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3 million is a lot of money and any who thinks it's not has something wrong with their head.
It is not......
3mm @ 2% interest is $60,000 a year minus taxes........ So figure you have 3mm in the bank, living off the interest only (not touching principal). Even paying just 25% on your gain leaves you with 45K a year ($3750 a month, $937.50 a week).
$937 a week is barely a good paying job in most of the country!
Now in the early 80's with inflation running wild, CD's would pay 12-14%. So in the same scenario,
3mm @ 13% is 390K a year (minus 25%) is $292,500 off the same 3mm principal amount. 24.375K a month, almost $6100 a week in spendable income! Now think of how cheap things were in the 80's, a brand new top of the line Mercedes was less than 50K, housing was cheap and you could live like a rockstar on 6K a week!
mortgages were 18% and energy costs soared 300%. i remember prices were rising so fast being in a wholesale business our quotes were only valid for the day quoted.incomes were relative to things and you were just as far behind when prices took off. the cpi stood at 13% i think.
it was only after inflation came down that those cd's you may have had started to even produce positive real returns.
had inflation not fallen those 13% cd's were a losing deal. while high mortgage rates hurt the real estate market ,as inflation fell home prices took off after the fact driving up housing costs ..
it was no easy time . in fact it was hard to even invest and grow money as markets were dead for almost 17 years so folks couldn't grow their nest eggs to even have much money to put in those juicy cd's. one of the few groups of retirees to fail in the trinity study were those that retiered in 1965-1966 and had years of dead markets only to be hit with double digit inflation paying bills a few years later.
to date that time frame represented the worst financial times any retirees had to deal with since 1926 including the retirees who's groups included the great depression in it.
randomly picking out pieces of things from time frames without looking at the years before or years after generally give a very skewed image compared to what the folks who lived through it saw. while 13% cd's sound great the fact was it was one of the worst financial time frames we had in history because of events leading in and leading out.
folks were so strapped for cash few were able to save anything despite those rates we think were so good. the gov't came out with different programs to try to spur savings , things like the tax free all savers certificates banks offered couldn't even get folks to come up with the money to buy them..
NVESTOPEDIA EXPLAINS 'ALL SAVERS CERTIFICATE'
The Economic Recovery Tax Act of 1981 (ERTA, or the Kemp-Roth Tax Cut) reduced individual income tax rates, accelerated expensing of depreciable property and created incentives for small businesses and savings. Under terms of the Act, All Savers Certificates were issued only between October 1, 1981, and December 31, 1982. The minimum deposit was $500 and provided a fixed rate tied to Treasury bills. Holders received a one-time exemption from federal income tax of up to $1,000 on earned interest ($2,000 on a joint return).
Last edited by mathjak107; 10-05-2014 at 08:10 AM..
3mm @ 2% interest is $60,000 a year minus taxes........ So figure you have 3mm in the bank, living off the interest only (not touching principal). Even paying just 25% on your gain leaves you with 45K a year ($3750 a month, $937.50 a week).
$937 a week is barely a good paying job in most of the country!
Now in the early 80's with inflation running wild, CD's would pay 12-14%. So in the same scenario,
3mm @ 13% is 390K a year (minus 25%) is $292,500 off the same 3mm principal amount. 24.375K a month, almost $6100 a week in spendable income! Now think of how cheap things were in the 80's, a brand new top of the line Mercedes was less than 50K, housing was cheap and you could live like a rockstar on 6K a week!
Well your scenario is a poor construction of what 3mm would do for you. Not only that but if your income was only 60k you aren't paying 25% in fed taxes. If you were single and that was your total income your effective rate would be under 14%. Never mind that though. With corp and muni bond rates being much higher than 2% I'm not sure why you'd pick 2% other than to build your case that 3mm isn't much money.
3 million ALONE isn't a lot of money to live off of if you're not touching principle. BUT I believe the OP said this will be on top of a pension, his/her own investments, retirement accounts -- and Soc. Sec when s/he eventually starts getting that. So, the 'gravy money' of 3,500 a month -- on top of all the other funds....should be mighty sweet. I know I could MORE than make that work....
Separately, I do think its fine to plan a head financially, especially if an estate could be complicated, or it there's a lot of money involved. And I certainly don't think the OP is just licking his/her chops and rubbing hands just waiting for 'the old man' to die, with daydream balloons circling his or her head -- or is already thinking "OK, he's lived his life, my turn, gimme the dough." But, this discussion does seem a bit like counting chickens before they hatch.
It's great to plan. But I wouldn't be giddy about 3 million just yet. ANYthing could happen.....
3mm @ 2% interest is $60,000 a year minus taxes........ So figure you have 3mm in the bank, living off the interest only (not touching principal). Even paying just 25% on your gain leaves you with 45K a year ($3750 a month, $937.50 a week).
$937 a week is barely a good paying job in most of the country!
$3 million is a ton of money, not to be compared to a paycheck.
Lets apply it to real life not some math formulas.
If OP does not go financially crazy it will last many many years.
Not to rain on your parade but plenty of people had the inheritance millionaire plan and it didn't work out as they planned! Two cases I personally saw unfold:
1. One family scenario, 7 kids and the estate was worth about 7 million. Most of the kids thought 1mm each until the will was read, 6 kids got 100K each and the one stay at home child/adult got the rest.....ooops.
2. Money isn't there. I have a close friend that was sure their mom was worth 5mm+. The final tally was 10% of that amount. Apparently mom spent a lot of money in her retirement and may have not ever had the nest egg she was bragging about.
3mm is a nice windfall but you could easily smoke through that amount if the spending gets out of hand. Good luck and have fun!
Don't worry you aren't raining very hard on any 'parade'. I had a friend who was to inherit a portion of 21million dollars when his father passed in 1999. There was a provision that stated all the children had to be 40 years old prior to the money being distributed. Well when everybody was 40, the money had been lost in the dot com crash and the rest in 2008 crash. I think the new amount is around 2.5million., going 6 ways.
In regard to this inheritance, enough of it is in safe investments that I don't think it will decrease too much, and if it does, oh well..
3 million ALONE isn't a lot of money to live off of if you're not touching principle. BUT I believe the OP said this will be on top of a pension, his/her own investments, retirement accounts -- and Soc. Sec when s/he eventually starts getting that. So, the 'gravy money' of 3,500 a month -- on top of all the other funds....should be mighty sweet. I know I could MORE than make that work....
Separately, I do think its fine to plan a head financially, especially if an estate could be complicated, or it there's a lot of money involved. And I certainly don't think the OP is just licking his/her chops and rubbing hands just waiting for 'the old man' to die, with daydream balloons circling his or her head -- or is already thinking "OK, he's lived his life, my turn, gimme the dough." But, this discussion does seem a bit like counting chickens before they hatch.
It's great to plan. But I wouldn't be giddy about 3 million just yet. ANYthing could happen.....
All very reasonable points you made. Yes I believe that 3 million is a lot of money. Coupled with my own earnings, I don't think I should ever have a financial concern again. Despite being pretty wealthy my dad has lived a very modest life and that has made him happy. I think he genuinely wants me to spend and enjoy the money he leaves me. I never really got why he didn't go out and live it up more, but people like different things, and he has been old for a long time so maybe sitting inside watching baseball is just a simple pleasure for him. I will probably have a sense of proportion when the day comes, but there is definitely some things I would like to do.
3 million ALONE isn't a lot of money to live off of if you're not touching principle. BUT I believe the OP said this will be on top of a pension, his/her own investments, retirement accounts -- and Soc. Sec when s/he eventually starts getting that. So, the 'gravy money' of 3,500 a month -- on top of all the other funds....should be mighty sweet. I know I could MORE than make that work....
Separately, I do think its fine to plan a head financially, especially if an estate could be complicated, or it there's a lot of money involved. And I certainly don't think the OP is just licking his/her chops and rubbing hands just waiting for 'the old man' to die, with daydream balloons circling his or her head -- or is already thinking "OK, he's lived his life, my turn, gimme the dough." But, this discussion does seem a bit like counting chickens before they hatch.
It's great to plan. But I wouldn't be giddy about 3 million just yet. ANYthing could happen.....
Just in general term since you don't know how long you will live or how good or bad interest rates or markets and market sequences's will be depending how much you want to draw you may end up blowing through the whole thing before you run out of time or have more than you started with left.
The resulting balance even at 4% once the variables are applied such as spending down during long downturns has balances that span that wide.
A good withdrawal amount keeps your income ability constant through good and bad and varies what is left over in the buffer That is why it requires you to have quite alot in that buffer bucket so it varies and not your income.
There really is no such thing as not touching principal unless you can find something to pay you the same amount or more year after year then you were drawing.
Average returns don't work when drawing down.
Last edited by mathjak107; 10-05-2014 at 02:03 PM..
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So figure you have 3mm in the bank, living off the interest only (not touching principal). Even paying just 25% on your gain leaves you with 45K a year ($3750 a month, $937.50 a week). 
