Bullshit.
At least I hope it's bullshit. I'm going to come up about $2 million short if it isn't, but I'm pretty sure it is bullshit.
It's also the kind of nonsense that keeps us working until we die at our desks, always wanting more, doing everything within our power to help some huge, highly profitable company stay huge and highly profitable, and always figuring we have to have the bigger house, the new car, the sailboat, the second home, the trip to China, and every other thing we ever wanted. $2.5 million will buy you a lot of stuff.
In addition, it's advice that will keep financial planners employed. Anyone striving to put that kind of money away is a good candidate for some financial planning advice, so I figure this type of article (and there are a lot of them) is self-serving. It's always professional financial planners who write them.
Here is the way I see retirement savings: The kids are gone, the house is paid for, you can move to a smaller home and live more simply. To help you, there is social security, and any pension or other money you may have coming, so you have some income. And then you have retirement savings to make up the difference between your income and what you spend. If you don't have enough savings, you adjust your spending. If you don't have any savings and no pension, you live off social security.
But let's say you have $500,000. Figure you want the money to last 25 years or so (you'll be pretty old by then.) That's a supplement of $20,000 per year. That's not much, but in my case I think social security for both me and Jackie plus my pension (I have one, small but enough to matter) will net us at least $40,000 per year. OK, so $60,000 doesn't sound like much either. But the kids will be gone (this is soooo important) and we won't need so much space. Also, that $60,000 comes with no social security tax and at a low income tax rate. Assume as well that the house will be paid off, or we will sell the house and buy another with no mortgage.
We want to travel, and health care costs are scary and unpredictable and potentially ruinous, I know, but really, you just can't live on $60,000? $5,000 per month with no mortgage doesn't sound so terrible to me.
So back to Nicholas Pell. How will you manage with $2.5 million in retirement funds instead of my paltry $500,000 (I hope!)? Well, as my clever and astute readers have already figured out, you can now supplement your income by a nice fat $100,000 per year for 25 years. (I am simplifying a bit of course, ignoring both inflation and investment income, assuming that they will cancel out.) I agree that most people should be able to retire with that much money. So much better than those poor slobs who only saved $2 million and have to scrape by on $80,000 a year plus social security.
It all seems a little crazy to me. I wonder how many people actually have $2.5 million to retire with. 10%? 2%? I just looked at the Google -- about 3.5% of US households have a net worth of $1 million or more. So I would say maybe 2% or fewer of us will actually retire with $2.5 million. Does that mean the other 98% can never retire?
Nah, it just means that $2.5 million is nuts. The better approach would be to start figuring out what you do have, then learn to live with that.
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