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You Need a Million Dollars

I hope I don't ruin your day with this news flash, but you know that comfy retirement you're dreaming of? The one where you wake up without an alarm clock every day, and tend to your vegetable garden, and take up kayaking? The one where you and your sweetie finally travel to Hungary and China and all the places you've longed to visit? Well, it might not happen. Sorry.

Here's the problem
You might not have enough money. That's because many of us are saving and investing and just hoping for the best in our golden years (warning: that's a retirement killer), without taking the time to determine how much we really need to accumulate. Many of us might end up with gruesome retirements.

In my favorite retirement resource, our Rule Your Retirement newsletter service, I learned that to make your nest egg last, you should plan conservatively and withdraw about 4% of your savings per year in retirement (adjusting the amount for inflation). Let's say you have an impressive $400,000 socked away by retirement. Take 4% of that and you'll have $16,000, or $1,333 per month. Not so much, is it? Sure, you may have Social Security on top of that, but that may well just add, say, $2,500 per month, bringing your total to $3,833, or $46,000 per year. It might be enough to scrape by on, but not enough to reach many of your dreams.

You'll need more
So odds are, you'll want to retire with a nest egg that's considerably larger than $400,000, if you can. For many people, a million dollars (or more) is a reasonable target. With that, your 4% will come to $40,000 in the first year, or $3,333 per month. With $2,500 in Social Security, that may total something like $70,000 per year.

Remember -- in retirement, you'll often be able to live on less than you do now because:

  • You won't have commuting costs, or workplace-wardrobe costs, or $10-lunch-from-the-deli-near-the-office costs.
  • If your income is lower, your taxes and tax rate will be lower.
  • Your home might be paid off by then.
  • You probably won't be supporting dependents in retirement.
  • You probably won't be socking away money for retirement, in retirement.
  • You may enjoy senior citizen breaks on property taxes and other expenses.

But you may also need more money to live off of, because:

  • Health-care costs have been skyrocketing and they may not be under control or reasonable when you retire.
  • You may want to buy a more expensive home.
  • Inflation may erode much of your purchasing power.
  • You may want to enjoy some costly activities, such as golf, flying lessons, or travel.

You can have more
Fortunately, it's not too late to salvage your retirement.

For one thing, you can start saving and investing more. If you've been putting aside $5,000 for retirement every year, try saving $8,000 or even $10,000 instead. You might double your results that way. You might also consider postponing your retirement date by a few years, too, because just two or three more years can add hundreds of thousands of dollars to your nest egg.

You can also improve your lot by allocating your dollars more effectively. If you've been a conservative investor, sticking mainly with bonds and CDs and mattresses, consider moving a bigger chunk of your assets into stocks. You don't have to throw caution to the wind and speculate -- you can instead opt for solid earners and growers, including some dividend payers.

As a springboard for further research, if you're interested, here are a few companies that came up when I screened for large-cap stocks with net margins of 10% or more, five-year revenue growth rates of 10% or more, and P/E ratios of 20 or less. Those metrics suggest (but don't guarantee) that the companies are strong, growing, and not wildly overvalued.


Net Margin

5-Year Revenue Growth Rate

P/E Ratio

Cisco Systems (Nasdaq: CSCO  )




Oracle (Nasdaq: ORCL  )




Corning (NYSE: GLW  )




PotashCorp (NYSE: POT  )




Source: Capital IQ, a division of Standard & Poor's. *Adjusted.

If you're looking for stock investments that generate income, you can invest in dividend payers. Here are a few large caps that were recently paying out 3% or more in dividends, with five-year dividend growth rates of 10% or more and net margins of 10% or more:


Dividend Yield

5-Year Dividend Growth Rate

Net Margin

Johnson & Johnson (NYSE: JNJ  )




Intel (Nasdaq: INTC  )




Automatic Data Processing (NYSE: ADP  )




Source: DividendInvestor and Capital IQ, a division of Standard & Poor's.

Now here's some great news: A $15,000 investment in a CD that pays you, on average, 5% over 20 years will turn into $40,000. But invested in stocks that average 10% annual returns -- about the market's historical rate -- it will become $100,000 over 20 years! Make that a $150,000 investment, and you're looking at possibly ending up with $1 million.

What to do
Reaching a million dollars, or coming closer than you ever planned, is not out of the question. So spring into action and your retirement might end up vastly improved. Even if you only have 10 years left to do it, saving more, working one to three years longer, and investing in powerful growers can work wonders.

If you'd like some help getting started, feel free to use the features available to you in our Rule Your Retirement newsletter service. In its pages, you'll find not only recommendations of promising stocks and mutual funds, but also specific guidance on asset allocation, investing for income, minimizing taxes, retiring as early as possible, and much more. Click here for access to all current and past issues, free for the next 30 days.

Longtime Fool contributor Selena Maranjian owns shares of Johnson & Johnson. Johnson & Johnson is a Motley Fool Income Investor selection. Intel is an Inside Value pick. The Fool sold calls on Intel. The Motley Fool is Fools writing for Fools

Read/Post Comments (8) | Recommend This Article (22)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 03, 2009, at 3:52 PM, Linda20202 wrote:

    Thank you for confirming what we always thought. I agree that we'll need at least 1M to retire. When I hear others talking about 250,000 or something, I just don't get it. We have done a lot of calculations on this and anyway we work it, it comes out to 1M.

    Between savings, pensions, rental income, we're there.

  • Report this Comment On June 03, 2009, at 4:21 PM, numb70 wrote:

    A million dollars?

    I'm 37 and have 1.2M saved with no debt. There's no way on earth I could retire within the next 12 years and experience anything remotely "comfy" in terms of retirement.

    With the combination of inflation and tax increases we're looking at in the coming years, you're going to need a hell of a lot more than a million dollars.

  • Report this Comment On June 03, 2009, at 7:17 PM, kamakaze77 wrote:

    I'm 30 yrs old and saved about 220K dollars without debt. I want to retire in 20 years. I hope to have more than 2 mil by then.

    I don't think 1 mil is enough to retire unless you can spend less then 2K per month. You may live a Okay life with 2K /mo. You may not travel and enjoy Spain or China for a few months.

  • Report this Comment On June 03, 2009, at 7:38 PM, mjtria wrote:

    A million is no where near enough. We are retired, have no debt, have pension that we are currently able to save money on, two paid health insurance coverages, over a million invested, and live relatively modestly. We are more than comfortable, and the pension and ex-employer provided health coverage will allow us to continue to save all investment returns (after taxes) as well as some pension income for the next 10 years until we have to start mandatory IRA distributions.

    But hyperinflation is a serious concern. I built my pension structure to withstand a 4x loss in the value of the dollar. I have significant concerns about the inflation that will result from an elevated national debt, and the bailouts. When it hits it will be devastating.

    Another consideration is that early in retirement living expenses decrease, but with increased age one starts to need assistance with basic chores. Such help is a nontrivial cost, and should be considered when estimating retirement needs. This is of particular concern to those of us who live in suburban and especially rural areas.

  • Report this Comment On June 03, 2009, at 8:10 PM, ElCid16 wrote:

    A million is no where near enough! I hope to have at least 10K saved by the time I'm 60, then use that money to start playing powerball pretty heavily until I get to over $100M.

    Investing is so overrated.

  • Report this Comment On June 03, 2009, at 9:05 PM, DaytonFlyers wrote:

    i bought an i-pod

  • Report this Comment On June 03, 2009, at 11:24 PM, woodwelder wrote:

    A million, plus no debts, plus a mortgage free house, are the three things needed for one 65-year-old person to survive retirement AND have some fun, given that such person can put much of the principle into insured investments at 5% or so. That is the math I've experienced. Two people will require a million five, given all the extras we must purchase to survive.

  • Report this Comment On June 04, 2009, at 2:39 PM, cordwood wrote:


    The "hava million" mantra is catchy,but it over plays the importance of cash to contented life style.If one cultivates a simpler lifestyle ,the monetary requirement is reduced accordingly.

    So yes,have a good work ethic,but don't be blinded by an insatiable desire for an ever increasing "comfortable" lifestyle as dictated by peers,advertising,catchy mantras etal.

    Always good to have more than enough,but work on your lifes philosophy to insure that enough is not an ever increasing obsession......which,of course, is a major cause of the current state of the economy.


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