June 20, 2013 by Jean
For many, the dream of retirement is about having the luxury of time to do things that work never left enough time for and having enough money to be able to use our time in that way. But how much money is enough? Discussions of retirement planning in the United States often turn to “the number” that a person needs to have in retirement savings in order to have a good retirement. One figure that often gets mentioned is one million dollars.
Recently, the New York Times published an article headlined “For Retirees, A Million-Dollar Illusion,” arguing that most people are not saving enough for retirement and quoting Alicia Munnell, Director of the Center for Retirement Research at Boston College as saying, “Most people haven’t saved nearly enough, not even people who have put away $1 million.” A few days ago, I was contacted by the Huffington Post and asked to participate in a panel discussion on their online streaming network, HuffPost Live, organized in response to the New York Times piece. The HuffPost Live segment was entitled “A Million Bucks Ain’t Enough” and opened with the question, “If a million isn’t enough, what’s the magic number?”
One of the first books I read when I began to think seriously about retirement was Lee Eisenberg’s The Number (Free Press 2006), which I bought on impulse in a bookstore one day because I thought it would help me figure out “the magic number.” It turns out that Eisenberg’s point in the book is that there is no magic number, that financial planning for retirement can only take place in the context of life planning.
If, like almost all of us, you don’t have a million dollars to see you through your retirement, you’ll be relieved to know that none of the HuffPost Live panel thought everyone needed a million dollar nest egg for retirement. Mark Miller, a freelance journalist who writes primarily about retirement and aging, analyzed the assumptions and overgeneralizations on which this number is based. Echoing Eisenberg, he argued that each of us has to figure out how we want to live in retirement and then plan from there. Sandi Bachom, filmmaker, Huffington Post blogger, and a former financial high flyer who fell on hard times in her sixties, noted how liberating it was for her to realize that she could live quite happily without all the designer “stuff” that she formerly considered life necessities. I pointed out how unrealistic the million dollar goal is for most of us, noting that it is out of reach even for someone like me who has worked at a professional career at a salary almost double the median family income, has lived well below my means and saved consistently, and has spent the last 25 years with an employer who contributes 10% of my salary to a retirement account.
What bothers me most about the million dollar number is its negative psychological effect on those trying to save for retirement. This number is so out of reach for the vast majority of Americans that it doesn’t scare people into saving more; it just scares them – setting up the anxiety-avoidance cycle that I described in my last post and keeping many people from thinking realistically about retirement.
This difficulty in thinking realistically about retirement is compounded by the fact that we have so few realistic cultural images of retired people. There seem to be two dominant images available to us: the poor, homeless bag lady of our nightmares and the attractive affluent couple (beloved by investment company advertising), sitting on the beach and living a dream life of luxury. The reality for most retirees is not at either of those extremes. Yes, if you want to live like the couple on the beach or if you want to buy a yacht and sail around the world, a million dollars will not be enough! But most of us have much simpler retirement dreams.
When the gloom-and-doom prognostications of the million dollar crowd push my anxiety buttons to the edge of panic, I remember my widowed mother. She lived simply and comfortably in a mobile home that she owned outright in a mobile home retirement community (aka “trailer park”) in which the mobile homes were nicely spaced out and surrounded by lovely gardens. She had $1400 a month in Social Security and another $250 survivor’s benefit from my father’s pension, a total of about $20,000 per year – well above the poverty level for a single person, but not a lifestyle that would require even a fraction of a million dollars in retirement savings! She lived happily and never felt deprived. When she received a $50,000 payout from my father’s life insurance, she felt wealthy; and she was always giving away money from her savings to children and grandchildren because she felt she had more than she needed.
For those saving for retirement, the trick is to think realistically about what lifestyle you would like to have and what you can afford to save (and remember that savings in your younger years give you more bang for the buck). If you are like most of us, you will have a gap between those two and will then need to negotiate the difference between them by re-thinking lifestyle goals and retirement dates and shaving expenses to find a little bit more in savings. The goal is to find the sweet spot that allows you a lifestyle you can be happy with at a price you can afford.
Those interested in viewing the HuffPost Live segment that served as the jumping-off point for this post can find it archived here.