Millionaire? Not so Fast

I’ve been hearing the word millionaire more and more in the news and political discussions. According to Google Trends,  it’s just me, the word started to gain more attention in late 2008 as the move Slumdog Millionaire was released, but has been steady the past few years.

The Bare Naked Ladies (if you don’t know the band, they are neither) song If I had a Million Dollars released in 1992 still made a million sound like a lot, but the Black Eyed Peas got it right with their “I Want to be a Billionaire.” That’s the kind of money that gets you closer to being on the cover of Forbes. A million? Not so much. Is a million still enough to make you a millionaire or is $5 million the new million?

It really depends what dates you choose for comparison. The Inflation Calculator tells me that the same million when I was 10 years old, in 1972, is only worth $191K as of 2010 (the latest year you can enter in the calculator.) This means the same million I dreamed of as a 10 year old would take just over $5 million today to buy the same goods. A million may still be a nice chunk of change to accumulate, but more as a milestone than an end goal. When we talk about our Number, the amount we need to save to generate enough money to retire, we typically use 4% as a safe withdrawal rate. If that’s the case, a million dollars looks more like a lifetime stream of $40,000 per year. If you add social security to this figure, maybe from two earners, you might be closer to $60,000 which for most of us can actually provide a comfortable retirement. But to the 40 year old who hasn’t yet sent the kids to college, paid off the house, or decided what he wants to be when he grows up, that million isn’t the “quit your job and retire” that it used to be.

By the way, income and wealth are two different things. There are people making over $250K a year who burn through every last penny, and there are couples making under $100K, yet have savings well over a million dollars. When I hear the talking heads talk about the high earners as being millionaires, I think they’ve chosen the wrong words.