How $1,000,000 Can Be Enough For Retirement

foreign question of the day comes from Tony in Michigan he says I'm 56 years old and have no debt I have 1.4 million in the bank and want to know how much is enough for me to feel comfortable retiring 1.4 million sounds like a lot but I don't have a good handle on how long that would last that's a really good question um David I feel like a lot of people kind of have that thought in their mind I've got this money how do I know if it's enough how do how do I know if I can retire or when I can retire and I feel like it's more about being able to and being happy with living off the interest so if you looked at 1.4 million and it's invested let's say that you're averaging a 10 point 10 percent rate of return are you able to live on the 10 comfortably with inflation with all of your expenses so in his case 140 000 a year does that feel right if you feel like yes then great it'll last forever it'll last forever because you're never touching the principle yeah nobody playing the golden eggs that's right and and that's really where you want to be you don't ever want to have to touch that money um but if you're looking at that and you're like oh I don't know living on 140 000 I've been living off of 200 if you've got a house payment there's so many things to consider but that's ultimately at the end of the day what we want to be looking at is living off the interest and if that's possible for you so yeah and here's a simple equation and it is probably overly simple but just to kind of give you an idea all right inflation not counting lately or counting lately actually and for the last 75 years has averaged four percent four point two percent okay now lately we've been closer to 10. sure and in the 70s where we were 12 but the average over the last 75 years is 4.2 all right now the average stock market rate of return is 11.8 since the stock market began that's the average annual return if you had invested in growth stock mutual funds across the stock market okay now so if we just use rough numbers let's say 12 percent rate of return which my personal mutual funds have averaged that from decades now so averaged some years not some years a lot more average that's right into sixth grade math can you explain average because I know all the time people fight us on on that the difference between annual or like annualized rate of return looking at it over the track record of it just just look at and say what did you make okay because this is how wealthy people look at they go all right if I'm making 12 and I'm losing 4 in purchasing power because of inflation the cost of bread went up the cost of electricity went up the cost of cars and tires went up the cost of dot dot dot went up four percent so if I'm making 12 and I'm losing four in purchasing power if I pull off eight my mutual funds will grow by four a year but they have to do that to break even in purchasing power so if you're earning 12 and pulling off four you're getting a cost of living raise every year but it's a cost of living raise it's not anymore you're not you're not gaining actual wealth right it's net of inflation you're gaining but you're gaining actual dollars to offset the inflation okay so if if and if you did that and if you want to use different numbers use different numbers use 11 and and five then you'd pull off six okay I don't care but that's how you can go ahead so if you got a million dollars and you pull off eight that's eighty thousand that means you made 120 so your million grew by 40 000 and you lived on the 80 then so if you can live off of eight percent and you're invested in good mutual funds you'll probably pretty much do it in perpetuation um it might dip into it a little and it might refill in another year yeah but overall it'll pretty much run it'll pretty much run like a machine the rest of your life assuming that the you know the American economy continues to do what it has done for the last 80 years well this is one of those reasons it's so important to do what we teach pay off your debt pay off your mortgage so that when you're going into retirement your ex your cost of living is not Sky High right and let me tell you something else here there are some really stupid people that write Financial articles all over the Internet and here's here's what's stupid about them all right they run all these numbers out in great detail on math and they do not grasp that life will never ever happen the way they laid it out so the way we just laid this out do you think that that you got the chances that guys 1.4 million that he's going to live on exactly 140 or exactly eight percent of that right which would be more like a hundred okay is he actually going to do it exactly that way are those mutual funds going to earn exactly a market rate of return are they going to make a little more or a little less that's right what's going to actually happen is he's probably going to live on less than that and this money is going to grow and there's some other factors that we haven't even considered in this like his life and his health and his marriage and you know and inheritance comes or doesn't come in addition to this there's all kinds of other crap that's going to happen and so these guys when they're writing these Financial articles act like well I mean if you miss this by point two percent you're not going to make it you're you can't estimate this you can't forecast it within 0.2 percent if you're you know unless you're God you don't know what's going to happen right and I promise you God is Not not writing Financial articles on Tic Tac okay it's definitely not happening so I can tell because the people doing it are idiots and God's fairly smart so the point is these guys are become such math nerds they think all this stuff operates in an exact little vacuum and it never works out that way I mean can you imagine if today with you know I've got hundreds of millions of dollars worth of real estate today that was none of that was in my equation right none of it yeah I mean so I mean all you had to do is like be one piece of real estate off that's right and the whole thing changes so you know you're in one way or the other one business that you sell yeah or that uh has a hit and Booms uh one little thing so you can't you're 30 years old you can't predict when you're 70 exactly where you're going to be but you can have a Target that's right and say based on that Target I know that if I'm 25 years old and I average 12 percent and I put a hundred dollars a month away from age 25 to age 65 that the math tells me that's one million 176 thousand dollars is it going to happen exactly that way I just said it wasn't but that's what the math can predict for you it can go oh so we could have over a million dollars we have hope we're not going to wait on uh Karl Marx and socialism to fix this right we're actually going to work and save and live on less than we make and be on a budget and keep our butts out of debt this is the Ramsay show [Music]

Channel: The Ramsey Show Highlights

Views: 181,143

Keywords: the dave ramsey show, budget money debt cash, real estate, insurance, how to make money, dave ramsey, save, credit card, compound interest, buying house, buy, snowball, How $1, 000, 000 Can Be Enough For Retirement

Id: hPQu72-su4w

Length: 7min 14sec (434 seconds)

Published: Thu Jun 08 2023