How would you retire with $2 million cash?
Friend has $2m in cash after gambling $10,000 into s–tcoins in 2021 and cashing out in 2022.
I’ve always wondered is it possible to retire with $2m cash today and what is the best way to do it?
I’m thinking:
Put $2m into something that gives 10% returns per year. About $200k passive income per year. Do such things exists and can they payout monthly?
Use that $200K/year to pay for an apartment’s mortgage though I’m not sure where to find money for the 25% cash downpayment assuming it is a condo
Use whatever is left to travel the world and for living expenses.
Essentially, is it realistic to passively receive about $20K every month with $2m in cash right now?
Netizens’ comments
- Where got 10% passive income? Dreaming lah. If there is, everybody would already be putting all their spare cash in it.
- you know if you put it in a 4% fd, thats 80k a year? many ppl dont even earn that in a year.
- Whack it all into dbs shares la
Every year 4- 5% dividend which is about 100k
30 yrs later sell maybe got 3m or more - You pay for the downpayment with the $2 million.
Basically, the basic financial planning fundamentals apply here (and this applies to most of us)
- What are your goals? List them out in concise, and tangible manner. The clearer you are the easier for you
- Rank the goals you listed in #1 in order of priority. Those with highest priority, are those goals you need to be most if not almost certain. Those at the bottom are those you are ok if you don’t reach it.
- For the goals in #1, with the degree of certainty in #2, work out how much you need to fund the goals. Each kind of goals have different attributes, and what you put in them, and how is also different for example, if marriage ranks very highly, and it is within 2 years, you need to set aside $10k for ring, $40k for banquet. Retirement is medium in certainty at this point, and it is 20 years away and you are ok to work, but how much do you need if you plan to retire 20 years later? it depends on how long your money need to last, and the retirement income strategy. It could cost more or less.
- Take that $2 mil, and try to fund each of the goals in #1 based on the priority in #2.
I will give an example. For most, their life is made up of small goals that they need to fund in the next 10 years, and also an income stream for their FI, as well as a dwelling.
You have to rank in term of importance. USually it works out that those small goals have higher priority especially if its tied together with a partner, but lets say you entertainment me that to you financial security is more important. follow by a dwelling, then getting married.
So what you need to work out is… how much do you need to generate an income for financial security? bear in mind, this goal is highest and a lot will go to fund it because you want great certainty, but there are other goals coming after this that needs funding.
You have to think about how much income you need, which is a function of what is the lifestyle, both realistic and aspirational. Is it $2k a month, $5k a month, or $10k a month? That means an annual income difference of $24k, 60k or $120k.
Depending on how certain you wish your income stream to be, you might need to buffer for unlucky economic scenarios. A 10% returns a year, as you said, may be a base or lucky economic scenario. But would you wish to be more conservative by setting aside something safer?
IF this is a once in a lifetime money and you wish to be safer, maybe use a 3% or lower initial withdrawal rate. Google up “Safe withdrawal rate studies” to understand that more.
If it is 3%, that means you need to set aside, $24k/0.03 = $800k, $60k/0.03 = $2 mil or $120k/0.03 = $4 mil.
As you can see… if your income needs is $5k a month, it will eat up that $2 mil, leaving nothing for your other goals.
depending on the size of your goals $2 mil might not be that much.
Returns are usually not uniform. You don’t get $200k, $200k, $200k, $200k. To get 10% which is a high return, it usually involves higher risk or volatility, so do expect years where returns are -$400,000. How would you spend if the portfolio is down $400k? It may need more thinking.