With the economic collapse, and the large number of layoffs, a lot of people are asking themselves “Can I retire with less than a million dollars?” The answer is yes, you can retire with less than a million dollars.
With a million dollars, you can safely spend between $2,500 and $4,000 per month, depending on the age at which you retire. To retire with less than a million dollars, calculate how much you can safely spend each month, and then build a retirement budget around that figure.
How to Retire With Less Than A Million Dollars
- Determine Your Net Worth
- Calculate How Much You Can Safely Spend
- Create A Retirement Budget
1. How to Determine Your Net Worth
First you need to properly calculate your retirement savings. If you sell everything you own, and pay off all your debts, how much cash will you have left? That is your Net Worth, and your Retirement Savings, they are essentially the same thing. Your retirement savings, includes all of your assets, not just your retirement accounts.
Your house, cars, couches, boats and baseball cards, are all included in your retirement savings. Add up the values of everything you own, then subtract everything you owe, the result is your Net Worth.
2. Calculate How Much You Can Safely Spend In Retirement
With your Net Worth determined, calculating how much you can safely spend in retirement is quick and easy, simply multiply your Net Worth by 4%. The result is how much you can safely spend each year in retirement, divide that number by 12, to get how much you can safely spend per month in retirement. Here’s the formula and result for a Net Worth of $750,000:
Retirement Spending = (Net Worth x 4%)/12 months
$2,500 = ($750,000 x 4%)/12
With a net worth of $750,000 you can safely spend $2,500 per month.
3. How to Create a Retirement Budget
After you have calculated the amount you can safely spend each month in retirement, it is time to create a retirement budget, that fits within the amount calculated. Creating a retirement budget is not complicated.
Simply list all the expenses you would have if you retire today, remembering that retirement gives you greater control over your expenses. Add up all your monthly retirement expenses and adjust your retirement budget.
Green Retirement Software
Example of How To Retire With Less Than A Million Dollars
Bob is 55 years old and he calculated that he has a net worth of $650,000. Using the Early Retirement Calculator Bob discovers that he can safely spend $2,167 per month if he retires today.
Bob can also look forward to increased income and lower expenses as he gets older. Why? In seven years Bob will be eligible for $1,200 in monthly Social Security income, and in ten years Bob will be eligible for Medicare, reducing his monthly expenses by $400 per month.
Don’t let Wall Street fool you into thinking that you need millions to retire, you can retire with less than a million dollars, simply calculate how much you can spend each month in retirement and create a retirement budget.
Visit the Early Retirement website, try our free retirement calculators, and learn how to retire early.
5 responses so far ↓
1 Christine // May 7, 2009 at 10:03 am
This is quite interesting and informative for me. I am being downsized in a few months, at the age of 51, and am getting a fairly decent severance package. I’d been thinking of retiring, or at least getting a less stressful part-time job, rather than trying to jump back into the workforce right away. Your website has some very helpful ideas. Thank you!
2 Fred // Jan 4, 2011 at 6:30 pm
My wife and I have 1m in savings, IRA, 401.
At 53, I’m sick of working with assholes in a corporation. We own everything.. a home, cars, and live a simple live.Last year my 401k earned 14% being conservative investments.
3 rob // Jan 30, 2011 at 3:20 pm
I am 46 and the most important issue to me, is time. I ran into a friend back in Boston last week and he said ” you were talking about leaving the corporate world 20 yrs ago and to head to the carribean to bartend”. Nothing has changed in desires, except that 20 yrs have gone by. I have given myself a 2 yr deadline and that is it, off to a different way of living in Mexico.
4 Tom Jones // Jan 11, 2012 at 5:07 pm
Reduce the $2,500 month income on the 4% of $750,000 by income tax and you have significantly less to spend. Now reduce by the real cost of health insurance per month – say $1,000 conservatively, you have about a grand of monthly income left.
5 Joe // Jan 11, 2012 at 5:36 pm
The tax on your investment income depends on many factors including the type of investments you have, but unless your investments are tax free you will pay taxes – certainly on capital gains which is currently at 15%. The health insurance liability is the killer for all early retirees depending on your age, health record, dependents, etc.
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