You Don’t Need $12 Million to Retire

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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.

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{ read the comments below or add one }

  • Alister says:

    The only real flaw I can see in the logic here is “having to” spend $11k. That’s a bit of a weird argument against having an 8 figure requirement fund

  • Hardwork says:

    I have often pondered how much money I need to have saved in order to truly feel rich. I am also aware that as a whole, most Americans do not have enough saved for a comfortable retirement. Our economy is often described as having three basic economic groups: Lower; Middle; and Upper Classes. I also believe that the last time this breakdown was even remotely relevant was some 30-40 years ago.

    As a 13 year old, I caddied at a local Country Club and those that had the “Rodney” bags ( Caddyshack reference ) were the Doctors and Lawyers and a smattering of entrepreneurs such as an owner of 30 McDonald’s franchises and the former founder of Prince Spaghetti. These were the true “Upper” class citizens of my town. They were the only ones that drove Mercedes, Jaguars, and Porches around town and they were generally “known” as being the wealthiest members of my community.

    I was firmly rooted in the “Middle” class with both parents working, my dad was a white collar manager of a Steel Company and my mother was an RN. My dad drove a company car, a Ford Full sized car and my mother drove a VW Rabbit. They worked hard and were able to put three children through both prep school and college without laving us with any debt. They sacrificed a significant portion of potential savings to invest in our education. They were also able to save enough so that they could both retire and live a comfortable lifestyle for the remainder of their lives. While they were several rungs below the “Upper” class; they still belonged to a class of Americana that maintained a very god quality of life.

    The “Lower” class was a group that I was also familiar with and even this class of employees enjoyed many of the same social and extracurricular activities of the “Middle” class. In fact, I would say that there was a higher degree of interaction between “Lower” and “Middle” class employees. I would posit that at or around 1975 would mark the nexus point when the “Middle” class and the “Upper” class truly began to break from the pack and distance itself from the “Middle” class.

    What is the point of all of this ? It was my early interpretation of this Class System in the US that was engrained in me as well as my innate desire to achieve and to aspire to become a member of this “Upper” class – that fueled me throughout my career. I would argue that without this understanding of how the deck was stacked coupled with my unspoken desire to reach this economic class; I would never have reached my goal.

    Reaching the “Upper” class was NOT easy and I like to refer to my thirty year slog as a lot of “block and tackle” effort, with a dash of luck, and a measure of good timing. I always believed that my early wave of good financial fortune would crest and come crashing to the beach. As a result, I worked like a fool, ( I was in sales and the harder you worked; the more you made ) constantly looking over my shoulder for that cresting wave that never came. As a result I worked like a dog through my twenties, thirties, and forties. I will not lie, I sacrificed a lot to achieve the level of success that I now have. I will also admit to the fact that my profession is highly stressful and I may have no doubt lopped off a few years on the back-end of my life as a result.

    It is NOT easy to save eight figures, but after thirty years I have achieved this goal and it was all due to a decision that I made early on in life. I know many people who go to work and truly enjoy themselves and there is no doubt these people have a higher quality of life than me. I also know that I worked in an industry and a job that I truly detested. Any job that allows you to sock away this kind of money is generally not a “fun” job. The “60 Minutes” ticking clock on Sunday evening marked the end of the weekend and the beginning of the anxiety-ridden upcoming work week.

    Wishing the weeks away and living for the weekend is no way to spend the majority of my thirty year professional career. Being constantly compared to the results of your sales peers on a monthly basis, created even more stress. Having your entire slate wiped clean every January 1st, only to begin the “process” again year after year was exhausting.

    Also in this thirty year period, I had a couple of good real estate gains and one or two opportunities through IPO stocks that grew significantly. I sold and bought my company back, which was also a significant gain. So, in addition to my compensation, I had some other fortuitous financial events.

    If you are willing to make similar sacrifices, then America is the place for you; it provides the canvas and you apply the paint. Not everyone is wired like me, nor does everyone have that singular purpose that I had. For every one Hedge Fund Manager that makes $10M a year; there are two “Block and Tackle” members of the “Upper” class that no one should ever begrudge or disparage. Many of the “Upper” class members made significant sacrifices that have left undoubtable mental and physical scars.

    I think this is the reality for most of the people that reach the “Upper” class on their own. The vast majority of “Upper” class employees did it the “Block and Tackle” way and I would guess most of them had an initial “number” in mind that has been revised several times throughout the years. One million dollars is not what it once was and even as I sit on a respectable nest-egg; I am realizing that the velocity of spending that occurs in your fifties is far faster and larger than any other time in your life. Most of you will be funding college tuitions, graduate school, and other big ticket expenses at this point in your life.

    I am still working, but for the first time in a long, long time – that ticking clock that I hear each Sunday for “Sixty Minutes” does not induce the level of terror and panic that it once held over me. I have begun working on ways to decompress and to re-engineer my mind from high productivity to a more relaxed state. I have tried meditation and other relaxation tools, but it is harder than even I imagined to re-train my brain.

    I think that many members of the “Upper” class are viewed as having some unfair advantage or that they are all over-privileged elitists. What many do not also recognize is that a good number of these folks were formerly members of the “Lower” and “Middle” class that worked hard and sacrificed significantly to achieve their financial success.

  • Terri says:

    I moved out of NY to FL and have 3mm saved and have an separate annuity BT of 42k per year. Yes, I still have a mortgage, a car payment on a new Honda and scared that it will not be enough when I retire next year at 55 years old. The big variables are health care costs and the new tax code. My son’s educational costs are covered. I want to know how to live the best possible on 150k per year. All tips are welcomed.

  • ajc @ 7million7years says:

    Somewhat surprisingly, I actually get far fewer ‘@senryo’ comments than one might expect. Yes, it’s true that I chose a ‘rich’ lifestyle, when I could have settled for something far less … but, if I am spoiled (and, of course I am.), I am self-spoiled.

    I made the money myself, honorably, and putting in the effort that few others would … there was no guarantee of success at the other end. Far from it; the road I chose has more chance of failure than success.

    [BEGIN Advertisement] As to my blog: I leave comments to drive traffic as all others do … I want as many interested readers as possible … but, also to add value to discussions exactly like this. What would be the point if everybody had exactly the same opinion?

    By the way, my blog earns $0 income because I accept no advertising and sell no products from that site. I use it as a blog should be: to air my thoughts and philosophies on money which, almost by definition, are different to those of 99%+ of other PF blogs out there. [END Advertisement] 🙂

  • senryo says:

    @acj, if your story is true and not just a marketing pitch, it’s your choice to live in a custom McMansion and waste colossal amounts of energy and money. It’s your choice to overpay for your vacations and buy high end cars and other luxury items (although I guess I should thank you for stimulating the economy). It’s your choice to spam sites with your inspiring story in a desperate attempt to drive more traffic to your site.

    However, contrary to the dictates of marketing departments and pop music, not everyone needs to make those choices to feel happy and successful. If fact, some of the choices you have made would make many people feel like a failure.

    You seem spoiled beyond belief, gifted with privilege and luck, and yet you don’t even have the decency to be thankful for what you have or the common sense to realize how ludicrous your complaints are. There are literally billions of people just as intelligent as you who work harder than you every day who don’t even have clean water to drink. It’s true that you do not live a “rich” life yet. I hope someday someday you’ll figure out the real reason why.

    I know many families who have retired happily with less than 1 million dollars who live rich, creative, fulfilling lives in retirement. Aleks, retirement (aka freedom) is only boring if you were a boring person to begin with. And even then, it’s an opportunity to reinvent yourself as someone more interesting. There’s nothing wrong with sticking with a job you truly love until you kick the bucket, but freedom can be fun too.

  • Jim says:

    I can easily foresee spending $11,250 a month in health care and/or assisted living costs.

  • Donna says:

    I had to laugh at the 12 mil as well. I retired at 50 with less than 1 mil. I am now 59 and have not regretted retiring. However, I do work part time mainly to have something to do. There only so much cleaning, repairing, traveling, etc before it all gets boring fast. The 2008 recession took me back a bit but I only lost 1/3 of my money and I have very few wants/needs. I have always been frugal and I am always looking for new ideas.

  • Aleks says:

    I’d like to meet the person who wrote that article. If he’s looking to retire at the age of 35, it probably means he is just not into working, and he’ll never be able to reach those 300k per month anyway (my personal guess). And if he does love his work, then he probably does not want to retire at the age of 35 anyway.

    I think a good standard for retirement is aiming at continuing your current living standard. I know I still have a bit of work to do until I reach that point… but I would be bored as hell not having to work for 40 years in a row… if I live that long.

    I do have to say one thing: I find it astonishing how Americans handle, and talk about, money… I think Europe can take a big example from that. I guess that’s why the U.S. is the wealthiest nation on earth.

  • Global Forex Signals says:

    Hm… Thanks for really great post. Frankly speaking, I also get excited about people, who claim they need ENORMOUS income for living right. This is just being extravagant and having no sense at all. As people say: “The rich is not who has more, but the one who needs less”.

  • ajc @ 7million7years says:

    Errata: School Fees should read $50k a year combined.

    BTW: I retired in 2005 at the age of 49

  • ajc @ 7million7years says:

    When I came up with my Number in 1998 (which was $5million), I based it on the ‘advice’ – at a seminar that I attended – that one needs (needed in 1998 dollars) $250k a year income to live ‘rich’: travel, cars, houses, etc.

    As it happens, I hit $7 million 7 years later, hence the name of my blog where I chronicle my journey and share some of the things about wealth that I learned alond the way, specifically to help people avoid these types of discussions.

    I live in a $6 million house (paid for by cash) and easily blow through $15,000 a month:

    – Maintaining the house – it’s large so electricity and gas are $1k a month between them; housekeeping is $300 a week; gardening $200 a month.

    – Private school fees – 2 children @ $15k a year, combined.

    – Travel – US/Australia once per year + other travel; easily $20k per year … maybe $30k+

    – Cars – $200k, paid by cash. Running costs should be higher on a BMW M3 than an ordinary car.

    Other than that, we eat restaurants once per week; cook at home mostly; and, don’t splurge on bling or clothes any more than other people (Ok, a little more).

    …. in other words, I don’t consider that we live the ‘rich’ life that I was promised by the Guru, but we ‘struggle’ to get by on the $200k a year AFTER tax budget that we have set ourselves.

    • Larry Siegel says:

      You’re living rich. I have nothing against that. I have always wanted to be rich and, late in middle age, I’m beginning to feel like I’m getting there. I won’t experience even a moment of guilt when I think I’ve achieved it. But don’t fool yourself. That is a rich person’s lifestyle you’re describing.

  • Sandy L says:

    $12MM is just comical…as is retiring at 35.

    Thanks for the reality check. Most retired people I know have $300K or less + SS + pension. Not sure what it’ll be like for our generation now that pensions are a thing of the past.

    I always love Marci’s comments because she continually proves these facts wrong with her frugal country ways.

  • Financial Samurai says:

    I’m perplexed too. Especially since one should probably be mortgage free by the time they retire.

    $300k/yr in Manhattan is plenty.

  • mbhunter says:

    I’ve heard that some apartments in NYC carry a maintenance fee in the neighborhood $700 per month. This is AFTER “buying” it.

    • MoneyNing says:

      Some have even more I bet, but it’s still far from $3,800. The difference is probably enough to live comfortably in Manhattan.

  • UH2L says:

    I figured that I’ll need $3.3 M in “the bank” earning 4% interest to comfortably live off of $150,000 per year (which will be worth a lot less than today when I retire). That way, I barely touch the principle.

  • marci357 says:

    I’m planning on retiring comfortably with $250,000 in the bank and $1200/month in income, with the house paid for obviously, and debt free. That should be more than enough – it’s more than enough now 🙂

    • gregory johnson says:

      This would not be enough for me to retire on. However, the 250k would be a good start to do other things with it. As the article says, it depends on who you are, where you want to live, and what you want to do in your retirement. Every one is different and would do different things, therefore different amounts would be needed for everyone. Not sure if even 12 milllion would be enough for me.

    • Jan Toussaint says:

      hi marci357 :

      i like your post . i retired from my employer last year with $238,000 in my
      s and i and have yet to start drawing from it . it still sets in my employers plan drawing interest . the only part of the market exposure is a 1% share of company stock . to date the interest has grown to over $3,700.00 and $247,000+ . i get a monthly pension and will start drawing ssi in January . my pension and monies that i had saved in 2 accounts are what i live on . even if i did have 1/2 million or more , i am very frugal with my money .
      i’ m glad to no longer be in a high income tax bracket . i have paid health care which is a blessing in today’s economy . beside an i r a and shares of company stock ( dividends reinvested ) , i hope to not have to start taking monthly distributions from my 401k until the first year that i reach 70 1/2 years of age . financial web sites and financial planners have over stressed that we would need million dollar portfolios to live comfortably in
      retirement . i had learned to scale back by paying down and off debt years before i retired . i still have a monthly mortgage payment of $640.00+ and basic expenses that are paid out of my pension . unfortunately, for many who once had million dollar portfolios , stock market losses have eaten a lot of their wealth away . my i r a consists of some high yield dividend stocks that will continue expand in growth regardless of what the market does . best wishes to you for a happy retirement 😀 .

  • Jenna says:

    Although $12 million isn’t a bad goal to aim for. How much does the “average” American need to retire at say 65 and live a healthy and happy life?

    • MoneyNing says:

      I bet there are more happy people who retire with $1 million than happy people who retire with $12 million.

      The more money you have, the more money you see and thus, the more money you want. Keeping up with the Jonses is in full force at the affluent level and unfortunately for most people, there’s always someone richer than them.

  • Vered DeLeeuw says:

    As we discussed here before, and as the article acknowledges, how much money you need to retire has a lot to do with where you live. When I’m ready to retire, there’s no way I’m staying in the San Francisco Bay Area – it’s simply too expensive.

    • Kevin Cimring says:

      Hi Vered, I’ll second that. I think rental in the Bay Area (Palo Alto) is more expensive than in Manhattan.

  • Miranda says:

    I can’t imagine ever “needing” that kind of money. But I guess we’re all different and that’s what makes finances “personal.” 😉

    • MoneyNing says:

      Sometimes mainstream media makes us feel like we need to live extremely frugal even if we have $2 million in the bank. Yet in reality, I know countless people who have more than $1 million and are currently living very comfortably.

      People adapt, and things aren’t always so bad.

    • Larry Siegel says:

      That’s right. The article says, “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.”

      My overhead is more than $11,250 a month, before I buy a tuna sandwich. I am supporting an ailing parent and an ailing child. If everyone in the world had only themselves to think about, $11,250 per month would be a very comfortable income, but that isn’t reality.

      I make more money than that and live comfortably, but I’m not getting rich.

  • Richard says:

    Thanks for another great post. I get so fed up with the mainstream media’s sensationalism and scare tactics. Your blog is a welcome oasis in the financial desert of despair. Please keep up the good work.

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