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« Can You Say Insurance? | Main | Characteristics of Successful Retirees »
Monday
Aug172009

A Million Dollars?

I remember when I was a child, during the "Golden Era" of television, there was a hit television program called "The Millionaire."  It began its weekly showing in 1955 and continued into 1960.  The premise of the program was that this very rich gentleman, John Beresford Tipton, would choose some deserving person or family and have his representative give them exactly one million dollars; he insisted on remaining anonymous.  This gift would of course change their lives in any number of ways, and that was what the balance of the program would be about.  Some of the recipients would be changed for the better; some for the worse.  In any case they were always changed by such a huge sum of money falling into their laps.  This was before the era of the various lotteries in the United States, so this very seldom happened to anyone.  It was a popular program because those watching the program could fantasize about what they would do if a million dollars suddenly appeared on their balance sheet.  And of course, this fantasy is really what fuels the popularity of all the lotteries today.

When this program began its run 1955, a million dollars represented much more spending power then than it does today.  Assuming an average 3.5% inflation, one would need nearly 7 million dollars today to have the purchasing power of that one million in 1955.  Of course a million dollars is still lot of money, but alas it is not what it used to be.  In fact, though not quite a dime a dozen, millionaires are everywhere in the United States today.  About 9% of all individuals in the US have a net worth of one million dollars.  That works out to be about 3 million individuals.  These are individuals whose assets, minus their primary dwelling and various liabilities, equal or exceed one million dollars.

In that long ago world of the 1960's, if an American couple could amass one million dollars for their retirement, they were set for a retirement on easy street.  They did not have to worry about Social Security, Medicare, property tax increases, or boarding fees for their pets as they traveled the world.  A million dollar nest egg put them firmly in the top one percentile of wealth for all retirees.  Not so today! 

A one million dollar nest egg is still a pretty good start to a satisfactory retirement.  According to numerous financial studies, retirees should be able to withdraw about 4% of their retirement savings per year, and increase that amount by about 3% each succeeding year (to allow their purchasing power to keep up with a 3% inflation rate) without too much worry that they will outlive their savings.  This assumes a 40 year retirement.  Of course no one can foresee the future, and market years like 2008 can reek havoc on retirement savings withdrawal plans.  But assuming that all of those financial studies that produced that 4% withdrawal figure were valid, that means that in year one of retirement, one million dollars would safely produce $40,000.  There are those who could live quite happily on that amount.  They would also live quite frugally in today's United States.  If that couple is lucky enough to also have a pension from an employer, they might be able to live a bit less frugally.  A company sponsored pension is, regrettably, becoming an endangered creature (unless you have one of those government jobs) and many will not be able to count on that.  But there is always Social Security, isn't there?  Yes, there will probably be some type of social security for the retired for the foreseeable future.  It will likely not be as generous as it has been for past retirees, but it is an extremely popular program, and I assume that eventually our elected representatives will "man up," and make the changes required to insure that it survives in some form.  So couple the social security payment with the 4% one withdraws from their million dollar nest egg, and the retirement years begin looking a bit rosier.  If a couple were to have a pension providing $2,000 per month as well as that social security payment kicking in an extra $2,000 along with their million dollar personal savings, retirement begins to look absolutely balmy!  (This is a depiction of the "three-legged stool" for retirement that we all have heard about for years: personal savings, pension, and social security; though a couple of the legs are getting increasingly wobbly.)  Of course the tax man is still going to come around and take his cut, so you really won't be keeping all of that  $88,000.  Nonetheless, that sum can work nicely for many.

The Millionaire has long since gone out of production; you won't even find it in syndication  (but you can find The Andy Griffin Show where Andy, Opie, Barney, and Aunt Bea can still teach you many worthwhile lessons.) It is unlikely that any of us will be the beneficiary of an anonymous rich man who is interested in seeing just what we will do with a million dollars.  It is even less likely that we will hit the Powerball Jackpot and sail off into the sunset.  But many have discovered that with commitment and enthusiasm, they have been able to save enough for a secure retirement.  Most did not reach the supposedly magical level of one million dollars in their retirement accounts, but they saved enough to meet their retirement needs.  Most who accomplished this worked diligently at it; and of course it was difficult at times.  They saved early and often over a lifetime.  They took advantage of the miracle of compound interest.  And the really nice aspect of this is that compound interest is available and works for anyone, given enough time.  They say that the first million is the hardest; I guess that means that it gets easier after that!

 

Fly/Drive Safely

18 August 2009

 

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