For so many on here that is not too much money, but for me and my bg, I feel more fortunate than I ever could have dreamed of being.
I like my job, but it’s stressful. My dream is to use this nest egg to make investments that will grow the capital and allow me to live off of it.
Am I jumping the gun? Is $1M not enough? I’m sure I could get way more money if I endure more years of my job, but I so want a break. What are the chances of taking $1M and investing so that I don’t have to work anymore?
I want to stretch the $1m as long and as far as I possibly can. Looking for tips/suggestions on how I might do that.
You can follow one of two stock-based strategies:
1. Invest 100% in an S&P500 index fund, returning 8%/year [1] and growing to $11M in 30 years [2], minus withdrawals.
2. Invest 100% in bonds, or a high yield savings account, yielding 0.6%/year [3] and growing to $1.2M in 30 years [2], minus withdrawals.
You want to do as much of (1) as possible, while doing (2) as little as possible in order to pay for things (mortgage, rent, food, kids, etc.). You can't rely on (1) for day to day expenses, since stock returns are super variable (recessions, depressions are inevitable over time).
To balance the two, you can think of it as: consider retirement when MIN(1, 2) > expenses. The exact mix of 1 and 2 depends on your personal risk tolerance.
EDIT: Numbers for (2) were off, as suggested by multiple people in the comments. Updated.
---
[1] https://www.investopedia.com/ask/answers/042415/what-average...
[2] Calculate this with an online interest calculator (being sure to re-invest earnings), or remember the rule of 7 (your stocks will double in value every seven years).
[3] https://www.bankrate.com/banking/savings/best-high-yield-int...
First crucial advice: don’t take financial advice off the internet from a group mostly made up of people who have never had a million dollars or more to invest. Ask people who can show you they’ve got millions more than you and have had them for years through ups and downs..
Second: there are a gazillion factors that goes into making solid investing advice; what’s your current living situation, what’s your 5 year outlook, 10 year outlook, ambitions in life (wanna retire soon or you’re planning to work and just have this as a long term nest egg), what’s your appetite for risk, do you need the money in the next 10 years (at all!), if you invested in something and markets suddenly crashes and your invest was suddenly worth 500k, what would you do, hang on and ride it out or sell? .. and on and on.
What matters is simple long term low cost investments, and then not touching shit no matter what happens. Hell, just buy cheapest sp500 index etf (vanguard or ishares or similar) and hang on for 20 years and you’ll be in extremely good shape.
That's simply not correct.
And important note here is that I'm obviously not advocating for investing 1 million dollars in a single SP500 ETF. For some people that may very well be the right thing, but if all you've got is 1 million dollars, you're taking a ridiculous risk putting it all into one thing, because what happens if some years down the line, stuff happens in your life, and you need to take out a good chunk of cash and it coincides with a terrible market, not a stellar combo.
So obviously basic diversification is critical, based on your personal situation. Can be accomplished easily with 3-5 cheap ETF's. Buy and hold for many years, until your life changes.
But as for SP500.. You could have invested in virtually any SP500 high, and as long as you can hang on for more than 10 years, you can almost not lose. Quite the opposite, sitting in cash is sure death, because you're gonna miss all the highs, sure the market may drop 30%, but that dip could have been in a period of 40% gain.. And you're losing out on the most essential part of making money long term: compounding interest. So.. Just invest, there's (almost) no bad time.
As for OP and timing.. I wouldn't know.. Way too many unknowns to give any kind of specific advice.
Someone else linked to the "three fund portfolio" and that's close to what most people should do. Get VTI, VXUS and BND in some ratio based on your age, personal situation, investment horizon etc, and then just let it sit.
Spoiler: time in market beats timing the market, historycally.
To OP: Get a financial advisor ASAP, $1m is enough to justify it. You also have a lot of tax implications that you probably haven't thought of, a lot of work goes into avoiding taxes at those stakes.
$1m invested correctly will net you $40k/yr, before taxes, in perpetual income. So you’ll need more than $2.5m to live off at your expected annual expenses of $100k.
So $1M nets you $40k, before tax or around $33k after tax (assuming no-state tax state of residence).
That's $3k per month free and clear, which would be doable a single person in a LCOL area, even having to pony up for a high-deductible health insurance plan. You'd have almost nothing left at the end of the month, but that's the plan?
Edit: Good point below - most/all of the returns will be capital gains and the rate is 0% under $40k (which should be easy to keep below, since you'd be selling a percentage of initial investment + returns)
If you don't want to live on $40K/year, another option to consider is getting a lower stress job at a lower salary, while withdrawing $40K/year.
It may seem overvalued now, but will it still be considered overvalued if another variable changes, say inflation catches up with the monetary policy actions.
As the great John Bogle once said, "Nobody knows nothing."*
* For more, see Bogleheads.org
What's the most efficient rental properties that generate highest percentage of return after recurring expenses?
The reason I like real estate is that because it's something tangible, real and physical (compare to stocks, cryptos, papers and government promises) and can provides excellent inflation hedge as well as real place to live.
And $1M can afford to invest into high quality, waterfront properties that can be carrying many benefits for years to come.
If you do not want the hassle of being a landlord and spread risk broader than with owning individual properties, look into real estate funds.
There are parts of Florida where 3 bedroom existing homes (i.e. not new) are $100,000, but monthly rent for that same house is $1,000+ per month.
Based on discounted cash flow, you can determine the value of any revenue stream. In some parts of the country, you'll find homes are undervalued compared to rents.
Stocks are good, but they're not good for steady withdrawals. For example, during a bear market your withdrawals are very costly.
To retire, you need predictable income streams, and rental property is one of the best.
Plus, it's easy for a regular person to leverage money for real estate. For example, with $1 million, you can buy $3 million worth of property with 33% down -- not counting transaction fees, though).
33% down should give you immediate profits from most of your properties.
$3 million could get you as many as 30 condos/homes in the right areas.
If monthly profit on each of those 30 condos/homes can average $200 per month, that's $6,000 per month right there.
You might still want to continue working for a few years to give you capital to deal with hiccups and allow some time for those mortgages to pay down further.
In a nutshell, rental property is one of the faster ways to generate income without working.
The other, simpler way is to move to a country like the Philippines.
During the pandemic, many renters were allowed to stop paying rent and landlords had no legal recourse. Several states have created new rent control laws in the past few years, too.
I assume your calculations include a full-on property manager? I have a single unit (wife's pre-marriage condo we held onto) and even that is a minor job sometimes at the most inconvenient times possible. A kitchen sink doesn't care that it's 10pm on a Sunday night before a huge early Monday presentation. It's gotta be fixed now.
30 units would be full-on full time 40hr/week job while also hiring a part time assistant for larger jobs. If you have 30 units, I guarantee that 3 major things will break simultaneously during a holiday weekend - it's just the way the business goes.
33% down here won't get you into profitable territory with a property manager taking their cut. Certainly there are areas of the country where this is very possible, and if you put a little effort up-front you can make it a quite sustainable business - especially if you can get to the point you can hire a full time (cheap) property manager/handyman and you simply run the books.
Just want to reiterate to those reading this that what is described is essentially a second career. Certainly not passive income in any sense of the term. You would be trading your tech career in for that of a landlord which indeed is actual non-trivial amounts of labor.
That doesn't even get into risk. I'm renting in a city with evictions paused but no mortgage relief to be seen for my profile. I'm fine, but if had been just starting out in my landlording adventure I might be close to bankruptcy. Can you survive a year or two with 50% or less income? This can and will happen in the form of either vacancies/non-pay, or major unexpected structural repairs.
I'm actually considering picking up a few more units in the neighborhood simply to have a diverse income stream for when I do decide to step back some and "retire" to an easier/part time job in my chosen field. But, I do this knowing I'm also lining up "things to keep me busy" at the same time.
With $3m invested in a FIRE-recommended portfolio you can withdraw $10k/mo indefinitely without any work at all. I don't think this is as good an opportunity as you are presenting.
- How much per year do you want in your pocket? - Where do you want to live? (think climate, cost of living) - What will you do with your time? (take a year or two off, you may get bored) - How much will your retirement activities cost?
You get the idea.
Also consider part time remote work. If you're skilled I'm sure you can find a company that you can put in 10 hours per week at and it doesn't even have to be programming.
Do you have real world experience with that? I found on the contrary that the more skilled I get, the less companies are willing to make me work only part time. Which is too bad, because part time high paid job is really the best of both world.
Part time jobs in restaurants is what allowed me to learn programming when I was in early adult life, and I crave for as much time to learn new things, nowadays. Sadly, while people I work for are willing to negotiate insane amount of money (in my opinion), they are not to concede the slightest amount of time.
The easy way: Consider $ARKK, $VTI, the ray dalio all weather portfolio, or the Harry Browne permanent portfolio. Use portfoliobacktester.com to analyze your investment choices.
Here is a reading resource for you to consider https://training.kalzumeus.com/newsletters/archive/investing...
He talks heavily about target date funds. Personally I don’t invest in TDFs because ETFs like ARKK and VTI give much higher long-term returns but for the highly risk adverse, they can be perfect.
If you have any questions, even if they’re newbie, feel free to ask!
I started investing 5 years ago with real money and won virtual investing competitions for the 2 years before that where the goal was to produce the highest portfolio values within a given set of time. I don’t remember how high I placed but I got a pretty ornamental gift certificate which inspired me to continue further. Other investors would read charts like they would tea leaves but my strategy was to find stocks trading below their company valuation with above average growth prospects. These prospects have a lower risk and have a higher potential reward.
At one point in my career, I downloaded the data for all 3000+ stocks into a MySQL DB to learn which metrics mattered the most and which mattered the least... and the results were surprising.
That 20% I quoted is from a stock and ETF retirement account. In a non-retirement account that had also grown quite a lot over the years, I allocated a conservative 20% of my portfolio to call options and that account is up 177% overall this year. But options aren’t something you try until you have years of experience, comfort, and knowledge with stocks.
Finally, I know the theme on HN is to disagree, counter, and dispute whatever the previous comment said but I’d like to receive some support if I’m going to continue posting.
For the OP, having 1M is a great position to be in but also a two edged sword: you have the money but investing it all at once is psychologically hard. I saw an article on Seeking Alpha with an example portfolio for retirement that I generally agree with, you can take a look at it here: https://seekingalpha.com/article/4391859-retirement-portfoli...
I have a large family that is quite young. Six kids under the age of 15.
My annual expenses of $100k is definitely for a lifestyle that is nicer than we need. Most of that is on a big mortgage.
I’m surprised at how many people have joined in on this discussion. Thank you!
Keep in mind that college education has gotten enormously expensive. The forgettable state school I went to now estimates a total cost of $20-30k/year (inclusive of food, housing, transportation, etc - depending if the kids live with you or independently). 4 years, 6 kids on the low end would then be around $500k. Now, parents obviously arent obligated to pay for their children's higher education, but if you were thinking about it, that's half your money right there - at today's prices.
If all else fail, you still have the land to sell. You can’t print land. It will always be in demand.
Buy productive land you can steward. One acre of fertile land with water is much better than 500 acres of scenic acreage.
Where can you find that in America? I have a rough rule. Follow the Amish. Can’t go wrong.
(This is not investment advice. Just my thoughts.)
It is possible to have homesteads to grow everything you need for a self sustaining lifestyle. ‘Off grid’ living including outside of an unstable money economy.
Energy, water, food, fiber and some amount of cash can be derived from land. It can be bartered or sold. You can form co-ops with other like minded people with a million savings. With food, hydroponics, orchards, field crops, honey, eggs, meat and fish. You can get a (cobot)robot in that budget to eliminate need for labour.
A million dollars is not much. Any value of a dollar/market currency is pegged against what it can buy. You can’t outrun inflation if you want to live within the matrix. My (literal)2c.
Then why ask this question here? Proceed at once to Bogleheads.org, and prosper.
If you had accidently ingested a poison and had minutes to live, would you rather have advice from the internet's top minds or from top toxicologists?
I see it the same way. I'd take the topic experts.
Do you think they'll actually read this? I feel like the very prominent people mostly post links to their blog/site and don't respond as much to other posts on here.
> I like my job, but it’s stressful.
> Am I jumping the gun?
I think so. I'd work on reducing stress on the job. If there are specific causes, a decent manager should be able to help. If that doesn't work, try something else! If you've worked in tech for 8 years, you're pretty hireable, so there are lots of other opportunities. Part-time work is also an option.
It's also not the best time to retire like that. Interest rates are historically low, stock prices are nominally high, the way covid plays out is up in the air, and the impact of monetary and fiscal policy on the value of the dollar isn't clear.
$1M really isn't a lot to retire on especially if you're south of 35. You're best bet is to hire someone to give you professional advice on how to invest the money and keep working.
The last thing you want is to try and retire now, run out of cash and then have to try and get back into an incredibly fast moving industry where ageism is real. You run out of money in your 40's and its going to be hell on wheels trying and get back into the industry.
Compare that with reducing your stress, staying the course and continuing to add to what you have saved while growing the money you already have. Walking away when you're 100% sure you can run the clock out would be a wiser move than trying to do it now when you're young and borderline don't have enough in the bank to do it.
Patience is the better move at this point.
I don't think it's enough in your case. A good chunk of that money is from your house which you no longer have. Once you buy another (or rent) those will be big drains on your cash. So you really don't have $1 million free and clear to retire on.
It sounds like you are still young, only working 8 years. Early 30's? Unless you move to a low cost area and live very frugally, $1 million might not last into old age.
Being a "millionaire" isn't what it used to be. It's a lot of money to be sure, but you are not rich. It may grant a lifetime of frugal retired living, not rich retired living.
https://old.reddit.com/r/fatFIRE/comments/5g1jhd/what_is_you...
Not high.
I'm going to guess, based on the fact that you have 8 years in the tech industry, that you are probably in your late 20s or early 30s. Given modern life expectancy, that means you could be alive for at least 60 more years.
In order to make 1 million dollars last that long you are going to need to take on significant investment risk. "Normal" investment risk, e.g. from index funds, is not going to grow the money enough -- if you withdraw enough every year to live on, the money will run out. When it runs out, you will probably have been out of the job market for decades, and therefore unemployable.
If you are living on a fixed income, predictability of expenses is key. Home ownership is one way to control your expenses -- get a fixed-rate mortgage and your monthly cost of living will be fairly predictable. Property tax and utility costs might fluctuate, but in most places the mortgage will be the largest cost, and you can lock that in at a known monthly amount. However, you just sold your house. If you are planning to rent, you won't have the predictability that you need in order to plan for future expenses. If you are planning to buy again, that $1 million is going to shrink by the amount that you pay for your next home.
You probably can't retire on $1 million. But you can take some time off, like a sabbatical. If you aren't happy in your work, you can look for another job, and having that money will let you coast for a while until you find it.
(The details are a bit more complicated, and you might want to choose a smaller percentage like 3.5% or 3% if you are retiring at a younger age.)
Your 6% might only give you 48k after tax.
Subtract 2% for inflation and it’s only 28k per year you get to live off in perpetuity.
How old are you? Where do you live? What are expenses and costs where you live? Do you have other sources of income?
You should hire a financial advisor or planner versed in these matters. More than anything they are behavioral coaches who will tell you what you can and can't do.
You should build an annuity calculator in a spreadsheet and add conservative growth assumptions and agressive spending assumptions where you may have unexpected medical expenses for example.
Around here, 99% of them are terrible and will cost 2% of NAV, which is massive when we’re talking about 4% annual draws.
And they won’t recommend moving away when you should, because they’ll lose you as a customer. And the #1 thing here is that OP probably needs to move to make this goal work.
(Not to be too negative, financial advisors can make sense in some circumstances if the person really needs an expensive person to make sure "they don't blow it on something dumb")
You can live in a coastal/touristy area and live well.
WSB is a terrible idea for someone looking for financial security and next steps.
Rent and pay 6-12 months in advance, try to get a discount.
Give yourself a 1 year budget and make it on the low end.
Everytime Bitcoin doubles take out 10% (Rake Method).
Wait one year and re-evaluate.
I'd also recommend looking up the "Trinity Study" which gives the guidance of a 3-4% "safe withdrawal rate" - eg, if you should be able to retire if you can keep your cost of living under $40K - there's a lot of bikeshedding about the exact number and various strategies you can use to minimize risk during downturns. Personally, I'd make sure your fixed living expenses are <3% of your net investible so you have some flexibility.
A while back I wrote a short guide for a friend that lays out my personal financial perspective in a bit more detail: https://www.notion.so/lhl/Basic-Financial-Literacy-Guide-386...
Before making any rash decisions, I'd make sure you get your finances sorted (cash buffer, asset allocation sorted, comfort with market volatility, etc), but also think about what you want to do after quitting your current job. One thing that seems to happen a lot is that people quit their job but really haven't thought about what they want to do afterwards. Taking some time off/a sabbatical isn't a bad way to try to figure that out.
If you're in tech and you don't like your current job btw, just find a new one (or better yet, learn to de-stress at your current job - stress is as much a state of mind as extrinsic factors). Good luck!
https://www.cycleblaze.com/profile/nicroets/
The best way to make your money grow over the long term is a diversified equity portfolio of which a low cost index tracking fund should be your first choice.
If you want real value for your retirement savings, you should live abroad: South Asians countries don't have a lot of exports, making their currencies weak.
I think the conclusion you will come to is that it would be good to move to a LCoL location, keep your job or somehow stay in the industry but in a more flexible manner where you work far less and make a bit of living money so you don’t eat into your nest egg very much.
Also, word to the wise: inflation is unpredictable and current government estimates are likely massively underestimated for things that actually matter to you - healthcare, housing, etc. So be careful with the standard 4% withdrawal, equity market returns, and inflation expectations. Garbage in, garbage out!
You can live comfortably in SE Asia on $1000/mo, with access to good healthcare, gigabit Internet, a nice apartment, etc. I think it’s crazy to spend your money in the US.
Also, living in Thailand is only cheap if you live like the locals. Luxury cars are more expensive than the west due to high import taxes; “Average” locally built cars (eg a Toyota or Nissan) are pretty much the same price as in western countries. western luxury foods are more expensive due to scarcity and the need to be imported.
Houses are only cheap if you accept local cheap standards. If you want a house built similar to western standards, it’s going to be expensive, and will likely still involve compromises.
And there are some things money can’t solve. Living in Thailand is very different to living in a western country, and thinking that money can solve any hardships is naïveté at its finest.
There's also a series of books called "The Tightwad Gazette" with a similar theme of learning to spend less.
Successfully retiring from a tech job is highly likely to be equal parts investing well and learning to live on less. One or the other won't solve it.
Best of luck.
Think about investing money in real estate. With a million dollars you could buy an apartment building live in one of the units and manage the others. Over time you will have enough money to retire. The one plus in this type of investing is that you have a lot of control over how successful your investment will be.
You'll need to educate yourself on the intricacies of apartment building rentals but the success is very likely. Also, Real Estate is a long term investment so once you get involved expect to have your money tied up for many years.
You did the hard part of saving the money now it's time to move on to the next step. Good luck!
I'm not the OP, but this doesn't look like retirement and this is no my favorite type of work.
> ... but the success is very likely.
It is probably not so easy.
In my current situation I could do it with less than half of what you have. But I'd personally get bored. Good luck with the retirement.
I bought a property with two apartment units in North Carolina, and got a $200k mortgage (paid $500k at purchase time).
My girlfriend and I live in one unit, while the rent from the other unit (3 bedrooms, kitchen and 1.5 baths) covers mortgage, utilities, taxes, insurance and some of our living expenses (about 10 days of groceries, gym membership and one dine-in/takeout meal).
Rest comes from a variety of investments in bonds, ETFs, and REITs - I withdraw about 1.9% a year (general wisdom is that up to 4% is safe) - actually it was closer to 1.2% last year including two fortnight-long vacations, but up to 3% this year due to the early-year market dip.
But, I would only suggest this if you have a clear plan for what you’re going to do when you retire. Write novels? Work on open source? Become a world-famous painter? The world is at your fingertips, but if you don’t have a plan, you’ll be bored of retirement within 2 years. If you don’t have that yet, I suggest keeping your job for another year while you plan you escape.
Also - this is just an observation of mine: Retirement, especially if you're not honing your skills or keeping busy with learning, can be absolutely a killer on your acumen.
I've seen very skilled people enter early retirement, only to quit their profession all-together, instead just focusing on doing...nothing. Or rather, nothing very productive. After a couple of years they just seem more dull, intellectually speaking. Unless you have an iron will and very self-driven, it can be hard to motivate yourself to do something at the same level as when you're employed, or there's lots of risk involved.
It's really no problem if you're in your sixties, and will likely never work again - but retiring at a very young age, there's lots of risk and uncertainty involved. Doesn't mater how well you plan, you could get forced back into employment.
So with that said - I wouldn't retire entirely. Rather, become more selective on the work you take, work part-time on projects. Try to become highly competent in some specialized skill, just to keep yourself up to date and motivated.
As for money:
- Move somewhere cheap - Invest enough that you'll go in plus after all expenses - Live frugally. Lifestyle creep is real, and can obliterate retirement savings.
Of course, investments are inherently risky - but speak to some professional about this.
I spent three years variously traveling, working low-wage jobs, taking classes, spending about 10K/yr (which was less than what I was making on my investments). I'm back in software now and maybe a bit behind my peers who stayed in, but happy I did what I did.
I anticipate most people who "retire" in their 30's end up coming back to work at some point. Not for money necessarily, but because we find ourselves missing the feeling of being productive.
I do recommend immediately investing that money though. Sitting in a bank account does nothing for you.
0. Debt is a killer. Pay yours off.
1. Live below your means
2. Look up the 4% rule - can you live happily on 4% ($40k) per year? If not, you may need to save some more.
3. Implement a strategy to leverage the 4% rule. I usually try to avoid investment fees and invest directly in exchange traded funds. To learn more about ETF investing, read The Simple Path to Wealth.
4. Try to get a part-time, less stressful job. That way there is more room for error in your calculations. If you employ DRIP investing, your savings compound even effortlessly this way as you don’t withdraw as much.
For example, you could take a couple years to try to build a one-man startup. Working on building an MVP that would resolve a niche problem? You will be less stressed because you would know that in the worst case you can always go back to a comfy engineering job. With 1M$ you already did better than 99% of the people your age.
Tbh, $1mil isn't enough to retire with at an early age. It's certainly a lot of money, but depending on your lifestyle, it won't exactly cut it til the end. $5 mil at 20 would be a "set for life" number for me factoring in I'd live another 60 years/720 mos. That's factoring in for inflation. This is why you need to tie up money in investments. You can be pretty risk averse too. But just as long as it's not sitting in a bank account.
Mutual funds on average the last couple years have returns of 13-14%, if that keeps up You could probably grow you million and draw enough to live off.
If the world goes into a depression, cash will be king, deflation will kick in and prices will drop. So your million will go a lot further.
If things cool off a bit and go back to a historical marketplace of 6% to 8% ROI, I think You have a way to go yet if You really want to not work at all. Of course if You are planning on checking out in the next 20 years You probably have enough.
It is a neat feeling when You see all that money in the bank though isn't it?
On the other side if you moved to tech from somewhere else and you are actually older, the numbers start to become more reasonable.
You also said you recently sold a house, but what is your living situation now? What do you want it to be? Having $1M in the bank doesn't mean much if next year you need to turn around and buy another house for $1M
Diversity is good. You don't want to put all your eggs in one basket, and risk it all.
While I did invest most of it, raising means is only half the job. The other half is lowering needs. This is already how I managed to save most of my pay each month, but the older I get, the more extreme I take it. Not only does it ensure my stash will last as long as it needs, but I acquire lot of new skills on the way (by learning how to build rather than buying). Oh, and I don't have a family, it probably helps a lot.
Also, if your current work situation is carving at your self-esteem or general life satisfaction then you might not have any other choice than to get out before crash landing, and then that money in the bank will give at least give you some time to evaluate your options.
Then re-evaluate.
A lot of people think they want to retire when in reality they want a break.
You can easily live on 50k/year if you don't have a family. That's 20 years if you don't make another penny so you really don't need to do anything. If you don't spontaneously find a way to make money in the next 20 years that you enjoy, something has gone terribly wrong :)
Dividend + buyback yield is around 4% on s&p 500. So you could reasonably safely take out 4% / year (assuming you dividend reinvest).
Spending is the real issue. If you can get your spending down you could actually pull it off.
Also most advice here is going to be wrong or not applicable to your specific situation.
$1m won't go far in some places.
Wait until it's 2 or 3m, then live frugally. There is no clear indication on the future value of the dollar or other currencies for that matter.
Save and spend as little as possible. If you don't have a kids and wife, don't spend on useless things. You don't have any responsibilities so just be happy.
