If I Had A Million Dollars

Lifehacker carried an article from TheStreet in their Remains of the Day post entitled $1 Million Isn’t Enough To Retire.

The original article can be found on TheStreet here.

The relevant excerpt:

Scottrade recently polled 226 registered investment advisers on the topic and found that 71% don’t believe $1 million is enough for the average American family. Most said families need to save double, or more than triple, the amount.

“Younger generations, especially, need to set their retirement goals higher than other generations and start saving as early as possible,” says Craig Hogan, Scottrade’s director of customer-relationship management and reporting.

The survey solicited opinions about the current investment habits of Americans. Questions were broken down by generations to determine advisers’ opinions on average investment goals in today’s dollars for various groups.

Generation Y (ages 18 to 26) needs to save at least $2 million, according to 77% of advisers. Forty percent put the figure at $3 million.

Nearly half of advisers (46%) said Generation X (ages 27 to 42) should at least double the $1 million goal. Twenty-two percent suggested more than $3 million.

For Boomers (ages 43 to 64), 35% recommended $2 million to $3 million. Thirty percent suggested $1.5 million to $2 million.

And, even more dramatic, is the notion that instead of making do with 70% to 80% of pre-retirement income, a suggestion that people should be saving for 100% income replacement at retirement:

Bill Smith, president of Ohio-based Great Lakes Retirement Group, is among the advisers who took part in the survey. As he sees it, too many people rely on online retirement calculators. Much of that guidance uses a target based on making do with 70% to 80% of pre-retirement income.

“I’ve never been a big fan of planning to earn less in retirement than you are making now,” he says. “I’d like to see an individual continue making the same amount of retirement as when he was working. Who wants to set themselves up in retirement to make less?”

I suppose it should not be surprising that a survey of registered investment advisers would argue for more investment activity. That is, after all, how they get paid. However, to put impossible numbers in front of most families is irresponsible at best.

For the vast majority of Canadians, it is not possible to accumulate $2 to $3 million in investment savings during their working lives. Getting to the million dollar mark is a stretch even for the most affluent households. If we assume an average household income of $80,000 and an aggressive real rate of return of 5% over 30 years, that household would have to save almost 30% of after-tax income to hit the $1 million mark. The personal savings rate in Canada for the last quarter of 2009 was 4.6%.

Ipsos Reid determined that the portion of Canadian households with $1 million or more to invest is 2%. Investor Economics reports about 470,000 households have acquired investment assets of $1 million or higher. Roughly half are retired.

There are about 12 million households in Canada.