October 8, 2009

Time value of $1million dollars - 40 years from today

Ok folks – I know I was going focus most of my time on other projects for a little while, but how can I not post to my blog when I come across some financial articles that make me upset? Such as the one from Kiplinger.com that “teaches” how one can retire a milionaire. You might be thinking – “What’s wrong with that?” “Shouldn’t we all want $1 million dollars by retirement? Why is Barrington upset about this article?” Well I’m upset because this article (and several other “how to retire a millionaire” articles) is misleading.

It is misleading because it gives the illusion that we only need $1 million in retirement – when the average person will need much, much, more! It’s upsetting to listen to so-called “financial gurus”, who are broke themselves, teach others to become wealthy. However, we Americans should first lose our archaic admiration for the word “millionaire” because having just 1 million dollars has already begun to lose its luster and appeal when it comes to retirement. Let me set an example – if you’re 25 today and your goal is to have $1 million dollars in retirement 40 years from now – you will be the most unprepared person to retire by the time you’re 65, and thus you will likely have to keep working.

What underscores my argument is a simple term, it’s called the Time Value of Money, and the value of $1 million dollars 40 years from today has a value of $46,030.93 assuming you save $286/month in a account at an 10% interest rate. So thinking that you’re going to be safe with $1 million in the bank is misleading. And why I’m so upset. Who can live off of just $25,000 dollars in retirement? That’s not going to work even if you don’t have any debt! Money loses value over time and we need to have enough of it to last our “golden years” and to pass on to the next generation after we’re gone. Money losing value is also why the price of oil will probably hit $300/barrel 10 years from now… unless huge improvements in our energy structure and renewable energy eventually becomes widely available.  But you have to count on politicians ignoring their egos for that to happen.  Not to mention passing on the bribes they could receive from lobbyists of corporations that wants laws and bills to be voted in their favor - it is mentioned that even President Obama received $20 million from healthcare lobbyists...I wonder how much has he received from energy lobbyists?  Auto lobbyists?  Well, these are just my questions......

The smart financial gurus and investors are those that look to the future and can interpret it. Isn’t it obvious that all governments are becoming more interlinked and interdependent? One can see how as populations and economies grow together – so does the need for capital, energy, food, and water. Alternative sources of energy and water are becoming the next hot commodities…just think – only 3% of the world’s water supply is drinkable and the other 97% is salt water. Already there are water shortages in many countries and people need clean drinking water that isn’t infected with harmful bacteria.

These are good investments but I’m getting off the subject… There is only one proven and succesful way to retire and it is to obviously make more money than you can ever spend while in retirement. Out of the world’s wealthiest people, over 50% of them were entrepreneurs that worked hard to secure their wealth. This isn’t discouragement, but encouragement! Learn how to sell your ideas and talents, become a successful entrepreneur, and you’ll eventually make millions (plural)!