When five million dollars isn't enough to retire on.

I have a good friend who met with her financial advisor recently to see if she was on track for her dream - retire at age 50. She's 44 now, an 80 plus hour a week professional who's been burned out for the past ten years. Her advisor told her that her if she wanted to retire at 50, she'd need approximately 6.8 million.

When she told me this, my jaw dropped. Who has that kind of money? And did he know she wasn't planning to eat gold bars for breakfast?

The answer comes from the shocking ability of everyday expenses to erode retirement dreams. The advisor's basic look at it was a six percent return, her living to a ripe old age of 104 (which she has long said she plans to do), a 2 percent withdrawal rate and no worries of ever running out of money.

So why would she need 6.8 million? Her current lifestyle takes about nine thousand a month to support and the advisor bumped it up to 12 taking into account inflation and unexpected expenses.

Does that sound insane? She would say her lifestyle is not luxurious at nine thousand a month. They live in a 2400 square foot home in California, have two cars, and take one nice trip each year.

The nine thousand, very roughly is as follows:

$1600 mortgage/real estate taxes $1400 health insurance $1200 one major vacation a year - usually 3 weeks of foreign travel $1600 food - most meals eaten out $ 600 house maintenance $ 200 car maintenance/gas $ 400 clothes (very well dressed lawyer;-) $ 200 gifts $ 300 medical costs $ 400 entertainment $ 500 electric, heat, computer, phones, television, etc. $ 300 haircuts, hair color, acupuncture, massage, non-comped work expenses, etc. $ 200 pet expenses (including kenneling for long vacations)

The take away for me was how enormous is the cost of a dollar spent in retirement. For every dollar you want to spend, you need many, many multiples of that dollar working hard for you. And the fact is, sometimes those other dollars (your capital) go on strike or get sick - i.e. stock market crashes.

With no more in-flow, all the numbers change. Looked at this way, every dollar of expenses not used in daily living can do double duty on the road to retirement. Saving a couple hundred a month not eating out really does matter. First, those saved dollars can be added to your workforce (the final capital sum you need to retire). Second, your workforce has more breathing space as it doesn't have to support those lazy two hundred dollars that ate out.

So the next dollar bill you hold in your hand, ask is this gal going to enter my workforce or loll around living off the earnings of the other working dollars;-)

P.S  I was shocked to realize I hadn't posted since January 2012 - where does the time go?  I've finished my book and it is with a professional editor.  That has been sheer joy.  I'm about half-way through my second book.  In the mean-time, I've been "frugaling" with enjoyment!  Best wishes!