Are you wondering if you can retire comfortably on only one million dollars? One million dollars used to be a lot of money in the 1980s and earlier. However, today, $3 million is the new $1 million, largely due to inflation.
Further, due to the global pandemic, interest rates have collapsed. The Federal Reserve has slashed its Fed Funds Rate (FFR) to 0% – 0.25% to help stimulate the economy. As a result, it takes a lot more capital to generate the same amount of risk-adjusted income. Therefore, it's harder to retire comfortably off one million dollars.
Being able to retire comfortably off of one million dollars depends on your location, the amount of debt you hold, your lifestyle, and the number of dependents you have.
One million dollars just doesn't buy what it used to. With the cost of health care rising 3X faster than the rate of inflation, one needs to be careful with only retiring off one million dollars.
How Much Income Can One Million Dollars Generate?
To retire comfortably, you need to generate enough income to cover your retirement lifestyle.
Today, one million dollars can generate only ~$11,000 a year in RISK-FREE income since the 10-year bond yield is at around 1.1% as of 2021. I don't know about you, but living off $11,000 a year in retirement is not that great.
If you want to add on more risk, you could try and generate 4% returns or withdraw at a 4% rate for $40,000 a year in income. With $40,000 a year in income, you can retire comfortably off of one million dollars. However, given interest rates are so low, the proper safe withdrawal rate should be closer to 2% or 3%.
Remember, once you’ve accumulated one million dollars for retirement, you don’t want to lose it! Imagine losing 32%, or $320,000 of your one million nest egg during the March 2020 stock market sell-off. You would be a really nervous camper.
Here are some ways to make your one million dollars generate more income. Of course, more risk is involved. I wouldn't shoot to try and generate more than 4% or 5% with your one million in capital.
- 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 (what I’ve been investing in recently) that have historically provided a ~9% return, even when the stock market is down
- Investing in individual dividend-paying stocks like AT&T with a forward yield of ~6.5%
- Investing in a dividend ETF like VYM with a ~3.5% yield
- Buying rental property
- Lending out hard money
- Buying an annuity
More Ways To Make Your One Million Dollars Last In Retirement
If you don't want to take too much more risk, a smart way to make your one million dollars go farther is through geoarbitrage.
If you relocate to a lower-cost area of the country in retirement, then retiring on one million dollars will go farther. Places in the Midwest and South are much cheaper than coastal cities such as Seattle, Los Angeles, New York, and San Francisco. I would say having one million in New York City is like having five million for retirement in Des Moines, Iowa.
In fact, partially thanks to the pandemic, more people are relocating to the heartland to save on living costs. Technology has enabled more workers to work from home.
If you retire by a traditional retirement age in your 60s, then you should be eligible for Social Security benefits. The average Social Security benefit is roughly $18,000. Therefore, you can add your Social Security benefits to your investment income to pay for retirement.
You should be able to earn at least $11,0000 risk-free + $18,000 from Social Security = $29,000. And if you earn a 4% rate of return off your one million, then you can generate $40,000 + $18,000 = $58,000. With $58,000 a year, now we're talking for being able to provide for a comfortable retirement.
Generate Supplemental Retirement Income
If you have or plan to have one million dollars by the time you retire, I strongly suggest generating supplemental retirement income as well. Spending time making supplemental income in retirement is good for your mental health. It's good to have a purpose in retirement.
For example, once I retired in 2012, I decided to generate supplemental retirement income through this site. This site's active income complements my passive investment income.
Below is my latest passive income streams. Notice how most of my passive income comes from investments. However, I do earn roughly $50,000 a year in supplemental retirement income from a severance negotiation book I wrote.
Writing a book was a bucket list item. So that's what I did in retirement. My book helps people negotiate a severance so they can leave a job with money in their pocket. Who knew it would also generate a steady stream of retirement income in my pocket as well!
Never quit your job, get laid off and negotiate a severance. If you're going to quit your job anyway, there is no downside! My severance was my catalyst for retiring early with three million dollars. It gave me a financial cushion to test out early retirement for five years. If I didn't like early retirement, I could always go back to work.
My main sources of retirement income include municipal bonds, dividend stocks, three rental properties, and 18 real estate crowdfunding investments across the country.
If I had only one million dollars for retirement, I'd probably only be able to generate $40,000 – $50,000 in investment income instead.
Retire Comfortably On One Million
A million dollars is a nice sum of money, but it's not enough to retire comfortably unless you have additional income sources. You've got to have no dependents and no debt to retire well on one million dollars.
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. Therefore, you free up a lot of cash flow from your budget.
I saved 50% – 80% of my after tax-income from 1999 – 2012 before I left the workplace for good in 2012. Then I spent more money in 2012-2014 because I didn't make as much as when I had a job.
Now I’m back tothanks to this site. Therefore, if I had only retired with one million dollars in 2012 and not three million dollars, I would have been able to retire comfortably. Financial Samurai alone generates enough revenue to take care of my family of four.
Find something to do that generates income once you retire. It will give you purpose and something fun to do.
Retiring On $40,000 A Year
Instead of thinking about whether you can retire comfortably on only one million dollars, think about retirement income instead.
Let's say you are comfortable withdrawing at a 4% safe withdrawal rate. Therefore, your one million dollars can provide for $40,000 a year.
What can $40,000 a year or $3,333 a month buy? Let's assume your house is paid off. Let's also assume you pay a 15% effective tax rate. Hence, $40,000 a year turns into $34,000 and $3,333 a month turns into $2,833.
Budget Per Month
Property Taxes And Housing Expenses: $400
Health Care Insurance: $600
Gas and car maintenance: $300
Personal Items: $100
Cable and Phone: $100
Well I'll be damned. One million dollars does pay for a fairly comfortably retirement life after all! This is provided you don't have dependents and a paid off house. If you can also collect a pension or Social Security benefits ,your life is even better.
Even Honolulu, Hawaii, my favorite city and state to retire in, $40,000 a year seems pretty decent.
Enjoy Retirement To The Maximum
If there's on thing the global pandemic has taught us, it's that tomorrow is not guaranteed. We shouldn't wait for something to happen to us. Instead, we should pursue all the things we've always wanted to do today.
Please find something you enjoy doing with your one and only life. If you're near the traditional retirement age of 60, got a paid off house, and one million dollars, you should be able to retire just fine. Just make sure you manage your risk exposure properly.
If possible, I do recommend finding some freelance work in retirement to stay busy. Once you leave the workplace, you could get down on yourself as I did after doing something for so long.
Try to retire to something, not from something. Earning supplemental retirement income with one million dollars will provide for a wonderful life.
Manage Your One Million Carefully
If you want to grow your net worth you've got to track your net worth like a hawk. To do so, sign up for Personal Capital, the web’s #1 free wealth management tool. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing.
I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.
Grow Your Retirement Income With Real Estate
Real estate is a core asset class that has proven to build long-term wealth for Americans. Real estate is a tangible asset that provides utility and a steady stream of income if you own rental properties. Unlike stocks, real estate just don't go poof in value over night.
Given interest rates have come way down, the value of rental income has gone way up. The reason why is because it now takes a lot more capital to generate the same amount of risk-adjusted income. Yet, real estate prices have not reflected this reality yet, hence the opportunity.
I've personally invested $810,000 in real estate crowdfunding across 18 projects. My goal is to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000. My ultimate goal is for my wife and I to stay retired and take care of our two children.
Take a look at my two favorite real estate crowdfunding platforms:
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.
Both platforms are free to sign up and explore.
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. In 2012, Sam was able to retire at the age of 34 largely due to his investments. He spends time playing tennis, hanging out with family, consulting for leading fintech companies and writing online to help others achieve financial freedom.
FinancialSamurai.com was started in 2009. It is one of the most trusted personal finance sites today with over 1.5 million organic pageviews a month. Financial Samurai has been featured in top publications such as the LA Times, The Chicago Tribune, Bloomberg and The Wall Street Journal. You can sign up for his free newsletter here.