Trust Me, $1 Million is Enough Money to Retire

The 1994 family comedy Blank Check teaches us a valuable lesson about money and the tendency to underestimate what a modern lifestyle really costs. Acclaimed actor Brian Bosnall plays Preston Waters, your typical self-important tween who is frustrated with his lack of status in the world. Through a series of impossible coincidences and comedic mistakes by some bumbling white-collar criminals (including Tone Loc’s seminal portrayal of “Juice” [pictured above]), Preston becomes a victim of a minor hit-and-run and is suddenly in possession of some hush money in the form of a blank check.

Seeing the check as a way out of his middle school misery, Preston gazes starry-eyed at the check as he ponders what dollar amount he should write down…

“One Thousand Dollars???”

C’mon Preston, grow a pair.

“Ten Thousand???”

Still not enough. Push the envelope…

“I Know….One Meeellion Dollars.”

Of course, Blank Check came out in 1994, which was before the Patriot Act and all of those bureaucratic Know-Your-Client restrictions. So of course, Preston has no trouble proceeding to cash the check. He quickly developed lavish tastes, hollow friendships, and romantic interests in 20-something bank tellers. Preston’s parents also display some of the most absent parenting that you’ll ever see on the silver screen. Needless to say, Preston goes full Rihanna and his million-dollar adventure only lasts six days before the money is gone and Preston is left with little more than a cynical view of adulthood and some oversized Sumo costumes. Real-life actor Brian Bosnall seemed to have taken away a similar lesson, as evidenced through this mug shot some years later.

As it turned out for Preston, a million dollars wasn’t nearly enough; he burned through that money faster than Tone Loc rips rhymes. And, Preston managed to do this when only buying random crap like Go-Karts and big screens….imagine if he had to buy “real” stuff—like a new transmission or health insurance. The valuable lesson to us captivated viewers was that a million greenbacks just ain’t what she used to be. The personal finance writing community took notice of this lesson, and dug in…

Headline: “FI Blogger Industry Claps Back at Blank Check”

Shortly after Blank Check debuted, the FI bloggers used the lesson and began writing an endless stream of articles bemoaning the inadequacy of a million-dollar nestegg for retirement (here’s one from a few days ago!). The basic refrain is as follows:

“A million dollars?! Pfft. Think again you pensionless loser. It wasn’t enough for Preston, so it can’t possibly be enough for you. What about health care? Or negative interest rates? You think that Wall Street Casino will save you?!–that thing is rigged. Not to mention the sky-high inflation! When I was a kid, a nickel would buy you a gallon of milk and I’d still have enough left to catch a matinee of Blank Check. Say goodbye to your kid’s college education—tuition basically doubles every year. And then there’s the taxes. The Taxes! THE TAXES!”

And who am I to argue? I’m just some guy on the internet. While the party line seems to be that $1M is vastly inadequate, early-retiree extraordinaire Mr. Money Mustache retired with non-house investable assets between $600-$720k. Same goes for the guy who ran the best FI blog that ever existed. Others have even done it with even less. Many folks, either through research into their own expenses or through the constant propagation of fear by financial media, feel they’ll need more than $1M to retire or simply don’t know how much they’ll need:

Source: Merrill Edge, Fall 2016




While the Mustache and others might be weaving multi-year webs of lies, I choose to believe that these retirement stories are true and that breakin’ the chains of employment with such meager sums is totally doable.

I am aiming for a $1M net worth at retirement (55% of the way there!). I figure that will be enough based on my expense tracking. That $1M net worth should be comprised of $750k in investment assets and $250k in home equity. Additionally, no less than $150k of that $750k in investments must be in “current,” non-retirement, fully-accessible-without-penalty accounts (here’s the reasoning on that breakout). Right now, the numbers look like this…

So, am I crazy to have a stated net worth goal of just $1 Million to retire? Well, let’s see. Let’s see if a $1M net worth, allocated as above, is enough to retire.

Is $1 Million Enough to Retire?

First, I don’t want to speak about me, specifically. My personal life situation (i.e. single, no kids, living in tent, stealing brown rice from Trader Joes), might not translate to your average Joe. So, rather than speak about me for a minute, let’s discuss if $1M is enough for the average family in America.

From here on out, we’re going to be talking about Joe, a 40-year-old resident of Anytown, USA working at Median Household Income, LLP. Joe has 2.58 members in his family, and they aren’t stupid.

Joe has a $1 Million net worth, and he wants to know if it will be enough to retire.

First, we have to talk about how that $1M is comprised. Joe doesn’t want to enter retirement with any debt, and he values security, so Joe owns his home, worth $250,000, outright. That’s slightly higher than the U.S. median existing home value ($232,200).

Actual House on Coldwell Banker

Here’s Joe’s house, a nice 4-bedroom in Lubbock, Texas. (Actually on the market today for $249,000.)

There are tons of great houses available for decent prices if you are flexible about your location and are independent from a workplace. Joe and his family take advantage of this.

After his home value is removed from his net worth, Joe is left with $750,000 in investments, which is smartly distributed with one-fifth in non-retirement accounts.

A 4% safe withdrawal rate of that $750k provides Joe with $30,000 a year in income. So, the real question is: can Joe’s average family sustain a typical lifestyle on $30k per year. Thankfully, the Bureau of Labor Statistics already does a consumer expediture survey, which provides data on such things like the average expenses of a normal family. I’ve copied that below, but also did something reasonable—I adjusted the average expenses in certain areas to reflect the realities of a retiree (e.g. no FICA, no income tax, no savings contributions) as well as adjusted some items to reflect a somewhat frugal lifestyle (e.g. lower personal care, debt payments, apparel, and transportation).

Now, before you kill me on the suggested changes, think about it. Think about the life of a frugal retiree and how realistically some of these changes could be implemented. $1,000 a year in home maintenance might not seem like much, but it goes a lot farther when you provide your own labor since you aren’t working. For transportation…no commute, high deductibles, and cheaper cars can really put a dent in those expenses.

I see this budget as altogether reasonable, although Joe’s family would certainly need to be deliberate about their spending. And, anecdotally, I’ve found that this level of expenses is also reasonable for my own family (Read this post). That post details my expenses now, and how those expenses may change (up/down) during retirement. I found that at the point I’d be ready and comfortable to retire, my expenses would be $1,960 per month, requiring a portfolio of $588k at a 4% withdrawal rate—much less than Joe’s $750k.




After throwing that article to the wolves (see: Retire29 readers), I upped my numbers to $2,150 in expenses requiring $645k in investments. So, even my peer-reviewed, based-on-real-life expenses could be achieved with $750k of investments.

The Ace Up The Early Retiree’s Sleeve

Thus far, we’ve described the realistic potential for somebody to retire on $750k of investments generating $30k of yearly withdrawals. I think we’d all agree that this is possible for the average person, but given certain luxuries or budget customization, $30k is probably not desired for most.

But, here’s the rub. $100 here or $200 there in monthly expenses is a pretty ludicrous distinction. The only takeaway we should be making from the “nestegg” conversation is that $1M is adequate for a comfortable, average American family existence. It affords few luxuries and certainly won’t provide much psychological comfort against the financial contingencies of life. For instance, how will I pay for Toddler29’s top-notch criminal defense team when the need arises?

Thankfully, for nearly every retiree and particularly early retirees, the exact nestegg balance is of little importance thanks to the fact that retirees still have income.

You heard me. Income.

A retirement without income is like the famous “frictionless plane” we learned about in physics class: it doesn’t exist. Every retiree that I know (both normal and early retirees) has an income—a pension, a side job, a blog, social security, a rental property, or selling stolen Trader Joe’s rice or other household goods. Find me one retiree that doesn’t have some form of income and I’ll send them $1 per month just to make you wrong.

According to last fall’s and this spring’s Merrill Edge report, the entire idea of retirement is being upended by Millennials:

Younger generations may never experience a traditional retirement. While most of today’s retirees (83 percent) are not currently working or never have during their golden years, the majority (83 percent) of millennials plan to work in retirement whether for income, to keep busy or to pursue a passion.

The rise of the “gig economy” – an environment where temporary positions and short-term projects are more prevalent – and longer-term careers may be why millennials (15 percent) are three times more likely than Gen Xers and baby boomers (5 percent) to rank an employer’s retirement plan as the most important factor when taking a new job. (Source: Merrill Edge, Fall 2016)

More broadly, the entire concept of retirement is shifting. Now, “financial freedom” is becoming the norm:

So what exactly does financial freedom look like? According to the Spring 2017 Merrill Edge Report, we’re seeing millennials save to live their desired lifestyle, not for an exit strategy to leave the workforce. This seismic shift of how millennials view their later years speaks to their broader mindset and perspective to redefine life’s milestones. (Source: Merrill Edge, Spring 2017)

Can you all relate to this mindset? I sure can. I’ll always make money. I like writing. I like doing taxes. I like selling stuff. Hell, I even have a Adsense-enabled YouTube channel where I post random videos of my kids (that thing somehow brings in like $3 per month). I’ll never stop doing those things—and they make money. Granted, it’s not a lot of money (I reckon around $200 per month in aggregate), but in retirement, any income at all goes a long way.

Take whatever income you expect to make in retirement through enjoyable hobbies or passive pursuits and multiply it by 300, and that represents an additional nestegg. So, my meager $200 per month of income equates to $60k in added nestegg (based on the 4% rule). That number will probably increase significantly above $200. That assumes that once I retire, I believe my pace of writing will improve from “Pathetically Irregular” to “Occasional.”

Of course, something could go drastically wrong and I would be forced back into the active workforce that I left long ago. If that occurs, okay, I’m no worse for wear—I’ll have a good story. If it doesn’t, even better. Given that I plan to continue paying my insurance premiums and that I’m using the 18-year-runway to prepare for my kid’s college, I think the likely outcome is that most major expenses will be overcome by simply taking a relatively small withdrawal from a large pool of invested, dividend-producing assets.

So, Uh, Is $1M Enough or Not?

If I woke up tomorrow and my net worth was $1M, I’d put in my resignation for early next year (may as well get the annual bonus). I’d feel confident in my ability to leave salaried work and start my next life. That sense of confidence is predicated on the fact that those $1M of assets are sufficient to provide for my baseline lifestyle, as well as the knowledge that I can make income for myself at a leisurely-but-effective pace even while retired should I need or want more.

I, perhaps foolishly, believe that most people think a lot like me.

Thanks for reading,

Eric

11 Comments

  1. I think anyone looking to retire needs to go through this analysis. There’s no way you can make that decision based on someone else’s analysis… but then again, if you are the type to consider FIRE, you probably already are.

    Another side benefit – you start thinking about things you should be thinking about anyway!
    Jim Wang recently posted…7 Ways to Get Money from the GovernmentMy Profile

    • Nobody, and I mean nobody, would make such a huge decision based on one article one the internet. This is meant to dispute the all-too-common notion that $1M is not enough.

  2. This looks like a good viral article candidate. Hopefully it will see a lot of eyes because it is well researched with a lot of basis. Thanks for sharing.

  3. I also just noticed that you snuck some TTD in your portfolio. I thought I was the only one who knew about that little gem. I’m up 30% in 3 months. Hopefully maintains solid growth for years to come.

  4. I think the big unknown is health care. The insurance hack that allows high net worth early retirees to get subsidized healthcare while high earning side gigging early retirees like me pay full cost is not going to continue forever in my opinion. I feel like they will apply an asset test of some kind to prevent relatively wealthy people from getting a free ride.

    • Couldn’t agree more. I’ve done the math and if the Obamacare subsidies went away (or effectively went away for me due to asset-based pricing) I would have to work for another 12-18 months to save enough to make up the additional monthly cost.

      Thankfully, inertia is the most powerful force in government, and it would seem those subsidies aren’t going anywhere soon.

    • Well, obviously. That’s why I used “Average” Joe and not “Five Kids in Manhattan” Joe. The latter article would be completely unrelatable.

      I could conversely say that $1M is an outrageously excessive amount to retire for, say, a single person living in Delhi.

  5. Hi

    Good article! The numbers are a little different here in Australia, but I think it is invaluable to take the time to determine what an individual needs to retire early.

    My number fluctuates, but that’s largely because I’m nowhere near the finish line, and I enjoy tweaking everything. But a million dollars would do it just fine.

  6. It really depends on where you live. There are many places in the US and abroad that you can retire on $1 million. It’d be tough for us in Portland, though. The taxes are high and it’s getting expensive to live here. We’ll have to move to make $1 million. Even then, I think it’d be a close call especially if you’re young.

    • Yep, this is an average person with an average budget making some commonsense changes to that budget based on a retired lifestyle.

      It totally makes sense that individual situations would require less or more than $1M. The 4% rule still reigns supreme.

      Eric

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