A Million Dollars Just Isn’t What It Used to Be

Posted by Mike Smith :: March 12, 2008 @ 11:11 am

Being a millionaire was once synonymous with being rich. It seems that inflation, rising costs of living, and longer life expectancy are moving the bar even higher.

As I mentioned in my post about wealth being relative, where you live has a lot to do with the magic number for being “rich.” To reach that level, the consensus estimate seems to be that $5 Million is the new benchmark. Accumulating such a high net worth seems to be the average level required for people to maintain an affluent lifestyle.

Don’t get me wrong, $1 Million is still a lot of money and more than most of us will ever accumulate in our lifetimes. It shouldn’t discourage those who won’t reach that level from saving and planning for their retirement. If you’re happy with your current lifestyle, then the number to continue that lifestyle in retirement may be a much smaller number than $1 Million. The point here is that the amount of money that you’ll need for any lifestyle is rising. I could just as easily say that $10,000 just isn’t what it used to be, but there’s a perception of wealth that accompanies $1 Million, so it makes for a more interesting discussion.

One of the main reasons why retirement costs continue to rise is the fact that life expectancy is also on the rise. In financial planning, we usually want to assume the worst case scenario and ensure that we’re covered. As Jim Cramer said in his latest book Stay Mad for Life, the worst case for retirement planning is actually living a long time, since that would require the largest nest egg.

Knowing that we’ll need more in retirement to maintain our lifestyles should offer motivation for saving as much as possible. Being mired in credit card debt can make saving for retirement seem like a luxury that we simply cannot afford. Consolidating debt with a person-to-person loan from Lending Club may not only make paying off your debt easier, but it may also allow you to divert extra savings into your retirement accounts, which can always benefit from such contributions.