Is $1 million enough to retire on?
What's your opinion?
Answers
1130 points
sundarkambam answered one year ago …
Dave,
Mail me at sundar.kambam@gmail.com.
I can discuss Forex trade options with you backed by performance data.
Sundar
4085 points
EthanR answered one year ago …
Great question, Dave. I think a lot of it depends upon your debt level and your lifestyle. If you invest the one million in a fairly conservative group of diversified mutual funds, such as growth and income, bonds, etc. you should be able to generate about $60,000 a year on average. But that is just an average, which means in a bad year, you might only be able to take a small amount of money out! Remember, whatever principal you take out will decrease your total return.
Many people can live on $60,000 a year if they have no debt, paid off mortgage, etc. However, if one has accumulated a million dollars, it is often because they had a higher income than $60,000 while they were working. So they could be in for a shock to have to live on less. The other factor is that the life span is increasing, and yet health care becomes more expensive.
If it's tough to retire on a million bucks, what will the 97% of the people do who will have far less when they retire?
149 points
Philip answered one year ago …
I offer myself as a real life experiment for this project.
Please send me $1million and I will keep you updated with a weekly blog of my progress.
I will use 20% 200k to invest in short term trading (1 yr or less) based on the principals taught at Tycoon. ?? return 20-30% per year on average 40-60k
I will put another 40% into dividend paying stocks (8% or more). This will provide money flow but not necessarily capital gains. 32k year
Another 20% will be in growth stocks (longer term time frame -years), 10% in cash, 10% in gold/silver. Bonds should play in this but I would need to find a good bond person.
If you like just wire funds directly to my account.
951 points
Grudun answered one year ago …
As others have said it depends.
First on your lifestyle. Many people expect to downsize their expenses after they retire but they also plan to travel or pursue hobbies. I have heard from someone who helps seniors with their taxes(she does it as a hobbie and is always completely booked during tax time) that most retirees end up with about the same or a slightly greater expenses during retirement. They save on work related expenses but end up paying more for health care(direct premiums and more copays), daily activities(if you don't just sit at home you can end up paying for activities and outings), and new activities(such as hobbies or travel). Often even with the savings of not contributing towards retirement and work expenses they are spending more.
The other is your investment returns. Most estimates I have looked at say target withdrawls at 4% below what you earn on average to keep the money growing with inflation. So if you are making about 10% a year only withdrawl 6% allowing the nest egg to grow to compensate for inflation and to provide a buffer for bad years.
So the bottom line is how good have your investment returns been and how much are you currently living on. If they work out (like a 12% return and less than 80K per year) you are in good shape with just 1 million but if not (like 8% and 60K per year) you may need to do some additional planning before you take the leap.
989 points
rvilmur answered one year ago …
Since nobody above has mentioned the effects of inflation, I will say that 1 million dollars as a static amount is not enough. We have paper money which is backed up only by faith in our government and our government is busy destroying the value of the dollar by overspending the amount of taxes collected.
The real buying power of 1 million dollars is going to shrink at a greater rate than the official faked up inflation rate; so you have to have investment plans that will beat inflation by several times and more since the government will tax any gains you have made, even inflationary gains.
A significant part of your 1 million dollars should be invested in things that are real and not paper. Any paper asset can be destroyed by hyper-inflation. Figure out what will become a shortage in the future and invest in that. Commodities that are considered money by some such as gold and silver have good long term prospects. Part of the money needs to be invested in stocks that will rise due to the inherent earning power of the company. Part of the money using puts should be invested in companies that are hurt of the inflationary policies of our government.
Avoid bonds and other fixed return investments that will lose due to inflation and taxes of the interest.
So, is 1 million dollars enough? I would so no unless you have a talent for making the original stake grow faster than the government can tax and reduce it by inflation.
From the time that I started working to the time that I retired early, 10 years ago, the inflation was about a factor of 10 (35 years of working).
113 points
DaveB answered one year ago …
One more time: it depends. Some of the things it depends on have been mentioned, a couple haven't. Let me try to put it all together -- if you can answer all the following questions, then you might have enough data to answer the question for yourself.
At what age do you plan on retiring?
How long will you spend in retirement? (That's another way of asking "how old will you be when you die?".)
Do you plan on *completely* retiring, or perhaps earning some income during retirement? (This typically means "doing something that you like, but which doesn't support your lifestyle right now".)
At what age do you plan on starting to get Social Security (assuming that the program is still solvent when you retire)? The longer you put off getting that first check, the larger each check will be for the rest of your life (or until SS goes belly-up).
How much yearly income (in today's dollars) will give you a lifestyle you would like to have?
How much yearly income (in today's dollars) will give you a lifestyle you would be content with? (That's a REALLY different question than the previous one)
How much debt will you have when you retire? How much of that debt is long-term (real estate: your house), medium term (like paying off college loans for your kids), or short term (credit cards)?
How aggressive an investor (or trader) are you? Are you comfortable with options and forex and whatever kinds of trading that promise high returns (but come with high risks), or are you more of a utility-stocks-and-government-bonds kind of guy?
What will be the rate of inflation during your retirement?
What will be the return of the stock market (or your chosen investment vehicle) during your retirement?
How much do you plan on passing along to your spouse and/or kids when you die? (Only applies if the number is greater than zero)
Unless your retirement age plan is, like, next month, you cannot answer any of those questions with certainty. That's not a problem, because nobody else can, either.
Here's the real answer, from the world of statistics: based on the answer to all the questions above, someone who can do what's called a "Monte Carlo simulation" would be able to give you simple answers like these (and NOTE -- these numbers are pulled out of thin air, just for sake of example):
a) there's a 40% chance that you will be able to retire "successfully" (have enough money to meet your retirement spending goals) if you have $1 million and retire at age 65.
b) there's an 80% chance that you will be able to retire successfully if you have $1.5 million and retire at 68.
c) there's a 90% chance that you will be able to retire successfully if you have $2.5 million and retire at 62.
d) there's a 98% chance that you will be able to retire successfully if you have $5 million and retire at 70.
Etc.
Another way to frame the whole question is this: based on your spending habits, how much money would it take to make you "infinitely wealthy"? This concept means that your assets would be throwing off more income, and/or growing, faster than you spend it. An example is my mother-in-law. She has stock assets of about $300,000, but she is infinitely wealthy. She is frugal, gets a pension from her deceased husband, and spends less per year than her income from the pension and utility stock dividends. She is 86, but she has been "infinitely wealthy" for at least 20 years.
There are some outside-the-box ways of reducing retirement expenses, like, for example, retire to a country in Central America. A reasonably stable government and relatively low cost of living are what you would be looking for. Costa Rica is a good place on that list. Nicaragua is better (right now, anyway). This is an extreme example of the "what will your lifestyle be" questions.
Short answer: no one can say Yes or No to your question with absolute certainty (unless the person is either omniscient or a certifiable lunatic -- or a trading charlatan that wants to manage your money for you).
Hope that helps...but it probably won't...
Dave B.
113 points
DaveB answered one year ago …
Oops -- forgot one thing. Here's a real-life-based example.
Two guys, we'll call them Fortunate Fred and Luckless Lou both:
-- amassed a $1 million retirement fund
-- retired when they were 62
-- spent $50,000 a year in retirement
And for the sake of this comparison, we're going to ignore taxes, Soc Sec, and inflation.
20 years ($1 million dollars divided by $50,000) after their retirements, Fortunate Fred had a portfolio worth $9 million, and Luckless Lou was flat broke.
As I said, this is a real-life kind of example. There was only one difference between these two fellows: the year they were born (and therefore, the year they retired). Luckless Lou was born in 1920, retired with $1 million in 1972, and was then ravaged by the second-worst bear market of the century. (His money didn't even last the 20 years.) Fortunate Frank was born in 1930, retired with $1 million in 1982, and saw his assets grow in the biggest bull market in history.
These answers would come out in a Monte Carlo simulation, with very different likelihoods of occuring (both pretty small, actually).
db
113 points
DaveB answered one year ago …
OOPS again regarding my previous post. Minor math error -- Lou was born in 1910 and Frank in 1920. I was in a hurry...
Also, I left out one assumption: that both took their whole $1 million and put it in a no-load S&P 500 index fund.
You can learn about Monte Carlo simulations by searching on "Monte Carlo method" on Wikipedia.
2775 points
Oldman answered one year ago …
A lot of good advice..and a lot of questions to be answered: including, but not limited to ?What will future investment taxes be (under FairTax = zero, but currently will probably average 16 -24 % based upon a $1M base). How much is sheltered/taxable? How is the retirement budget determined?
There are many retirement calculators, free on the web...and you can bookmark them and try various scenarios, repeatedly, to see what the effects of some changes in assumptions may produce. You can even estimate longevity.
2082 points
alanj answered one year ago …
Yes, you can. But, you have to be willing to live a very simple lifestyle. My mom's doing it with less. Almost 12 years ago she had a net worth of about $625,000. Today she's probably worth about $800,000. If she hadn't given away her real estate holdings (other than her own residence) to my sister you could have added probably another $20,000 to that figure. She also had a couple of major expenses- a new car and a new roof. And her net worth is still increasing. That's because her expenses are less than her income. Her income comes mostly from bank cd's and some i-bonds. (i-bonds are inflation adjusted and tax deferred) She won't risk any of the principle and it has to be government insured. Because of the insurance limit of cd's it can be done by using more than one bank. rvilmur says to avoid bonds and fixed return investments because of inflation. This would be true if Social Security wasn't in the equation. SS will offset, in part of or in whole, any negative effects inflation will have on your investments. At least at this wealth level. It may not cover it at a much higher wealth level. But, if you are at a much higher wealth level, inflation will probably not effect your lifestyle very much. SS is not going away anytime soon even if it is running out of money. It may have to borrow, or limit the amount of payments, or something else. But, it is mostly likely here to stay.
A net worth of one million dollars will out last you if you keep your expenses less that your income. Actually, it will out last you if your expenses are more than your income. Here's an example. Your retire at age 60. Your residence is worth say $200,000 and no mortgage. And lets say the remaining $800,000 is in government backed and insured instruments. Like cd's and bonds. And even with the SS check you'll be getting, you exceed your income by $20,000 a year. You will go through $800,000 in 40 years, You will be 100 years old at this point. But, you still have a home that was worth $200,000 40 years ago. I recently heard that long term, real estate doubles every 12 years. So,using the long term average in the first 12 years your home will be worth $400,000. At year 24 it will be worth $800,000. At year 36 it will be worth $1,600,000. At this point you will be age 96. But lets say at age 100 when all of your other assets are gone and your home is still worth $1,600,000, you would than do a reverse mortgage. Using the same loss of $20,000 a year over income, this will take 80 years to become flat broke. At this point you will be 180 years old. Do you really think you are going to live that long? Lets use $40,000 loss per year. You will go through the $800,000 in 20 years. You will be age 80. Your home would be worth $400,000 in 12 years and $800,000 in 24 years, However, instead of doubling every 12 let say it when up 1.5 times in 8 years. This will be when you are age 80 and have gone through the $800,000. But, your home will be worth $600,000. After a reverse mortgage on the property it will take another 15 years to be flat broke. At this point you will be age 95. And people do live to that age. So, a $40,000 loss over income is just a little to much. At a $30,000 loss you will be flat broke at age 113. A few people do make it to this age or slightly beyond, but not much more. So, I'd say that a $30,000 annual loss would be the extreme most you could withstand on $ million net worth. I believe this is very doable.
119 points
wiseone answered one year ago …
Many wise words have been written here on this subject so I will add just a few pragmatic ones. I have been retired for 16 years and can report from the front lines: you may live longer than you expected ( as I have - so far ) and you will find that paying for things today with 1992 dollars is painful. Finally the major leap in health care costs, even with the fine support of Medicare is very painful. For example, my wife and I pay the Feds $2,000 for Medicare coverage, $ 5,400 for a Medicare supplement, plus about $ 1600 a year for glasses, dental care, etc. - not covered at all by Medicare - plus $ 850 for drug insurance plus the amount we must spend on drugs when we fall into the " doughnut hole " left by the drug plan we have! Adds up, doesn't it?
Read more from wiseone102 points
MARDOC answered one year ago …
YES,IT CAN BE DONE !but====YOU MUST HAVE zero DEBTS ON RETIREMENT DAY ONE,WATCH YOUR (AND YOUR MATES) SPENDING HABITS,USE BUT PAYOFF ALL DEBTS AS THEY COME DUE TO AVOID INTEREST CHARGES AND OF COURSE DIVERSIFY YOUR INVESTMENTS CAREFULLY AND ENJOY WHAT'S LEFT OF YOUR LIFE 'CAUSE WE ARE ONLY A BREATH AWAY.......................OH YES GOOD LUCK ALSO HELPS.!
Read more from MARDOC119 points
ChuckS answered one year ago …
A big factor is rate of return. It's strange that nobody seems to expect to get much better returns from some Tycoon service. If some service of Teeka's or Jason's could give a return of 50% per year, $1 million would give $500,000 per year. If you invested $900,000 in something safe at 6% and $100,000 at 50%, you'd get $104,000 per year.
I think you should plan on enough to pay off your debts + inflation + find what you'll get from social security.
119 points
ChuckS answered one year ago …
A bit more on debts. In my post just above, I was thinking that your return on investment could be used to pay your debts. However, most likely you'd be better off paying debts that have a higher interest rate than your likely rate of return. It would be better to pay off your 20% credit card than to invest in mutual funds at 12%. The credit card payoff is guaranteed 20% return, unlike the mutual fund. See daveramsey.com for more ideas on this.
Read more from ChuckS102 points
Allan answered one year ago …
Depends on your life style, age, marital status, where you life, how long you live and what you want to do. First, lets assume that you have your own house, are 65 years old, draw some old age pension, CPP and live in Canada on top of the $1,000,000. Cost of keeping a modest home (insurance, heat, repairs, electricity, taxes) would run you $15,000/yr. Put a car on top of that, will give you an additional $6,000 per year, providing you drive modestly, buy cars a year or more old and keep them for at least 5 years. Add Food and another $6,000 per year and you need $27,000 per year after taxes. Old age pension is about $450, CPP about $850 per month, totals $15,612 so you need a minimum of $12,000 per year to exist. Add $15,000 per year for entertainment etc, and you are at $27,000 per year required in addition to your pensions. (We have free health insurance - and it works quite well considering all the bad mouthing it gets). According to the guy who runs BRK, the best you might get on secure investments over the next 10 - 15 years (side ways market as per your notes), gives you $40,000 per year. However factor in inflation of 3% leaves you $10,000 per year with out drawing down your investments. So, if you end up with $0 out of the million at age 90, this would basically give you $40,000 per year in todays $. This is $13,000 per year above the existance level, so ;the Answer is
Yes, but take it easy. You will live OK, but don't purchase any expensive cars or motor homes.
699 points
7million7years answered one year ago …
$1 Million is NOT enough for most people ... the reason; a 'safe withdrawal' rate is considered to be 4% (i.e. $40k per year, indexed for inflation). However, as DaveB pointed out, Monte Carlo simulation will only allow you to withdraw 2.5% - 3.5% of your portfolio each year (i.e. $25k - $35k) to give you a 99% chance that your money will last as long as you do.
However, the chances are that you are not aiming to retire on $1 Million TODAY ... you are probably aiming to reach this number in 10 to 20 year, in which case, inflation of just 4% means:
If aim to retire on $1Mill. in 20 years you could be trying to live off as little as $12k - $17k per year (in today's spending power), plus whatever government assistance the Fed will still be able to afford to gove you.
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