One Million Dollars Does Not Get You Too Far

I was a little bit bored today and start to day dreaming in the office. I know it has been discussed many times in personal finance world about how much you need to retire. But just for fun and to kill some time, I brought up a spreadsheet and did some calculation to see how far can a million dollars get me going. Here is the details:

Assumption:

1. I have my place paid off before retirement
2. The period in my retirements are 40 years
3. I have one million dollars in today’s dollar
4. The inflation rate is 4% per year
5. The return on my money is 4% per year as well
6. I would be withdrawing $30,000 per year before tax and the amount will increased every year in the pace of inflation rate (that will be equivalent to about $24000 after tax I think)

The numbers:

You might think one million dollars are a lot of money especially if you have had your place paid off. But as you can see from the numbers above, with my assumptions, if I retire at age of 40 and IF I have one million dollars(in today’s purchasing power) by that time I retire, I will be running out of money at year 40, just about the right time for 40 years in retirements. In other words, one million dollars are just about the right amount to make your ends meet.

You might argue that the rate of return and the inflation rate I have had in my assumption are very conservative. Yes, they are. But the withdraw amount I have set up is also very realistic too. It is not an amount you can use to afford a luxury life style, but a very moderate one. So I guess one million dollars does not get you too far these days, at least not if you decide to retire early.