), and/or success with somewhat less than traditional investments (real estate for example).

And FWIW it's worth, I know 2 people who were awesome stock pickers and retired early to live off of their investment income. In both cases, really smart people around them were in awe of their ability. And in both cases, their luck eventually ran out and they ended up going back to work.

[DaveInPgh]

I'll kind of side with sv2007 on this one. Many people are uncomfortable sharing specifics of their own portfolio because they don't want people to jump on the bandwagon and buy the same investments just because they've done well. Even though they can state "don't do this just because I did" people will do just that and then get angry when their performance isn't good.

Personally, I don't have a problem with that but many people do and I can respect that.

So here's an investment that I've done very well with over the years. THIS IS NOT INVESTMENT ADVICE but VGHCX has a 10-year avg return of 11.84% and since inception in 1984 has averaged 16.89%. This is one of my largest holdings (well now I've got VGHAX since I have Admiral shares but same deal). That blows away the S&P 500. Great investments are out there. You just have to find them.

And if all of his recent posts weren't so ridiculous, I would have never commented on his vagueness.

I am certainly not against someone advocating for individual stock picking to try to beat the market, but it certainly isn't as simple as reading an Idiot's Guide.

[Singuy]

We don't spend much money except for vacations and hobbies; these areas our spending will likely surprise folks on this board.

Are you expecting normal everyday Americans to have your style of vacations and hobbies too when they retire? Not everyone wants to be an exotic car collector and consider that a necessity for survival....

Even if you live in a 2 million dollar house, your property tax and expenses are not going to exceed 35k/year..additional 60k/year on food and travel is plenty(at your 4% withdrawal rate of 120k PLUS SS). This is on the assumption that you paid off this house..and not say..purchased and mortgaging a new 2 million dollar house at retirement.

I have never spent 5k/month on food/hobbies/travel in my life..and I think my lifestyle well exceed the average American.

[disneysteve]

We don't spend much money except for vacations and hobbies

We are retired with much more than that and frankly, I'm not sure if it is enough. So that's based on actual life.

These statements seem to be contradictory.

You "don't spend much money" but you feel your multi million dollar portfolio isn't necessarily enough to live on. Something doesn't add up here.

How about listing your income and spending so we can see what you're actually talking about?

[bjl584]

There are plenty of real world examples of people retiring rather comfortably by investing in indexes. So, yes. I think it is possible.

Not many people can beat the market. I do believe that it can be done, because there are examples of people doing it. But, it isn't for everyone. Just like everyone can't be the starting quarterback for the New England Patriots, not everyone is going to consistently pick winning stocks year over year. But someone out there has the skill/luck to do it long term. But the average Joe should spread their bets and DCA. Index funds represent a fine vehicle to invest in.

[sv2007]

These statements seem to be contradictory.

You "don't spend much money" but you feel your multi million dollar portfolio isn't necessarily enough to live on. Something doesn't add up here.

How about listing your income and spending so we can see what you're actually talking about?

Our income last year was especially high, nearly $1m of cap gains. The last 2 years, after my retirement, our income was higher than when working. It is specific actions on our part that's not useful for you.

Obviously, we think our portfolio generates enough income for our needs; hence we are both still retired. However, ideally I think I'd be much more relaxed with $10m. But I can say for certain that $3m will not be enough to make me comfortable. I guess I owe you a reason. Here's what I've found out during retirement:

1. The number one problem is health care; it is expensive. We've planned for it, but we aren't yet used to it.

2. Protection of assets. This may be temporary as I'm only into 2nd yr of retirement. Part of retirement is enjoy life so we've switched our investments into what I call "clean" money; things that are more passive in nature. This also means more risk.

3. Not all of your assets are accessible. Our 401ks and IRAs are about 20% of our net worth. It is a hefty chunk that you can't access until true retirement age. Although, we've not budget that money (i.e. we can go on indefinitely without it), for somebody with $3m, that'd cut the $ by maybe $1m, so really there's only $2m available. Remember, we're taking retiring early. We are decades away from real retirement age.

4. With retirement , the increased travel is actually higher than we first thought. Also, we re-hired all our of babysitters and continued with after school programs. This is unexpected; it's relatively small cost, but I thought I'd share as we totally didn't think we'd be such wimps.

I don't know, there may be more, but these are some pitfalls of an early retirement.

[sv2007]

There are plenty of real world examples of people retiring rather comfortably by investing in indexes. So, yes. I think it is possible. .

I'm not saying retirement is impossible on index; I'm stating it may be impossible to retire early and live well (i.e. being above average since your index return may be considered average).

I don't dislike index, in fact, I quote their returns all the time. It is just something I've been thinking about.

[DaveInPgh]

3. Not all of your assets are accessible. Our 401ks and IRAs are about 20% of our net worth. It is a hefty chunk that you can't access until true retirement age. Although, we've not budget that money (i.e. we can go on indefinitely without it), for somebody with $3m, that'd cut the $ by maybe $1m, so really there's only $2m available. Remember, we're taking retiring early. We are decades away from real retirement age.

20% of $3m is $600k not $1m