I just received a hilarious e-mail in my in-box from Fidelity. It said: Did you know that weekly contributions of $34 could potentially grow to over $76,000 in 20 years?*
*This hypothetical example assumes a participant earns $30,000 every year and defers 6% of his/her weekly pay ($34/week) at the beginning of every week for 20 years to a tax-deferred retirement account earning a 7% annual rate of return compounded weekly.”
Why is that funny? Well, in 20 years, $76,000 won’t even buy you a car!
That’s the problem with these “save your way to $1,000,000” advertisements (and, books) …
… while you certainly should put away at least 10% of your gross income (hopefully, it eventually comes to a lot more than $34 a week!), and
… while you may (and should try to at least) make it all the way to $1,000,000 in the bank (or CD’s or 401K) by the time you retire in 30 or 40 years:
(a) You will probably be too old and tired to enjoy it … hell, I’ve waited to 49 to retire and I already feel too old .. and
(b) $1,000,000 will buy you diddly squat because of a little thing called inflation.
Inflation is the thing that causes a sixteen ounce loaf of bread to cost $0.19 in 1950 and $2.10 in 2008!
You don’t have to look too far to see this inflation-effect taken to it’s extreme: in Zimbabwe raging inflation is the thing that means even Z$750,000 isn’t enough to buy that $2 loaf of bread!
What does this mean if inflation averages, say, just 3%?
Let’s say that you are 25 years old today, aiming to save $1,000,000 by the time you retire … by the time you reach 65 and cash in your $1,000,000 ‘retirement check’ that would be the same as your grandfather retiring today on just $315,000 savings!
Does that sound like a lot? Let’s see …
$315,000 would give your grandfather just $15,000 a year to live on (allowing for small yearly ‘pay increases’ after 65, so that he could also keep up with inflation).
Would you want to retire on just $15,000 a year?
Then the only choice that you have left is to try and get rich … quickly, slowly, any legal, safe and ethical way that you can …
Stick with me, and I’ll show you how! Really.