How to Live Off $1 Million for the Next 50 Years

CHISWICK, WEST LONDON – I’m 45 years old. And through some luck and hard work, my family and I have accumulated about $1 million in savings.

By my reckoning, that should be enough to live off for the rest of our lives… Especially as I know how to invest. (I’ve been studying the art of speculation and investing for years.)

Now my job is to husband these savings so that it provides for Kate and me for the next 50 years or so, without us having to work anymore.

How do we plan to pull this off? More below…

A Homeschooling Family in London

Greetings from London…

My family and I are a traveling and homeschooling family. Instead of using teachers in classrooms, our children learn through real-world experiences and exhibits.

We’re in London now. London has the best collection of museums in the world. And we’re trying to take advantage of it.

Today, we’re at the Museum of London, which documents the history of the city…

By far the most important event in the city’s 2,000-year history is the Great Fire of London. In 1666, most of the city burnt down. But, by official counts, only six people died.

In terms of deaths, the most important event in London’s history was the plague epidemic that attacked the city on and off for almost four centuries.

The outbreak in 1348, called the Black Death, killed half of all Londoners. Another outbreak in 1665 killed 20% of London’s population. 

Here we are looking at a painting of the Great Fire of London with Mary, our official London tour guide…

This was another interesting exhibit. It shows the extent of the British Empire in 1919… 

We then used it as a springboard to learn about the modern American Empire.

We learned, for example, that the U.S. has 800 overseas military bases in more than 70 countries. Britain, Russia, and France combined have 30 overseas military bases. China has one overseas military base in Djibouti.

The U.S. has 20 aircraft carriers in service, including helicopters. No other country has more than four.

As of 2019, American troops were active in conflict in 14 countries. And American airplanes and drones were bombing seven countries on a daily basis.

Now, back to how we plan to husband our savings for the next 50 years…

These Are Not Normal Times

As I mentioned above, my family has about $1 million in savings. And we plan to live off this for the rest of our lives.

This shouldn’t be too difficult. Why?

Take a look at the chart below. It shows the real risk-free interest rate going back 700 years…

To put this chart together, historians looked at the safest asset available in the market. This is what they call the “dominant risk-free asset.”

They started with sovereign rates in the Italian city states in the 14th and 15th centuries. Later, they switched to long-term rates in Spain… followed by the Province of Holland… the U.K. since 1703… then Germany… and finally the U.S.

Then, they adjusted the yield on the dominant asset for inflation to get the real risk-free return.

As the chart shows, the all-time average real risk-free return on savings stands at 4.78%. And the 200-year real rate average stands at 2.6%.

We would be happy to make a real risk-free 2.6% return on our savings. With $1 million in savings, that would be $26,000 a year for us to live off.

If we wanted an even higher standard of living, I could use my stock market expertise to bump that up to 5% by investing in equities and collecting dividends. 

The problem is, we are not living in normal times.

The chart above only goes to 2017. Currently, real risk-free rates are at negative 4%, close to their lowest levels of the last 700 years. Making a risk-free 2.6% simply isn’t possible at the moment. 

Only One Thing to Do

In these Postcards, we refer to the period we are living through as “the greatest financial experiment in history.”

That’s because governments around the world have pumped trillions of new currency units into the system… pushed real interest rates to their lowest levels in history… and created an epic bubble in financial asset values and paper currency values.

So what’s a family like us to do? Well, in my opinion, there’s only one thing we can do…

Move to the sidelines (in gold and other hard assets). And then wait for the bubble in stocks and low interest rates to burst… and for dividend yields and interest rates to go back to normal.

It’s frustrating, but there’s just no way around it. 

When will the bubble burst? 

We can’t know for sure. But I’ve mentally prepared for it to take 10 years. Maybe even longer.

How will I know when it’s safe to come back in from the sidelines?

The real risk-free rate should be back above 2.6% on the chart above. When that day comes, we will sell all our gold, and put our savings into the financial system and the stock market again.

Until then, we wait patiently…

– Tom Dyson

The Dysons’ garden brings back fond memories for one reader… while another praises Tom for choosing to “do nothing” with his mom’s house – for now…

Reader comment: First things first: my condolences on the loss of your mom. My husband receives your e-letter and showed me the garden photo of your Chiswick home. It reminds me so much of the garden at our friend’s Chiswick home that I was moved to write. Seeing that garden brought back so many wonderful memories. That area always seemed like such a lovely place to live. I wish you and your family many happy memories there.

Reader comment: I LOVE your decision to do nothing about your mother’s home and belongings. She spent a lifetime collecting treasured possessions, so they should not be disposed of in a hurry. I’m glad you have the luxury of time to figure it out (and to keep a lovely London “bolthole” if you should need it) while you attend to your father.

Thank you for making all of your readers a part of your extended family through your honest writing and sharing your family with us. I think we all feel like we have a stake in your collective success as you simultaneously reveal the perils of what our government is inflicting on us all. Best of all, you help us to figure out what to do about it for our own financial security and peace of mind. Bless you as you go to be with your dad now.

Others weigh in on the state of the financial system… and their experiences with precious metals…

Reader comment: With no anchors like gold, silver, or platinum to hold or contain its value, the dollar has been adrift for over 30 years. NOTHING has any value except what someone will pay for it. Time is up and the financial system you hope for will never return no matter how long you wait. And whatever does return will be so mutated it won’t even resemble anything you’ve ever seen. Humanity is on a crash course to oblivion where there is no right or wrong, it’s all about individual (freedom).

Reader comment: Longtime reader of your Postcards. Years and years ago I started buying silver and gold. On the side, I would bid in live and online auctions for sterling silver. Bought a lot at dirt-cheap prices compared to spot silver today. I am still active, but now it is so hard to find a steal. Sometimes it goes for more than the melt value, but occasionally the blind hog finds an acorn.

Tom’s note: As always, thanks for writing in! Please keep your notes coming at [email protected], and I’ll do my best to answer your questions in our Friday mailbag editions.