$1 Million Not Enough for Retirement

Yahoo has come to the realization that $1 million is not enough for retirement. They cite a survey of investment advisors that recommend the amounts people of various ages will need to retire. The results:

Generation Y (ages 18 to 26) needs to save at least $2 million, according to 77% of advisers. Forty percent put the figure at $3 million.

Nearly half of advisers (46%) said Generation X (ages 27 to 42) should at least double the $1 million goal. Twenty-two percent suggested more than $3 million.

For Boomers (ages 43 to 64), 35% recommended $2 million to $3 million. Thirty percent suggested $1.5 million to $2 million.

According to Scottrade's analysis, 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.

It all boils down to the sort of lifestyle you want to lead, doesn't it? If you can live on half of what you do now, you don't need to save enough to replace your current salary. Then again, I don't think most people are on track to save enough to replace their current salary -- not even close.

With that qualification out of the way, it looks like $2 million to $3 million is the "rule-of-thumb" amount, though, as we know, personal finance is personal and everyone's specific needs/requirements will be different.

We're saving to reach a number closer to $3 million. How about you?

Comments

[MikeS]

In today's dollars, I'm shooting for about $3M. That turns into about $7M at 65 for me.

[StephenS]

$3M has been my number for a while now, at 25 years old.

[Rod Ferguson]

$4.2 million, but I need to re-run those numbers to factor real inflation and overhead reductions for the next 5 year period.

I shot high (aggressive inflation, high overhead, low revenue during retirement, etc) knowing that I'd revise them down the closer I get to retirement by using real numbers as they occur instead of long term estimates. Better to save too much (or retire early) than to lowball and have to retire later (or lower my standard of living to a level I may not like).

[Jeff]

I'm 31 and targeting $3.5M.

[Traciatim]

If I wanted to have 50K in today's dollare I'll probably need about 140K when I'm 65 or so. At a 4% withdrawal rate that's 3.5M. Though I'm in Canada so I would have both the Canada Pension Plan, and Old Age Security available which should provide about 40K of that 140K, so I probably only need to shoot for 2.5 million.

Those really broad targets seem to be consistant with what's being described above.

[Matt]

When a person says "when it comes to gardening I am all thumbs" it usually means bad at gardening. I look at rules of thumbs the same way, rules of thumb are bad for planning. If you can save three million great. I bet most can't. I am 48 and I am doing the best I can with what I have. Will I reach a million? who knows. But right now I am more than theoretically debt free excluding my 401k. If I were to sell certian assets I would have no debt and still have plenty to still tap into. I still have quite a few years to save and will do just fine.I think that is a bigger goal is to go into retirement with zero debt and have a good nest egg of multiple assets to back you up.

[Delphine]

I'm 27 and I save about 15% of my income. I'll have about 2.7m if my retirement account were to grow at 7% a year and I don't get a raise ever, for the rest of my life.

I also have a pension that'll pay 85% of my last year's pay and give my spouse 80% of my retirement benefits if I were to die.

My fiance, on the other hand, hasn't been able to save much at all. He's 30 and he only has 12k in his retirement account. He's not a big spender but he had to pay for his college out of pocket when I had parents that paid the bill.

I'm essentially saving for two people.

He's currently unemployed but I expect him to start saving his fair share once he finds a job again, then I can shift 7% of my savings towards college funds for our non-existing kids.

[wanzman]

I am becoming less and less confident in the stock market's ability to grow in my favor over the next 40 years. There are just too many negative factors....the companies really don't seem to be making smart decisions to maximize shareholder wealth these days.

My initial retirement plans were geared towards some very large number of stock holdings that I would need to retire.

Now I am becoming more focused on purchasing more tangible assets that I have 100% control over, such as rental properties. If I can just break even with them now, once I get them paid off, I could easily retire and live off the income.

I just feel more secure knowing that I am controlling my future, at least as much as possible. I do not feel like the managers and board members in corporate America have my best interests at heart, and therefore will not provide good returns to me (with some exceptions).

I was reading a story today about how an outgoing CEO was paid like $12.5MM after he almost destroyed a very large bank (was it Citi?). This had nothing to do with a contract that was in place either.....its hard to convince me that this system will continue to grow my money for me so that I can retire.

[Patrick]

I'm shooting for $5M by age 58, which should cover my current expenses adjusted for inflation plus a 40% tax rate. Unfortunately, I have to expect $0 from Social Security. I figure 36 years in the workforce is long enough. A lot of stars have to align to get me there, but I try to be optimistic.

[Funny about Money]

oh puhleeze! How are they expecting people will live? If your house is paid for, it's not a costly-to-maintain McMansion, your hobbies are not extravagantly expensive, and you've provided yourself with long-term care insurance, a fraction of that will support you comfortably.

Consider the source! Investment advisers have an interest in getting people to invest lots & lots of money. For a different point of view, take a look at Fred Brock's "Retire on Less than You Think."

[SJ]

Wow. Some impressive standards of living around here.

My parents are 64 and retiring next year and, according to this, 65% of advisors say they need at least 1.5 million, which they are no where near.

They plan to draw 4% of their $600K each year and add that $2K/month to their $3k/month SS. $5K/month, post-house payments & kids, seems like a pretty good retirement income to me.

[KH]

I'm 48 & shooting for being worth 2 million by the time I retire, in mostly cash & stocks. Who knows if I'll make it?

But I'll get about 40K/yr in pension+SS on top of that, I'm currently debt free except for a small mortgage that will be done in 4 years, and I can live frugally if need be, so I figure I'll be OK no matter what...

[Paul Williams]

I'm in Generation Y (barely) looking to "retire" (I'll probably still work a lot) in 44 years on $30,000 a year. My number is about $3.1 million (but that'd only be about $690,000 in today's dollars).

[BibleDebt]

My goal is to save as much as I can while cutting my lifestyle back and staying out of debt. There is no reason, that I see, that I will need more than $1.5 Million when I retire in the 2040's.

[VT]

I agree with funny ... consider the source.

[Old Limey]

For those of you in your early thirties you should not underestimate the effects of inflation. I remember the Jimmy Carter years very well when interest rates were up to 18% and my wife was complaining that supermarket prices were going up every week.

Fortunately most of you have already finished your education but your children's education costs are climbing at a very rapid rate and the cost of a good university education for several children will be something to be reckoned with.

Food shouldn't be too bad because America is a big food producer and also we import a lot of fruits and vegetables from lower cost countries in Mexico & Central & South America.

Real estate has been one of the commodities most affected by inflation during my lifetime.
I bought a new home in 1963 for $27K, sold it in 1977 for $90K and bought another for $107K which now appraises for $1.1M, admittedly in California in the heart of Silicon Valley where prices have been high ever since the economy changed from fruit growing to electronics in the 60's.

Gasoline has also increased more than most things and is also headed a lot higher in the future as we hit "Peak Oil production" in the world. In 1960 I was paying 29c/gallon, even as low as 19c/gallon when there was a gas war between competing oil companies. Hopefully this will be offset somewhat by higher mileage per gallon standards and the use of more electric and hybrid vehicles. The same goes for home utility costs being offset by green energy production such as solar power and wind power.

The other item of course that is of big concern these days is healthcare where the costs are spiraling out of control. The unanswered question is whether medicare can stay viable and affordable well into the future.

Bottom line - I think the estimates in this article are very realistic indeed and with the estimates that the unemployment rate will be high for quite a few more years and may never get back to 5%, the stockmarket's future performance is problematic. Thus rental properties are well worth considering. I don't know what it would take to have another great decade like the 90's but that decade was helped by the greatest technological and productivity innovation of the last 100 years - the worldwide web - the Internet.

[Ryan@TheFinancialStudent]

3-5 million.

However, I plan on being financially independent from an actual job way before I turn 65. My dream/goal is to work for myself and never have to "retire".

Anyone think it's possible for someone to "retire" at the age of 40-50 if they are 18 right now? Doable? Stretch?

I don't want my 18 year old naivety to cloud my thinking process.

[Squirrelers]

These are realistic figures, in my opinion. While many posting here get this, sadly most Americans probably aren't anywhere near on track to getting where they need to be.

With pensions being far less prevalent than they were in the past, Gen X, Gen Y, and younger boomers are going to be relying on what they have directly saved in their tax-deferred AND taxable accounts. I suspect that spending patterns for most haven't adjusted to this reality.

For these folks: live within your means, save a significant percentage of your income, keep healthy, actively manage your career, and plan for life events.

[Brandon]

It seems that it was only a few years ago when I was targeting for 1M as my retirement goal. Then a few years back I had to revise it to 2M. And now this? Looks like I would have to re-compute my retirement targets.

[jim]

$1.8M in 14 years at the age of 59, college accrued for the kids, mortgage paid off.

With any luck, I'll still be driving the same car.

[MasterPo]

Don't worry. Uncle Obama will take care of all of us.

Have faith.

[Tuan]

I'm targeting age 55. Now if that can be put into a $ then cool, but for now a long term goal (nothing is more literal than your age when it comes to long-term)works for me.

[mysticaltyger]

Now, don't get me wrong, I save regularly. But I seriously wonder if the US will actually tackle its economic problems or allow itself to be overwhelmed by debt. Quite a few other countries in the world are in the same boat (the UK, Greece, Itay, Japan, to name a few). Am I the only one who wonders if all this saving will matter? Like I said, I still save, but I am much less obsessive about it than I used to be for this reason.

[Hank]

For Generation Y, $2 or even $3 million may not be enough. If inflation is 3% per year, money will double every 24 years (Rule of 72), and an 18 year-old has 47 years until age 65. It will double twice. The real number for that age group maybe closer to $4 million to reach the lifestyle of today's $1 million nest egg. Ouch! Inflation sucks!

[Easychange]

These calculations are pure speculation. Saving is important but inflation could be 15% a la Carter or it could be 1.5% or 2% like right now. Similarly, people used to plan fir a ten percent yearly growth in the stock market. Now it looks like 6% is really optimistic. No one knows for sure. I think it comes down to the golden rule: he who has the gold rules.

If you save, you have no guarantees, but you are usually in a better position than 50% or more people who didn't. Just don't ignore the idea of having some assets that are not cash or reported on like jewelry? I like the rental idea but I worry about real estate taxes in these poor townships....

[FMF]

mysticaltyger --

I wonder about that as well...

[First Step]

As Matt posted, rules of thumb aren't accurate for everyone. Clearly many retirees live on their Social Security checks because that's all they've got.

In the 80's, my grandfather had about $100K in CDs, and he always had extra money each month. I don't know how much his Social Security payment was, but he only had a small retirement payment from the state. SS, state retirement and interest were his only sources of income.

My parents both worked for over 50 years and didn't do a good job of saving on their own. My mom only had a retirement plan at work for about the last 10 years that she worked, and my dad never had one. They did manage to save some money, and my dad has a little over $200K, not including the value of the house. Some of the money was inherited from my grandfather, $20k was a recent inheritance from a friend that my dad helped on a daily basis, and $60K is from a life insurance policy.

If my mom hadn't been a complusive spender, my dad would be in even better shape; however, there is still a mortgage of about $60K on the house, and over $30K in debt was repaid when Mom passed away last summer. Now my dad's expenses are pretty low.

Because his assets are under $300K, my dad doesn't have to pay property tax on the house (since 2001, saving over $27K). Because he was a volunteer firefighter, his vehicle is exempt from property tax. His monthly income is about $1800, and that more than covers his expenses. His Social Security payment is less than $1100, after Medicare premiums are deducted. He is currently taking $300 from savings each month to accelerate payments on the mortgage, and it will be paid off by 2019.

My dad is 74, and we're basing financial decisions on him living to 95, since that's how long his mom lived. He has a long term care policy that will help offset home care or assisted living/nursing home costs for up to three years or a certain dollar amount.

Would it be better if he had more money? It would give me more peace of mind, but he's fairly happy, other than missing my mom. He doesn't like to travel, and his hobby is volunteering at the fire department, which is free, other than the gas to drive there.

If you don't have a lot of debt or expensive tastes, and you're in relatively good health, you can live on a lot less than you think.

[J in FL]

3-4MM when we retire (which will probably be more like 7-9MM at that point). I would be fine with that. I think we could live frugally and that amount would be more than comfortable.

[billyjobob]

I disagree that everyone will need this much. I don't plan on having that much when I quit work. I don't have any dept, and I live in an area that seems to have a much lower cost of living than other areas in the U.S. I only make about 55k a year. and I have been living off of about 22k a year. So I can't imagine that after retirement I would need those kind of numbers that they project.

[Money Reasons]

Hmmm, I think I will have to re-evaluate my goal of 1.8 million! I think my number might be a bit low.

I'm terrified by the prospects of inflation! Eventually, we'll have to pay the piper for all of the excessive print of money that our government has been doing. Not to mention the cost of Healthcare...

[Traciatim]

Billyjobob, keep in mind that if you can live off of 22K today, in 30 years that will be about 53K in equivalent dollars. At a 4% withdrawal rate that is 1.32 Million. Since you admit you live in a low cost area, I would be willing to bet a vast majority of the population has a cost of living higher than yours for near the same living conditions. That puts the target of 2 million for a good portion if the 30-40 year old crowd a pretty reasonable target to shoot for.

Of course not everyone needs to do that, but it's a good target for a huge majority of the population.

[MattJ]

I'm 35. With realistic-pessimistic estimates for inflation, salary growth, savings rate, and investment gains, I show about 2.5 million saved by age 58. (a guess at when I might retire, or when my current savings might open up that possibility) That savings number doesn't include the value of my home, which will be paid off well before then. It also doesn't include my plans to invest in land, or any other non-retirement savings vehicle, mostly because (as non-retirement funds) I may cash that money out for other things, although a good chunk of those investments are not currently allocated towards any particular goal, and might well still be there when I retire.

If something doesn't pan out, I can keep working past 58, or if I see obvious trouble coming before then, invest more to reach my goals. Looking this far into the future (and I'm not really looking that far) is a crap shoot anyway, isn't it?

My future plans don't really take in the probability that I will eventually marry someone who will have her own financial situation to merge with mine, or that I could be required to move across country by my job and face a situation where I have to sell my house and re-purchase in a costlier area, the economy could sink even further, etc...

You prepare as best you can, and then square off against life's problems. I'm lucky that my problems are too petty to mention. Money certainly isn't one of them, and it hasn't been since I was an undergraduate in college. I don't anticipate that it ever will be again, but life can surprise us.

[Old Limey]

As I see the situation from the perspective of having been retired since 1992, the biggest change that has taken place is that most employers no longer provide pensions. That took place in my company shortly after I retired.

I worked for my last employer for 32 years and was able to retire with a fixed pension equivalent to 40% of my pay. My wife worked 16 years for the school district in a 6 hour/day job and receives a pension that has increased every year and is now about 85% of her former pay. I had a 401K with an 8% company match and my wife also had a similar plan without a match. The other benefit is that we are both on my former employer's group health plan, and now with medicare, our healthcare premium is only $222/month for both of us at the best and most modern clinic in the Bay Area.

When you combine our two pensions and two social security checks (which are pegged to the cost of living) we find that, with no debt to service, we have still been saving money for the last 18 years while also enjoying a high quality of life with between 1 and 3 vacations/year, mostly overseas.

The amount of money that we have withdrawn from our investment portfolio since 1992 is less than 7% of its current value and much of that withdrawal has gone to home improvements and paying taxes due on the large mandatory withdrawals from our IRAs that started after we turned 70. Our investments have also grown at an annualized rate of 18.84%/year since our 1992 retirement, largely due to the DOT.COM stockmarket bubble that I rode up to the top on March 9th. 2000 and then jumped out completely by March 14th 2000. The result being, in hindsight, that we totally overdid our saving; but since nobody has a crystal ball you are forced to plan for the Worst and hope for the Best - which is what we did.

[bhleigh]

when I started my career with the gov't, my father sat me down and we figured out a retirement portrait. basically, it was if I saved X in my TSP account, i would get Y in my retirement fund after 30 years. My number was $2.7 million and then add in my 39% pension, so my retirement is looking pretty good for me. Also, for people of gen X & Y, he said forget about Social Security...it'll be broke by the time we are able to withdraw.

[billyjobob]

@Traciatim. Yes you are correct if I retire in 30 years I would need that much. But... If I retire today. Lets say infaltion is at 3.5 % And my investments earn 4% How much would I need for a 30 year retirement? Taking out 22k per year ( also adjusted gor inflation). I would need $615,990 today.

Check out the calculator here:http://www.mycalculators.com/ca/retcalc3m.html

[Old Limey]

@bhleigh
Hi Brian, I'm also a Brian.
You are in good shape for retirement. A friend of mine worked for our city government, became director of public works and retired with a 100% pension. Government agencies are good places to be these days. Another similarity, my son got deeply into debt and took the bankruptcy solution. His passion was fast women, fast boats, fast cars, and sky diving but now he is married and living a quiet lifestyle and is his company's top salesman and at 46 is well on track for a nice retirement.

[ACS]

Wow everyone has much higher numbers than me, I am worried! I am 34, DH is 38, no kids. We have 1MM in retirement and investment accounts, plus about 100K just sitting in our MMK accounts (we have yet to decide where to put it and want to do more research). We have recently pulled the plug and retired early. But now I am wondering if we should go back to work and sock away some more before we start living off it. Our expenses are just under 40K/yr without the mortgage (which will be paid off this year). Were we unrealistic when we pulled the plug?

[Old Limey]

@ACS
Without knowing a lot about what you both want to do with the rest of your life it's impossible to give a sensible opinion. When I was 38 I was less than half way through a career that I would not have wanted to miss. I enjoyed a challenging job as an aerospace engineer so much that I used to look forward to going to work every day and feeling a great sense of achievement from the projects that I helped bring to fruition. By that age I also had 5 weeks of vacation every year and that was more than enough to enjoy adventures in many exciting places in the world. I would have been bored out of my mind if I didn't have a creative and satisfying occupation - my wife felt the same way that I did and as a teacher she also loved her work. We retired when I was 58, which in retrospect was just right, and so far have enjoyed 18 wonderful years of retirement and look forward to many more. You only get to go around once so make sure that you make the best use of it rather than not coming back out onto the field after half time.

[ACS]

@Old Limey
Thanks for your response. Our careers (both in back office software engineering), while lucrative, were not very satisfying. We plan to spend some time each year traveling, but our previous jobs gave us just 2 weeks plus holidays (nothing close to five weeks, that must've been wonderful!) DH thinks we are okay to retire and doesn't seem to want to go back to any kind of work if it can be avoided. I have been kind of on the fence as am not so sure we have enough saved, and I also worry about boredom and monotony. It sounds like it is time to explore other career paths and/or volunteer opportunities that might bring the same level of life satisfaction you seem to have experienced. Thanks, and enjoy your retirement!

[Old Limey]

@ACS
Coincidentally I spent the majority of my aerospace career generating software, finally heading up small software teams that developed software on R&D projects that were funded by the government. The last couple of projects were geared to having large supercomputers do in a few days what previously took many engineers from different engineering disciplines many weeks, if not months to do. This was extremely rewarding, helped with raises, and was very satisfying particularly when it was instrumental in a new anti-missile project that is now fully deployed. After I retired, for two years I used my computer expertise to design, develop, and market a financial software package that turned out quite lucrative - unfortunately it ran on MS-DOS and since I didn't want to spend the time, at home on my own, learning a new much more sophisticated programming language it is now almost obsolete. Soon after the end of the Cold War, defense projects started drying up and my company offered a generous golden handshake to retire, which I gladly accepted because I was going to retire in 6 months anyway.
I started with only 2 weeks vacation but my company added another week after 5 years of service, maxing out at 5 weeks. You need 5 weeks for difficult trips to places like China, Africa, and Indonesia plus you also have to do them when you are still young and very active.

[ACS]

@Old Limey
Wow, your work experience sounds a lot more fulfilling than mine. If you've ever seen the movie "Office Space" with the cubicles and TPS reports, that's a little closer to the kind of software engineering I've done! :) My husband and I have done some traveling in the US and Caribbean (I wrote the guest post on Apr. 16 on cruising), but I think our sailing adventure is winding down and we hope to sell the boat in the near future and use some of the proceeds for a couple of 3-month trips to Asia and Europe. In a few years we will probably settle into more of a semi-retirement, where hopefully we'll each find a line of work that might be a little more fulfilling/enriching, but generate enough income so that we don't draw down our retirement funds prematurely. Cheers!

[mr. things-are-way-too-expensive.]

one commenter said that $5k per month sounded like a pretty good retirement income to him; he should think about the fact that assisted living (which you may be in for 5-10 years if you live long enough) currently costs about $5k per month, and it doesn't include medical bills, medicine, eating out, clothes, hobbies, etc.