Please explain to me how someone could live off $1 million without touching principal. I am woefully undereducated financially but in my situation that is probably how I will end up.
First...exit California.
Then find a financial advisor and spread your money in a series of ‘buckets” to be drained as you need cash. Make sure all the advisor’s investments are conservative.
You can do it.
even 1 million invested very conservatively should generate at least 5%.. or $50,000 a year. That, plus social security, and a paid off home prior to retirement should easily provide a easy life for the remainder of anyone’s days.
Current monthly income sources:
Soc Sec: 1,500 (after paying Medicare)
Mortgage Income held on real estate ($150,000: $720
Rental income (360,000 unvested): 2,800
Leased Mineral Rights (0.00 invested): 300
Total: 5,320
Annual: 63,840
Total invested: 510,000
Debt other than monthly expenses: 0.00
If you have the $1 million invested in diversified mutual funds with good ratings you could expect to average 6-8% annual increase (60-80K). Using the 4% rule, you could take 4% out throughout the year ($40K) and leave the other earnings in the account to keep up with inflation.
And if for some unknown reason a person ends up in a $5,000 a month nursing home, after five years that’ll cost you $300,000 without amenities like adult diapers if you happen to need them (and those can be pretty spendy), let alone all the incidental costs of everyday life. Ten years will set you back $600,000. Nursing homes that handle the ambulatory person cost much more than that.
Your question requires a little context before answering outright.
First of all, you must answer the question: "how much money DO I need to live in retirement?"
To answer that question, you can start by answering the question, "What was my pre-retirement income, and will I need the same in retirement?"
If you were only making $40 or $50 thousand per year, it would require you to earn 4-5 percent on a million dollars, to earn your pre-retirement salary. Honestly, there are numerous ways to make this much in terms of a percentage. Dividend ETFs, municipal bonds, etc. There are many investments that will pay that kind of a percentage, usually in the form of monthly or quarterly dividend checks.
The cash is paid to you based on the number of shares you initially purchase (assuming something like a dividend fund), not the principal amount, which may fluctuate, depending on market conditions.
If you currently make MORE that $40-50 thousand dollars per year and are looking to replace all of your income, it gets a little more risky. You still need to determine how much of your pre-retirement income you're trying to replace, and you may have to consider Social Security, or any other retirement income streams you might have, such as pension income from a former job.
There are also annuities that lock in a certain amount of return, but I don't know if there are any good ones out there or not. I'm sure other Freepers could chime in on those.
Best of luck to you.
The question is not how would you live. The question is how much of what you have do you wish to spend? I am going to spend all of my principal. Think of your principal as funding an annuity.
You can draw down the principal while collecting earnings and by doing the math you can smooth the flow to essentially equal payments. The math is the same basic math as a fixed mortgage payment except in reverse.
The next question is how and where to invest. If you want minimal risk and fluctuation then you will seek one type of investment if you do not mind a level of risk and therefore some possible fluctuations you may invest differently.