I distinctly remember the moment when retirement planning took on a personal meaning to me — I was kayaking with my wife along the Myakka River, which runs some 60 miles through the prairies and wetlands of central Florida, just east of Sarasota.
It’s a river that is teeming with history. Juan Ponce de Leon was said to have been the first European to explore the land in the 1500s. Then the Seminole Indians inhabited the area in the 1700s and early 1800s. And then cattle farmers moved in on the fertile region in the late 1800s.
Somewhere along our paddle, we stopped at the abandoned camp of one of the region’s primitive settlers. All I remember seeing as we pulled our kayaks onto shore was a wooden structure slightly bigger than an outhouse and an enormous stockpile of firewood nearby the small shack. The pile of wood had to have been 100-times larger than the house itself — it was stunning!
I asked our guide, “What’s with all the wood?”
He quickly answered, “That’s an old-school retirement plan right there.”
The Idea Behind Retirement Planning
That’s when the light bulb went off for me; retirement planning is about self-sufficiency! Whoever settled that camp along the Myakka River hundreds of years ago, no one gave that person a pension-and-gold-watch retirement. And no one had an employer-match on his tax-advantaged 401k.
According to our guide, this primitive settler felled trees and split fire wood every single day of his life. He knew that if he didn’t do it, no one else would do it for him. And further, he knew if he ever got old or injured, he wouldn’t be able to produce firewood… and if he didn’t have enough stockpiled by then… he’d die.
A bit morbid, yes — but honest.
Thankfully, the retirement planning for modern Americans is not as do or die. But sadly, most hopeful retirees haven’t stockpiled nearly enough “wood.”
Consider the stats…
- “Thirty-six percent of American workers age 55 to 64 say they have less than $25,000 in retirement savings.” — Employee Benefit Research Institute
- “Fifty-one percent of households are at risk of not having enough savings to maintain their standard of living after retirement.” — The Center for Retirement Research at Boston College
- “Sixty-six percent of Americans said their top financial concern was not having enough money for retirement.” — Gallup poll
Beyond the research and statistics, I’ve seen this retirement dilemma first hand. I was working as an advisor for a Fortune 500 financial planning firm throughout the 2008 market crash.
The Buy-and-Hold Disappointment
Each week, I met with dozens of families, all of whom were trying to figure out how to get to age 65 with a sufficiently large nest egg. Most of them were looking to buy-and-hold to get them there. So, suffice it to say, the 50%-plus drawdown in their buy-and-hold portfolios was threatening — particularly for those who were just a few years from that golden 65th birthday.
It was sad to watch. These were good people with good intentions… and they couldn’t figure out how to afford retirement.
Simply put: buy-and-hold let them down. It’s tragic, really.
Alongside the move from pensions to 401ks, the onus of retirement planning was shifted back to the individual. And the only best advice they’ve been able to get for much of this time has been: just buy… and hold.
Sure, buy-and-hold has worked for some investors. But it’s sorely disappointed others. Consider this chart, which I first shared with attendees of our Irrational Economic Summit. It shows the total return of buy-and-hold for distinct periods of time.
As you can see, buy-and-hold turned $1 into $11.90 between 1982 and 1999. But between 2000 and present day, buy-and-hold has done little for retirement savers — turning $1 into a measly $1.35.
Find What Works Best for You
I’m sure you know by now that we’re not big fans of buy-and-hold here at The Rich Investor.
Each of us — Charles, John, Lee, and myself — have rejected the spoon-fed advice of buy-and-hold… and we’ve each found our own ways to grow our wealth and plan for retirement.
John’s identifies the danger in the details — he’s found tremendous success through some unconventional means, all the while building his nest egg.
Lee’s patience is a virtue — he’s learned over the years that little wins add up, and applies this practice to help build his wealth.
And Charles’ a stodgy conservative — he’s discovered ways to get automatic checks every month! He’ll be sharing the details with you later this week, so don’t miss it.
As for myself, I’m a systems guy — so I’ve been building and implementing investment systems to build up my own retirement.
The great thing about investing is there are many ways to “win” at it. What’s right for me isn’t always going to be right for you. And that’s OK.
You’ve just got to figure out what works for you… and then get to chopping that firewood!