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Why a $1 Million Goal for Retirement Still Matters

A million dollars in your retirement nest egg isn't what it used to be, but it sure beats having nothing at all.

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A million dollars isn't what it used to be, but it's still a lot of money. It's enough to be a life-changing amount of cash, even if it winds up not being enough to completely fund your retirement on its own.
On its own, using the 4 percent withdrawal rule as a guide, that cool million should provide you around $40,000 per year in inflation-adjusted income. Still, for typical American retirees, personal savings is just a start:
  • Social Security adds supplemental income -- around $15,600 a year for a typical retiree.
  • Medicare covers a substantial portion of health insurance costs for Americans age 65 or older.
  • Typical retirees pay neither Social Security nor Medicare taxes on their non-wage incomes.
  • If you've paid off your mortgage by the time you retire, your housing costs are a mere fraction of what they normally would be.
  • If your kids are grown and independent, the costs of raising them can vanish.
With that total picture in mind, even today, a $1 million nest egg still should provide a great foundation for a comfortable retirement in most of the country.

There's More to Retirement

Of course, you may want more out of your retirement than what that type of nest egg can provide you. Things like international travel, spoiling the grandkids and/or a summer home up north and a winter home in the Sun Belt can easily chew through the kind of income that size nest egg can provide. In addition, as you get deeper into retirement, you may start needing help managing your home and daily activities, which could add substantially to your costs.

Not matter what retirement lifestyle you plan to have, it's smart to work towards that $1 million goal. Here are five key reasons:
  • Your $1 million nest egg can grow. If you're not forced to retire by work or by health reasons, putting in another year or two can help your nest egg continue to grow before you tap it. Two "extra" years compounded at 6 percent annually can turn that $1 million into a little more than $1.12 million and make that 4 percent withdrawal amount almost $45,000 instead of $40,000.
  • You might reach that $1 million level early. The reality is that nobody can guarantee what level of returns the market will provide. One strategy to deal with that uncertainty is to aim high and plan low -- to invest as though you'll earn a fairly low rate of return while striving to achieve a higher one. If you get to your target early, it gives you incredible flexibility on what to do next. It's far better to have the money and flexibility early rather than kick yourself in your 70s for not getting there at all.
  • Even if you don't reach that $1 million target, you'll still be better off. Say you save throughout your entire career, only to wind up at retirement with a $750,000 nest egg rather than the $1 million you had targeted. That $750,000 still beats the daylights out of the $0 you'd wind up with if you hadn't invested in the first place.
  • You may be able to "retire" to your dream job. If you always wanted to work in a certain field or for a charity but weren't sure you could make ends meet, that $1 million will let you take quite a pay cut. If you define your retirement by "spending time doing what you love" instead of "no longer working," a lower-paying dream job may be your perfect retirement destination.
  • It's enough money to help you live your life for less. One of the ironies of the world is that the rich can live more cheaply that those without savings. Having money lets you negotiate cash discounts, avoid interest charges and not be tethered to payments. Plus, those with cash can often "invest" in more efficient ways to spend, through things like warehouse club memberships and more energy-efficient (though more expensive) cars, homes, and appliances.
Get Started Now

For most of us, the quest to end up with $1 million (or more) in retirement is a journey with a time frame measured in decades. Still, it's one where the more time you have until you need that nest egg, the easier and cheaper it will be for you to arrive successfully. There's no doubt that you'll be better off with $1 million in retirement than without it. And right now is your best time to start building and working through a plan to get you there.

Chuck Saletta is a Motley Fool contributing writer.

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Melissa Li

The best advice for building retirement that I was ever given are:
1) Don't spend more than you make. You should try very hard to only borrow money for a home. Everything else should be paid off monthly.
2) Retirement is not a matter of Age. It is a matter of lifestyle. If you don't mind living on the street you can retire at any age. Plan your retirement based on the lifestyle you want to maintain.
3) If you can accomplish #1, then you will be able to save some money each year. l did not start seriously saving until I was in my 40's. Why? Children. As long as they are home, they will consume every extra nickel you can lay your hands on. Try to start as soon as possible.
4) When you buy your car, buy used, buy durable, and do your research. Pay for the car in full. Get a cheap, yet solid insurance policy (Insurance Panda has them for $25/month… woohoo!). Don’t buy a gas guzzler or a car that needs repairs all the time.
5) When you buy your home, buy the worst property in the best neighborhood that you can afford. And be willing to sell within 5-7 years if possible. (This also applies to your job. Most people get their biggest raises when they change jobs; about every 3-5 years).
6) When you can save, your target should be 50%. Don't expect to ever achieve that, but try. The average person cannot save over 10% of their income. The ones that can are much better prepared for retirement. This should be possible. Your maximum pay (value) will occur between the ages of 35 - 55. Every time you get a raise, increase your savings and don't change your lifestyle.
7) When you invest, try to get a guaranteed return of about 20% on your money. You will not find this very easily, but it's possible. The most profitable is Income Property, Small Business Partnership and others. Run the numbers to ensure that if you invest $500, you get at least $100 back each year after expenses. Sounds difficult. And it is. But, it can be done.
8) Don't loan or borrow money without a Contract. You can draw this up yourself. And don't loan or borrow money from relatives. (At least not until you are able to lend).
There is plenty of other good advice, but it's like dieting. It's a lifestyle change that involves years of diligent management.
Good luck!

May 31 2014 at 4:47 PM Report abuse +2 rate up rate down Reply

WHO ACTUALLY BELIEVES THIS CRAP! its just a game to keep you saveing money to invest in the stocks because according to their theorys the only way to get 1 mil. is to invest in stocks. and of course lose the money. think people. more likely 300-500k for the average decent salary. depending on where you invest and this assumes you got in the work force at 18. and worked a decent amount. some work more and some work less . some invest more and some invest less. or none like me. life is a expense too .

May 31 2014 at 10:06 AM Report abuse rate up rate down Reply

this advice is probably for people in the very distant future. you have got to get rid of poverty and create a hell of a lot more jobs and start paying really good wages. but poverty is really a necessity for the upper echelon.

May 31 2014 at 8:50 AM Report abuse +1 rate up rate down Reply


May 31 2014 at 12:02 AM Report abuse rate up rate down Reply

$40K plus $15.6K from Social Security is only $55.6K per year. That's not a lot of money anymore! What can it buy for you these days let alone the next decade or more? The author assumes everyone has a mortgage. What about all of the people who could never afford to buy a home and have to rent? That expense will never go away and is a big one!

Add to that the threat imposed by politicians always trying to cut or eliminate or social security and Medicare benefits! What can you depend on really? This nation is heading for an unprecedented amount of senior poverty. It's shameful what America's dream of security and assured retirement is devolving into.

May 31 2014 at 12:01 AM Report abuse +1 rate up rate down Reply
2 replies to boston1936's comment

That works out to $26.73 an hour if you were still working 40 hours a week for those dollars. That is a salary to be envied where I live. I'd take it.

May 31 2014 at 8:11 AM Report abuse +2 rate up rate down Reply

That works out to $26.73 an hour if you were still working a 40 hour a week job. That would be decent wages where I live. I'd take it.

May 31 2014 at 8:17 AM Report abuse +2 rate up rate down Reply
1 reply to Dan's comment

Sorry! A little s-s-stutter.

May 31 2014 at 8:36 AM Report abuse +1 rate up rate down

Really? So what about the thousands of us out there who are in our 50's, and have had to tap into retirement funds because we are unemployed and no one will hire someone our age? Hard to save for retirement when you are working part time retail for minimum wage!!!

May 30 2014 at 10:47 PM Report abuse +4 rate up rate down Reply
1 reply to RMS's comment

Not to mention people who never could afford to buy a home so they have to rent so that expense never goes away. Even if you have a job, you're always in fear of being laid off or forced to take an early retirement package. Retail and restaurant jobs have lousy if any retirement packages.

Even what we've earned is under constant threat by others who are trying to cut it or eliminate it on the pretext there is no money to pay for it like Social Security and Pensions. How can anyone save enough for retirement when they try and take away the little you do have and expect you to be stuck making up for it after you're too old to save enough to make up for it?

May 30 2014 at 11:53 PM Report abuse rate up rate down Reply

I am going to take my one dollar and go blow it now

May 30 2014 at 7:50 PM Report abuse rate up rate down Reply

I am resurrecting my piggy bank and placing it in a prominent spot and every time I fill it I am buying stock in AOL

May 30 2014 at 7:25 PM Report abuse rate up rate down Reply


May 30 2014 at 5:27 PM Report abuse -1 rate up rate down Reply

What is hurting social security is the monies taken out of the fund by president to shore up their yearly debt. George bush took out over 11 billion in his last 6 years. He replaced the money with treasury notes which today earns very little interest. His first 2 years he took over a surplus of taxes from the Clinton administration. That is what is wrong with social security. The republicans.....

May 30 2014 at 3:32 PM Report abuse +4 rate up rate down Reply