Here's an interesting piece from the NY Times that takes several views on being a millionaire:
They begin with the "a million dollars isn't what it used to be" argument:
In 1953, when “How to Marry a Millionaire” was in movie theaters, $1 million bought the equivalent of $8.7 million today. Now $1 million won’t even buy an average Manhattan apartment or come remotely close to paying the average salary of an N.B.A. basketball player.
I'm not sure comparing something to an apartment cost in New York or what an NBA player makes for a good argument, but I get what they're saying. Imagine the difference today in having $1 million versus having $8.7 million. Big difference, right?
They go on to admit "while it's not the fortune it used to be, it's more than most people have":
Still, $1 million is more money than 9 in 10 American families possess. It may no longer be a symbol of boundless wealth, but as a retirement nest egg, $1 million is relatively big. It may seem like a lot to live on.
A millionaire household lives in elite territory, even if it no longer seems truly rich. Including a home in the calculations, such a family ranks in the top 10.1 percent of all households in the United States, according to Professor Wolff’s estimates. Excluding the value of a home, a net worth of $1 million puts a household in the top 8.1 percent.
The rest of the article notes how $1 million isn't the huge amount it may seem to be when it comes to retirement saving. The summary of their thoughts:
Consider this bleak picture: A typical 65-year-old couple with $1 million in tax-free municipal bonds wants to retire. They plan to withdraw 4 percent of their savings a year — a common, rule-of-thumb drawdown. But under current conditions, if they spend that $40,000 a year, adjusted for inflation, there is a 72 percent probability that they will run through their bond portfolio before they die.
A few thoughts here:
- I think the 4% rule has been de-bunked enough that it's not really reasonable even as a guideline, so I wouldn't put much weight on it. If anything, I think you need to plan to take LESS than 4% out.
- It would be nice to invest in muni-bonds and live off interest during retirement, but you need a whole lot of money to do that. That's why I think most retirees will need to invest in equities (at least to some degree) well into retirement.
- $40k could be supplemented with Social Security and working part-time and get a retiree up to an average income, so it's not the disaster the piece makes it out to be.
The article goes on a bit more, but here's a quote I found especially compelling:
“The bottom line is that people at nearly all levels of the income distribution have undersaved,” Professor Wolff said. “Social Security is going to be a major, and maybe primary, source of income for people, even for some of those close to the top.”
Scary, but true!!!
A couple final thoughts:
- Those who don't save enough will likely have a very poor retirement.
- The best retirement strategy IMO is one where you amass enough assets and then distribute them so that you can live off your savings alone and not spend and principal. This is the retirement plan I'm working on.