That $30K per year for 33 years assumes 0% interest.
If you have $1M in cash, I assume you have already paid taxes on it. Even at a modest 5% return on average, the cash generated annually if it lasts 33 years would be $5166 per month or almost $62K a year. If you want it to last 40 years, it will return $4825 a month or almost $58K per year. If you kick the bucket after 25 years, you’ll still leave your heirs $500K.
At 10% return, still below historical averages for the Dow and S&P, you could get over $100K per year for 33 years.
At a top capital gains rate of 20%, the $100K would be around $80K and the $60K would be closer to $50K.
I would concur that a $1M isn’t “rich”. To me, “rich” implies not just an ability to not work, but control over substantial wealth-building assets. Real estate, companies, large sums of cash, etc. If you’re still dragging yourself to work in the morning and answering to a boss, you’re part of the middle class. Doesn’t matter if you make $500k a year as an attorney. A true rich guy doesn’t have to suck up to Old Man Johnson, hoping to get that promotion to senior partner next year.
I’m no expert, but I’m closing in on being eligible to retire, so I’ve been reading a lot of investment books lately. The more I learn, the more important I believe it is to avoid actively managed mutual funds (in favor of index funds).
I consider myself lucky that when I started investing almost 30 years ago, I chose index funds. I talked to a few colleagues, and their advice was unanimous.
The mutual industry seems to have swung into position to grab the money of naïve investors a little bit at a time who don’t realize they’ve been taken until they look back on decades of investing and wonder when it’s going to pay off.
In addition to the fees paid to the whiz-kid fund managers (who in the long run don’t appear to add value over ‘buy and hold’ index funds), actively-managed funds have higher turnover, creating more tax obligations to siphon off the investors’ profits. The management fees seem small compared to the returns, until you take into account taxes (and inflation). Don’t forget, the managers get their cut whether or not they make money for you.
So to the OP: you’re one hell of a lot *less *likely to become “rich” if you put your money in actively managed mutual funds.
Also to the OP: Back when you could get upwards of 5% on long-term guaranteed investments like treasuries, it was easier to live off a million dollars and make it last. Today, though, if you want to make a million dollars last, put some percentage of it in a low-fee index stock mutual fund, and the rest in some form of cash (laddered CDs, short-term treasuries, etc.) Rebalance every year by converting some of the stock profits to cash. Strive to draw out less cash each year than the stocks are earning.
Making $500,000 a year makes you someone who will be rich pretty soon - most of the middle class will never be close to that even if you make $200,00 a year. To me there is a pretty big deference, but maybe I’m not looking at it right. The sucky thing about making money from working verses inheritance or investments is the substantial tax effects for one thing. The 500,00 a year guy is a lot closer to being able to have 3 mil in the bank than the 200,00 a year guy.
As has been noted though, it completely depends on spending habits. Many people don’t keep their lifestyle the same as they earn more. Their consumption habits grow more expensive. One of the main points of The Millionaire Next Door was that there are different levels of “accumulators of wealth.” There are plenty of doctors making $200,000+ that are not wealthy because they spend $200,000/year. Of course making $500,000 makes it much easier to become an accumulator of wealth, but it’s not a given.
The definition of rich really comes down to a matter of opinion to a large extent. You also want to look at disposable income and the ability to invest. A doctor might make 200,000 a year, but a substantial portion of that would be could be going to student loans as well as malpractice insurance; an accountant or software engineer making the same amount will be in a much different financial position, and from a tax standpoint it is best of all to inherit. But that’s kind of a digression; no adequate definition of rich can include spending habits as a conditional parameter because nobody has an infinite amount of wealth: it is actually impossible to have an infinite amount of wealth because the resources of the earth are finite.
What being rich does is give you options. It gives you the option to spend 2 million on hookers and blow and waste the rest until you’re broke and alone and begging some working stiff for money while he sneers at you disapprovingly. It gives you the option to work if you want, not work if you don’t want and still have a very comfortable life free from worrying about basic financial needs being met. Making 200,000 can give you a nice lifestyle, but the amount of options available to someone making 500,000 is substantially different.
There’s also the fact that you have to go to work.
“I’m not talking a $400,000 a year working Wall Street stiff flying first class and being comfortable, I’m talking about liquid. Rich enough to have your own jet. Rich enough not to waste time. Fifty, a hundred million dollars, buddy. A player…or nothing.”
-Gordon Gekko, Wall Street
“You don’t need a million dollars to do nothing, man. Take a look at my cousin. He’s broke…don’t do shit.”
-Lawrence, Office Space
The problem is to make $500k a year typically takes your entire adult life (after spending a significant amount of your school years) working in a career that is often highly stressful and requires long hours. Take the management consulting firm where I used to work. A consultant makes around $60k. A senior consultant $90. $120 for a mid level manager. More senior managers and directors make $190 - $250. And the senior managing directors can make $500 k or more, depending on how big they grow their business. Each level takes 2-5 years to get to the next one. The hours are long and demanding, often with lots of travel and turnover (both voluntary and involuntary) is high.
By the time you make SMD, usually you are in your late 40s or 50s. A fair number of them are divorced or have a lot of bad habits (drinking, mistresses, prostitutes, drugs). Basically they have nothing else besides work at this point.
I imagine law firms and investment banks are like this, but even more so.
So basically the price of becoming “rich” at a relatively old age is spending your entire life working long hours at a really stressful job with mostly jerks.
I would consider myself rich if I could live a middle-class lifestyle without working. YMMV.
Years ago I read that one indicator of becoming a millionaire was former military. My fellow soldiers were thrilled with that until I pointed out the “former” part.
Patience and not chasing quick returns is a good strategy. Of course some people will successfully chase the quick returns but most won’t. As an example, I had an IRA account that contained 401K rollovers from a previous company. I did nothing with it. Going back to 2008, it lost 38% in one year and over the next five it grew 150%. That is net of about 50% growth over six years that included one of the worst market crashes since the great depression.
Heh, I came into the thread to post a caveat like this. Engineering, finance, etc. are lucrative professions, but most people (even with top degrees, etc.) don’t jump in at the $500k/year point; it takes years of work and promotions to get an income that high. If you want a salary in that range, the best available options are probably either being a very senior manager or executive at such a company, or being a doctor, lawyer, etc. with your own practice. Neither is a quick career track, though it’s certainly possible to get far more than $500k/year if things work out.
Because what you’re basically postulating is that having a million dollars in the bank = rich because… well, a million dollars.
The rest of us are basically saying that the million bucks is principal, and if you just divide it into 30 annual chunks you have about 33k a year- hardly a rich lifestyle, even for a single guy.
If you look at it as if it was an annuity, you rise up to about 50-60k a year. Again, not “rich”, but middle class.
If you live off the earnings, we’re talking something like 80k a year on average, but not necessarily that much any given year. Even at that, 80k a year is hardly rich. Probably enough to live a pretty comfortable single-person lifestyle, but that’s still not getting you a Mercedes or anything like that.
You could actually easily afford an entry-level luxury car on $80,000 / year, if 0% of your income was going to saving for the future.
On the other hand, if you’ve got a million dollar nest egg and are counting on it supporting you for the next 30 years until you die, counting on $80/year is way too optimistic.