Money Infant

Baby Steps to Financial Freedom

Why I Don’t Want 1 Million Dollars

Because I honestly don’t think that it is enough. Depending on your age it might not even be close to enough. How much income does $1 million generate each year? It depends on how you have it invested of course, but a conservative figure would be 4% or $40,000 per year.

Can you live on $40,000 per year? I know I could right now, but what about 10, 20 or 30 years from now? It’s not too likely is it?

The reason I don’t want 1 million dollars is that by the time I retire it won’t be nearly enough to cover my living expenses and unless you are already well into your 5th decade it isn’t enough for you to live on in retirement either.
It’s difficult in the extreme to project into the future because so many things can change. Who would have thought 10 years ago that interest rates on savings would be well below 1% or that you could get a fixed 30 year mortgage for under 4%. In case you’ve forgotten, the average national mortgage rate in the U.S. in February of 2002 was 7.01%

1 Million Dollars Versus Inflation

Inflation also has to be taken into account. While this has been running under 3% for much of the past decade (it was actually negative during much of 2009), we can’t assume that this will continue into the future. Inflation from 1952 to 1967 was quite similar to what we are experiencing now, but the pendulum always swings back the other direction. From 1968 to 1982 inflation ran at double that rate or 6% and hit highs of over 14% during 1980. What will be the value of your million dollars if inflation hits 14% again or runs at 6% for 15 years?

Whenever you are planning for the future it pays to plan for the worst case scenario. Of course we can’t really do this effectively because a worst case scenario might see us repeating the deflation of the Great Depression or the hyper inflation of post WW1 Germany or Argentina in 1989 and 1990. We can however plan for the worst case scenario within “normal” boundaries, excluding black swan events in our plans.

Using a 7% inflation rate it is easy to project prices doubling every 10 years using the Rule of 70. If you feel that 1 million dollars is enough to retire on in today’s dollars, what about 20 years from now at 7% inflation. Easy enough to see that in 20 years you would need 4 million dollars, but it doesn’t stop there. Many retirees will live another 20-30 years after they retire. This means to be even close to comfortable given the probability of increased inflation during the next 40-50 years you would want to accumulate something approaching 6-8 million dollars if you are planning to retire in 2032. This should cover your current needs at that time as well as providing some growth to provide for future increased needs.

Published Inflation is Wrong (sort of)

And consider this…we may already have inflation of over 6%, especially if you are one of the non-consuming consumers (as I assume many of you are).

The published inflation rate comes from the Consumer Price Index (CPI) which is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Because it averages many different goods it is normal that the rate of inflation for some items (say food and gasoline) is going to be higher than the stated average and the rate of inflation for others (consumer durable goods, clothing, etc) will be lower than the stated average.

This is in fact the case right now and if you look at the most current CPI data you will see that food prices for home use are rising 5.3% and gasoline is rising at 9.7% while items such as communication (PC’s, cable, internet) are falling 0.6%, both recreation and personal care products rising just 1.4% and housing rising just 2.0%.

If you agree that food and transport are your biggest consumer expenses once you retire you can see how your million dollar nest egg could deteriorate much faster than you expect, even though inflation appears to be quite tame.

If you’ve been focusing on amassing personal wealth of 1 million I suggest you change your mindset somewhat to focus on making the first million. Once you’ve broken through that psychological barrier I think you will find it easier to focus on building a more inflation proofed nest egg that is several times larger.

What is your goal for retirement? Are you shooting for the popular 1 million dollar mark or do you have higher aspirations? Am I crazy to think 1 million dollars isn’t enough?

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27 Responses to “Why I Don’t Want 1 Million Dollars”

  1. MoneySmartGuides says:

    I agree that $1 million is nowhere near enough. I’ve run a bunch of numbers and for me, the goal is closer to $5-7 million. It is a lot, but I have no clue what my spending will be when I retire. It could be lower since I won’t have to buy work clothes or gas for commuting to work. But I love playing golf. What if I choose to play 4-5 per week? That adds up. I want to see the world. What if I don’t get that chance until I retire? That travel will cost money.

    My $5-7 million allows be to include all the spending I can think of and still have a small cushion should it be a little more. I’d rather calculate conservatively and think I need more than get to retirement and realize I don’t have enough.

    • I’d guess with the 5-7 million calculation you are probably right around my age, because I would say 7 million on the high side as well. It depends I think on how long you want to work. As long as I have something that is interesting, challenging and enjoyable I think I will continue to work, even when I’m 85.

  2. Modest Money says:

    These numbers are a bit overwhelming, but probably pretty realistic. Of course it depends on what kind of lifestyle you want to live when retired. Some people aren’t too big on travel or other expensive hobbies. You never know how long you will live after retirement though. So you do have to save a lot more than you might need with conservative estimates.

    • I think the reason most people focus on 1 million is indeed because larger numbers are overwhelming. As I said in the post though, I don’t think that in 20+ years time you will be living an extravagant lifestyle from the income generated by 4 million or even more.

  3. retirebyforty says:

    I don’t think a million dollars in cash is enough either. That’s why I’m invested in real estate and stocks. They are somewhat inflation proof and should continue to rise with inflation.

    • I have actually been considering real estate recently, simply because I feel that anytime there is a huge correction in a market (such as what we’ve experienced in housing), the subsequent rebound is a great opportunity to profit.

  4. Dollar D @ The Dollar Disciple says:

    Clearly $1M isn’t what it used to be. That’s why rather than try to build up a lump sum, my focus is on the income side of the equation. Replacing your salary is a LOT easier than building up a giant nest egg.

  5. MillionDollarPursuit says:

    You’re right – a Million Dollars is not enough for retirement. Though I did meet a guy once who was working in a hardware store who’s monthly expenses were a mere $275 a month (including rent,food,EVERYTHING). I think it’s safe to say that he lives a modest life and could retire on a fraction of a Million. But for the rest of us – not likely. You might be wondering why my name and domain are MillionDollarPursuit… it’s not because I’m in the pursuit of a Million Dollars to bank and live off. It’s because I’m in the pursuit of a Million Dollars to use as capital to finance several original business ideas I have. I’m getting there though, actually much quicker than I thought. When I finally get the Million to fund my ventures – that’ll be when I can bank some serious retirement coin.

    • Holy crikey $275! He is one frugal dude that’s for sure.
      Good luck on your goal to finance your business ideas. What are you using as a means to generate the necessary capital?

  6. Nick says:

    The more I focus on “having enough” the less I focus on a specific number. The way I see it, I can’t control things like the larger economy and inflation, so I don’t worry much about those. I focus on what I can control (my earning and spending) so I try and maximize the benefit of those things.

    I also get more interested in cash flow every day… I’ve been jonesing for some good income real estate…

  7. CultOfMoney says:

    Yeah, the days of a million bucks being enough to retire on have past. Especially when I’m looking to retire in 30-35 years. But then again, I’m also hoping to have an actual pension when I retire (assuming that I stay at my current job for quite a while longer). They don’t have those much anymore, so I may need to stick around just to keep the option open.

    • Definitely stick around for the pension if you can, but don’t count on it. I was with a company that has a pension plan for 10 years, unfortunately they laid me off. I’ll end up getting around $450/mo when I’m retired in 20 years, which will be enough to buy peanuts at that time. My father also worked for a company with a pension plan that closed down…many of his co-workers got very reduced amounts for their pensions. He was there just long enough by 2 months to get grandfathered in. Very fortunate for him as otherwise 30 years of hard work and planning could have been decimated.

  8. Poor Student says:

    You say it like you would turn down a million dollars. While I think that living on a million dollars is tougher than many would think. I do think that I could do it. I do not imagine inflation of 6% e very year, but you are not wrong to prepare for it. I do not have a set number for what I am going to need for retirement, but I know that if I had a $2 million portfolio and I was ready for early retirement, I would not keep working to make another $5 mill.

    • Yes if I had 2 million today and was 65 years old I would retire. I am 20 years away from retirement though. I could probably stretch the 2 million, but not if we returned to the same levels of inflation we had from 1968-1982. No one imagines it, but then who would have imagined gold over $1700/oz, mortgages under 4% and oil over $100/barrel 20 years ago? or even 10 for that matter?

      And no I would not turn down a million dollars, why are you offering? :)

  9. Shilpan says:

    1 million is enough. :) I will show you how. Find a great hotel investment that generates 9-10% capitalization rate. And there are good investment opportunities right now. Normally, hotels are sold by multiple of revenue. So, if you put $1 million into a hotel(25% down), you are buying at hotel for $4 million. Hotels are sold at 3 times revenue. So, you are buying a hotel that has revenue in excess of 1.25 million. With good management, you can take $200,000 in net profit every year.

    Key is to find a great brand like Hampton, Holiday Inn, Country Inn and Suites.

    • Financial Samurai says:

      Hmmm… tempting! Although, if all I had was $1mil, I think I would shit a break investing the entire sum in a hotel!!

      • Interesting indeed. I think I wouldn’t have the cajones to drop it all into a hotel too.

        • Shilpan says:


          Another option is to take $250K and buy a house with cash. Take another 50K and pay off credit card and car loan debts.

          Now, invest $700K in high dividend paying stable, big cap stocks. At 4% dividend and 4% average return, you are growing that money by 56K every year.

          Now, find a hobby that you love and can make you another 30K. You can live happily for 86K a year anywhere in the world. :)

          • Yes, you can live now on 86k per year happily, but I expect to be around for another 40-50 years. How far will that 86k go in 2032 and beyond?

          • Shilpan says:


            Einstein’s rule of 72 will do the magic. In 40 years, your portfolio should be worth much more than 1 million. :)

          • The concern is not with the growth of the nest egg, but rather with the expansion of inflation. I know many people don’t think about it because it has been so low for much of the past 30 years, but that doesn’t mean it is gone :)

            So yes the portfolio will almost certainly be worth much more than 1 million, but what will the purchasing power be? And this assumes that you aren’t spending the growth of said portfolio for the next 40 years.

            And it also assumes you have the 1 million now, not as a savings goal over the next 15-20 years.

  10. Financial Samurai says:

    It depends on when you get that million bucks yeah? If we had $1 million liquid right now, then all is good. In 20 years, not so much.

    All about growing the nut baby!

  11. Jim Parker says:

    In your calculations, why isn’t social security income added in? I thought interest from a million plus my SSI would be more than enough.

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