Revisiting – Can You Retire Early With 1 Million Dollars?

Can you retire early with 1 million dollars? Recently, a reader sent me this familiar question and I thought we should revisit the topic. Why should we revisit it? It’s a fun topic and I want to look at the problem from another direction. When I wrote about this a few years ago, I looked at it logically, analyzed the situation, and gave some examples. In summary, I said you can retire early with 1 million dollars if you can control your spending and be flexible. You might need to reduce expense or earn income occasionally, but it is doable. Today, we’ll look at it a bit differently. Instead of trying to predict the future, we’ll look back to the past.

A million dollars is a lot of money, but early retirement means you’ll spend many years in retirement. My retirement probably will be over 50 years. A million dollars won’t last that long if you don’t know how to invest. In addition, if you have a million dollars, you probably have high income. Which usually means your cost of living is relatively high. Perhaps this is why only 6% of the people think 1 million dollars is enough to retire on. They already live a comfortable lifestyle and don’t want to change. Most people prefer to work and spend more rather than retire early and live modestly.

Vote on my poll below to see the result.

How much do you need to retire right now?

View Results

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Your Track Record

To retire early with 1 million dollars, you need to be able to grow your net worth. That is the only safe way to retire early. If you retire at 40 and your net worth decreases every year, it’s a huge red flag. While the net worth drops, inflation will continue to erode your purchasing power. That’s two big issues working against you. It’s like trying to swim upstream while wearing a backpack that gets heavier. You’ll be in trouble eventually.

So how do you prevent this nightmare scenario from happening? Most of you are probably still working and it’s hard to predict the future. Fortunately, we can estimate the trajectory by looking at your track record. How did you do with your investments in the past? Would they be good enough to keep increasing your net worth after retirement?

Estimate Your FIRE Net Worth

Here is a quick way to estimate how you’ll do once you’re retired. We need to predict the trajectory of your net worth once you no longer have earned income. You’ll need the records of your net worth and earnings for this. You can check your Social Security statement for the earning records (pre-taxed.) Hopefully, you keep good records of your net worth.

  • FIRE net worth gains = Net worth gains – earnings

Basically, we’ll remove the active income from the net worth gains. This is a simplification because your earning is used to pay taxes, housing, and all kind of stuff. But it’s good enough to give us a trajectory.

Example

Let’s use our reader’s record as an example.

Lisa started with about a million dollars at the beginning of 2016. By the end of 2020, she grew her net worth to $1,781,500. That’s about 12% annualized growth. However, a big part of that growth is from her earned income. Once she retires, she won’t have that resource anymore. We’ll remove the earnings from the equation.

The last two columns show the estimated gains without additional saving.

We can see that Lisa is a pretty good investor. Her FIRE net worth increased 4 out of 5 years. The average FIRE net worth gains over 5 years is about 6.6%. That’s pretty good. Inflation is about 2% so anything higher is good.

After FIRE

From her track record, I predict that Lisa will be able to keep growing her net worth after early retirement. It’ll be more difficult with no additional savings, but she should be able to do it. Of course, the stock market and real estate investment won’t go up every year. Lisa will lose ground occasionally. But over many years, the trajectory should be going up.

In conclusion, the main goal for early retirees is to increase your net worth every year. If you can do it 4 out of 5 years, you won’t have any major financial problems after early retirement. On the other hand, if your net worth decreases every year after FIRE, you might have to figure out an alternative.

Hint – Passive income is good.

What do you think? Is this a good way to estimate a successful early retirement?

Grading

Alright, did you do the math? You can calculate FIRE NW gains over the past 5 years like the example or shorten the timeline a bit if you need to. See your result below.

Average FIRE net worth gains

  • negative % : It doesn’t look good. You might not be ready for early retirement.
  • 0-2% : This range is pretty tight. You’ll probably be okay, but you should have a backup plan.
  • 2-5% : Good. Your purchasing power shouldn’t be diminished by inflation. You should be able to maintain your lifestyle.
  • 5% – 10% : Great! You’re a great investor and should have a very nice early retirement.
  • 10%+ : Wow! Why are you even reading this? Tell us your secret.

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.

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24 thoughts on “Revisiting – Can You Retire Early With 1 Million Dollars?”

  1. I’d like to know how many in this poll is from California. I’m sure to retire in the dems dreamland you’d need 5+M indeed

    Reply
  2. Hi
    My wife and I set a date, end of 2024 to achieve FI. Currently our wealth is at roughly USD 1.1 Mio of which USD 450‘000 in stocks and bonds. Rest is for a real estate project we want to close by end of 2021 and is planned to generate roughly USD 15‘000 rental income annually. Hope to see 35‘000 in Passive income by end of 2022. but still then some way to go to cover our annual spendings of around USD 55‘000.
    Cheers

    Reply
  3. For me personally, $1M is a bit tough. I feel like $5M would be a good place for me to retire.

    There’s 2 reasons for this:
    1) I know there’s a lot of folks that say the “4% rule” is too conservative (i.e. assume you’ll just get 4% returns a year for income on your net worth), though I feel like if I retire I’d feel a bit more comfortable with the safety margin. I’m not going to be too sad if I see too much money in my bank account after I retire lol.
    2) It’s just my own personal taste, but I enjoy more fatter-FIRE things like business class and so on. I realize if I adjusted my tastes that I can go FIRE right now, but I don’t mind working and investing a bit longer to reach that stage.

    But I might be way too conservative because even after I’m FATFIRE, I don’t really plan to stop working.

    Reply
  4. The more I read the more depressed I get. Looking at this poll then was the last drop. I will give up on my FIRE plans and just keep working until I fall dead ! I’m saving my ass off and will hardly get at $1M at age 50…in 8 yrs when you revisit this number again will be at 10M at this pace…it’s just depressing to the extreme to me !
    (This samurai guy commenting above is also really not helping)

    Reply
  5. Kinda tough. But obviously can be done with SS and if you’re old enough without debt and no kids!

    The majority choosing $3 million makes sense. After all, due to inflation, $3 million is the new $1 million.

    Sam

    Reply
  6. The most interesting takeaway for me was your survey result that showed 67% of people think $5 million or more is needed to retire right now. I think this number is up significantly from just a few years ago. I don’t want to read too much into it, but I think we are going through some seriously inflationary times.

    Reply
    • I agree with this, especially if you live in a more expensive city. $5 million X 3% = $150,000. A comfortable retirement life. I wouldn’t expect 4% returns going forward.

      Every investor has made a ton of money recently. I just did the calculation on a recent post. If you retired with $3 million in the S&P 500 in 2012, you would have about $10 million today! And that’s if you saved no additional supplemental income!

      Sam

      Reply
  7. I retired when in June of 2020 at 45yrs old with about a 1 million dollar portfolio and 3 years of living expenses in cash. Because equities has been doing well, it is now around $1,200,000. My withdrawal rate is $40,000 a year and my partner is still working and doesn’t want to retire. I’m hoping I can stay retired, but if not I’m prepared to work part time.

    Reply
  8. When my family of 3 retired about 2 1/2 years ago, our net worth was just under $1.2 million. Right now, it’s at over $1.6 million thanks to a gracious stock market. I couldn’t be happier about that, but I also know that’s just been a lucky post-FIRE run so far.

    Personally, I don’t know if what we have is sustainable for the long run as is. It might be, but it’s a little hard to tell right now as our expenses jump around quite a bit. I’m not worried because we’re pretty flexible and I anticipate some more income over the years. When we move back to the U.S. next year, Lisa wants to go back to work part-time just for some structure in her day and I’m seeing some supplemental income from my blog.

    Will I ever return back to work? Maybe, but I don’t plan on it anytime in the near future… and I definitely won’t go back to a management career again. For now, we’ll just control our expenses and adapt if needed.

    Reply
    • Nice job with your net worth.
      I think your finance will be a lot more solid if Lisa goes back to work.
      Both of you will have some income. That should be enough to increase your net worth almost every year.

      Reply
  9. Instead of a poll on how much to retire right now, how about several polls with specific ages? How much to retire at 40, 45, 50, 55, 60? The responses might cluster better. Right now puts people at different ages, so their answers are in different contexts.

    Reply
      • True.

        The way to do it is to issue multiple polls. One for each target retirement age. They could all be part of a blog post, but a later blog post would be needed to show the results and analysis. Generally, I would anticipate that the earlier the retirement age, the more money that would be needed for all other things being equal.

        Actually, going the survey monkey route would be better in some ways, as you could request demographic data and then break down the results by location cost of living, lifestyle cost of living and other factors.

        Not the sort of thing retireby40 has done before. No burning need to do it now.

        Enjoying the blog and the posts!

        Reply
  10. Still need ~$5M. $2M for a house in a fancy Blue suburb. $3M to live the life to which we have become accustomed plus travel to keep us out of trouble and to deal with taxes and to just not worry that we’re going to outlive our $$ or be completely wiped out by an earthquake or landslide etc.

    Reply
    • Wow, $2M for a house. That’s really fancy.
      Personally, I don’t think we need that much once the kid is gone.
      I’d be happy with a nomadic lifestyle. Although, my wife wouldn’t enjoy it much… hahaha.

      Reply
    • I’ll take half a million in a pink suburb and $1.25 million in RE at 9% cap rate and $1.25 mil in stock market (including 20% international) for 500 Alex

      Reply
  11. I think this is putting too much emphasis on recent stock market gains. Lisa looks like a good investor here, but isn’t she just close to the S&P 500 minus a few percent? With the CAPE as high as it is now, we might be due for a correction.

    Our FIRE net worth is up a lot this year, but a good amount is locked in our primary residence. Those gains don’t help us retire any faster.

    Finally, there is future risk to consider. If you race to get a million in your early 30s, you may find that kids and college can be expensive (if you have kids). I think you have to be settled down and do your best to have zero lifestyle changes.

    Reply
    • Well, this is just an estimate. I think CAPE is too high as well.
      At first, I was thinking about excluding primary residence, but most people don’t have that level of detail in their record.
      So I made it easy. You’re right about lump-sum expenses as well. Although, kids can get loans. 🙂

      Reply
  12. It can be done, but just like you said in the post, you *really* need to have a series of good investment gains. That is, if you’re anywhere close to the edge. Don’t get stuck in a lost decade — those poor sequence of returns can be a killer.

    I prefer not to live on the edge. Why try to drive a 9,800 pound truck over a 10,000 pound bridge? Find a 20,000 pound bridge instead, and then sleep well at night.

    I started blogging when our NW was around $2 million. These days our NW is approaching $5m and our spending level has barely increased. That’s what I call “driving on a 20,000 pound bridge”.

    Reply
    • Great job with your NW. You have a great track record and should be able to keep increasing it in the future.
      I agree with trying to avoid the edge. But sometimes there is no choice, but to retire.
      In that case, I’d probably work a bit after retirement.

      Reply
  13. I am quite surprised that 83 percent of people figure they need $3 million or more to retire.

    As for me, I at one time figured $1 million would do but I increased it to $2 million. My retirement portfolio and prosperity accounts have reached that level. Of course, I should point out that I am now 72 years old.

    Every so often I punch in my numbers into my favorite retirement calculator which is the one VanCity in Vancouver provides on their website.

    https://www.vancity.com/Investments/InvestmentCalculators/RetirementCalculator/

    This calculator creates a neat graph at the bottom if you hit the graph button.

    By punching in various rates of return and various inflation rates, the numbers get very interesting.

    For the most part, it appears that with $2 million in my retirement portfolio and prosperity accounts along with $50,000 in residual income from my creative works, I can have $120,000 a year in pretax income and have enough money to live to be 90 or 95.

    I don’t even have to punch in my meager government pension of $640 a month which I normally forget about because it’s basically coffee money.

    Reply
    • I’m surprised as well. I think $2 million is already a very good amount to retire on.
      Early retirement is a bit different than regular retirement. Most people will continue to make a little money somehow.

      Reply

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