so, i read somewhere recently that if you'd like to have a million dollars at retirement age (whatever that means) that you need to have $160,000 in investments by age 40. sounds sort of fuzzy to me -- i only came across it while browsing the web, so i don't have the exact source. it got me to thinking, though, about this fascination that we have about the million dollar mark. i mean, most of us can probably get by with far less than a million bucks at retirement. it all depends, of course, on your lifestyle and spending.
in talking to my wife the other day we spoke about retirement and how much of a fund that we would need. we'd like to be able to travel a bit, spend time with our families, dine out -- we're really not extravagant people. if we had a million dollars and our house was paid off, i'd certainly think that it would be very, very easy to retire. i figured, even at a modest 5% interest, we would be able to draw about $50,000 per year (before taxes) from this imaginary nest egg without touching any principal. but, what's the point in that? and, what's a reasonable amount of spending to budget in retirement?
i ran some calculations and i came up with this -- a $500,000 nest egg earning 5% would last over 20 years if we were withdrawing about $37,500 (that's the $50,000 from above after taxes) per year. that's with no other income what so ever, except for the retirement nest egg. since i don't keep a very tight budget, i can't tell you exactly how much we spend today, nor can i tell you what a dollar today will buy in 20 years . . . that's not really my point.
really, what i am getting at is this: a million dollars is just some imaginary line that some people make a big deal over. some of us could get by easily with a million dollars, others can spend that in a month. so, what it really comes down to is what each of us personally needs in retirement. unless it's really important to you, don't get hung up on the $1,000,000 mark, but instead, focus on your personal number: $500,000, $100,000, or whatever that number may be.