GaijinPunch wrote:Alternatively, IIRC you don't need to pay tax on foreign investment unless you are making more than 80k form foreign investment within a year.
That is called foreign-earned income, and isn't exactly the same. All of my salary is technically foreign earned income b/c I physically live in a different country. You have to take a thing called a 'physical presence test'. It's a few questions on your tax form. If you can't pass it (which you can't if you don't leave the country for X amount of days a year) then you won't pass. You also have to pay taxes on foreign-earned income in the country the money is domiciled in. It's not just tax-free. By doing so though, you can keep yourself in a smaller tax bracket by paying taxes to two different countries.
Oh, that's was what my American friend is talking about. I am not an American, I hold British passport.
Davey wrote:stuminator wrote:you typically can't withdraw money without penalty before age 60
You can take out substantially equal periodic payments before you're 60 without penalty. So you can retire early if your 401k does ridiculously well and you want to retire early at slightly above hobo living conditions (Neon's goal, I presume).
Davey wrote:You'd be giving up a lot of cash, though, since:
A.) You wouldn't be putting more money in
C.) You miss out on boatloads of compound interest
I agree on you on these points.
But for...
Davey wrote:D.) You'd have to change your portfolio to be more conservative, so you would earn less interest in that sense too
"Conservative" investment fund is very expensive, they got low yield and relatively high (to the yield) management fee.
Normally an investment fund charge you ~1% on entire asset value of your position as management fee each year. At the time you retired, according to the plan you got $500,000 worth of asset, right?
1% of $500,000 is $5,000, that should be enough for you to spend for 3 months!! That's why I insists on directly invest your saving in to blue chip stock and avoid investment funds all together well in the beginning. Think of how much you lost in the process (in term of compound interest) when you building up the fortune.
By then you have retired right, you should have time to do the investment yourself. If you take on a defensive approach (of which you should, since you have to more "conservative"), just only takes you a few days every month.
People use to say to themselves that I know nothing about investment it is more risky to manage the investment myself. Well, there is fool prove way as long as you are not too greedy... S&P500 got a 12% p.a. on average, just keep buying SPY and you are done.
But as I said before, to suit the aim of early retirement, you need a something got a high retention ratio (reinvesting most of its profit), and high rate of growth in profit (So that you enjoy a tax-deferred effect.). Blue chips like this that come into mind are AIG or Manulife or Berkshire Hathaway (B shares).
Brian wrote:One share of Berkshire would be more than he is spending on rent for the year.
No, Berkshire got A and B share, 1 A share = 30 B shares. B share are not trading at $4,600. You should be able to afford after the bonus season.
Davey wrote:B.) Your retirement will have to last you decades longer
Yes, assume the inflation is 3% p.a. the interest from bond is 4.5% p.a.
4.5% = true interest rate x 3%
The true interest rate is only 1.46%.
So maintain the purchasing power, you got only $7,300 (assume you have an asset value of $500,000) to spend each year, and you have to reinvest the reminding "earning" into bond to counter inflation.
And that's means you got $608.33 per month.
Early retirement plan with $500,000 don't work? No I do have a way to make it works.
Invest every cents of the $500,000 into stock!! blue chips stock that pay a high dividend (3% to 4.5%) and have a growth rate >= 7%.
Does this thing exists?
Citigroup (NYSE: C) current price $33 dividend $2.16 ($1.512 after tax)
You got a income of 4.58% in dividend after tax. That is $22,900 a year, $1,900 a month for a $500,000 investment.
And the dividend would normal growth in 7% to 10% p.a. You are safe to spend all your dividend. And the growth in dividend should be more than enough to offset the effect of inflation.
The climate of the shock market (bull or bear) got no effect on you, since you are only living on the dividend. You never need to pay capital gain tax, since you are not going to sell the stock for the rest of your life.
BTW, who could get their paycheck raise for 7% to 10% p.a.
*Meow* I am as serious as a cat could possible be. *Meow*