A friend of mine forwarded me a sobering article this week called “$1 Million Doesn’t Cut It for Retirement” by Joe Mont. I would urge you to go out and read it this weekend but the basis of the article is this: Conventional thought for the last decade or so was that you need $1 million to retire comfortably, the new perspective is that you will need double that amount.
Does that notion melt your mind?! DOUBLE!
I think a lot of times we don’t fully grasp how much 1 million is. So to put it in perspective, if you had $1,000,000 today in a savings account earning 2% you could spend $1000 every day for the next two and a half years or you could spend $10,000 a month for more than 14 years before you ran out of money. That’s a lot of money!
But according to the article “…Seniors are the only generation that may come close to needing only $1 million. Forty-four percent of advisers said $500,000 to $1.5 million is sufficient for average families in that age bracket.”
So how much do you need? Well there is this little factor called inflation that you have to take into account. Inflation is the depreciation of your purchasing power over time. For example, if a pen costs $1 today and next year that same pen costs $1.03 then there was 3% inflation over the year. The average inflation rate over the last 100 years has been about 3%.
So how much do you need? Well the answer is… it depends. Because of inflation the younger you are the more you will need. Joe Mont’s article suggests that Generation Y (ages 18 to 26) needs to save at least $2 million to $3 million and Generation X (ages 27 to 42) should save at least $2 million.
What can you do to reach the goal and have enough for retirement? Well, no matter how much time you have whether it is 2 years or 20 years it is never too late to start saving. As little as $100 per month will help you reach your goal. If you saved just $100 per month for the next 20 years and earned an average of 8% on your investment your balance would end up at a little less than $100,000. There is a start!