Monday Quick Tip: Beware of $1 Million Dollar Syndrome

Monday Quick Tip: Beware of $1 Million Dollar Syndrome

We all understand the power of inflation, and we also understand that $100 doesn’t buy what it used to. This might come as a surprise to some, but $1 million also doesn’t go as far as it once did. Our culture in the U.S. has long placed value on becoming a millionaire and the alleged financial security that comes along with having accumulated $1 million. For example, if a retiree expects a $1m portfolio to sustain retirement and, if we use the median successful safe withdrawal rate of 6.5%, this amounts to an income during retirement of $65,000 per year (gross of taxes and fees). For some, this may be more than enough to sustain retirement. For others, especially those who have grown accustomed to living with a much higher standard of living, $65,000 will not be adequate. In order to avoid $1 million syndrome, one should give thought to what kind of income one wants during retirement and be sure to put together a savings plan that will generate that amount of income. For many, I’m afraid the number is going to be well beyond $1m. If you’re young (or even if you’re not young!), start saving 20% of your gross income, and be sure that you continue to do this as your salary increases over time. In order to obtain financial security, it’s critical that the percentage of one’s savings keep pace with the percentage of one’s income over time....
How Your Relationship Choices Might Dictate Your Money Habits

How Your Relationship Choices Might Dictate Your Money Habits

Writing for CNBC Money, Ester Bloom explains that it wasn’t her financial savvy that helped her save $100,000 for a new apartment while only earning $30,000 a year in New York City. Instead, she maintains, “the most important decision I made was to surround myself with like-minded people, both romantically and socially.” This is interesting. I’ve long known that the core tenets of financial success are simple: Be frugal; save money; and, invest your savings. But what if you’re in a relationship where a partner doesn’t share the same values of frugality, or what if your friends are always encouraging you to spend more? As Bloom asks, “What good is a minimalist mindset, after all, if you’re living with someone who eats out two or three meals a day? Eventually you too will succumb to Seamless.” There are really important aspects of finance and investing that we in the financial advisory business broadly understand to fall under the rubric of behavioral finance. I suppose this would be a good example of a behavioral finance topic. What fascinates me, however, is that it’s not just the individual’s behavioral patterns that have a bearing on one’s financial health, but also the behavioral patterns of those in one’s direct social circle. We often hear of the importance of emotional, sexual, and physical compatibility in relationships, but what about money compatibility? According to Bloom, money compatibility is paramount: This is what relationship advice-types mean when they say to make sure you’re with people who share your values. If you want to be an ant, don’t shack up with a grasshopper. Don’t even go out drinking...
Will You Ever Be Able to Retire Like Your Grandparents?

Will You Ever Be Able to Retire Like Your Grandparents?

  Katie Lobosco, writing for CNN about retirement, wonders if she’ll ever be able to retire like her grandmother did. She laments, “I won’t be getting a pension, let alone two, and I won’t be able to get my full Social Security benefits as early as Grandma did. There’s a chance I won’t receive as much. I’ll be relying on my own savings — big time.” This is the predicament in which many younger savers find themselves. It’s also something I talk with clients about every day. The retirement landscape is changing. People aren’t going into retirement expecting the normal “cliff” retirement. This is where you just stop working at 65 and never work again. Instead, many want a more gradual approach. This is sometimes due to personal choice, but other times it’s because the extra income is needed for a few more years. In any event, retirement planning can be a challenge, especially for young people. Lobosco goes on to explain that “Almost 70% of college grads now leave school with some student debt” and that “Just 14% of private sector workers receive pensions now, compared to more than 30% a few decades ago.” Adding to all of this, she rightly notes that life-expectancy has increased for younger generations of savers. But, according to her own calculations, there is some hope: Right now I set aside 13% of my income each year for retirement. But I plan on contributing more than that in the future. If I wanted to replace more of my income, I could start saving 21% now and retire at 67 with 85% of my pre-retirement...