Celebrated in song, literature, movie plots, and motivational seminars, achieving millionaire status has been heralded as a sign of financial independence. In the past, perhaps. Today, not so much.
Retiring baby boomers are finding, as Yogi Berra famously said, “The future ain’t what it used to be”...and neither is a million dollars. For those turning 65, and who graduated from college or started working in 1970, it takes $6,180,000 today to buy what $1,000,000 bought then. Inflation averaged 4.23% a year over that time frame with total inflation at 518%. So how are we doing?
According to statisticsbrain.com, the average retirement age for Americans is age 62 and the average length of retirement is 18 years. The average savings of a 50 year old is $43,797. Already, 80% of those ages 30-54 do not believe they will have enough money put away for retirement. Sadly, many of them will be right. Some will be long on longevity and short on money.
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Outside of winning the lottery or a big inheritance, financial freedom is a do-it-yourself project. There is no magic, but there are strategies. Obviously, saving for the future is foundational but one must recognize the time value of money. The internet has all manner of savings calculators. One calculator tells you that to be a millionaire by age 65, starting at age 30 with savings growing at 6% annually, you need to invest $2,164 per month. Wait to age 35 and you must save $3,164 per month. Age 40, a startling $6,102 per month! Learning to control debt and wasteful spending as well as disciplined saving and investing at a young age pays off.
How else to get there? Develop a talent or a product that people will buy. Recognize that big money singers, actors, and sports stars are relatively rare. Ditto for technology. There are internet wunderkinds and app developers who are billionaires, but that, too, is rarified air.
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The millionaires I know as a financial advisor did it the old fashioned way through hard work and prudent and disciplined saving. They took advantage of stock options, deferred compensation, company retirement plans, and other benefits. Some built closely-held businesses with sustainable value and well-thought-out succession plans.
They invested in stocks with sufficient patience and discipline to ride through periodic downturns. In many instances they added money to equity accounts when everybody else was panicking, a strategy advocated years ago by the legendary investor Sir John Templeton. They invested in real estate, exercising prudence relative to long term investing and paying attention to market cycles.
They were not afraid to pay for good financial planning, legal, and tax counsel. Answering the “what if?” questions along with defensive strategies involving life, health, disability, and liability insurance is basic to wealth building and securing the future for loved ones. They recognized the wisdom of a well-thought-out estate plan so as to not leave their family and surviving spouse in dire straits. Additionally, legal tax strategies are essential to keeping and investing more of what one earns.
If you apply the 4% theory so as to minimize the risk running out of money in retirement, not withdrawing more that 4% of principal a year, it takes $1.25 million dollars to provide $50,000 a year in cash flow. That’s $4,166 before taxes per month, hardly a princely sum. What is your plan for retirement security? For many, millionaire status is a pipe dream. To be reasonably comfortable in your Golden Years, realistically a million dollars is a threshold!
Lewis Walker is President of Walker Capital Management, LLC. Certain advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative of SFA which is otherwise unaffiliated with Walker Capital Management, LLC. lewisw@theinvestmentcoach.com