Those of you old enough to remember the 1950s
TV show The Millionaire, will recall
Michael Anthony delivering cashier’s checks for one million dollars each week
to various persons, chosen in ways never disclosed. The benefactor, fabulously wealthy and
anonymous John Beresford Tipton, considered the gift—at that time a king’s
ransom—to be a social experiment as he viewed the effects it had on each
recipient. The results were often
traumatic.
That dramatic old series came to mind when a
headline attracted my attention: “$1 million needed to retire nicely in Orange
County.” The article which followed
delved into the details of retirement, emphasizing such factors as diminished
incomes, Social Security limitations, a shortage of personal savings and a
rising cost of living. The claim: “To
retire comfortably in Orange County—or anywhere else in coastal Southern
California—you’ll need a cool million dollars stashed away in your bank
account.”
The message of the article is well-intended,
but I’m sorry to report the number is far out of date. Thanks to sixty years of inflation, a million
bucks doesn’t cut it anymore. In point
of fact, a cool million dollars stashed
in your bank account, at today’s bank rate of no more than ½% per annum,
pays $416.67 per month—try to live on that.
But even if you can somehow generate an
attractive return, of say 8%, you’re still behind the 8-Ball. Here in California you may expect the state
and federal governments to suck up about $15,000 in taxes. Monthly rent you’ll pay in this county, if
you’re to “retire comfortably,” will be at least $2,500. After you’ve added in utilities, food, health
costs, transportation, entertainment, and all the incidentals that go into
living an active retirement life, your $80,000 annual income will have been
spent—and then some.
I’ll leave you with a couple of
suggestions. If you manage to accumulate
$1 million by retirement, plan to live in a less expense locale. Select a state with no income tax and a
community which offers a pleasantly modest standard of living on a low cost
budget. However, if your aspirations run
higher, then follow my second recommendation:
Plan to have accumulated, by retirement, a nest egg in today’s values of
three million dollars. Count on an
annual return of no more than 2½% and prepare to be
heavily taxed. Welcome to what the
future holds—a brave new world.
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If you enjoy this
weekly Straight Talk by Al Jacobs, you’re invited to check out my monthly
Financial Newsletter, as well as my new book, The Road to Prosperity
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