Do you want to retire rich at age 65? What about 55?
According to Carrie Schwab-Pomerantz, senior vice-president at Charles Schwab & Co., you will need 25 times the amount you expect to withdraw from your savings each year. That means that you will need to have $1,000,000 to be able to withdraw $40,000 per year for 25 years.
What if you live longer than 25 years after retirement? What if you wanted to retire early? This is an extremely short-sighted, inefficient, and ineffective way to use those funds.
The best way to live off of your retirement savings is to not use your principle! Instead of constantly depleting the principal, you can invest in safe dividend stocks or ETFs.
There are some very stable stocks, such as Coca-Cola (KO) or Johnson & Johnson (JNJ) that strong annual yields.
Find yields around the current inflation rate and these kinds of investments would return about $30,000 on that same million dollars. But, you wouldn’t have to touch your principal and you can earn that amount as long as you need.
There are higher-yielding stocks but have a little more volatility. However, you can still earn even higher returns with dividend ETFs such as Global X Nasdaq 100 Covered Call ETF (QYLD), JPMorgan Equity Premium Income ETF (JEPI), or Nationwide Risk-Managed Income ETF (NUSI).
These are covered call funds and can return much higher annualized yields.
Legacy millionaires
Having the discipline to save a million dollars, you can roll your account into a self-directed IRA account. Then, purchase an ETF and start earning income every month. But what if you only have $500,000 saved?
By investing in a high-yield ETF that earns up to 1% per month, that $500,000 will earn about $5,000 per month or $60,000 per year!
This is a full 33% per year more than the million-dollar direct withdrawal method. All this without touching your principal.
Not only could you receive a higher income each month than with the original million dollars, but it will last the rest of your life no matter how long you live.
And, your beneficiary will receive the balance and earn the same return.
Under current law any beneficiaries will have 10 years to withdraw the entire amount. If your beneficiaries aren’t of retirement age, the funds can be rolled into a Roth IRA.
The dividends can be reinvested for similar returns until their retirement. You can create generational wealth with this strategy. Even if they don’t have long to reinvest, they will be able to live off the interest as if they were millionaires!
