Do You Want to Be a Millionaire?
Pop Culture Finance (PCF) alert! PCF has this obsession with being a millionaire. They write story after story about how to become a millionaire. For the casual investor who reads PCF for educational purposes, it would be easy to read this article and come to the wrong conclusion.
"You just have to become a millionaire and you can retire."
Please don't make that mistake. The article goes on to calculate how much money an investor has to save with 6% compound interest per year to reach a million dollars by retirement. They even figure this for a 23 year old. What is wrong with this set of assumptions?
If you were to retire today with a million dollars, it wouldn't be advisable to draw more than $40,000 to $50,000 a year without risking the chance that you would run out of money. That might be enough or it might not be enough.
Now the bigger question... what is the equivalent to today's purchasing power of $1 million dollars 40 years from now?
Yes, you would have 1 million dollars. However, in today's dollars it would be the equivalent to the purchasing power of $250,000. That whole inflation factor sort of diminishes the value of a million dollars 40 years into the future.
So, the moral to the story is that if you feel inspired by a Pop Culture Finance article that wants to make you a millionaire by the time you retire, you might want to shoot for much bigger goals. A million dollars today is not the same as a million dollars in 40 years.