For those with large or rapidly growing retirement funds, it makes sense to remain invested in the market while looking to live on interest or dividend payments. There’s no doubt that living on the cash flow generated by your portfolio rather than the principal invested will ensure you don’t run out of money in retirement. Plus, it can help your savings continue to grow into your golden years. In fact, once you retire and no longer generate employment income, you may be able to continue making money while you sleep.
In this article, we interview a couple in their early 50s (worth $3.4 million) who are moving forward and determined to save $8 million in their last 15 years in the workforce. There’s no doubt that anyone with a few million dollars in the bank is likely to slow down in the last fifteen years of their career. But not this couple. They’re ready to race to the finish line, which will likely allow them to live off their hobby while also potentially allowing them to leave a huge nest egg for others when the time comes.
The multi-million dollar question remains: Is it realistic to live off interest alone without eating into your principal? Let’s dig a little deeper.
Living off just the interest from your retirement funds is a very difficult task. That said, the couple has a plan, and they seem as motivated as ever to make it happen. If they can reach their $8 million goal in 15 years, I have no doubt they can live off dividends, interest, and passive income in retirement. Based on the 4% rule of thumb, their annual income is $320,000, which is actually a pretty “fat” retirement.
Heck, even an average 2% savings return is enough for most people to live a reasonably comfortable lifestyle ($160,000). As the couple eventually moves from the early years (the so-called “go” years) into the “slow go” and “no-go” years (which means less spending in later years), there may be flexibility to reinvest any interest and dividends the couple ends up not spending. Additionally, pampering loved ones with extra cash is an option worth considering.
Regardless, I would say that the couple is well on their way to achieving their ambitious dream of living on passive income (interest and dividends) without having to touch the principal. As always, though, people should consult a financial planner to make sure they stay on track, because the stock market is sure to take some really big hits over the next 15 years.
