How much would you need to retire now?

[Firethorn]

I was working on my finances, thinking about the statistic that something like 3/4s of those who win multi-million lotteries are bankrupt within five years.

This got me to thinking about how much somebody would need in order to not have to work anymore, while maintaining their lifestyle.  For you workaholics out there, figure that you simply transition to a labor of love - running that great gunstore/range that barely breaks even.

Basically, how much would you have to come into, post taxes, in order to turn in your two week notice?

[AJ Dual]

Well, the fact that lottery winners go bankrupt within X number of years has nothing to do with how much you'll need to retire.

That's because the demographics of lottery winners are naturally skewed towards demographics of people who are the most frequent lottery players, those who have no clue how to manage money. And even those who were/are financially savvy, no idea how to manage large sums of money.

To maintain my current lifestyle of older inner blue-collar suburban Milwaukee, considering my age is only mid-thirties, and providing education and weddings for my daughters, living off the interest, and leaving enough principle to grow and maintain, and only predicting a conservative rate of return/economic downturns, failures in certain segments of my diversification...

I'd say I'd need two million. And forcing myself to budget only for a very conservative 5% aggregate rate of return, that leaves me about 65k a year to live off of, and $35k to throw back into the pot. I'm sure I'd do much better most years and would spend some of it, and reinvest more, but that's the kind of harsh thing you have to do to not wind up like those lottery winners.

Honestly, IMO,  these days it takes at least eight figures to "live large", and not make a dent in the principle you're living off of so you can keep doing it. And even then you've got to be very careful.

[drewtam]

And if I could take my SS tax and put it in an IRA I would have more than that at retirement. Instead, I won't see a dime of it.

[K Frame]

Given that I'm 42, and factoring in average life expectancies, I figure between 1 to 2 million if I were not to work at all.

But, I think I'd last about 3 days fully retired and not working, so I'd probably realistically need less than that.

[CAnnoneer]

1.5-2M, if you got no obligations (e.g mortgage or kids college fees) and just want to scrape by. What a miserable existence that would be. Taxes and inflation have a lot to do with it. I second the eight-figure comfortable early retirement plan.

[Firethorn]

Well, the fact that lottery winners go bankrupt within X number of years has nothing to do with how much you'll need to retire.

That's because the demographics of lottery winners are naturally skewed towards demographics of people who are the most frequent lottery players, those who have no clue how to manage money. And even those who were/are financially savvy, no idea how to manage large sums of money.

Bingo, that's why I was thinking about it.  You hand me a million bucks, and I'd never have to work again.  Of course, I don't play the lotto much at all.

To maintain my current lifestyle of older inner blue-collar suburban Milwaukee, considering my age is only mid-thirties, and providing education and weddings for my daughters, living off the interest, and leaving enough principle to grow and maintain, and only predicting a conservative rate of return/economic downturns, failures in certain segments of my diversification...

Are you making enough to provide for education&weddings now?

But yeah, have to figure on economic downturns.  I was also figuring on health care expenses(no job supplied benefits).

I'd say I'd need two million. And forcing myself to budget only for a very conservative 5% aggregate rate of return, that leaves me about 65k a year to live off of, and $35k to throw back into the pot. I'm sure I'd do much better most years and would spend some of it, and reinvest more, but that's the kind of harsh thing you have to do to not wind up like those lottery winners.

Honestly, IMO,  these days it takes at least eight figures to "live large", and not make a dent in the principle you're living off of so you can keep doing it. And even then you've got to be very careful.

Agreed, but I get the impression that the first thing that a member of this board does wouldn't be like what 90% of lottery winners would do:  Run out and buy a house and six cars, giving half the pot away to instant friends and family.

Drewtam, I'd be three quarters of the way to permanent retirement if I'd seen just my half of my SS money*.

Mike, are you figuring on interest?  That'd be $50-100k per year income @5% for eternity.

*I'm willing to give up the rest for the 'widows&orphans fund'.

[member1313]

Stupid question: I can't do interest calculations. Don't ask why; I just can't. It's the only thing having to do with math before the level of trigonometry I can't do.

Anyways, how do you figure out the interest you'd get on a given sum of money?

For example, say I had one million dollars in my bank account. How do I know what the interest would come out to be?

[K Frame]

1 million at 6 percent interest is $60,000 in earnings a year.

Most people can live easily on $60k a year if they don't have a lot of crazy expenses and budget well.

I maintain a house in one of the most expensive areas of the nation on not much more than that per year.

In fact, I maintain my house on far less than $60k a year, because right off the top 27% of my bi-weekly salary goes right into my retirement 401(k), but I also have enough left over to put towards regular savings and a rainy-day fund.

And, if you plan well, you can ride the markets without too much fear of long-term loss. Spreading that $1 million between investment vehicles is not only is a good way to minimize risk, it's a good way to ensure that in the years that you don't have good returns from, say, your stock or stock-based mutual funds, you can pull the income more from municipal bonds or other lower-risk securities and back pad in those years when you earn far more than 6%.

[K Frame]

Stupid question: I can't do interest calculations. Don't ask why; I just can't. It's the only thing having to do with math before the level of trigonometry I can't do.

Anyways, how do you figure out the interest you'd get on a given sum of money?

For example, say I had one million dollars in my bank account. How do I know what the interest would come out to be?

The figure I quoted below is pure simple interest, NOT compounded.

Figuring compound interest can be a bit on the tricky side because it's a moving calculation.

Wikipedia has the formulas: http://en.wikipedia.org/wiki/Compound_interest#Mathematics_of_interest_rates

I found some time ago, but then promptly lost, a web page that had a niftly little Excel Spreadsheet calculator for compound interest.

In case anyone is wondering, but doesn't know, compound interest is the reason why banks quote show TWO interest rates on savings vehicles: the Annual Percentage Rate, and the Annual Percentage Yield. APY normally shows somewhat higher than the APR, and that's because of compounded interest.

[Fly320s]

I wouldn't retire right now for less than $5 million in cash.  It's not that I have a lavish lifestyle or that I need that much to live on, but all investments have risks.  And considering that I have another 26 years to retirement (if the FAA raises it to age 65),plus about 20 years of life beyond that, I'll need some extra money as a buffer.  I probably have nearly fifty years of life ahead of me.

At 5% simple interest, that gives me $250k a year to play with.  But in reality, I won't put the $5m into such liquid accounts that I can constantly withdraw money as needed.

The money will be invested in a wide-range of stocks, bonds, securities, real estate, and business ventures.  Not all of those will always be profitable.  Not all of those will yield easily accessible cash, so I would have to plan for the worst-case scenario.

Plus, factor in inflation, cost-of-living changes, etc., and $5 million isn't as big as it seems.

[grampster]

You need to be debt free when you retire. 

I can also tell you this:  The money managers and investment shills et al will tell you that you need a certain amount for retirement.  They are pretty much full of it.  You actually need less than they say.  They are attempting to frighten you into buying what they have to sell.  What they are selling for the most part is a comfortable living for themselves.  I know this from experience.  So don't get too worried if you are not doing what these guys are telling you to do. 

More, of course is better, but don't deny yourself having a good life while you are working by using up your life trying to accumulate cash for a retirement you may never live to see.  We decided to live life very well till we were 40 and then start dealing with saving for retirement.  Still lived well.

Starting at age 40 I contributed the maximum into my 401k as the law allowed each year.  My company contributed 50 cents on the dollar up to a certain % of income.  Not as much as most companies, but not bad either.  I retired at age 62 with a nice pile of cash.  If you can get into a 401k, do so!!  I rolled that into a IRA and invest it very conservatively in CD's, money market, bonds, one annuity and a conservative mutual fund.  Brings in about $20-$25,000 a year.  I use what I need out of this to pay what I call The Nut.  Various taxes, insurance on cars, home, boats, uninsured med and dental bills, fixing things, home maintenance, some time in Florida in the winter, long weekends in the summer (Michigan is wonderful place in the spring/summer/fall).  In other words expenses that are in the thousands rather than hundreds. 

Fortunately we had a defined benefit pension from the company.  That provides a monthly benefit, (joint and 2/3 to spouse at my death) at about what my two week take home pay (after taxes,fica, life ins, home and car etc) was when I worked.  Social security provides about the same amount each month (two of us).  Since the gain on the IRA pays the fixed large expenses, this money is for fun,frolic and usual utility bills each month.  We do what we want, go where we want, eat out a lot and generally enjoy the life one has when one is a senile, smelly old fart and fartess.  We live on a lake, which was part of our planning so that we have a lot of recreation here and in the area.

Anyway:  1. Make sure you are, at retirement, debt free, including the house.  2.  Put the max into your 401k.  Don't wait till 40 like I did.  Then you won't need to worry about your company still having a defined benefit pension.  3.  If you don't have a defined benefit pension and you are 40 already, then try and invest what you need to get you about 1-2 weeks of your take home pay when you retire at say 62.  4. Cancel all of your life insurance at retirement.  Use the money to prepay cremation. Cremation is cheap, a couple thousand dollars.  Use the rest of the money to get rid of any debt you have.  If no debt, then use it to pay for a new car.   

[Firethorn]

Fly; I think that you'd need an awful lot of market downturn to eliminate 5 million.

For one thing, 5 million at inflation level investments would yield $100k a year for 50 years.

So you'd have another 4 years of safety margin - assuming that the government doesn't pay you a red cent.

As far as withdrawals go - there are very few investments that you can't liquidate on an annual basis if you plan ahead.

Of course, being in the military, if I wait another 10 years, I get that retirement, which would drop my estimated funds needed by over half.

It doesn't hurt that I'm half in Roth and half in TSP.  So my tax load shouldn't go up too much.  I've started a non-retirement account because I could practically stop investing for the 'official' retirement age now and still have enough for then, but since I can't touch that money without penalty until then, I need something to 'tide' me over.

[charby]

I'm 33 years old, for me to never ever work again, I think I would need a nest egg of 10 million dollars.

Part of this nest egg would pay for a few large parcels of land in Iowa for me for my own recreation and small cabin on each parcel and a moderate sized but modest house on one parcel where I will reside. I figure this is going to cost about 4 million dollars. The remaining six million I will invest so that I only live off half the return and the other half is reinvested to keep with inflation. Whatever is left after my death and my wife's will be donated to organizations that we believe in and the land to the State of Iowa to be open for public recreation use but not developed.

I should have more than enough income to cover my expenses and luxuries.

I would spend my time managing the land parcels for hunting and fishing and enjoy those activities during their respective seasons. I would also probably do a few out of state or out of country hunting or fishing trips each year.

-C

[wooderson]

Given the recent family history of longevity, hoping that I'm not predisposed to Alzheimer's (my maternal grandmother and her mother both...) - $50k/yr * 60 years before figuring in investments, inflation, medical bills, etc. - $3mn at a bare minimum.

[Brad Johnson]

That's because the demographics of lottery winners are naturally skewed towards demographics of people who are the most frequent lottery players, those who have no clue how to manage money. And even those who were/are financially savvy, no idea how to manage large sums of money.

Another hearty agreement.

When the Texas lottery had just started an elderly couple in Seymour, a town not far from my home town, won the jackpot.   A million bucks paid over 20 years.  50k a year then would be the equivalent of, say... $80 or $90 large a year now.  In their tiny town it would have funded lifestyle that could easily have been called lavish.  It should have put them on easy street, never having to work or worry about money again.

However...

Every friend and family member they never knew they had began swarming out of the woodwork.  The couple was loaning money to, and cosigning notes for, their children, brothers, sisters, nieces, in-laws, etc.. - foks who couldn't get a loan any other way because they made a shambles of their own finances.  Not surprisingly those same folks began defaulting on said loans.  In the span of only two or three years the couple's lottery income could not meet the debt obligations for the defaulted loans.  They were forced to file bankruptcy.

Brad

[MillCreek]

If I recall correctly, there have been at least a couple of lottery winners in Washington that opted to remain anonymous for pretty much exactly that reason: to keep the relatives, charities and the like from hitting them up for money.

[K Frame]

Given the recent family history of longevity, hoping that I'm not predisposed to Alzheimer's (my maternal grandmother and her mother both...) - $50k/yr * 60 years before figuring in investments, inflation, medical bills, etc. - $3mn at a bare minimum.

After investment that $3 million would provide you with FAR more than $50,000 a year. Even a return of 1.5% in a very niggardly money market account (which can be found at virtually any big bank that touts its "FANTASTIC MONEY MARKET RETURNS -- that's just  banking talk for screwing you 6 ways from Sunday) would give you $45,000 a year.

[Headless Thompson Gunner]

I could live comfortably on $30k a year.  Figure 6% or 7% return on some bonds.  That means I'd need about half a million in principal.

Playing with the calculator a bit, if I can manage a 12% return and a $10k yearly investment, I could fund that $500k retirement account before I turn 40.

 

Ain't the free market grand?

[MechAg94]

I have heard about the lotto winners.  I think the problem is they think they have money and can just buy whatever they want with no end in sight.  They don't realize that even that amount of money can be gone very quickly.  Personally, I think the key is to not spend any significant money for at least 6 months or a year.  Give yourself a small payday, but not a lot.  By that time, a lot of the hoopla will blow over and you will know more about what you have.  Easy to say, hard to do I am sure.

I have no idea how I would react, but I expect I would be a cheap skate.  I try to be generous, but I am not one to hand out money to guys on the street.  I don't know if my relatives would do what others have.  However, I have enough contacts that I think I could find my own financial and legal help without resorting to using people who come calling to sell me stuff.  Hell, one guy I know used to do retirement plans and investment plans for just that sort of situation.

Have I put way too much thought into this? 

[wooderson]

I figure if I win the lottery for enough, I'm getting on a ship for a year-long cruise with no telephone. Give the world time to forget how to contact me.

[El Tejon]

woody, very smart.

Who wants to retire?  There's all kinds of eeevil that I can inflict yet.  I'm not even 40, in my profession I'm just getting warmed up.  I'll do my best stuff in the coming years.

I've got a nice fat Roth before I had to quit and I now max my SEP every year (I do that more for the tax bennies than retirement since it helps me with the feds and the state, but the SEP forces me to save).  However, I figure it's going to be nice to have 2 to 2.5 million, but I have no plans to retire.  My father is still at it at 70, my grandfather worked until he fell over, and my greatgrandfather worked until he fell over, refused to die and went back to work, and then went face first into his desk.

Quit?  I'm just getting the hang of it!!!

[Nick1911]

Who wants to retire?  There's all kinds of eeevil that I can inflict yet.  I'm not even 40, in my profession I'm just getting warmed up.  I'll do my best stuff in the coming years.

Heh.  You remind me of my business law professor, Jim Gothard.  Some of the stories that man has told us would be hard to match...

[K Frame]

I, too, have an exit strategy if I ever manage to win the lottery.

Mine involves driving across the United States visiting friends and family from coast to coast.

[El Tejon]

I thought your dream was to become Homeowners Association Tsar of the World . . . with, with me???

Oh, the terror we could inspire together, Mike.  Shooting hilljacks and layabouts.  Beating those who fail to put up their trash cans on time.  Whipping and rolling in salt those who neglect their lawns.  Burning the eyes out of those who hang NASCAR flags outside their houses.  Crushing cars that park in the streets with our tanks.

*tear of joy*

Just imagine us skipping across a perfect green lawn with the houses all in compliance with city code and hillbillism and bad dental hygenie only a bad memory as the remains from hillbillies fertilize our lawns just like Brave New World.

I'm so happy.

[charby]

I, too, have an exit strategy if I ever manage to win the lottery.

Mine involves driving across the United States visiting friends and family from coast to coast.

Well you more than welcome to stay a few days at Casa de la Charby, I'll even make a few pork burgers and offer my congrats for winning the lottery.

-C