Yes, You Can Retire On $1M

On Monday, Maryalene LaPonsie asked in US News, “Can You Retire on $1 Million?”

She quoted a New York City advisor, Brent Lipschultz at accounting and advisory firm EisnerAmper, saying $1M would last about 20 years. Drawing on data from the Bureau of Labor Statistics, which shows that people age 65 and older have annual expenses of about $50,000, he “assumed inflation would be 2.9%, investments would earn 4% each year, and a person’s state and federal tax rates would be 30% combined.”

SmartAsset makes plain in an interactive map that location matters. The site tallies average expenses for housing, food, health care, utilities, and transportation to estimate how long a $1M retirement fund will last. Samples, in round numbers:

Number of Years a
$1M Retirement Fund Will Last
–  –  –  –  –  –  –  –  –  –  –  –  –  –  –

32 in McAllen, TX
29 in Statesboro, GA
25 in Orlando, FL
21 in Denver, CO
19 in Chicago, IL
17 in Portland, OR
16 in Los Angeles, CA
14 in Seattle, WA
12 in San Fransisco, CA
10 in New York, NY

Lipschultz estimates that a retiree needs to save an additional $765,000 to fully fund a 35-year retirement.

Two endeavors to improve your odds:

1. Grow your nest egg as much as possible.

2. Derive as much retirement income from it as possible.

With enough income generated and reinvested, your retirement stash could avoid a steady decrease from withdrawals, providing you with peace of mind for the duration.

My core Signal plans—3Sig, 6Sig, and 9Sig—are superb growth systems for pre-retirement investing. They’ve made many millionaires already and are in the process of making more. To complete the Sig journey from cradle to grave, an Income Sig plan is needed to provide income and inflation-beating growth. Although I’m still researching the plan, early signs are promising.

I wrote in last Sunday’s Kelly Letter that investing $800K in Omega Healthcare Investors (OHI $36 -1.4% YTD) at its current yield of 7.5% would produce an annual income of $60K. Upping the $800K to the $1M of LaPonsie’s story would up OHI’s annual income to $75K. That’s 50% more than the $50K the BLS estimates as annual expenses for people age 65 and older. The extra could go back into OHI or other income vehicle(s) to maintain growth. With a Signal plan, it would go in price opportunistically.

While we can do better than simply owning OHI or using it alone in a Sig plan, even considering it solo suggests it’s possible to retire comfortably on $1M. According to Morningstar, OHI averaged a total return of 10.8% annually over the past 10 years. The following are its recent total yields:

OHI Recent Total Yields (%)
–  –  –  –  –  –  –  –  –  –  –  –  –  –  –

9.2 in 2017
7.5 in 2018
6.3 in 2019
7.4 in 2020

This reveals that, even in this era of low yields and interest rates, enough yield exists to provide a comfortable retirement. I hope to devise an Income Sig plan that provides a boost on top of it.

Conclusion: Yes, you can retire on $1M.

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7 Comments

  1. Stephan
    Posted May 20, 2021 at 4:55 am | Permalink

    Jason, I have, in the past read about how to use the sig plans after retirement, but now is the time I need to reread them. Would you mind sharing some links or references to those you think would be most helpful?
    Thank you, you’re a gift.
    Stephan

  2. Zachary Hughes
    Posted May 20, 2021 at 3:58 am | Permalink

    I’m definitely excited about this Income Sig Plan. There are so many variables to consider when planning for retirement. Some people are ok with using up their nest eggs while others want to be able to leave behind to others. Age and health at retirement also play an important role in planning. Thank you for researching the possibilities.

  3. Helen Beresford
    Posted May 20, 2021 at 1:50 am | Permalink

    I’m hoping for a bucket plan something similar to this:
    Split nest egg up into 4 buckets
    assume life expectancy of 85:

    4 Bucket Plan
    Bucket 1= 2 years of income in cash

    Bucket 2 = 3-5 year needs ( low volatility high dividends)
    …Need ideas here for safe income generation

    Bucket 3= 6 years out to age 85 – use 3 Sig plan

    Bucket 4 = age 86+ – use 3 Sig plan for advanced years (insurance if you outlive your life expectancy )

    Note: Bucket 4 won’t need as much as you think for seed money since it will be left untouched to grow about 20+ years

  4. dr
    Posted May 19, 2021 at 10:09 pm | Permalink

    While I agree with the sentiments expressed, I do think it is risky to retire with 1M in the early years. SS and Medicare do provide some comfort but it may not work with people with serious or continuous health issues. JC also pointed out the location based cost of living and so that would play a role too in taking 1M far enough. Another important question will be the ability to sustain a living standard which is at par with prior to retirement.

  5. Kent Lacey
    Posted May 19, 2021 at 9:34 pm | Permalink

    Jason, I have much less than a million dollars. And I quit working at 51 years of age. As the years have gone by I do now receive Social Security of $20,000. Much of my savings are in high return dividend stocks generating well over $20,000 per year. I also trade carefully some low risk vertical put options that provides me with an additional $30 to $50 thousand a year. So there are many ways to pay your way through retirement, and I realize that trading is not for everyone, but it works well for me.

  6. JC
    Posted May 19, 2021 at 8:32 pm | Permalink

    I don’t understand articles like this where the estimate totally ignores social security. If the retiree has expenses of $50K per year, we can reasonably expect SS to cover about half of that or so. That completely changes the equation. With a $1M portfolio, I fail to see how the writer of the original article can come to the conclusion that $1M runs dry, ever. Could it be just an advisor who is paid by AUM trying to scare people into saving as much as humanly possible when they’ve already won the game?

  7. Dilip
    Posted May 19, 2021 at 8:21 pm | Permalink

    What about Calamos Convertible and High Income Fund (CHY). Similar yield.



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