If you put $5M in index funds, you’d grow it by about $400k a year (8%) on average, to start. It’s hard to imagine going broke with that by doing “normal middle class” things. For added security, one could add in a part-time job.
8% is extremely optimistic. 4% is more like it, maybe even 3.5%. I'll use 4% for what follows. That's $200k. Take out 20% LTCG, now you're at $160k.
Rent is like $3k/mo, so $36k/yr. Say you have modest living expenses of another $34k/yr. Now you're at $70k/yr to break even. That leaves you with $90k to save/compound.
So, ok, you're doing very well as a renter with $5M invested, even in the Bay Area. And, given that you have more than twice the income you need, you'd probably be ok with only $2-2.5M. As in, breaking even with passive income.
Which would work so long as you don't want to own a house, and so long as markets don't melt down. That extra security seems to cost extra.
Sure, but if you retired in 1997 to live off the interest on an investment in the S&P 500, by 2008 you'd have made an annual return of... 0%.
If you used cromd's figures of $5M in funds and lifestyle expenses of $400k/year you'd have spent ~80% of the principal (although you'd probably have reigned in your spending unless you were mad)
A boat doesn't just need to survive the harbour's average water level - it needs to survive low tide and high tide.
4% is the historical number you could take out for expenses in the worst case scenario. IMO it’s not pricing in modern existential threats, such as a war that crosses the ocean, or existing regulatory differences that make it more difficult for larger firms.
Yeah, maybe 4% is all one could manage to withdraw to survive the longest downturns. I haven't dug into that much. But, people are maybe debating different things - some are likely talking complete early retirement whereas my comment was more about "financial security" (or at least the claim it's "basically impossible to stay in the Bay long-term unless you make an absolute fuckton of money").
For me, financial security means something more like: money will be low on my list of problems. I could get more money by turning my attention there. I might have to work, but it could be some low-stress job, and losing it isn't a big deal. I could afford extra care for an elderly parent. I won't be knocked out by most random things that pop up, specific to my personal life, though I can't control what happens to my country etc.
For some, it means they don't have to work at all, and can't be ruined by market downturns that last decades. And further for some others, it means they can survive wars and societal collapse.
I think both are valid to wish for, though at a certain point it's a burden on yourself to control things you can't control. If there's a 1.1% chance of widespread nuclear war in our lifetime, and you want to be 99% certain your lifestyle won't take a hit, one needs to save and spend a ton to be able to weather it all.
