Who wants to be a millionaire? Who doesn’t? The high net worth status has long been considered a prime target for the aspiring rich. And an increasing number of Americans are achieving that goal.
In 2017, there were 9.4 million American millionaire households, according to the annual Market Insights Report from investor research firm the Spectrem Group. That’s up from 9.1 million in 2016.
If you look at different sources, however, you’ll find drastically different counts. In the annual World Wealth Report from consulting firm Capgemini, the number of U.S. millionaires reached 4.8 million in 2016, up 7.6 percent from 4.5 million in 2015. (The tally for 2017 data was not available at the time of reporting.) The annual report from financial services company Credit Suisse estimates there were 15.4 million U.S. millionaires in 2017, up from 14.3 million in 2016.
The differences arise due to how net worth is defined. Spectrem asks individuals to estimate the net worth of all their assets, excluding their primary residence. Capgemini counts all investable assets, excluding primary residence, collectibles, consumables and consumer durables. Credit Suisse includes both financial and nonfinancial assets.
Plus, all three firms rely, at least in part, on self-reporting by individuals – making human error a factor. For example, whether and how to include the value of your pension or whole life insurance policy might vary from person to person. Typically, however, when you estimate your net worth, you’d count such assets’ current cash value, i.e., the amount you could get if you were to tap them today.
Technicalities aside, what does it even mean to be a millionaire? “Attaining millionaire status doesn’t mean much anymore,” says financial planner Vid Ponnapalli, founder of financial planning firm Unique Financial Advisors in Holmdel, New Jersey. “Net worth doesn’t mean how much cash I have. My home, stocks, cars might be in there. And in the last decade especially, asset fluctuations have been much greater than in the 30 or 40 years before that, so someone who was a millionaire three years ago might suddenly not be anymore or vice versa. It’s all on paper.”
Even if you’re looking at just retirement savings, $1 million might not be as cool as it once was. “It’s a milestone and an accomplishment to be proud of,” says financial planner Marguerita M. Cheng, chief executive officer of wealth management firm Blue Ocean Global Wealth, based in Gaithersburg, Maryland. “However, a million-dollar portfolio in 2018 isn’t as valuable as a million-dollar portfolio in 1998 because of inflation.”
And while it’s a popular savings target, with people thinking that accumulating $1 million will allow them to rest easy, hitting that mark does not guarantee relief from all financial concerns – or even that you’d consider yourself wealthy. According to Spectrem Group, 30 percent of millionaires still worry that they might not be able to retire when they want. And when asked to rate whether they are wealthy on a scale of 0 to 100, millionaires gave themselves a score of about 66.
“It’s always kind of surprising how these people assess their situation and the level of financial concern that still exists among people that we would consider to be wealthy,” says Kent McDill, editor for Spectrem. “So much of it has to do with your emotional makeup, as it does with anything else. It’s about your ability to feel secure, no matter what your financial situation is like.”
The fact is, the amount of savings you need to achieve financial security or feel ready for retirement depends on your unique situation. “Setting an arbitrary target such as $1 million for retirement simply isn’t sufficient to ensure that you will have enough money to live out the remainder of your life comfortably,” says Natalie Colley, an analyst with financial planning firm Francis Financial in New York City. “This is not to say that $1 million isn’t enough, just that there are several variables that need to be considered when determining how much you actually need.”
Among those variables is the kind of lifestyle you hope to have in retirement. Ponnapalli notes that if you want to be able to afford luxury vacations and generous gifts for the grandkids, $1 million might not be enough. On the other hand, that sum might be too much if you plan a more frugal retirement. “It is not one-size-fits-all,” he says.
That’s why he recommends planning a retirement budget – two, in fact. The first should detail your planned expenses for your active early retirement; the second should account for your later retirement years. You also need to estimate how long that second part might last, or how long you expect to live. It may be a morbid consideration, but it’s important that you venture a guess as to how long you’ll need your money to last. You can estimate your longevity using online calculators, such as the ones from the Social Security Administration (which simply asks your gender and date of birth), Living to 100 and financial services firm Blueprint Income (which factors in other details including your weight and how much you exercise and drink alcohol).
Plus, you need to plan for long-term care expenses, as well as health care costs, both of which Ponnapalli says are big expenses that are often “not given as much importance as they deserve.” With all that in mind, you can calculate your unique retirement savings target.
For people in their 20s and 30s, Ponnapalli concedes that rules of thumb and general targets are a good place to start since it might be hard to gauge a detailed retirement budget from that many years away. (Still, even those more loosely defined goals should be unique. For example, most pros recommend you aim to save 20 percent of your current income, as opposed to any set dollar amount.) Then, as you get older, you can adjust your plans and savings goals. “Retirement planning isn’t something we do one time and drop it,” Ponnapalli says. “We have to revisit it every year.”
Most importantly, you need to remember that the million-dollar marker is just a number – albeit a seven-figure one. Your financial goals should be about affording the life you want rather than hitting high dollar amounts. And Ponnapalli notes that this thinking is a growing trend among young people. “It is not money the younger generations are focusing on,” he says. “For them, it’s less about what you have and more about what makes you happy.”