Most people assume to retire you must be a millionaire, literally. As if the magical number of one million guarantees a life of comfort for the rest of your days. Fortunately for the rest of us, that just is not true. There are plenty of people who retire on less than a million dollars, and live quite comfortably. Once you realize becoming a millionaire is not your end goal it makes the idea of an early retirement seem more within reach.
A Quick Look At Millionaires
Who are these millionaires we often read about-the ones that formed this perception that you have to be a millionaire to retire? Well, they come in various forms.
- Accidental millionaires. These folks happened upon their millions by dumb luck or good fortune. Examples may include someone who won the lottery, or received a massive inheritance from a long-lost uncle, or even managed to cash out stock options while working at the same company for thirty years.
- Frugal Millionaires. This group spends well below their means, and banks the savings for a number of decades amassing a sizable amount of wealth in investment accounts. You wouldn’t know it by looking at them-they drive old cars, live in modest homes and wear everyday clothing.
- Self-employed Millionaires. Occasionally, this group includes those who have built and ran a successful enterprise for many years. But often they cashed out early on, selling their business to a larger entity and banking the resulting millions.
Those are just a few examples of the various types of millionaires. Don’t want to spend too much time on their characteristics since we’ve already said that becoming a millionaire is not required to retire. Could you get by on $750,000? Many people get by on much less!
The Half-Millionaire
Let us assume that $500,000 is your ultimate savings goal. This is the point where you’d be willing to cash out and live off the interest and dividends. Would it be enough?
Well, you could expect about $20,000 a year from that half-million in interest, assuming a 4% return. If you kept “retirement” expenses down less than $1,600 a month you would be just fine. I know what you are thinking-who can live on $1,600 a month? Lots of people.
Imagine your future semi-retired life with no mortgage, no car payment, no debt of any kind. You have to pay property taxes and insurance on your home and car, and of course the customary expenses like utilities and food. Could you do it on $1,600? If so, you would never need to touch that original $500,000 balance.
If $1,600 sounds a bit to lean for your retirement budget, perhaps you could work part time, or do freelance work to supplement your income. With just a little effort you could easily take your income up to a more palatable $2,500 a month by working a few hours each week.
The point is, to cash out early on your career, you need to manage your own expectations regarding retirement. Not everyone has to become a millionaire to turn in a work badge. Retirement success is a function of reducing expenses (and debt) to a comfortable level and then building enough wealth to generate the income required to live in that same manner for a number of years. It really is that simple.
This post appeared in the Carnival of Pecuniary Delights: Welcome to Canada Edition.
Photo by Enkhtuvshin (Broke my camera 
)
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Hello everybody,
I’m happy to describe here an interesting
type of earning. Can you imagine that one
can earn up to 3% a day through investments without limitations in sums ?
I mean that even if one has US$1.000,00 one may make the same amount in a month !
If someone gets interested welcome to my blog http://www.theinvestblog.com .
But there are no sure jobs so what can I do to become rich and stay rich in bad times?
@Bob:
In my opinion, the best way to ensure you continue to have income in bad times is to diversify your sources of income. Most people have just one income source, their job. This is like putting all your investments in one stock. Many people can also find a flexible freelance job (or two) on the side. When you have a main job, you only work a little at your freelance jobs, but if you lose your main job, you can try to get more work from your freelance jobs to fill the gap. This can supplement an emergency/unemployment savings to make it last a long time until you find a new main job. Nothing in life is assured, but this is my strategy.