I was perplexed when I read that one needs $12 million in savings to feel rich. No way, I thought, but I read on… $300,000 in annual income living in New York City, a $3,800 per month apartment, taxes, inflation and retiring at 35 until the age of 100 assuming 2.5% inflation and 5% return on investment.
Whew. I was relieved after I was done with the article. Good thing the author doesn’t live on a place we like to call Earth.
In Our World…
If you also read this piece and felt a little short on the wealth department, don’t worry, because things aren’t so bad. First of all, I have never heard of anyone with more than a few million stashed in pretax retirement accounts without anything in post tax savings. Let’s say your goal is really $300,000 of pretax income a year. No problem, your goal is more like $175,000 if most of the money you need to withdraw are already taxed.
Second of all, do you know of anyone who actually still rents an apartment but has multimillion dollars in the bank AND who wants to retire at 35? I don’t. If that person owns an condo outright, that’s $45,000 gone more of less. Now we can cut that yearly income to $135,000.
Third of all, retiring at 35 might sound great, but do you believe you have something to occupy your time for a full 65 years of retirement (by the way, that’s roughly 24,000 days)? A good many of you are already past 35, so let’s cut that by 10 years and you already need a much smaller nest egg. Oh and just in case you didn’t know, retiring at 45 is still VERY young.
Fourth of all, this is New York City. It may be a great place to live when you are in your 30s, 40s, and maybe even up to age 69, but I bet many older folks would like a quieter life in the 70s and beyond. Pick another city and we are talking about a much smaller income requirement because of a lower standard of living.
Now, the final income number for you may still require a sizable nest egg, but can you imagine spending $11,250 per month every 30 days until you are 70? It would actually be fun for a while, but by the 24th month, I bet you’ll be tired of buying anything. And if you just leave some money left every month? Well, down goes the savings necessary.
These humongous retirement numbers may catch our attention, but they rarely speak the truth about reality. Plus, chasing a number is a never ending game, because there’s always a higher number to go after. If you want to feel rich, the more appropriate approach is to just make sure money is out of your way, out of your life decisions, and out of the list of things that you worry about.
Most people think having more money achieves that, but that’s just not true. Spending less, or relying more on activities that doesn’t cost a dime will get you there much faster. And if you end up finding a passion that actually makes you money AND makes you happy. Kudos to you.
There are many ways to feel rich, and having $12 million may not even be one of them.
- E*Trade IRA - Official Site