I created the doron FU scale, which like the richter scale is not linear:
-2: you must file bankruptcy
-1: you may be able to repay your debt
0: you're living paycheck to paycheck
1: you can live for a year without working
2: you can live for the rest of your life without working maintaining the same lifestyle you have now
3: your kids (if any) can live their whole life without having to work
4: you can afford any luxury such as jets and yachts
5: you are in the same league with Gates, Buffet, Ellison, etc.
A few notes:
You can find where you are on the scale using a decimal fraction between the integers.
Just because level 3 says your kids can live without working does not mean you should strive to achieve that. It is simply a measure of wealth, not a desired outcome for obvious reasons.
Just because level 4 affords you jets does not mean everyone should aspire to buy a jet. Again it is mentioned as a reference of what you could attain at that level.
In America in my view, amassing $5 million gets you to level 2. The figure could be argued and it fully depends on your style and standard of living. So for you it might be significantly less or perhaps much more. This figure assumes a monthly spend of $20K and a paid off house (paid out of the $5m)
I'm with you up to the last sentence. Agreed that 5m including the house would be enough for level 2, but I don't think it'd reliably afford 20k/month, at least not if you're talking real dollars (which you'd have to to account for maintaining your lifestyle for the remainder of your life). If we assume a $500k house, 20k/month is 240k/year, which is over 5% of your remaining 4.5M. Even at standard retirement age the rule of thumb is a 4% real withdrawal rate, and many people think that's optimistic in this low interest rate environment. Assuming you're relatively young I wouldn't want to go more than 3% real withdrawal rate, ideally less.
Fortunately, my family's current lifestyle is nowhere near 20k/month! :) My level 2 number is 3M, not including the paid-off house (which unfortunately is rather more than 500k here...), which should afford 90k/year real (before taxes) at 3% withdrawal rate.
I'm not following. Tax free munis or corporate bonds throw off a 5-6% tax adjusted yield. You can always plow anything you don't spend back into fixed income to make up for inflation. So unless you are expecting massive inflation you'll be good.
Even a 5-6% tax-adjusted yield (which seems high, but I'm in Canada so I don't follow US rates too closely) is less than 5% after any inflation. Also corporate and municipal bonds are not without risk, although it's not large with proper diversification.
Parent implied the 20k/month was spending money. If you're reinvesting some of that money, then you're effectively reducing your withdrawal rate, in which case I agree. Also if you're willing to reduce your spending in the case of a downturn you could withstand a higher withdrawal rate. I'm just saying that a 5%+ real withdrawal rate is not sustainable indefinitely in a vacuum.
Comments
I created the doron FU scale, which like the richter scale is not linear:
-2: you must file bankruptcy -1: you may be able to repay your debt 0: you're living paycheck to paycheck 1: you can live for a year without working 2: you can live for the rest of your life without working maintaining the same lifestyle you have now 3: your kids (if any) can live their whole life without having to work 4: you can afford any luxury such as jets and yachts 5: you are in the same league with Gates, Buffet, Ellison, etc.
A few notes: You can find where you are on the scale using a decimal fraction between the integers.
Just because level 3 says your kids can live without working does not mean you should strive to achieve that. It is simply a measure of wealth, not a desired outcome for obvious reasons.
Just because level 4 affords you jets does not mean everyone should aspire to buy a jet. Again it is mentioned as a reference of what you could attain at that level.
In America in my view, amassing $5 million gets you to level 2. The figure could be argued and it fully depends on your style and standard of living. So for you it might be significantly less or perhaps much more. This figure assumes a monthly spend of $20K and a paid off house (paid out of the $5m)
I'm with you up to the last sentence. Agreed that 5m including the house would be enough for level 2, but I don't think it'd reliably afford 20k/month, at least not if you're talking real dollars (which you'd have to to account for maintaining your lifestyle for the remainder of your life). If we assume a $500k house, 20k/month is 240k/year, which is over 5% of your remaining 4.5M. Even at standard retirement age the rule of thumb is a 4% real withdrawal rate, and many people think that's optimistic in this low interest rate environment. Assuming you're relatively young I wouldn't want to go more than 3% real withdrawal rate, ideally less.
Fortunately, my family's current lifestyle is nowhere near 20k/month! :) My level 2 number is 3M, not including the paid-off house (which unfortunately is rather more than 500k here...), which should afford 90k/year real (before taxes) at 3% withdrawal rate.
I'm not following. Tax free munis or corporate bonds throw off a 5-6% tax adjusted yield. You can always plow anything you don't spend back into fixed income to make up for inflation. So unless you are expecting massive inflation you'll be good.
Even a 5-6% tax-adjusted yield (which seems high, but I'm in Canada so I don't follow US rates too closely) is less than 5% after any inflation. Also corporate and municipal bonds are not without risk, although it's not large with proper diversification.
Parent implied the 20k/month was spending money. If you're reinvesting some of that money, then you're effectively reducing your withdrawal rate, in which case I agree. Also if you're willing to reduce your spending in the case of a downturn you could withstand a higher withdrawal rate. I'm just saying that a 5%+ real withdrawal rate is not sustainable indefinitely in a vacuum.