Can You Retire With A $1,000,000 Portfolio?

by: Regarded Solutions

I've wondered if folks still use $1,000,000 as the retirement yardstick that I used when I was in my 30's. One million bucks seemed like a fantasy to me back then. What about to folks these days. Is $1,000,000 still the magic number to be able to retire? At least one insurance company actually took a survey. Take a look at this graphic:

As you know I firmly believe that regular folks can retire with much less than that, and there really is no hard and fast "number". Obviously the more an investor has, the better off they will be, but it really does not come down to a number. A big secret is MONEY MANAGEMENT.

The Team Alpha (read the year end update here) portfolio is just one of many different portfolio strategies that individual investors can use for their retirement, or their retirement plans. Income seeking investors can retire if the income they have coming in exceeds their expenses.

It is that simple folks.

Our Team Alpha portfolio now consists of McDonald's (NYSE:MCD), Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), AT&T (NYSE:T), General Electric (NYSE:GE), BlackRock Kelso Capital (NASDAQ:BKCC), KKR Financial (KFN), Procter & Gamble (NYSE:PG), CSX Corp. (NYSE:CSX), Realty Income (NYSE:O), Coca-Cola (NYSE:KO), Linn Co, LLC (LNCO), Wal-Mart (NYSE:WMT), Cisco (NASDAQ:CSCO), Bristol-Myers Squibb (NYSE:BMY), Healthcare Select Sector SPDR (NYSEARCA:XLV), General Dynamics (NYSE:GD), and iShares S&P U.S. Preferred Stock Index Fund (NYSEARCA:PFF).

The dividend yield of all stocks right now, if purchased today with weighting that we currently have, is roughly 3.95%-4.00%. For every $100k invested, income derived from these investments would be roughly $4,000 in 2013 without any dividend changes. (Based on the Team's purchase prices, our yield is currently 4.63%)

The power of re-investing those dividends cannot be understated either. If an investor does not require the income, re-investing all dividends will grow the portfolio value exponentially. I suggest that every investor consider that as part of the dividend income investing strategy, if your own circumstances allow it.

A $1,000,000 fully invested portfolio would reap about $40,000 in 2013. You tell me; can you retire on that?

Digging Deeper Into The Facts Of The Matter

My readers know that I am a big fan of drawing down principal to supplement a better retirement. While it is true that at some point an investor might run out of money, it would not be for quite some time depending upon the amount withdrawn. I do not subscribe to the 4% rule, nor am I a fan of leaving my nest egg to others after I am gone. I will give while I am living, and hopefully spend every last dime (taking my wife into consideration of course).

A $1,000,000 portfolio that earns 4% from dividends and has principal withdrawn at an additional rate of 3% (making it a 7% annual withdrawal) has over a 75% chance (given market fluctuations) of lasting for more than 30 years.

The simple math would be: $1,000,000 divided by $30,000= 33+years.

By investing in a dividend income portfolio that produces 4% per year, an investor can have a yearly income of $70,000. The risks are if the market collapses, and there is no time to recoup. It has always been that way, and that is the key risk of investing in the stock market of course.

Taking it one step further, a retired couple both receiving the median amount of Social Security, would have roughly $30,000 per year coming in from that benefit as well. Now we have $1,000,000 invested and a yearly "income" of about $100,000. Not too shabby I would say. The catch is how much is spent.

Click to enlarge

This simple chart says it all. The income is greater than the expenses, and therefore the "wealth" can last virtually forever. Whatever an individuals income is, if the expenses are always lower, they can retire in the morning.

Save, Save, Save, and Save Some More

The other "secret" to a fruitful retirement is SAVINGS. The more you save, the more you will have, and the more you have the more you can spend. Ergo; more fun during the golden years.

Since I believe that anyone can retire based on the "spend less than you make" strategy, it seems like the vast majority of Americans feel that they do not have to save anything! Take a look at this chart:

According to this, nearly 80% of all Americans had less than $100,000 saved as of 2010.

In this report (I think everyone should read this report by the way), it is noted;

CLUELESS ABOUT SAVINGS GOALS: Many workers continue to be unaware of how much they need to save for retirement. Less than half of workers (46 percent) report they and/or their spouse have tried to calculate how much money they will need to have saved for a comfortable retirement by the time they retire (Fig. 23, pg. 22)."

Saving money does not have to be hard. Just begin when you're young and keep saving for as long as you work and are earning a living, period.

Here is one chart based on a 10% return every year (not very realistic but the suggestion is very clear):

"Gordon" started saving $2,000 per year from age 18-27 and then stopped. "Simon" began at age 27-65. Gordon has nearly 50% more money than Simon. That equation would apply no matter what the annual return was. The final figure would be different, but that would be the only change.

The message is clear; save early, save a lot, and keep saving. By doing that, and spending less than you have coming in, your financial life will be just about perfect.

The Bottom Line

Let me keep this simple:

  • There is NO magic number.
  • Save as much as you can for as long as you can.
  • Always spend less than you have coming in.
  • Invest an amount you can afford to invest, in dividend producing, mega cap, blue chip, dividend winner stocks.
  • Keep monitoring your investments and make "not losing money" a key priority for your own financial well being.
  • Live long and prosper!

Hey, if you want to make this your 2013 New Year Resolutions, be my guest.

Happy New Year everyone!

Disclosure: I am long MCD, WMT, XOM, JNJ, GE, T, BMY, O, BKCC, KFN, LNCO, XLV, GD, KO, CSX, PFF, CSCO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.