I'd feel more financially independent with a cast iron $5,000 of passive income per month than I would with $1,000,000 in the bank.

Obviously the lump sum would probably be able to yield that sort of money in interest, but the interesting thing is that it should be much easier to secure the monthly passive income than it would the lump sum.

It would take you well over a million in assets to generate 5000 dollars of passive income.

And the higher the payout the less passive/safe it becomes (i.e., CD > Real state > businesses > web apps > ???)

Not really. A hot mobile app can sell for that much, and doesn't require anything more than a laptop and some time.

But it wont last a lifetime. Buying a specific game for its returns would have a serious discount compared to almost any conventional asset.

And "time" is work. Building a house also requires just some materials and some time :). Even real state needs management (things break, rents have to be collected, risk of lawsuits, tenants that dont pay).

I don't know that this is as cast iron as you think. It really depends on what the market does, but I would rather have a large lump sum in a diversified investment than a fixed monthly income. Generally investments return at higher rates in times of inflation where a fixed monthly income will only lose value more quickly.

That said, $5,000 a month is $60K a year, or 6% of $1,000,000. I'd probably take the $5k also since it's a reasonable (and 100% guaranteed) rate of return on the lump sum. I wouldn't feel much safer because it's "cast iron" -- it could still be worthless in 30 years. It's just a slightly better deal in your example.

In today's market, $1M gets you ~$2000/month.

Well managed mutual funds / etfs yield 8 - 12% per year long term.

They don't. They yield that in good years, and negative that in bad years. I worked at a fund that managed $2bn with no leverage, and our limited partners were extatic that we were able to get 15% net of fees in 2008.

The long term 7% average often quoted isn't if you average the last 15 years rather than the last 150.

To be fair, 2008 was the year the current financial meltdown started, and stocks were doing pretty poorly even in the run-up to that.

From a quick check of Yahoo Finance, it looks like the Dow dropped from 14k in July 2007 to 8k in January 2009. Sure, a fund is meant to outperform the market as a whole, and sure, most of them don't manage that for obvious reasons, but when the market plunges like that no-one's going to be safe.

> To be fair, 2008 was the year the current financial meltdown started

No, that's not being fair at all. That's being irresponsibly optimistic. Let's say it is now 2005, you have a $1,000,000. You follow cpursley's advice, and put it in a well managed ETF/mutual fund, expecting to get 8%-12%. You get that for the first year and second year - and then you get -50% (which, if you look at your starting sum is "just" -40%). Now, you need 8 good years just to go back to where you started.

2005 is unfair? Go back to 1999, and check yourself at the end of 2001.

1999 is unfair? Go back to 1986.

My point being, the "common knowledge" 150 years long term average of 7%/year is irrelevant, for two reasons:

a) market dynamics have changed significantly in the last 10 years or so; the 140 years before that aren't as informative as the last 10 - and the last 10 are abysmal.

b) even if the 150 year statistics were relevant - what you care about is your 10-30 year horizon. There are just too many unlucky events during those 150 years that you are very likely to have a 30-50% loss in one of the years of your 10-30 year horizon -- which might take you 50 years (that you don't have) to average out and come out on top.

Anyone who really believes the 8%-12% numbers can borrow at <6%, invest at >8%, leverage ad absurdum and basically print money. Which, incidentally, is the empirical proof that 8% is not attainable.

(P.S - CALPERS assumed a modest 8% return. That's why they're now only 50% or so funded http://www.calwatchdog.com/2012/03/22/calpers-funding-might-... . If you can get them 8%, they'll give you $20M/year in salary. Really.)

Yes, but with risk. Index stock and bond funds yield in that range, with much less volatility. I've been using them since 2008 and have gotten an average of over 10% annually. I suggest the book I used, _The Only Guide to a Winning Investment Strategy You'll Ever Need_, by Larry Swedroe (endorsed by John C. Bogle, founder of the Vanguard Group). Cheesy title, but it's ideas are supported by lots of data.

A 5% withdrawal rate is a lot more comfortable, as it allows for some capital appreciation to handle inflation, and gives you more runway to weather market downturns. A quote about the efficient market hypothesis is relevant here - markets may be rational in the long term, but they can remane irrational longer than you can remain solvent.

Good point. If you valued a residual income stream of $5,000 at 10% per year, that would be the equivalent of having $600,000 in the bank at the same rate of return. That buys nice lifestyle in most places in the world.

$5,000,000 with a rather conservative investment strategy yielding 5%/year would give you 250k annually to play with without impacting the principal.

About 7% is the market average I often hear quoted, but I use the number 4% for guaranteed income. I know you can buy insurance annuities that guarantee about 3% and average 4%.

So, I would calculate 200k on 5Million. Planning to actually live off your interest means having to be super conservative, because, if, for instance, your first year is one of the bad years, your calculations will end up way off. Losing 20 or 30% and having to actually eat some principle would hurt a lot. That's why some people end up putting off retirement in bad years and get very conservative with investments near retirement.

So, I suppose someone could live off about 1 million at 4%, unless they have a medical emergency, but with minor inflation, I think you'd need to grow your principal to maintain the same level.

In addition to what others have said about 5% being hard to achieve conservatively, you have to factor in inflation if you want your principal to remain intact in a meaningful sense. Let's call inflation 3% (it's lower now but there's no obvious reason to assume that'll continue) and you're down to 100k annually in real (inflation-adjusted) terms.

Getting 5% (real) return per year isn't really "rather conservative."

Please share some details on this rather conservative 5%/year investment strategy. I'm very interested.

It's hard to get even 3% these days for that sum.

I've kinda had the number $4,000,000 in mind as my "independent" number. If I could walk away from a transaction with 4MM (net), I figure that would be enough to pay off whatever trivial debt I have now, buy a nice house and a nice car, do a few things for close family and friends, and leave enough to do some travel and exploring while living a reasonable (but not lavish) lifestyle.

And, if I then decided to do another startup at some point, I'd have a little bit of seed capital already handy.

That's not quite what "independent" means. It means you'll be able to live off the interest, and not have to work for money any more. If you spend the principle, then you can't make interest.

Yes, that's exactly what I'm saying. If I had $4MM, I'd spend a small chunk up-front, and then I'd have enough left such that - if I invested wisely - I would most likely not have to work again, while being able to do some traveling. I'm not talking about exotic vacations to Monte Carlo to go gamble away $500,000 a night or anything, mind you. I'm talking about flying to $SOMEWHERE_COOL, and spend a week or two mostly lying on the beach reading and people watching.

And at worst, that would be enough that if I did want to work again, I could be extremely picky about what kind of work I'd take on, and when, and where. That's a kind of independence in its own right.

You also have to keep in mind that I'm an older guy (relative to this crowd) so barring major breakthroughs in medical technology, I don't have to stretch my money out as long as somebody who's in their 20's or whatever.

500,000 invested intelligently would give you a yield where you could expect a decent income to live upon, so if you are clever enough that should be enough. Plus it would give you the freedom you wish for, plus a little incentive to do "something" as its not a crazy amount of money....

Incidentally, that's the number George Soros had in mind when he decided to go into finance to support his dream of being a philosopher. He ended up making a little more than that, however.

If its good enough for George Soros, is good enough for me :-)

500k is the smallest number I've seen for this calculation. What kind of investment are you thinking?

There are some FTSE 100 companies with a 7% dividend, if that's too risky for you, buy a fund.... Have a look at http://www.topyields.nl/ also....

500k at 7% per year (common number used for the growth of the market as a whole, and thus the average growth of index funds) means $35k/year, not an unreasonable salary to live on.

You need to subtract ~3% inflation from that number every year to reach "spending power." Therefore, you're only receiving 20k in spending power and allowing nothing for value appreciation. If you can live on that, more power to you though.

No to mention there's no such thing as low risk 7% returns. Maybe the S&P historically did that for a 15 year period here and there, but anyone telling you it's something you can plan on is either lying or a fool.

That's highly dependent upon where you live though... but not an unreasonable number for a single person. For me, since I have a family and currently live in CA, the number has to be significantly higher than 500K.

A 7% average return across 50 years is very different from a 7% return year in, year out, because the former fails to account for generational risk.

You don't have the option of just withdrawing $0 on your "down" years.

p.s. if you can find a risk free 7% return on 500k, open a retirement planning business, become very wealthy.

My family of 4 ( 2 adults, 2 kids) would spend about £24,000 per year, that's Northern Ireland, living fairly well on that too IMHO... I know this because I am fairly analytical about our finances since the two kids arrived, as we had to sacrifice one wage ( stay at home Mom )!

Even assuming that 35k would be satisfying, that doesn't give you much headroom if something goes wrong.

Fun fact: 36% of Americans make less than $35k per year.

Oh yes, you can live on it. The question is if you can be satisfied with it.

Well, you can live on it assuming that unexpected issues do not arise, plunge you into medical debt and render you unable to receive the best care you might otherwise be able to afford. That can cut short your "living on 35k a year" plan... A sad story many of those 35k/year Americans can likely talk about.

Given the option of retiring now and living off of 35k/year for the rest of my life, or continuing to work for several more years, I am going to continue working.

If my sole assets were a moneypile of $500,000 from which $35,000 were extracted for living expenses per year ... probably not.

If I had to have a rough guess, my minimum retirement target is $300,000-600,000 of personal property, plus a moneypile or otherwise low/no-work income (if I were working an insignificant number of hours at something I could stop anytime but enjoyed doing, I would still consider myself retired in the conventional sense) yielding between $20,000 and $40,000 / year.

So, using the 7% figure from the GP, that puts my target retirement assets at around $600,000-1,200,000.

Yes, and that's my current goal by 40 (34 now). 35K/year might not sound like much, but it is a good chunk of money when you don't have debt. Plus, it doesn't mean you can then go on a start another business for the hell of it.

I actually thought he wrote $5 million and was nodding my head until I saw your comment. Oops!

Pessimistically, I know I can get 1% interest and easily live off $50,000 / year. Obviously, you would hope to invest in a much better vehicle, figure on paying taxes on your investment income, and hope you stay ahead of inflation.

Based on the tables in http://en.wikipedia.org/wiki/Cost_of_raising_a_child for the US. I estimated that the cost of raising 2.5 children for 22 years (up to 18 plus college) as nearly $1.4 million. This may be low balling it if you invest heavily in extra educational and extra-circular activities for your children. So I said between 5-10 million as I would also need some margin for me, my wife and retirement. However, I didn't do any calculations on what cost of living expenses could be like in the future.

1.4e6/22 = 63K/yr. Median family household income per census $53K/yr, presumably before taxes. Something doesn't add up. Nothing wrong with spending a little extra of course, but this seems off.

I looked at the wiki articles and I'm not seeing the 1.4 million spec. Are you sure you didn't make an arithmetic error and calculate 25 kids instead of 2.5 kids? I'd need psychological counseling to handle 25 kids. I never thought schoolteachers earned their pay until I had kids of my own.

The wikipedia tables don't make much sense to me. I'm in the 2 kids and dual parent and somewhat into the "More than $102,870" category (though not too far into it) and I have about a decade of experience budgeting for the kids and I'm mystified how I am supposedly spending $6K every year transporting my kids. That would be like 1500 gallons of gas or 67500 miles per year? My wife bought a relatively loaded Prius in '05 and its getting a bit worn out after 8 years of extremely heavy use so that superficially seems expensive, but she traded in a fast little 2-door and would presumably have dropped the same cash on an equally expensive, yet smaller/faster car if we didn't have kids. So the cost of transport is the extra gas she burns going to daycare? Or little league? Its just not that much. The food estimate seems about right, we eat very well, it is probably about $2K/month maybe $3K/month for the whole family. Clothing cost is more like zero for little kids, assuming you have Grandma and Auntie in the area. Grandma especially seems to feel unable to visit without some kind of textile product in hand. When the teen years hit and its not cool to wear something grannie picked out, I'm sure that cost will rise from current basically $0. The housing cost is fairly mystifying as it in no way approaches the cost of paying for the house, then again without kids we'd just have a fancier apartment for the same money so much like the car, the cost of kids is zero. Health is a bit high as we have a household deductible, unless they're counting bandaids or something, I believe its exactly $1500/x where x is the number of family members, I guess. Child care is absolutely ridiculous, its more like $10K until grade school and then it drops to practically nothing maybe $3K to cover summers and camp and stuff. Misc is hilarous $2K total per year yeah maybe for just the ITMS or cable TV or something LOL. That's probably more like $10K per kid.

Anyway thats my experience of the hilarious wikipedia table based on a decade of actual experience budgeting.

Nor did you calculate any interest.

Nope.

5 million. Invested at a modest, low-risk 2% (which you used to be able to get from a standard savings account), that gives you $100,000/year: quite a decent baseline.

At 2% you can just spend the capital and you'll be good for 50 years. Insert 13 year old HN readers looking horrified and 50 year old HN readers looking rather optimistic.

It gets hard to spend lots of money, especially if you are into variety. Yes living 1st class on a cruise ship and touring the world would be expensive, but I'd pretty much sick of it for the rest of my life after about six months. Then its on to camp in each national park for a month, which would take a pretty freaking long time and cost practically nothing other than time. On to the 30ft cruising sailboat until I get sick of that, again not terribly expensive. Maybe tour Europe, rather expensive until I get sick of that.

My grandparents ran out of things they wanted to do before they ran out of wealth and health, which is the best way to go. They eventually settled down in a cottage on a rural lake and just enjoyed life. I'd probably end up about the same place.

I'm thinking much the same, but even though maximum lifespan isn't moving very much, average lifespan is trending upward. You never know, and so it's not a bad idea, if you can swing it, to have a strategy that doesn't depend on time.

Plus, when the time comes and you no longer need it, you've got something to pass on to your kids and/or give your favorite cause a nice big shot in the arm. Not a bad way to go, really.

Standard savings accounts usually give 0.5-0.85% for the first 200k or so. More than that, you should look at other investment strategies than standard savings accounts.

I said "used to" for a reason. I picked 2% and the savings account thing just as common points of reference. You're quite right that you need other investment strategies, especially nowadays, but as investment strategies go, 2% remains pretty darn modest and low-risk.

1 - 500k

Pretty much all I'd have to spend money on would be food, taxes and internet, maybe a computer every half decade to a decade and a few books here and there. Buy a couple of flats or something to set me up with some trickle income to cover the necessities and... yeah. I can see being able to go off and work on the projects I'm interested in with a few hundred k in hand.

I assumed you meant total net worth, not increment on existing net worth. Although the last option made that somewhat unclear.

I mean the "cash" at hand. See my edited title description

I would say this depends on what your aspirations are as a consumer and member of the economy (and apologies if this is a tangent, feel free to ignore).

The explicit assumption in the OP is that you achieve this freedom though some form of large payoff. But how about achieving this freedom through a ratio, rather than a lump sum.

For me, this is the ratio of how many days I need to work to earn a month's rent (currently 0.5 days for 1 months rent). This figure embodies both my earning power, and how much I need the money.

I could become 'freer' (from work) by downgrading my living standards, or I could find a way to earn more per day. But, importantly, working more will not change this ratio.

Of course, if learning to fly an airplane is your thing, then you could substitute rent for flying lessons.

I have had a similar calculation in mind as others here: $4 million invested at a very conservative 2.5% return gives you 100k pre-tax to live on. Any returns above that will just grow the nest egg. That's pretty nice, and happens to be my retirement target.

When thinking about a startup exit, lottery win, or finding out that I'm a long lost heir to a fortune though, I'd like to be able to buy a house and start or buy a small local business (restaurant, cafe, club, etc.) with the $4M left over. In SF that probably puts me in the $6-8M range.

"start or buy a small local business (restaurant, cafe, club, etc.)"

Looking at the life experience of local pro athletes, the most likely way to retire with a very small fortune while owning a small business is to start it with a very large fortune. There's actually a business model oriented around taking money from athletes and home equity loan cash out refinancer types, then buying the asset back for pennies on the dollar at the bankruptcy to resell back to the next sucker with some money. At least in the cash businesses, you can never undercut the people who are a front for laundering money, like the recently busted local candle (and weed) store.

Also the experience seems to bifurcate where the owners are either stuck working 80 hour weeks, or they hire someone else to be the general manager in which case owning the business but having nothing to do with day to day operations has all the interest and excitement of buying stock online.

Yeah, but I'm less interested in the type of place that's usually associated with pro-athletes and more into neighborhood / family type places. When I say "club" I really mean music venue.

I don't really think you need enough so that you never need to work again to consider yourself financially independent. If you have enough to live for a year or two, you can be pretty independent. Yes, you'll have to work and earn some more money, but you aren't dependent on that biweekly paycheck, so you can be somewhat selective, and do whatever you want, within reason.

Also, if you are into minimalism, you can really live on quite a small amount of money, so that can reduce the amount of work you have to do even further.

Ah, F-You money. A nice house in the Bay Area is going to be expensive - either in mortgage payments or the opportunity cost of having $1m+ capital tied up in a house. Plus property taxes. And really, $1m is that much, especially when you consider good school districts.

If you're willing to relocate someplace cheaper, the number is going to be a lot lower.

It's really very similar to retirement planning. A 5% withdrawal rate should be sufficient to preserve principal, so that's a good starting point for the necessary math.

I wonder how the results of this poll break down for non-parents vs. parents (or those actively planning to have kids). I'm guessing the latter have significantly higher targets.

Rule of thumb: not too aggressive financial investment will make 4% on average. As long as the FED continues with "free money for all", the figures will remain lower. Grab your excel and simulate your situation starting from the sum of your fixed and varying costs. Do not forget anything (retirement plan, kids, etc)

Do not trust people telling you you can make more usually 8% or plus. They are only employees who want to sell something or have an interest making you believe it is the case. The 8% is only a figure that our parents had. These days are over. Average is 4% (which also means that some years you will be negative!)

>It is not necessarily a number to retire, but a number that will give you the financial freedom to do whatever you want.

For how long? If I were to somehow come across 3-5 years salary, I would probably be tempted to quit my job and work on something else for a while.

For me, it is 10M USD considering where I live, what I do and what my interests are.

Wow, may I ask what expensive interest / neighbourhood you have? Just curious ...

I live in the US (expensive east coast). Here, you get average of 1% yield on your bank which is considered high yield btw. So 1% per year before taxes is 100,000. Thats a min. pre-tax that I need.

Note that I did not mention anything about investing/markets etc. because those are not guaranteed.

If you ever have a decent amount of money to put away please talk to a reputable financial planner.

Also commenting on your "note" that you added on. Investments aren't guaranteed... but putting all that money in a bank isn't guaranteed either. FDIC only insures so much.

I know. I personally suck at investments and I am sure I can do better in general. i feel like I can make money but no idea how to grow it. Def. need financial advising but not quite there yet :).

30-year Treasury yield is about 3.1%

My wife once told me that $20m was her "fuck you" number. Handbags man, expensive habit.

"How much is enough?" "It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another."

Does it make sense that the scale jumps 100% at one step (500K - 1M), then 500% at the next step (1M - 5M) and then goes back to 100% for the step after (5M - 10M)?

Do I have to take care of housing myself with this money?

Do you currently take care of your housing costs with something other than money?

Kind of, but I guess what you are trying to convey is "yes", which means the $<=500k option goes from being "comfortable" to being "a negative amount if I want to continue living in London".

To put it into perspective here's Felix Dennis's wealth classification table:

  £1m-£2m:         The comfortable poor
  £2m-£5m:         The comfortably off
  £5m-£15m:        The comfortably wealthy
  £15m-£40m:       The lesser rich
  £40m-£75m:       The comfortably rich
  £75m-£100m:      The rich
  £100m-£200m:     The seriously rich
  £200m-£400m:     The truly rich
  £400m-£999m:     The filthy rich
  More than £999m: The super rich

http://www.businesswings.co.uk/articles/Felix-Dennis

Felix Dennis is trolling you.

To be clear, this table is considering those with £1m-£2m in assets to be the poor?

I read his book and if I got it right, he mean the poor rich.

More that, if you were to never work again (and factoring in some reasonable age starting point) you would be able to live a lifestyle that matches someone who has a lower paying job.

$2M/30years => $66k/y.

What percentage of people have over $1,000,000 worth of wealth? I've lived in NYC all my life and I would guess for most people their biggest source of wealth is nothing or their house, generally worth under a million.

House in NYC under a million?

Well, most people are serfs, and poor. I don't think you can define "rich" as a population proportion. In a lot of places in the world 100% of people are poor. I don't think it's unreasonable at all to say people with less than $4 million USD are poor. Anything less than that and you're probably still well stuck in the rat race. One catastrophe away from ruin.