The Worst Things About Being a Millionaire
The Worst Things About Being a Millionaire
By the editors of Kiplinger's Personal Finance | June 14, 2018 Updated for 2019
Who wants to be a millionaire? The more intriguing question would be, “Who doesn’t?” For most people, a million smackers conjures up images of vacations on the Riviera, Arabian racehorses and mattresses stuffed with freshly ironed $20 bills.
But being a millionaire today isn’t all it’s cracked up to be. Low interest rates and high living costs mean a million bucks in the bank doesn’t necessarily allow you to retire at 35, 45, 55 or even 65.
What’s worse, today’s million dollars comes with all the burdens of wealth: greedy relatives, rapacious lawyers and grasping investment advisers.
A Million Isn’t What It Used to Be
Financial advisers say a sustainable annual withdrawal from retirement savings is 4%. With a million-dollar nest egg, a 4% draw-down means annual income of $40,000. And that’s before taxes. If you stick with the 4% withdrawal rate and earn an average 8% on your money annually, you’ll be in good shape for the long run.
But can you really live on $40,000 a year? Most millionaires don’t want to. “If you are 45, 50, 55 years old and spend like a millionaire, then you are doing two things with your money that may well not work for you long term,” says Tom Davison, a financial planner in Columbus, Ohio.
“The first is not saving extra dollars now, and the second is establishing a lifestyle cost that, for most people, will be hard to cut back on later.”
That being the case, let’s say you pull $100,000 a year from your savings, you earn 8% a year, and you don’t adjust upward for inflation. Here’s how your account would fare: at the end of Year 1, you'd have $972,000 left; Year 5, $835,735; Year 10, $594,376; Year 15, $239,741; and Year 18, $0. Yup — broke in retirement.
Millionaires Are Big Targets for Strangers
When most of us have an auto accident, we simply curse our luck, exchange insurance numbers and pay the deductible. When you’re a millionaire, however, lawyers might look to you to alleviate their clients’ “pain and suffering.” If your insurance doesn’t pay, those lawyers will be eyeing your million-dollar stash.
The best solution: Make sure all your insurance policies are up to date, particularly the liability portion of your auto and home insurance. And consider a personal liability umbrella policy to cover what your other insurance won’t. Many umbrella policies will even pay for a lawyer if you need one.
A million dollars of umbrella insurance coverage costs about $150 to $300 a year, according to the Insurance Information Institute. The next million should cost around $75, and every million after that will add about $50 to your annual premium.
Millionaires Are Big Targets for Friends and Family, Too
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