Check out today’s Jonathan Clements’ Getting Going column titled A Cool Million No Longer Buys You a Luxe Retirement. I think most of us already know this. However, it amazes me how many magazines write about becoming a millionaire. I guess it’s because the word “millionaire” still has a nice ring to it. All I can say is that if you are in your 20s, 30s, or 40s and $1 million is your goal for retirement, you’re not going to be happy.
Take a look at the graphic below which shows the future purchasing power of $1,000,000 based on three modest inflation rates.
My point? Don’t make $1 million your goal. Instead, base your goal on what you will need after inflation. For instance, if you think $1 million in today’s dollars would make a nice retirement, but you won’t be retiring for 30 years, you’ll need to adjust your goal for inflation. Using the same inflation rates as the above example, I put together a chart to show you how much you will need to have the equivalent of $1 million in today’s dollars:
Bottom line: if your retirement is 20 years away and your goal is to have $1 million in today’s dollars, you better make $2 million your goal.
The article also talks about the fact that yields on fixed income investments (those that are considered “safe”) are low, which makes it difficult for a portfolio to produce income. There’s ways around this but not without taking on some risk. I’ll address this issue further in a future post.