Retiring on only one million dollars is doable if you've got less than 30 years to live and can spend frugally. Retiring on one million dollars also depends on the composition of the money.
Is it in after-tax accounts or your 401k? Will you have a pension or can you draw from Social Security? The more liquid you are with guaranteed government support, the easier it is to retire.
$1,000,000 can generate roughly $25,000 a year in RISK-FREE capital since the 10-year bond yield is at around 2.5% as of 2018. Add on a little more risk and you can probably generate 4%, or $40,000 a year relatively easily.
Another solution is to look at municipal bonds. AA to AAA rated California municipal bonds with 20 year durations have a tax-free yield of about 3.5% – 4%. Their default rates are less than 0.1%. A 3.5% tax-free rate is equivalent to around a 4.6% gross rate at a 25% effective tax rate. Hence, we’re now talking about generating roughly $50,000 a year in gross retirement income.
Before You Retire Off $1 Million
Retiring off only $1 million depends on a number of important factors, including:
- Your current age and the age at which you plan to retire
- Your expected lifespan, based on family and personal medical history
- Your post-retirement goals (travel, philanthropy, etc.)
- Where you plan to live
- What type of home you'll have
- Whether you plan to work during your retirement years
Retiring On $1 Million Is Probably Not Enough
Once you’ve won the game, there’s no need to keep trying to amass a lot more wealth. Hit singles and stop worrying about money ever again! Without debt, living off $25,000 – $50,000 a year should be feasible. You won't live it up, but you certainly will be quite comfortable, especially if you can collect an extra $1,200 a month in average Social Security payments.
Also, one of the great things about retirement is that you DON’T need to save for retirement. A lot of people forget this important point once they retire because they’ve been so used to saving money.
I saved 50% – 80% of my after tax-income from 1999 – 2012 before I left the workplace for good. Yet, I still continued to save about 20% of my passive income for retirement my first couple of years out.
Now I’m back to saving and investing 80% of my income because How To Start A Money Making Blog I spent time building in retirement took off, and I have a hard time getting myself to spend more! Saving for retirement is addicting.
I haven’t been employed since 2012 (age 34), live in San Francisco, and have no financial fear anymore. If hard times come, then I will simply adjust my spending accordingly or draw from savings.
Please find something you enjoy doing with your one and only life. If you’ve got a paid off house and $1 million, I say that’s good enough to do what you really want to do if you're over the age of 60. You don’t have to retire completely. You can do freelance work or work on your own business ideas. There’s nothing more rewarding than creating something from nothing and doing what you enjoy!
There's always one more dollar to make, but never another second to create. Use the remaining years of your life wisely!
See: The Fear Of Running Out Of Money In Retirement Is Overblown
Recommendation To Retire Early
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About the Author: Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate.
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