Are you wondering is three million dollars enough to retire comfortably? The quick answer is yes. With three million dollars, you should be able to retire comfortably if you retire in your 60s.
Depending on your cost of living and number of dependents, you can retire with three million dollars at a younger age if you wish and if you are able. However, you will have to plan more carefully for a longer retirement, especially if returns for stocks, bonds, and real estate are lower.
In fact, I “retired” in 2012 at the age of 34 with a net worth of three million dollars. At the time, my three million dollars was generating roughly $80,000 a year in passive income.
Thanks to a bull market, my passive income and net worth have grown commensurately. I put retired in quotes because I now spend about 20 hours a week on Financial Samurai, which I consider work. And Financial Samurai generates a healthy amount of supplemental retirement income.
In the past, the above average person would shoot to have one million dollars before retirement. Being a millionaire is every retiree's dream. 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. Although interest rates are now heading up, it still takes a lot more capital to generate the same amount of risk-adjusted income.
Being able to retire comfortably off of three million dollars depends on your location, the amount of debt you hold, your lifestyle, and the number of dependents you have. I would say 90% of us can retire early or comfortably with three million dollars.
How Much Income Can Three Million Dollars Generate?
To retire comfortably, you need to generate enough passive income to cover your retirement lifestyle. This is the main definition of financial independence.
Today, three million dollars can generate only about $30,000 – $50,000 risk-free, depending on the 10-year bond yield. The higher the 10-year bond yield goes, the more risk-free income your capital can generate and vice versa.
I don't know about you, but living off $30,000 – $50,000 a year in retirement is not exactly living it up. Therefore, to generate more investment income in retirement, you've to take on more risk.
Three million dollars should be able to generate up to $120,000 a year in income assuming a 4% return. Any more than a 4% return or withdrawal rate is too aggressive in this lower interest rate environment. Any returns over 4% a year should be saved for a rainy day.
Ways To Generate More Income Off Three Million Dollars
To generate more retirement income, you must take more risk. Here are some investment ideas that have the potential to generate higher yields with a reasonable amount of risk.
Remember, once you've accumulated three million dollars for retirement, you don't want to lose it! Imagine losing 32%, or $980,000 of your $3 million nest egg in the stock market in March 2020. You would be an unhappy camper.
- 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 ~10% 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
Instead of only making ~1% a year in risk-free income from your three million dollars, you may be able to generate between 3% – 4% returns. If you do, you would be able to generate $90,000 – $120,000 in returns or income. With $90,000 – $120,000, you should be able to live a very comfortable retirement.
If you don't want to take on more risk, you could always make your three million dollars go father by relocating to a lower-cost area of the country in retirement. Places in the Midwest and South are much cheaper than coastal cities such as Seattle, Los Angeles, New York, and San Francisco.
Finally, you can wait to retire in your 60s so you can start receiving Social Security. The earliest you can receive Social Security is age 62. With the average Social Security benefit of roughly $18,000, you can now earn at minute $48,000 in retirement and up to $138,000 assuming a 4% rate of return or withdrawal rate.
Of course, if you retire with a pension for the rest of your life, then your three million dollars will be more than enough in retirement.
Supplemental Retirement Income Is Key
Three million dollars is enough to retire comfortably. However, I suggest generating supplemental retirement income in retirement to make your three million dollars last longer. Supplemental retirement income can include consulting, teaching, doing something entrepreneurial online, gig work, etc.
You just never know how your health, tastes, and needs change in retirement. Further, while in retirement, it's nice to stay active. A lot of people I know who retire with $3 million feel a sense of loss if they aren't retiring to something.
Below are my latest passive income streams. Notice how most of my passive income comes from investments. However, I do earn roughly $45,000 a year from a severance negotiation book I wrote in 2012. I just keep updating the book every couple of years.
Further, on July 19, 2022, I will be publishing my second book entitled Buy This, Not That: How To Spend Your Way To Financial Freedom. It took two years to write and is with Portfolio Penguin Random House, the largest publisher in the world. Perhaps this book will generate passive royalties once my book advance is reached.
My main sources of retirement income include municipal bonds, dividend stocks, three rental properties, and 18 real estate crowdfunding investments across the country. My favorite real estate crowdfunding platforms are CrowdStreet and Fundrise. Both are free to sign up and explore.
It is my strong belief that buying rental properties and investing in private real estate syndication deals makes sense going forward. Inflation is boosting rents and property prices. However, as I get older, I don't want to spend time managing tenants and dealing with maintenance issues. As a result, I'm investing more in online real estate instead.
Retirement Will Be Different Than You Imagine
One of the great things about retirement is that you no longer 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%+of my after tax-income from 1999 – 2012 before I left the workplace for good in 2012. Once I retired with three million dollars, the income decline didn't feel so bad because I was spending a minority of my income anyway. The rest was going to savings.
However, after I retired, my wife and I were blessed with our first baby in 2017. Then we were blessed with another baby in 2019. As a result, our expenses went up as we needed to buy a larger house, a larger car, and save for our children's education.
Suddenly, three million dollars and $80,000 a year in retirement income no longer was enough. I wrote that I had failed at early retirement. Therefore, I decided to spend more making money online to help pay for these additional expenses.
Find something to do that generates income once you retire. It will give you purpose and something fun to do. One of the negatives of retiring, especially retiring early, is that lost sense of purpose and community.
401k Savings Guide
Below is a median and average 401(k) by age chart I put together to help you on your retirement planning journey. The 401(k) is the main way most Americans save for retirement today.
Your three million dollars for retirement can consist of your 401(k) savings, taxable brokerage accounts, and real estate holdings.
Retiring On $90,000 A Year
Instead of thinking about whether you can retire comfortably on three million dollars, think about retirement income and what it can buy.
Let's say you are comfortable withdrawing at a 3% safe withdrawal rate. Or, your three million dollars can generate 3% a year in income. Therefore, your financial nest egg can provide for $90,000 a year in relatively stable retirement income.
What can $90,000 a year or $7,500 a month buy? A pretty good retirement life! Let's assume your house is paid off by the time you retire. Let's also assume you pay a 15% effective tax rate. Hence, $90,000 a year turns into $76,500 and $7,500 a month turns into $6,375.
$6,375 Budget Per Month
Property Taxes And Housing Expenses on a $1 million home: $1,000
Food: $1,500
Entertainment: $1,000
Health Care Insurance: $1,000
Travel: $500
Gas and car maintenance: $500
Clothes: $200
Personal Items: $200
Cable and Phone: $200
Total: $6,100
$90,000 a year in gross retirement income pays for a really nice life for one or two people. In my budget example, you're living in a $1 million house and eating great food like sushi, steaks, and drinking fine wine. You're driving a $50,000 luxury car, getting the best healthcare, and have a great entertainment budget.
If you can also collect a pension or Social Security benefits, your life is even better. But to live this lifestyle, you do need to have no mortgage and no dependents. Some retirees have disabled adult children to take care of, or their parents to take care of.
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.
Retiring on three million dollars will provide for a great lifestyle. If you're still on your financial journey, shoot to have three million dollars in investable assets. If you are near retirement or are already retired, then please track your finances carefully.
I recommend signing 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. It 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 for free since 2012. During this time, I have seen my net worth skyrocket thanks to better money management.
Boost 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. Therefore, I much prefer investing in real estate for passive income in retirement. Part of your $3 million in retirement should be invested in real estate.
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. The other goal is to generate income 100% passively.
When you are retired, the last thing you want to do is deal with tenants and maintenance issues. Real estate crowdfunding accounts for about $100,000 a year in passive retirement income for my family.
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 he spent 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.
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.