Job growth is on the rise, heralding a positive shift in the employment landscape. According to the Labor Department’s February report, U.S. companies have successfully added jobs for the past 12 consecutive months, indicating a potential momentum in the job market.
In California, the employment outlook is brighter than it has been in years…
“California, which was still shedding jobs as recently as September, has seen an addition of nearly 200,000 jobs during the period from February 2010 to February 2011,” reported AP. “This progress is second only to Texas, which added a remarkable 254,200 net jobs.”
“In fact, almost half of this job growth in California occurred in February alone, with the state gaining 96,500 jobs—the highest monthly increase recorded since 1990.”
However, California still has a long way to go, needing to reclaim the 1.3 million jobs lost during the economic downturn that began in December 2007. Nonetheless, witnessing the best month for job creation in over two decades offers a solid foundation for future progress. With a bit of luck, individuals may finally be able to put some money aside for their retirement.
How to Retire with $1 Million Dollars
Saving money is straightforward—there are no hidden secrets to it. Essentially, it boils down to two main principles that many are already familiar with:
- Spend less than your earnings.
- Earn more than you spend.
While these concepts are simple, putting them into practice is often a significant challenge.
According to Jonathon Burton from MarketWatch, “Reaching age 65 with $1 million in savings requires strong discipline and consistent effort. It’s crucial to understand the benefits of starting early and saving regularly. Even if you’re short on time, you still have alternatives beyond a last-minute rescue plan.”
“Consider the 7% solution. Assume a 7% inflation-adjusted return from a balanced portfolio of U.S. and international stocks, bonds, and cash—this doesn’t demand excessively high risks, but it does require a prudent approach to living within your means.”
To illustrate, “If a 25-year-old invests $10,000 and contributes $320 each month at a 7% annual compounded rate of return until the age of 65, they would accumulate $1 million.”
“However, if you delay saving for just a decade, the impact is severe. Instead of contributing $320 per month, you would need to set aside $775 each month to reach that $1 million goal at the same 7% annualized return.”
If you wait until you’re 45 to start saving, “you would need to contribute $1,850 every month to that $10,000 base to achieve $1 million in 20 years.”
Moreover, the longer you postpone saving, the harder it becomes to amass a substantial retirement fund.
“At 55, the required monthly contribution becomes both amusing and disheartening: you would need to save $5,700 each month for the next ten years to reach $1 million with a $10,000 starting amount.”
In essence, if you begin your retirement savings at 55, you may very well find yourself working indefinitely. Unfortunately, the days of enjoying a long, leisurely retirement seem to be dwindling—even when you manage to save.
More Certain than Death and Taxes
Burton’s 7% solution presupposes a 7% inflation-adjusted return. However, herein lies the conundrum: as you save for retirement, inflation continuously erodes the value of your savings.
When we consider the actual value of $1 million today in light of inflation, it becomes clear that it does not retain the same significance as it did in previous generations. In reality, according to the Bureau of Labor Statistics’ inflation calculator, $1 million in 2011 equates to what roughly $47,500 was worth a century ago—less than 5 percent of its former value.
While few reach the age of 100, even a 20-year span can see substantial erosion of your savings due to inflation. Last Friday, in a speech in New Delhi, Warren Buffett stated, “If you were to ask me whether the U.S. dollar will maintain its purchasing power at the levels of 2011 in five, ten, or twenty years, I would say it will not.”
Given the Federal Reserve’s manipulation of monetary policy, inflation is more certain than death and taxes; it is one of life’s unavoidables. Moreover, inflating the money supply is a known objective of the Federal Reserve.
The Consumer Price Index for February registered a rise of 0.5 percent, equating to an annualized increase of 6 percent. Even when excluding food and energy costs—which the Fed often emphasizes—the CPI still increased by 0.2 percent, translating to an annual rise of 2.4 percent. Under this scenario, an inflation rate of 2.4 percent guarantees that an individual’s savings will lose half of its purchasing power over the span of a generation.
Consequently, even if you possess the diligence and discipline to save $1 million for retirement, by the time you need it, its value may only translate to approximately $500,000—or potentially even less.
Sincerely,
MN Gordon
for Economic Prism
Return from More Certain than Death and Taxes to Economic Prism