Author and personal-finance guru Suze Orman ruffled a lot of feathers in a recent podcast, saying that people need $5 million — maybe even $10 million — in order to retire.
Orman was responding to a question about the “financial independence, retire early,” or “FIRE,” movement, a growing online trend in which people in their 30s or younger just stop working.
‘You need at least $5 million, or $6 million. Really, you might need $10 million.’
Generally, these folks aim much lower — more like $1 million or so — then adjust their cost of living downward.
Orman says fuhgeddaboudit. Too many things can go wrong.
“You need at least $5 million, or $6 million,” she said[1]. “Really, you might need $10 million.”
Yes, she says, you can save up a fair amount of money, invest, and stop working.
But Orman feels that the risks of financial failure due to illness, investment errors[2], or an economic calamity are just too high.
“I personally think it is the biggest mistake, financially speaking, you will ever, ever make in your lifetime,” she said.
“I think it’s just ridiculous. You will get burned if you play with FIRE.”
Read: These people left their jobs behind to retire early — then life got in the way[3]
Rules of thumb
So, let’s look at a couple of basic, back-of-the-envelope numbers that financial planners often use to talk about income in retirement.
One is the good old 4% rule. Put simply, you can take 4% of your savings out annually and never run out of money, assuming it is invested prudently. This one dates back a few decades but remains a popular yardstick.
Some planners now think that 4% has turned out to be a bit rosy, so let’s say 3% instead, just to be safe.
If a couple has $1 million in their retirement plan at 65 and takes Social Security, their income on annual basis would be just under $56,000. That’s $30,000 from the retirement plan and about $26,000 from Social Security.
Can you live on that much money? Sure, and comfortably, in dozens of nice U.S. cities and suburbs.
Millions of people live on that or less right now. Doing so will be that much easier if you manage to retire without a mortgage or car payments.
If you take Orman’s view and get to $5 million (assuming you have the income and savings discipline), what does your retirement income like?
That’s $150,000 from the retirement plan, plus $26,000 (perhaps more for a high-earning couple) from Social Security.
Read: The Roth strategy we wish we’d built for early retirement[4]
New York money
It would be very easy...