How many people thought about this as a kid? How many people still do? Whoever Lief Welcome is, he or she points out that a million doesn't go nearly as far as it did when we were kids, especially real estate.
Lief shared a small home needing a great deal of work that was posted for sale in 2018 for $750,000.
It might have cost a million by the time it was livable.
My sister just bought a 2-bedroom townhouse near San Francisco for $1.1 million and she will probably pay $100,000 remodeling a house that we thought was amazing--and paying more in HOA fees than Mom pays in rent.
In other words, the best time to buy real estate was years ago.
Lief wrote "In 2020 savings accounts have an interest rate of around 0.6%."
Is that the mean, median, or mode?
Oh the glory days of a $6,000 annual return on $1,000,000 in savings!
"The national average interest rate for savings accounts is 0.06 percent, according to Bankrate’s June 2, 2021 weekly survey of institutions."
Bank of America pays me 0.01% and Navy Federal yields 0.25%. I have always found higher rates, but if I had enough money to buy more than one cherry limeade a month I would have enough to actually use.
Comenity Direct offers .55% and Ally and Marcus by Goldman Sachs offer .50%, but don't require an opening balance.
Hopefully I get back up to $9,000 in savings soon, so I am giving up on $27 annually.
Think what I could do with all of that!
Quote:
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Even if you gave up on living off the interest and lived off the money itself you’d only be able to spend $36,000/yr and still run out of money in 30 years.
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Inflation!
The best account right now pays .55%, while inflation will be around 3%, so on top of pulling out $36,000 annually you would lose 2.45% a year to inflation.
$1,000,000 / 1.0245 - $36,000 = $940,085.90.
The first year you lose $24,500 in interest!
In this scenario $36,000 a year would last 22 years, but you would be able to buy barely half as much in the end.
Accounting for inflation, $36,000 (today and $57,769.43 in 2039) will last 18 years.
Lief's plan:
- Pay off bad debt ($25,000)
- Put $975,000 in a 6-month CD and plan. He claims this wouldn't cost anything, but remember? He ignores inflation! It would cost $10,985.20.
- Invest your 401k for this and next year: $39,000
- Spend $10,000 on courses through something like Udemy to learn useful skills.
- Get better credit cards and refinance that bad debt you already paid $0.
- Put $25,000 in savings, bonds, or something safe and easily-accessed for an emergency.
- Put $500,000 into index funds.
- Instead of paying off your mortgage, get into real estate! Instead of saving 3% a year on a mortgage, near the inflation rate (which, of course Lief doesn't mention), he averages an 8% cash flow from his rentals. Lief says you should get $32,000 annually from real estate and $20,000 from index funds.
"[O]nce you have one million dollars you have more money than 92% of adults in the USA."
It sounds boring, but I believe it is sound.
What do you think?