$1 Million May Not Be Enoughhttp://www.fool.com/personal-finance/retirement/2006/05/26/1-million-may-not-be-enough.aspx Selena Maranjian
May 26, 2006
It has always had a beautiful ring to it, no? The word "millionaire" probably conjures feelings of financial security for many of us. I know it does for me. But these days, it's not the financial silver bullet that many of us may think.
Imagine, for example, that you're 68 years old and about to retire, and you have $1 million as your nest egg. It's what you're counting on to carry you through your golden years. In our Rule Your Retirement newsletter, I learned 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 our friends at the U.S. Census Bureau, between 2003 and 2004 the real median household income was $44,389. So retiring on $40,000 would put you darn near the middle of America. That may sound good, but remember the old real estate agent refrain: "Location, location, location." According to the ACCRA Cost of Living Index, living in Manhattan costs twice as much as the national average, so $40,000 would be sort of like $20,000 there -- and that sure doesn't sound like much to live on. In McAlester, Okla., meanwhile, the cost of living is just 77% of the average, so living on $40,000 there would be like living on $52,000.
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 ...
And if that's not enough, remember that you might earn even more than that if you're invested in the right places. Our Rule Your Retirement newsletter regularly offers some suggested stocks and funds. About a year ago, First Data (NYSE: FDC ) and Colgate-Palmolive (NYSE: CL ) were highlighted, along with many other examples of attractive values. (A free trial of our newsletter will permit you to review every past issue and all its recommendations.) First Data has advanced about 16% per year, on average, over the past 14 years. Colgate-Palmolive (hardly an exciting-sounding company, wouldn't you agree?) has surged an average of 22% per year over the past 25 years. So if you find some terrific long-term performers (and we'd love to help you find them), you can grow your nest egg relatively quickly, whether it's $1 million or $15,000.
Here are some other strong historical performers:
Of course, not all well-known giants fare well in the long run. Eastman Kodak (NYSE: EK ) , for example, has gained an average of about 3% per year since 1981 and has lost about 40% of its value over the past five years. Pfizer (NYSE: PFE ) , meanwhile, is priced lower than it was eight years ago. I don't mean to suggest that these are lost causes -- only to point out that some seemingly great companies can falter and that it's important to select your investments well and monitor them over time.