4% withdrawal rate is a conservative figure often used to live “forever” from a portfolio (use 3% if you want to be more conservative, 5-6% for more risk friendly).
To get $30k a year, that’s a starting portfolio of $750k. [0]
If you’re making $140k a year and living frugally, you can amass $750k in less than 10 years, perhaps even 5-7 if you are really frugal + lucky with the market.
It’s within reach of most software engineers, to be honest - but of course many people prefer the regular ski trips, new Tesla every few years, and so on. But if your dream is to work on your own stuff free of bosses/corporate politics/etc, it might be worth doing.
$30k a year won’t be much of a living in the Bay Area or New York, but for a single dependent person it’s quite alright; and in many mid sized European cities with socialized healthcare/university/etc, it’ll even let you raise a kid or two without having to sacrifice much.
[0]: http://www.firecalc.com/ gives us an 80% chance of success for a $750k portfolio on $30k withdrawal a year over 50 years.
The problem with your assumption is you're "living frugally" not for the ten years to make your portfolio withdrawal rate, you're doing it _for the rest of your life_.
You live on $30K / year (in the Bay Area/NY, where you're most likely to find a starting / junior / midrange position that offers $140K - remembering that needs to be liquid)...
and after your ten years of "living frugally" (and let's be clear, it's gonna be frugal with $2500/month rent for a 1br 600 sqft apartment eating up well, 100% of your after-savings income, so you're going to be rooming with someone)...
That's what you've got for the rest of your life. Your $750K nest egg will give you an 80% chance of being able to supply $30K/year. Sure, now you can use it to work on your own stuff, but until (and unless) that catches on...
You can always still work (job, contract, consulting, etc) even if you're "soft retired." It's just that you have a lot more freedom in the selection, and you can pursue things that carry more personal fulfillment than MegaCorp job with lots of responsibilities.
As for living frugally: Don't live _in_ SF. For a short BART or Caltrain ride, you can live in a $1500/mo. apartment that is beautiful.
>[0]: http://www.firecalc.com/ gives us an 80% chance of success for a $750k portfolio on $30k withdrawal a year over 50 years.
Which will be good 4 out of 5 times.
This is using all available 50 years "stretches" since 1871.
If you try limiting the "since" to 1960 the success rate goes to 25%.
Still since 1960, 40 years are 44%, 30 years are roughly on par at 79%.
And while sticking at the shorter 30 years, if you start from 1970 the percentage of success increases at 94.4%, if you start from 1980 you finally get 100%.
If you start from 1970 with 40 years period, you are at 75%, more or less the same.
Now what happens if - still starting from 1970 - you increase the period?
41 - 71.4%
42 - 66.7%
43 - 40.0%
44 - 25.0%
45 - 33.3%
46 - 50.0%
47 - 0.00%
And the troubling issue with the last one is that in the two cycles available you hit 0 US$ respectively after 25 and 40 years.
Not to put anyone down, but even the 3% is not that much safe when you go over such lengthy stretches, still as an example drawing 22,500 US$ out of the 750,000 portfolio, which gives a 100% rate of success limiting since 1960 gives 8 cycles, of which one is not a problem as it ends ove 20 millons, but the other 7 (or 87.50%) are IMHO too close to 0 to be reassuring.
To be fair, I think the parent poster is not suggesting that you retire outright with $750k in the bank, but work independently "free of bosses". Hopefully in several decades of self-employment, you would be able to generate some meaningful supplemental income during that time.
>To be fair, I think the parent poster is not suggesting that you retire outright with $750k in the bank, but work independently "free of bosses".
Honestly I don't know what he is suggesting or not suggesting, but the reference to the Reddit group makes me think that he actually suggests about becoming "financially independent".
My note was however only about not taking the 4% and firecalc calculator (BTW very good) as an oracle.
Much harder to make $140k in Europe, but I perfectly agree with the rest of your points. The opportunities you have for financial freedom as a software engineer in the US are absolutely amazing.
In the US your health insurance and rent alone will likely be over $30K. I have no idea how one can live on $15K, unless it's some really unpleasant place or an RV. And if you have any health issues, you're done.
True, but then you need more than the $750k to buy a house outright AND retire. And you certainly can't buy in the areas where you were earning that $140k. Owning outright makes things easier but there's always property taxes to pay, along with maintenance and upkeep.
With $500k, you could put 25% down on a 50 unit apartment complex, clear $12500 per month profit — tax free due to building depreciation — and that’s after the rest of the collected rent pays for property management, property taxes, a repair budget and the debt service — all while building equity in the building that you can then leverage to buy another property. With $500k cash you can turn that into real wealth rather than hoping for S&P rates of return. Cash on cash return for multifamily buildings puts the stocks and bonds investments to shame and other than finding the deals, it is pretty hands-off in terms of day to day work.
To get $30k a year, that’s a starting portfolio of $750k. [0]
If you’re making $140k a year and living frugally, you can amass $750k in less than 10 years, perhaps even 5-7 if you are really frugal + lucky with the market.
It’s within reach of most software engineers, to be honest - but of course many people prefer the regular ski trips, new Tesla every few years, and so on. But if your dream is to work on your own stuff free of bosses/corporate politics/etc, it might be worth doing.
$30k a year won’t be much of a living in the Bay Area or New York, but for a single dependent person it’s quite alright; and in many mid sized European cities with socialized healthcare/university/etc, it’ll even let you raise a kid or two without having to sacrifice much.
[0]: http://www.firecalc.com/ gives us an 80% chance of success for a $750k portfolio on $30k withdrawal a year over 50 years.
If you’re new to this and want to delve further, check out https://www.reddit.com/r/financialindependence/