Excerpt: 'Million Not Enough'

In his new book, author Michael Farr aims to help you save enough money for your retirement.

Farr gives tips on how consumers can begin building $1 million in liquid assets they'll need to support themselves for the 20-plus years they'll survive after their retirement.

"A Million Is Not Enough: How to Retire With the Money You'll Need" offers tips for people in their 30s, 40s and 50s. While the goal may seem unattainable, Farr believes it's possible.

Read an excerpt below of this book below.


A Million Dollars Isn't What It Used to Be!
The Union of Soviet Socialist Republics ended on December 25,1991. I was there in June 1991, helping to lay the groundwork for that fall.

George H. W. Bush and Mikhail Gorbachev were playing nicely. The heated Cold War rhetoric had cooled. Gorbachev had endorsed the idea of a stock exchange, and Bush offered to help. I'm not sure how the call to the CEO of Alex. Brown & Sons, the oldest investment banking firm in the United States, ultimately reached my desk, but it did. There I was, a thirty-year-old former high school teacher and now vice president of the old, revered banking firm, teaching communists how to be capitalists. In many ways I myself had just made that transition: from altruistic schoolteacher to Wall Street financier.

My Pan Am flight arrived in Moscow before heading on to Leningrad. We taxied to a lifeless-looking brown brick terminal, an enormous red flag emblazoned with yellow hammer and sickle billowing ominously overhead. As the plane stopped, a dozen young men in Soviet uniforms with machine guns ran toward us from all angles. They stopped in unison, stared at the windows with their angry, peach-fuzzed baby faces, and turned on their heels with their backs to us, keeping guard. The Cold War was still alive and well, and I was wondering if I had been sent because I was young and dispensable.

I lectured to three hundred people from the various Soviet states and Eastern Bloc countries for ten days. Their questions and desire for knowledge and information seemed insatiable. The tough part was teaching culture and not content. Intellectually, they understood me, but culturally, they did not. There were shortages of most staples in the USSR at the time, so I used a local example. I suggested, "If you are at the front of a long line to buy butter and are able to buy the last two pounds for two rubles per pound, you might declare yourself a butter broker and sell one of your pounds of butter for five rubles to the remaining crowd." The reaction of these nascent brokers was remarkable: They were outraged. "You would not do such a thing to a comrade." "In difficult times, all comrades should help one another." "A good Russian would share his butter with the rest of the crowd." Do you see the hurdle presented? For the rest of my examples, I suggested profiting from trade with other countries and profiting from investments from which your comrade would also profit.

The Soviets got it. The Moscow and St. Petersburg Stock Exchanges now boast some of the most sophisticated and successful traders in the world. If communists could overcome seventy years of opposite thinking, we can certainly take hold of our finances and become masters of our retirements. What about your culture? Did you grow up in a home that saved or spent? Your attitudes toward money will make investing easier or harder. This book will help. It's very hard to take responsibility for something that you don't understand. A Million Is Not Enough will empower you to understand the task of managing your assets, do the right thing, and enjoy the retirement you deserve.

The Million Mystique

For most of us who came of age in the years after World War II, the term millionaire has held a special place in our imaginations. We grew up revering "one million dollars" as a kind of mythic amount conferring on those who've attained it a sort of elevated status. Our parents thought of captains of industry when they pictured a millionaire; people like the Vanderbilts and the Rockefellers embodied this concept for them. But we Baby Boomers were more likely to think of a millionaire as someone like Thurston Howell III and his wife, Lovey, from Gilligan's Island?the old-money, East Coast, pampered, privileged few who were more likely to be found on the society pages than the financial pages. However, our concept of who a millionaire is (and what constitutes wealth in the twenty-first century) has probably matured as we've aged. Entertainers, athletes, and CEOs have raised the bar of what it means to be rich in America, and we now realize that joining the ranks of the million-dollar club doesn't automatically entitle us to a life of luxury, champagne, and caviar?nor does it even earn us a place on the honorable mention list of Forbes magazine's wealthiest individuals. Put simply, a million dollars isn't what it used to be!

Still, the million-dollar mark is not without its privileges. Bloated corporate salaries aside, for most of us a million dollars retains a mythic appeal and is a goal worth aiming for. For most Americans facing retirement, saving that amount means abundant security and being able to maintain the kind of life in our postwork days that we've always envisioned. Too bad too many of us waited a bit too long before getting serious about attaining this goal. This is particularly true of Baby Boomers.

No generation in American history has experienced such widespread abundance and enjoyed it less than Baby Boomers. This relentlessly restless and striving group has been responsible for creating unparalleled economic growth and prosperity for ourselves and future generations. Perhaps best characterized by an everything to excess approach to life, Boomers remain unfulfilled?and largely unprepared for the next several decades of our lives. We live in times of unparalleled economic growth and prosperity, and yet only 22 percent of Boomers in a recent survey stated that they were satisfied with their future financial picture. So why can't we truly enjoy the fruits of our labors? Why are only 22 percent of us happy about our financial futures?

First, many of us were slow to start planning for our financial futures. Let's face it, figuring out how to save and invest for the next twenty to forty years of financial needs is a daunting and complex proposition. As a result, many of us have put off looking at our finances carefully because we are afraid of what we might find.

Second, we Boomers are an active and busy bunch. We think it takes a lot of time and hard work to save for retirement . . . and that's time many of us just don't have. Sometimes we manage to fit so much into our waking hours that we leave no time in the day for ourselves. Anyway, we think we're going to live forever?and given our healthy, active lifestyle, new medications for nearly every ailment, and a dash of Botox, we look and feel as though we just might make it. We show no signs of slowing down soon!

Third, we Boomers suffer from what I call Abundance Guilt.

What Is Abundance Guilt?
We are among the most fortunate generations in American history. Since World War II?the time period that covers our lives? America has enjoyed unparalleled economic growth. We escaped the hard times that our Depression-era parents experienced. Even memories of the economic fallout of September 11, 2001, and the bursting of the dot-com bubble have receded in our collective rearview mirrors as the Dow Jones Industrial Average continues to climb to record heights. McMansions sprout up behind gated entrances the way that tract homes and cookie-cutter subdivisions did in the 1950s. Yet within each Boomer echoes the siren song of the '60s, when the bulk of us came of age politically and spiritually. That era and its protests against what we viewed as a repressive regime typified by the Vietnam War, hippies dropping out, the initial call to save the planet from ecological disaster, and all the other humanitarian and idealistic visions we had compete with our acquisitive nature. We want more and more material goods, higher salaries, better benefits?everything that constitutes the good life?but we also seek a kind of spiritual enlightenment that will make us feel better about a lifestyle that teeters on the brink of excessive. We're torn in two by these twin desires. We'll learn more in this book about Abundance Guilt and how it affects our finances.

How do I presume to know all this about Boomers? I am a Boomer. Also, as president and majority owner of Farr, Miller & Washington, a Washington, DC-based investment firm that manages more than half a billion dollars in individual and institutional assets, I know what it takes to plan for a sound financial future. The majority of my clients?ranging from celebrities and famous entrepreneurs to smart investors?are members of the Baby Boomer generation, and I know their needs, their strengths, and their weaknesses well.

In A Million Is Not Enough: How to Retire with the Money You'll Need, I want to help us take the guilt out of abundance. As a necessary first step toward completion of this mission, we have to understand that Abundance Guilt doesn't only deny us the pleasure of our financial success?it is the root cause of our worries about our financial future. When we acknowledge the conflicts inherent in our successes and the childhood lessons of austerity our Depression-scarred parents taught, our strengths and weaknesses as intense strivers, we can harness them and use them to our advantage.

Is $1 Million Enough?

A Million Is Not Enough is a book about achieving financial security in our retirement years. I believe that we should view one million dollars as the minimum requirement for any married couple wishing to achieve self-sufficiency while still being able to leave an inheritance to children or a charity. You may ask, Why one million dollars? Well, $1 million will generate $50,000 per year for twenty-five or thirty years while adjusting for inflation. If you consider retiring at sixty-five and living until you are eighty-five or ninety, $1 million, invested prudently, should be sufficient to meet a $50,000 annual need. If your spending is in excess of $50,000 per year, you will need to either cut your spending or increase your savings. And yes, those who want (or need) to spend $250,000 per year in retirement will need $5 million in today's dollars. This means that our goals, standard of living, and risk tolerance may indeed require much more than a million dollars in savings by retirement. My job in writing this book is to help you identify your goals and how to go about achieving them.

Because we Boomers will live longer and consequently will have a longer retirement period than any previous generation, we will need a bigger and better nest egg. Additionally, we aren't about to settle into a gentle good night of retirement. We will remain highly active. Most of us aren't planning the kind of full-stop retirement our parents might have enjoyed?we don't see ourselves moving into a Florida condominium to await the end of our days. Many of us will continue to work in some capacity, or volunteer, or start a new business or career. We want to travel, take classes, and live our lives to the fullest. In order to meet our needs over the estimated twenty years of retirement (again, assuming $50,000 a year for housing, travel, entertainment, and general living expenses), $1 million is the minimum needed to maintain our present lifestyle. This book is divided into three sections: The Million-Dollar Mind-Set, The Million-Dollar Groundwork, and The Million-Dollar Maneuvers.

As it would be in any campaign, understanding the rationale for the actions you are being asked to take is important, and that's what I'll cover in the first section. Once you have an understanding of what's being asked of you and why, then you enter the second, more active phase: preparing. Like anything worth doing, choosing to save at least a million dollars for retirement requires you to do some evaluating and planning of your current situation and resources. Rushing headlong into anything is unwise, and especially so when it comes to your financial future. The heart of the book, of course, is the third phase of your Million-Dollar Mission? engaging in the Million-Dollar Maneuvers that will help you reach your stated goal.

Step One: Evaluate It. Calculate your net worth and determine your monthly budget. Using the worksheets provided, you can create a picture of where you stand today.

Step Two: Save It. Find ways to allocate more money for investments. I provide you with twenty-five suggestions for cutting costs and increasing your investment budget.

Step Three: Understand It. How risk tolerance and returns needs shape portfolio choices. The goal is at least a million dollars before retirement, but depending upon your age, circumstances, and risk tolerance, your necessary return on investment will vary.

Step Four: Build It. Construct an individualized portfolio. Based on all the factors above, investment suggestions are provided to help you reach your stated goal.

Step Five: Manage It. Monitor and protect your investments. Once your plan is firmly in place, you can adjust it according to your evolving needs. By adhering to Farr's Rules, you can rest secure in the knowledge that your long-term planning will help you realize the vision you created years before.

Step Six: Pass It On. Create a financial legacy for your family. One of life's inevitabilities is that you can't take it with you. I offer some advice on how to make sure the government doesn't take too much of it from you after you're gone.

The age at which you begin investing plays a significant role in determining the approach you take, so I've included strategies for three age groups:

Investment plans for thirty-five. A "Just in Time" plan for those entering the peak earning years with an emphasis on a long-term vision and investment strategy.

Investment plans for forty-five. An "It's Not Too Late" plan for those who've delayed planning, with an emphasis on a controlled but aggressive approach to maximizing their power-earning years.

Investment plans for fifty-five. A "Catch-Up" plan for those who've either delayed their planning or experienced some other financial setbacks that have them feeling as if they are trailing the rest of the field. This plan focuses on strategies you can employ to make up for lost time while still feeling secure.

Along with Farr's Rules, I have provided specific recommendations and rationales for why certain stocks should be a part of nearly every portfolio. By focusing on a new task?the creation of one million dollars in assets by age sixty-five?we Boomers can accomplish what seem to be two conflicting goals: saving for the future and enjoying our present life. Using real-world examples of clients who've chosen this baseline figure as their goal, I'll show you how a little thoughtful refocusing of purpose, a little saving, and some wise investment choices can lead to a prosperous retirement and beyond.

We have a lot of ground to cover, so let's get started by looking at the unique challenges facing Boomers as we move toward the next stage in our lives.

Excerpted from "A Million Is Not Enough" by Michael K. Farr. Copyright © 2008 Michael Farr. Reprinted with permission of Hachette Book Group USA. All rights reserved.