I'm a Financial Advisor: Why Feeling Rich in Retirement Goes Beyond $1 Million Benchmark
While the figure of $1 million used to be thrown around quite a bit as a milestone for retirees to feel rich, inflation and other factors have thrown that number largely out the window for many Americans. However, pinpointing a replacement amount can prove difficult.
“The number moves around more than people expect, and it’s rarely just about what someone has saved,” noted According to Taylor Kovar, certified financial planner (CFP) and co-founder of UseKlear.com, the exact number moves around more than many expect, and goes well beyond simply how much someone has saved.
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“Working with retirees, I've noticed feeling rich usually has less to do with a dollar amount and more to do with someone's relationship with money," he said.
Read on to see what Kovar revealed about this relationship factor, as well as what other financial advisors told MoneyLion are considered amounts of money retirees generally need to feel rich.
The Impact of Childhood
“Someone with $2 million who grew up worrying about scarcity can still feel like it's not enough, while someone with $600,000 who's always felt secure can feel completely at peace,” Kovar said. He went on to say that if he had to break it down into a dollar range, many retirees he's spoken with tend to quote a few million as the point of feeling financially comfortable.
According to Kovar, that number has crept up over the years, though, partly from inflation, but also healthcare and long-term care costs weighing more heavily on people's minds.
“[It] also shifts based on how someone was raised to think about money, since the feeling of not having enough tends to get wired in early and doesn't always fade just because the account balance changes,” Kovar noted. “What matters more than the total is whether someone has made peace with their own spending and has a plan for turning savings into income they can rely on."
He then pointed out that he's seen retirees with less saved who are more at comfortable than those with more, simply because they aren't comparing themselves to a benchmark.
A Number To Replace $1 Million
Marcus Sturdivant Sr., managing member of The ABC Squared, explained that he finds the $1 million number compelling on the sheer basis of it still being the de facto benchmark for many, especially as "we’ve seen inflation impact how purchasing power has been reduced over the last few decades.”
According to Sturdivant, perhaps what many retirees see as $1 million to feel rich is actually closer to $2.5 million in terms of today’s dollars. Ultimately, it's about considering how much you want to save against how much you plan to spend.
“Having $100 million with a lifestyle set to spend $120 million is no different than a person who has $1 million with a lifestyle set for $1.2 million," Sturdivant said. "It’s key to spend less and consider tax implications.”
Inflation and Lifestyle Factors
Melanie Musson, a finance expert with Quote.com, also noted that the threshold for feeling rich depends on the individual. She said some retirees would feel rich with $2 million in savings. If they lived a lower-middle-class lifestyle, $2 million would provide financial stability and more.
“However, someone used to living on $1 million a year might need $100 million saved to feel rich in retirement,” she added. “For the average person, they would likely feel rich in retirement if they had $10 million or more invested and ready to tap into as retirement income.”
Musson and Sturdivant each added that the amount that a person needs to feel wealthy has increased over time.
“Inflation plays a big role, but another factor is that people are used to luxuries that raise living expenses and increase what it takes to feel wealthy,” Musson said. “For example, those born in the Great Depression often barely had food, compared with generations today who are used to buying $7 coffees every day.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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