As I commented on Monday, I’ve never heard of National Retirement Planning Week before, and I guarantee that 99% of Americans haven’t either. But I’m a fan of anything that draws attention to the pending retirement crisis and spurs future retirees into taking it seriously.
Vanguard recently reported that the average 401(k) account value for an investor age 65 and older is a $192,887. That doesn’t seem that bad at first glance. Between 401k savings, outside savings, and a little income from Social Security, you might come close to cobbling together a livable retirement.
Alas, the devil is in the details. That $192,887 average is not at all reflective of the typical investor. It’s skewed by a small number of high rollers. If you look at the median account size — which is that proverbial average investor in the middle — the numbers look much different…
The median 401k balance for those 65 and order is just $58,035. If we were to include those in their 20s just starting careers, that number might not be so bad. But that $58,035 balance was just for people already at retirement age.
If you have less than $60,000 saved for retirement, you might as well have nothing saved at all. Even under the rosiest scenario, you’re not going to generate more than a couple hundred dollars per month on that. Even after factoring in Social Security payments, you’re living below the poverty line.
There’s more than one way to fund a retirement, of course.
You’ve probably seen me talk about my grandfather and how he inspired me to get into this line of work. He was an entrepreneur and a do-it-yourself investor who built up a respectable portfolio by investing in local companies he understood. His early investment in Walmart ended up supporting my grandmother in retirement for another 20 years after my grandfather passed. But that was never his plan. He intended for her to live off of the rent income from a small warehouse he owned in Fort Smith, Arkansas. The Walmart stock was just icing on the cake.
Sometimes You Need to Get Creative
This week, I’m writing to you from the annual Concurso Nacional de Caballos in Mamacona, Peru. It’s basically the Super Bowl for breeders of the Peruvian Paso.
I’m here to root for my father in-law. He’s defending his title of “Best Breeder” from last year.
My father in-law is considered to be one of the best breeders of the Peruvian Paso in history, and his father was a legend in his own time. Unfortunately, he died young — in his 50s — leaving his family without its breadwinner. But he did leave them one hell of a horse.
Sol de Paijan was arguably the finest horse in the history of the breed, and the stud fees supported my wife’s grandmother in retirement for nearly two decades.
Now, I’m not recommending you go buy a Peruvian breeding stallion to fund your retirement. That would be lunacy. You’d need decades of experience to develop the afición, a large budget to get the breeding operation off the ground, and a decent bit of luck.
But if you’re nearing retirement and you don’t realistically have enough saved to retire, you might need to get creative. Standard financial advice simply isn’t going to be enough.
An old childhood friend of mine has nothing saved for retirement. Being in his early 40s, he knows he’s not going to be able to make significant cash savings over the next couple years, given the finances of his business — a small manufacturing and refurbishing company. But he’s thinking ahead.
He’s currently paying over $2,000 per month in rent for his shop in Dallas, which is money he’ll never get back. So, he’s planning on moving his operation to a rural area two hours outside of Dallas and using the money he’s currently paying in rent to pay the mortgage on his own property. And, even better, he’s looking into subleasing a portion of his land, potentially cutting out-of-pocket expenses by half or more. The difference can be applied to savings, and he’ll have a property that he should own outright within 15 years that he can then sell to fund his retirement.
Will his plan work? We’ll see. Frankly, it’s probably no more of a risk than putting all of your money into the stock market and hoping for the best.
Of course, moving to a rural area two hours outside of the city probably isn’t a viable option for those of us working for a paycheck. If you’re looking to make your retirement a little more comfortable without all the moving around, I might have a good option for you.