How your income stacks up

[ulmont]

anybody with even a couple hundred thousand in the bank *could* eat, drink, and be sheltered from the elements the rest of their life without working another day.

No, you can't.  You need much more than US$1 million for that.  The one thing that will kill your plan is inflation.   

$1 million is plenty if you don't want luxuries.  That's already more than many people make in their entire lifetime.

Yes, $1 million can generate an inflation-adjusted $40,000 - $50,000 forever.

[Monoriu]

anybody with even a couple hundred thousand in the bank *could* eat, drink, and be sheltered from the elements the rest of their life without working another day.

No, you can't.  You need much more than US$1 million for that.  The one thing that will kill your plan is inflation.   

I have a fried who travelled through India for 5 months with a budget of a few hundred dollars/month, on the cheap but still comfortably. With a few hundred thousand dollars you can be among the idle rich in many countries.

(inflation could be guarded against in many ways, it wold be possible to put the money in gold or something)

If you are 20-something, maybe you can travel through India for a few months on a low budget.  Try that when you are 70. 

You cannot just say "inflation could be guarded against".  The big question is HOW.  How?  I ask you.  "Gold is a hedge against inflation" is a myth.  Take a look at gold prices in the early 80s.  Then take a look at gold prices in the late 90s.  And finally see the inflation numbers between those years.  Gold prices actually dropped a lot between the 80s and 90s, while inflation went up. 

The only good hedge against inflation is a large, strong, well-diversified portfolio with holdings in bonds, stocks, and cash.  There is a huge amount of literature on this topic, and the general consensus is that you need a portfolio the size of 25 times your expected total annual expenditure to retire.  If you expect to spend US$50k a year, then your portfolio needs to be at least US$1.25 million large.  You may say, hey I don't need to spend US$50k a year.  Keep in mind that medical costs will go up when you retire, whether you like it or not.  And even that is no gurantee of success.  The more safety you want, the larger the portfolio needs to be.

[Ed Anger]

I bury coffee cans full of confederate dollars in the yard.

[katmai]

I bury coffee cans full of confederate dollars in the yard.

Forgot to log in sock Mew

[Pat]

There are many people who have purchased nice houses in poor countries where they have retired and don't have to spend a lot of money in living costs. Living costs from just living somewhere would be lower than the costs associated with travelling.

The value of gold might go up and down, as might the price of any commodity or stock or currency, but at the end of the day there is only so much gold in the world and people have always liked gold and probably always will, because it's shiny and nice to look at and makes good jewellery for example.

[Monoriu]

There are many people who have purchased nice houses in poor countries where they have retired and don't have to spend a lot of money in living costs. Living costs from just living somewhere would be lower than the costs associated with travelling.

The value of gold might go up and down, as might the price of any commodity or stock or currency, but at the end of the day there is only so much gold in the world and people have always liked gold and probably always will, because it's shiny and nice to look at and makes good jewellery for example.

Like I said, we are talking about retirement in your old age, not backpacking.  It is inevitable that the costs of living will be higher when you retire, medical costs alone will ensure that. 

The points you made are exact reasons why gold is not a good investment.  The value of an investment is determined by the discounted value of its future income stream.  Bonds and stocks have value because they generate interest and dividends respectively.  Guess what, gold generates negative value.  It has no income, while it incurs storage costs.  Industrial demand for gold is very limited (compared to platinum).  The demand for gold is determined by the mood of the world population.  Do you want to bet your retirement on that?  That is also why the value of gold is so volatile.  For retirement, stability is your friend, not volatility.  You want relatively stable assets that generate constant income streams, not something that sits in the bank vault and generates no income at all.  There is a good reason why most portfolios don't include gold, or only a very small percentage at best.  Gold stocks are considered some of the most risky ones out there. 

[Admiral Yi]

Like I said, we are talking about retirement in your old age, not backpacking.  It is inevitable that the costs of living will be higher when you retire, medical costs alone will ensure that. 

He's not talking about backpacking (or rucksacking, as they say in his country).  He's talking about retiring to a low cost country.  Plenty of Americans do that right now in Central America and the Carribean.

[DisturbedPervert]

Most people don't have near $1 million when they retire and they manage to survive

[Pat]

Well, I don't think gold will ever go out of fashion. Over history human means of production have changed fast, but human nature very slowly. The price might go up and down a lot in the short term, though, I don't doubt that, but I'd assume that the ups and downs are around the same base-line. As for literature on the subject, no one will pay for a book merely advising "invest in gold". As for medical costs, I'm pretty sure a Swede could jump on a plane home for free healtchare even if he no longer live and pay taxes here, strangely enough, but I understand that might not be an option for a HK citizen.

Gold isn't a very good investment, because it's unlikely to beat inflation, but I don't see why it wouldn't be possible to hedge against inflation with it. I'm pleased to hear inflation makes it hard to live off rent-seeking though, maybe we should have more inflation.

[Monoriu]

Most people don't have near $1 million when they retire and they manage to survive

I am sure people can survive on a lot less, if survival is your goal.  It all depends on what you want.  Thing is, do you want to have a retirement on your terms, or do you want your wishes severely and unreasonably curtailed by the amount of resources you have?  If you know you only want the minimal amount of stuff to survive, then more power to you.  The usual problem is that people have half a million dollars when they retire but expect to live like kings. 

[Capetan Mihali]

He's not talking about backpacking (or rucksacking, as they say in his country).  He's talking about retiring to a low cost country.  Plenty of Americans do that right now in Central America and the Carribean.

And Cañadians in México, especially

[Capetan Mihali]

I love this preemptory warning that a new post has been made when you're trying to respond.     If I gave a shit what people were saying, I wouldn't be posting here!   

[Monoriu]

Well, I don't think gold will ever go out of fashion. Over history human means of production have changed fast, but human nature very slowly. The price might go up and down a lot in the short term, though, I don't doubt that, but I'd assume that the ups and downs are around the same base-line. As for literature on the subject, no one will pay for a book merely advising "invest in gold". As for medical costs, I'm pretty sure a Swede could jump on a plane home for free healtchare even if he no longer live and pay taxes here, strangely enough, but I understand that might not be an option for a HK citizen.

Gold isn't a very good investment, because it's unlikely to beat inflation, but I don't see why it wouldn't be possible to hedge against inflation with it. I'm pleased to hear inflation makes it hard to live off rent-seeking though, maybe we should have more inflation.

You know how the Chinese word for "profit" is written?  It is a composite character, and the left hand side is actually another character.  "Shell".  Seashells.  You know why?  Thousands of years ago, there was no paper money and no gold.  People used seashells as money.  In the Han dynasty, the emperor really liked one guy, and he made him the richest man in China (possibly the world too).  What did the emperor give him?  The rights to the largest copper mine in the empire.  Because Han currency was made of copper coins. 

I'm sure someone once said that seashells will never go out of fashion.  Probably the same thing was said of copper too.

[Pat]

Most people don't have near $1 million when they retire and they manage to survive

I am sure people can survive on a lot less, if survival is your goal.  It all depends on what you want.  Thing is, do you want to have a retirement on your terms, or do you want your wishes severely and unreasonably curtailed by the amount of resources you have?  If you know you only want the minimal amount of stuff to survive, then more power to you.  The usual problem is that people have half a million dollars when they retire but expect to live like kings.

You *can* live like a king in a poor country with half a million dollars. To the general population, you'd live like a king. And wealth is relative, after all. You're probably richer in absolute terms than quite a few real kings 500 years ago, but no one would call those kings poor.

[Pat]

Well, I don't think gold will ever go out of fashion. Over history human means of production have changed fast, but human nature very slowly. The price might go up and down a lot in the short term, though, I don't doubt that, but I'd assume that the ups and downs are around the same base-line. As for literature on the subject, no one will pay for a book merely advising "invest in gold". As for medical costs, I'm pretty sure a Swede could jump on a plane home for free healtchare even if he no longer live and pay taxes here, strangely enough, but I understand that might not be an option for a HK citizen.

Gold isn't a very good investment, because it's unlikely to beat inflation, but I don't see why it wouldn't be possible to hedge against inflation with it. I'm pleased to hear inflation makes it hard to live off rent-seeking though, maybe we should have more inflation.

You know how the Chinese word for "profit" is written?  It is a composite character, and the left hand side is actually another character.  "Shell".  Seashells.  You know why?  Thousands of years ago, there was no paper money and no gold.  People used seashells as money.  In the Han dynasty, the emperor really liked one guy, and he made him the richest man in China (possibly the world too).  What did the emperor give him?  The rights to the largest copper mine in the empire.  Because Han currency was made of copper coins. 

I'm sure someone once said that seashells will never go out of fashion.  Probably the same thing was said of copper too.

Copper or shells isn't shiny the way gold is and doesn't have the same pull on the human mind, and of course you can never be entirely certain (you can't be certain of the global economy surviving in it's current form either). Interesting anecdote though, I didn't know that.