If you are middle aged or older, you probably remember a time when a million dollars seemed like the ultimate financial goal. You may have thought that if you could only get to this million-dollar mark, you would be able to stop working for the rest of your life.
Today a million dollars isn’t nearly as impressive. While a million dollars is nothing to sneeze at, it isn’t enough to allow you to quit your job, support your family and in some states, it might not even be enough buy a house.
Read on to find out what being a millionaire means in today’s economy and how it compares to what that amount was in previous years.
Some Fast Facts
Before moving on, let’s take a look at how inflation impacts the U.S. dollar.
If a millennial who is 40 years away from retirement makes their first million, it will not be enough to allow them to quit their job. In fact, by the time they retire that same million dollars will only be worth $306,000.
Millionaires from the 1900’s would need $30 million for equal purchasing power in today’s economy and closer to $100 million to have any sort of impact or influence on the world’s economy.
To put it in other terms, if you bought an item for $1 million in 1970, that same item would now cost $6,644,252,577.32. That’s considering an inflation rate of 564.4%
Furthermore, it is estimated that by 2074, this same $1 million mark of wealth will now be closer to $5 million.
Being A Retired Millionaire
There was once a time that retirees would feel pretty good about leaving the work force with $1 million in their nest egg. Now assuming that most people retire at the age 65 and live to around 85, a million-dollar nest egg would allow people to withdraw $40,000 to $45,000 a year through their 20-year retirement.
While this amount of money could be enough for some to live comfortably, depending on the state you live in and your lifestyle, it is not enough for many to survive.
When considering the expenses, you will be facing, financial advisors are most concerned about medical expenses. A couple covering 90% of their health care costs after insurance could easily end up spending $261,000 of that money on medical care accounting for more of a quarter of what they have saved alone.
To make matters worse, it is predicted that by the time millennials retire, $1 million will barely be enough to cover housing costs or medical expenses.
A Million Dollars State by State
So how far exactly will a million dollars go? Well that differs from state to state and country to country.
Locations with higher living expenses will blow through a million dollars a lot sooner than those where the cost of living is lower.
However, any way you look at it, the situation is rather bleak.
Yahoo News did a report where it totaled up every state’s annual expenses for the year. Groceries, housing, utilities, transportation and healthcare were all considered.
Mississippi ended up the winner with a million dollars lasting most residents 23 years, 2 months and 2 days. Hawaii was on the other side of the spectrum with residents blowing through the money more than twice as quickly, lasting only 10 years, 2 months and 29 days.
How to Make a Million Dollars Last
While things are not looking great concerning how much a million dollars can actually buy in today’s economy, the right investments and financial planning can help you stretch that money further. Here are some options that will make the million work for you, particularly through retirement.
Invest Your Money: Investing your money in a high yield money market account can get you close to 2% interest and you will still have unrestricted access to your money.
Smart Financial Planning: With the right financial planning, you will be able to make your money go farther. You can talk to a financial advisor to get your money working for you but putting some money aside, making smart purchases and eliminating unnecessary expenses can all be helpful.
Get the Right Insurance Products: A good life insurance plan will help your family cover their expenses after you are gone. You may already have an insurance plan with your employer, but it will not be with you if you switch jobs or retire. That’s why it’s a good idea to get your own policy independent of your employer. Experts recommend a term life policy equal to 5 – 10 times your annual pay.
Plan for Healthcare Expenses: Healthcare expenses can make a substantial dent in any savings you have, even if you have insurance coverage. To make sure your expenses don’t eat away your savings, it’s advisable to enroll in Medicare Part D and Medicare supplement plans in addition to your basic Medicare coverage. Taking these steps can end up saving you thousands of dollars.
Optimize Your 401K: 401K’s are tax deferred investment accounts that allow you to contribute up to $19,000 a year in pre-tax, interest free savings. You can optimize your 401K by analyzing it and rebalancing your investments. This is a complicated process, but it will pay off in a considerable boost on your returns. Robo-advisor services like Blooom can help streamline the process.
Don’t Overpay on Taxes: There are several common ways people overpay on taxes. These include the following:
- Overpaying on social security benefits
- Paying investment surtaxes
- Overpaying capital gains taxes
- Paying higher premiums
- Paying penalties on 401(k)’s and other retirement account distributions
Withdrawing money from certain accounts in an informed way can keep you from paying unnecessary taxes. A financial advisor with tax expertise will help you navigate the world of taxes to make sure you’re not overpaying.
A million dollars definitely isn’t what it used to be, and it certainly isn’t enough to get most people through retirement. But with the right financial planning and investing, you may just be able to make your money work for you. Good luck reaching your financial goals!