Readers of this blog will surely not be satisfied with $1M at retirement. They’ll likely want to have 10 times that amount, maybe more. That may be a difficult number for most people to confront but then again, most people haven’t done the math to see how much they need. If you aren’t sure about how to calculate how much you need, leave a comment and we can go through the numbers together.
Don’t be fooled by the book that says $1M is enough, it isn’t by a long shot.

So What if $1 Million Isn’t What It Used to Be?

SOMEWHERE along the line, having $1 million — like the ability to diagram sentences, do math in your head, and the dollar itself — became devalued.

Today, when magazines routinely compile lists of the world’s billionaires, and trillion-dollar federal budgets are commonplace, a mere $1 million seems quaint. Still, it is a nice round number to aim for as you plan for retirement, and is the focus of two new books.

Indeed, writing that you need at least a seven-figure nest egg is perhaps the biggest contribution that Michael K. Farr makes in “A Million Is Not Enough” (Springboard Press, $24.99).

Mr. Farr, president of an investment firm based in Washington, doesn’t break any new ground on how you should get to that $1 million threshold. Like many other personal-finance authors, he talks about the need to cut your expenses. And he cites the now seemingly obligatory measure of eliminating your daily cup (or two or three) of takeout coffee and investing what you would have spent on it.

When it comes to where to put that money, his advice is also familiar: Invest in stocks for the long term, although he would have you be a bit more aggressive than most. For example, he writes that 55-year-olds should have 85 percent of their retirement money in equities, with 10 percent in bonds and 5 percent in cash. The conventional wisdom puts the stock portion at somewhere between 65 and 80 percent.

In his favor, Mr. Farr is terrific on the basics, going so far as to begin at the very beginning. “Investing can simply be defined as committing money with the hope of achieving a financial return on it,” he says.

But his real value is in providing a definable goal. Most retirement books tell you to save as much as you can or ask you to make an almost impossible calculation of how much you will spend in retirement.

Mr. Farr simply declares that to achieve self-sufficiency, you will need $1 million, figuring that it will generate about $50,000 a year in income. He stresses that if $50,000 won’t do it for you, you need to save a lot more. “Those who want (or need) to spend $250,000 per year in retirement will need $5 million,” he writes.

Clearly, if you are going to receive a pension of some kind, and if Social Security is still around, you may be that much further ahead of the game. Mr. Farr’s focus here is on building a nest egg that is entirely within your control.

He outlines steps to get your house in order, beginning with figuring out your net worth and determining where the money goes each month, and ending with the creation of a financial legacy. Throughout, he says that the onus is on you to fund the retirement you want, although he emphasizes that it may not be as difficult as it looks.

“You’ve succeeded in many other parts of your life,” he says, “and I’ve no doubt that with the right mind-set, the proper information and research and the kind of dedication that you have demonstrated in other areas of your life, your million-dollar mission will be a success.”

The authors of “Millionaire by Thirty” (Business Plus, $22.99) contend that you may not have to work that hard.

In this book, Douglas R. Andrew, assisted by his sons — Emron D. Andrew and Aaron R. Andrew — builds on some of the arguments he made in “Missed Fortune 101” (Business Plus, $23.99). For the financially unsophisticated — a description that probably applies to a substantial number of people in their 20s, the book’s target audience — many of their strategies would be extremely risky.

The book starts on solid ground, suggesting that young adults should not be in a hurry to pay off their student loans, because the rates are usually low and the interest deductible. And they recommend owning a home, instead of renting, because mortgage debt is deductible and houses usually appreciate.

Things start to get dicey when they argue that real estate is a great way to become a millionaire. They are big believers in buying numerous properties, arguing that real estate is safer than stocks.

They never define what they mean by safer. The current housing crisis has taught many investors that housing isn’t entirely safe. Nonetheless, if the authors mean “less volatile,” they may be right. Despite the current turmoil, housing prices over the long term have been more stable than those of stocks.

But less risk means generally means less reward. The National Association of Realtors says on its Web site that typically “home values rise at the general rate of inflation plus 1.7 percentage points.” Since 1926, inflation has averaged a little more than 3 percent a year. If we accept the association’s numbers, that means the average house price has climbed about 5 percent a year, notwithstanding the current downturn.

By comparison, stocks over that time have returned 10.4 percent, annualized, and bonds 5.5 percent, according to Ibbotson Associates.

Given the lagging returns for real estate, how do you make your fortune with it? Through leverage, the book contends.

Here’s the sort of thing it recommends. (The example is ours. Theirs takes many pages to explain.)

Say you put down just 10 percent to buy a $400,000 home. If it appreciates 10 percent in one year — the kind of market climb the book is fond of hypothesizing — then, in theory, you have made 100 percent on your money. You put down only $40,000 (10 percent of $400,000), and the house, on paper, is now worth $40,000 more than you paid.

The authors say you can then take that $40,000 out of the house, by refinancing, using the profits to buy another house or to fund another investment.

Piece of cake, right? Well, no. First, their examples mention no transaction costs, like fees for refinancing, or points on mortgages. Second, leverage can cut both ways. If that $400,000 home drops 10 percent in value in a year and you sell, you are out your entire $40,000. If you time the market correctly, you can become extremely rich, but timing is tricky.

What isn’t tricky is this: If a 28-year-old saves $400 a month until the age of 65, and the money earns 8 percent a year, she will end up with slightly more than $1 million. It won’t happen by 30. But she won’t have to worry about being wiped out by a housing crisis.