A cool $1 million isn’t what it used to be.
According to the latest World Wealth Report from Credit Suisse Research Institute, there are more millionaires in the U.S. and around the world than ever before, with an estimated 24.5 million millionaires nationwide in 2022. However, having seven figures in the bank offers less security against inflation and market volatility than before.
“It’s easier to get that label, but it may not deliver what we expect,” said Dave Goodsell, executive director of the Natixis Center for Investors.
These days, few Americans, including millionaires, feel confident about their financial situation.
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Even among high-net-worth individuals, 58% said they agree they should work longer, and 36% worry retirement isn’t even a possibility, according to recent data from Natixis Investment Managers.
In fact, 35% of millionaires said their ability to be financially secure in retirement “will be a miracle.”
Americans now expect to need $1.25 million in retirement as higher expenses strain household budgets, a separate study from Northwestern Mutual found, a 20 percent increase from the $1.05 million respondents had last year. .
“A million may seem like a lot, but many people are surprised when they do the math and realize that 4% of $1 million is only $40,000,” Goodsell said. “It’s usually a little less than what these people are used to living.”
The 4% rule is a popular guide for retirees to determine how much money they can live on each year without fear of running out later.
However, given current market expectations, the 4% rule is “no longer feasible,” Morningstar researchers wrote in a recent note.
Retirement rules ‘outdated’
“A lot of the rules we used to use are outdated,” Goodsell said.
Meanwhile, the average 401(k) balance is now down 23% from a year ago to $97,200, according to Fidelity Investments, the nation’s largest provider of 401(k) plans.
“You might have that $1 million, but you’ve hit 20% on it,” Goodsell said. “On top of that, the prices are higher.”
Another Bankrate.com survey also found that 55% of working Americans now feel they are behind in their retirement savings amid persistent inflation and market volatility.
“People need to look at how much money they have and take the time to do the math to see how long it’s going to last,” Goodsell said. “The name of the game is retention.”
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