How to invest 1 million and live on income with that amount? This scenario looks like a retirement dream, but with the demystification of investments, people are looking for ways to make their dreams come true.
THE financial freedom it is a concept that populates the UK residents imagination. Especially, as it is a country with more than 60 million people in default, which amplifies the desire to have a financial situation more convenient for the future – be it in the short, medium or long term.
Only the question is not that simple. First, because the current cost of living differs from the possibilities promised by accumulating the first million in its financial investments.
Continue reading the post, and learn from us the importance of saving regardless of the moment of your life today, in addition to discovering the answer to the question: how to invest 1 million?
Planning how to invest 1 million to live on income
It’s possible? Let’s answer the question promptly: It depends. After all, your lifestyle impacts a lot on the amount you have saved over the years and what the cost of your standard of living will be.
Perhaps the value is a past indicator of a pattern that is no longer supported by the monetary variations of the last decades. What remains, however, is people’s interest in abandoning their careers as soon as possible to enjoy life as they prefer.
This echo of financial independence occurs for several reasons, such as:
- professional dissatisfaction;
- a lot of pressure in the position held;
- improvement in the quality of life;
- more financial well-being for the future.
Among other factors that make many people question their roles in society and what they are doing about building a life as they intend to lead.
The Million Retirement Plan
The number seems even magical, mystical. Only it was popularized because it is a round number. But as we said, it has little to do with a unique and indisputable concept of financial independence.
After all, while many people survive on a monthly income close to the country’s minimum wage, others may question that an average income of R $ 10,000 per month is little to sustain their standard of living.
In addition, it is worth noting how much a person with R $ 10,000 per month may not have enough when considering how to invest 1 million saved. For example: discounting inflation, a person who has a profitability of 3% per year takes almost ten years to exhaust this source of income.
In other words: it is not a heritage that will be sustained for a long time.
In this perspective, specialists from the financial market they are reticent about mysticism around the million as the average value for a definitive retirement.
Following the previous example, industry professionals point out that to remove R $ 10,000 per month, for the next 30 years, an individual would have to accumulate R $ 2.42 million.
Why retire so early?
The movement of people in search of a early retirement and regardless of the benefit established and offered by the EHIC, it grows continuously. In the USA, there is even an acronym for this: FIRE – term for Financial Independence, Retire Early (something like financial independence, retire early).
The reasons for this vary as:
- professional dissatisfaction;
- the desire to follow new directions;
- depend less on a fixed salary in a stressful routine to have the desired life and lifestyle.
As we pointed out earlier, people are looking for this type of “freedom” from the bonds of society.
However, the million may not be the ideal amount if you have more costly habits than other people.
Has the value of money changed over the years?
There is another issue that impacts the decision on how to invest 1 million: the inflation.
Purchasing power changes a lot due to a series of factors such as the country’s economy itself. Ten years ago, a million reais could be used for much more than now.
Example: in 2009, accumulated inflation was 76.3% in the country. At the time, one million would therefore be worth R $ 1.76 million.
In almost 30 years – since 1994 when the Real Plan was initiated -, the currency depreciated further. There was 520.6% of accumulated inflation in the period, which would make the current million worth R $ 6.2 million in purchasing power for 25 years.
How much do I need to accumulate to invest 1 million?
If many experts no longer believe that it is definitely possible to retire with R $ 1 million, what would be the necessary amount?
That answer varies. We also talk about this, as your habits can be completely distinguished from the monthly expenses of your next-door neighbor, for example.
Let’s see then, what can be taken into account for you to find out how to invest 1 million for an early retirement future on your horizon!
Decide how much you plan to consume per month
Analyze your finances and understand what the costs are compared to your monthly income: how much you can save per month, and how much do you think is an acceptable monthly minimum to live comfortably?
These are answers that you have to know in advance, in order to plan for the accumulation of equity and thus achieve the desired value.
Here is a step-by-step guide that can help you invest 1 million:
- calculate the available initial capital;
- evaluate the performance of the type of investment selected by you;
- calculate the deadline to start withdrawals from the investment fund and thus live off your income.
To facilitate the account, experts tend to use a conservative rate of 2 to 3% interest per year. Thus, it is easier to accumulate more in the beginning to have a greater safety margin in the future.
Furthermore, it is essential to know What is your investor profile to take proper care and find the application that is all about your goals and needs.
We have a post that specifically talks about the best options for low risk investment – take the opportunity to check it out as soon as you finish this reading!
Do and redo the calculations
It is common, when calculating whether how to invest 1 million that errors arise in the projections. In part, because we do not take into account several factors that can increase your average cost of living, such as medical expenses, medicines and also options for leisure and everyday shopping.
Then focus on calculating an average just beyond what you project for the present. This can be the precise differentiator for a lifestyle adjustment now, to retire the way you imagine for the future.
Analyze the term you intend to live on income
Remember the conservative rate of return that we mentioned above? So, take that number into account to suit your needs and interests.
For example: at a rate of 3% per year, with R $ 1 million you have R $ 30 thousand in 12 months. This, divided month by month, gives a monthly income of R $ 2.5 thousand.
What does that mean? If you withdraw this R $ 30 thousand at once, after one year of application, you will continue with approximately R $ 1 million in the account, and use only this income. But is it enough for you to enjoy your retirement?
If not, evaluate how much you intend to make a living from this retirement. To do this, simply add the amount of monthly expenses over the entire year and then multiply it by the number of years you plan to live in retirement.
So, if you spend R $ 5,000 a month, for example, you need R $ 60,000 a year. And if you want to live on retirement over 20 years, that amount goes to R $ 1.2 million in total.
But that is not all.
Do you remember that we talked about the continued devaluation of the currency and the gradual increase in prices? Imagine how much that will change in the next 20 years.
That is why knowing how to invest 1 million is dangerous math. These future factors must also be taken into account so that you do not reach the end of these two decades in good health, but without a penny to live in the following years.
How to improve income?
We have reached an interesting point for those who want to know how to invest 1 million: income generation.
This is because, by relying exclusively on investment applications, you are ensuring financial stability that can be compromised in the future with increased spending on your lifestyle.
In turn, you can start, even today, the save more money to improve your financial goals, and also generate more income in other ways. Everything to streamline your plan for early retirement and financial security in the medium and long term.
A good way to do this is by renting real estate, for example. This makes it easier to have a gradual increase in income that will complement what you have already invested – and will not exhaust your source of income if your million runs out in a decade, for example.
It is not just a question of saving and saving, therefore, but of have the flexibility to consider all factors, that directly or indirectly, can influence your goals and significantly change the target amount to start your retirement.
Money with security and low cost: the UK residents does not give up
The way to accumulate and put into practice the tips on how to invest 1 million is extensive for most people. However, you don’t have to wait until then to create a healthy relationship with money.
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