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Living On A Million Dollars

38K views 223 replies 42 participants last post by  kcowan 
#1 ·
I see more and more of these news stories about people who have got to a million either by extreme saving, maybe a house sale etc., then they quit work in their late 30s and say they are going to live on $40k per yr passive income forever. While am sure it can be done, $40k would be about the amount to rent or pay a mortgage, eat, utilities, bit of entertainment and thats about it afterwards, no account for inflation etc.

While I am all for frugality, that seems not enough to rely on, especially if a family is in your future.
 
#2 ·
If you have a million you would get about 40K plus 10-15 in OAS and CPP (caveats with that). 55K a year is pretty decent to live on if you're living paycheck to pay check.

To get to a million you don't really need to do extreme savings. I'm more less on track to hit a million at 65 and all I have to do is save $450 a month until then. That's not too much of a burden. Although saving is still less fun than spending!
 
#3 ·
If it's heavy on the dividends, then the 40K per year will feel more like 50 or 55K per year due to preferential taxation on dividends. Plus over the long term, dividends generally grow at a rate similar to inflation.

A lot of people raise normal families on incomes of 50K a year, so it's certainly doable.
If the house was paid off (no rent, just upkeep and taxes), then i could see it being a decent life.
 
#4 ·
Hi:

My area is reputed to be the poorest in Ontario except for the misery found on reservations. Likely half or more residents would be delighted to get their incomes up to $40K.

Is it possible? Sure. Many going to choose to permanently live on that much if they have the means to obtain more? Not likely many takers.

Hboy54
 
#5 ·
One million is pretty modest and doesn't leave a buffer for problems that life is great at creating. Still, I think my wife and I could easily live on it.

For someone who has averaged 8~10% returns over the last 20 years, as many investors have, one million dollars will provide a lot more comfort and adventure.

I agree with Tygrus. $1M is too little for an index investor to live on for 30 years. Index investors should be thinking about $1.5M of today's money as a bare minimum, unless they have a plan that involves extreme frugality. Moving to Mexico, for example, would enable a couple to easily live off $1M or even less.
 
#7 ·
Can easily be done. If you track expenses and live even modestly frugal its not that hard. Most of the people that track their expenses are within a couple thousand each year, so not much fluctuation. I find most people only dwell on the negative what ifs, and not the positive. What if the stock market crashes? What if a major expense comes up? Ya well, you're not working anymore. What if you discover a passion project that ends up generating money? The people that are retiring in their late 30's are motivated individuals. They are not gonna sit around all day. Its too easy to make money.
 
#8 ·
I agree . Even with grown up kids, 1M is not enough for comfortable living. It will be enough for food, utilities, property tax etc,. but not enough if you want to travel around the world.
I'd estimate that we need at least 1.7-2M for comfortable living from dividends/interest
 
#9 ·
Whether or not it's enough depends on how much you'll be spending :) For my lifestyle, I think I would need 1.5 M in today's dollars to retire. You may find this simulator useful:
https://www.portfoliovisualizer.com/monte-carlo-simulation

For example, enter 1 M capital, fixed annual $35,000 withdrawals, with inflation adjustment, boost it to 50 year simulation. Enter 50/50 US stock and bond exposure. The results show probability of success for the 50 years at over 90% with this balanced exposure. So yeah, maybe 1M is enough to retire with 35k + inflation withdrawals.

Assuming you only need 35k
 
#10 ·
Well first it sounds like you are only talking about the case where the person in question has sold any property they have and are solely living off of the million dollars and have to afford rent within that. Because if the person has a fully paid off home, it can make a clearly big difference to the monthly costs.

Second you have to remember many in Canada don't make that much to begin with. If a person makes $30/hour which is considered quite a good income, that is $60K/year. Out of that they are going to pay CPP/EI & Income taxes. On top of that they save a few thousand per year to get to their million of savings in the first place. The amount they were living off of, isn't that far different from the $40k/year to begin with. And that is not taking into account they may now have a paid off home, they may have been paying for children who are now out of the house, and they may be reducing their commute expenses.

I'm not great at the whole frugal living thing personally, I like to enjoy some of the finer things in life, particularly travel. I would struggle to live off of $40K/year. But it is hardly a ridiculous figure.
 
#14 ·
I'm not great at the whole frugal living thing personally, I like to enjoy some of the finer things in life, particularly travel. I would struggle to live off of $40K/year. But it is hardly a ridiculous figure.
People have travelled the world on less. The slower you travel the cheaper it is per day. I like to enjoy finer things in life that many seem to think are unaffordable yet they are in debt while I bank most of my income. $40k per year is very doable if you are savvy

If you want to live in a major suburb of cookie cutter houses, drive 2 vehicles that keep up with the jones and put a class of adult children through post secondary education and extra curricular activities then no. $40k will never be enough.
 
#12 ·
My partner and I happily live off less than $40k/year now and we go on 2 trips a year on average. It isn't hard, you need to decide if you'd rather have the fancy car, all the cable channels, and a latte every morning or a couple trips a year and the freedom to choose to work instead of needing to work.
 
#13 ·
Thought $1M would be enough for quite a while in my 20s, but pretty sure it's not anymore.

Either you're going to have kids in your 30s and expenses will rise above 40k significantly, or remain a bachelor and want to start living an 80k lifestyle by the time you're 40 and beyond.

Of course it's hard to predicts just how much money you'll have in the future. Focusing on cash-flow and savings rate is nice and makes you feel accomplished, but decades-long net worth is really what matters. You could make way above average money, go through bad investments and divorce, and end up with not much in your 40s. Or you could be a layabout, buy a $200k house in vancouver when you're 20 with a borrowed downpayment and end up with $2M+ in your 40s.
 
#15 · (Edited)
It depends on their situation. If a young couple never wants kids and works diligently for a period of time while living frugally they could definitely achieve the 1 mill. Now the fact that they don't want nor will they have kids will free up a lot in their life budget. 1 mill at conservative 4% is 40k in dividends (pretty achievable) not to mention the ability to shelter 100k of the portfolio in TFSAs which the divs they will not pay tax on. This also doesn't mean a complete stoppage from work. I would pick up programming and try to get some freelance deals to get some small income.

The only thing that would eat into the income is the place to live. Now if its 1 mill + small condo then you are set. I'd gather that this lifestyle would mean extensive travelling and would require knowledge on good travel deals.

I would spend 12k to go on a half year cruise each year and not worry about anything else and then have the rest for the remaining to live for the rest of the year.
 
#16 ·
1 mill at conservative 4% is 40k in dividends (pretty achievable)
Beware that 4% extraction from a portfolio is not conservative and is considered barely sustainable, if we're talking 4% of the original value (40k) plus inflation adjustment, on a constant withdrawal schedule (i.e. 4% SWR).

Dividends are a different matter, as they are not constant withdrawals but will vary over time.
 
#19 ·
Not too many people start out with $1Mil. As mentioned, live within your means, save, invest and increase your saving\investments as one earns more. We certainly didn't have $1Mil even when we were 55, but at that age we were earning good money, owned our home, no debts, and were therefore able to really increase our annual contributions considerably. Then we began investing for Income not the size of the investment or whether we were meeting or beating any index or market. I think that's the key, at least it was for us, how much income will one's investment generate and is it a growing income. What happen for us is as our income grew, so did our capital and now we do have over $1Mil invested and a growing income which exceeds our annual expenses.
 
#20 ·
Interesting thread.

I've been thinking about this recently. Say you have $1 Million in a very well diversified portfolio - equities: us, cad, developed, emerging you got it. Then you have bonds, preferred shares and REITs. At the end finish with some gold bullion. You get the point. Total market value - $1M.

If you decide to retire at this point and live off of it what do you do exactly? Do you restructure it and go heavy on Canadian dividend stocks (aiming for 4% income) or you keep it as is and start selling little by little?

If you chose case 1) then it looks like diversification goes out the window but it's simple and you enjoy low taxes on Canadian dividends
If you chose case 2) then it feels like it's harder to "generate" the income due to multiple transactions/commissions every month or two

What is your approach?

P.S. I realize that the above is somewhat oversimplified ...
 
#21 ·
A lot depends on WHERE you live. I am sure there are people with a cabin in a remote part of BC that live on less. same would be in Newfoundland. But in Toronto, Vancouver or even other major cities?? Unless you are prepared to be a street person or something close.

Someone metioned CPP/OAS. You won't get much of that at 30 something (or even later if you don't work)

For a retired middle class couple with paid off home and full CPP/OAS living outside of major cities, a million might do it in todays $. They would have a total of about $65-$70k before tax if the money has wisely invested. But not if in GICs or the like.
 
#22 ·
A lot depends on WHERE you live. I am sure there are people with a cabin in a remote part of BC that live on less. same would be in Newfoundland. But in Toronto, Vancouver or even other major cities?? Unless you are prepared to be a street person or something close.
This kind of thinking blows my mind

Someone living in Toronto has $1M (anyone who owns a house there) and says well darn I need to keep working until 65. Because Toronto. Does it not cross their mind that they could be living like a king in many beautiful parts of the world instead of gridlock traffic and cubicles half their life? Leaving is not even an option? I live in hamster cage therefore I shall run in the hamster wheel? Stockholm syndrome maybe?

To build up OAS you need to live in Canada for 6 months/year. Why not spend 6 winter months somewhere warm in a hammock.
 
#23 ·
You don't need to save $1 M if you a) save early and b) save often. Compounding and reinvested returns and dividends will take care of the rest over 20-30 years.

That said, to answer your question, I hope to live off $1 M within another 10 years.

I have no hope of quitting work in my 30s. In my early 40s now but we're halfway to our goal. I recently wrote about how I believe $1 M is "good enough" for our retirement plans:
http://www.myownadvisor.ca/our-bucket-approach-to-earning-income-in-retirement/

This excludes CPP and OAS income which should be a conservative of $20,000 per year between both of us at age 60 or higher at age 65.

Say you have $1 M in your RRSP, at age 60. You can withdraw a tidy sum of money for the next 30 years.

At the end of the day, $1 M or $2 M or even $500k is OK depending upon your lifestyle. Once you figure out how you want to live, the 'enough number' is easy to figure out. Just me maybe.
 
#25 ·
Say you have $1 M in your RRSP, at age 60. You can withdraw a tidy sum of money for the next 30 years.
Unfortunately, part of that $1million belongs to the government. It will be taxed at full rate, same as interest when withdrawn. At 71 the government will set the withdrawal rate at 5.28% and it goes up every year after that. It depends on whether we are talking about a single or a couple, but a good part of OAS/CPP (also taxable at full rate) will be required to pay the taxes on the RRSP/RRIF withdrawal.

So basically saying that $1million in RRSP is not same as $1million in taxable savings.
 
#24 ·
I agree with MOA but I think there are a lot of moving parts here.

I've been grappling with this problem for years and have yet to determine a quantitative nest egg number I knew was right. At the end of the day, I think you get yourself into a reasonable range and you live within what you have. You adjust to fit the money at hand, instead of adjusting the money to fit you.

... and then there is the issue of risk versus time. We intend to draw out less than what we could, at first, because I am a fraidycat. As we get closer to end of life, I expect we'll be able to turn up the spending massively. ... but when you have 35 years to fund, it's a bit scary.
 
#26 ·
Yet Tom, you could, if you had...and you might because from what I know you've done very well for yourself.....:) had $1 M in an RRSP today, and start withdrawing from it at age 60; assuming 2% inflation and a 5% conservative rate or return - unless you have lots of debt at the time of retirement you could withdraw $50k per year and die broke at age 94.

Then, if you owned a home, you could always sell that in your 90s and use that for supportive care. Then you have CPP and OAS on top of your $50k per withdrawn.

I've always thought the 'enough number' is a bit of a guessing game but I believe if people, could, somehow, strive to have $1 M in the bank in their 60s (say time of retirement) they've done very well and would have little money issues in their golden years.

The 'enough number' is easy if you know when you'll die. Morbid thought but true. So, better to save your David Chilton net 10% income as early and as often as possible and if you hit $1 M (or even close to it for most Canadians) pat yourself on the back - you've saved well and done good. :)
 
#36 ·
So paid off house, kids gone, etc and $2M? Sounds doable.

But the people in the articles are like 35 and single. I mean good for them $1M at 35 or something. But to make it another 50 yrs on that...and I wouldnt count on any govt programs being there when you turn 65.
 
#39 ·
Agree. imho, the resonable retirement is aroung 50 (+/- 2-3 years). No debt, include mortgage. Paid off house/condo, 1.7-2M is saving (50% stocks, 50% FI).

btw, in your opinion, what is the best place to move away from Toronto. The place that has high quality of life, cheap houses, close to major airport and hospital?
 
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