Why $1 Million Will Never Be Enough…

by James Hendrickson on November 13, 2012 · 6 comments

(Guest Post by Adrian J. Cartwood)

It used to be that people aspired to become millionaires.  One million dollars was regarded as the pinnacle of financial success.  Whole books were written on the subject.  And, the only argument was whether you should get there quickly (Rich Dad, Poor Dad) or slowly (The Millionaire Next Door).

Now, it’s actually easy to become a millionaire! Easy, if you don’t mind 40 years of honest, hard work and if you practice basic financial common sense. If so, the chances are excellent that you, too, will hit that magic $1 million mark by the time you retire. For example, if you start off earning $25,000 and work for 40 years (earning around $80k in your last pre-retirement year), and save just 10% of your annual salary (returning 8% p.a. on your invested savings), you will have exactly $1,000,000.

The problem is in surviving as a retired millionaire.  You see, in 40 years time, when you retire, you will be used to living on $72,000 p.a. ($80k less 10% for savings), and $1m will ‘safely’ (at a 4% withdrawal rate) give you only half of that to live off.  And, you can halve that twice again to allow for 40 years of inflation, so you will really be retiring on the equivalent of just $10,000 a year in today’s purchasing power.  Time – and inflation – is your enemy: the longer you take to reach your million dollars, the less it is worth in spending power.

So, aiming for $1 million over a full, 40-year working life (starting now) is no longer a reasonable financial target.

This gives you two options: aim for more money in retirement, or aim to get your million dollars sooner.  If you still start by earning $25k p.a. but are prepared to live off just half of that you will be able to save $1 million in 24 years time. If you then keep working for a further 16 years, still saving 50% of each paycheck, you will be able to retire with more than $4 million in the bank after 40 years, enough to fund a $37,500 p.a. lifestyle (in today’s dollars) throughout your retirement.
But, if halving your standard of living so that you can save a full 50% of your weekly pay packet for 40 years doesn’t sound like a reasonable option for you then you need to aim for Plan B, which is to increase your income and learn how to invest.

Aside from demanding pay increases and promotions, there are lots of ways that you could increase your income. For example, you could start a part-time business.
My son started an online business from his bedroom when he was 12 years old.  He cut his teeth selling toys on eBay before setting up his own website, and had over $200,000 in his bank account before he graduated high school just 5 years later.

If you could add that $200,000 to your own savings (say, after 5 years of running your own part-time business) then you would have nearly $4,000,000 in the bank after 40 years, even if you continued saving just 10% of your $25,000 salary.

Perhaps starting a business is difficult. Perhaps you will fail. But, it seems easier to me than trying to save half your paycheck for the rest of a very long working life, or trying to survive in retirement on just $10,000 a year.

Adrian J Cartwood is a self-made (and, recent-retired) multi-millionaire and author of the personal finance blog “How To Make $7 million In 7 Years“ where AJC blogs about his personal journey from $30,000 in debt to $7 million in the bank. AJC (in conjunction with popular blogger and author, Debbie Dragon) has just published his first book, “Share Your Number“!

{ 6 comments… read them below or add one }

1 Veronica @ Pelican on Money November 13, 2012 at 12:48 pm

I think that’s what many of us are going for – starting our own businesses. I’m curious how you made your money?

2 AJC @ 7million7years November 13, 2012 at 11:34 pm

@ Veronica – Yes, it’s true that business played a large part for me; but, most of my early wealth came the good ol’ fashioned way: delaying gratification to build up a ‘warchest’ and then going out and investing it, mainly in real-estate + some stocks. Here’s my story:


3 Victoria @ Lend Not Borrow November 14, 2012 at 7:01 pm

Wow…we’ve come to the place where $1M is not enough! You outlined someone who was actually saving 10% of their income for 40 years. I can only imagine the fate of those who don’t have 40 years or who aren’t saving 10%…

Thanks for breaking it down for us! What an eye opener

4 AJC @ 7million7years November 14, 2012 at 8:33 pm

@ Victoria – given that many people would love to retire on at least $100k a year (so that they can travel, drive nice cars, and so on), we’re not far off the time when even $10 million won’t be enough … but, I think I’ve scared enough people for one day, so let’s keep this one to ourselves? ;)

5 Kevin @ Ask for Benefits November 15, 2012 at 1:05 pm

Even 7 million is not enough if you allow your net worth and lifestyle to become your idol. At 7 million you begin to think, “if only I had 8, then I would be happy”.

Contentment with what we already have is the key.

6 AJC @ 7million7years November 15, 2012 at 6:45 pm

@ Kevin – That may be the case for many, but I happen to be living the life that I planned and, no, I don’t need $8 million in order to live that life.

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