Can You Retire On A Million Dollars?

A million dollars isn't what it used to be. Can you retire on one million dollars today?

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Did you know the word millionaire was first coined just 14 years before the United States even became an independent country? It was the year 1762 when we called the rich, “millionaires”. But can you retire on a Million Dollars?, that’s a question that’s I think on everyone’s mind at some point in life and it's important to understand in the context of investing and passive income.

If we assume an average income here in the United States of $50,000 a year, working for 40 years starting at the age of 22, and retiring at age 62, the average person will then go on to make around $2,000,000 in his or her lifetime. Obviously we don’t get to keep that whole 2 million, after taxes, we’d keep around $1,691,800 which assumes a best case scenario of no states income taxes if you live in states like Alaska, Florida, Nevada, South Dakota, New Hampshire, Tennessee, Texas, Washington, or Wyoming.

If we then take the average savings rate in the United States, which is an embarrassingly low 7.6%, in 40 years, most people will end up saving around $128,576.80 of that 2 million, which seems really low (because it is)

Despite what mainstream media tells us, retiring on a million dollars is very possible, and you can live comfortably without ever running out of money for all eternity and it’s not some magic trick, it’s pure simple math.

First, it is true that one million dollars does not have the same purchasing power as it did in 1980. To be able to afford the same amount of stuff with one million dollars today as you did in 1980, you’d need around 3.3 million dollars. So it’s true, as time goes on, inflation makes our money less and less valuable.

For every dollar in your bank account, it’s worth around 2 pennies less every single year because we’re printing money. With what’s going on today with the economy and because we’ve had to print so much more, inflation can reach as high as 5% or 5 pennies for every dollar that you’d be losing every year. So that’s definitely an issue but not as much as you may think.

In fact, not only can you retire on a million dollars in your 60s, but theoretically, you can retire on a million dollars at any age, and never run out of money.

It was a research paper published from Trinity University by three professors. What the trinity study measured, was the success rates of investment portfolios that had different withdrawal rates in retirement for different time periods throughout history between the years 1926 to 1995, which was later expanded to 2009.

This time period spanned the 2 world wars, the Great Depression of the 1929, high inflation period of 1970s, and the booming 1980s. So this simulation covered a lot of ground. They ran this simulation with 5 different portfolio diversities, 100% stocks, which is what I have with Robinhood, 75% stocks 25% bonds, 50% stocks 50% bonds, 25% stocks 75% bonds, and 100% bonds. They also researched the lengths for 15 years, 20 years, 25 years, and 30 year rolling periods.

The Trinity Study found that 4% was the magic number. If you retired in your 60s and you withdrew 4%, out of all the simulations that they ran, there was a 100% success rate that your money would outlast you in retirement. So in the case of our hypothetical example of one million dollars, 4% of a million would be exactly $40,000 per year. If you withdraw $40,000 per year, starting at retirement age, there’s a 100% chance your money will outlast you in all the economic simulations.

But there's a catch, If you increase the amount of years you want to be retiree, then your chances of success will decrease. If you want to be retired for 50 years and withdraw 4% per year, the chance of success drops down to 90%.

To compensate for that, a safer rate is using a 3.5%, doing this, increases the odds back to 98% success rate (assuming a 100% stock portfolio). In fact, if you withdraw 3.5%, your "terminal amount" (the amount you're left with after retirement), would multiply 6 times. That's because compound interest grows your money faster than you can spend it.

*Links above include affiliate commission or referrals. I'm part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.

Why $2.3 Million Isn’t Enough

I just came across an article with the headline: Is $2 million dollars enough to feel wealthy? Here are my thoughts, backed up by data and research. Enjoy. Add me on Instagram: GPStephan

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According to The Modern Wealth Survey conducted by Charles Schwab, the average number that someone felt they’d need to consider themselves “wealthy” is $2,270,000.

Now first of all, lets look at this objectively…$2,300,000 dollars IS a lot of money. Considering that the median net worth of the average US household is just under $100,000…at $2.3 million, you’re doing SIGNIFICANTLY better compared to most people.

However…when it comes to feeling “rich,” here are a few things that some people don’t consider:

The first is cost of living.
For example, in New York…$2.3 million dollars is REALLY equivalent to about $1,960,000 in terms of what you get for your money.
Whereas in Mississippi, $2.3 million dollars is REALLY equivalent to $2,610,000 in terms of what you get.

This is also backed up by another study by Charles Schwab which found that, in Charolette North Carolina, $1.8 million was the amount needed to feel wealthy. But if you move to San Fransisco, and that amount jumps to $4.2 million.

NOW SECONDLY…when looking at a sizable sum like $2.3 million dollars, it’s a lot less important to focus on the total amount you have, but instead how much that money will realistically last you for the rest of your lifetime.

Like I mentioned earlier, $2.3 million invested should be able to safely generate an income between $55,000 and $90,000 per year conservatively, depending on where it’s invested, for the rest of your lifetime without you ever having to worry about running out. However, feeling “rich” earning between $55,000 to $90,000 annually doesn’t quite cut it according to surveys, apparently…

This is because according to a study by YouGov, MOST people surveyed felt that someone earning $90,000 a year was “neither rich, nor poor.” And earning $100,000 or more per year became the crossing point where 56% of people surveyed felt like that would make them “Rich.”

And what’s even more surprising is that throughout ALL income brackets under $150,000…less than 10% of them felt rich. This was the same result when they surveyed people earning $40,000 per year as it was for people earning over $90,000 per year…despite how much they make, 90% don’t feel like they make enough to consider themselves rich.

The reason behind this, is that we ALWAYS compare our income with those who are doing better than us, and how much money we make quickly just becomes our new “normal.” A poll was conducted several years ago that highlights this perfectly…

Almost HALF of the people earning $30,000-$49,000 per year felt that making $100,000-$500,000 per year would make them rich. But if you asked people earning over $100,000 per year what income THEY would feel rich at, nearly HALF of those people felt like they’d need to make more than $500,000 per year to consider themselves “rich.”

Basically, YouGov found that the more money you make – the higher the bar is set, and the more you need to make to think of yourself as “Rich.”

This isn’t just my opinion, either…more studies have shown that even once you reach MILLIONAIRE status, that the majority of them now believe it’s $7 MILLION to feel wealthy:

At the end of the day, feeling “rich” is a state of mind NOT characterized by numbers, but instead by your own gratitude for appreciating what you have. This very much goes in line with the saying: wherever you go, there you are. That’s why I believe having $2.3 million is enough to BE rich…but not enough to FEEL it once you’re there. Because at the end of the day, feeling like you’re wealthy is the journey…it’s NOT the destination.

For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at [email protected]

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