$1
Million Doesn't Cut It for Retirement By Joe Mont - Sunday, March
21, 2010
Conventional
wisdom says you need to save $1 million for retirement.
That target may be easy to remember, but
it falls short of the true cost of what's required for post-career
comfort. Longer life spans, the threat of inflation and the
uncertain future of Social Security benefits make this long-touted
savings advice inadequate for most, advisers say.
Scottrade recently polled 226 registered investment advisers
on the topic and found that 71% don't believe $1 million is
enough for the average American family. Most said families
need to save double, or more than triple, the amount.
"Younger generations, especially, need to set their
retirement goals higher than other generations and start saving
as early as possible," says Craig Hogan, Scottrade's
director of customer-relationship management and reporting.
The survey solicited opinions about the current investment
habits of Americans. Questions were broken down by generations
to determine advisers' opinions on average investment goals
in today's dollars for various groups.
Generation Y (ages 18 to 26) needs to save at least $2 million,
according to 77% of advisers. Forty percent put the figure
at $3 million.
Nearly half of advisers (46%) said Generation X (ages 27
to 42) should at least double the $1 million goal. Twenty-two
percent suggested more than $3 million.
For Boomers (ages 43 to 64), 35% recommended $2 million to
$3 million. Thirty percent suggested $1.5 million to $2 million.
According to Scottrade's analysis, seniors are the only generation
that may come close to needing only $1 million. Forty-four
percent of advisers said $500,000 to $1.5 million is sufficient
for average families in that age bracket.
Bill Smith, president of Ohio-based Great Lakes Retirement
Group, is among the advisers who took part in the survey.
As he sees it, too many people rely on online retirement calculators.
Much of that guidance uses a target based on making do with
70% to 80% of pre-retirement income.
"I've never been a big fan of planning to earn less
in retirement than you are making now," he says. "I'd
like to see an individual continue making the same amount
of retirement as when he was working. Who wants to set themselves
up in retirement to make less?"
While most people will spend less when they retire, inflation
or the onset of a long-term illness could wipe out savings
without proper protection or planning.
That said, there's no secret to meeting a retirement goal:
maximize your contribution rate, have a greater tolerance
for risk when you're younger and downshift to bonds as you
grow older. Successful preparation, however, begins with setting
a realistic goal and understanding your true financial picture.
Debt needs to be carefully considered as well as leaving
money for the kids.
"There are two extremes," Smith says. "There
are individuals who say, 'We don't care if we have anything
left the day we die -- we are OK with that last check bouncing
when we are gone.' Then there are the individuals who don't
do anything in retirement because all of their decisions are
made around, 'I've got to leave it for the kids.' "