Thoughts on Retirement:

How much is one million dollars worth?

By Jay Eshbach

If you were to begin saving today, how long would it take to accumulate a million dollars for retirement?

Assuming a worker contributed 13,000 dollars to a 401k retirement plan each year beginning in 2004, and the account earned a hypothetical six percent average annual return, the balance would surpass 1 million dollars in 2037. So in order to retire with one million dollars at age 65 using this strategy, the worker would have to be about age 35 in 2007.

Of course, there are other ways to accumulate a million dollars. The point is that having this much money at retirement is possible for many individuals who set such a goal. But is a million dollars enough to pay for the kind of retirement lifestyle you envision, and will it last for as long as you are retired?

Go Figure.

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The first step in deciding how much you should accumulate for retirement is by estimating the income you may need after you stop working. In addition to basic living expenses, consider factors such as trips you would like to take, whether you will still have a mortgage, the type of car you would like to drive, and how often you plan to buy a new one.

You also should consider the effects of taxes and inflation. Withdrawals from employer-sponsored retirement plans such as a 401(k) are taxed at ordinary income tax rates.

A single filer who withdrew 75,000 dollars and took only the standard deduction would pay about 13,000 dollars in U.S. federal income taxes on the withdrawal. At the same time, we have clients living on 45,000 dollars in Social Security plus retirement income and paying no U.S. federal income taxes each year.

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Inflation can take away even more spending power than taxes. For example, an item that cost one dollar in 1983 would cost about 1.85 in 2003. At that rate, something you could buy with today’s dollar might cost nearly twice as much in 2027.

Establishing the amount of money it will take to maintain your preferred retirement lifestyle — and then taking into account the effect of taxes and inflation on your retirement savings — can help you determine how much money you will need to accumulate. Only you can decide whether a million dollars will be enough for you.

ABOUT THE AUTHOR: Jay Eshbach is 62 and has been a Financial Planner for 20 years. He manages over 100,000,000 dollars! His office is about 25 minutes from downtown Houston, Texas. In 2001 Jay was recognized as one of the top four Financial Planners in the United States by Research Magazine. His first book was published in 1996. In 2007 his second book, “Mistakes Retirees Make with Their Finances” was published. He tries to spend one week each month in Ixtapa. He can be reached at eshbach@eshbach.com or www.eshbach.com. Securities offered through J.W. Cole Financial, Inc