Personal FinancE
reality check:
A million is not enough
Growing Wealth spoke $50,000 a year, how much are
with author Michael Farr
you going to need?”
about how much money
In today’s economy, $50,000
isn’t going to go very far. There
you really need to retire,
goes your safari in the jungles of
as well as his theories, Africa, that new Winnebago, and
techniques, and rules for
possibly even the home in which
financing a satisfying retirement
you’re living. Farr is issuing a wake-up
call. If you are currently earning $250,000
— no matter what age you start.
a year at your job, you’re going to need
to save $5 million to enjoy that same
income after retirement.
if you are currently
“If only I had a million dollars, I could
earning
It’s (still) all about
compounding
retire.” This was a common saying back
But enough bad news. No matter how
in the 1970s and ’80s, and many people
still consider the million-dollar-mark a $250,000
old you are today, there are steps you can
take to put yourself in a better position
finish-line goal.
tomorrow. It’s not a secret formula, you
But if you take the hypothetical
at your job,
just have to implement it: Save money,
$1 million you have today and spread
invest, and then compound your interest.
it out over 30 years — the length of time
you’re going to
“I recommend saving $5,000 a year just
you could spend in retirement — do you
really believe it will be enough? This is
need to save
through the little things, like saving $100
a month by cutting out the coffee and
the question that Michael Farr addresses
in his book, A Million Is Not Enough.
Farr outlines steps you must take to
$5million
muffin at Starbucks, or brown bagging
it three days a week,” Farr says. “If you
compound that interest over 30 years,
meet the ambitious, yet achievable goal
to enjoy that
you are going to have far more than the
of saving more than $1 million by the
obvious $150,000.” It’s like that old trick
time you reach retirement. His book same income after
where you ask somebody to give you a
provides advice you can use, whether
you’re age 25 and getting a head start,
retirement.
penny on the first day of the month, and
then you double it each day after. This
35 and right where you’re supposed to
would generate roughly $5.3 million
be, 45 and playing catch-up, or even 55
by the end of a 30-day month.
and beginning to think the only way
Considering today’s health care
“Just do the math yourself,” says Farr.
out is by winning the lotto.
improvements, you can no longer expect
Compounding your interest is one of
“A Million Is Not Enough serves as
to live just another 10 to 20 years past
the key variables in his system that will
a warning to people that they probably
retirement. Most experts say you should
enable you to break the $1 million mark
don’t have enough money saved to have
be prepared to support yourself for at least
over the course of the next several years
the retirement that they want,” says Farr.
another 30 years after retirement. With
— and then exceed it. “How can you
“It’s a tough-love message, but I think a
that in mind, if you take that $1 million
double your $1 million in the last seven
lot of people are going to end up working
saved and spread it over the course of
years before you retire?” Farr asks. “Earn
longer than they expect; they have been
30 years, you would have approximately
a 10 percent compounded return.”
promising themselves something that
$50,000 to spend each year — adjusted
they largely may not be able to deliver.”
for inflation. And that figure factors in Planning your attack
a modest income throughout that time. “I give my readers three steps to start
Wake up! Without interest or earnings, you would out with. The first step is to know where
Although $1 million might seem like have only $33,000. you are. It’s amazing how many people
a reasonable amount of money to live “How many of you could enjoy your really don’t have any idea how much they
comfortably, let’s break it down further golden years with $50,000 a year?” Farr spend in a month or even a year,” says Farr.
and see how far this will actually get you. asks. “If $1 million is going to generate Next, Farr advises that you determine
42 I July 08 I Growing Wealth I growingwealthmag.com
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