Just had dinner with my wife Tammy and my youngest son Timmy on Friday evening at Carrabba’s. Timmy is a senior in high school and over dinner we were discussing his plan to Nomad and the costs of moving out on his own.
I know it may hard for many of you to believe, but despite being my son and having a class on personal finance for High School, he hasn’t thought much about the costs of living once he’s out on his own. Few 17 years probably do. And even fewer have probably thought about saving for retirement.
However, in a recent study put out by Transamerica Center for Retirement Studies they claim that when they surveyed workers of all ages, the median (or middle) worker estimated they would need $1,000,000 in order to feel comfortable in retirement.
If you’re able to earn 5% per year return on your million dollar asset base, that means you’d be making $50,000 per year. Realize though that in 20 years, $50K per year won’t be worth what $50K per year is today due to inflation. Using a 3% inflation rate, it will feel a lot more like $27,638 per year.
To have an income that feels like $50,000 with a 3% inflation rate, you’d need more like $90,000 per year in income. To get $90,000 per year in income, you’d need to have saved closer to $1.8 million dollars.
Whenever I discuss Nomad in live classes there are inevitably some people in the room thinking I don’t need $X million dollars… I’d be happy with just $1M… I’d strongly encourage you to pause for a moment and rethink that. What does $1M mean 10, 20 or even 40 years from now when you’re retired.
Guessing
Do you know want to know what I believe to be the most scary thing about the study was? It was that the typical person just guessed to come up with a number. Even the most rudimentary estimating will make you better off in planning for your retirement.
We will continue the conversation about how much you need for retirement and how to accomplish it with rental real estate as we discuss Nomad.
