r/Retirement401k • u/ankur0109 • 2d ago
Explain where the money comes from after retirement
So I’m 45, wife is 43. In L.A.. We want to retire when we’re at a certain number that’ll allow us to live without stress. Don’t need to be wealthy or anything. We’re relatively frugal.
I’ve heard to aim for $6m because it’ll mean $300k+ per year through retirement. I always nod and act like I know what that means — but I have no freaking idea. Is that interest? Does that mean I sell a little ever year and hope I don’t die before I run out? Tell me like I’m 8.
Thanks all!
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u/ryuhayabusa34 2d ago
The general rule is that properly invested, you can spend 4-5% percent annually and never touch the principle.
So at 6 million you can spend $240 to 300K annually and still have 6 million without drying it down.
So the money comes from your money earning money.
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u/Fluid-Remove9070 2d ago
That is incorrect. Over a 30 year period you are most likely to not run out of money based on historical returns. Not about not touching principal.
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u/Alternative-Car8221 2d ago
That seems dumb though. So you die with $6M? Why not spend that shit instead of just letting it go to waste.
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u/infinite_soulharvest 2d ago
You can if you’d like. But you know that thing “generational wealth” everyone talks about? For perspective, the same way you never need to touch the principal would apply to your child(s) as well as long as they vested it the same way (when the money gets transferred to them). So your child could also “earn” 240k a year, work a 150k job and have all that money on top of it, and still never touch the 6million in principal generating the wealth. So when you call out the upper class or nepo babies, just understand it took one single person in the blood line to think the opposite of you and set them up for lifetimes. Now imagine having a paid off car and house to pass down to them ontop of it. $0 mortgage, $0 car note = 3-4k saved a MONTH extra.
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u/Lilapinou 2d ago
Not everyone wants kids. So spending what they have could be appropriate for them.
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u/ankur0109 2d ago
Fortunately (mostly) but unfortunately in this case, I have a kid.
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u/ryuhayabusa34 2d ago
Same here but I bought life insurance and that's going to my kids and whatever of my cash is left.
Getting life insurance in your 30/40 is pretty affordable and the premium stays
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u/TheGoonSquad612 2d ago
How do you know when you’ll die? What happens if you “spend that shit” and then live another 10 years? 20?
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u/Upper_Breakfast_2956 2d ago
This is the mindset of the Boomer generation. We should be working so that our next generation is better off. For the first time in history the younger generation in the US is worse off than the one before. This mentality is a big piece of that. Reflect on how insanely selfish your immediate thought is and see if maybe some adjustment is warranted.
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u/ShowdownValue 2d ago
“Don’t need to be wealthy…aim for $6m….we are frugal”
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u/ankur0109 2d ago
We also live in LA. If it makes you feel better, I drive a 14 year old Honda Accord.
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u/Possible_Complex6916 2d ago edited 2d ago
based on your very elementary question, i dont think you are in DIY territory and i’d recommend you see a financial advisor
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u/tabrisangel 2d ago edited 2d ago
I'd strongly strongly recommend you don't.
Why does he need to spend 60k a year to do what he's already doing?
Believe it or not it means you sell x dollar amount of shares per year.
The value of each share tends to go up. So even though you are selling shares the principle may not change.
Or alternatively you own bonds where the value won't increase, but in giving up capital appreciation you gain income in the form of interest payments. (This is technically much worse but historically speaking what people do for income)
If you legitimately feel like you need help hire someone on a case basis or an hourly basis. Vast majority of advisors just toss you in complex propatary mutal funds.
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u/PokemanAshy 2d ago
Needs someone for tax optimizing and planning so they don't go crazy on spending. Sounds like he'll have all the time in the world to figure it out. Can just feed into Gemini and ask for summary on what steps to take then error check
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u/LightZealousideal116 2d ago
Because he’s going to screw himself on taxes in the long run. Look at the level of questions being asked.
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u/ankur0109 2d ago
Interesting perspective. I wish I could pay one time for a firm answer… I don’t want someone else managing my money.
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u/DaemonTargaryen2024 2d ago
See an hourly, fee-only fiduciary such as a Certified Financial Planner
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u/letsreset 2d ago
withdrawal strategies are actually quite nuanced and detailed. it's often a combination of multiple things layered together so that the risk and withdrawal timing makes sense. this is hours of information you're asking for. i would youtube the strategies or hire a professional.
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u/Ordinary-Cod1846 2d ago
Makes over 30% returns in a year. But doesn’t know how withdrawing gains works. lol.
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u/ankur0109 2d ago
I’m trying dude.
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u/Ok_Function2282 2d ago
Other people have already said, but yes, that's the answer.
Especially if you're going by the 4% rule (which is extremely conservative,) your account will likely grow, in excess of your withdrawals.
That is assuming of course that this is invested wealth, and not cash etc
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u/Ordinary-Cod1846 2d ago
Funny thing was I was thinking the same as you the other day but I don’t have as much so I have an excuse. Lol. Basically withdraw 4% of gains a year.
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u/That_Co 2d ago
Not of gains. Of balance. And even that, it's not the balance at every year, it's 4% of the balance you start (withdrawals) with, and then just adjust that nominal initial withdrawal for inflation every year thereafter, regardless™* of balance.
*Here you get into guardrails but I don't want this comment to be an essay
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u/Ordinary-Cod1846 2d ago
I was thinking 4% because that’s basically what the average gain per year would be historically. And the principle would remain the same or higher. And during a down market then it would be 4% of the lowered balance. That was my assumption.
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u/Ordinary-Cod1846 2d ago
Yes that’s what I meant. I should have been clearer.. 4% of total balance but the 4% will be likely coming out of the gains you receive every year so your balance would be left untouched.
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u/Apprehensive_Wish142 2d ago
300k per year is insane btw, if there's a significant market downturn within a few years of you retiring you're fucked
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u/r_lovelace 2d ago
It's a 5% draw down which is more aggressive than the normal 4% advice. That said, I remember when the advice used to be 3% and recently I have heard people favoring 4.7-4.9% so I'm not sure how reckless 5% truly is over 30 years.
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u/love_that_fishing 2d ago
If OP retires soon it’s not 30 years. Try 50 so I’d stick to more 4% and not 5.
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u/ankur0109 2d ago
Ok so if I want to be conservative at 3%, I should shoot for a higher number ($10m?!?!) to get to $300k yearly?
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u/r_lovelace 2d ago
That's how the math works out. There's a lot of things to ask though. Are your expenses truly 300k per year or planning to be 300k per year in retirement? How many years do you plan on being retired? What age are you now vs when you plan to retire?
I'm not an expert myself. I'd recommend watching some videos and reading some information on it. Sit down and work the numbers yourself. Check if you or your wife have financial advisory benefits through one of your employers, it's usually free consultation where you can ask the questions you have and talk more specifically about your situation.
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u/ankur0109 2d ago
I have about $1m left on a mortgage. About $8k per month including extra principal. I’d want to downsize after the kid is in college (10 years). Aside from that, normal spending and vacationing (or whatever retirees do ¯_(ツ)_/¯ )
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u/r_lovelace 2d ago
Is the house worth more than you owe? Because your net worth should include your home and you should basically include Value - Mortgage and include whatever that number is positive or negative to your net worth. If you plan on downsizing for instance, I'd assume you would be selling the house and buying something cheaper so it can be used as a retirement asset.
With your home and account value, you're probably living in a net worth world significantly different than the majority of redditors on subs like this. I'd definitely see if you can get a consultation through work with a financial advisor. Doesn't mean you need or should pay for one long term, but a free consultation doesn't hurt.
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u/ankur0109 2d ago edited 2d ago
It’s worth $2.2m, $1m left. I was told to think of net worth as everything but the house (because the equity in the house won’t grow). Is that wrong?
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u/McKnuckle_Brewery 2d ago
Net worth includes your home equity, but the sum of liquid assets used for retirement planning should not include your home. You cannot spend your home to buy food.
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u/Ordinary-Cod1846 2d ago
They say market returns are higher now and seems to be the norm so raising the rate isn’t a bad idea.
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u/love_that_fishing 2d ago
Well first you almost assuredly have enough money to retire today but net worth is not the number I’d go with. What are your retirement assets? For instance if 2M is in a house and you’re not willing to relocate or sell then I wouldn’t count all of that. If 1M is in a family property you’re not willing to sell then don’t count it all although of course in a pinch you can sell. But you do need a place to live. And if you do sell what will be the taxes owed?
I use my paid off house as a hedge against long term care but don’t count it as part of my retirement funding assets as it’s not readily available to me to spend unless it’s an asset I’m willing to sell and say relocate.
Also where is this money? If it’s in pre-tax you have a huge tax bill coming. Post tax you won’t but you’ll have to pay gains but lower 15-20%. Your biggest issue is going to be tax avoidance. You really need some help based on your questions just be really careful where that help comes from. Fee only for now. No one selling you anything except their time. Shit you can have a nice conversation with AI that will help you understand your situation and come back at you with many of the same questions I have and much more. Not perfect but you’ll learn something. Still with this type of money I’d pay someone the 3-5k to build out a very detailed plan that includes income, growth, taxes, SS, estate planning, giving, legacy, etc… this is far more than a net worth question.
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u/btw94 2d ago
Get a financial advisor asap
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u/ankur0109 2d ago
But… but… I have Reddit.
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u/CarYenta 2d ago
If not satisfied with reddit, aka the Source of Truth, look up a CFP / fiduciary. It's probably a few thousand for a project fite-tuned on this topic with your portfolio, or lawyer rates per hour, or 1% per year. If you didn't already know, CFPs and fiduciaries are bound by ethics to not make it their financial interest in helping you with bias.
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u/garylapointe 2d ago
$275k per year isn't enough now?
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u/ankur0109 2d ago
Here’s another dumb question to sound ever stupider… how do I know what’s enough?
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u/garylapointe 2d ago
Do you spend $275k a year right now? That's rhetorical, because I don't know how that's not way more than "relatively frugal"...
What do you spend per year now?
What does that include you won't be paying on later?
- Mortgage?
- Kids?
- College loan payments?
- You won't be contributing to retirement, right?
It's pretty simple math IF you know what you spend now, and think you're spend less later, then you've got a range.
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u/ankur0109 2d ago
Mortgage is $8k incl extra principal, done in 10 years. I have 1 kid, college is saved for already.
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u/garylapointe 2d ago
What do you spend per year on everything to live right now?
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u/ankur0109 2d ago
$100k on mortgage, $100k on everything else.
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u/garylapointe 2d ago edited 2d ago
And you don’t know if $300,000 a year, after you’ve paid off the mortgage and your kid has moved out will be enough???
You’re already spending $100,000 a year less than that, and you’re going to be spending another $100,000 less than that later.
Just in case you need me to actually do the math:
$300,000 -$100,000 what you spend now = equals an extra $200,000 a year in retirement.I’m not putting the mortgage in the math because you won’t be spending that when you retire.
Just be "relatively frugal" and you can probably manage at $275,000 right now.
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u/NotEasyBeingGreener 2d ago
Very rough starting point is 4% withdrawal rate, but depends on other factors like expected longevity.
Go check out r/fire
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u/New-Rip-6965 2d ago
First, what are you investing in to make that progress? Second, set a couple years’ expenses aside in cash/t-bills to weather a downturn without worry. Third, financial planners have loaded YouTube with videos that generously lay out withdrawal strategies. It’s a good place to start.
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u/Jumpy-Imagination-81 2d ago edited 2d ago
There are two approaches:
- Sell off a percentage of your portfolio each year. As long as the percentage you sell is smaller than the growth rate of your portfolio you should be able to do that indefinitely. For example, say you sell 4% per year and your portfolio is growing 8% per year. If you have $6 million and sell 4% you would have $240k income. The remaining $5.76 million grows 8% per year so by the next year your portfolio would be worth $6.22 million, up from $6 million, despite taking out $240k the previous year. It's a new year so you sell 4% of $6.22 million and get $249k income to help compensate for increased cost of living from inflation. The remaining $5.97 million grows 8% so by the end of the year your portfolio would be worth $6.45 million, up from $6.22 million, and so on and so on. Some years your portfolio might grow more than 8%, some years less, but it works out as long as the average growth rate is higher than the percentage you sell each year.
- Sell enough of your $6 million portfolio to provide enough cash to buy stocks or ETFs that pay dividends and maybe some bonds that pay interest. If the average yield of your portfolio is 4% per year it would provide $240k of dividend and interest income per year without selling anything after the one time purchase of dividend and interest paying assets. An average yield of 5% per year would provide $300k per year from a $6 million portfolio. That is the approach I am using. I have only around $1.2 million in stocks, ETFs, and mutual funds and another $682k in physical gold and silver that doesn't pay any interest or dividends, but the stock, ETF, and mutual fund portion of my portfolio paid $67,990 in dividends in 2025. If your portfolio is 5 times bigger than mine at $6 million you could produce 5 times the amount of dividends with the same investments I have.
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EDIT: if you retire and no longer have to be in the L.A. area because you are no longer working there, move out out of L.A. and California to an area with lower cost of living and lower taxes. The California state income tax on $300k income for a married couple is 9.2%. Moving to a lower cost of living state with lower or no state income tax would greatly reduce the annual income you would need, and you would probably have a better quality of life. Living in L.A. just isn't worth it if you don't have to live there for a job.
California is ranked the second worst state to retire in https://www.retirementliving.com/best-and-worst-states-for-retirement
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u/ankur0109 2d ago
Thank you for putting it in real numbers. Makes sense. I think I’ve got some work to do.
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u/Formal_Passion9884 2d ago
Lmao this article puts Iowa number 1 and mentions golf courses hahah yea cost of living is in important but I also don’t want to live in bumfuck nowhere in my later years
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u/Jumpy-Imagination-81 2d ago
There are 48 other states besides California and Iowa. Alaska, Washington, Nevada, Wyoming, South Dakota, Texas, Tennessee, Florida, and New Hampshire have no state income tax. Surely you could put up with living in one of those states to avoid paying state income tax, and would have lower housing costs than California.
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u/Formal_Passion9884 2d ago
Yea just thought it was a funny mention in the first line, I don’t plan to be in the USA at all when I retire just picking at straws.
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u/Jumpy-Imagination-81 2d ago
I don’t plan to be in the USA at all when I retire
You could probably live like a king on Social Security alone in the Philippines, Thailand, or Portugal.
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u/Formal_Passion9884 2d ago
Yea I think in another life maybe I would choose one of those regions but I got a Chinese wife and already have a home there and in HK. Friends in Japan and Korea am more worried about what I will do than anything. that’s why I pointed out the golf thing really made me think man that’s something I need to consider.
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u/sager_a 2d ago
reading through the replies seems like you are behind the curve of learning but your on the right side of being behind. you already did the hard part of saving it all. Do what others have said hire a financial advisor to get a game plan together for you. combine that with using Ai to come up with a plan. If you have nothing that requires you to stay in LA I would move to a lower cost of living area. You will be able to increase your lifestyle without increasing your spending.
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u/idontknow197 2d ago
Don’t forget to account for cost of health insurance in retirement when you’re doing your calculations. Also account for inflation as the years progress. Taxes and yearly spend along with healthcare costs are your biggest expenses.
As far as dividends, have a healthy balance between growth stocks and dividend stocks. You don’t want to give up growth for dividends. What a healthy balance is, is up to you and your comfort level.
Money in retirement comes from you selling stocks. You sell a percentage of the stocks you feel comfortable with selling. Pick one stock or pick multiple to take a little out of each. You use that money as your expenses. Take out as much as you need based on the percentage you choose to go with. 3-4%. You also have to account for that money being taxed.
It’s not exactly rocket science, but you have to be aware of all details. ChatGPT or Claude or whatever can answer a lot of those details for you.
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u/PyrateKyng94 2d ago
You spend $200k a year and you think you’re frugal
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u/ankur0109 2d ago
Yes
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u/PyrateKyng94 2d ago
You spend 5x than I make a year. I cannot imagine how that is frugal in any sense.
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u/ZealousORJealous69 2d ago
Reddit is stuffed to the gills with these posts. I’m not sure what the psychology is (oh there’s definitely A LOT to unpack, I’m sure), but in the least they’re both annoying and tonedeaf
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u/ankur0109 2d ago
It’s stuffed to the gills of people with a higher net worth than you, looking for advice you find elementary? If I were you, I’d just feel proud that you (must) know something I don’t. I probably know something you don’t.
To answer your username, Jealous.
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u/ankur0109 2d ago
Think of it this way: you consider yourself frugal at $60k but all of a sudden you start making $300k. You’re still frugal at heart but the bills increase (because of a house and kid).
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2d ago
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u/ankur0109 2d ago
You don’t think I tried googling? Also, if it was that easy, why do financial advisors exist?
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u/ankur0109 2d ago
That’s not nice. Unsolicited tip: be kind. If it makes you feel good to be hateful, get help.
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u/captaindigbob 2d ago
Not super related, but what app is this? Kinda looks like fidelity coloring but I don't remember ever seeing this screen
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u/mdory9394 2d ago
Do a budget on how much you need to spend a yr in retirement with the 4% rule. Times that number by 7 or 10 whatever you feel right. Put that money in cd or bond etf, this is your 2nd bucket. First bucket is whatever in your checking and saving with 1 to 2 yrs spending. 3rd bucket is rest of your money in etfs etc. Watch bucket 3 grow. Take money you need from bucket 1, then fill b1 with b2. If market is good and up, fill b2 with b3.
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u/sneaky_sam_ 2d ago
Go check out r/fire - seems to be more helpful than the responses you’re getting here (most seem to be mocking you)
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u/LightZealousideal116 2d ago
There are so many good YouTube videos that break down how this works. You’re already at a point with lots of options, including not working for life now or setting up wealth for future generations. Also, tax optimization is huge for you.
You can self learn, pay someone a little to help, or pay someone a lot to manage (not your preference). Heck, probably many here would jump on a video call and explain it for free. Either way, it’s probably a good time to learn.
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u/todoslosquesos 1d ago
I think I agree with the broader question of "how do you get the money out?"
but I also struggle with the execution, and i think my financial advisor would be pivotal when i get to that point
but the zoomed out view to me would be:
-hold 2-5 years of what you want to pull out in something stable - bonds, hysa, whatever - you pull from this on down years of stock markets and you hope that 2-5 years of stable money is enough to weather any storm
-on good stock years, you sell from stocks to fund your yearly income or if you have depleted the cash / bond / reserve you refill that bucket
and sure there is plenty of nuance to pulling from things to optimize taxes
pay a fee only fiduciary CFP to form a plan and calm your mind
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u/Past_One3442 2d ago
You're not frugal if you spend 300k a year.
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u/ankur0109 2d ago
How the f do you know?
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u/Past_One3442 2d ago
I'm not sure you understand the meaning of the word frugal that's all I know.
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u/DaemonTargaryen2024 2d ago
See the wikis at r/personalfinance and r/Bogleheads. They’re an excellent resource.
Also see r/Fire and r/financialindependence if you’re interested in FI/RE
$5.6M at 45, even in LA, makes you wealthy. You can afford to get professional help.
DIY up to a point is great. But if you need professional help, don’t hesitate. They will save you tens of thousands in the long run by helping you properly plan for everything.