How To Retire Comfortably On Less Than $1 Million

Includes: JNJ, KO, SYY, T, WMT, XOM
by: Doug Carey

Many people think we need at least $1 million to retire stress-free. This is not really true.

The problem is that most people's retirement income does not cover their expenses.

Dividend-growth stocks can help solve this problem by generating the necessary income in retirement.

Here is the interesting question of the day: If a couple retires at age 65 with $30,000 in combined Social Security payments and $60,000 a year in retirement expenses, how much money do they need at retirement such that they never run out of money?

I was curious about this myself so I ran their retirement plan in our Early Retirement Calculator. I assumed that half of their money was in stocks and the other half was in bonds. What I found is that they would need about $750,000 saved when they retire such that their money lasts until they are 90 years old.

Generating Income In Retirement

Even though they're projected to not outlive their money, this is a stressful situation. Their retirement income is not covering their expenses as you can see in the chart below.

Because of this, they are eating into their investment principal every year. This is fraught with danger since a market downturn could cause them to outlive their money much sooner than they expect. In fact, I ran a scenario that shows that if average rates of return fall by 2% for them once they retire, their funds would run out by age 82.

The place where this couple needs to be is where they are generating enough income to cover their expenses in most, if not all, years. How can they do this? Currently half of their money is in bonds. This is the main problem. With yields on all fixed income so low, they are barely beating inflation.

Using Dividend-Growth Stocks

I propose that they move all of the money in Treasuries into solid dividend-growth stocks in order to generate enough income in retirement. If they can do this then the $750,000 they have saved should never run out. In fact, it will grow each year since their income should meet their expenses.

Instead of having 50% of the investments in Treasuries, I moved them to my favorite dividend-growth stocks: Johnson & Johnson (NYSE:JNJ), Sysco (NYSE:SYY), AT&T (NYSE:T), Wal-Mart (NYSE:WMT), Coca-Cola (NYSE:KO), and Exxon (NYSE:XOM). You can see some of their dividend information below:


Div Yield

5 Yr Div Growth Annual Rate



















I replaced their Treasuries with the stocks above, equally weighted. I ran this in our Retirement Planner again. Their income vs. expenses situation changes dramatically. You can see below that expenses are covered by retirement income in every year.

What If They Have Less Money?

Another interesting question now is, if they do use the dividend-growth strategy, how much money do they need at retirement such that income still covers expenses? I ran this scenario as well and I found that they would need about $550,000 saved at their retirement date.

So there you have it. Most people don't need $1 million to retire. They just need to make sure they have enough income to cover their expenses in retirement. Generating that income, in today's low interest rate world, starts with finding solid dividend payers that you can hold forever.

Disclosure: I am/we are long JNJ, XOM, WMT, KO. 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.