The Million-Dollar Retirement Plan

[dkf]

Achieving millionaire status is a noteworthy financial goal. But saving $1 million doesn’t necessarily mean you are ready to retire or that you will be able to afford a lavish retirement lifestyle. Here’s what it takes to save that amount over a working career and how much income you can expect a $1 million nest egg to provide in retirement.

Making your first million. Many people should be able to save $1 million for retirement if they start saving early enough. A worker who saves $5,500 per year beginning at age 30, gets a $1,500 401(k) match each year, and earns 7 percent annual returns will have $1,014,640 by age 65. However, someone who waits until age 40 to start saving will have to tuck away closer to $14,000 a year to reach $1 million by age 65, assuming the same 401(k) match and investment returns.

Those who do not get an employer 401(k) match or don't consistently save in a 401(k) plan will need to save even more on their own. "You may have to adjust for time frames when you were not contributing to your 401(k), such as when you are saving for a house or you change jobs," says Mark Fuller, president of Fuller Wealth Management in Broomfield, Colo. "Life happens, and you have got to be able to make some mid-course corrections along the way." Excessive fees and investment costs, 401(k) waiting periods and vesting schedules, and taking early 401(k) withdrawals or loans can also make it more difficult to become a millionaire. "It sounds easy and it sounds good on paper, but in actuality it is tough for people to do," says Doug Kinsey, a certified financial planner for Artifex Financial Group in Oakwood, Ohio. "People need to really keep their transaction costs to a minimum. If you shave off a couple of points a year in expenses, that goes a long way toward saving a million for retirement."

What $1 million will generate. We associate the word "millionaire" with luxury. Spread out over a 30-year retirement, $1 million will likely make you comfortable in many parts of the country, but not especially wealthy. "I have clients who have got a million dollars in retirement and they don't feel wealthy," says Jay Hutchins, a certified financial planner for The Wealth Conservatory in Lebanon, N.H. "It's not enough that you can put it in the bank and draw half a percent of income and live off it. You have to invest it and you have to take on risk." If you draw down 4 percent of your $1 million nest egg each year, you will receive about $40,000 annually for 30 years, before adjusting for inflation. To that amount you can add any Social Security or pension income you expect to receive. But you will likely need to subtract taxes, especially if most of your savings is in tax-deferred accounts including 401(k)s and IRAs, and account for inflation.

http://money.usnews.com/money/retirement/articles/2010/11/29/the-million-dollar-retirement-plan.html

[SoCalDem]

1. Most people at age 30, cannot afford to save $$458.33 a month

and maintain that savings over their working lifetime.

People at age 30 (most of the ones I have ever known) are living paycheck to almost-paycheck every month, and have little if ANY savings..

Those are also the childrearing years, when it's even less likely that there will be "extra money".. Add in crippling school-loan debt & you see the problem:(

[dkf]

2. Yes it is difficult.

But it will be even more difficult when people are older.

$5500 a year is 15% of a $36,000 salary. When you think about it you pay 8% into social security and your employer also does, so this matches social security yet it pays twice the amount.

[SoCalDem]

5. $36K gross is not what people have every week in their paycheck

Net is what we all have to work with....and if people barely have enough to keep a roof over their heads , there will not be much saving, no matter how hard they know it will be when they get old..

[pitohui]

3. it isn't "difficult," it's just silly

you are not going to receive 7% annual returns on your savings/investments over a period of 35 years

that's the kind of annual return you receive in a GOOD year, in a mature economy -- and there will be many years that are NOT good years and there is no safe investment that returns a profit

see under japan, if you don't know what i'm talking about

these ideas about how if u just give up yr life and save every penny and somehow you'll have enough to retire on are silly

there is no substitute for a social safety net, NONE

these same suggestions were made in the reagan era, to promote the 401 (k)s and the death of pensions -- NO ONE i know, including
myself, who followed the directions became a millionaire that way

not one person, and it's 28 years later

some momentarily hit millions in savings in the late 1990s but thanks to dumbya most of them have now declared bankruptcy and
are starting over late in life

you are not going to become wealthy by saving money and working hard, if that was possible, everybody would be doing it except the most
hopeless people w. mental problems etc.

one "big" event like 9/11 and enron, for instance, wiped out the life's savings of most of the people i knew, and there is
going to be more than one "big" event in a 35 year working lifespan -- some people i know have been bankrupted twice,
thanks to the recent recession, and some have been busted 3 times, because of the early 90s savings and loan, then 9/11 and enron,
and now this...

you are just not going to be able to outwit history and reality by working hard and pinching pennies

[MadHound]

4. This is a myth, a mirage

The fact of the matter is that between student loans, getting started in a career, kids, and such, most young folks can't save that kind of money. They're doing good to pay the mortgage, rent, etc. and stay above water.

Not to mention the fact that this piece doesn't take into account the vagaries of investment. Since I started working, I've seen five massive downturns in the markets, downturns that set a lot of people, myself included, seriously back on their retirement plans as their supposedly "safe" investments tanked and that money wasted.

The fact of the matter is that this map to a million dollar retirement is about fifty years out of date. It is designed with the notion that we would have stable markets, generous employers, manageable individual expenses, and increasing wages. All of these assumptions have long since turned out to be mirages.

The fact of the matter is that a lot of people, people who have done the right thing and played by the rules, have gotten burned time and again and simply don't have the money saved up to see them through even a very modest retirement. As this problem comes to a head, with the Boomers retiring, and the threatened cuts to SS, we're going to see our elderly living and dying in the street because that is all they will be able to afford.