I have never been a big fan of “How To Save a Million” articles. They all too often drip of the smug empathy you would expect from modern financial experts; plenty of hope, but very little reality.
Why they stop at $1 million baffles me, as it’s not nearly enough money to retire, especially when we factor in healthcare costs. In truth, you need closer to three times that amount to get anywhere close to a decent golden year lifestyle, and that’s assuming a whole lot of other things fall in line. One million bucks should thus be a short-term goal of about ten years, as opposed to some career-spanning objective.
Let’s use that first million in a decade with the Bankrate calculator, which generates a pre-tax number. If you were to start with $20,000 and put in $500 per month, you would have 125k after ten years, assuming an average return of 7 percent and inflation of 2.9 percent.
That’s not good enough.
Suppose we double it. Now you’re putting in $1,000 during every 30-day block, and still only reaching 20 percent of your goal after a decade.
So how much do you REALLY need? About $5,700 in total contributions, PER MONTH. That’s the reality, folks. And here we’re assuming no drastic market collapse, along with careful investing to avoid tax penalties.
To be fair, we are not factoring in an employer 401k with matching, but those are not always available, and you still are limited by the $20k or so cap.
The takeaway is this: you either need to save much more money, get a pension, or find somewhere extraordinarily cheap to retire.
One million dollars won’t cut it.