What’s a million dollars worth anymore?

A million dollars, courtesy of Jeffrey Putman

A million dollars, courtesy of Jeffrey Putman

Why is it that we have this fascination with getting a million dollars in our bank account?  Besides the fact that we love round numbers, why is it that a million dollars is so important?  The reason I’m asking this is because, while thinking of my goals for the future, for retirement, for getting the life that I want to live, this number keeps standing out.  One Million Dollars.  Over at Budgets are Sexy, J Money has started a little club, with just over 100 members who are trying to become millionaires.  Whenever you read about retirement, whether on Forbes or Bloomberg, you read about the million dollar nest egg.  So, what can I even do with a million dollars?  Would it be enough to retire on?  Let’s run down some numbers and figure out what makes sense.  Is one million dollars the goal?  Is it more?  Could it be less?  How the hell do I even get to a million dollars??

Well, let’s start with the easy one question first: How the hell do you even get to a million dollars? I’ve spoken about this briefly before but I didn’t delve into how long it could actually take.  Let’s look at some basic assumptions and then figure out the timeline with Dave Ramsey’s Investment Calculator.

  • Starting Value of $10,000
  • Annual rate of return of 8.00%
  • Contribution of $400
  • Contribution and Investment timeline of 35 years

If we look at a situation like this, you’ll have saved up just over one million dollars in those 35 years.  But I’m on a bit of a more restricted timeline than that.  I’m 26 and I want to be out of the rat race inside of 11 years!  So, let’s look at a slightly more aggressive timeline.

  • Starting value of $10,000
  • Annual rate of return 10.00%
  • Contribution of $900
  • Timeline of 11 years

$420K.  Damn.  Not even half way.  That’s pretty discouraging.  I adjusted the rate of return up a a little bit because I’m considering that in the future, I will use real estate to get some of my income going and that has a bit higher rate of return (12-14%), so combined with stocks and bonds, I think a 10% returns is possible for this.  But, still, this doesn’t get me to where I need to be!  But let’s think about the above situation.  I’m saving $900 a month.  That’s only 25% of my monthly take home salary.  If I’m able to save 50% of my salary, well, I might get a bit closer!  After 11 years, I’d have saved just under $900K.  Not quite one million but it would definitely be able to take care of my day to day life!  Especially if I’m able to save 50% of my monthly take home, $900K should be able to provide more than enough income from dividends, real estate returns, etc.

But still, what does one million really get me?  Well, the median home price in the US was $221K as of 2012.  So, if we think we’re living a little bit large, this little cash hoard could buy two homes outright: one for living in and one for renting out, providing a good little income stream.  Since I’m not one to want ultra luxury things, it would probably get me a cheap, diesel car as well.  With the rental income from the house, dividend and bond income, I’d have more than enough to survive on and, plus any consulting or freelance work, even save up and grow my nest egg even more.

There it is!  A million dollars isn’t worth what it used to be but it can definitely provide a frugal family with a decent buffer from the rest of the world and maybe even allow them to leave the corporate world behind for more fun things, like kayaking or coaching.