Self-made millionaire: $1 million isn't enough for retirement—here's what you need

As I graduated college from McNeese State University in the 1980s, becoming a millionaire was an almost iconic and unachievable status. By the time I was in my early 30s, I had hit that target — and I quickly realized I needed to learn how to manage money, not just make it.

Upon doing some simple math, though, I realized a million dollars wouldn't go very far, even back then. Fast forward to today and a million dollars isn't even enough money to allow a normal person to retire comfortably.

Now, before you decide I am just another arrogant, greedy, ungrateful elitist, do some basic math and you will realize what I did. If you retire today at 65 with $1 million in cash (after taxes) and no new income from any source, you would have to live off of $40,000 a year ($3,250 per month) for the next 25 years before you ran out of money. Consider that assisted living can cost up to $76,000 a year and those twenty-five years are cut to twelve, which means you are just about broke at 77.

And all this assumes no inflation or critical life events: lawsuit, divorce, college for the kids, or heaven forbid even more serious situations like cancer, a car accident, a family member in trouble, death of the breadwinner, economic downturn or loss of a job.

UBS did a poll of millionaires of which 67 percent polled said the whole point of building wealth was achieving financial security, a position from which no single setback could plunge a family into destitution. While consumption items like cars and trips are nice, they are not the main driver for creating wealth — freedom from worry is.

To put everything into perspective, consider that many Americans live paycheck to paycheck and millions of Americans don't have any money set aside for an emergency. Something is clearly wrong with how people are thinking, acting and making plans for their money.

I know the idea that "a million dollars isn't enough to retire on" is hard to swallow, but your opinion doesn't change the reality: A million dollars is simply not what it used to be. I know first hand how fast an emergency can devastate a household.

My dad died in his peak earning years from heart disease. My mother immediately had to sell the house and manage five kids through college on the death benefits provided by insurance. I watched my mother live in fear every day not knowing how long the money would last.

I made a decision at that time that I would get myself into a financial position where I never have to fear an economic setback again. When financial planners said you need three months of savings, I figured I needed thirty months.

Some news outlets have suggested that $5 million is the new $1 million. I would suggest you make it $10 million because inflation continues to eat at the value of what money can purchase and your money earns almost nothing at the bank.

Trillions of dollars are sitting in banks today earning .0012 percent. That means a million dollars at the bank earns $1,200 a year. I was earning 10 percent at the bank at the age of 33 and my money doubled every seven years. It would take you hundreds and hundreds of years to double your money at today's rates.

For those who want to create multi-million dollar wealth, try these simple steps.

1. Trade your $1 million target in for a net worth target of $10 million.
2. Avoid all showoff purchases until you hit $10 million target. That includes homes, fancy cars, watches, etc.
3. Get your income levels to where you can save 40 percent of your gross income before taxes.
4. Invest surplus cash in illiquid assets that produce additional flows of income. Invest for cash flow with the potential of appreciation long term and never invest where you could lose your capital.
5. Repeat this cycle until you have investments producing passive income equal or exceeding your main flow of income.

Once you accomplish this, you will be able to do almost anything you want to do. With $10 million in net worth and money coming in from multiple flows of income that are not dependent upon your time and energy, you will be in a situation to weather almost all events.

Good luck, and I hope this inspires you more than it pisses you off.

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