Can You Live Off A Million Dollars?

Couple over 50 enjoying the beach Saving a million dollars used to mean that you were financially set for life.

Can you live off a million dollars today, and for how long? If your plan is to make 4% retirement account withdrawals, and you can live on $40,000 a year, a million dollars should support you for about 30 years. This formula can be adjusted for expected inflation and other income sources.     

Three factors that can affect this traditional retirement formula are how much money you spend, the method you choose to live off the million dollars you’ve accumulated, and how much investment return a million dollar portfolio will generate.

These factors will be different for everyone and for different investments. Therefore, let’s look at each factor in more detail and consider a few more variables so you can see if living off a million dollars is realistic for you. 

How Much Money You Spend

While I hate to state the obvious, how much money you spend to live will determine if you can live off a million dollars more than any other factor.

If you’re extremely frugal and you live in a cheap area, it can be easy to live off a million dollars.

On the other hand, if you’re raising four kids in New York City, it’s very unlikely you can live off a million dollars for a long period of time.

How you live is as important as where you live.

If, for example, you rent a small apartment vs. own a 4000 square foot home, again, you’re much more likely able to live off a million dollars.

So the starting point to see if you can live off a million dollars is simply to know how much money you spend every month, plus extraordinary or annual expenses, such as property taxes and home repairs; it’s not glamorous, but it’s reality. 

Determining spending priorities is the first step in creating a wealth plan and one of the most important steps in retirement planning

Lifestyle and Expense Priorities

By establishing some priorities about your expenses and your life, you’ll increase the likelihood that you can live off a million dollars for a long period of time.

The simple fact is that you can choose whether to live in a small apartment in an inexpensive area instead of a large home in an expensive area.

While it may seem like you’re stuck in an expensive area due to employment options, you have more freedom to choose where you earn your living than ever before with the birth of the internet and the remote work it has enabled.

The main point is that you get to choose how much money you spend. For the most part, this is a direct result of your lifestyle choices.

Once a certain lifestyle has been established, it can be hard to let go of luxuries that have become a part of that lifestyle. 

Factors Beyond Your Control

I do, however, understand that sometimes there are factors beyond your control, such as special needs children that need to be in a certain locale, or aging parents that you need to be near.

Even then, there are almost always some choices and alternatives. If you’re reading here at Retire Certain, you probably already know how much you spend every month since I tend to attract more experienced investors due to the advanced nature of my articles and videos.

But mindsets can play tricks on everyone.

Sometimes we get lost in our own numbers or situation and forget that almost everything is a choice. Hence this is a reminder to examine your lifestyle for a potential shift since mindset and the choices we make are the foundation for having wealth and enjoying life, the goal here.

So, let’s move into the next factor to see if you can live off a million dollars.


How to Live Off a Million Dollars

There are two ways you can live off a million dollars, or any other amount you have saved for retirement.

The two methods are different but overlap. One is making retirement withdrawals and the other is based on creating income streams from investments or skills.

It is my belief that a shift from the traditional withdrawal method is happening as many retirees favor creating diversified income streams from the many options now available.

In fact, this phenomenon has led many to retire early, after discovering they can create income from either their investments or their skills instead of making retirement withdrawals to live.

The income stream method has worked well for us personally over the past decade, but let’s look at both methods since many people prefer more passive methods, such as retirement withdrawals or annuities, to fund retirement than what we have done.

Many retirees choose to live off a combination of alternative wealth strategies and retirement withdrawals

Retirement Withdrawal Strategies

The most popular and more traditional method to live on a million dollars “in retirement “is to withdraw 3% to 4% to live each year. Many investors don’t understand how retirement works in the sense that withdrawals are made based on estimates with the hope that retirement money will outlive the retiree.  

This is known as the retirement withdrawal method and is based on various studies, including the well known 4% Rule. 

The advantages of the retirement withdrawal strategy are that it takes less effort than the income stream method.

It can also work well for high net worth investors who have over two to three million dollars.

From what I have seen, however, more sophisticated wealthy individuals invest in more alternative assets that generate income so they don’t need to withdraw from savings regularly to live.

Since the retirement withdrawal method still appears to be the most popularly promoted plan to live in retirement, let’s look at it first.

From the Run Out calculator here on Retire Certain, let’s enter the following data.

Savings Balance $ 1,000,000
Monthly Withdrawals $3,333
Yearly Withdrawal Increase 2.5%
Savings Interest Rate 5%
Federal Tax Bracket 0%

Next, I’ll explain each entry listed above. Below is an image with the above data entered into it. can you live off a million dollars calculator   My Run Out Calculator quickly reveals that if you use a common retirement withdrawal of 4%, a million dollars will last over 30 years assuming a 5% investment return, a 2.5% inflation rate, and no taxes due on withdrawals.

In fact, as you can see from the image below, at the end of 30 years you would still have over $700,000.

This makes sense because we are withdrawing less than we are earning, and our investments are compounding. In other words, we’re withdrawing 4% and earning 5% on our investments in this example.

But “assuming” is always a scary word, so let’s see where all these assumptions came from next because the 30 years and $700,000 estimate is only as reliable as the assumptions I put into the Run Out calculator. (My commercial real estate mentor from 30 years ago liked to remind me to remember the first 3 words of assume when evaluating a deal:)

Next, I’ll step you through the numbers I used for the Run Out Calculator and why.  

Savings Balance

In this example, we’re seeing if you can live off a million dollars, so this is the number I entered in the top field, but you can enter 1.5 million, 2 million. or any other amount you want.


Monthly Withdrawals

In this example, I entered $3,333 based on using the popular 4% retirement withdrawal rule.

I feel it’s important for me to note here that more recent studies suggested that 4% was too much to withdraw annually to avoid potentially running out of money in retirement.

The reality is your investment returns determine what percent to take for retirement withdrawals. There is simply no way to know how much investment returns will be in the future. We can, however, use historical returns as a guide when estimating how much you need to live off your money


Yearly Withdrawal Increase

Most retirees adjust their annual retirement withdrawals for inflation. This is an acceptable protocol under this method. Otherwise, retirees wouldn’t be able to maintain their standard of living because of rising costs from inflation.

Historical inflation is about 3%. More recently inflation has been about 2%, so I used 2.5% but future inflation is a big unknown.

While we get inflation numbers from the government, the core inflation numbers provided by the government exclude energy and food. (You may agree that this seems crazy since we will continue to eat, drive and heat our homes as long as we are alive!) And the government’s quantitative easing methods often cause inflation.

For these reasons, I used 2.5% as an inflation estimate but, again, it is an unknown risk, and out of our control. Some financial advisors suggest planning for 4% inflation or higher to be safe. 

(Remember, some investments are inflation hedges, such as real estate and many stocks.)

Here is my video with more about inflation and a great example to demonstrate how real this threat is.  



Savings Interest Rate

This variable is the trickiest, and perhaps most important one of all. Here’s why. The savings interest rate in this calculator is really referring to an investment return.

Investment return is a function of:

  1. How the million dollars is invested
  2. The return of each of those investments, assuming the investments are diversified

Let’s address each of these next. Note that I used 5% for an investment return estimate and you’ll see why.  

How the Million Dollars Is Invested

If the million is invested in a money market account, your return will be almost nothing.  It’s important to note that since money market returns are a little less than the annual rate of inflation, you’re really getting a slightly negative “real” return.

On the other hand, if you’ve invested in the stock market, it’s tricky to predict stock market returns over periods of less than a decade or two. 

The time frame is ever-changing since the financial markets are always changing.

The good news is that the dividend income of your stock return is more predictable than the growth (A.K.A. capital gains) of your stock investments. This is another plus for the income streams method over the retirement withdrawal method. Dividends stocks can also experience both dividends and capital gains which build wealth. 

As you know, if you read my posts or watch my videos, using facts and historical data guides us to realistically estimate future returns without emotions. In digging further into the estimated future return number to put into the calculator, looking to history, we know that:

  • The historical long-term return of stocks is around 10%.
  • In the period from 2000 through 2009, the annualized return from stocks was almost a negative 1% including dividends, and a negative 2.92% excluding dividends. Note that if you are living off investment income, then you wouldn’t have the dividend included in your return.
  • On the other hand, the stock market return from 2010 through 2019 had a stellar annualized return of about 11.16% excluding dividends.

As you can see, these two decades were night and day differences when it comes to investment returns, making it really hard to estimate future investment returns.

We also know that most investors will have some money in bonds and money markets, bringing the overall investment return down in most years.

Given the above, a 5% future return estimate seems somewhat realistic for someone with a typical investment portfolio in stocks, bonds, and money market.

The reality is, however, that we have no way of knowing for sure what future returns will be.

Here’s my related video on why wealth building in your 50’s is tricky.


In the Run Out calculator, I left the tax field at zero but taxes could seriously change the outcome for someone that has to pay taxes on some of the withdrawals.

This may be the case for someone with retirement money in a Traditional IRA, for example.

I used a zero tax rate because I was assuming that if we are exploring truly living off a million dollars, these withdrawals would be the only source of funds. There is a good chance the withdrawals could be tax-free.

Also, if this is the only income source, there would likely be little to no taxes owed.

There are, however, many variables so it is best to check with a CPA or research your own situation. By googling “tax rate schedule” you can estimate your tax rate based on your income and your standard deduction.

Now let’s shift to the other model of living off your money

Income Stream Method

With the income stream method, an investor creates or buys income investments that cover expenses.

Math for the Income Stream Method on a Million Dollars

In our analysis of whether you can live off a million dollars, let’s say an investor has expenses of $8,000 a month and no other income sources.

If she invests the one million into a diversified portfolio of high dividend stocks, and also some bonds to mitigate risk, with an overall yield of 6%, the investment income alone would be about $5,000 a month. 

Then the investor could withdraw the remaining $ 3,000 a month needed to pay expenses. This lower withdrawal rate leaves more money to compound and accumulate.

There are many variations on the income stream method that can allow investors to live off investments entirely.

Alternatively, you could start a consulting business with part-time consulting income for only 10 hours a week at $ 150 an hour. This would provide about $6,000 income a month plus some potential tax benefits if needed!

Rental income is another good option for investors seeking income generating assets. It is very reasonable that an investor could use $500,000 as a down payment on 2 separate million-dollar properties that bring in rental income of $6,000 a month or more, also with tax benefits. Of course, there are many variations on this strategy.

Or an investor may decide to buy a website for $250,000 that generates a net income of $7,000 a month. Websites are selling for about 3 times annual net income, and often most of the tasks can be delegated.

By adding one or more of these alternative retirement strategies to a core portfolio of stocks and bonds, you can manage risk through diversification. And you can use the income streams to reduce, delay or avoid having to make withdrawals from your retirement savings. 

How We Use the Income Stream Method

We used the income stream method after the two bear markets of the 2000’s decade and generated diversified income streams from our online businesses, real estate rentals, stock dividends, options, covered calls, and consulting.

While it is a lot to manage, we have a great team of outsourcers and we enjoy our work. We joke that creating income streams is better than crossword puzzles for brain stimulation.

And the diversification of both income and investments lowers risk, which is always good.

In hindsight, we would have probably narrowed our focus but we didn’t know what we didn’t know when we first began our income stream adventure.

And now, if we sell our real estate rentals we would owe taxes so we have decided to keep them since they generate positive cash flow and we are in an area that is now high growth.

Fortunately, the success of our income stream adventure led me to be able to help others choose the best income stream for them based on their own skills, capital, desired income and lifestyle.

Watch this video to see how generating a little consulting income is like having another million dollars.


Can You Live Off a Million Dollars Summary

As you saw, you can live off a million dollars with the retirement withdrawal method with a very low cost lifestyle, based on some assumptions, or with the income stream method with fewer long term assumptions while not spending your savings.

Only you can decide what is best for you based on what you want in your life.    


The best place to start is with my Ultimate Wealth Plan. You can get it here now.

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The information on this website is for education only and is not to be construed as personal financial advice.