The Million Dollar Illusion?


Recent articles in the New York Times have added to he discussion of what amount is needed to retire. Focusing on $1,000,000, which is less than the cost of an average apartment in Manhattan, the first article suggests that this sum, which still sounds like a lot of money to the rest of the country, might not be enough to fund a comfortable retirement.

The problem is caused in part by the advice given to retirees to invest most of their retirement funds in bonds. There just isn’t enough income produced by $1,000,000 in bond investments. People who are in the top 10% of household incomes, for whom the median income is $150,000, can’t replace 70-80% of that amount, which is what they are expected to need, with the combination of Social Security and the interest on a $1,000,000 portfolio. And a further problem is that 90% of households, according to the article, don’t have an investment portfolio of $1,000,000.

A subsequent article follows up on this theme, and notes that the median financial net worth of households headed by those in the 55-64 age bracket is $61,300 (excluding the value of homes and cars).

This article adds as an additional cause for concern the decline of defined benefit pension plans and their general replacement with 401(k) plans, although they aren’t really a good substitute, according to an expert quoted in the article.

This will be a continuing theme of subsequent articles in this series. To this point, the solution seems to be to save a lot of money when you’re young and, when you’re older, get good financial advice and learn to live on less. As the comedian Jon Lovitz would say, “yeah, that’s the ticket”.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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