I was talking to a tennis friend of mine who said his sister checked out once she cleared 10 million dollars. She was 37 when she decided to quit her job and go on an Eat, Pray, Love journey to Southeast Asia. She had made a bulk of her fortune as an early investor in an internet consumer company.
My friend and I then got to talking about other people we knew who checked out in their 30s and 40s. They too, had cleared over 10 million dollars in net worth or investable assets. They had all been early employees at successful startups. Or they had risen up the ranks at a big tech company while holding a lot of shares.
Even a 30-year-old softball buddy of mine who worked at Uber said he’s shooting to have a $10 million net worth before he retires.
As a personal finance blogger, I subsequently got to thinking: Is 10 million dollars the ideal net worth amount for retirement? Is 10 million actually the new one million due to inflation?
Top One Percent Net Worth
10 million dollars is a lot of millions. If you have a 10 million dollar net worth or higher, you have a top one percent net worth in America. Therefore, if you can’t retire off 10 million dollars comfortably, you’ve got some serious problems!
The sad part about wondering whether 10 million dollars is enough to retire comfortably is that plenty of people who make a lot of money still go broke. Just look at so many ex-NFL players who end up with very little soon after their careers are over. The reason why they end up broke is due to a lack of financial education.
Good financial education will compound on itself. It will pay dividends for years to come. One of the main reasons why I’ve consistently been publishing on Financial Samurai since 2009 is to help people reach financial freedom sooner. We’ve only got one life to live and schools aren’t willing to impart any personal finance wisdom.
For fun, because this is what personal finance enthusiasts do, let’s discuss whether 10 million dollars is the ideal net worth for retirement. Of course, we can always retire with less. Most have. But where’s the fun in that?
Retiring With 10 Million Dollars
Intuitively, we know that retiring on 10 million dollars should be no problem. But let’s look at the numbers.
The composition of the 10 million dollars is important. After all, you might have a 10 million dollar net worth, but six million of that may be tied up in your mega-mansion!
Ideally, you want your entire 10 million dollars to be invested in income-producing assets. Therefore, let’s take a look at how much 10 million dollars can produce in this low interest rate environment.
Back in 2007, when the 10-year bond yield was at 5%, 10 million dollars could have generated $500,000 a year in risk-free passive income.
Living off $500,000 a year will provide for a very fine life. Of course, some households might still feel like they are scraping by. But not you!
Unfortunately, 10 million dollars today generates a lot less. Since the 10-year bond yield is around 1.1%, it can only generate ~$110,000 a year in risk-free income.
Although a decline in interest rates has helped support the U.S. economy by making borrowing costs cheaper, it has hurt the average retiree’s ability to generate retirement income.
Therefore, even with 10 million dollars in investable assets, you’ve still got to pay careful attention to how your capital is allocated.
More Risk To Produce More Income
$110,000 a year is a healthy amount of risk-free retirement income, especially if you don’t have any debt. However, if there’s more than one of you to support and if you have surprise costs, such as a big medical bill, perhaps it might not be enough.
What’s the solution? Take more risk with your 10 million dollars by trying to earn a higher return. I don’t recommend reaching too far for yield. Reaching for 3% – 4% yields or returns is the most I’d go for. Remember, with 10 million dollars, you’ve already won the game!
Just imagine being all-in on dividend stocks before the March 2020 sell-off. You would be pooping bricks if your portfolio declined by $3.2 million in just one month!
Sure, things are fantastic now. However, when you are retired, you should have no desire to create unnecessary heart attacks. Your goal is to live as long and as healthy a life as possible.
Here are some investment ideas that have the potential to generate higher yields with a reasonable amount of risk.
- Investing in a REIT ETF like VNQ, which has a yield of ~3%
- Investing in individual REITs like O, which has a yield of ~4.5%
- Investing in private eREITs, which have historically returned high single-digit yields, even during stock market sell-offs
- Investing in individual dividend-paying stocks like AT&T with a forward yield of ~7%
- Investing in a dividend ETF like VYM with a ~3% yield
- Buying rental property
- Lending out hard money (not a fan)
- Buying an annuity (not a fan either)
By taking more risk, your 10 million dollars could conceivably generate $300,000 – $400,000 in retirement income. If so, you should be able to live well for the rest of your life.
The one thing I must caution is having a retirement withdrawal rate much higher than 3X the risk-free rate of return. As we’ve seen during previous periods where low interest rates stayed low for an extended period of time, asset bubbles can form and then burst.
Therefore, don’t just assume your risk assets will always go up. They may, over a long enough period of time. But in the long run, you might also be dead.
Further, I’m assuming all of us with 10 million dollars would like to leave some money to charities and people we care about. Every person I know with $10 million wants to create a perpetual giving machine after they are gone.
Ways To Make Your 10 Million Dollars Go Farther
If you don’t want to take on more risk, the next best way to make your ten million dollars go farther is to lower your cost of living. Since you’re no longer tied down to a job, you could relocate to the heartland of America to save on living costs.
Ten million dollars in New York City may be like having 30 million dollars in Des Moines. If you can bear the weather and the more homogeneous environment, off you go to Iowa! Besides, the weather in New York City isn’t much better. But if you’re coming from San Diego, LA, or SF, then moving to the MidWest may be more difficult.
Just the other day, I was playing tennis in 64 degree sunny weather while supposedly another Nor’easter was happening. It’s during the winter months where California and Hawaii really outperform.
Once you’ve made your retirement fortune, it makes sense to geoarbitrage if you want to feel even richer.
Some retirees have relocated to different countries like Mexico or Malaysia to save on living costs. Then again, if you have 10 million dollars, you probably don’t have to go anywhere to save.
More Ways To Stretch Your Money
Another way to get your 10 million dollars to last longer is to not touch it for longer. Instead of retiring before you’re 60, wait until your 60s or later. This way, you allow your 10 million dollars to compound for longer and potentially grow even bigger.
The earliest you can receive Social Security is age 62. If you’ve been able to amass 10 million dollars in net worth or investable assets, you likely paid the maximum FICA tax for at least a decade.
Therefore, you should be able to also receive the maximum Social Security benefit a month of $2,324 if you collect at age 62 or $3,895 if you elect at age 70 for 2021.
Of course, if you retire with a pension on top of your 10 million dollars, then you should be set for life. If you have a pension, please count your lucky stars. Its value has gone way up with a decline in interest rates.
Earn Side Income In Retirement
By now, we should all agree that 10 million dollars is enough to retire well. However, I still suggest generating additional side income in retirement to ensure your capital will last for another generation. Earning side income also brings about a sense of purpose.
When I “retired” in 2012, I experienced some negatives of early retirement nobody talked about. Thanks to Financial Samurai, I’ve found something fun to keep me busy, especially during this damn pandemic. This site has helped with my mental health and happiness.
This site generates a decent amount of supplement retirement income. However, only one source of online income is passive. The income I earn from my severance negotiation book, which gets updated every couple of years.
If you don’t want to make supplemental income online, you can always do some freelance consulting, gig economy work, tutoring, or coaching. The opportunities are endless to make extra income.
Retiring Early With 10 Million Dollars With A Family
Now that we know 10 million dollars can generate between $111,000 – $400,000 a year without the help from Social Security, let’s go through a budget. I’ve decided to compromise and say 10 million dollars can generate $250,000 a year in retirement income.
This $250,000 budget is for a household of four with two young children living in big city like Los Angeles. Both parents have decided to retire early in their 40s to take care of their children until they never come back.
The couple made their money working at six-figure jobs for 20+ years. During their careers, they averaged a 40% after-tax saving rate. They invested the majority of it in various investments that produce income.
As you can see from the budget, $250,000 a year can go pretty quickly when you have two kids and a mortgage. Good thing their mortgage is only $500,000 on a $2,500,000 house.
If the couple paid off their mortgage, they would save $24,492 a year in cash flow. Having this extra breathing room would be nice because there’s not that much extra to cut.
If the couple decides to send their two kids to private grade school, their costs will increase by $30,000 – $110,000 a year for 13 years. And when you have a net worth of 10 million or 10 million dollars in investable assets, you will likely want to send your kids to private school.
Once their kids are done with college, they will free up another $30,000 in cash flow by not having to contribute to two 529 plans. If saved properly, the two 529 plans should be able to pay for most of their children’s college expenses.
Lest you think this $10 million / $250,000 budget is not based on reality, I’ve spoken to a handful of couples who have similar amounts of wealth and budgets.
In fact, my friend’s sister who checked out at 37 with 10 million dollars has budgeted to spend $175,000 a year. She’s focused on capital preservation after hitting it big.
Retirement Will Be Different Than You Imagine
One of the great things about retirement is that you no longer need to save for retirement. Therefore, psychologically, your retirement income will go farther than you think.
For example, I saved 50% – 75% of my after tax-income from 1999 – 2012. Then I left the workplace for good in 2012. Once I left work behind, the income drop didn’t feel so bad. I was only spending less than half of my income for 13 years anyway.
Everything was going great in retirement from 2012 – 2017. My wife joined me in retirement in 2015 when she negotiated a severance as well. We travelled the world for 10 weeks a year. Then we decided to start a family.
We decided to buy a larger house, a safer car, and save for our children’s education. If our kids decide to go to college in 2036+, surely college tuition will be at least 100% higher.
As a result, the passive income that I thought was enough wasn’t. Therefore, I had to figure out ways to make more.
Don’t expect your lifestyle and your expenses to stay static once you retire. You might have kids late like we did. Or, god forbid, you might get into an accident or have an expensive recurring health issue.
$10 Million Should Be Enough To Retire Happy And Free
If you’ve been able to accumulate $10 million, congratulations! You should be able to retire with little-to-no financial concerns. Go ahead and enjoy life to the maximum today. You’re ahead of 99% of the American population.
If you’re still on your journey to financial independence, trying to accumulate a $10 million net worth or $10 million in investable assets is a worthwhile goal. Just know that even with so much money, you probably should continue to invest due to inflation.
With a top 1% net worth, I highly recommend you track your finances like a hawk. Think about yourself as a mama bird sitting on a golden egg. The last thing you want is some vulture swiping away your baby. The more money you have, the more you have to lose.
One last thing. Retiring with $10 million is still under the estate tax exemption limit of $11.58 million per person. Therefore, you can feel comfort knowing your heirs don’t have to pay an onerous 40% death tax on capital you already paid taxes on. Further, you have plenty to donate more freely to charities you really care about.
I realize reaching a $10 million net worth or having $10 million in investable assets may sound like an unsurmountable goal. However, with so many investors making great fortunes from this bull market, maybe it’s much more feasible than we think.
Now wasn’t this retirement exercise fun? Good luck building your fortune! And if you just can’t get your head around accumulating $10 million, then shoot for $5 million. It’s amazing how much easier a challenge gets once you make a very big stretch goal.
How To Become A Millionaire By 30 – My financial journey in my 20s.
How To Become A Millionaire By 20 – If you want to instill in your children a strong work ethic and make them financially independent sooner.
Your Wealth Is Mostly Due To Luck: Be Grateful! – Girl you know it’s true.
Readers, what are your thoughts on shooting to retire with 10 million dollars? What do you think is the realistic net worth amount where you will no longer feel like you have to work anymore?