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Your portfolio also spits out a comfortable $120,000 a year in gross passive income or $100,000 net passive income. 70% of your $3 million is in a 60/40 stock/bond portfolio. Let’s say you’ve decided to retire with $3 million after 10 years of up, up, up in the S&P 500 and real estate market where you own a couple rental properties. Meanwhile, your net worth is almost 70X your annual after-tax expenses. Applying the same 4% withdrawal rate, you’re now able to comfortably earn or withdraw $192,000 a year in gross passive income.Īfter tax, the $192,000 turns into about $155,000, which means if you stick with your $70,000 a year budget, you can now save $85,000 a year instead of just $30,000.Ĭlearly, it’s time for you to get more conservative with your investments because your after-tax passive income is 2X your budget.
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Instead of earning a 10%+ return a year as the S&P has done since 2010, you only been able to earn a 6% return given your more conservative stock portfolio and lower leverage in your real estate portfolio.Īfter 6 years at a 6% compound rate of return with $30,000 a year in savings, your $3 million portfolio grows to $4,800,000. Besides, when you have no mortgage and no kids to support, $70,000 a year is more than enough, even in a high cost of living city. 50% of your $3 million is in real estate while the other 50% is in a 50/50 stock and bond portfolio.Īfter tax, your $120,000 turns into $100,000 and you only spend $70,000 because you’re not 100% sure you’ll be able to stay retired. Your $3 million is spitting out a comfortable $120,000 in gross passive income each year. You had closer to $3.8 million before the financial crisis hit, but you’ve decided you have enough to be happy. This amount of money excludes the equity in your primary residence. Let’s say you retired with $3 million in after-tax investments in 2010. Here’s why it’s better to retire in a bear market. While those who retire in a bear market will likely forecast lower returns than reality. No matter how good we get at forecasting the future, we tend to extrapolate too positively for too long when times are good. A recovery makes retirement living so much easier. If you retire at the bottom of a bear market, even if you change your risk profile to be conservative, your financial days will likely only get better. The day you retire will be about as good as it gets.
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However, if you retire at the top of a bull market, and don’t change your risk profile, you might get screwed. You generally don’t need as much as you think to be happy because the freedom you gain more than makes up for lost income. Living a comfortable retirement life is all about managing expectations. I also did some fintech consulting work for several years since I left my day job in finance. I put retired in quotes because these posts don’t write themselves. I’ve been “retired” since 2012 and I want to explain why this is so. If you’re thinking about retiring, it’s better to retire in a bear market than in a bull market.