Can You Live Off a Million Dollars Forever?

Having one million dollars can often feel like a pipe dream. But even so, is it truly enough to live off of forever?

ValueChampion Editorial Team

by ValueChampion Editorial Team on May 24, 2024

stacks of cash

The concept of becoming a millionaire rings a special tone in most people’s hearts. It sounds like a dream come true, where you can enjoy a comfortable life without needing to work anymore.

But, can you really live off of a million dollars forever even if you don’t work for another day? If you don’t generate any other source of income, a million dollars can last you about 50 years if you spend S$1,000 per month, no where close enough for living the dream life.

As it turns out, however, investing the million dollars to generate even an average return can be enough to help you splurge thousands of dollars every month for the rest of your life.

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A Million Dollars Can Last You 50 Years, If Invested Properly

Assuming you’ve already made your major life purchases like buying a home, properly investing S$1 million can help you easily afford S$2,000 to S$4,000 of monthly expenditures for 50 years, in terms of today’s dollars.

Barring any major life events that require a huge lump sum expense, this should be able to let anyone with a million dollars retire sometime in his 30’s or his 40’s. To arrive at this answer, we use a method we call “run-to-zero” strategy. This means that we calculate the monthly expenditure required for completely use up the million dollars based on a 2% annual inflation (target inflation rates) and certain rates of investment return.

run to zero retirement

For example, if you have a monthly budget of S$1,634, you can set aside S$19,608 to spend in the first year and invest the remaining balance of S$980,392. If you were to make a return of 2% on this balance, you would be left with S$1,000,000 at the beginning of the second year. Then, you set aside S$20,000 to spend in the second year (up 2% due to inflation) and invest the rest again. Adjusting your expenditure for inflation ensures that you’ll able to maintain your quality of life over a long span of time.

Related: How Can You Protect Your Wealth As You Near Retirement?

Why Investing Is So Important: Power of Compounding Returns

This example is a useful demonstration of the power of investing. While not investing the million would allow a person to spend only about S$1,000 per month for 50 years, marginally increasing the rate of return to 3-7%  per annum can increase this budget to S$2,000 to S$4,000. This is because of a concept called compounding returns. Investing allows your money to earn money for you, resulting in an exponential growth where each dollar you generates additional returns in the future. Therefore, making even a single-digit return on your cash can build on itself into a snowball, giving you a larger budget spread out across a long period of time.

Related: How to Plan Your Finances for Short, Medium and Long Term Goals

power of compound interest

How Can You Make 3-5% Per Year?

Building a well diversified portfolio filled with well-researched investments should produce around 5% per year on a consistent basis. In general, we recommend mixing your investments with some high-risk/high-return investments like stocks with less risky alternatives like bonds.

For example, the Straits Times Index has averaged 5.3% of annualised return from April 2021 to April 2024. Singapore Treasury bills also return upwards of 3%% per annum. Contrary to popular belief, as long as you are doing your homework and pick your investments carefully, making 3-5% on your money is not as difficult as you may think.

Related: What Are Singapore Treasury Bills and Are They a Good Investment?

Start Investing Today

Everyone wants to be a millionaire but not everyone can. However, the important lesson here is that putting your money to work and generating some return on your savings can make huge difference in your retirement planning. Earning even a meager 3-5% can increase your wealth dramatically compared to letting inflation just eat away at your savings over time.

Most importantly, it’s advisable to start investing early in your life so that you can let time and compounding do most of the heavy work for you. If you are interested in learning more about the best online brokerages on the market, or would like to browse our investing archives, click find out more below!

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