Retire with $500,000 at 10% annually? Tell me why this won't work.
Recently a friend shared that one could retire with $500,000 in an ETF that gives 10% annually, saying that the S&P 500 gives 10% annually, even 12 to 15% and that 10% is being conservative.
With a withdrawal of $40,000 annually, the $500,000 portfolio will continue to grow and money will never run out:
Using a compound interest calculator: he projected 50 years of return. At the end of 50 years, the portfolio will grow to $17.5 million, and this amassed wealth could be left to the next generation when pass away.
https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php
So he is saying that regardless of age, as long as one has $500,000 portfolio, the money will just increase forever.
I rebutted saying what if on one year the S&P drops rockbottom, and again on the next. Or taking into account inflation. His answer was to have aside at least 2 years of cash in safer funds (eg: bonds, fixed deposits), and to spend within means, until the bear market tides away.
On the other hand, I have read articles that said 1 million is not enough to FIRE at even a modest age of 45. Can anyone play devil's advocate and tell me why his $500,000 portfolio won't work? What's missing in his calculations?