Is it Possble to Retire on a Million Dollars?
Some people think a million dollar lottery win would set them up for life, but can you really live the rest of your life off a one time payment of a million bucks?
Is it really possible to retire early on a million dollars?
Examining the Factors of How Much Money You Need
Your age, and more importantly the number of years you have left, determines how much money you will need to support yourself for the remainder of your years. Suppose you figure you can live independently until the age of 75, all you need to do is to be able to finance yourself until that point. At that point the money you get from the sale of your home, combined with some retirement payments, should support you the reminder of your life. We will look at that more later.
Your location determines how far your money will go. The cost of living varies greatly area to area, country to country.
Your dependents can complicate matters, the more of them you have, the less far your money will go, particularly if you feel obligated to them even after they have moved out on their own.
Your assets are the things you own. If you own nothing of resale value and are greatly in debt your new wealth will be less likely to sustain you than if you own your own home and are out of debt.
Your expectations are probably the largest factor in the equation. If you expect a massive home, fancy cars, exotic trips, and the ability to tip random waitresses with $1000 bills your money will not last long. However if you can live a frugal lifestyle, holding time to yourself (as opposed to working for somebody) more important than possessions, you will go far.
Other variable factors will also come into play such as health, inflation, interest rate in banks, and so forth, but for the sake of keeping things simple we will not take those into account and assume they balance themselves out in the end.
Let us imagine you are 30 years old, with no dependents, living in an average area of Canada, or the United States. You have no debt but also do not own a home or car. You have no great expectations, wanting to live a leisurely life rather than an extravagant one.
Suppose you spend $200,000 from your lottery win right away, purchasing a home and car. That leaves $800,000 for 45 years. When we do the math we see that means you will have only $1,481 to spend every month. Without a mortgage (or rent) to pay, and no car payments other than insurance and gas, there is no reason why you should not be able to live on this much. Many people live on less and they have those other payments to keep up with. By planning to spend less each month, you can easily afford regular vacations or other luxuries.
At the age of 75 we can assume you sell your home to move into a retirement facility. With inflation let us assume your home is now worth $300,000 (although it will probably be worth more). If you live another 10 years you will have $2,500 to spend monthly, in addition to any old age government pension plans you will be receiving.
Without having something to do everyday, retiring at 30 might get dull after a while. Therefor before you step out of the work force altogether you may want to consider working only part time, finding a volunteer position, or starting a small business. The last being the most stressful, risky, and time consuming so is well geared for a person who enjoys being busy and actually likes some stress and risk.
Put everything on paper and see how it looks.
In the meanwhile adopt frugal living habits, live below your means, so you can save up, and will be ready for your win fall.