Getting to a million

BY MARY HOLM

Q: All of this talk about rules of 72 and doubling up $1 to $1,000,000 is fine and dandy, but what do I have to actually save if I still want to become a "real" millionaire?

Check the numbers, but my calculator tells me that in today's dollars (not inflation-adjusted) I have to save about $5200 each year ($100 a week) from my wages for 40 years and earn 7 per cent post-tax or tax-free to achieve the magic $1 million. Earning 5 per cent means I have to save $8200 a year ($160 a week) to get there.

But large future goals require large sacrifices now, otherwise we have to set lower goals.

What about inflation? Someone with a better calculator can run those numbers. But there are so many assumptions, I prefer to use a couple of rough rules.

First, ensure dollar savings increase in line with inflation each year. Alternatively, if, for example, $100 a week is about 15 per cent of your current wages, keep increasing dollar savings as wages increase to maintain saving at the same percentage of wages.

You've not only provided the questions, but also the answers. Who needs me?

As usual, though, I can't resist putting in my tuppence worth.

Thanks for all your numbers (which I did, indeed, check). As they show, if you save half as much - $80 a week as opposed to $160 - you end up with half as much - half a million dollars as opposed to a million.

The tricky part is what percentage return to assume. Nobody can even begin to intelligently predict returns over the next 40 years.

Adding inflation to the mix makes it even harder. It's another unknown.

Because of that, there's not a lot of point in getting too fancy with calculators. I like your rough rules better. If we follow them, we adapt to the changing environment.

In any case, setting a savings goal of a million, half a million or whatever dollars is rather arbitrary.

The main point is that the more you've got in retirement, the more comfortable you will be.

Goals can certainly be encouraging. But it makes more sense to concentrate on setting a regular savings amount - and, yes, raising it either to match inflation or to maintain the same proportion of your income.

* Mary Holm is a freelance journalist and author of Investing Made Simple. Send questions for her to Money Matters, Business Herald, PO Box 32, Auckland; or e-mail: maryh@pl.net. Letters should not exceed 200 words. We won't publish your name, but please provide it and a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice outside the column.