$1 Million May Not Be Enough

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The word "millionaire" has always had a beautiful ring to it. For many of us, myself included, it probably conjures feelings of financial security. But these days, it's not quite the financial silver bullet it used to be.

A million bucks? That's so last century!
Having a million dollars means different things to different people. Imagine that you're 68 years old and about to retire, with $1 million as your nest egg. You're counting on those funds to carry you through your golden years. Our Rule Your Retirement newsletter argues that in order to make your nest egg last, you should conservatively plan to withdraw about 4% of it per year in retirement to live on. So 4% of $1,000,000 is about $40,000, or roughly $3,333 per month. Will that be enough? For many people, the answer is a resounding "yes!"

According to the U.S. Census Bureau, in 2007, the real median household income was $50,233. Retiring on $40,000 a year may not get you to the middle of America, but it would come fairly close.

That may sound good, but remember the old real estate agent refrain: "Location, location, location." Living in Manhattan can cost as much as double the national average, so $40,000 would be like less than $20,000 there -- and that sure doesn't sound like much to live on. In a less expensive place like Douglas, Georgia, meanwhile, the cost of living is just 79% of the average, so having $40,000 to spend there would be worth the equivalent of more than $50,000.

Then there are differences to consider between people. If you want your retirement to feature a lot of fishing at the lake down the road, and maybe some gardening and crossword puzzles, you might do just fine with that $40,000. But if you want to finally see the world and do a lot of traveling to visit grandchildren (with bags full of gifts), $40,000 may not be enough.

If you're young ...
Another critical consideration is age. If you're 65 and have a million dollars, that's quite different from being 40 with a million smackers. A 40-year-old might leave that money to grow in the stock market for another 25 years. If it grows at 10% per year, on average, it can become nearly $11 million by retirement time. Retire on 4% of that each year, and you'll be enjoying more than $400,000 annually. Amazing, eh?

And if that's not enough, remember that you might earn even more than that if you're invested in the right places. Consider some strong historical performers:

Stock	20-Year Average Return
Intel (Nasdaq: INTC)	16.2%
Caterpillar (NYSE: CAT)	11.1%
Colgate-Palmolive (NYSE: CL)	16%
Dell (Nasdaq: DELL)	28.4%
Wal-Mart (NYSE: WMT)	13.8%

Of course, not all well-known giants fare well in the long run. Ford (NYSE: F), for example, has gained an average of less than 2% per year since 1989. Fannie Mae (NYSE: FNM), meanwhile, is priced lower than it was 20 years ago. Not all stocks that do badly are lost causes -- but those examples do show that some seemingly great companies can falter. That's why it's important to select your investments well, and monitor them over time.

More considerations
If you've reached age 40 without amassing that million dollars, there's no need to grab the nearest sharpened pencil and try to commit hara-kiri. All is not lost.

Despite politicians' fear tactics, Social Security is likely to be with us, in some form or another, for a long time. You can probably expect to receive something from it in your golden years. Also, many retirees find that they spend less in retirement than they did while working. In addition, they're no longer forking over payroll taxes. And some of us even have pensions to rely on.

Despairing won't help you, but taking action definitely will. If you're not saving and investing regularly and aggressively, now might be the time to start. We'd be happy to help you via our Rule Your Retirement newsletter. Try it for free for 30 days -- you'll get full access to all past issues, including success stories from others who've retired early and are willing to share their secrets.

Further Foolishness for a happier portfolio:

• The monster that will eat your retirement.
• Don't screw up your retirement.
• Set it and forget it? You'll regret it.