Is 1.5 million enough for FatFIRE ?

1.5 million dollars may seem like a crazy amount of money. For sure, it could allow you to retire early, but will it really be by high standard retirement, aka Fat Fire, or do you still need to be savvy and count every penny in order to not run out of money? Let’s find out!

Fat FIRE

It is a variant of the Financial Independence, Retire Early concept. People dedicated to this idea focus on accumulating enough capital in order not to have to work anymore. Although achieving FIRE means financial independence, it is not necessary to become a millionaire in order to reach that goal. 

People seeking early retirement, according to the FIRE idea, are willing to sacrifice the standard of living a little bit in exchange for real freedom and independence. 

Fat FIRE, however, is slightly different. The idea is to save enough money so you don’t have to work anymore but still keep a high standard of living. The standard of life does not necessarily need to reflect the top 1% of Americans but for sure should be comparable to a higher middle-class level.

So is $1.5 million enough for Fat FIRE? In this report, we will answer this question in detail. We will analyze the case of a typical household with monthly expenses of $8000.

We will also assume that the accumulated capital will not be kept in a bank account but will be invested in many different asset classes with an average annual interest rate of 8%, which is more or less the long-term market average for US stocks. 

To be as precise as possible, we will deduct income tax (15%) from the interest you earn each month, and later on, we will analyze the impact of inflation on your portfolio. 

So in our imaginary scenario, Fat FIRE prospects for a family with $1.5 million of liquid assets look like this:



Initial savings: $1 500 000,00
Interest rate: 8%
Monthly withdrawal: $8 000,00
The annual increase in withdrawal: 0%
Your savings will last for: over 100 years

Assuming you will not just keep your capital in a savings account but have it invested in high-yield asset classes like stocks or REITs with an average return rate of 8%, you could withdraw $8 000,00 a month for over 100 years until your capital of $1 500 000,00 gets depleted.

Unfortunately, this assumption is rather optimistic and, in practice, difficult to replicate in real life. For several reasons:

The interest rate of 8% is too optimistic.

Although an assumed APR of 8% is what you could expect from stocks, it is advised to lower your exposure to high-volatility assets during retirement. So in practice, your $1 500 000,00 will give you a lower return rate than in the example above.

Inflation

What’s more, the example above does not consider inflation which is a main obstacle in long-term investing.

Taxes

As you probably expect, you will have to pay income tax from interests earned on your capital. The calculation below assumes that those $8 000,00 are after-tax deductions.

Can I retire on $1 500 000,00?

In most cases. yes. You can retire with $1 500 000,00. Below we describe what criteria you should meet in order to retire early with $1 500 000,00 in savings. You could calculate your own scenario using our calculator.

In order to find the precise answer, you need to ask yourself the following questions.

How much money do I need per month?

Answering this question is key to preparing a retirement plan. If your monthly expenses are in balance, there is a high possibility you will be able to quit your job with $1 500 000,00 in savings, but if your costs of living are very high, there is no chance that $1 500 000,00 will be enough for early retirement.

It’s very important to be as precise as possible. You need to calculate not only your regular daily expenses for food and bills.

You should also include expenses you pay once a year, like property tax, insurance, etc. Finally, you should add a reserve to some unexpected events like car and home repairs. The best way to do that is to add an extra 20% to 30% to the projected monthly expenses.

What is my projected time of retirement?

This question is as important as the previous one. The situation for people in their 30s or even 40s is much different than for those above 50 years old.

The older you are, the less money you will spend on retirement. Therefore older people have an advantage over millennials.

At the end of the article, we present the table with calculations of how much money you could withdraw per month from your saved $1 500 000,00, depending on your age.

What is my effective interest rate from your investments?

The compound interest is your greatest ally. Thanks to this magic formula, you will be able to benefit twice from each dollar you make, and that $1 500 000,00 you have saved will last longer.

The table below shows how much interest per month you can get from $1 500 000,00, depending on the average interest rate of your portfolio.

Interest rate Monthly interests Tax Interests after tax
4% $5 026,67 $754,00 $4 272,65
5% $6 283,32 $942,50 $5 340,82
6% $7 540,00 $1 131,00 $6 409,00
7% $8 796,67 $1 319,50 $7 477,15
8% $10 053,32 $1 508,00 $8 545,32
9% $11 310,00 $1 696,50 $9 613,50
10% $12 566,67 $1 885,00 $10 681,65

How high will inflation be in the future?

Another important factor that is most often forgotten is inflation. The biggest enemy of savers. It should never be underestimated since even low inflation of 1% to 2% could ruin your plan of early retirement.

The table below shows how $1 500 000,00 will decrease in value over time due to inflation.

Inflation Initial value Future value after:
10 years 20 years 30 years
1% $1 500 000,00 $1 377 726,41 $1 265 419,98 $1 162 268,27
2% $1 500 000,00 $1 265 344,14 $1 067 397,08 $900 416,30
3% $1 500 000,00 $1 162 058,93 $900 253,88 $697 431,76
4% $1 500 000,00 $1 067 139,83 $759 191,44 $540 108,70

For more details, you may visit our inflation loss calculator to check how much will be $1 500 000,00 worth in the future.



How long will $1 500 000,00 last in retirement?

This depends mostly on two factors: the number of monthly withdrawals and the effective interest rate of your investments. The table below shows how long your savings will last depending on those two factors. The calculations assume that the entire amount of $1 500 000,00 will be invested, and you will receive regular interest. In most cases, in order to keep a certain standard of living, you will need to spend not just the interest but some portion of accumulated capital as well.

Interest rate Monthly withdrawal Savings will last for
4% $6 400,00 32 years 1 months
$8 000,00 22 years 3 months
$9 600,00 17 years 2 months
$12 000,00 12 years 10 months
6% $6 400,00 108 years 11 months
$8 000,00 31 years 3 months
$9 600,00 21 years 5 months
$12 000,00 14 years 10 months
8% $6 400,00 1000 years 1 months
$8 000,00 1000 years 1 months
$9 600,00 31 years 11 months
$12 000,00 18 years 2 months
10% $6 400,00 1000 years 1 months
$8 000,00 1000 years 1 months
$9 600,00 1000 years 1 months
$12 000,00 25 years 6 months

As you see, if you keep your expenses in check, you could retire with $1 500 000,00 in savings. With the monthly withdrawals of $6 400,00 you will be more likely to retire than if you keep spending $12 000,00 a month.

A high-interest rate is also an important factor. However, since you won’t have direct control over it is best to assume the low performance of your investments and be positively surprised eventually.

How to retire with $1 500 000,00?

Once you know what criteria should be met in order to be able to retire with $1 500 000,00, you can prepare your plan.

  1. Calculate your monthly living expenses. Try to be as accurate as possible.
  2. Calculate how much interest a month you make from $1 500 000,00 in savings. You can use our interest calculator.
  3. Deduct income tax from the interest earned.
  4. If the interest amount after tax may cover your expenses, you could safely retire.

If you wish to retire comfortably with $1 500 000,00 you can live not only from interests, but you could start spending saved capital. However, such an approach carries a risk that your savings will get depleted sooner than you might expect.

At what age can you retire with $1 500 000,00?

If you are young, in your 20s or 30s, you might need to accumulate higher capital or wait a few more years. Below we will analyze at what age you could retire safely with $1 500 000,00.

How can you retire early at 35 with $1 500 000,00?

To be completely honest, it will be very difficult. It will require a lot of effort and a bit of luck.

  1. You need to decrease your spending in order not to deplete $1 500 000,00 too soon.
  2. You need to take some risk and invest aggressively in order to reach a high return rate.

Of course, you can always move to a country with lower costs of living where you can retire with $1 500 000,00.

How can you retire early at 45 with $1 500 000,00?

This scenario will be difficult as well but much more probable than retirement at 35 with $1 500 000,00. These additional 10 years make a big difference.

  1. You need to decrease your spending in order not to deplete $1 500 000,00 too soon.
  2. You need to invest your savings with a decent interest rate, but it could be a balanced portfolio according to the 60/40 rule.

How can you retire early at 50 with $1 500 000,00?

If you are reasonable and can keep your spending in check, $1 500 000,00 is more than enough to retire early. This is much sooner than the official retirement age in the US and any other country. With Calcopolis you can estimate your standard of life on that early retirement.

  1. Visit our living from a savings calculator.
  2. Fill in the form with all necessary data, like your desired retirement income, expected interest rate, and income tax value.
  3. The calculator will give you precise information if the analyzed scenario is viable or not.

Is FatFIRE possible if I have $1.5 million?

As you have seen in our calculation $1.5 million is more than enough for reasonable people to retire early with a decent standard of life and a higher middle-class level.

However, if you are still young, you need to be responsible and not run into a spending spree. You still need to have your costs in check; however, there will be room for some luxury.

It is very important to invest wisely to protect the money from inflation. 

If you have less than 1.5 million dollars, you could check our similar analysis, where we try to answer if 1 million is enough for early retirement or even if $800k is enough to retire

Wish to achieve Financial Independence?

Check out our FIRE calculator to find out if you could retire early. Visit FIRE Calculator »

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