Have you and your 401(k) plan ridden this relentless bull market into glorious millionaire territory? If so, congratulations! Well done. Etc.
Now here’s the bad news: “The new rule of thumb is $3 million.”
That is financial planner Thomas Balcom explaining to Fortune why the long-held goal of a million bucks in retirement savings isn’t cutting it these days.
Another adviser in the story says that, in fact, $4 million to $5 million is the new goal for many. Considering only 3% of the U.S. population has a net worth of at least $1 million, according to the Spectrem Group, that is a real stretch for most.
As for the new target, it’s simply a matter of mathematics.
Assuming a withdrawal rate of 4% — standard in planning circles — $1 million delivers $40,000 a year. For some, that is plenty, but generally speaking, it doesn’t live up to the outdated goal of a luxurious million-dollar golden years.
Double that, and $80,000 is getting there. Moving up to $3 million, well, now we’re talking $120,000. Travel, dining out, all the things, are more realistic here.
So what does it take to achieve a $3-million goal? NerdWallet, using a 6% average annual return and a retirement age of 67, broke it down. As you can see, starting at 20 years old, you would need to save almost $1,000 a month for 47 years:
And if you don’t get started until 30:
