Reply to Can 29yr old live off $1.5 million w/working?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]Can my brother live the rest of his life without working? He is  29 years old and inherited a modest house and about $1.5 million. He has no intention to ever work again. He is not a big spender, no lavish vacations or expensive shopping sprees. He does make questionable financial choices sometimes such as paying way too much for something because he didn’t do any research. He is not great at “adulting” like remembering to paying bills and frequently lets his Obama insurance lapse. Overall a functioning person who has no interest in working. He has “done the math” and has determined that he never needs to work again and can live off the money we inherited from our parents. I’m not convinced but he is not open to discussion.

I inherited the same amount of money minus the house. I put it in an investment account. I don’t think it is enough to live on but maybe my life is just very different? I have a wife and a baby. We own a house and want to save for school and college. I did tell my brother that he is going to have a hard time finding a woman with his situation but he always seems to have a new girl he met on Tinder so who knows?[/quote]

A 29 year old needs a nest egg that can last 61 years by most traditional measures. Negligible social security and pension. Such a person would need to be able to live off an initial withdrawal of 1/61 of available savings, with subsequent withdrawals indexed for inflation. That’s basically $1.5M / 61 = $24,600. Even if we’re talking after-tax money, this is a pretty LMC lifestyle. [/quote]

Lol, no.  3% is considered a "permanent withdrawal rate" (i.e., you NEVER run out of money).  So he can take out $1.5M x 0.03 = $45K the first year and adjust that up for inflation forever.  If he sells the house and nets another $500K, he can bump that up to $60K forever.  Only on DCUM can people not understand how *one person* can live off that.[/quote]

Inflation.  My kid lives in a MCOL area.  Their rent just went up 27% for the next year lease.  So did many of the apartments near them. So unless they want to get a roommate or live in a downgraded apartment, they are paying much more next year (and likely after that).  And by downgraded apartment, I mean one without AC (think area that it's required), one that has carpet everywhere but the kitchen and bathroom (even the eating area would have carpet), apartment is 40+ yo and not been updated in 20+ years, etc.  No inside parking (think upper midwest where it snows a lot), etc.  [/quote]

The safe withdrawal rates are tested for inflation--including periods of intense inflation (e.g. 1970s).  You draw down your initial amount + inflation.[/quote]

Seriously, how realistic do you think it is that this 29 year old, who doesn't want to work, will be able to manage his inheritance in a way that he can make it work? Seems to me that if he had the chops to invest in such a way to make it work, he would work, at the very least to secure Medicare and SS. [/quote]

I have no idea--I don't know him.  [b]I just am noting that the safe withdrawal rate formulas are adjusted for inflation[/b].[/quote]

Would you at least agree that safe withdrawal rates have not been tested over extended periods of times. Rather, the Trinity study on which this is based was only for a 30-year period?

I guess my point is that if we are going to state things as absolutes, all facts should be included.[/quote]

Just as an aside--I'm not the same person making all the counterpoints here.  I don't go around calling people dolts and the like for instance. The original Trinity study which suggested a 4% SWR was based on a 30 year period, but others have studied it for longer and with different withdrawal rates.  And now anyone can basically replicate their study just by punching numbers into firecalc/cfiresim since that's essentially what their study involved (testing over all prior historical periods). (Side note--it is kind of amazing how much financial tools have grown that we can know replicate for free what took a major study to do in the past).  If you put in 40, 50, 55, etc. years both your odds and your predicted end number not surprisingly tend to go up--just because time in the market is everything.  If you adjust your spend the first 8 or so years to not tap into if it's down, your results go up even more.  So having 1.5m when you are 29 is *better* than having it when you are 50 if you can commit to not increasing your spending more than inflation.[/quote]

I love all the tools. And agree we have so much more access to tools and information than even 5 years ago.

Out of curiosity, I ran Firecalc.

Using a combination of 30 year Treasuries (which had been suggested earlier) and Total Market equities:
55 years: 45K (3% drawdown) 1.5MM initial portfolio
25% equities: 80% chance of success
0% equities: 23% chance of success
60 years: 45K (3% drawdown) 1.5mm initial portfolio
25% equities: 71.3% chance of success
0% equities: 21.3% chance of success[/quote]

The safewithdrawal portfolio studies are usually based on a balance of 60-70% equities (Total market) and 30-40% (total bond index).

[/quote]

What do the numbers look like if you are 100% equity? Seems like a no brainer if you want a decent withdrawal rate over 50 or 60 years.[/quote]

Also, here is the calculator I like: firecalc.com. Others prefer cFireism.com I like that firecalc has a lot of knobs and dials to adjust.[/quote]

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