Yesterday I received an e-mail message from financial services firm [name removed*] pre-promoting a “big event” they’re holding in October.
The following is part of their big sell:
Too right that’s not pretty reading.
Mr [name removed*] has used simple math of dividing $1 million by $6,464.10 to come up with “154.7 years to become a millionaire”
That’s such B.S. (Yet the decimal point makes it seem so precise and legit.)
In fact it’ll take just under 35 years to accumulate $1 million if you are smart enough to invest your regular savings.
Here’s the assumptions in my calculation:
- You invest your regular savings and earn a conservative 5% per annum net after-tax
- The average wage grows at around 4% per annum
- The regular saving is increased each year in line with the increase in wages so that you always save 10% of the average wage
You too can verify the calculation. Use this Future Value of Growing Annuity formula.
(Of course in 35 years the buying power of $1 million will be a lot less than now.)
The number’s don’t lie
The ironic thing is that the subject line of the e-mail was “Ouch! Numbers don’t lie…”
I agree that saving just 10% of your wage probably won’t make you rich. (In fact last year I reported on some research that estimated you need to save around 20% to achieve just a comfortable retirement.)
But using such sloppy projections to promote a wealth creation event is misleading, in my opinion. The numbers may not lie but…
It makes me wonder what other trickery may be included during this big event to encourage you to part with your hard earned?
* I really wanted to name the firm and event promoter but my wife made me remove it. (Excuse me while I go and make her lunch.)