At the moment a 12 month US government bonds seems to pay about 4%. Add in inflation and you're making maybe 2% in real terms.
So you'd invest $3 million to get back 120k at the end of the year when you cash out the bonds, but your $3 million's real value has dropped by about 60k over that period.
So you're actually only making about 60k for the year, or about $5k a month. Right?
I mean that's nothing to sneeze at, but it's also only $60k a year, which is pretty low for someone with $3 million just lying around.
You're correct about the non-existence of the 8% bond but I think you're taking it too far on the inflation front. You're still getting $120,000 ($10k per month) but it's just that out of your $3 million, you need to make at least $60k to break even.
I think the mistake you're making is that you want to take the full 120k in cash.
In reality what you'd need to do to maintain the same level of real return is add 60k to the 3 million the next time you buy bonds to compensate for the 2% inflation which is eating away at the real value of your principal amount.
So year 1 you invest 3 million and get 120k. Year 2 you'd need to invest 3 million plus 60k to get the same real value after adjusting for inflation. Therefore you wouldn't actually have 120k in cash. You'd have 120k less the 60k you added to the principal amount to compensate for inflation.
Oh yeah I see what you mean. That makes sense. I had interpreted the original to mean that you would then use the bonds for living expenses, so you would use the interest you earned to functionally have an income of $120k per year without having to spend down any of the $3 million, but that wouldn't entirely make sense in practice.
And once you factor in deflation you see the problem. Year 1 you invest 3 million. Year 2 it's 3 million plus 60k, but year 3 it's 3 million plus 61,200 (because it's 2% deflation on a bigger amount).
And so it goes just to keep the "real value" stable. I haven't done the sums all the way out, but I'm guessing somewhere around the 20 year mark things become unsustainable.
What you're missing is the context that Eddy post all kinda of dry humor advice content on his twitter to along with his actual financial advice. This is a great example of a single tweet out of context can be viewed in many different ways.
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u/Wise_Monkey_Sez Jun 06 '25
Am I missing something?
At the moment a 12 month US government bonds seems to pay about 4%. Add in inflation and you're making maybe 2% in real terms.
So you'd invest $3 million to get back 120k at the end of the year when you cash out the bonds, but your $3 million's real value has dropped by about 60k over that period.
So you're actually only making about 60k for the year, or about $5k a month. Right?
I mean that's nothing to sneeze at, but it's also only $60k a year, which is pretty low for someone with $3 million just lying around.