Think $1 Million Is Enough To Retire On? Here’s How Long $1 Million Will Last
One million dollars is a lot of money. But it isn’t what it used to be and depending on when and where you retire, $1 million might not last until your dying day. That’s why you gotta get a side-hustle, Bro! More on that some other time.
Most financial experts live by the 3% rule or the 4% rule when it comes to retirement. Meaning, you can safely withdraw 3% or 4% of your retirement nest egg every year and your money has over a 95% chance of lasting forever. Obviously, the 4% rule brings in more risk of failure than the 3% rule, because you are removing more money every year and that means you have less money working for you. But even the 4% rule has a historically high rate of success.
So how long would $1 million last if you A) had $1,000,000 in your investment account, B) you decided to retire right now and C) it was your only source of income.
There are a few things to consider.
– How much money will your money be making each year? Let’s assume an average of 7%
– How high are your living expenses? This can depend on where you live. Let’s assume a few scenarios (below), because the buying power of $1 million can vary wildly depending on where you live.
Now, if you were trying to achieve the 4% rule you would only have $40,000 a year to live on and your money should con. Could you do that? Using the 4% rule, and all of the assumptions above (and factoring in a 2.9% rate of inflation and a portfolio of 75% equities and 25% fixed income) your $1 million will last you about 49 years.
If you live off the 3% rule, you will probably die long before you run out of money, because you can make $1 million last 60+ years if you’re living off $30,000 a year. Not bad, but you’re also going to be forgoing a lot of experiences and luxuries at that level.
But what if you spend $50,000? Well, at that rate, your nest egg will last 32 years. Depending on your age, that might be long enough to make it until social security (if such a thing exists in 20 years) kicks in to help it last a little longer.
How about if you burn through $75,000 a year? That will give you 18 years of freedom.
Finally let’s play with expenses of $100,000 a year, which is very possible if you live in NYC and you indulge in a lot that it has to offer. At $100k of expenses a year, you have roughly 13 years. And then you better find a job or another source of income, because your million will be GONE.
As you can see, the more money that stays working for you in your investment accounts, the longer you can stay retired. The quality of that retirement, however, all depends on how you live and what you expect to be doing once work ends.
If you want to figure out what your retirement number is, just take your yearly expenses and multiply them by 25. This will give you your personal 4% rule. Once you have that saved and invested, you can retire. It’s that easy.