How to Retire on 1 Million Dollars: The Millionaire-Next-Door’s Guide to Making Your Money Last While Living the Life You Want

It’s well-known that Americans’ cost of living is ever-increasing, and retirees are no exception.

But what if you’re a “millionaire next door” – someone who’s lived frugally and saved diligently to retire with one million dollars – and are wondering how to fund your golden years? Maybe you’ve lived below your means for a long time, and now you want to enjoy the fruits of your labor in retirement. 

In today’s blog, we’re walking through how to retire on a million dollars and live the life you want. 

Where Should You Keep Your Million?

Just because you retired doesn’t mean you necessarily stop investing! Whether you’re ready to submit your final resignation or are planning your retirement income in advance, you still want your money to work for you as much as you can.


The S&P 500 (an index fund tracking the top 500 companies) boasts an average annual return of 11.02% in the last decade alone. With a $1 million nest egg, that could return over $110,000 each year. Theoretically speaking, if that return came through every year, you could live off the return alone and never touch the principal.

However, it’s not always that simple: The stock market doesn’t offer any guarantees, and while a return of 11% is the average, that could vary greatly from year to year. That uncertainty is often compounded by a phenomenon affecting retirees known as “the fragile decade.”

Related: Isn’t Money Supposed to Be Fun?

The fragile decade is the timespan from five years before your retirement to five years after, and marks significant life transitions that could affect your finances. You may be beginning to withdraw funds from your retirement accounts, adjusting to a new schedule, relocating, or making other changes. 

This time period is referred to as the “fragile” decade because there is less time for your portfolio to recover if there are any big market downturns, and once you start withdrawing your retirement income, it’s much more difficult to get back to the amount you saved.

To help offset risks, we recommend that those in the fragile decade invest more conservatively than their younger counterparts. 

Of course, there are also a few ways you can help temper stock market volatility, such as:

  • Reducing spending
  • Delaying retirement
  • Revisiting and prioritizing goals


Another option for optimizing your savings is a Qualified Longevity Annuity Contract (QLAC) or other annuities

A few things to know about annuities:

  • They are sold by insurance companies
  • They are tax-deferred vehicles, meaning that any money you withdraw from them will be taxed at the time of withdrawal 
  • They are known to offer more predictable income than stocks

The costs depend on what kind of annuity you purchase (fixed or variable), and it’s important to note that while the amount you can withdraw sans penalties is guaranteed, your overall return is not. You’ll also eventually pay capital gains on earnings. 

A QLAC is a specific type of annuity that lets you receive retirement income distributions later in life, allowing you to delay taking income until age 85.

What type of annuity is right for you (if any) depends on your age, savings, income, retirement goals and more.

How Should You Withdraw Your Money to Make it Last?

When it comes to withdrawing your retirement income, you may think you can just take what you need whenever you need it – but it’s not quite that simple. 

One of the most popular withdrawal approaches is the 4% rule, which says that if you save $1 million and withdraw 4% per year ($40,000), you should be able to live off of that when combined with your income from Social Security, which will add somewhere around $24,000 per year depending on a number of factors

The rule uses 4% because they say that there is a good chance of your portfolio making that money back each year in interest and returns, meaning you can live off the interest alone without depleting your portfolio. Basically, it was created as a rule of thumb for people who are worried they will outlive their money.

There are other strategies, too, but you want to incorporate guidance beyond a single rule.

Rather than focusing solely on how much you withdraw, we recommend you also pay attention to the order in which you withdraw from your accounts. Most retirement income plans have multiple sources, such as Social Security, annuities, pensions, and your investment portfolio. 

Here’s a simple guideline for how to tackle your retirement withdrawals:

  1. In general, you should start with your required minimum distributions (RMDs), which – as the name implies – have required withdrawal amounts each year beginning at a certain age. Tax-deferred accounts like 401(k)s usually have RMDs in order to ensure the IRS can get their cut during your lifetime.
  2. Next, spend from your Social Security benefits (which also have predetermined windows during which you can start collecting benefits).
  3. Next up is your pension. 
  4. Last but not least are your tax-free accounts like your Roth IRA or your taxable (non-retirement) accounts. Roth IRAs are tax-free accounts and are not subject to RMD rules. Roth IRAs are also great vehicles for passing on to heirs.

Should You Budget in Retirement – and How Can You Get Started?

Even if you’re retiring in the millionaire club, it’s crucial to have a budget so you know where your money is going and if your spending is aligned with your goals. To begin, make a list of all your necessary expenses, like:

  • Rent/mortgage 
  • Utilities
  • Food/groceries
  • Minimum debt payments
  • Phone and internet

Next, make a list of your “wants,” which include vacations, eating out and other “fun” costs. A popular rule of thumb is the 50/30/20 rule, which says that no more than half of your income should go toward needs – leaving 30% for wants and 20% for savings. 

Additionally, traditional budgeting standards say that your mortgage payment should be 28% or less of your gross income (which is your pre-tax income). So if you made $6,000 this month before taxes were taken out, your optimal mortgage payment would be $1,680 or less. 

Financial planning – even if you have one million dollars saved up for retirement – can feel overwhelming, but with the right strategies, you can face your golden years with confidence. If you’re a millionaire-next-door (or are working toward that millionaire status), these three factors can help you make the most of your savings and live the retirement you want. 

Schedule a Complimentary Consultation Today

Are you retiring with a million dollars? Want to create a plan that can optimize those funds and protect your future? Click here to connect with a member of the Clarity team and get started.

Latest Posts