You Need $3.2 Million to Retire!!

Believe it or not, this was the message that I heard from a financial advisor in 1996. He was presenting to employees at a non-profit in Minnetonka Minnesota.  His firm is one of the largest and most well-recognized financial advisory firms in the country.

Of course, his assumptions were preposterous – even though his presentation was slick and well-delivered.  Many brokers, advisors, and investment firms use unnecessarily frightening scenarios to promote their products.  I recall thinking how pointless it is to start saving if I need to get to $3.2 Million.  How many people in the middle class, not to mention employees of non-profits, are going to get close to $3.2 Million?  How about close to $1 Million?

Don’t get me wrong – of course people should save and plan for their future.  That is definitely prudent.  This is what I help people do all the time!  But what do YOU need to retire?

Well I have good news.  In my experience, and I have done hundreds of retirement plans for members of the middle and lower economic classes, people can enjoy their mature years without having anywhere near $1 Million.  Circumstances vary dramatically from person to person and much depends upon your debt, expenses, and flexibility.  In addition, many people are integrating work into their plans to fill in the gaps.  So relax a bit – do your best to focus on what you control and ignore many of the ridiculous claims about how much you need to accumulate.

When will the stock market crash??

I don’t know! Do you believe that there are experts, or advisory firms, that can accurately predict when this might happen?  Really? And are you willing to pay for these forecasts?

The key to forecasting is not that so-called experts believe that a market or sector may be over or undervalued and due for a sell-off.  In many respects, that might even be somewhat easy to identify.  What is not so easy is timing a sell-off and predicting its magnitude.  What if it happens five or ten years later than projected?  Or if it is a brief sell-off, and starts to correct?  Then what?

Clients ask me what will happen to the markets.  My answer is that in the short run, which could be anywhere from tomorrow to 5 years, I have no idea.  In the long run, I have a guess of what will happen, but I could be wrong.  I try to make it clear that they don’t pay me to predict the markets.

Benjamin Graham is a legendary Wall Street Figure – considered to be the father of value investing. He was a major influence on Warren Buffett.  He said this about market forecasting: “If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed at forecasting what is going to happen in the stock market.”

So what type of advice should you buy?  That is your decision, but I don’t believe you should pay for market forecasts.   After almost 20 years in the industry, it has become clear to me that paying for market forecasting is a waste of money.   But it is your money – there are plenty of firms and advisors with a forecast to sell.