I remember having a conversation with some colleagues about how much money we'd need to win in order to be able to give up our day job. One colleague said that a million pounds (equivalent to c. $2 million) would not be sufficient to enable him to retire. I was surprised. Have we really got to the stage where a million pounds or two million US dollars is not enough to retire on?

On reflection, I think the answer probably depends on your circumstances (including age and number of dependents) and also on your attitude to money and spending. If you don't yet own your own house, then a fairly big portion of your lump sum may need to go towards a house purchase. Similarly, if you currently own a two bedroom apartment but feel that you would need to upgrade to a four bedroom house. There are also, of course, people who have expensive lifestyles; who like to go skiing in the Alps during the winter

and holiday on the Med in the summer. A million pounds will not last so long if you have a playboy lifestyle than if you're the type of personal who prefers camping holidays in your home country.

Assuming, though, that you already own a house (and are happy to stay in it), then I think a million pounds should be enough to live on. After all, you would get a yearly return of 40,000 ($80,000) if you invested it in a savings account earning 4% Net and just took the interest as your yearly income. Many households survive on significantly less than that, and with some prudent budgeting and sensible spending then 40,000 should enable the average household to enjoy a comfortable standard of living. (Note: In reality, you would probably want to have your capital spread across a range of investment instruments rather than putting it all into one savings account. However, for the purposes of this article, let's assume that the total return on your capital averages 4% per year)

Of course, one caveat that I should stress is the potential impact of inflation. 40,000 is not worth as much today as it was thirty years ago and, similarly, it's unlikely to be worth as much in thirty years time as it is today. Therefore, the age of the person who obtains the windfall may determine just how good that nice seven figure sum will be at providing for their future. If we assumed a constant rate of inflation of 2% over 30 years, for example, your starting sum of 1,000,000 would become worth just 545,484 and your 40,000 yearly income would dwindle to a slightly more miserly 21,819. One million pounds, then, to a fifty year old would be worth a lot more than the same amount would be to a twenty year old.

All this talk is a bit academic, however, given that the vast majority of us will not have a big lottery win and will not inherit such a big sum. However, it is still relevant to consider what capital sum you would need to provide an agreeable regular income. This, after all, is the goal of retirement planning, a big part of which will normally be your pension. If you haven't given any or much thought to retirement yet, then this might be

the moment to do so. It can be worth speaking to a financial adviser to gauge how much any existing pension pot is likely to generate for you and to discuss options to enhance it.

Learn more about this author, Simon Wright.
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