this post was submitted on 08 Sep 2023
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Showerthoughts
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You're ignoring that your balance will increase over time through interest and stock gains. I believe this is historically around 8%, exceeding inflation.
No, you're spending that increase to live. You leave the 1 million to generate gains and take off the top. In ten years that 1 million will have less purchasing power than before.
No, you always take less than the increase. This is why most FIRE plans revolve around living on 3-4%. The gain percentage minus withdrawal percentage should ideally leave you with a number greater than the losses due to inflation.
To add to this, you are also expected to withdraw more year after year along with inflation. If your safe withdrawal rate allows you to withdraw $40,000 on year one, you can withdraw $40,800 the second year (assuming 2% inflation). Dispite this increase, your portfolio should still grow. If you are withdrawing all of your gains, you are setting yourself up for failure.
My scenario focuses solely on interest income for simplicity's sake. There are other investments one can make to increase your gain, but such investments are more volatile. You could end up doing quite well and increasing your nut, or you could invest in the wrong stock and lose a large chunk of it.
I also left out other considerations for simplicity's sake like the fact that most retirees are couples and past the age of 65 the odds that one of you will require significant medical treatment increases every year. Some elderly couples are getting divorced so as to only bankrupt one of them when this happens.
Life is messy and $1M will only work in the best case scenario. It's just not realistic. By allowing people to think that $1M is enough, you're actually leading them into ruin. We need to be aware that retirement is becoming a dicey proposition and we should be taking steps to ensure that the elderly will be provided for in the coming decades, especially since a large number of millennials won't have children to make sure they are properly cared for.
Source: I worked in the elder care industry in Florida for a decade. I saw what happens when people run out of money.
That's a long way of saying your "best-case scenario" is actually a worst-case scenario.
Getting older means losing mobility, dexterity, and mental acuity. It's not a question of if you will need assistance, it's a question of when you will need it. Most retirees go on living independently for as long as possible until an event. Sometimes they set the kitchen on fire, sometimes they get in the car and get lost, and most often they fall and break a hip. Once they hit this event it changes their life dramatically.
The best case scenario is that you will have enough money to afford 24/7 care after your event. Idk what the current rates are, but 10 years ago it was $25/hr for CNAs and $50/hr for RNs. This means that the cost to have a CNA care for you around the clock was over $200,000/yr. This doesn't include the additional costs of food, shelter, utilities, insurance. I'm sure that things haven't gotten any cheaper.
The best case scenario is that your $1M nut grows enough to cover all your expenses before you die. Every other scenario means you will run out of money. So it's really a question of how long you intend to live.
For what it's worth, I'm not the one downvoting you. I appreciate your perspective. However, if nobody can retire without the ability to pay $200k/year, very few people will ever be retiring. I believe working with patients in these terrible situations, has created a form of selection bias were you don't see the successful retirements. Not everyone needs a Fat FIRE, and I would prefer to live frugally and retire early vs working away my life until a regular retirement age.