Is $1,000,000 Enough Money To Consider Yourself Wealthy?

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is 1 million dollars enough money

“A million dollars isn’t what it used to be” – Someone, somewhere. Probably. 

Let’s be honest. If you have $1,000,000 in liquid assets in a brokerage account or otherwise you are doing pretty well. But are you “wealthy”? Is $1,000,000 your freedom number?

That is a question that we recently came across on Twitter and it got us thinking: how much is enough to feel like you’re wealthy?

Before we get into it, here’s how a few people answered.

This guy gets it. You can only be free, truly free, when your money or businesses generate enough passive income to cover all of your expenses. At that point, you are wealthy.

But there are definitely other variables as pointed out in another comment.

Here is one more way to look at it.

And this is, quite possibly, the best way to sum it up.

Brilliant!

So Is $1 Million Enough Money To Consider Yourself Wealthy?

Everyone who responded to the thread made solid points. To be truly wealthy means that you are financially free. One million dollars is a lot of money, but several other factors come into play. Those factors are:

Your spending habits. Can you live by the 4% rule?

Are you a compulsive spender? Do you need the latest gadget or a new car every three years? Does your retirement include traveling and expensive hobbies (like golf)? If this sounds like you, then $1 million might not last through retirement.

To put it another way, living on 4% of $1,000,000 only yields $40,000 per year. There isn’t a lot of wiggle room there for emergencies, luxuries, or an extended downturn in the stock market.

How is the money invested?

When it comes to making your money last, growth matters. If you are living on this money, you want to make sure it isn’t earning less than inflation. You can do that through passive income like real estate crowdfunding distributions, dividend and growth stocks, or physical rental properties.

What state/city are you living in?

While it is possible to live frugally in every state, certain cities make living on $40,000 per year a lot more difficult.

Speaking of where you live, housing is also a factor. If your home is paid off, there will still be annual expenses like insurance, upkeep and taxes. These can eat up a large chunk of your $40,000 per year.

Will you continue to work part-time?

Supplementing your passive income with active income is a great way to help you afford more luxuries in retirement or simply to help your nest egg grow.

How will your income distributions be taxed?

If you’re under traditional retirement age, you may not be able to take advantage of tax free growth and income from a Roth IRA. If you need $40,000 to live on, you will need to withdraw more than 4% from a taxable brokerage account.

Final Thoughts

Having $1 million is obviously incredible. And you should feel wealthy. But chances are, you won’t quite feel like you’ve hit your freedom number.

Wondering if you’re wealthy? We recently published this study on how much income you need to be considered rich in every state in America.

 

Author
C. James

C. James is the managing editor at Wealth Gang. He has a degree in finance and a passion for creating passive income streams and wealth management.

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