Why Some Millionaires Don’t Even Have Enough For Retirement

December 30th, 2007 • Related • Filed Under • by admin

Most people retire with less than a year’s worth of income in their savings accounts and investments. They never get around to planning for their later years, spend all that they make and think nothing of it until age 65 comes around. Senior citizens have to try to make due on their meager Social Security checks or work a part-time job during retirement to make a living. What if instead of not doing much for retirement planning, you instead saved diligently and have all sorts of money in your savings and investments? Would you be okay? What if I told you that even having one-million dollars in savings and investments might not be enough to pay for your retirement?

One million dollars seems like it’ll be a lot of money to retire on, but a million dollars simply does not buy what it used to, and when it comes time for you to retire a few decades down the road, it’ll be worth even less. This money has to last you for the rest of your life, which could easily be 25 years after you say goodbye to work for the last time. The typical life expentency for someone in the United States is around 70 to 75 years, but that statistic factors in individuals who died when they were very young. If you make it to 65, you have a very high likelihood of making it to age 85 or 90.

When it comes to planning for retirement, you have to expect that you’re going to live quite a while after you retire, potentially 25 years. You don’t want to underplan and then find yourself being 85, have no means to provide yourself an income and be flat-broke. For someone in their thirties and forties in the middle of their working lives, one million dollars simply will not be enough to retire on.

Let’s look at some numbers. The median family income in the United States is approximately $40,000 a year and most financial planners recommend that you only spend 4% of your nest-egg each year, so with the value of today’s dollar, you would need exactly $1,000,000 to retire on. Unfortunately, you’re not retiring today, so you’re going to need a lot more than that. If you’re 35 right now and plan on retiring in 30 years, you’ll need a lot more like $3.25 million to retire on to live the same type of lifestyle someone retiring with $1,000,000 would today.

This assumes that your living expenses don’t increase as you age. Most people think that their living expenses will decrease as they retire, but sometimes medical issues and additional lesiure activities such as vacations actually cause seniors to spend more than they when they were in their working lives, so potentially you could need even more than just the 25 times your income that most financial planners recommend.

The moral of the story is that you have to be very serious about planning for retirement. To live well in your golden years is not an inexpensive proposition. You need to be intentional about saving and investing so that you have plenty of money to retire on when the time comes.