Let’s start with the basics. Give or take, a nest egg of $1,000,000 will allow you to generate about $40,000 in income for at least thirty years or that’s what many simulations indicate.
Let’s accept that as fact. Can you live in retirement with a gross or possibly tax-free income of $40,000 plus any Social Security benefits?
Your answer may be yes, but beware this is a trick question.
Let’s say you are age 35 and earn $40,000 and expect to retire in thirty years at age 65. If your income increases at 3% per year, at 65 your annual income will be $97,090. Now what you really need is not $1,000,000 but $2,427,250 in future dollars.
Be careful when you read those articles throwing around lot’s of numbers that either make retirement planning too simple or two scary.
I used to present at my firm’s 401k enrollment meetings for new hires. I titled my session: “Will you be a 401k middle class millionnaire, someday?” The session incorporated a “magic” show. I had a lot of fun, and the new hires got a free lunch.
My favorite movie scene about getting rich quick was the “trapezoidal” (pyramid) scene with Richard Pryor in “Bustin Loose”.
And, my favorite comedy skit was Steve Martin in You can be a millionaire and never pay taxes. https://www.google.com/search?q=steve+martin+how+to+become+a+millionaire&oq=steve+martin+how+to+become+a+millionaire&aqs=chrome..69i57.7151j0j7&sourceid=chrome&ie=UTF-8#kpvalbx=_ABT7YM-7ArTj9APQnaK4Cw15
An “income” stage investor may want to review the historical returns and income generating capacity of Large cap “value” stocks. Research shows that a portfolio / index representative of the Large cap “value” universe has sustained a “7%” inflation adj annual withdrawal rate ( “sale of shares”, dividends reinvested ), accompanied by terminal portfolio growth, over seventy one rolling 20 year periods since 1932 ( link at bottom ). That’s pretty good and represents a much longer historical sample than the sample size underlying the popular “60/40” or Target Date fund products ( the generational bull market in Treasury assets starting in 1983, with a high starting interest rate providing a tailwind of total return for 35 plus years albeit gradually diminishing by the very nature of falling yields towards “0%” ). And with the “60%” allocation ( or even 70% for older boomer aged retirees ) of “60/40” equation representing duration/Treasury assets, recent yields have threatened the 1% level again. When these products were rolled out two decades ago, a “4%” annual income withdrawal was feasible at prevailing rates. No one in the industry would have dreamed that yields would have ever fallen to “0%”. Rates this low, accompanied by an increasing % allocation into duration assets through the “glidepath”, won’t sustain a “4%”, or even “3%” for that matter, annual income withdrawal, unless the smaller equity allocation of the portfolio mix produces a MUCH higher return in order to “make up” for the return / coupon yield deficit produced by the duration portion.
I recall Bob Brinker in the 80s, I believe, preaching “critical mass”. I swear I heard him suggest a million was the goal then, to live off earnings forever.