What dollar amount should you aspire to reach in your bank and investment accounts?
Personal finance author Nick Maggiulli recently settled on $2M-$5M as the ideal level of wealth for most people in the U.S.
Daunting numbers, right?
Almost any Millennial who hears Nick’s conclusion, and only skims his article, will quickly check out. Two million dollars may feel like an impossible threshold to cross.
But the math Nick lays out is where you’re most likely benefit:
“Assuming you never wanted to work again, you would need about 28.6x your annual spending to cover your costs indefinitely [$120,000 * 28.6 ~ $3,500,000]. This 28.6 comes from [Michael] Kitces research showing that the ‘3.5% Rule’ is the safe withdrawal rate for a 40-year time horizon and beyond. This research suggests that if you can make it 40 years while withdrawing 3.5% per year, then you’ll likely make it 50 years (or more).”
Nick’s analysis assumes $120,000 in annual spending. If you live in a city with a high cost of living, your yearly costs may be much higher. But the main idea doesn’t change.
Your spending commitments and preferences play a huge role in how much you need to save for later in life. So if you’re in your 20s or 30s, you’re not well served focusing on an ideal level of wealth.
Focus, instead, on how much money you need each year to live the life you want.
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About the author: Kevin Mahoney, CFP®
Hi, I’m Kevin. I’m the founder of Illumint and a financial advisor in Washington, DC. I specialize in financial planning for Millennials like you. As a Millennial father and Certified Financial Planner™, I empower our peers to invest with confidence and flexibility. If you’re new to Illumint, I’m glad you’re here – you now have access to free personal finance tips written specifically for Millennials. I encourage you to read, watch, or listen to the ideas I share about exchanging your money for memories with your friends and family. And then when you’re ready, please send me your thoughts & questions!
