When a million isn’t enough

While it may take a million in capital to generate $40,000 a year in passive investment income, a “retirement business” can generate that much income with much less capital: the difference being of course your own ongoing sweat equity.



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Like Rodney Dangerfield, a million bucks just doesn’t get much respect these days in retirement circles. Earlier this week, I noticed two separate stories on the web that questioned the likelihood a million dollars would be enough to retire on—or as this blog would argue, establish a modicum of financial independence.

In this Canadian Press piece that ran in the Globe & Mail, it was asserted that it now takes $1 million in investments to generate the same retirement income as a mere $500,000 would have yielded five years ago. We all know why: stock returns are volatile and too often negative since the financial crisis hit in 2008. And those who try to find a safe harbour in fixed income have been crucified with miniscule interest rates, which are the result of central bank actions around the world responding to that same seemingly chronic crisis.

Sweet Freedom

Whether or not we’re actually in a depression (as Paul Krugman asserts, recapped in my last blog) or merely the “Great Recession” posited by the optimists, it’s certainly depressing to think a million dollars isn’t enough to retire on. When I tweeted the above story on Tuesday, more than one retweet found this a depressing conclusion.
Certainly as I comb through back issues of MoneySense, a million dollars has usually been considered more than enough capital to generate a livable sum in retirement. See for example the newly updated edition of the MoneySense Guide to Retiring Wealthy. Chapter Six is entitled “Sweet Freedom,” (a phrase that may ring a bell for subscribers as of the current Freedom Now! issue of the magazine). One article in that guide is titled “How we retired in luxury on $2,000 a month.”

Certainly, anyone with a half-decent employer pension will have that much, or will if they reach their 60s and qualify for some combination of the Canada Pension Plan and Old Age Security. It’s those who lack any sort of employer pension who tend to worry about whether a million dollars is enough to last into advanced old age.

Retiring on Business Income

But this is where the other web story this week provides some useful insights into the true nature of financial independence. The article, “Retiring on Business Income,” also invokes the magic “million” figure, albeit in an American context. “A million dollars is a LOT of money!,” the author helpfully reminds us. In fact, more than that may be necessary:

“Let’s cut to the chase—in order to fully retire, and have enough income to pay your living expenses, and have enough money to cover contingencies, and have some left over to continue to grow your investments so they don’t get wiped out by inflation—you’d have to have at least a million dollars saved up at retirement. More probably two or three million, given inflation.”

The writer says it’s possible to save a million over 30 or 40 years but the sad fact is many people will never even accumulate that much. And even if they do earn a lot and are able to save, poor investment returns, bad luck, poor judgement, ultra-low interest rates and job loss could all conspire against them.

Now here’s where the writer gets into the realm of financial independence, which I cover in my book, Findependence Day (appropriate given the similar-sounding American holiday today!) By establishing your own business, even a part-time one, you may be able to provide a critical auxiliary stream of income that will supplement employer or government pensions and whatever investment income your nest egg is capable of generating. And while it may take a million in capital to generate $40,000 a year in passive investment income, a “retirement business” can generate that much income with much less capital: the difference being of course your own ongoing sweat equity.

Self-employed fret less about retirement

As another Tweeter observed, while salaried employees tend to obsess over retirement, the self-employed are more receptive to the idea of continuing to work during what used to be the retirement years. Business owners or freelance writers or consultants have more autonomy, can set their own hours and enjoy the kind of flexibility and mobility that those tied down to 9-to-5 salaried gigs do not have. Little wonder then that while government employees can’t wait to knock off by their late 50s, many self-employed people are quite happy working into their late 60s.

The Retiring Wealthy guide mentioned above also features an article by MoneySense‘s lead retirement writer, David Aston, on this very subject: it’s entitled Sixty and Clout and notes that working in retirement can boost your finances and lift your mood. And as the linked article observes, by the time you do hit the advanced old age where you really can no longer do work of any kind, the business owner can sell the business and add the proceeds to a nest egg that’s now fully capable of sustaining full retirement.

To me, this is another form of “Freedom Now!” Find a part-time retirement business that keeps you engaged and interacting socially and that also provides a prudent alternative income source to pensions and investments.

A 5-year vacation

Oh, one more thing. When I first read this piece—a 5-year Vacation—I couldn’t help but observe on Twitter “Now that’s what I call Freedom Now!” It’s about a couple similar to the “yacht” couple profiled in our magazine. ……………………
Rather than amass multi-millions for a traditional full-stop retirement, they save enough money for a five-year global odyssey. This turns out to be an experience that so changes their lives that they discovered new ways to generate income that precluded the need to do it all on passive investments. It may not be the “permanent vacation” I mention in the editor’s note in the current edition, but it’s an excellent start, especially if you’re worried a million won’t last a lifetime.

As the article noted and as I retweeted, “True wealth is control over your time and how you spend it.”

P.S. After this blog was published, USA Today had an article touching on this topic of boomers toiling into their 70s. You can read it here.

9 comments on “When a million isn’t enough

  1. Very much agree with the need to cast off the "gather the forever-golden-nest-egg" concept of retirement. This notion causes much grief and is likely counter-motivating. Savings stats along with uncertain longevity and markets make it unlikely the majority will have enough to eliminate working/business income from their longer-term cash flow needs.

    I think we will see many models of life-planning like that described in the article become the norm for the boomer and younger populations.


  2. Hi Jonathan–Thanks for including the link/reference to my post (Retiring on Business Income). More than anything I think this topic is based on the idea that we should be ready for ANYTHING. When we look at the economy and the stock market over the past dozen or so years, and at how Europe is teetering on the edge, it's doubtful that we'll have the stability over the next 20, 30 or 40 years that it will take to passively build a seven figure retirement portfolio. That's where having a businesss become a major part of financial independence.

    Also, the idea of working for decades to provide a fat bankroll for the last few years of your life is, as Michael writes in his comment above, counter-motivating. Why not step out now, create something new and profitable, and maybe even semi-retire now? And who knows how big a business can get, especially when you blend it into your life and work at it steadily. With jobs being so hard to get and keep, having some sort of business is less risky than it's been in a human lifetime.


    • Agree. I've often said a "Job" with a single employer is actually riskier than self-employment. With a traditional "Job" you have just one client: all your eggs in one basket. The self-employed have multiple clients so in theory the loss of any one of them is less traumatic.


  3. Great read kind sir. What an important topic, how our world is going to survive when the aging boomers begin to retire. I've heard it referenced as the "Silver Tsunami", how our country will be populated with a vast number of elderly. As medical science keeps us alive for longer we'll have to deal with supporting ourselves for much longer as well. I think we all need more information to ensure financial stability in the future. Thanks for the article.



  4. Johnny i found you! If it floats ,flies or ……it's best to rent it. I wonder if the last copy of 96 FP has any value ,ya she's making me clean up the garage .


  5. Can someone please stop spreading the Million Dollar lie?I do not know anyone who will retire with a million dollars for retirement and doubt that very few Canadians know anyone in this category.Unless you live in a cave or are self-employed and report only part of your income{which almost all due}you cannot amass this fortune.


  6. Hello Jonathan,

    The big problem to today is returns. In retirement having another 2008 type market for someone who is in their late 50's or 60's (in retirement) means they you really can't recover the losses.

    How about revisiting the annuity idea. This requires planning now. I wrote a story on Million Dollar Journey about two years ago. At that time a annuity for a 65 year old male was 8% guaranteed for life! Taxes were low! Now it is 6.6% still not bad at 70 years getting over 7% for life is still possible.

    I am working a story where one can have control of their money and a $1,000,000 will spend like $1,500,000 assuming a retirement age of 65 and rate of return of 6% and a tax bracket of 25% or higher.

    The question should be

    "Do you want to create more wealth or the ability to spend and enjoy more wealth?"




  7. I'm not worried about my future, as I am "retired" with a defined benefit pension and working in a 2nd career in a defined contribution plan where I look forward to taking my (and my employer's) contributions out in cash after a few days before being locked in to an annuity (ugh), and then will go to work as a consultant part-time to ease into gardening, but I take exception to one thing: the "9 to 5" that you use to define non self-employed people is history, I work "7 to 7" in my second career in the semi-public sector and then go home on Black Berry, including nights, weekends and holidays. Not sure where you get the idea that us non-corporate folk are only working 8 hours, including lunch.

    Just saying…


  8. I like your point with regards on your post, It seems to be interesting and great to hang out with friends.


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