Is 2 million enough to retire at 60?
If you are thinking of retirement, but wondering is 2 million enough to retire at 60? Then you came to the right place. In the article, I will go over different ways you can retire with 2 million dollar at age 60.
I spent entire last month repeating the same question in my head, is 2 million enough to retire at 60? I went to the internet and researched different ways to invest 2 million dollars to generate constant cash flow. After months of research, investigation, and experiments I was finally able to get the answer to my question: is 2 million enough to retire at 60?
No matter who you are, 2 million dollars is a big amount. If you invest it correctly, you can generate anywhere from $200,000 dollars to $300,000 easily. During your retirement, you want to have passive source of incomes. You don’t want to spend your retirement doing work just to get return on your money. Continue reading and be educated on ways you can invest your $2,000,000 safely to generate passive income.
How much money average American needs to save to retire?
A recently conducted study found that on average you should put away at least two and a half million dollars. Unfortunately, that’s about two million dollars more than the average balance of most American investors.
Do Americans really need to save that much, two and a half million dollars? I imagine it would depend on the person. For instance, in cities like New York City, Chicago, Miami, San Diego it might be on the upper end to retire. But in cities like Pittsburgh, Dallas, Ocala, or midwest cities it will cost you lot less to retire.
At first, 2.5 million dollars may sound crazy. But let’s remember if you want to retire in California we have one of the highest cost of living in the country. Also, don’t forget CA have one of the highest state income taxes. The 2.5 million isn’t that far off.
Retirement Age Matters
Another thing is, you need to ask yourself at what age do you wish to retire. If you’re gonna work till your 90 ,you don’t need 2.5 million. But if you’re looking to retire at 55 or 60, you may have to support yourself for 30 years after that. Because of this, you need a lot of money especially as we’re living longer and longer.
But don’t worry, I will show you how you can retire with 2 million dollars or less and make constant monthly passive income.
Before we talk about ways to invest 2 million dollars, let’s see how young people can save this money. Because it is hard to save money if you do not have proper approach.
What if somebody on their 20s, 30s, or 40s hasn’t even started yet?
First of all, if you work for an employer that provides a match to some of your contributions to the retirement plan, you have to do it because that’s the only time in your life you’re gonna get free money for just showing up. You’re getting a hundred percent return on your investment before you even decide how to invest it. So if you get a match through your employer, contribute at least to that match number.
Second, pay off your credit cards every month. Credit card debt will spiral into a black hole of financial despair. I mean, looked at my credit card rate. I have a very high credit score and I use my United Mileage Plus credit card to get points. If I did not pay off my balance every month I’d be paying 17% interest. Some people I know have credit cards that are 18%, 20%, 22%, even 27%.
If you’re paying that much in interest, you are never gonna be able to invest at 8% and come out ahead. It is a good idea to cut down the credit cards balance, and payoff balance in full at the end of each month.
Decisions to Make at Various Age
I really think you should live below your means and pay off your credit card balances. It means, every day you will have to make choices. You’re going to stop doing things that you want to do because you have to remember when you’re 55, 60 you won’t have a choice. So, in your 20s and 30s, really live below your means even if your income is increasing. Always spend less than you earn.
In your 20s, this is your time to invest in yourself. Invest in your education and career and if you are going to take any debt it should be student debt. Avoid those credit cards pitfalls.
In your 30s, you may want to start looking at having children or buying a home. If you have children and you plan to send them to college you need to start putting together a college savings account. Because, I find a lot of people in their 40s and 50s raid their retirement account to pay for their kids education. Remember this, your kids can always get a loan for school, but you cannot get a loan for your retirement.
Finally, let’s explore different ways you can generate passive income using your 2 million dollars. Let me show you answer is yes to, is 2 million enough to retire at 60?
3 Different Investment Strategies to Invest 2 Million Dollars
Combination A: Stock Market Dividend Payments + High yield saving account + Index Funds
You can use combination A to invest your money and generate completely passive income, by than I mean completely passive. Let’s say you divide your money strategically to get the maximum return with minimum risk.
In 2019, there are many good companies that will pay you good dividend income. Anywhere from 5-7% return easily. For example, AT&T with stock ticker T gives out 6.8% Let’s say you invest 1 million in dividend stocks at return rate of 6.8%. Most of the dividend incomes are paid quarterly. At 6% return rate, you will get $68,000 per year.
Let’s take another $750,000 and invest in index funds. Most index fund return anywhere from 6 to 7%. Most of the well known companies like fidelity, vanguard, Etrade, Charles Schwab, Ally all produced returns higher than 6.7%. So, let’s take 6.7% and do the calculation. At 6.7% return rate, you will get $50,250 per year.
Finally, invest $250,000 into your high yield saving accounts. All FDIC insured saving accounts are cover up to $250,000 per account if single and $500,000 if joint. Historically saving account is terrible ways to invest money, they don’t even beat the inflation. However, when using combination A, I recommend that you put some money to high yield savings to minimize risk. No matter what happens with market, this $250,000 is always safe and insured.
This will lower your overall earning, but It’s always safe to diversify and lower the risk. Saving accounts interest rates have been pretty good this year, hovering around 0.01% all the way up to 2.45%. Below is table showing different high yield saving accounts and interest rate.
Bank's Saving Rate Comparison
|Banks Name||Interest Rate|
|Goldman Sachs Bank||2.25%|
|S Synchrony Bank||2.25%|
So, if you put $250,000 into CIT high yield saving account at rate of 2.45%, you will get $6125 each year.
When you combine all your earnings in combination A, you will get $124,375. That is pretty solid return, given the fact that you diversified and lower your overall risk.
One major thing I love about this combination is liquidity of fund. You can access your fund anytime you like, you don’t have to wait for days. Another positive thing about combination A is automation of income. Here, you are getting completely passive income. It truly doesn’t even matter where you are or what you do, you will get paid passively every single month.
With this method, you will get $10,365 every single month. This is enough to live comfortably in all most all parts of the country. One drawback about this combination is high volatility that comes inherently with stocks market.
Combination B: Real Estate + Index Funds + Dividend Payments
In combination B, you have opportunity to own the piece of property and hopefully pass it down to you kids. Here, let’s say you used $1,000,000 to purchase multi-units property. In current market, you can find deals for 2.5 million dollars with good cap rate.
Let’s say you purchased 50 units property in Dallas Texas for $2,500,000. When you buy properties like this, you usually put down 40%. Let’s say you put down $1,000,000 and finance the rest.
In Dallas Texas, you can easily get $600 to $1000 per unit. Let’s keep it simple with $600 per month per unit. Each month you will get $30,000, and in one year you will get $360,000. But this is just gross revenue per year, you will have to take off the expenses before calculating the return on your investment.
Good rule of thumb to calculate net operating income is to multiply your total revenue by 50%. This will include taxes, management, utilities and all other cost. With your NOI of $180,000, now you are left with another $180,000 to pay your mortgage and yourself.
Your monthly payment for $1,500,000 loan is $8,052. In one year, you will end up paying $96,924 in mortgage payments.
Now the fun part, let’s calculate how much you made from this real estate investment. From your $180,000, if you subtract your mortgage payment, you will get your annual profit.
$180,000 – $96,924 = $83,076
Now let’s take reminder of the money and invest half in stock market. Let’s say you invest $500,000 in Index fund and another $500,000 in dividend stocks. With both returning around the same, let’s use 6.7% return rate. At this rate, you will get $67,000 per year.
When you combine all your earnings in combination B, you will get $150,076. That is pretty solid return, given the fact that you diversified your overall portfolio.
One major positive thing I love about this combination is the future potential. Property value of real estate has been growing for decades, so you will certainly gain property appreciation. You can access half of your fund anytime you like. Drawback from combination A is minimized with this approached. Because you lower the volatility that comes inherently with stocks market by diversifying your portfolio with the real estate.
With this method, you will get $12,506 every single month. This is enough to live comfortably in all parts of the country, if you spend reasonably.
Combination C: Silent Partnership + Index Fund + High yield saving account
Finally guys, let’s explore how you can earn using Combination C. Two out of three investment options are the same as other combination. Unique approach here is silent partnership, this is something not many people think of.
So how can you make money being a silent partnership of thing? By lending money to entrepreneur for portion of their company or revenue.
Let’s take a look at the example:
Bob is trying to open a pizza store. He found a nice pizza store for $2,000,000 and he is all for it. But he can’t buy this lovely pizza store yet, because he only has $1,000,000. Bob approaches you and shares his story. At this point, you can offer Bob 1 million dollars for the 50% ownership of the store.
If Bob agrees, you automatically became a silent partner of his company. Bob will run the store, he will oversees everything. But every month, he will give you portion of the total profit and this can vary widely.
Let’s assume bob’s store sales 250 pizzas each day at an average price of $12 dollars. He is making $3,000 per day in overall revenue, which is $1,080,000 per year.
One quick way to calculate store profit is to multiply total revenue by 75%. If we do that, we will get $810,000 in expenses to run the store. But be careful, this is just the rough estimate. This includes labor cost, bob’s store running fee’s, utilities and all other expenses. So at the end you will end up with $270,000, and if you divide this between you and both you will get $135,000 per year.
Out of remaining 1 million, you invest $750,000 in index fund and get $50,250 per year at 6.7% return rate. Remaining $250,000, put it in high yield saving accounts and get $6125 per year at 2.45% return rate. This way portion of your fund is always safe no matter what happens.
When you combine all your earnings in combination C, you get $191,375. That is an excellent return on your money and very comfortable income to live on.
One major thing I like about this combination is potential to make much more. Let’s say it’s Wednesday morning and you are bored in home. You can always go help bob for few hours and save operation cost.
Another thing I like about this is chances of making big big returns. Let’s say instead of pizza store, you invested in some tech company. If that company takes off, you will make a lot of money from being silent partner.
You can access portion of your fund anytime you like. Another positive thing about combination C is total income. Here you are getting much higher annual return, almost close to 10%.
One major negative point I see with this method is uncertainty. You will never know how much company you invested in will generate per year. Some people stay away from this because of uncertainty, but I personally love this.
With this method, you will get $15,948 every single month. This is enough to spend a quality retirement.
Last Few Words
Everyone has different level of tolerance when it comes to taking risk. All of the above approaches are proven and safe, but they still come with risk. Some with higher risk than other, but as you can see higher the risk is better the reward. Good luck picking best approach to invest your 2 million dollar.
Thank you for reading this post, hope you enjoyed it. Please make sure to comment below which combination you like and give your reasoning.
Still curious, make sure to read my other post can I retire with 1 million dollars at 55.