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USA Today: Can you retire on a million?

John Waggoner writes about how much is enough to retire – a million?  His answer is a qualified “yes.”  How much do you withdraw each month and where are your funds invested?  He echoes my prior sentiments from my post, “The Value of a Million Dollars Today… Back Then…”, stating the most glaring caveat is inflation.  In that post, I noted that even though we have been using the term “millionaire” for some time now, the buying power of a million dollars dwindles every passing day.  For example, $1 million dollars in 1960 would have the same purchasing power as $8 million today.

Value of a Million Today

Figures calculated during Q3 of 2013 using CPI data.

Waggoner then provided some interesting circumstance laying out how your retirement would have fared in various investments had you begun your retirement with $1 million in October of 2004.  Assuming annual withdrawals of 5%, or $50,000 to start, and taking these in monthly increments, here is where you would stand:

• S&P 500 index funds. Even after taking $50,000 a year from your account, you’d have $1,279,000 a decade later. It would have been a scary ride, because this is a pure stock portfolio. By the bottom of the bear market, in March 2009, your account would have fallen to a bit less than $581,000. But the S&P 500 has gained 178% since March 2009, including reinvested dividends.

• Balanced funds. Traditionally a mix of 40% bonds and 60% stocks, these funds are noted for relative stability and yield. After a decade of withdrawals, you’d have about $1,134,000.

• Government bond funds. Unlike stocks, bonds really haven’t had a bear market in the past decade. But they don’t pay a great deal of interest, either. The bellwether 10-year Treasury bond yield has averaged 3.35% since October 2004. Your account after a decade of withdrawals: $899,000.

• Money market funds. You’d have problems here, because money funds have yielded less than the North Koreans on trade talks for most of this decade. Your retirement kitty after a decade of withdrawals: $640,000.

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