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.
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 )!
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.
