When $10,000 yearly equals $200,000 saved

[Goshawk]

Often I like to consider people who are paper millionaires (millionaires on paper) as many do not realize they are.  Most think having a million dollars in the bank means you are a millionaire.  And it is true to most eyes.  Does being a millionaire make you well off?  Well it should if you know how to manage money. 

But what does that mean, if you want to use the million dollars to generate income.  Many investment companies say you should be able to get at least 5% off this money yearly with some fairly safe investments.  So $1M would be equal to $50,000 a year at a 5% gain.  Not bad.  Bet many know people with pensions worth $50,000 a year, and they are common with a great job that had a pension.  Do you know persons with $50,000 a year in pension?  Should you call them a millionaire? maybe at least a paper millionaire.

Lets reduce-scale down a bit.  Lets say you have $200,000 in the bank.  At 5% that gets you $10,000 a year in interest.  Your balance never reduces if you can do this forever.  If you are earning $10,000 a year now and putting that in savings, do you consider that to be equivalent to having $200,000 in the bank?  will you walk away from $200,000 in the bank equivalent; to no income on the road by quitting a $10,000 a year job?

These are the issues to keep you thinking when the call of life on the road living in an RV happens.  Its not easy to walk away from high paying jobs.  If the average dual income family is somewhere north of $50,000 a year; in many opinions that could be a $1,000,000 paper you are walking away from.  Hope you have saved a lot over the years, or that you can sell your house and pull some of that money back.

Opinions?  Sure this can be a trap, and many claim it as a trap.

 

[AngryVanMan]

I like to think this way, although I consider 5% to be on the high side of safe withdrawal rates. The Trinity Study initially claimed a 87% success rate over a 30 year period for a 4% withdrawal rate, increasing to a maximum 98% success rate by dropping that number to 3% and removing stocks from the portfolio entirely. These rates are shown more in detail in that link, and were obtained by running Monte Carlo simulations using the study data.

One of the big things that influence how we plan to obtain income in the future is taxation and income variability. Earned income (labor income) comes with severe disincentives in the US - much higher tax rates, plus payroll taxes, plus dependence on an employer to keep you employed or have jobs available on an as-needed basis. That is a high risk premium vs. capital gains over the long term - capital gains has far outperformed earned income risk vs. performance in aggregate terms.

The main motivator to keep working for many savers in light of the extra risk associated with dependence on payroll income was health insurance. Employer group policies were the only insurance you could get and not be turned away or priced out of the market by pre-existing conditions until the ACA passed - making health related bankruptcy an "infinite risk" scenario for someone living solely on savings. Elimination of this problem put US savers on a similar risk footing with other developed nations.

 

[firebob]

I found anytime your going to toss anything over $50,000 into the bank without a plan to use it in the soon it's best to ask about a money market account at the bank and to see if they can give you a fixed interest rate for a set amount of time. Make sure you understand what it takes to get a sizable amount of money out of the account like a 14 business days.

I had an issue once with my MMA where i wanted to buy my current van (brand new) that week. There was $238,000 in the account and i wanted $35,000 to get the van, some tools, some random junk, and to put some money into my primary account. I ended up having to take out a loan at the bank and set up a one time automatic payment. They waved all but $50.00 in fees and interest, but took half a day to get everything worked out.

 

[Goshawk]

3% only? Are we putting this into a loan to sure thing like municipal bonds? What I like is INDEXED FUNDS. Put into something that tracks the market automatically. You should be getting 5% or more I would hope.


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[Gunny]

Interesting that you choose $200,000 as the amount. When my father died (1986) there was $37,000 in checking and savings acts. and two Jumbo $100,000 CD's. My Dad was a 'saver', he and Mom lived well but within their means.

Mom lived quite well on the interest from those two CD's and her small social security check. Interest rates then were a lot better than now. She never cashed the CD's, just rolled them over. They were still there 16 years later when she died.

Rob

 

[AngryVanMan]

3% only?  Are we putting this into a loan to sure thing like municipal bonds?  What I like is INDEXED FUNDS. Put into something that tracks the market automatically. You should be getting 5% or more I would hope.

The 4% <--> 3% spread is to cover long term downside risk, and we are talking about achieving very small theoretical chances of failure here - 2 in 100 chance over 30 years for the no stocks, 3% example - that would be for a very conservative person, or for someone with a very long time horizon (young). The other thing Trinity assumes is you will take 3% on a great year, but also 3% during a recession - no flexibility in spending - most people can manage risk through changes in consumption, making higher percentages more safe.

I agree on the index funds, big fan myself as a easy risk diversification and very importantly low fee investment tool!

 

[Goshawk]

My overall idea is walking away from a good paying job , regardless of the circumstances, has a lot of fiscal consequences that is evident to see. Even as little as $10000. And then factor in the insurance costs. Hesitation is real for a fiscal reason.

But then your soul may say you only have so much time to live. Better to take the chances then never to have lived.


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[AngryVanMan]

I can understand the allure and safe feeling of a good paying job for sure, that perception of safety can really keep you trapped in a sense. The problem I have with it, and why we are planning to walk away (eventually) from good paying jobs, is those jobs are not really as safe and secure as they may seem!

If we make $50K/year we are sort of like millionaires on paper - but if that fateful Friday comes when your boss says "sorry we got bought out by Shenzen Capital and you are now redundant please collect your things, goodbye!" you instantly went from a millionaire to zip in the span of one conversation without any notice or warning! Ouch! If we had a million in assets, the chance of it disappearing or going completely to zero overnight is very, very, very low.

Now losing your job in a merger or a buyout is not such a big deal if you are marketable and in a good or growing field, but in a recession, employees are quite often completely vulnerable to short term bumps in the road and a lack of hiring. Pensioners too, especially if you are on a private pension! If you don't own the asset(s) you really don't have a lot of security if you consider the long term. Government pensions seem to be a little better as far as less risk of failure, but it's still not a iron clad guarantee.

So two problems to consider, one is you don't "own" anything with a job or a pension, and two, you are not diversified - so if your business specialty is suddenly in low demand or your sector is tanking due to some new technological competition you don't have a good safety net - you are fully exposed to a single market or sector. It's hard to "diversify" employment, at most people could have two or three jobs in different sectors, and usually if you have multiple jobs you have less perks like full benefits and they are lower paying part time gigs.

 

[Goshawk]

My personal issue is I have the perfect government job. But the red tape is killing me slowly. Lol.


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[AngryVanMan]

Oooh yeah, that's a pretty heavy duty security blanket! When and if you shrug that off you'll feel the chill of uncertainty in the air for a few moments I bet... But the freedom you'd win is a pretty good trade in-kind.

 

[NickTheoBennett]

But then your soul may say you only have so much time to live. Better to take the chances then never to have lived.

I think this is an important point.  What if you decide to stay in the high paying job for another 10 years to bank all of that cash and then your health goes to shit or you get hit by a bus in year 9?  

Life is finite and for me, at least, worrying about the future is pointless.  None of us are guaranteed a future.  Each time we step out of our front door could be our last.  I decided a while back that there was no sense in putting off my dreams for some future date that may not even come.  

Are there hardships that come with that? Sure.  Do I still struggle financially sometimes?  Yes, I do.  I make enough on the road to get by though, which almost anyone can do if they put their mind to it.  Most importantly, I'm living my dreams and enjoying the hell out of my life right now.

 

[Every Road Leads Home]

Interesting that you choose $200,000 as the amount. When my father died (1986) there was $37,000 in checking and savings acts. and two Jumbo $100,000 CD's. My Dad was a 'saver', he and Mom lived well but within their means.

Mom lived quite well on the interest from those two CD's and her small social security check. Interest rates then were a lot better than now. She never cashed the CD's, just rolled them over. They were still there 16 years later when she died.

Rob

It never ceases to amaze me on how much the older generations saved.  In the last five years or so, i've been personally involved in settling several estates of older relatives and have talked with friends who have been involved in the same on another half a dozen.  Every one of them, had regular blue collar careers and lived very modestly.  The lowest savings of the 8 couples I had knowledge of was 220k.  One, a barber and mechanic had over 800k saved!  These were all people born in the late teens/to early 30's.  I know with inflation money bought more then, but I think it was more than just that.  People were better with money, better at not buying what they didn't need, and didn't rely on anyone other than themselves for retirement.

 

[Every Road Leads Home]

I think this is an important point.  What if you decide to stay in the high paying job for another 10 years to bank all of that cash and then your health goes to shit or you get hit by a bus in year 9?  

Life is finite and for me, at least, worrying about the future is pointless.  None of us are guaranteed a future.  Each time we step out of our front door could be our last.  I decided a while back that there was no sense in putting off my dreams for some future date that may not even come.  

Are there hardships that come with that? Sure.  Do I still struggle financially sometimes?  Yes, I do.  I make enough on the road to get by though, which almost anyone can do if they put their mind to it.  Most importantly, I'm living my dreams and enjoying the hell out of my life right now.

I can agree with this point of view because you're right you do just never know and I don't believe in working for someone your entire life and never really living to do what you want to do.  However, I think it's a balancing act.  My Dad's best friend always lived with this theory in mind and although he's seen a lot of places and has done lots of things he's now paying the price of never having saved.  At 68 his physical health is deteriorating and he has zero savings and his social security is the minimum as he's never really paid any taxes doing freelance work his entire life.  

So taking a page from everyone I've known over the years, my grandmother's advise of working and saving every cent possible, my dad's friends own life story of the situation you can end up in if you don't worry at all, my Dad's death at 58, who never got to retire, and then my own disability into account i've always had the goal of retiring at 40. Set the goal when I was 20.  The one stipulation i had with that goal was I wasn't content working 40 hours a week those 20 years with two weeks of vacation.  So i've always taking time off for extended trips.  Did a month in Hawaii, three month cross country trip, multiple trips to Florida, and take most summers off.  Became disabled at 31 and am now 36.  Had to dip into my "retirement" account these past few years so not sure i'll make my retire at 40 goal now, but i've always managed to find a happy medium with work/pleasure.  Haven't physically been able to travel the last two years, the last six months i've been able, but have been remodeling my house inside and out and that's taking up all my free time.  Once that's done though, a nice long relaxing road trip is in order!

 

[ArtW]

my Uncle Jack was like that, worked blue collar all his life, lived within his means, bought everything cash (including a new pickup every 5 years or so) and always saved all he could, and when he opened his checkbook to pay for Mom's funeral, he had six figures, in checking!
lord knows what he's really worth, and i'm not asking
I wish i was good with putting money up like that

 

[jonney38]

This is a helpful thread for members who have not done a lot of thinking about their futures. How much can one draw on savings of $200,000 is a challenging question.  The other question is how to save up the $200,000.

It seems like a young person today with a moderately paying job and wanting to pay off student loans or save up for freedom needs to go without either a car or an apartment, i.e., live in the car or get along w/o a car living in a apartment. If one lives in a van for enough years to build up $100,000, he/she could move back into an apartment.  If the $100,000 was put into a conservative stock index fund, in less than ten years odds it would be $200,000.

Time is the friend of young people.

 

[LoupGarou]

The best investment one can make is in themselves.

Going to school and getting a degree will boost income over ones lifetime. But college isn't for everyone. Graduating from a good trade school will boost ones income as well. Another option is to join the military. Learn to drive a tank, then drive heavy machinery when you get out. Become an MP, then get a job in law enforcement. Its worth repeating; The best investment one can make is in themselves.

 

[firebob]

I had a full time job when in high school and kept up good grades. When high school was over my mom told me i had to clean and cook or get a second job. I got a second full time job. I was working 70 to 80 hours a week.
I found i could make more money working in a warehouse pulling food orders (Kroger warehouse). After my first year i was making around $18.50 an hour and working 50 hours a week on slow weeks and 84 hours on good weeks. It was a hard job and i burnt out after 7 years. I lived at home, spent little money, and saved.
I ended up going into manufacturing. When the company started into 6 sigma that's when i know what i wanted to do. I read every book i could about it, went to a bunch of training seminars, and got on a few forums about it. I make around $20 an hour when doing off site projects and anywhere from $35 to $250 an hour depending on what i'm doing when i travel to a company.

I don't know about collage as i see tons of people that can not find jobs after a 4 year degree and end up working at a place making $12 an hour. Last few times i looked at living near a decent city (with jobs) an apartment would run me close to $1,200 a month once you add in internet, power, water, and cell phone.

 

[FortyandLifeToGo]

Going to school and getting a degree will boost income over ones lifetime. 

Tell that to the people w/ MBA's working under me. I only have a HS diploma.

Going to school and getting a degree and ACTUALLY being able to sell yourself in this employers market we're in for a long time to come, is what will boost ones income.

Degrees are great, but they are far from a guarantee to prosperity. Perhaps they were last generation when we were in an employees market, but no more.

 

[Goshawk]

Tell that to the people w/ MBA's working under me. I only have a HS diploma.

Going to school and getting a degree and ACTUALLY being able to sell yourself in this employers market we're in for a long time to come, is what will boost ones income.

Degrees are great, but they are far from a guarantee to prosperity. Perhaps they were last generation when we were in an employees market, but no more.

Depends on the degree. Nursing and engineering yes you will earn more. Business and arts and biology not so much.


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[LoupGarou]

Tell that to the people w/ MBA's working under me. I only have a HS diploma.

Going to school and getting a degree and ACTUALLY being able to sell yourself in this employers market we're in for a long time to come, is what will boost ones income.

Degrees are great, but they are far from a guarantee to prosperity. Perhaps they were last generation when we were in an employees market, but no more.

Having just a HS diploma you'll always be competing with someone who has just a 2 year associates degree. If your resume came across someone's desk along with those of the MBA's working for you, you wouldn't even be considered for an interview.

If you have a good gig now, don't rock the boat. Having any degree is a great way to help sell one's self.