A Million Bucks Ain't What It Used to Be (But It Still Might Be Enough)

one Million dollars
one Million dollars

Most of us would like to be millionaires (except those of us who are billionaires, I suppose), but times have changed, and so has what a million dollars can do.

That hasn't escaped the notice of rich Americans. Imagine people with a net worth (excluding their primary home) of between $1 million and $5 million. Most of us would probably think of them as rich. Indeed, as of 2010, the median net worth of an American family was just $77,300, and that includes the value of their home equity. Having a net worth of a million dollars puts you in the top 7% of Americans.

But according to a recent Spectrem Group study, when those with a net worth of $1 million to $5 million were asked to rate how rich they are on a 100-point scale, with 100 being the richest, they put themselves at about 60, on average. It makes sense that they wouldn't put themselves too close to 100 -- after all, there are plenty of folks with hundreds of millions or billions of dollars. But a rating of 60 suggests that they see themselves as relatively close to being only half-rich.

The Incredible Shrinking Million

It might be a matter of thinking that having a few million dollars doesn't enable you to do all you'd like to do. After all, the median sale price of a single-family home in some regions will take up the better part of a million dollars, without even considering taxes, furnishings, insurance, or upkeep. In the San Jose metropolitan area, for example, the median sale price in 2011 was $570,000. In communities surrounding New York City, it approached or topped $400,000. Sending a kid to college today costs an average of $15,100 per year at a public school, or $32,900 per year at a private school. That means many people are paying more than $130,000 for a college education.

Many of us are used to thinking of having a million dollars as a perfect financial goal -- as an ideal condition that would meet all our needs and more. But the sad truth is that a million dollars today doesn't go as far as it did when we were young.

The Bureau of Labor Statistics' handy inflation calculator shows how the buying power of a buck shrinks over time. Here's how much money you'd need today to match the buying power of a million dollars from decades past:

$1 million in 2002 = $1.3 million in today's dollars
$1 million in 1992 = $1.6 million in today's dollars
$1 million in 1982 = $2.4 million in today's dollars
$1 million in 1972 = $5.5 million in today's dollars
$1 million in 1962 = $7.6 million in today's dollars
$1 million in 1952 = $8.6 million in today's dollars
$1 million in 1942 = $14.1 million in today's dollars
$1 million in 1932 = $16.7 million in today's dollars
$1 million in 1922 = $13.6 million in today's dollars
$1 million in 1913 = $23.1 million in today's dollars

In other words, having $1 million 50 years ago like having $7.6 million today. And $1 million today is only worth about what $132,000 was in 1962.

And what about the buying power of your money in the future? If you expect to retire in 20 years, and inflation holds to its historical annual average of about 3%, $1 million in 2032 will have the buying power of just $540,000 in today's dollars. You'll need $1.8 million in 2032 to have the buying power of $1 million today.

Crunching the Retirement Numbers

Many of us yearn to hit that million-dollar mark so that we'll have some security come retirement time. And here's a bit of good news for some people: If you manage to accumulate $1 million by retirement, it might be enough.

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According to many retirement experts, if you don't want to run out of money before you run out of time, you should aim to withdraw about 4% of your nest egg in your first year of retirement, and then adjust for inflation after that. So with a nest egg of $1 million, you'd take out $40,000 the first year. That's not a fortune, but it's not nothing, either. It's about $3,333 per month.

Of course, odds are that it doesn't look like you'll have a million smackers when you retire, right? Don't start hyperventilating. All is not lost. Here's why:

  • There's a good chance you'll collect some Social Security income in retirement, and the average annual benefit these days is $14,760. That's an average, so you might collect more -- or less.

  • You can control that payout to some degree, too, by working a few more years. Once you reach normal retirement age, for every year you put off starting to do so, your ultimate benefit grows by 8% (through age 70). Want to collect 24% more money? Start collecting three years later. That's pretty powerful.

  • You can also improve your situation significantly in other ways by working a few more years. You'll put off drawing from your nest egg and will be able to grow it for a few more years. Ideally, you'll remain with employer-provided health insurance, as well.

  • There are more strategies. Save more aggressively, socking away much more than you're doing now. Invest more effectively, perhaps loading up on some stock index funds and/or blue-chip, dividend-paying stocks. If need be, take on a part-time job for a while.

  • Downsize into a less expensive home or town.

  • Collect hundreds or thousands of dollars by selling unnecessary items you've collected over the years.

Between income from your nest egg, Social Security, and perhaps even a pension or annuity, you may find yourself in a comfortable retirement. But don't just hope that it will happen -- take steps today to make your tomorrow much better.

A million dollars might not make a person "rich" anymore, but it can provide a livable retirement -- and so can even smaller sums, if need be.


Longtime Motley Fool contributor Selena Maranjian, whom you can follow on Twitter, holds no position in any company mentioned. Click here to see her holdings and a short bio.