The New “Magic Retirement Savings Number”: $3 Million or More

If you’re like a lot of people, you may have a goal of saving $1 million for retirement.

After all, that would make you a “millionaire” and should give you a comfortable retirement lifestyle, right?

Not so fast, according to a number of retirement planning experts cited in an article last month in Fortune magazine.

It’s time for a dose of reality, the experts say: You now need to save $3 million – or more – to enjoy a decent retirement lifestyle.

Here Are 3 Reasons Why $3 Million is the New $1 Million When it Comes to Saving for Retirement…

Reason #1: That $1 million number was never adjusted for inflation or corrected for today’s low-interest-rate environment.

According to a study done by Dr. Wade Pfau, professor at The American College of Financial Services, the OLD retirement savings withdrawal rate rule of 4% per year gives you only a 50% probability of NOT running out of money over 30 years!

Would You Get on a Plane if You KNEW it Had a 50% Chance of Crashing?

Of course not! But if you’re counting on being able to withdraw 4% of your savings a year in retirement, you’re courting disaster.

The current recommended annual withdrawal rate is just 2.8% – which gives you a 90% probability of having your money last for 30 years.

So if you did have a $1 million nest-egg, it would provide you only $28,000 a year. What kind of lifestyle do you think that would give you? Does it even cover your basic expenses, let alone allow for any of life’s luxuries?

On the other hand, a $3 million nest-egg would provide you $84,000 a year. That may sound a lot better, but don’t forget that if you’re saving in tax-deferred accounts like 401(k)s and IRAs, taxes will devour at least one-third of that.

Reason #2: You must factor in the impact of inflation on a retirement that could last 20 or more years.

The long-term historical average for inflation has been 3% a year. Even at that low rate, your cost of living will double in 23 years!

And most people never consider how they will deal with the price of everything doubling during their golden years.

Reason #3: Healthcare costs are rising faster than inflation.

A 65-year-old couple retiring now will need $285,000 for out-of-pocket health care expenses not covered by Medicare, according to Fidelity Investments.

And at least 70% of people over age 65 will require long-term care, with more than 40% needing nursing home care. The average cost for a typical nursing home stay is over $250,000 (also not covered by Medicare).

Here’s a Reality Check: Only 3% of Americans Have a Net Worth of Even $1 Million – Far Fewer Have $3 Million

That’s according to the research from Spectrem Group.

And baby boomers between ages 56 and 74 have median savings of only $152,000, according to a recent study from the Transamerica Center for Retirement Studies.

It’s Time to Rescue Your Retirement!

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