For about 30 straight years the rule of retirement has been 1 million. You save 1 million and you will be able to live out your golden years comfortably enjoying all the things you weren’t able to do while you working. Unfortunately, as the cost of living has increased 1 million dollars just ain’t what it used to be.
In the last two decades the United States has seen near unprecedented inflation. The cost of living now compared to 1990 is astronomical while the median household income has barely risen. To give you an idea of how far costs come, think about this, in 1990 the average cost of a gallon of gas was $1.16 compared to $3.56 today. That is over a 300% increase. And it isn’t just the cost of gas that has been climbing it is everything from groceries, rent, mortgages, auto prices, electricity, and on and on. The scary part is there appears to be end in sight for this trend. Expect prices to keep rising.
Along with rising costs another reason 1 million isn’t going to cut anymore are what interest rates are at now. Since the recession of the early 2000’s, 911, and the great recession that started in 2008 interest rates have been falling rapidly as the government tries to spur economic growth in lending. The fact is, in recent memory, have never been lower. As recent as 12 years ago 1 million could generate between $70-80,000 a year in income while today it may be as little as $40,000. So what can you do?
Well if you are wanting to retire comfortably you will most likely want to shoot for a fund worth between $2-$3 million. That seems like a lot and it is but if you are not wanting to lose the standard of living you have grown accustomed to then this is the sad reality. If you are young you need to start early. The sooner you can put money away the better and put your money in accounts that will work for you. Savings accounts, while safe, offer very little return on your money and may not even pace for inflation. Mutual funds on the other hand can grow your funds anywhere from 9-11% compounding. Just to show you the magic of compounding interest in mutual funds if you have $100,000 in a high yielding mutual fund at 10% at 30 years old and contribute no more money when you are 65 you will have over $2.7 million.
If you are starting late, as most of do, you will need to try to contribute much more of your income. This may mean living below your means for a significant portion of life. This may not be fun but consider that when you reach retirement you will not be working for anywhere from 10-40 years depending on your health. This may be the longest period of unemployment of your lifetime and you will want to be comfortable.
Lastly, as you work towards your retirement we want to stress having good credit and avoiding exorbitant unsecured debt. A poor credit score can cause you to pay high interest rates and keep your monthly payments high. I high debt load can take years to pay off. If you are struggling with credit and debt check our top ranked credit repair companies that can help you raise your score and ease your monthly obligations.