It’s not uncommon for a retiree to have a million bucks these days. Between super, bank savings, property and investments, there’s a lot of 60-year olds with $1 million.
But, can you retire on 1 million dollars?
Can I Retire on 1 Million Dollars?
You can retire on 1 million dollars quite comfortably. How long the $1 million will last depends on your retirement expenses, the age you retire, whether you are single or a member of a couple and whether you are a homeowner or non-homeowner.
Let’s take a look at how much $1 million will last based on the following assumptions:
- A single person covers retirement expenses of $50,000 per year or as a couple $70,000 per year (combined).
- You retire at age 65.
- You own your home.
- You are eligible for Age Pension payments.
- Inflation (cost of living) averages 3% p.a.
The number of years $1 million will last you throughout retirement will also be influenced on how the $1 million is invested, because the $1 million will earn an investment return, which means part of your retirement income needs will be met by investment earnings and part by drawing down on capital.
Detailed below is a list of common investment options available to you and a guide on how long your $1 million will last if invested in each one, based on the assumptions above.
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How to Retire on 1 Million Dollars: 5 Options
We’ve chosen 5 ways that you could invest $1 million in retirement and calculated how long your money would last, including the expected risk and return of each option.
If you were to invest your $1 million in shares, you would earn an average long-term investment return of approximately 10% p.a. Therefore, you could cover retirement expenses until well past age 100 as either a single person or a member of a couple. In fact, the value of your investments would continue to increase each year.
Shares offer a high-return but also carry high-risk. Your investment balance would fluctuate largely each day and investment returns can be volatile. For example, the Australian sharemarket has fallen more than 30% on 4 occasions in the past 50 years. Meaning it’s possible for a $1 million balance to fall to $700,000 within a matter of months or years. Are you comfortable with that risk?
Related Article: Can I Invest My Super in Shares?
2. Invest in a Property
Investing your $1 million in property could earn an average long-term return of around 10% p.a. This figure is largely debatable and depends on the type of property, the costs associated, the purchase price, etc.
Like shares, property is a high-risk investment option and incurs ongoing maintenance costs. However, more importantly, it offers no liquidity. Therefore you would need to survive on the rental income alone. You cannot sell part of the house each year to top up the rental income.
The rental yield (income divided by property value) of a standard residential investment property, after costs, is around 4% p.a. This means that your $40,000 annual rental income is below the recommended retirement income of $50,000 for singles and $70,000 for couples, so you would not be able to cover the expenses required for a comfortable retirement from day 1.
3. Invest in Term Deposits
Unlike shares and property, which are high-risk investments, term deposits are at the other end of the risk scale. Term deposits are low-risk and low-return.
A term deposit would provide an average long-term interest return of around 4% p.a. Therefore, you could cover retirement expenses for around 32 years for a single person and 30 years for a couple, at which stage you would have no investment balance and be solely reliant on the Age Pension, but you would still own your home.
The benefit of a term deposit is that your investment balance won’t bounce up and down with market returns. The downside is that your money’s going to run out much sooner compared to other investment options, due to the returns barely keeping pace with inflation.
4. Invest in a Balanced Diversified Index Managed Fund
A balanced diversified index managed fund can be defined as a low-cost managed investment that tracks the indices of relevant asset classes (shares, property cash, bonds and fixed interest). It will have an allocation of around 50% to growth-oriented assets (e.g. shares and property) and 50% to defensive assets (e.g. bonds, cash and fixed interest).
Such a portfolio could be expected to produce average long-term returns of approximately 6% p.a. and, as such, $1 million invested in this manner could cover your retirement expenses until past age 100. At age 100 you would have around $200,000 remaining (in today’s dollars) as a single person and $100,000 remaining as a couple.
5. Invest in an Annuity
An annuity works differently to most other investments in that the risk is borne by the provider of the annuity. An annuity works by providing a lump sum to the annuity provider in return for a guaranteed income each year.
Based on current rates (November 2024), a $1 million annuity in conjunction with Age Pension payments would cover retirement expenses until past age 100 for a single person. At age 100 you would have around $500,000 in investment assets. As a couple you would be unable to invest $1 million in an annuity and cover expenses of $70,000 p.a. because the annuity only provides an income of $55,000 p.a. In year one.
An annuity is a low-risk investment, with medium returns. But, the downside of a traditional annuity is that you receive income only and have no access to lump sum withdrawals.
Is 1 Million Dollars Enough to Retire On?
1 Million dollars is enough to retire on for a comfortable retirement. If you are happy with a more modest retirement lifestyle, then you would only need around half of that amount. If you are after a lavish retirement, then you would probably require about double.
Ultimately, the amount you need for retirement is determined by your retirement income objectives, your retirement travel plans, as well as any capital expenses, such as home renovations, new cars, a caravan, etc.
Our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year-olds optimise their financial position in the lead up to retirement. If you’re interested in learning more about our service and cost, click here.
Frequently Asked Questions
Listed below are some frequently asked questions around retiring on $1 million.
Can I Retire at 60 With $1 Million Dollars?
You can retire at 60 with $1 million dollars and receive a retirement income of $55,000 p.a. For 30 years if you are a couple and $70,000 p.a. for 30 years if you are single.
Is $1 Million Enough For a Comfortable Retirement?
$1 million is enough for a comfortable retirement if you retire at age 65. This will provide a single person with an income of $60,000 p.a. and a couple with $77,000 p.a., including Age Pension for around 30 years, based on an investment return of 6% p.a. and 3.0% p.a. inflation.
How Much Income Will 1 Million Generate in Retirement?
The amount of income $1 million will generate in retirement will range between $10,000 p.a. and $60,000 p.a. increasing. The range is based on how conservative or how aggressive the investment option you choose is.
For example, if you were to invest in a standard bank account offering returns of 1% p.a. the income earned would be $10,000 ($1,000,000 x 1%). If, instead, you invested the $1 million in a commercial property or high-dividend share portfolio earning income of 6% p.a., then you would generate income of $60,0000 in retirement ($1,000,000 x 6%).
How Long Will 1.2 Million Last in Retirement?
$1.2 million will last around 30 years in retirement if you are a single person receiving an income of $65,000 p.a. or a couple receiving $80,000 p.a. This assumes retirement at age 65, an investment return of 6.0% p.a., inflation of 3% p.a. and eligibility for the Age Pension.
How Long Will 1.5 Million Last in Retirement?
$1.5 million will last around 30 years in retirement if you are a single person receiving an income of $78,000 p.a. or a couple receiving $92,000 p.a. This assumes retirement at age 65, an investment return of 6.0% p.a., inflation of 3% p.a. and eligibility for the Age Pension.
How Long Will 1.7 Million Last in Retirement?
$1.7 million will last around 30 years in retirement if you are a single person receiving an income of $86,000 p.a. or a couple receiving $100,000 p.a. This assumes retirement at age 65, an investment return of 6.0% p.a., inflation of 3% p.a. and eligibility for the Age Pension.
At What Age Can You Retire on 1 Million Dollars?
You can retire on $1 million dollars at any age. This amount can provide you with an income of around $40,000 per year, increasing with inflation, indefinitely – without the need to draw down in the capital amount – meaning you will still have $1 million (in today’s dollars) in capital at the end. Alternatively, if you would like a higher income, by drawing on capital as well as income, the amount of income you will receive is based on the number of years you need it to provide you with an income for and how close to Age Pension age you retire.
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