by Marc Bastow | January 7, 2013 12:00 pm
Mom often said that while $1 million is a lot of money, it isn’t as much as it used to be. Taking into consideration inflation from the first time I heard her say that might make it so, but hey … a million dollars is still a million dollars!
But is it enough to retire on, and do people still think of it as the “magic number” for that purpose? Insurance and money-management firm Northwestern Mutual used a survey to find the answer, and as reported by a contributor to Seeking Alpha, the survey result suggests that 84% of young adults (18 to 29) believe they’ll need at least $1 million saved before retirement, while only 60% of those 30 years and older feel the same way.
The reality of the million-dollar question is partially found in mom’s theory: It ain’t what it used to be because inflation plays a role in purchasing power. But it also depends on how you invest, where you invest and perhaps most important, how you spend.
Let’s get to the investment piece of the puzzle first. Building an income and growth portfolio takes time and patience, and we’ve discussed in depth how to build one from scratch, if necessary. McDonald’s (NYSE:MCD), Johnson & Johnson (NYSE:JNJ), Coca-Cola (NYSE:KO) … you know the names by now. Add in some exchange-traded funds like iShares S&P U.S. Preferred Stock Index Fund (NYSE:PFF) and SPDR Healthcare Select Sector (NYSE:SLV), and you can build that diversified portfolio over time.
The dividends from these holding are multiplied in importance when you can reinvest them until they’re needed as cash. That adds to the portfolio’s appreciation in value over time. A $1 million dollar portfolio with a 4% dividend yield gets you $10,000 per quarter, a nice chunk of change for retirement. So keep saving, keep investing and look to reap the benefits down the road.
Now for the other side of the puzzle: spending. This is really the key because the more you save the more you have to spend. But don’t be crazy: Spend less than you make or than you’ve saved! Make sure you have a long-term plan that includes expenses like housing, medical needs or children, if that’s where you are in life. It’s all about your time horizon to retirement when it comes to spending.
So, I suppose a million today ain’t what it was 10 years ago, but it would be a great place to be, no matter what mom says.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he is long XOM and JNJ.
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