One million dollars used to be the gold standard on “making it”. But can you live your life on a million dollars? What would it take for you to quit your job today with a million dollars in the bank, and allow you to live comfortably for the rest of your life? Let’s find out today.
So, many moons ago, the gold standard for being able to retire happy was having one million dollars in the bank. If you do a quick google search for “how much money do I really need in retirement?” You will find a litany of websites with calculators out the wazoo. These calculators will undoubtedly predict that what you will need is somewhere between 3 and 5 million to live on in your post retirement era.
When it is all said and done, and you manage to save yourself three to five, at an interest rate of 4%, you will bring in an annual income of 120-200k per year. 4% is typically used as the standard for corporate AAA rated bonds. It could be less than this if you are using treasuries and other long term government debt as your preferred investment method.
Now, what if we aim a little bit higher. While bonds are a great idea for the retired individual to ensure you aren’t going to take any major hits during downturns in the economy, there are also other instruments that may provide a higher return, with only a slightly higher risk associated with them. Preferred stock funds typically return around 5-6% return in monthly dividends. So if you are retiring with 3-5 million, this would put you at somewhere between 150-180k and 250-300k.
Now let’s cover the one million dollar question. Let’s say you got to saving late in life, when you reached 50 you realized you had spent all your money on your kids (don’t feel bad about that) and keeping your family afloat and fed. You had zero saved in any of your accounts, but you were in your prime earnings years. Let’s say after the kids leave the house you were able to pocket all their expenses. Let’s call it 50k per year.
For the next 15 years you decide you can pack away 50k per year. That would come to 750,000. If you invested 50k every year at the average 7% rate the S&P returns, which would get you to about $1,250,000 by the time you retire.
If you take that $1.25M, there are three ways you can go with it. You could use treasuries, get a risk free 2%, go with some corporate bonds for 4%, some preferred stock for 5-6% or go big time with a leveraged monthly fund that may have slightly more volatility. One that comes to mind is PFFL, which is a monthly dividend leveraged preferred stock ETN. This ETN returns 11.4%.
If you are desperate to maintain your standard of living, and were only able to save for the last 15 years of your employment, you may want to consider the latter. 11.4% yield on 1.25M is $143k/year. While these ETNs are risky, they are less risky than junk bonds, and pay much more frequently. Think about your leveraged ETNs when you are wondering if you can live on a million dollars in retirement.