If you had 1 million dollars, how long could you live off of it?

If you had 1 million dollars, how long could you live off of it?

Why $3 Million Is The New $1 Million

The reality is, withdrawing at a 4% rate is no longer recommended. Post global pandemic, interest rates have plummeted. When you can get at most a ~1.6% risk-free rate of return, withdrawing much more than 3% starts getting aggressive if you want to rest easy at night.

Therefore, to be a real millionaire, you will need much more than $1 million. With $3 million, you can withdraw at a more appropriate 2% or 3% and generate $60,000 – $90,000 a year. $60,000 – $90,000 a year still isn’t living a rich lifestyle. But it’s inline with the real median household income of roughly $68,000.

In addition, we should all pray the government doesn’t raise the minimum Social Security age to something absurd like 70+ years old to make the system whole. The average American should also pray the government doesn’t drastically cut payouts.

If our prayers aren’t answered, let’s hope our 401(k)s and IRAs don’t get taxed out the wazoo come distribution time. If our hopes for a well-managed government are crushed, then surely we’ll have developed multiple income streams by retirement so no one event can get us down!

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Alaska

Annual groceries cost: $5,654.38Annual housing cost: $12,582.14Annual utilities cost: $5,856.08Annual transportation cost: $3,947.61Annual healthcare cost: $10,282.06Total annual expenditures: $60,472.91 How long $1 million will last in savings: 16 years, 6 months, 9 days 

11. Maximize Your Social Security Income

Social Security benefits are a major source of income for the average retiree. You can help yourself in retirement by getting yourself the maximum benefit possible. To do this, you’ll need to make some sacrifices by working a bit longer and retiring slightly later. Because the Social Security Administration (SSA) pays your distributions based on your average salary over 35 years, it’s ideal to work at least that long. If you don’t participate in the labor force that many years, your payments will decrease.

It’s possible to receive Social Security benefits starting at age 62, but that will shrink the size of your benefit by 20% to 30% of its maximum size. You can increase your benefit by working longer and waiting until after 65 to elect your benefits. Each year you work over age 65 (up to 70) can increase your benefit by as much as 8%.

What Can I Do Now?

Waiting to file for Social Security isn’t possible for everyone, but it will help you maximize your retirement income. If your financial situation is relatively conducive to this, the SmartAsset Social Security calculator will provide an accurate estimate on how election age may affect your Social Security income.

Ohio

Annual groceries cost: $4,170.37Annual housing cost: $7,584.98Annual utilities cost: $3,480.36Annual transportation cost: $3,541.71Annual healthcare cost: $6,481.30Total annual expenditures: $43,439.63 How long $1 million will last in savings: 23 years, 0 months, 1 day 

1. Pay Off Every Single Debt

First, if you have any major debts, you’ll want to pay those off. There’s some debate about whether or not you should pay off your house, so put some thought into this one. But, at a minimum, you should knock out any and all high-interest debt. Most of the investments below will not come anywhere near beating the 15%+ interest you’re paying for credit cards and personal loans. So get rid of those first so you have a great financial base to launch your investments from.

How Much Interest Do You Earn On One Million Dollars

The amount of interest that you earn on one million dollars depends on where you have your money stored. For example, if you have your one million dollars stored in a high-yield savings account, you might earn 0.5%, or about $5,000 per year. If you were to invest your million dollars in an index fund following the S&P 500, you might instead earn between 8-10%, or $80,000 to $100,000 per year. Generally speaking, higher returns come with more risk.

When thinking about living off a million dollars for the rest of your life, you'll have to determine how much risk you're willing to take. Perhaps you'll decide to invest your million in dividend-yielding stocks or funds, which may net you 4-6% passive income each year, paid quarterly or monthly, depending on the funds.

If you plan on only living off one million and nothing more, determining how much income you need is crucial. You'll have to estimate your withdrawal rate for future years to keep up with inflation. To ensure your capital remains at a lower risk, you may have to go with a lower-yielding option, but this will limit your income. You'll need to find a balance between risk and income earned from your investments.

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At Dough Roller, we always try to provide the best, most accurate information possible. Our team of writers includes people who have showcased their expertise and been featured in major publications, so you can trust that they know a lot about the subjects they’re writing about.

How To Live Off One Million Dollars

Having a million dollars in retirement savings may last you the rest of your life, but there are many factors that will determine this. Here, let's talk about ways that you can live off a million dollars for life.

Stay Healthy

Healthcare costs amount for over $300,000 of a senior's expenses found a study done in 2021; Fidelity Retiree Health Care Cost Estimate. Staying healthy will cut down on doctor's visits and treatment for avoidable illnesses.

Live Frugally

Living frugally means cutting back on spending and minimizing living expenses. If your annual expenses rise above your annual income, your million dollars will begin to deplete. You may end up depleting your lump sum, depending on how many years you live in retirement.

Add a Side Hustle

Adding an income stream is a good idea to help you million dollars last longer. By staying cash flow positive as long as you can, your money will last longer. Married couples may have more expenses than a single person, though this leads to more income opportunities if both spouses work.

Total return

Investors love income. We’re excited by high interest rates and big stock dividends, and we consider them different from the money we make when a stock or bond goes up in value.

A $100 dividend or interest payment feels like money we can spend; a $100 increase in the value of our stock holdings doesn’t induce us to sell; it might encourage us to buy more.

This mental distinction is usually a mistake, because what matters is how much money you have and how it’s invested, not whether the source of the money was dividends, capital appreciation, or a $25 check from Grandma.

Investors who focus on wringing more income out of their portfolio often end up taking additional risk without realizing it.

Yes, junk bonds, dividend stocks, insurance contracts, and peer lending offer higher yields than CDs.

They also offer higher risk of one kind of another, usually default risk (the risk that your loan won’t be repaid), liquidity risk (you won’t be able to get your money back when you want it without paying a substantial fee), and market risk (the value of the stock or bond goes down, and you have to sell at a loss).

Trying to preserve your capital and earn more income by using these kinds of products isn’t always a bad idea, but it’s a strategy often pursued by people who are averse to owning stocks and believe they’re taking less risk by owning bond-like products.

It’s like driving your car because you’re afraid of flying: it provides the illusion of lower risk.

The sad fact is this: if you want to set aside a large sum of money for five years and be sure of getting your principal back, adjusted for inflation, you can’t do it. It’s not possible. Interest rates are too low.

Final Word

How much do you need to save for retirement? It depends on your living expenses, your investment returns, and on all of the other factors outlined above.

Start by planning out your living expenses and looking for ways to reduce them in retirement. You can then work backward to determine how much income you need from your investments, and from there, how much you need to invest in order to produce that income.

As you start on your journey toward financial independence and retirement, start tracking three critical numbers every month. Track your net worth, which you can do automatically through free tools like Mint.com. Track your total passive income from investments. And track your FIRE ratio or FI ratio — the percentage of your living expenses that you can cover with your passive income.

When you reach a FIRE ratio of 100%, you can retire, regardless of whether your net worth crosses the seven-digit barrier or not.

Do you think you can retire on $1 million? What are you doing to stretch your retirement dollars further?

Is a Million Dollars Enough For a Couple to Retire?

I’ve heard this question a lot lately — “Can a couple retire on $1 million dollars?”

It’s a fair question.

Sure, $1 million seems like a solid number for one person, but when you put two people into the mix, you’ve got…

  • additional food costs every day
  • extra clothing costs
  • the cost of a second car

And, quite frankly, more unexpected bills can come up when you’ve got two people in the equation vs. just one. 

The Best Way to Know If a Couple Can Retire on 1 Million Dollars

If you really are uncertain about this one, I suggest you just take this simple approach. 

  1. Ask yourself what amount of money you live comfortably on today
  2. Would you like this annual amount in retirement as well?
  3. If so, enter that amount in Bankrate’s handy Savings Withdrawal Calculator to see how long your money will last in retirement

By entering in your likely nest egg (the million bucks), the interest you’d earn on that money (I’d estimate 6% to be safe), and the withdrawal rate each year, you’ll quickly be able to see if your money will last…even as a couple. 

In the example above, I used a yearly withdrawal rate of $50,000, which many couples could live on today.

And you know what? That million dollar nest egg kept going up!

Can a couple retire on $1 million dollars today?

Absolutely! Just as long as they live on $50k a year.

Do Couples Need 2 Million to Retire?

The only problem with $50k a year is…after roughly 20 years in retirement, that money is going to feel like just $25k a year (thanks to inflation).

Related: What Will It Cost to Live When You Retire? (Inflation is a Killer…)

So if you intend to live for 20+ years in retirement, can you live comfortably on a million dollars?

Mmmm….you may want a little more.

This leaves many couples wondering if they should reset their goals and instead save up 2 million dollars in retirement!

How much could you withdraw each year if you had $2 million in retirement?

If $50,000 a year seems like too little to you (because inflation is essentially cutting it in half), you might be looking at withdrawing an amount that’s closer to $100,000 a year.

But you know what? If you have $2 million in retirement and withdraw $100,000 a year, your nest egg will just keep growing for decades!

Check out the chart below.

So, can you live comfortably on a million dollars?

It’s possible to live…but you’ll certainly have to watch your pennies. We’ll go over this in more detail later.

Can you live comfortably on 2 million dollars?

Yes. It might even be a bit of overkill.

If you don’t want to live on only a million bucks in retirement, but you don’t want to wait to retire until you hit the $2 million mark, then $1.5 million might be the right number for you!

Related: What is the Interest on 2 Million Dollars?

Can You Retire Comfortably on 1.5 Million Dollars?

Is $1.5 million dollars the right number for retirement? Let’s stick with our $100,000 withdrawal each year. How long would $1.5 million last in retirement?

Turns out, even by withdrawing $100,000 a year out of your nest egg each year, it would last over 30 years!

If a million dollars in retirement didn’t seem like enough, but you didn’t want to wait until you reached $2 million, then $1.5 million might be the perfect number for you!

How To Retire On $1 Million By Age

The following guaranteed income amounts are on an annual basis and do not include Social Security Benefits.

Retire At Age 55 With $1 Million

Annuity Purchase DateAnnual Income At 55
Age 40$82,227
Age 45$81,578
Age 50$61,249
Age 55$47,000

Retire At Age 60 With $1 Million

Annuity Purchase DateAnnual Income At 60
Age 40$105,380
Age 45$94,994
Age 50$90,190
Age 55$66,032

Retire At Age 65 With $1 Million

The following guaranteed income amounts are on an annual basis and do not include Social Security Benefits.

Annuity Purchase DateAnnual Income At 65
Age 40$129,183
Age 45$118,580
Age 50$109,515
Age 55$100,212

4. Plan for Healthcare Expenses

Unfortunately, most people dramatically underestimate their healthcare expenses and overestimate how much help they will receive from Medicare. In fact, a recent study from Fidelity shows that the average 65-year-old couple in 2021 will need approximately $300,000 saved after taxes to cover healthcare expenses in retirement.

Even with Original Medicare coverage, healthcare costs can quickly become incredibly expensive. In addition to the deductibles, monthly premiums and coinsurance payments that enrollees are responsible for paying each time they access care, most people will also have to pay for additional services and benefits that are simply not covered by Original Medicare. This can include prescription drugs and vision or dental care.

Fortunately, there are other Medicare coverage options that can help enrollees control and even cover a significant portion of these expenses. Because of the potential annual savings in out-of-pocket costs, all Medicare-eligible individuals should consider enrolling in a Medicare Advantage, Medicare Supplement or Medicare Part D plan that meets their needs.

Medicare Part D and Medicare Supplement plans are purchased in addition to Original Medicare, and they can save you thousands of dollars in out-of-pocket costs on an annual basis. Part D plans cover prescription drugs, while Medicare Supplement Plans can cover most, if not all, of your coinsurance and deductibles, as well as provide coverage for additional benefits not included under Medicare Parts A and B.

Medicare Advantage plans, which are sold by private insurance companies as an alternative to Original Medicare, are required to cover the same services as Medicare Parts A and B. They also often include coverage for additional services, like prescription drug coverage, hearing aids and vision or dental care. Most Advantage plans have a $0 deductible, and they are all required to adhere to a set yearly maximum for out-of-pocket costs, which makes it easier to forecast your total health costs for the year.

It is important to remember that not all Medicare Advantage, Supplement, or Part D plans are created equal. Because they are offered by private companies, the additional services and prescriptions covered will vary from plan to plan.

What Can I Do Now?

Try to estimate your medical expenses ahead of time. This will help you in planning out your detailed retirement plans. Lucky for you, we created a guide to health insurance for retirees to get you started.

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Part-II: How to Get 10% (or more) Investment Returns Consistently

We know that it may be too risky to put all your money in the S&P 500 or any other set of index funds, mainly because in the investment world, ten years is not a very long time frame, and our portfolio will be subject to the risk of the sequence of returns.

Note: Sequence risk, or sequence of returns risk, is defined as the risk that the stock market crashes early in your retirement or just prior to retirement.

So, what’s the alternative? We will suggest a portfolio with two buckets (preferably three) that will greatly reduce the risk of the sequential return.

  • DGI Bucket: 40% to 50%.
  • Rotational Risk-Adjusted Portfolio: 40% to 50%.
  • Optional/Flexible Bucket: 15% allocation. (This is a flexible bucket that could be a growth bucket prior to retirement and replaced with a CEF-based income bucket after retirement. Highly conservative investors could keep this in CASH-like securities).

The DGI portfolio will provide a safe and consistent 4% (and increasing) level of income from dividends. It also will protect and preserve the capital better than the broader market during a correction, if not entirely. At the same time, the second bucket consisting of a Rotational portfolio will provide the necessary hedge and protect the overall capital.

Manage Your Finances In One Place

All millionaires diligently track their finances. Do the same by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize your money.

The best feature is their Portfolio Fee Analyzer, which runs your investment portfolio(s) through its software in a click of a button to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was hemorrhaging! 

There is no better financial tool online that has helped me more to achieve financial freedom. It only takes a minute to sign up.

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