Say you want to pay yourself $100,000 a year from your portfolio in retirement. Divide that figure by 4%, and you'll arrive at the amount you'll need to retire with: $2.5 million. If you plan to retire with $1 million, by the same calculation you can expect to withdraw $40,000 in your first year.
If you retire in California, $1 million in savings will last 12 years, eight months, five days. Annual groceries cost: $4,979. Annual housing cost: $13,691. Annual utilities cost: $3,944.
Yes, it's possible to retire on $1 million today. In fact, with careful planning and a solid investment strategy, you could possibly live off the returns from a $1 million nest egg.
Only approximately 10% of American retirees have successfully saved $1 million or more, as indicated by the most recent Survey of Consumer Finances conducted by the Federal Reserve. What is the recommended age to have $1 million saved for retirement? It is feasible to retire at the age of 65 with $1 million.
According to Wealth and Society, while there aren't any legal definitions of wealth, there are some widely accepted ranges: High Net Worth Individuals (HNWI) have an investable net worth of $1 million to $5 million. Very High Net Worth Individuals (VHNWI) have an investable net worth of $5 million to $30 million.
According to the 2022 Survey of Consumer Finances by the Federal Reserve, only about 12% of U.S. households have a net worth over $1 million. This means that the vast majority – 88% – are nowhere near that level.
The safest place to put $1 million dollars would be in a combination of insured bank accounts and conservative investments, such as bonds and CDs, to ensure a balance of liquidity and stability.
On paper this means you could generate $100,000 per year, or $8,300 per month pre-tax, without ever drawing down on the principal. With your $2,500 in Social Security this would come to a very generous $10,800 per month, though taxes may affect your bottom line.
For many people, $1 million is enough to retire. But whether it will be enough for you depends on several factors, including your anticipated lifestyle, your estimated healthcare costs, inflation, and how long you expect to live.
What are the average and median retirement savings? The average retirement savings for all families is $333,940, according to the 2022 Survey of Consumer Finances. The median retirement savings for all families is $87,000.
As you can see, there are many ways to invest $1 million and earn interest. However, most of these investments are currently paying between 4–5% interest. So, if you want to live off the interest from your portfolio, you'll need to spend less than $5,000 per month.
Probably 1 in every 20 families have a net worth exceeding $3 Million, but most people's net worth is their homes, cars, boats, and only 10% is in savings, so you would typically have to have a net worth of $30 million, which is 1 in every 1000 families.
Your net worth is what you own minus what you owe. It's the total value of all your assets—including your house, cars, investments and cash—minus your liabilities (things like credit card debt, student loans, and what you still owe on your mortgage).
According to estimates based on the Federal Reserve Survey of Consumer Finances, a mere 3.2% of retirees have over $1 million in their retirement accounts. The number of those with $2 million or more is even smaller, falling somewhere between this 3.2% and the 0.1% who have $5 million or more saved.
A $1 million withdrawal may be a bigger sum than your bank branch has on-site. So, you may be required to wait for a week or two before retrieving your newly liquid currency. The money needs to be literally shipped in for special withdrawals, and your bank may require you to provide a few days' notice.
Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.
Additionally, statistics show that the top 2% of the United States population has a net worth of about $2.4 million. On the other hand, the top 5% wealthiest Americans have a net worth of just over $1 million. Therefore, about 2% of the population possesses enough wealth to meet the current definition of being rich.
“The annual payout is approximately $62,000,” said Wilson Coffman, president of Coffman Retirement Group in Huntsville, Alabama, in an email. That comes to about $5,167 per month. Waiting to take payments could increase the amount you receive every month from a $1 million annuity.
You wouldn't expect millionaires to keep more than $250,000 in a checking account, however, because balances over this threshold aren't typically insured.
Interest on $100,000
If you only have $100,000, it is not likely you will be able to live off interest by itself. Even with a well-diversified portfolio and minimal living expenses, this amount is not high enough to provide for most people.
The same study also reveals that Americans feel that being wealthy in the U.S. means having an average of $2.5 million, an increase on $2.2 million from 2023 and 2022. Baby boomers believe this figure should be slightly higher at $2.8 million, but Gen Z and Millennials believe they could feel wealthy at a lower figure.
Nearly 399,000 Americans also have a least $1 million in an individual retirement account. The key to stashing away such sums? Start early and contribute to your retirement plan consistently over many years, Fidelity said.
A millionaire is somebody with a net worth of at least $1 million. It's a simple math formula based on your net worth. When what you own (your assets) minus what you owe (your liabilities) equals more than a million dollars, you're a millionaire. That's it!