Ask HN: I have $1M cash in my bank. How can I stretch it so I can retire?
71 points| archeantus | 5 years ago
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?
[+] [-] tdalaa|5 years ago|reply
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.
[+] [-] chrisked|5 years ago|reply
[+] [-] manigandham|5 years ago|reply
[+] [-] lhl|5 years ago|reply
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!
[+] [-] voisin|5 years ago|reply
[+] [-] TrackerFF|5 years ago|reply
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.
[+] [-] dehrmann|5 years ago|reply
> 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.
[+] [-] at-fates-hands|5 years ago|reply
$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.
[+] [-] daxfohl|5 years ago|reply
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.
[+] [-] nroets|5 years ago|reply
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.
[+] [-] RickJWagner|5 years ago|reply
[+] [-] voisin|5 years ago|reply
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!
[+] [-] quantumofalpha|5 years ago|reply
[+] [-] webinvest|5 years ago|reply
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!
[+] [-] voisin|5 years ago|reply
[+] [-] archeantus|5 years ago|reply
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!
[+] [-] ac29|5 years ago|reply
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.
[+] [-] orev|5 years ago|reply
[+] [-] alexmingoia|5 years ago|reply
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.
[+] [-] stephenr|5 years ago|reply
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.
[+] [-] manigandham|5 years ago|reply
I do recommend immediately investing that money though. Sitting in a bank account does nothing for you.
[+] [-] aparsons|5 years ago|reply
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.
[+] [-] chrismcb|5 years ago|reply
[+] [-] DoreenMichele|5 years ago|reply
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.
[+] [-] voisin|5 years ago|reply
[+] [-] garmaine|5 years ago|reply
$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.
[+] [-] refurb|5 years ago|reply
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)
[+] [-] kangnkodos|5 years ago|reply
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.
[+] [-] wetpaws|5 years ago|reply
[+] [-] Foober223|5 years ago|reply
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, $1 million might not last into old age.
Being a "millionaire" isn't what it used to be. It's a lot of money to be sure, but you are not rich. It may grant a lifetime of frugal retired living, not rich retired living.
[+] [-] matt-attack|5 years ago|reply
[+] [-] rainyMammoth|5 years ago|reply
For example, you could take a couple years to try to build a one-man startup. Working on building an MVP that would resolve a niche problem? You will be less stressed because you would know that in the worst case you can always go back to a comfy engineering job. With 1M$ you already did better than 99% of the people your age.
[+] [-] twblalock|5 years ago|reply
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.
[+] [-] bcherny|5 years ago|reply
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.
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[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...
[+] [-] pbk1|5 years ago|reply
[+] [-] darkteflon|5 years ago|reply
[+] [-] aparsons|5 years ago|reply
Withdrawals change these numbers tremendously