Item — HN Reader

How are you computing that?

Perhaps you are forgetting that an investment still grows while you are withdrawing from it?

Here is a calculator that helps you compute how much you can actually pull from it: https://www.money-zine.com/calculators/retirement-calculator...

If you set the initial variables to:

- Retirement age 40 - Life expectancy 83 - Annual Return 7% (typical of stocks) - zero out everything else (no pension, no social security)

You get about ~$74K a year.

Even if you started retiring at age 25, you'd still be pulling ~$71K a year.

2 comments

That was clearly off the cuff. But we're here in the context of people with new money blowing it all, so let's stay there instead of imagining we're talking about something else.

First, start with the 25 number. We're talking about athletes here, they aren't losing their income potential at 40, they're losing it a lot earlier than that. There are 40 year old athletes, but we talk about them all the time because they're unusual, not because they're the norm.

Next, cut the rate of return. Like by half. Nobody with new money is that successful with their finances. That's why we're discussing this.

Now, I wasn't thinking about this too hard when I did the math in my head, but I do tend to round down pretty heavily when doing math for myself for a very particular reason: adjust down for inflation. Way, way down. The biggest fuckup people make when rationalizing their rate of savings or how great an investment their house is: by the time you get to use this money thirty years from now it won't be worth half of what it's worth right now. Present day you thinks 25k a year will pay your rent. 70 year old you will have to move to the middle of nowhere to say that. You won't want to do that. So double your withdrawal rate by 60 and almost again by the time you die.

This is not a good way to calculate it because it ignores volatility of the investment. There are decades of publications in the topic of sequence of returns and the impact on retirement.

$25,000 is likely a little too low but $70,000 is way, way too high.

Most people who've done research agree that something like $25,000 to $35,000 a year from $1,000,000 is reasonable for someone retiring extremely young.

Which corresponds to 2.5 - 3.5%. Back in the 90's when I was doing my research 4.2% was the "magic" number. Of course your life expectancy has to factor in to, so if you boost your withdrawal rate as you get older you can try to hit $0 right when you die. (like timing the market, not recommended)

As people point out the thing to remember is that your costs change too, your health care costs go up but if your family moves out and you pay off your house your outlays go down. "Downsizing" or reducing the owning of expensive things (especially ones that require maintenance) can really help your burn rate.

May I suggest taking a look at https://earlyretirementnow.com/2016/12/07/the-ultimate-guide... - it's the best guide I've ever found on optimal safe withdrawal rates.

Your number was almost certainly based on a 30 year retirement timespan.

An athlete might be 30 years old at retirement and needs to think about a 65-year retirement timespan.