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HOT TOPIC Can I live off of interest on $100 Million for life?

FastLaner007

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If I earn $100Million after taxes via businesses in the USA and Europe, what taxes will I need to pay on yearly interest/dividends of 5% from investments of the $100Million principal after accounting for 3% inflation for example? I am 27 now BTW. And let's assume that I will live till 85. Can I live a luxurious lifestyle while simultaneously beating inflation and not touching the principal forever? In fact I want the principal to grow every year in proportion to inflation.

Appreciate your valuable replies, FastLaners.
 

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Harbourmaster

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I only have one question - how did you make your $100,000,000??

Sounds like a story that is worth telling!

Or is this a hypothetical situation?

The answer is, of course you can. At a 2-6% return (depending on risk tolerance) you’d be generating between $2M-$6M dollars a year. If inflation is 2-3% you are ahead of the curve.

To be honest though, if this is hypothetical you are better off putting your mental energy and focus towards getting to that point as opposed to thinking about what you will do with the money once you’re there. It’s like deciding what colour Lambo you will get right now, even though you can’t afford one.
 
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Healthfulness

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I only have one question - how did you make your $100,000,000??

Sounds like a story that is worth telling!

Or is this a hypothetical situation?

The answer is, of course you can. At a 2-6% return (depending on risk tolerance) you’d be generating between $2M-$6M dollars a year. If inflation is 2-3% you are ahead of the curve.

To be honest though, if this is hypothetical you are better off putting your mental energy and focus towards getting to that point as opposed to thinking about what you will do with the money once you’re there. It’s like deciding what colour Lambo you will get right now, even though you can’t afford one.
I believe that person who has 100,000,000 wouldn't need to ask such question, as he/she would definitely know what to do with It. I am assuming this as It takes insane knowledge and experience to aquire that money and that knowledgeable and experienced person would have multiple different income streams that would mutliply his 100 millions many times until age 85.
 
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FastLaner007

FastLaner007

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Thanks for the replies so far guys. I have not earned the 100 Mil yet. I wanted to ask the question for motivation as I am on track to starting some high growth ventures. Many guys in my markets have made hundreds of millions and even billions.

So, coming back to my question. Can someone clear my doubt with some numbers? Let's say:

5% dividends and interest from investments => $5 Million
Inflation => 3% ($3 Million)
Taxes => 15% to 40% approx? (Not sure how much would the capital gains tax is be).

Will I be paying taxes on the whole of 5% interest/dividend income or on 2% (after deducting the 3% inflation rate from the 5% interest)?

Please kindly answer my question above guys as I have not yet found an answer online for many days.
 

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Thanks for the replies so far guys. I have not earned the 100 Mil yet. I wanted to ask the question for motivation as I am on track to starting some high growth ventures. Many guys in my markets have made hundreds of millions and even billions.

So, coming back to my question. Can someone clear my doubt with some numbers? Let's say:

5% dividends and interest from investments => $5 Million
Inflation => 3% ($3 Million)
Taxes => 15% to 40% approx? (Not sure how much would the capital gains tax is be).

Will I be paying taxes on the whole of 5% interest/dividend income or on 2% (after deducting the 3% inflation rate from the 5% interest)?

Please kindly answer my question above guys as I have not yet found an answer online for many days.
Why do you think you would get a deduction for inflation? Do you now? If not, why would you *when* you're rich?
 

G-Man

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Why do you think you would get a deduction for inflation? Do you now? If not, why would you *when* you're rich?
You're missing the point. There's no point in going for the hundred million in 10 years if it's only worth 90 million in today's dollars.
 

CareCPA

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You're missing the point. There's no point in going for the hundred million in 10 years if it's only worth 90 million in today's dollars.
Good point. Guess I won't get off my couch today then. Not even worth it for only $90 million.
 

G-Man

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If I earn $100Million after taxes via businesses in the USA and Europe, what taxes will I need to pay on yearly interest/dividends of 5% from investments of the $100Million principal after accounting for 3% inflation for example? I am 27 now BTW. And let's assume that I will live till 85. Can I live a luxurious lifestyle while simultaneously beating inflation and not touching the principal forever? In fact I want the principal to grow every year in proportion to inflation.

Appreciate your valuable replies, FastLaners.
Joking aside, this question is a little like the kid at batting practice worrying about if his agents going to screw him if he somehow gets signed by the Yankees in 10 years.

Don't worry about it, and just focus on the business you're working on.
 

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Harbourmaster

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Thanks for the replies so far guys. I have not earned the 100 Mil yet. I wanted to ask the question for motivation as I am on track to starting some high growth ventures. Many guys in my markets have made hundreds of millions and even billions.

So, coming back to my question. Can someone clear my doubt with some numbers? Let's say:

5% dividends and interest from investments => $5 Million
Inflation => 3% ($3 Million)
Taxes => 15% to 40% approx? (Not sure how much would the capital gains tax is be).

Will I be paying taxes on the whole of 5% interest/dividend income or on 2% (after deducting the 3% inflation rate from the 5% interest)?

Please kindly answer my question above guys as I have not yet found an answer online for many days.
You missed the entire point and now you are wasting everyone’s time.

By your own words, you have spent days researching this without an answer. What a waste of energy.
 
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AgainstAllOdds

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Thanks for the replies so far guys. I have not earned the 100 Mil yet. I wanted to ask the question for motivation as I am on track to starting some high growth ventures. Many guys in my markets have made hundreds of millions and even billions.

So, coming back to my question. Can someone clear my doubt with some numbers? Let's say:

5% dividends and interest from investments => $5 Million
Inflation => 3% ($3 Million)
Taxes => 15% to 40% approx? (Not sure how much would the capital gains tax is be).

Will I be paying taxes on the whole of 5% interest/dividend income or on 2% (after deducting the 3% inflation rate from the 5% interest)?

Please kindly answer my question above guys as I have not yet found an answer online for many days.
Concentrate on growing your business and end this thread.

If you lack the capability to even two-minute google some of these hypotheticals, then you lack the capability to grow a $100M venture.

Stop being an idiot. Start working.

When you make your first $1M, come back and post this stupid thread again.
 
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FastLaner007

FastLaner007

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You missed the entire point and now you are wasting everyone’s time.

By your own words, you have spends days researching this without an answer. What a waste of energy.
Wasting time? There is no such thing as a dumb question. I wanted to research the same after finding some conflicting numbers in some examples on Quora.

Guys, please clear this up. One Quora answer first deducts inflation rate from the yearly interest rate and then applies 15% tax on the difference. Is that how it works?
 

MidwestLandlord

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Please kindly answer my question above guys as I have not yet found an answer online for many days.
That's because there isn't an answer.

What will inflation be?
What assets will you own?
What form of income will you have? (passive? active?)
What tax deductible expenses will you have?
What business structure will you employ?
Which countries taxes will be applicable?
Which state's taxes (assuming USA) will be applicable?
How will tax laws change between now and then?

But overall, yeah. If you're not paying to fly super models out in your private jet for bottle service at the club on a nightly basis, you'd probably be just fine.

I could live on $100 million without touching the principal. (although I might have to adjust my current lifestyle down a bit lol)
 

G-Man

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Wasting time? There is no such thing as a dumb question. I wanted to research the same after finding some conflicting numbers in some examples on Quora.

Guys, please clear this up. One Quora answer first deducts inflation rate from the yearly interest rate and then applies 15% tax on the difference. Is that how it works?
There are in fact dumb questions, but you've gotten a couple of answers that would have helped steer you in a more productive direction.

If you're looking for a clear numerical answer, then the answer is always 7.
 

AgainstAllOdds

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Guys, please clear this up. One Quora answer first deducts inflation rate from the yearly interest rate and then applies 15% tax on the difference. Is that how it works?
No.

You pay taxes on the capital gains. The inflation rate is just how much less your money is worth.

You'd only deduct the interest rate if you were running a net present value calculation on the annuity.
 
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FastLaner007

FastLaner007

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No.

You pay taxes on the capital gains. The inflation rate is just how much less your money is worth.

You'd only deduct the interest rate if you were running a net present value calculation on the annuity.
Thanks for your useful answer bro. Let me paste a Quora answer with some numbers below and tell me if he is right. I am assuming his calculations are wrong judging by your answer.

Quora answer:

You have an equation that looks like this:
income = (principal) * (1 + interest) / (1 + inflation) - (principal)

Let's say principal = $1M, interest = 5% (to be safe), inflation = 3%

Then what you have each year to live off of - in 2015 dollars - is $20,000, the equivalent of a full-time job at $9.60 / hr. That leaves you with $17,200 after taxes. If you're supporting a spouse and one child, you're below the poverty line.

So the guy is applying taxes on the difference between the interest rate and inflation rate. Is he right or wrong?
 

MidwestLandlord

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So the guy is applying taxes on the difference between the interest rate and inflation rate. Is he right or wrong?
That's not what he's doing.

He's saying that you'd have $50,000 from the interest, and after adjusting for a 3% inflation rate you have $17,200 equivalent spending power after taxes.

You would physically have the $50,000 to subtract tax from.

But you'd have the spending power of $20,000 to subtract tax from.

Let's say I have $100 and Snickers bars cost exactly $1

$100 = 100 Snickers Bars

Next year I have $100, but Snickers Bars have inflated to $2

$100 = 50 Snickers Bars

Same $100...less Snickers Bars for me.

Inflation = less Snickers Bars

The same money can buy less stuff
 

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CareCPA

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He's saying that you'd have $50,000 from the interest, and after adjusting for a 3% inflation rate you have $17,200 equivalent spending power after taxes.
This is what he's saying, but that's not how you factor in inflation.
Just poor methodology all around.
 

MidwestLandlord

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This is what he's saying, but that's not how you factor in inflation.
Just poor methodology all around.
Yep. But I didn't want to spend that much time on it haha
 
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FastLaner007

FastLaner007

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That's not what he's doing.

He's saying that you'd have $50,000 from the interest, and after adjusting for a 3% inflation rate you have $17,200 equivalent spending power after taxes.

You would physically have the $50,000 to subtract tax from.

But you'd have the spending power of $20,000 to subtract tax from.

Let's say I have $100 and Snickers bars cost exactly $1

$100 = 100 Snickers Bars

Next year I have $100, but Snickers Bars have inflated to $2

$100 = 50 Snickers Bars

Same $100...less Snickers Bars for me.

Inflation = less Snickers Bars

The same money can buy less stuff
Thanks a ton for clearing this for me brother. So from the $50000 interest example above, can a person beat inflation by reinvesting 3% from the interest back into the principal after paying taxes on the 5% interest and live off of whatever's left from the interest after paying taxes and reinvesting the inflation rate?
 

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Here you go. If you had $100M in a bank account at 5%, you'd likely pay 40% taxes on it. So, $5M income @60% is what you have left. $3M a year. Now you have to decide if you can live on that.

Of course principal is not growing this way. And you don't realize this yet, but yes your question is stupid. You will come back in 5 years and agree.

How close are you to $100M, I'm assuming you must be at least over 1M?
 
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FastLaner007

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Here you go. If you had $100M in a bank account at 5%, you'd likely pay 40% taxes on it. So, $5M income @60% is what you have left. $3M a year. Now you have to decide if you can live on that.

Of course principal is not growing this way. And you don't realize this yet, but yes your question is stupid. You will come back in 5 years and agree.

How close are you to $100M, I'm assuming you must be at least over 1M?
My question must be silly if that is coming from a reputed old member like you unlike an amateur calling me an idiot above just for asking an innocent question. I have never done taxes on my own as all my business affairs are managed by my family's accountants. Also, I have been pampered by my parents since birth, so I have very little real world tax experience. And yes, I never worked a day in my life. All in all I am not ashamed that I had to ask this stupid question as it's been answered nicely by the lovely TMF community.

Biophase, in the $5 Million interest example above, how do you suggest I grow the principal to negate inflation? And will I still be paying 40% taxes if that interest comes from dividends or capital gains and not necessarily bank interest?
 
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