Minimum Lotto winning you could retire on?

[blessbrenda]

Cross posting here from r/Ireland also for different perspectives. What's the minimum Lotto winnings you reckon you could retire on?

After the Euromillions being €240 million last week, the Irish Lotto is €10 million tonight, and it has me on thinking.

How much do you think you could leave your job for and live comfortably on? How would you plan it to make sure it lasts?

 

[renewright]

@blessbrenda Using the 4% rule and my households current outgoings, 1.5m would be enough for myself and the wife to retire and maintain current living standards.

 

[blessbrenda]

@renewright Can you explain the 4% rule? I think that guy over there might not be sure!

 

[anke3000]

@blessbrenda Basically the FIRE philosophy - save/invest enough that you can infinitely live off 4% withdrawal rate for life. Theres a few forums dedicated to it on here....but tbh, unless you are a high earner its unachievable for most of us.

 

[renewright]

@blessbrenda Basically that if you have a fund of money invested in a diversified porfolio and withdraw 4% of it year one, and then adjust that figure for inflation going forward, it should theoretically last you. So once that 4% year one figure you arrive at is at or above your current outgoings, you are potentially in a position where you can hang up your boots and maintain your current standard of living.

Not guaranteed of course, but a good rule of thumb.

 

[xemketqualode]

@renewright "Safe withdrawal rate" is the term if anyone wants to look it up. It's an amount you can take out and expect that the overall return from a diversified portfolio will grow just about enough to keep up with inflation plus the amount you're taking out. Effectively this means your lump sum remains at the same inflation-adjusted value forever even while you're withdrawing an amount annually that also keeps up with inflation.

If you imagine a diversified portfolio grows by an average of 7% after tax, inflation is 3% therefore the SWR would be 4%. If you had €1,000,000, then next year you need it to be worth €1,030,000 (your 1 million plus 3% inflation) to have the same buying power. If your investment returns 7% after tax then you actually have €1,070,000 so you can withdraw the difference €40,000 and be left with the €1,030,000 you need to be as well off as you were a year ago.

Every subsequent year the same thing happens but with all amounts increased by the inflation amount, so in year 2 you're withdrawing another 40,000 plus 3% inflation, and in year 3 It's another 3% again. Your investment returns are also increasing by the same amount due to compounding.

Effectively the money never runs out. Of course nothing is guaranteed but on long term averages, this should work out.

Don't focus on the specific amounts, this is just illustrative to explain the concept although it's probably fairly close.

 

[spinuscyn]

@xemketqualode Only thing is, what are you going to invest in Ireland which will reliably provide a 7% return after tax?

 

[xemketqualode]

@spinuscyn Most diversified ETFs like FTSE All-World or S&P500 trackers return an average of about 7% after tax - they approximately double in 7 years, minus 41% tax on the gain only, is 159% of the original investment, which is right about 7% CAGR.

 

[spinuscyn]

@xemketqualode Ya fair enough. I don’t know enough to dispute this.

But would be cautious because of things like deemed disposal, which effects the return from compounding,

Also the fact that ETFs available to Irish investors seems to have higher expense ratios tha the equivalent in the US.

Just thinking if 4% is considered a safe withdrawal rate in the US might it be prudent to assume a lower percentage here when factoring in the disadvantages of investing in Ireland?

 

[xemketqualode]

@spinuscyn I'd be going lower than 4% certainly if I was in a position to try it, just relaying what the rule of thumb is

 

[spinuscyn]

@xemketqualode Ya thanks - you did a good job explaining it.

And have seen it with regards to ARFs in Ireland thought fair enough (think they have a minimum u 4% withdrawal rate anyway so yiu don’t have much choice ) but feel with the disadvantages of post tax investing in Ireland the number must be lower!

 

[porpoise]

@xemketqualode Why not aim to have €0 in the bank on your last day.

 

[xemketqualode]

@porpoise How confidently can you predict your last day? If you think you'll live to 90 and empty the bank account by then, how do you fund your 91st year? Regardless of how likely you think it is, you're fucked if you find yourself broke while still alive. If you want to overestimate and cover yourself until a more extreme age, say 110, then you realistically expect you'll die with loads left anyway so it isn't meaningfully different. Either way, the big problem is the impact of decades of inflation, that'll screw you even if you only make it from your 30s to your 60s - the only way to counteract that is to have investments that grow. You could take a bit more out and let the nest egg decline, but that's a vicious cycle where every subsequent year its returns will drop too.

 

[porpoise]

@xemketqualode I would be happy with my memories by 80-85. After that, in declining health, won’t need it. And this is my plan actually - with less money.

 

[xemketqualode]

@porpoise But how do you feed yourself if you have literally no money?

 

[porpoise]

@xemketqualode I’ll have a state pension. That’s what most people have at that stage.

 

[christians]

@porpoise [ Removed by Reddit ]

 

[resjudicata]

@porpoise I once heard someone say if you can die in debt you’re winning

 

[resjudicata]

@xemketqualode

Effectively the money never runs out. Of course nothing is guaranteed but on long term averages, this should work out.

Does it account for emergencies? This sounds like some person thinking too optimistic and not understanding that life is a lot more complicated than just a bunch of number adding up.

 

[louy51]

@resjudicata It's a rough guideline, do with it what you feel suits you best. Very obviously if you have an 'emergency' that costs money and you have to spend more than the 4%, then you're going outside the bounds of the rule.

IF you keep spending under 4%, you're generally able to upkeep and live off the interest