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? The answer depends on 3 factors: how much money you spend, the method you choose to live off the million dollars you’ve accumulated, and how much return the million dollars generates. Let’s break down each element with a keen awareness that some of the determining factors you can control, while others you simply cannot control. This awareness empowers us as investors to live optimistically but also grounded in reality.

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. Read my related post, How to Create a Wealth Plan, for more on this.

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’s easy to get sucked into believing that massages and iPhone’s are a necessity, not a choice.

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 every one. 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 diverse income streams. 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 withdrawing from savings 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 to fund retirement than what we have done.

Retirement Withdrawal Strategies

The most popular and more traditional method to live on a million dollars “in retirement “is to withdraw 2% to 4% to live each year. This is known as the retirement withdrawal method and is based on various studies, including the well known 4% Rule. Read more about retirement withdrawal strategies here. 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 that my son set up for me 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. And 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. Right? (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 though 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 any amount you want. You’ll also enjoy my related article Is 1.5 Million Enough to Retire?

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. Interestingly, the further the 2008 bear market was in the rear view mirror, the more popular withdrawing 4% became again because investors get caught up in recency bias and expect higher returns near the end of bull markets. It will be interesting to see if retirement withdrawal recommendations are adjusted again after the 2020 bear market. Using 4% for retirement withdrawals may be less popular again as more conservative withdrawal percentages are advised based on lower stock market returns. (Forgive me for digressing, but I always try to realistically and honestly point out potential risk in my writing rather than pretend those risks don’t exist.)  

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 this is a big unknown. While we get inflation numbers from the government, the core inflation numbers provided by the government excludes 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 causes inflation. For these reasons, I used 2.5% as an inflation estimate but, again, it is an unknown risk, and out of our control. (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 about 1.00% as of this writing. (It’s important to note that since this return is 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 the stock market, you can’t really predict your return over periods of less than twenty years or so. (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 reason I prefer the income streams method over the retirement withdrawal method.) ( Read my related post Wealth Building Vs. Income. ) 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.
( Read my related article What Will Stocks Do Over the Next 10 Years? ) As you can see, these two decades were night and day difference 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 diversified 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. Read my related post How Much to Keep in Money Market Accounts and How to Calculate Investment Income. 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 of 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. Read my related article Is It Safest to Withdraw or Get Investment Income? and How Much Money Do You Need to Live Off Investments?

Income Stream Method

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

Math for the Income Stream Method

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 8%, the income alone would be about $6,667 a month. Then the investor could withdraw the remaining $1,333 a month. 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. Another option is, for example, you could start a consulting business with very part-time consulting income for 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. 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. (There are many variations on this.) 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 income streams to a core portfolio of stocks and bonds, you can manage risk through diversification. And you can generate income without having to make withdrawals from your retirement savings. Read my related article Living Off Investment Income.

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. Read my article about alternative retirement investment strategies. Watch this video to see how generating a little consulting income is like having another million dollars.
  You can learn more about my income consulting here.

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.  Thanks for reading. If you enjoyed this post, please share it with others on your favorite social media.     can you live off a million dollars Pin
The information on this website is for education only and is not to be construed as personal financial advice.