If you had $1 Million in the PP, can you live off of that?

[blackomen]

The question is simple: If you had $1 million in 2012 US dollars in the Permanent Portfolio (with no other investments), would you be comfortable living off of the returns from that?

[Pointedstick]

Absolutely. At 3% safe withdrawal rate, you're looking at a $30,000 per year income. I'm currently supporting a wife and child on a little more than that in the SF bay area. If I moved elsewhere and bought a modest house (< $100,000) with a chunk of the principal, that's a $27,000/year income with no rent or mortgage payments. Easily doable.

[AdamA]

Nope.  I like livin' large. 

[clacy]

I could make it happen with SS if I had to but I'm shooting higher than that certainly. I would like to leave something to my kids also so I'm probably more comfortable with $3+m with a 2% WR

[notsheigetz]

That's a very interesting question because 20-30 years ago if you were a millionaire everyone thought you had it made and were set for life. Not true today. At age 63 I sometimes worry if that is going to be enough when I get there a few years from now (if all goes well which it never does).

Since I'm eligible for SS already (though not drawing yet) I'd be at about the same level as far as spending goes as I am now so I'm pretty sure I could do it if I had to.

[Alanw]

I could not live on $1m with a 3% withdrawal rate plus SS.  Like AdamA, I like to live well.  I am semi-retired (with the emphasis on retired).  My feeling is I can continue to cut back in retirement as I am able to do less and less of the activities that now require a higher percent withdrawal rate. 

[Bean]

I think at a 3% withdraw rate and no mortgage, easily.  However, I will always work, I need purpose to my life.  Retirement is just the opportunity to chose the purpose to my life.  So, $1 Million imo gives you the opportunity to make choices.

[BearBones]

The answer depends, of course, on whether you could do it or whether you could live the life you are used to on it. Because I am averse to debt, and because I can grow much of my own food, I could certainly do it. But I checked no, because I spend more than 30K/yr and I like doing so.

For those who checked yes, do you have any concerns about your lifestyle if you become chronically ill? What about during the last 5-10 years of life when you cannot take care of yourself and you need both health care and daily supportive care? Do you want to count on Medicare, Medicaid, and Social Security? That is my primary concern with the ERE idea which otherwise sounds very enticing.

[dualstow]

Absolutely. At 3% safe withdrawal rate, you're looking at a $30,000 per year income. I'm currently supporting a wife and child on a little more than that in the SF bay area. If I moved elsewhere and bought a modest house (< $100,000) with a chunk of the principal, that's a $27,000/year income with no rent or mortgage payments. Easily doable.

Are you kidding me? If that's true, you're as impressive as that Israeli guy who posted here and then disappeared.
My income is more than that, but even though I live in a much cheaper state, I'm not saving nearly enough.
$5,000 a year to property taxes right off the top. Burglar alarm fees, internet & utilities. I have money left for fun, but ... $30K would only be enough if I were single. Maybe I'm spending inefficiently?  ???
But, I have a friend in SF who earns 100K a year, and so does his wife. They said they don't save that much. (Two kids).
---
And, I realize that this is not about saving, per se, but let's call what I'm saving "back up money." Either way, I'd be way over budget.

[Pointedstick]

For those who checked yes, do you have any concerns about your lifestyle if you become chronically ill? What about during the last 5-10 years of life when you cannot take care of yourself and you need both health care and daily supportive care? Do you want to count on Medicare, Medicaid, and Social Security? That is my primary concern with the ERE idea which otherwise sounds very enticing.

I believe that most chronic conditions are primarily caused or exacerbated by a poor diet, an unhealthy lifestyle, and being surrounded by environmental toxins. I don't worry a huge amount about a chronic illness falling into my lap (knock on wood) and I believe this is made into a bit of a boogeyman these days. Sophie could undoubtedly give you hard numbers, but I would be surprised if a large fraction of the population suffers from the kind of chronic illness that truly requires massively expensive health care. I know lots of people have obesity and heart disease, but these are illnesses that most people can cure themselves with better diet and exercise.

As for the last 5-10 years, that's a loooooooong way off for me, but I intend to treat my children well enough that they'd be willing to take care of me and my wife do so in case we're not able take care of ourselves (and hopefully I will due to a healthy diet, plenty of exercise, and living in a house made entirely of nontoxic materials). And if it's just me, my wife would be the one doing the taking-care-of, ditto if it were her who needed the assistance.

And that's even if Social Security and Medicare explode before then. In the event they're still around, well that just makes it even easier!

[Reub]

Who was that Israeli guy? Was his name Oren Guy? I worked with an Israeli guy named Guy for about a month at a top secret government facility and then he disappeared too!

[Pointedstick]

Absolutely. At 3% safe withdrawal rate, you're looking at a $30,000 per year income. I'm currently supporting a wife and child on a little more than that in the SF bay area. If I moved elsewhere and bought a modest house (< $100,000) with a chunk of the principal, that's a $27,000/year income with no rent or mortgage payments. Easily doable.

Are you kidding me? If that's true, you're as impressive as that Israeli guy who posted here and then disappeared.
My income is more than that, but even though I live in a much cheaper state, I'm not saving nearly enough.
$5,000 a year to property taxes right off the top. Burglar alarm fees, internet & utilities. I have money left for fun, but ... $30K would only be enough if I were single. Maybe I'm spending inefficiently?  ???
But, I have a friend in SF who earns 100K a year, and so does his wife. They said they don't save that much. (Two kids).
---
And, I realize that this is not about saving, per se, but let's call what I'm saving "back up money." Either way, I'd be way over budget.

I'd be happy to share more details! I wish the Israeli had stuck around too; woulda been mighty nice to hear how he did it.

[MachineGhost]

Nope.  I like livin' large.   ;)

What is "livin' large" to you?

[BearBones]

I believe that most chronic conditions are primarily caused or exacerbated by a poor diet, an unhealthy lifestyle, and being surrounded by environmental toxins. I don't worry a huge amount about a chronic illness falling into my lap (knock on wood) and I believe this is made into a bit of a boogeyman these days. Sophie could undoubtedly give you hard numbers, but I would be surprised if a large fraction of the population suffers from the kind of chronic illness that truly requires massively expensive health care. I know lots of people have obesity and heart disease, but these are illnesses that most people can cure themselves with better diet and exercise.

As for the last 5-10 years, that's a loooooooong way off for me, but I intend to treat my children well enough that they'd be willing to take care of me and my wife do so in case we're not able take care of ourselves (and hopefully I will due to a healthy diet, plenty of exercise, and living in a house made entirely of nontoxic materials). And if it's just me, my wife would be the one doing the taking-care-of, ditto if it were her who needed the assistance.

I wonder what HB would say about this. It just seems incongruent with the tenets of this investing philosophy to me. Not wrong (in fact, I'd consider it), just incongruent. Seems the odds of having chronic illness are a hell of a lot higher than a SHTF scenario requiring a Glock or AR-15. And a hell of a lot higher than needing gold overseas. Or wishing that you had bought treasuries directly instead of TLT.

[Pointedstick]

I wonder what HB would say about this. It just seems incongruent with the tenets of this investing philosophy to me. Not wrong (in fact, I'd consider it), just incongruent. Seems the odds of having chronic illness are a hell of a lot higher than a SHTF scenario requiring a Glock or AR-15. And a hell of a lot higher than needing gold overseas. Or wishing that you had bought treasuries directly instead of TLT.

By saving so much of my money, if chronic illness did strike and I was unable to cure it by changing my lifestyle, I'll have a humongous pile of cash to throw at it. I view the money pile as well a the healthy lifestyle as hedges against chronic illness and its effects.

The guns are just for fun. If I really foresaw a scenario requiring the use of firearms, I'd go elsewhere before it hit.

[Kriegsspiel]

Sure I could, that's a hell of a lot of money.

[BearBones]

By saving so much of my money, if chronic illness did strike and I was unable to cure it by changing my lifestyle, I'll have a humongous pile of cash to throw at it. I view the money pile as well a the healthy lifestyle as hedges against chronic illness and its effects.

So, assume you have 1M and you draw 30k/yr, leaving principal untouched. You are not saving money. You are just not drawing down your principal, right?

Second thought: I see lots of folks who go blind in their 60's and 70's due to genetic predisposition (can happen, healthy lifestyle or not). Not completely blind; just can't read or drive. If this happens to you and something also happens to your spouse, would you still able to live on 30k/yr? Remember, you still have decades to live, so you don't want to draw down your principal too much.

[Pointedstick]

I'd be happy to share more details! I wish the Israeli had stuck around too; woulda been mighty nice to hear how he did it.

Numbers posted at http://gyroscopicinvesting.com/forum/ht ... ic.php?t=2

[Pointedstick]

By saving so much of my money, if chronic illness did strike and I was unable to cure it by changing my lifestyle, I'll have a humongous pile of cash to throw at it. I view the money pile as well a the healthy lifestyle as hedges against chronic illness and its effects.

So, assume you have 1M and you draw 30k/yr, leaving principal untouched. You are not saving money. You are just not drawing down your principal, right?

Second thought: I see lots of folks who go blind in their 60's and 70's due to genetic predisposition (can happen, healthy lifestyle or not). Not completely blind; just can't read or drive. If this happens to you and something also happens to your spouse, would you still able to live on 30k/yr? Remember, you still have decades to live, so you don't want to draw down your principal too much.

If I achieved financial independence tomorrow, I would keep earning money, only on my terms. I might stay at my job for a while (it's a really nice job). I would continue my side business, and maybe I would work on-and-off for a poor nonprofit, or become a journeyman welder despite the low pay. I don't plan to sit on my butt and do nothing all day with my automatic income, that's for sure.

Also, for me, 30k/yr would be including savings. With only a small amount of belt-tightening, I could live on that right now with no savings (see http://gyroscopicinvesting.com/forum/ht ... ic.php?t=2), but in this million dollar PP scenario, if I didn't need income from a job, I'd move to a state with a lower cost of living and shave 8k off my housing expenditures. So now I'm spending 22k and saving 8k. As a bonus, the move would also decrease the cost of food, gas, car insurance, and car registration.

As for the old-age blindness, at a certain point, I just agree to stop worrying. A lot of things could happen; I could be hit by a truck tomorrow and become quadriplegic. I could progressively lose all sensation in my hands and need to have them amputated. I could become a vegetable.

In any of these cases, having a million dollars of principal to draw on if need be beats the hell out of most alternative arrangements that I can think of! 

[sophie]

My income is more than that, but even though I live in a much cheaper state, I'm not saving nearly enough.
$5,000 a year to property taxes right off the top.

It's possible, even with the $5K property tax bill.  If you spend some time tracking your expenses for a few months (Mint.com is great for that), you'll really see where your money is going and your spending will start to drop.  Then look carefully at money siphons like the cable bill, monthly subscriptions to this and that, and most of all car usage.  If you can live someplace where you can do most errands on foot or by bike, that'll make a huge difference.

For those who checked yes, do you have any concerns about your lifestyle if you become chronically ill?

I believe that most chronic conditions are primarily caused or exacerbated by a poor diet, an unhealthy lifestyle, and being surrounded by environmental toxins.

Couldn't resist  :)

PointedStick is correct, the most common health problems in the U.S. are related to "metabolic syndrome", i.e. cardiovascular disease, obesity, and type II diabetes caused by plain unhealthy living, plus infectious diseases or other conditions associated with risky behaviors.  Those are fairly easy to avoid.  What BearBones is concerned about here is the key word "most".  There are indeed rare (low single digits for those under 65) conditions that you can't control, and these are why I keep arguing for universal health care even while agreeing with most other libertarian principles.  If you're thinking about having kids while retired you need to consider those risks as well.

You'll of course be carrying private insurance - they might pay, but more likely they'll deny coverage or just straight out cancel your policy.  Medicaid and SSI require you to be spent down to almost nothing, so it is definitely worth doing some research in advance on how you can protect some of your assets.  Short of living in a saner country with universal health care, there's not much you can do except hope nothing bad happens until you're 65.  Assuming Paul Ryan doesn't get his way, in which case all retirees will be living with this threat hanging over them.  

I think this is the Achilles heel of the early retirement community.  The typical American who plans to work until age 65  wouldn't be better off, but they don't have any savings to lose.  They'll just declare bankruptcy, wipe out the credit card and medical debts, keep their house and cars, and move on.  An ERE devotee, on the other hand, will lose his/her nest egg and have to start over.

I guess you'll have to balance out the benefits of one lifestyle over the other.  Maybe losing the nest egg and starting over won't necessarily be worse than having to work straight through to age 65 and then depend on Social Security.

 

[Pointedstick]

Sophie, I would love to hear about your opinion regarding HDHPs for insurance against catastrophic unexpected illness like the kind of thing BearBones is worried about. Assuming you can afford the deductible, do you think this is a realistic option? The FI/ERE community really seems to be enamored of them. There's also the side bonus of being to implement a PP in your HSA.

[sophie]

Definitely a fan of HDHPs.  If you read the fine print on standard policies, the copays and deductibles aren't that much lower, and maximum out of pocket costs are very similar.  I don't see the advantage of a standard policy unless you know in advance that you'll incur medical expenses greater than the difference in premiums.  You might also count the tax savings on the amount of your annual HSA contribution plus investment earnings as part of the premium difference.

The biggest problem with private insurance is common to both types of policies:  you can't be sure they'll pay what they're supposed to.  It's not really insurance in that sense.  But it's the only game in town.

What HSA did you set up, to allow for a full PP?  I thought HSA Bank would work, since it allows the TD Ameritrade option.

[Pointedstick]

I actually don't have an HDHP right now; my company's cadillac insurance plan is really nice, so I pay for that. I get full Kaiser coverage for myself and my whole family for $250 a month. We're really satisfied with it. The total out-of-pocket cost for my wife's recent childbirth was $200!

If I did have an HDHP, HSA bank sounds great since I already have a full PP with TDAmeritrade so I know it can work.

[KevinW]

My wife and I could make it on $30k/year plus a paid-off residence. So a little more than $1M, but that's for two people and a dog.

[AgAuMoney]

I voted no.  I really wish I could but it simply isn't feasible at present.

Most months are around $4500 but my and wife's life insurance, homeowner insurance, auto insurance (incl two teenage boys, each of which cost more to insure than the total for the wife and I), is paid annually march-june and property taxes are due june and december.  Those are expensive months so I have to set aside the rest of the year to cover those lumpy expenditures.

And then it seems like there is always something...  I'm planning for a new minivan in the near future.  The existing one is a 2004 and has about 125,000 miles.  It does about 15,000 per year what with shuttling kids ages 3 to 19, shared school carpool with the neighbors, plus a couple of family trips.  (OK, she doesn't drive the 19yr old much any more, but college tuition isn't cheap even with him paying most of the rest himself.)  My truck will need replacing at some point.  It is a 1996 (but has less miles than the van).  The house needs repainted and a new roof probably next summer.

And did I mention how much teenage boys eat?  I remember being able to eat like that...

So no.  $1,000,000 doesn't come close, and even if it were "close" I have to have some cushion beyond the "this should work" level to feel comfortable.