For today's Real Estate Investor Story… I'm going to ignore that I just said “Real Estate” and talk about Milly.
Milly could have won the lottery and net one million dollars. She could have inherited a cool mill. She could have worked her butt off and saved a mill. She could have started a business and sold it to net the mill. But, the story was more tragic than that. She lost both her parents in a horrific accident as a teen and when she turned 18, after all the legal expenses, a million dollars shows up in her bank account.
She opts to invest the money in an index fund (which is an investment that owns all the stocks that make up a stock market index… like the S&P 500 index).
For now, she plans to travel the world… living frugally on $3,333.33 per month ($40,000 per year). It does increase with inflation over time.
The $40,000 per year that she pulls monthly from her stock market investments is based on the 4% rule for safe withdrawal rates.
With $1,000,000 in the bank… she is… in theory… able to safely withdraw 4% of the $1MM (that's the $40,000) per year and… again… in theory… not run out of money.
And that's her biggest fear… running about of money. And, that fear is real. For fun, I ran her
But there were a few times when she went broke. That means she ran out of money, starting with $1,000,000 invested in a stock market index fund and only withdrawing $40,000 (inflation adjusted) per year.
We will certainly be revisiting Milly's situation in the future to see where she's most vulnerable (and how to shore up those vulnerabilities).
For now, check out the overly simplistic
So, to run it multiple times and see how it varies… copy this
FIREd Already with 2 Accounts, 0 Properties, and 2 Rules.
Or, read the detailed, computer-generated, narrated
Modeling Her Situation
- The stock market index fund has a random return each month, but it is based off the historical stock market returns. I used a range of -44.33% per year to 65.47% per year with a standard deviation of 18.30. The mean was 10.57% per year.