Moderate Millionaires?

The Wall Street Journal wrote about the proliferation of 401k millionaires as reported by Fidelity. UBS calls them "moderate millionaires" which is a nod to the reality that having a million bucks "ain't what it used to be." There were more than 900 comments. I didn't read all of them but quite a few with a lot of overlapping ideas. The following two comments captured the part of thread I found to be most interesting and productive.

A million dollars (before tax) isn't exactly extravagant by any means, I think most would need 2 million to retire nowadays.

And

I think $2.5M is probably the new bar for a "comfortable retirement", with lots of variability based on context (location one lives, expenses, etc.).

A million dollars will sustainably generate $40,000-$50,000/yr when invested in a portfolio that includes something close to a "normal" allocation to equities. Maybe that amount would go a long way to covering someone's needs or maybe not but it's not an enormous sum of money.

Do you have close to $1 million accumulated or will you? What part can $40,000-$50,000 in today's dollars play in your post-retirement financial picture? Are you likely to get up to $2 million or $2.5 million implying $80,000-$100,000 of portfolio income which sounds pretty good but I doubt anyone is driving a Ferrari, wearing a Patek Phillipe or flying private to Europe at that income level so maybe even $2.5 million "ain't what it used to be" either.

If you think you need $100,000/yr in today's dollars and aren't likely to have $2-$2.5 million, it's going to take some work and planning to figure out how to get to $100,000. Maybe someone earning a little more than most people and retiring in 2030 might expect $3000/mo and $1500 for a spousal benefit which works out to $54,000/yr which leaves $46,000 to go plus a little more to cover taxes. Having $1,150,000 would cover the $46,000 gap assuming 4% but this scenario would need another $6000 or so for federal income tax so really the need is $1.3 million but then there's no real margin for error like paying for some sort of very expensive home repair.

What if they actually reduce Social Security? That $54,000 might drop to $40,000. Note, if Social Security gets reduced, taking it before the reduction date won't spare anyone from having their payout cut. If there ends up being any sort of cliff involved it would be at some age many years from being eligible.

As we play out the scenario, being $150,000 short is not catastrophic. Someone could retire as planned and figure out how to get by on less. They could also work a little long and maybe a year or two's worth of contributions plus modest gains in the market could be the difference maker.

In the comments, I saw one or two references to "other sources of income" which I place a high priority on as being the answer. A post-retirement sidehustle/consulting/monetized hobby that pays $30,000 is like having an extra $750,000 ($30,000=4% of $750,000). In the example we're working with, $30,000 creates a margin for safety, it's not enough to dramatically enhance lifestyle.

If those numbers aren't comfortable enough then I think the answer would be adding a second additional income stream. A large enough income stream or two and you might be able to delay or greatly reduce how much you take from your portfolio early on which could mean being able to take a little more if you don't start to rely on your portfolio until 80 (RMDs don't have to be spent).

I've been writing about this idea forever and as I've gotten older I've gone down the road creating small income streams if/when we ever need them so these posts really are about sharing one way I'm preparing financially for when I'm older.

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.