Living off €500,000 or €1 million: how much can you really withdraw?

The short answer

With a sustainable withdrawal rate of 3.5% to 4% a year, an invested portfolio lets you withdraw, before tax:

The withdrawal rises with inflation each year, so your purchasing power stays constant. But taxes come off these figures, and a couple of considerations change the result quite a lot.

Why not just "live off the coupons"

Many people imagine living off their capital by keeping it intact and spending only interest and dividends. The problem is inflation: a fixed €30,000 coupon today buys, after twenty years of 2% inflation, what €20,000 buys now. To protect yourself, part of the return has to be reinvested, and what's left to spend is far less than it looks.

The approach most used in planning is different: you look at the portfolio's total return and withdraw a sustainable percentage, selling units when needed. That's where the 4% rule and its more cautious variants come from.

What to subtract: taxes and stamp duty

• Tax on gains: when you sell, you pay 26% only on the part that is profit (12.5% on government bonds). Early on, if you bought recently, the gain share is small and so is the tax; it grows over the years.
• Stamp duty: 0.20% a year on the value of your securities account. On a million, that's €2,000 a year.
• Product costs: on a portfolio that costs 1.5–2% a year, a 4% withdrawal quickly becomes unsustainable. It's one reason fund fees matter even more once you start withdrawing.

Example: you withdraw €35,000 from a million and 30% of what you sell is gain. Tax comes to about €2,700, leaving roughly €32,300 net, under €2,700 a month. It's enough to live well in many parts of Italy, but a long way from the idea of "being rich".

The factor that changes everything: the INPS pension

The tables above assume your portfolio has to support you alone, forever. If you have twenty or more years of contributions, the state pension will arrive at some point, and from then on your portfolio only needs to cover the gap between spending and pension.

In practice, if you stop at 55, the same million can support higher withdrawals in the early years (the "bridge" to your pension) and lower ones afterwards. It's the two-pot method in the guide on early retirement, and it often makes a portfolio that looked too small with the simple calculation perfectly adequate.

How much your starting age matters

• At 65, with your pension close and a 25–30-year horizon, a 4% withdrawal has historically been reasonable.
• At 50, with a horizon of 40 years or more and your pension far off, 3–3.5% leaves more margin.
• At 40, living purely off your investments takes caution, flexibility and often a small income in the early years.

Questions to ask before you stop

1. How much do I really spend in a year, including one-off costs?
2. When will my pension start, and how much will it be net, if I stop contributing now?
3. How much does my portfolio cost each year, in euros?
4. What would I do if markets fell 30% in the first two years?

If you can answer all four with numbers, you already know whether you can live off your investments. If not, that's exactly the work we do together in the retirement and FIRE plan. For a first estimate, pension included, start with the FIRE simulator.