In the not-too-distant past, if you had $1 million to your name, you would have been absolutely set for life. These days, a million bucks will still buy you a long-term, modest lifestyle in a low-cost part of the country. In a more expensive locale, even that kind of cash won't last forever.
Of course, it doesn't hurt to be a millionaire. Having that kind of money opens a whole lot of doors. Perhaps most importantly, it can free you up to pursue a career you truly love, rather than accept a job just to pay the bills. After all, if you can put your cash to work for you, you can still follow your passion even if it doesn't come with medical or dental insurance or pay well enough to keep you in your home.
What $1 million buys
While most people get their medical and dental insurance through work, you can buy coverage independently. I recently priced pretty good coverage for a family of four at about $1,050 a month for medical and $90 a month for dental. That's $13,680 per year for a solid insurance plan.
According to the National Association of Realtors, the median family home price recently clocked in at $223,800. Based on data from the National Association of Home Builders, the nationwide average property tax is $9.64 per $1,000 of home value. Combine both those statistics together and the average property tax bill runs around $2,158 per year.
If you were to take your $1 million and buy an average house with it, you'd still have $776,200 remaining. From that, you'd have to come up with $15,838 per year to cover the big expenses of medical and dental insurance and property taxes. That's only around 2% of what you'd have left, so it should be a piece of cake, right?
Don't forget inflation!
There is, of course, a catch. Health insurance costs have been skyrocketing -- rising far faster than average inflation and hourly wages for quite some time. The Kaiser Family Foundation claims that health insurance premiums have risen 87% over the past six years. That's an 11% annualized clip! Any plan you come up with to buy private insurance needs to keep up with that inflation, or else you'll run the risk of seeing even that substantial nest egg evaporate.
Unfortunately, there is no such thing as a guaranteed investment that will assuredly return anywhere near that level, year after year. You can, however, give yourself a decent shot of success in the future, not only with those early payments, but also with the inflated ones down the road. The secret is to buy companies that not only pay decent dividends, but that also raise those dividends, year after year. The cash they give you today can help pay those baseline expenses, while the payment growth over time can help you keep up with those rapidly rising costs. Here are a few that have fit the bill:
|
Company |
Payout Ratio |
Current Yield |
Year-Over-Year |
|---|---|---|---|
|
City National |
37% |
2.7% |
12.2% |
|
Courier |
28% |
2.0% |
50.0% |
|
Erie
Indemnity |
43% |
2.6% |
11.1% |
|
Linear Technologies |
47% |
2.1% |
20.0% |
|
McGrath Rentcorp |
39% |
2.0% |
12.5% |
|
State Auto Financial |
13% |
2.0% |
50.0% |
|
Sysco |
45% |
2.2% |
11.8% |
Each one of these companies has:
- A 10-plus-year history of raising its dividends.
- A payout ratio below 50% of earnings.
- A current yield of at least 2%.
- A year-over-year dividend growth rate of at least 11%.
That's exactly the combination of traits you need to see if you hope to let your $1 million nest egg give you the financial freedom to pursue your dreams.
Get there from here
Of course, if you're like most of us, you haven't quite made it to millionaire status -- yet. What's the secret to reaching the life-changing wealth that will let you pursue your dreams? It's simply a matter of finding and investing a little bit of extra cash every payday and letting the power of compounding interest work its magic. Sure -- it's tough, but over time, you can get there on $20 a day. Once you're there, though, it's worth it, as you'll be freed from the shackles of having to work for the cash or benefits and able to reach for your dreams.
If you need a little help reaching that goal, our Motley Fool Green Light service can help you get there. You'll find new ways to save, as well as specific stock and fund ideas. Take the next 30 days to look around the service, free of charge -- you may uncover the cash you need to help you reach for your stars.
Fool contributor Chuck Saletta wishes his property taxes were anywhere near average. At the time of publication, he owned shares of Sysco. Sysco is a Motley Fool Income Investor pick. The Fool has a disclosure policy.
