Stop trying to inject a way of life that you perceive as necessary into the argument because you're not arguing the question presented - you're arguing that you can't do it.

Let me end with this - I'm with you guys. $1m would not be enough - for me and my lifestyle. But presented with a hard cap - I could adjust. I'm not saying it would be easy or welcome, I'm saying I could.

No. If I was injecting my lifestyle I'd be saying I'd have trouble lasting a month on $30k. We are talking about very basic stuff here that is pretty much a universal requirement -- food, housing, transportation, clothing, socialization, and self-respect.

I picked a three year old Corolla for the vehicle and for socialization a Monday night out at a sports bar to watch a game and consume some wings and beer. I've argued that the freedom to buy a $1.25 beverage without concern to satisfy thirst is part of being comfortable. That having non-designer / non-name brand but nice and presentable clothing is a requirement. That eventually a 25 year old male will want to have sex and thus date ...I'm hardly picking examples of living a baller lifestyle.

A 25 year old male could get laid wearing rags, might matter more later though.

I think this kind of thing above is why the question doesn't even really make much sense. Even if your miserly enough to cover your needs in other areas, its hard to see what exactly you would do with your time at 25 that doesn't involve spending so much money that this kind of thing would not be possible, or making money so that you are not really retired. Watching tv 12 hours a day for 50 years is not going to lead to a very happy life.

with this logic no sum of money would ever be enough to retire on because inflation would eat away at it and one would have to continually keep cutting back. There are a lot of people that retire.

Pretty sure one of the requirements of OP was to not work at all. Of course someone could make it with $1million and a job. I know what you're saying isn't technically a job, but it requires a lot of hard work.

No. As long as your rate of return is greater than inflation you simply adjust the principle to always be the equivalent of $1M in 2010 and live off the amount that is greater than the rate of inflation.

The $30k is assuming a 6% return which would actually generate $60k in income of which after taxes you'd end up with say $48k. You then need to take $20-30k and add it to the million so that you are constantly talking about $1M and $30k in real terms.

In reality the $30k is a generous estimate and would likely require either a very low rate of inflation or a ROI closer to 7-8%,

Isn't the median income in the US around 30k?

International index funds will yield around 8%. Minus 3% inflation, that's a 5% ROI. After taxes it's about 33k/yr..
Because of market volatility your principal is bound to get reduced at certain points. Then again, there is no law that states you need to die with 1M. Overall, I believe I would be comfortable on 1M. No spouse, no kids, no traveling, no alcohol or drugs (I don't enjoy these things long term) and a frugal, yet still enjoyable, lifestyle. I buy a cheap, reasonable condo, a reliable used Japanese car, don't dine out etc.

Great, so when the market crashes in one year you have to decide between being homeless, eating trash, or dying early, because if you continue consuming 30k a year after a 40% drop, you'll run out of capital well before you have gray hairs.

You can have a backup buffer in more conservative instruments. In downtimes, you have that emergency fund available.
Also, you will never be homeless because you purchased a condo.

How did this thread get so big? It boggles the mind.

Anyone could live on $1M. The younger you are and the more kids you have, the worse your standard of living will be.

Some of you have such a skewed world view that it is almost unbelievable.

Along the lines of the early retirement extreme link, I ran across this family's blog about drastic cost cutting and life altering plan. Granted they expect to pick up odd jobs and whatnot after shoving off, but it goes with the spirit of the thread.

Oh my God, how many different ways can people misunderstand the idea of adjusting the principal for inflation?! "Yeah 5% return means $50k/year!" "No living on $1M is impossible because inflation would eat away the principal!!11" "Lol 2010 dollars wats dat????//"

And lol at "+EV hobbies", obv this is intended to mean something like writing which you would do anyway because you like it but you can also get paid for, but when you have to do something to a deadline/fulfil someone else's criteria then the fun quickly disappears and this clearly violates our "never working again" clause.

Like everyone else has said "it depends" and if you wanted to be a bachelor then yeah you could live somewhere rural and still live somewhat comfortably, but obviously if you have a partner then unless they have income of their own there is just no way, and even for dating/casual sex you are drastically limiting your options by living such an unconventional/frugal lifestyle, so I think there are very few people who would really be happy with the reality of this situation.

No. The assumption is that eventually you could start drawing it down but at 25 that is way too early.

pretty much this, after what i have read, those of you that really spend lots of money, such as more than 40k a year, you should reevaluate how you spend if you preparing/saving anything for your future. unless you plan on working till you die~ i thought it was funny someone mentioned 7-10mil today to live... that to me sounds like living large~


true statement, but if you reinvested a sizable chunk of that 50k a year i think you could offset inflation (probably result in you spending 20-40k a year on yourself, reinvesting 10-20k

someone who invests all of it with some level of skill (and luck) should be able to insulate a sizable chunk from inflation. not to mention in the last 10-20 years you can start to draw on the principle (but who really knows when they are gonna die?)

Thats not fair. Cost of living needs to be considered for those folks as well as income. They could easily be spending $60k/year and saving $20k/year towards retirement.

Yeah I was just highlighting the different ways people are misunderstanding inflation. Some people just don't seem to realise it exists (those who think that 5% of $1M = $50k/year so therefore they will be able to live a 2010 $50k/year lifestyle for the rest of their life). Others were saying that inflation would inevitably eat away the principal and so there was no way to generate income for eternity (assuming inflation and interest rates fall within certain bounds) from the initial $1M -- again, a pretty serious misunderstanding.

Just seems crazy to me that people could post in this forum without a basic understanding of these ideas.

I realize there are plenty of reasons to not bring a drink with you with certain jobs. I'm talking about jobs where there really isn't an excuse, and for people who spend a fairly large part of their income on pop/water. It's not important anyway.
Level? You do realize there are a ton of 20-somethings that pull in a lot less than $30K/yr and yet have regular sex, yes? This is well within the realm of possibility. I, my friends, probably a lot of posters, can attest to this reality Not every girl expects fine dining either. Some are happy with McD's, although affording something better is quite doable on $2400/mo.

I've budgeted before on a $1600/mo income living alone. You can't buy nice things, no, but you can fit in a few hundred a month for whatever you like. An extra $800/mo over that would've make things a lot easier. I understand that your standard of living would make such a budget impossible, but most people could manage it and would be comfortable simply because they didn't have to work 40-50hr/wk to get a livable wage.

For someone who loves their career, or likes to work, or at least doesn't dislike their work (probably has a lifestyle that would also be incompatible with such a low income due to high current income), the not-having-to-work factor isn't an issue. For people who don't like their jobs, a "comfortable" life would simply be not having to grind through to retirement (and such an income wouldn't be much of a downgrade). There's a clear cultural/personal divide between the two groups.

I thought 5% was the real interest rate? In which case, wouldn't you be accounting for inflation? I mean, if I have $1M and someone gives me a real interest rate of 5%, then my principle is adjusted to the equivalent of $1M, plus I have 5% extra that I cash out to live, right?

I don't know about you folks, but I like to make bitches happy on occasion. Sometimes this includes they can't afford, but I can (in addition to amateur sketches, a steady diet of wiener, and my other pursuits). If buying flowers or a ticket to a movie blows up my weekly budget, I'm not going to be happy. Some people have adjusted to having less in this world. That is fine. Most people have not.

To act like you can get by on dating budget of ~400 bucks a year as an American past their college years without being privy to some sort of perverse subculture. You're out of your mind.

While living a student life of 3-8 people sharing a house -- our hypothetical individual lives alone so can't split housing costs down to a few hundred dollars.

With or without a car?

What part of the states and how big was your apartment? How far from downtown?

I'm not trying to be an ass or hold out some outrages standards but unless I was willing to either live in the two crimes areas or the safe but just outside the city limits hamlet I couldn't find a decent 1 bedroom for under $850-900 and that doesn't include anything but water -- Utilities will be an additional $300. It isn't like I live in NYC, Cali, or Vancouver either. Now I know the middle of the US is dirt cheap but we are talking quality of life again.

No. lalo. I recently posted in SB where there is an idea of a "risk premium" (why bond prices differ). Okay... by posted I just linked the wiki article. But your understanding is way way way off.

Why can't our hypothetical person afford the occasional flower, movie, beer, water, energy bar, etc? I'm currently a college student, and I've been living off less than $20K for a number of years, and I still afford these things (all the while, living in a non-cheap, major US city). I go out to eat at least a couple times a week, I go see movies, I've taken girls out on dates, I go out drinking a couple times a week. Look, I'm not saying it's a comfortable life, because it's not. And I hope I can get up to a point where I'm making $100K+ in a few years (and honestly, I wouldn't want to live off $1M for the rest of my life). However, to say that people can't afford even the smallest luxuries on $30K - $40K seems like a straw man to me. Plenty of people do (I think the average American falls in this range).

Really, so if inflation is 3% and the real interest rate is 5%, then we have a nominal interest rate of 8%, right? That means, we have $1,080,000, right? If we live off of $50K, then we are left with $1,030,000, right? If so, our principal is now $1,030,000 which is exactly 3% higher than $1M. In other words, the real value of our $1M has stayed constant. Ok, so where am I "way way off?"

YoungEcon do you live at home or with 6 other guys?

Neither. I live by myself. In the past, I have had one roommate (the most I've ever had). Also, I do not live in a cheap city in middle US. Again, it's not a great lifestyle, and I can't wait to get out of it, but to say I can't afford those little things is silly, and I live off less than half of the $40K figure we've used throughout this thread.