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# The "Millionaire" Cachet

September 22nd, 2008 at 02:57 pm

The biggest problem I had with the book Smart Couples Finish Rich was that it mentions the figure of "a million dollars" throughout the book. In almost any discussion of how much an amount could grow to, the example of how long it would take to reach a million dollars was invariably the calculation that was shown.

This fixation on being a "millionaire" has two problems, in my mind; on the one hand, you might not need a million dollars, and on the other hand, you might need a whole heck of a lot more.

This randomly picked online retirement planner tells me that I need to save 35% of my income between now and age 65, to maintain 60% of my income afterwards (which is low compared to what most sites recommend). A little bit of calculation in Excel shows me that I would have saved \$1,938,438.17 by the day I turn 65... just a little shy of \$2 million. So, for anyone who wants to retire "well", a million may not cut it at all.

On the other hand, saving and investing a couple of million dollars makes a lot of money for banks and investment brokers. My husband and I are closely tracking and actively reducing our household expenses, and hoping to need only about 35% of our income post-retirement. The total figure to save for that, according to Excel? \$664,622.80 - only two-thirds of a million.

So, don't be misled by the idea of being a "millionaire". If you're living the American dream, a million in the bank isn't necessarily going to buy you a retirement with a cottage, golfing every day, and twice-yearly cruises. But by the same token, if your hopes are more modest, you need never be a millionaire to be happy.

### 5 Responses to “The "Millionaire" Cachet”

1. thriftorama Says:

It doesn't cut it. My in-laws saved literally \$1 million on the dot and retired at 55. 10 years later, it's more than half gone and they staring down the barrel of being broke and 75. Everything was more expensive than they planned. especially healthcare and taxes.

2. merch Says:

The ballmark number I hear bantered around is take your salary that you want to live on and multiply by 25. So with 5 million you could comfortably live off of 200k a year and it would keep up with inflation. But the trick is defining that number.

Personally, I would start with your current salary and multiply by 25. This should give you a good rough of the envelope number.

3. Broken Arrow Says:

I agree with you. The term "millionaire" can be misleading.

4. disneysteve Says:

We've had that discussion before and you are absolutely right. A million may or may not be enough. I earn over \$100,000/year. One million dollars isn't nearly enough for me to retire on. On the other hand, for someone earning \$50,000, it might be fine. My mom is 78 and living just fine on a nest egg way, way under \$1 million. There are far too many variables to come up with one number that would be meaningful to everyone.

merch is correct. Take the income you anticipate needing in retirement and multiply by 25. That's how much you need to retire. That allows for a 4% annual withdrawal, adjusted annually for inflation, and minimizes the chances of outliving your money.

5. thriftorama Says:

I think my in-laws made some big mistakes, which is why their million isn't enough. First, they moved from a low cost state to a state with very high real estate taxes, and they had to pay out of pocket for health insurance. They have both had cancer multiple times, so the insurance is eating away at the money.

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