A cool million dollars isn’t what it used to be.
There are more millionaires in the United States and around the world than ever before, with nearly 24.5 million millionaires nationwide in 2022, according to the latest Credit Suisse Research Institute Global Wealth Report. Even so, having seven figures in the bank offers less security than before against inflation and extreme market fluctuations.
“This mark is easier to get, but it may not meet our expectations,” said Dave Goodsell, executive director of the Natixis Center for Investor Insight.
These days, fewer Americans, including millionaires, feel confident about their financial situation.
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Even among high net worth individuals, 58% said they are accepting of having to keep working longer and 36% fear that retirement is not even an option, according to the latest data from Natixis Investment Managers.
In fact, 35% of millionaires said their ability to be financially secure in retirement is “going to take a miracle,” the survey of more than 8,500 individual investors found.
Americans now expect them to need $1.25 million to retire comfortably as higher costs weigh on household budgets, according to a separate study by Northwestern Mutual — a 20% jump from the $1.05 million of respondents cited last year.
People are surprised when they do the math and realize that 4% of $1 million is only $40,000 a year.
David Goodsell
Executive Director of the Natixis Center for Investor Insight
“A million may seem like a lot, but a lot of people are surprised when they do the math and realize that 4% of a million dollars is only $40,000 a year,” Goodsell said. “It’s usually a little less than what these people are used to experiencing.”
The 4% rule is a popular guideline for retirees to determine how much money they can live on each year without fear of running out later.
However, given current market expectations, the 4% rule “may no longer be feasible,” Morningstar researchers wrote in a recent paper.
Retirement rules of thumb are ‘outdated’
“A lot of rules of thumb that we use are outdated,” Goodsell said.
At the same time, the average 401(k) balance is now down 23% from a year ago to $97,200, according to Fidelity Investments, the nation’s largest provider of 401(k) plans.
“Maybe you got that $1 million, but you took a 20% hit on it,” Goodsell said. “On top of that, the prices are higher.”
Another one Bankrate.com survey also found that 55% of American workers now believe they are behind in their retirement savings amid persistently high inflation and market volatility.
“People have to look at how much they have and take the time to do the math to see how long it’s going to last,” Goodsell said. “The name of the game is preservation.”