When I was growing up in the 1970s and 1980s, being a millionaire sounded like a lofty goal, let alone having more than $1,000,000 in investments on top of non-income producing assets like your house, cars, jewelry and art. These days, I understand that saving $1,000,000 is a minimum requirement for anyone who wants to live a comfortable lifestyle during retirement, especially if social security payouts are reduced and/or delayed for those born after the Baby Boomer generation. Actually, for most people who were born after 1964, having only $1,000,000 won't be nearly enough.
Simply put, $1,000,000 isn't what it used to be. In the future, it'll be a lot less valuable than it is today due to inflation's continued erosion of what a dollar can buy. $1.00 buys the equivalent of what we'll have to pay $2.00 for in about 24-29 years. In other words, every 26 years or so, a dollar is worth about half of what it used to be worth. Some goods don't have the same inflationary pressures, such as computers or a mortgage payment with a fixed interest rate, but in general, a common basket of consumer goods costs twice as much roughly every quarter of a century, depending on the rate of inflation. In fact, the effects of inflation have created a new word for children of the 2000s to aim for - Penta. Penta (the Greek word for five) represents the new level of what is considered an achievement of wealth. $5,000,000 is the new $1,000,000.
Think of it this way, having a goal of becoming a millionaire in the late 1980s, is the equivalent of dreaming of having $2,000,000 in today's dollars or having $4,000,000 by the time a 40-year old reaches retirement. Even without factoring in the effects of inflation, $1,000,000 can only produce $40,000 per year in income if a retiree uses the 4% rule. If this money is pulled from a tax-deferred account such as an IRA or 401(k), the $40,000 will be taxed and will leave less after-tax income. For someone who is used to living on $40-50,000 per year, this could be a great plan, but I doubt many readers on this site are currently in (or want to be in) that situation. Now, factor in inflation and someone hoping to have $1,000,000 by the time he retires in 25 years will only have what equates to $20,000 of spending power in today's dollars.
The question always comes back to, what is the right amount to save for retirement? The answer is that it depends on each person's specific circumstances. Someone who can retire with no debt (not even a mortgage or car payment) will have an advantage. Saving 15-20% per year will get them where they need to be, whether it is $1,000,000 or $4,000,000. Not all of this money has to be invested in a retirement account. Real estate investments and taxable brokerage accounts can be great additions to a solid tax-deferred retirement account.
The plan is always the same, spend no more than 80% of your after-tax income, invest the rest, and your nest egg will be fine when you need it. Keep in mind, investing in a 401(k) plan, even if it doesn't match, requires a smaller hit to your take-home pay. $10,000 saved in a 401(k) plan will only feel like $6,100 - $7,500 in missed wages because you don't have to pay taxes on the funds invested until they are withdrawn.
You might even be able to retire earlier than you planned, especially if social security magically fixes itself without any changes to how it is funded or how and when it is paid. You might not have to be a Penta, but you do need to be a millionaire.
