When contemplating your future nest egg it seems a million dollars just isn’t enough anymore. Doug Short, the author of an article called, The Millionaire Delusion, notes that in 1999 the Consumer Price Index (CPI) averaged 166.6. In December 2006 the Consumer Price Index averaged 201.8. That means today, $1,000,000 has the purchasing power of only $825,570, or $174,430 less than seven years ago.
Short points out that individuals are duped into the millionaire delusion, the idea that a million dollars will be enough to retire on 20 – 30 years from now. He notes that these delusions are furthered by shows like Who Wants to Be a Millionaire? Over the last twenty years inflation has averaged roughly 3%, over the last half-century roughly 4%. Short provides some interesting tables comparing future inflation rates at 3, 3 .5 & 4%. Ultimately suggesting that you’ll need at least $2 to $2.6 million if you plan to retire 25 years from now.
Check out the article. For those of you bound to retire over 25 years from now… it’s a short but worthy read that reminds us of the need to continue saving.
Ed says
I used to think a million was my goal. I am 39 in about a week. I am now shooting for at least 2.5 million. I hope to retire or drop to part time by 59ish. So that gives me 20 years to hit that mark. Hope I can do it.
The thing that really sums it up for me is that $100 was a lot of money growing up. You could buy a lot of things for $100, it would take a while to save that much, etc. But now $1000.00 is the new $100. Similar to a College degree is the new High School degree.
bluntmoney says
Hm, I’ve got $300,000 as my initial goal, which seems very low even compared to a million. But, small steps… And lifestyle considerations have to be taken into account too.
Liz says
I don’t understand why anyone needs more than a million. I’m 34, and already financially independent. With $600k in a CD ladder, I earn about $24k a year, only spend $18k, and re-invest the other $6k. The house is paid off, and we have no other debt.
If you don’t need all the latest gadgets and gizmos, you can definitely retire on less, much earlier than you’d think. You’ve just got to re-evaluate your standards. 🙂
One Frugal Girl says
If your house is paid off you can definitely retire with much less money. Rent/Mortgage payments are supposed to account for 30+% of your overall monthly income. In my mind that’s 30+% less money you need once your homes are paid off. That’s why we’re aiming to pay off our mortgage in 15 years instead of 30.
Ed says
So Liz, how did you get to have the $600k? Frugal lady, super income then super saver? It does sound like a good gig, but what happens when interest rates fall again on the CD’s? I guess that would be my biggest fear.
Anonymous says
liz,
At 3% Inflation.. your’e 18,000 a year will reach 52,000 a year by the time you’re 70. Unless you expect some major interest rate hike – i’m not sure that you’ve got enough..
But you sound successful and intelligent – I’m sure you have strategies to deal with this..