Ask HN: I have $1M cash in my bank. How can I stretch it so I can retire?
I’ve worked hard in the tech industry for the last eight years and have saved up a nest egg. In addition to that I recently sold my house which means I literally have $1M in my bank account right now.
For so many on here that is not too much money, but for me and my bg, I feel more fortunate than I ever could have dreamed of being.
I like my job, but it’s stressful. My dream is to use this nest egg to make investments that will grow the capital and allow me to live off of it.
Am I jumping the gun? Is $1M not enough? I’m sure I could get way more money if I endure more years of my job, but I so want a break. What are the chances of taking $1M and investing so that I don’t have to work anymore?
155 comments
[ 3.1 ms ] story [ 203 ms ] threadI want to stretch the $1m as long and as far as I possibly can. Looking for tips/suggestions on how I might do that.
An average SpaceX rocket launch costs over $50m and I'm telling you, if I got $49m more I would launch one for fun, then die broke with a smile on my face and a rocket emoji I pre-etched on my grave.
$1m invested correctly will net you $40k/yr, before taxes, in perpetual income. So you’ll need more than $2.5m to live off at your expected annual expenses of $100k.
So $1M nets you $40k, before tax or around $33k after tax (assuming no-state tax state of residence).
That's $3k per month free and clear, which would be doable a single person in a LCOL area, even having to pony up for a high-deductible health insurance plan. You'd have almost nothing left at the end of the month, but that's the plan?
Edit: Good point below - most/all of the returns will be capital gains and the rate is 0% under $40k (which should be easy to keep below, since you'd be selling a percentage of initial investment + returns)
If you don't want to live on $40K/year, another option to consider is getting a lower stress job at a lower salary, while withdrawing $40K/year.
WSB is a terrible idea for someone looking for financial security and next steps.
This strategy is my only hope to retire early. At least OP is making so much money that he could retire in early even without investing. I'm also 8 years in and have less than a quarter of that (and I live frugally).
Mutual funds on average the last couple years have returns of 13-14%, if that keeps up You could probably grow you million and draw enough to live off.
If the world goes into a depression, cash will be king, deflation will kick in and prices will drop. So your million will go a lot further.
If things cool off a bit and go back to a historical marketplace of 6% to 8% ROI, I think You have a way to go yet if You really want to not work at all. Of course if You are planning on checking out in the next 20 years You probably have enough.
It is a neat feeling when You see all that money in the bank though isn't it?
I do recommend immediately investing that money though. Sitting in a bank account does nothing for you.
You can live in a coastal/touristy area and live well.
I spent three years variously traveling, working low-wage jobs, taking classes, spending about 10K/yr (which was less than what I was making on my investments). I'm back in software now and maybe a bit behind my peers who stayed in, but happy I did what I did.
I anticipate most people who "retire" in their 30's end up coming back to work at some point. Not for money necessarily, but because we find ourselves missing the feeling of being productive.
- How much per year do you want in your pocket? - Where do you want to live? (think climate, cost of living) - What will you do with your time? (take a year or two off, you may get bored) - How much will your retirement activities cost?
You get the idea.
Also consider part time remote work. If you're skilled I'm sure you can find a company that you can put in 10 hours per week at and it doesn't even have to be programming.
Do you have real world experience with that? I found on the contrary that the more skilled I get, the less companies are willing to make me work only part time. Which is too bad, because part time high paid job is really the best of both world.
Part time jobs in restaurants is what allowed me to learn programming when I was in early adult life, and I crave for as much time to learn new things, nowadays. Sadly, while people I work for are willing to negotiate insane amount of money (in my opinion), they are not to concede the slightest amount of time.
Rent and pay 6-12 months in advance, try to get a discount.
Give yourself a 1 year budget and make it on the low end.
Everytime Bitcoin doubles take out 10% (Rake Method).
Wait one year and re-evaluate.
> I like my job, but it’s stressful.
> Am I jumping the gun?
I think so. I'd work on reducing stress on the job. If there are specific causes, a decent manager should be able to help. If that doesn't work, try something else! If you've worked in tech for 8 years, you're pretty hireable, so there are lots of other opportunities. Part-time work is also an option.
It's also not the best time to retire like that. Interest rates are historically low, stock prices are nominally high, the way covid plays out is up in the air, and the impact of monetary and fiscal policy on the value of the dollar isn't clear.
$1M really isn't a lot to retire on especially if you're south of 35. You're best bet is to hire someone to give you professional advice on how to invest the money and keep working.
The last thing you want is to try and retire now, run out of cash and then have to try and get back into an incredibly fast moving industry where ageism is real. You run out of money in your 40's and its going to be hell on wheels trying and get back into the industry.
Compare that with reducing your stress, staying the course and continuing to add to what you have saved while growing the money you already have. Walking away when you're 100% sure you can run the clock out would be a wiser move than trying to do it now when you're young and borderline don't have enough in the bank to do it.
Patience is the better move at this point.
On the other side if you moved to tech from somewhere else and you are actually older, the numbers start to become more reasonable.
You also said you recently sold a house, but what is your living situation now? What do you want it to be? Having $1M in the bank doesn't mean much if next year you need to turn around and buy another house for $1M
Your 6% might only give you 48k after tax.
Subtract 2% for inflation and it’s only 28k per year you get to live off in perpetuity.
You can follow one of two stock-based strategies:
1. Invest 100% in an S&P500 index fund, returning 8%/year [1] and growing to $11M in 30 years [2], minus withdrawals.
2. Invest 100% in bonds, or a high yield savings account, yielding 0.6%/year [3] and growing to $1.2M in 30 years [2], minus withdrawals.
You want to do as much of (1) as possible, while doing (2) as little as possible in order to pay for things (mortgage, rent, food, kids, etc.). You can't rely on (1) for day to day expenses, since stock returns are super variable (recessions, depressions are inevitable over time).
To balance the two, you can think of it as: consider retirement when MIN(1, 2) > expenses. The exact mix of 1 and 2 depends on your personal risk tolerance.
EDIT: Numbers for (2) were off, as suggested by multiple people in the comments. Updated.
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[1] https://www.investopedia.com/ask/answers/042415/what-average...
[2] Calculate this with an online interest calculator (being sure to re-invest earnings), or remember the rule of 7 (your stocks will double in value every seven years).
[3] https://www.bankrate.com/banking/savings/best-high-yield-int...
Withdrawals change these numbers tremendously
https://news.ycombinator.com/item?id=24683297
Diversity is good. You don't want to put all your eggs in one basket, and risk it all.
Not high.
I'm going to guess, based on the fact that you have 8 years in the tech industry, that you are probably in your late 20s or early 30s. Given modern life expectancy, that means you could be alive for at least 60 more years.
In order to make 1 million dollars last that long you are going to need to take on significant investment risk. "Normal" investment risk, e.g. from index funds, is not going to grow the money enough -- if you withdraw enough every year to live on, the money will run out. When it runs out, you will probably have been out of the job market for decades, and therefore unemployable.
If you are living on a fixed income, predictability of expenses is key. Home ownership is one way to control your expenses -- get a fixed-rate mortgage and your monthly cost of living will be fairly predictable. Property tax and utility costs might fluctuate, but in most places the mortgage will be the largest cost, and you can lock that in at a known monthly amount. However, you just sold your house. If you are planning to rent, you won't have the predictability that you need in order to plan for future expenses. If you are planning to buy again, that $1 million is going to shrink by the amount that you pay for your next home.
You probably can't retire on $1 million. But you can take some time off, like a sabbatical. If you aren't happy in your work, you can look for another job, and having that money will let you coast for a while until you find it.
(The details are a bit more complicated, and you might want to choose a smaller percentage like 3.5% or 3% if you are retiring at a younger age.)
Dividend + buyback yield is around 4% on s&p 500. So you could reasonably safely take out 4% / year (assuming you dividend reinvest).
Spending is the real issue. If you can get your spending down you could actually pull it off.
There are parts of Florida where 3 bedroom existing homes (i.e. not new) are $100,000, but monthly rent for that same house is $1,000+ per month.
Based on discounted cash flow, you can determine the value of any revenue stream. In some parts of the country, you'll find homes are undervalued compared to rents.
Stocks are good, but they're not good for steady withdrawals. For example, during a bear market your withdrawals are very costly.
To retire, you need predictable income streams, and rental property is one of the best.
Plus, it's easy for a regular person to leverage money for real estate. For example, with $1 million, you can buy $3 million worth of property with 33% down -- not counting transaction fees, though).
33% down should give you immediate profits from most of your properties.
$3 million could get you as many as 30 condos/homes in the right areas.
If monthly profit on each of those 30 condos/homes can average $200 per month, that's $6,000 per month right there.
You might still want to continue working for a few years to give you capital to deal with hiccups and allow some time for those mortgages to pay down further.
In a nutshell, rental property is one of the faster ways to generate income without working.
The other, simpler way is to move to a country like the Philippines.
During the pandemic, many renters were allowed to stop paying rent and landlords had no legal recourse. Several states have created new rent control laws in the past few years, too.
With $3m invested in a FIRE-recommended portfolio you can withdraw $10k/mo indefinitely without any work at all. I don't think this is as good an opportunity as you are presenting.
I assume your calculations include a full-on property manager? I have a single unit (wife's pre-marriage condo we held onto) and even that is a minor job sometimes at the most inconvenient times possible. A kitchen sink doesn't care that it's 10pm on a Sunday night before a huge early Monday presentation. It's gotta be fixed now.
30 units would be full-on full time 40hr/week job while also hiring a part time assistant for larger jobs. If you have 30 units, I guarantee that 3 major things will break simultaneously during a holiday weekend - it's just the way the business goes.
33% down here won't get you into profitable territory with a property manager taking their cut. Certainly there are areas of the country where this is very possible, and if you put a little effort up-front you can make it a quite sustainable business - especially if you can get to the point you can hire a full time (cheap) property manager/handyman and you simply run the books.
Just want to reiterate to those reading this that what is described is essentially a second career. Certainly not passive income in any sense of the term. You would be trading your tech career in for that of a landlord which indeed is actual non-trivial amounts of labor.
That doesn't even get into risk. I'm renting in a city with evictions paused but no mortgage relief to be seen for my profile. I'm fine, but if had been just starting out in my landlording adventure I might be close to bankruptcy. Can you survive a year or two with 50% or less income? This can and will happen in the form of either vacancies/non-pay, or major unexpected structural repairs.
I'm actually considering picking up a few more units in the neighborhood simply to have a diverse income stream for when I do decide to step back some and "retire" to an easier/part time job in my chosen field. But, I do this knowing I'm also lining up "things to keep me busy" at the same time.
https://www.cycleblaze.com/profile/nicroets/
The best way to make your money grow over the long term is a diversified equity portfolio of which a low cost index tracking fund should be your first choice.
If you want real value for your retirement savings, you should live abroad: South Asians countries don't have a lot of exports, making their currencies weak.
As the great John Bogle once said, "Nobody knows nothing."*
* For more, see Bogleheads.org
It may seem overvalued now, but will it still be considered overvalued if another variable changes, say inflation catches up with the monetary policy actions.
In my current situation I could do it with less than half of what you have. But I'd personally get bored. Good luck with the retirement.
I bought a property with two apartment units in North Carolina, and got a $200k mortgage (paid $500k at purchase time).
My girlfriend and I live in one unit, while the rent from the other unit (3 bedrooms, kitchen and 1.5 baths) covers mortgage, utilities, taxes, insurance and some of our living expenses (about 10 days of groceries, gym membership and one dine-in/takeout meal).
Rest comes from a variety of investments in bonds, ETFs, and REITs - I withdraw about 1.9% a year (general wisdom is that up to 4% is safe) - actually it was closer to 1.2% last year including two fortnight-long vacations, but up to 3% this year due to the early-year market dip.
0. Debt is a killer. Pay yours off.
1. Live below your means
2. Look up the 4% rule - can you live happily on 4% ($40k) per year? If not, you may need to save some more.
3. Implement a strategy to leverage the 4% rule. I usually try to avoid investment fees and invest directly in exchange traded funds. To learn more about ETF investing, read The Simple Path to Wealth.
4. Try to get a part-time, less stressful job. That way there is more room for error in your calculations. If you employ DRIP investing, your savings compound even effortlessly this way as you don’t withdraw as much.