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Reading “Does One Million Dollars Make You Rich?” got me to thinking about how far a million dollars might actually go. As the author accurately points out, it certainly doesn’t make you rich, and in fact, won’t even get you very far in retirement if you’re spending $200,000 per year. Even at $40,000 per year, you’re $1,000,000 might likely run out before the end of your life.
Many people, however, could easily retire if they had $1,000,000. Even if you hid the cash in your mattress or buried it in the yard and earned no interest, you could take out $20,000 per year and your $1,000,000 would last 50 years. But what about inflation? Well, since you probably wouldn’t really need your income to last 50 years, you could probably safely bump up your withdrawal rate each year to cover inflation.
How To Live On $20,000 Per Year
But how on earth can anyone live on just $20,000 per year? Well, a lot of folks do it every day and so can you. Your success, however, depends on the steps you take now to secure a future that requires little cash. To retire comfortably with little income:
Eliminate All Debt – Housing and car payments are often a huge percentage of the monthly budget. Avoid credit card debt. If you are in debt right now, start paying it off now.
Reduce Expenses – Cut monthly expenses, such as extras in your phone plan or eating out.
Simplify Your Needs – Reduce possessions, especially those that require maintenance but don’t give a return (think speed boat vs. lawnmower).
Be As Self-Sufficient As Possible – Grow/prepare your own food, learn to do your own repairs/maintenance.
Cultivate Multiple Income Streams – Having two or more sources of income protects you from disaster if one source dries up. If you have no debt, even a small amount coming in can see you through a rough spell.
Raise Self-Supporting Kids – If you have children, this is mega-important! What you don’t need during your retirement years is a kid or two depending on you for survival.
Turn A Hobby Into Cash – And finally, remember that retirement is not an either/or proposition – either work or retire. You can still generate income during retirement, if you choose. Think about what you LIKE to do. How can those activities generate an income?
So, what are your plans for retirement? Do you have any tips to share on how to retire with less than $1,000,000?
Great post Crystal! I agree that many people can live off of $1 million dollars, they just have to be rational and reduce/eliminate expenses as you have pointed out. I just get frustrated when people talk as though $1 million is going to solve all of their problems and will allow them to retire today, when it won’t.
Seems like an absurd proposal to me, for somebody to save up $1 million only to have to ration and live frugally at near poverty levels just to survive.
I like your idea of turning a hobby into income. My goal is to do this and create enough passive income to live off of so that I can use my savings for luxury purchases.