You’ll Need a Million Dollars Just to Survive

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“If we are not millionaires by the time we retire, we may struggle to survive.”

— Derek Sall

Have you ever really thought about this? Those of us that are completely ignorant of what the future will bring do not save anything for it. Those of us that are somewhat wise at least put a hundred bucks into a retirement account each month. But, a very small percentage of us start investing early and also seek out the answer to the question, “How much money do I need by the time I retire.” And, even beyond this, “Will my savings rate get me to my desired end goal?”

We are all busy in life, but there is absolutely no excuse for ignoring what will inevitably come in our future.

Inflation WILL Happen

We have all heard of it: inflation, but few of us even consider that it might have a negative impact on our retirement accounts. If you have been ignorant up to this point, please do not ignore its negative effect any longer. Instead, learn of its impact and resolve to beat it and become wealthy anyway!

Before we get too deeply into the topic of inflation, what is it really? According to Parkin and Bade,

“Inflation is an upward movement in the average level of prices. Its opposite is deflation, a downward movement in the average level of prices. The boundary between inflation and deflation is price stability.”

In a world of ever-increasing credit and a frivolous printing of money, the resources needed to buy (although somewhat figmentary) continually outweigh the products available to purchase, which then cause the value of money to decrease. It is not always an easy concept to understand, but just note that inflation happens almost every year. At the average rate of about 3.5%, our money is continually losing its power to buy goods. If it takes $100 to buy a week’s worth of groceries this year, it will cost $103.50 for that same basket of groceries next year. The year following that, the cost will increase another 3% to $107.12. And the cost only rises exponentially from there.

If your grocery bill is $100 today and you expect to buy the same amount of groceries 40 years from now, about how much money do you think you would need? Many of you would guess $160 or $170. Still others might say $250. But, each of these amounts would be too little. In order to buy the exact same items 40 years from now, you would need $395.93!!

effects of inflation chart

The Effects of Inflation on Your Retirement

Now that you have considered the effect on groceries over the next 40 years, think about what else might also increase. Clothing, energy costs, medication, gasoline, vehicles: all of these items will also rise in cost by approximately 400% as well! Pretty much anything you can think of will be about 4 times the cost 40 years from now. So, in order to retire comfortably in your old age, you will need to plan on these larger expenses!

If you were living at home with just you and your spouse, how much money could you comfortably live on? The average answer to this question would be somewhere around $25,000. You can’t do a ton on $25,000, but you could get by and have some fun once in a while. So if you are 40 years from retirement, how much money will you need each year to get by? That’s right, $100,000. So what if you had a million dollars? How long would it last?

If you have $1,000,000 and you withdraw $100,000 a year, your money will only last 12.5 years

So, if you plan on retiring when you are 65 years old, then your million dollars will only last you until you are 72.5! What if you live to be 90? What on earth are you going to do?

This is why I tell everyone that they need to become millionaires at the very least. No longer is millionaire status considered wealthy – it is going to be essential in order for you to live above the poverty level in your retirement years!

Stop sticking your head in the sand and pretending like you have plenty of time to invest in your retirement. If you are over 30 years old, your retirement fund is already a ticking time bomb. Begin investing today!

Will you have a million dollars by the time you retire?

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Money

Derek

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

15 Comments

  1. Yes, I do hope to have at least a million in retirement accounts when we do leave work. I also hope to have an income source from rental properties so we don’t have to worry about outliving our money. Inflation will cause rents to rise as well, so hopefully we have all the bases covered. If you start early, invest smartly, and are consistent, it really isn’t that hard to have a million when you retire. I think the numbers overwhelm people so much they don’t ever start, which guarantees you won’t have that much ever!
    Kim recently posted..My 2nd Grader Asked For A Phone!

    • I hear a lot of people talk about investing in real estate, have you already begun with your RE investments? Or, if not, when do you plan to start?

  2. I’m with Kim on the investment property idea: as long as rents and property values keep pace with inflation, the value of your mortgage will decrease as the value of the rental income will remain the same, so you’ll actually be making more money the longer you keep the property. Of course, you’re not always guaranteed a smooth ride (interest rates can’t stay this low forever and if there’s a crash in the property market it could wipe you out) but I suppose that’s why you need to diversify with multiple income streams.
    Myles Money recently posted..#SmartMoney Roundup | 21st Sept 2014

    • You know the best way to invest in real estate? With cash! That’s my plan anyway. It’s not the road to quick wealth, but it is incredibly risk-averse and will still net you millions of dollars before retirement.

  3. I’m gunning for several million dollars…and my parents still think it won’t be enough! 🙁 Here’s hoping the internet can help me make even more.
    Anne @ Money Propeller recently posted..My Fav Excel Hot Keys

    • I figured out a long time ago that I would need about $5 million dollars if I wanted to spend about $50,000 per year in today’s dollars. But, since then I have discovered that I save up much less if I increase my passive income instead. Either way, we’ll still need to work hard to retire well.

    • Yeah, money in a savings account is not a great idea. In order to keep your purchasing power over the years, you’ll have to earn at least 3.5%! And that’s just to tread water. Save early, invest often, and reap the rewards at a later date.

  4. This is an awesome article and really puts life into perspective. I read that it costs somewhere between 200,000 for parents to raise one child from their birth to graduation.

    • Honestly, I think that’s a little steep. If you are frugal with your children, I’m sure you can raise them on far less. You know, Aldi food, clothes from consignment shops, public schools, making them work to buy their own vehicle…things like that.

  5. I agree that $1 million is the bare minimum. I probably won’t be comfortable until I have closer to twice that or a steady stream of income coming from somewhere else. It’ll be hard to reach that amount of money, but I’m planning now so I’ll have more options in the future.
    Autumn @ The Barefoot Budgeter recently posted..Versatile Blogger Award and Everything You Never Wanted to Know

    • I’m with you Autumn. Honestly, I am focusing more on a passive income from real estate than on a lump sum amount in my 401k, but I am probably the rare breed on this. Thanks for the comment!

    • Definitely shoot for more than a million, especially if you are under the age of 30. If you are 50 or older, then this amount should last you for a while. Whatever you do, just don’t forget about the negative effects of inflation!


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