Does One Million Dollars Make You Rich?

millionaireIt’s the fantasy we all dream about – to have a million dollars and be a millionaire. Oh the things I would buy, the places I would travel, the job I would quit! I apologize for bursting your bubble, but one million dollars will hardly allow you to survive.

Does One Million Dollars Make You Rich? No

Far too many people have the misconception that one million dollars will make all of their dreams come true. You might be thinking that worst-case scenario, you can quit your job and not have to work anymore. But it won’t. You need much more than one million dollars for your fantasy dreams to become a reality. Need proof? If you retire with one million dollars, you need to live on $40,000 per year for that money to last.

Last time I checked, $40,000 isn’t buying you a yacht. In fact, it is probably keeping you close to where you are at now. Understand that I am not saying living on $40,000 per year is a bad thing. What I am saying is that one million dollars is a lot less than you think it is.

You might be thinking that you can live off $40,000 per year so quitting your job would be a reality. But having $40,000 to live off of assumes you are 65 years old. Any younger, and you’ll run out of money and will have to go back to work.

Look at it this way: one million dollars would be enough to have saved up if you wanted to live a nice retirement, not enough to buy a vacation home at the beach. Sure you could make a nice sized down payment and have some money left over for the monthly payment, but what about homeowners insurance and furnishing it? Traveling there and back? All of this costs money. You’ll exhaust your one million dollars a lot quicker than you realize.

What Amount Of Money I Need To Be Rich

I’ve crunched some numbers for myself. If I wanted to retire today (I’m in my 30’s) and spend a lot of money every year (I’m talking $200,000 per year), I would need…$10 million. That’s right. That assumes the $10 million is invested in a 60% stock/40% bond portfolio. Now, this is my “dream” scenario but it goes to show you how much you really need to actually live your dreams. At my dream spending rate of $200,000 per year, one million dollars would only last me about five years. Less when you factor in inflation.

Final Thots

The point isn’t to dissuade you from dreaming of becoming a millionaire, but to help you to realize that just having a million dollars won’t allow you to live the life you think it will. Many found that out the hard way these last few years. When including the equity in their homes, they were millionaires. But they were living beyond their means and when the income from their house dried up, so did the rest of their finances. We all want to be millionaires; we just have to be practical when we get there.

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Jon Dulin

Hi, my name is Jon and I run Penny Thots. I blog about many personal finance topics, but my specialties lie in investing, paying off debt, and career goals. I also blog at Money Smart Guides.
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  1. says

    I would buy some raw land rural, isiolated and off the grid, build a small 12 x 12 solar cabin made out of recycled materials or wooden crates, grow a garden, have a couple chickens and goats……and live off of $10,000 or less a year LOL. After my last child left home that would do especially nice for me and hubby….granted though most would never desire a life like that and a million dollars is not really as much as one may think. It could be done still if really looked into but not at the more luxurious rate of $40,000 or more a year.

    Great article though and one that really makes you think, how far would a million stretch for your lifestyle of choice?
    Poor to Rich a Day at a Time recently posted..August Grocery List #1 = $260My Profile

  2. says

    I think I could get by on a million bucks. The problem with this post, which is the same problem I had with so many posts on my old blog, is that you are working with a certain set of assumptions. If invested properly, a million bucks would go a long, long way. Try this set of assumptions: pay cash for 10 rental properties that cost $100,000 each. Your monthly cash flow from these alone should result in far more than $40k per year.
    Matthew Allen recently posted..Building a Niche Site (the Dumb Way) – Follow AlongMy Profile

  3. says

    Considering that many (if not most) people will NOT have $1 million for retirement, this info might be somewhat discouraging. Yes, if you plan to spend a lot of money each year, $1 million won’t get you very far. If, however, you do what was mentioned at the very end of the article (be practical and don’t live beyond your means before retirement) you can live comfortably on MUCH less.

    Case in point – I personally have never made $40,000 per year. The closest I came was the couple of years right before I quit my job when I topped out at around $32,000. Other than those couple of years, I usually lived below the federal poverty level as far as income goes. I did manage to “retire” 10 years ago at the age of 44. Oh – and I also raised four kids.

    As I pointed out in my article How Much Money Do You Really Need for Retirement, eliminating expenses is the key to retiring without a lot of money. If your dream is to buy a yacht or travel continuously, yes, you’ll need a lot of money. I you have less extravagant plans and eliminate all debt, you can live comfortably and even splurge now and again with very little.
    Crystal recently posted..Are You Ever Too Old for Confidence and Hope?My Profile

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