One million dollars used to be the gold standard when it came to figuring out how much money you would need to never have to work the rest of your life. Now, we all know if you really put your mind to it that you could probably retire on a million dollars, but the real question is whether or not you could maintain the standard of living you have been accustomed to off of your current income. With our society having become more of an outsourced society than a do it yourself society, here’s why 1 million dollars isn’t what it used to be.
- The Slient Killer – Inflation may be the number one item underestimated when it comes to overall retirement planning. Inflation is on the rise, and if it rears its ugly head at the 4% level you better seek shelter to figure out how to make your money last. At a 4% inflation level, 1 million dollars will really be worth $500,000 in twenty years and only $250,000 in forty years. If you work the math backwards, that means millennials will literally be below the poverty line if they only retire with 1 million dollars.
In addition to that sobering fact, less than 5% of companies today often a defined benefit pension plan and most people believe Social Security won’t be a big mainstay of their retirement plan. In fact, for Gen X’ers, full retirement age starts at 67 and I believe within the next 10 years they will raise the full retirement age to 69 or 70 for the millennial generation making it harder to count on Social Security for baseline income.
- You Don’t Know Your Number – I’m surprised at how many people still really don’t know the exact number they will need in retirement to maintain their standard of living. It all starts with knowing how much monthly income you will need or want in today’s dollars. Then, you need to determine when you plan to make work optional, so you can figure out how much that today’s income number is with inflation in the future. You can then back out your fixed income including any pensions, social security, rental income, or other streams of projected fixed income. From this point you can figure out exactly how much you need on your ‘retirement’ debit card to maintain your standard of living in retirement. It’s highly advisable to figure out this number and then every three years make sure you update your plan based upon personal, business, or economic changes.
- We Are Living Longer – In just the past thirty years, the average lifespan of an American is up 4 full years versus the eighties. The average life expectancy for a man is 79 and for a woman its 81. Women…this means you’ll actually need to make sure you save more money for retirement. For married couples, there is a huge newsflash you need to pay attention to with your retirement savings. If both of you live to the age of 65, the second death in your family is projected to happen after the age of 92! This is why 1 million dollars may not be enough money.
- What If You Are Behind? – If you are feeling way behind your retirement savings goals, obviously getting started to save more now and putting your money in the right place to work for you are important steps to take immediately. You should also consider picking up some useful skills, so you can still earn in retirement and begin looking at lower cost areas in the United States as places to live to stretch your retirement savings as far as they can go in the future.
If you want to set up a time to discuss your retirement plan, please go to oXYGen Financial to set up an meeting and we can help you breathe easier® about life.
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