Until a few decades ago, pronouncing the word millionaire provoked in the
common imaginary a feeling of infinite richness, which very few could have achieved.
However, over time and with the gradual increase in inflation, the peak of a million has become a little more accessible.
Though, the achievement of such a high sum is always a proof of great patience and perseverance. Retirement with 1 million is therefore a complicated, but not impossible goal.
Do you also want to save to retire with a nice amount of money saved? Then you've come to the right article. I'll explain everything there is to know about saving and financial freedom, so that you can retire with $1 million (or so close to it).
For some people, it would be better to work until age 70
Setting aside enough money for retirement can seem like a difficult challenge, so much so that research from the Stanford Center explains that for most people it would be better to work until age 70.
However, thinking about working that long is not a good idea. Our bodies are not designed to withstand such prolonged effort over time and at some point it is necessary to rest. At 70, you may not be able or willing to work, and rightly so.
But work is not the only way to make money. In fact, there are many different ways to save money for retirement. In the following paragraphs, we will analyze some of them.
How can you retire with 1 million dollars ?
People mistakenly think that the right strategy is to accumulate a lot of money, leave it in your account and then gradually withdraw it while living on an annuity until it ends, hoping it never ends.
But this is not a viable solution. One should try to calculate an average life that one thinks one will reach and gradually withdraw only the bare necessities. This is very difficult, because when you have so much capital you become even more greedy and exogenous.
It is also important to consider inflation and the constant devaluation of money that, over time, erodes our capital. When we go to look for it under the mattress, we will see that there is less than we thought.
This thinking strategy, even if it seems the easiest to conceive, is wrong in every respect. As you can understand, it will not lead anyone to independent early retirement. Rather, it will lead to enjoying a hypothetical great ephemeral life for a short period of time. All of this and then fall into ruin most of the time for the rest of our lives.
That's not really the goal we had set ourselves, is it? So it's important to understand how to manage your savings. If you don't learn how to manage your money, you'll never think about having more.
The right system
In addition to capital, you need a savings capacity that will allow you to put aside over time. Obviously, the more capital you have, the less you need to save. To have a saving capacity, generally speaking, you need to have an income capacity. Here again, obviously, it becomes less restrictive as your capital becomes larger or if it is already larger because you have inherited it.
To live on annuities, it is the "system" we create that can lead us to this extraordinary result. Of course, it must be accompanied by consistency in its application. Beware, I am talking about a system and not a method alone, because you have to think like a company would.
Without a good model and without a winning system, very substantial capital is needed to live on annuities. On the other hand, with a good system, the capital needed to live on annuities is significantly lower. Thus, the two fundamental elements for retiring with 1 million are :
● The presence of a good system
But how to set up this ghostly system ?
First of all, it is important to define two parameters :
● Which amount do you want to reach ? In this case, 1 million dollars
● Once the goal has been reached, what will you do ? Do you plan to live on your retirement savings or do odd jobs ?
By taking these parameters into account and regularly calculating inflation, we will be able to obtain the necessary figure and the time in which to reach it. Now let's see how to set up the winning system.
The 50-20 formula
According to David Bach, author of The Latte Factor, pursuing an optimal savings strategy can have incredible consequences. He says it may even be possible to accumulate as much as $1 million in 20 years. In these words, he explains his theory:
≪ It will take a lot of discipline and a high savings rate, but it can be done. I call it the 50-20 formula: $50 a day for 20 years with a 10% rate of return is more than $1 million. If you save for 30 years, based on this formula, you will have about $3.39 million. ≫
Clearly, it's not easy to set aside $50 a day. In one month, the amount of money saved would reach 1500€, and not everyone gets a big enough salary. However, if you want to retire with 1 million, you have to make sacrifices.
The 4% rule
What income from your retirement plan can you count on? Many financial advisors reduce the answer to one number: the sustainable withdrawal rate of 4%. At the very least, this figure can be a good starting point.
But what does this 4% represent anyway? Basically, it's the amount of money you can theoretically withdraw each year from this part of your pension assets, taking into account market fluctuations, and wait for your assets to last for at least 30 years or more.
Today, not all experts agree that a withdrawal rate of 4% is optimal. However, many say that it should probably not be exceeded.
Let's take an example to clarify matters. Suppose we could save 1 million euros before we start thinking seriously about retirement. According to this rule, you could withdraw €40,000 annually from your assets, with a small adjustment for inflation. If you had saved €2 million, the amount would be €80,000 per year.
So, after considering all your assets to be allocated to your personal pension plan, if your total retirement income exceeds your expected expenses, you probably have "enough" money for your retirement. Of course, it would be nice to have more.
However, this is not a simple rule to obtain and maintain over time, especially at this stage. You must be able to get your money back to 4%, which is not a given. So-called safe products, in fact, recognize barely 1.5% per year, whereas traditional medium-risk investment funds do not achieve such results.