John Waggoner writes about how much is enough to retire – a million? His answer is a qualified “yes.” How much do you withdraw each month and where are your funds invested? He echoes my prior sentiments from my post, “The Value of a Million Dollars Today… Back Then…”, stating the most glaring caveat is inflation. In that post, I noted that even though we have been using the term “millionaire” for some time now, the buying power of a million dollars dwindles every passing day. For example, $1 million dollars in 1960 would have the same purchasing power as $8 million today.
Waggoner then provided some interesting circumstance laying out how your retirement would have fared in various investments had you begun your retirement with $1 million in October of 2004. Assuming annual withdrawals of 5%, or $50,000 to start, and taking these in monthly increments, here is where you would stand:
• S&P 500 index funds. Even after taking $50,000 a year from your account, you’d have $1,279,000 a decade later. It would have been a scary ride, because this is a pure stock portfolio. By the bottom of the bear market, in March 2009, your account would have fallen to a bit less than $581,000. But the S&P 500 has gained 178% since March 2009, including reinvested dividends.
• Balanced funds. Traditionally a mix of 40% bonds and 60% stocks, these funds are noted for relative stability and yield. After a decade of withdrawals, you’d have about $1,134,000.
• Government bond funds. Unlike stocks, bonds really haven’t had a bear market in the past decade. But they don’t pay a great deal of interest, either. The bellwether 10-year Treasury bond yield has averaged 3.35% since October 2004. Your account after a decade of withdrawals: $899,000.
• Money market funds. You’d have problems here, because money funds have yielded less than the North Koreans on trade talks for most of this decade. Your retirement kitty after a decade of withdrawals: $640,000.