Are You Able To Retire? by Bill Roberts The Baby Boomer Retirement Planner
If you are like most of us, the answer is NO.
Fidelity (you know who they are - The Green Line on the ground (their TV commercial)) reports that most (around 90%) of the Baby Boomers have $100,000.00 or less in their retirement accounts.
The average retiree needs about $1,000,000.00 (a cool million) in their retirement account in order to generate enough cash for them to live on each and every month.
Fidelity is the world's largest custodian of retirement funds (401ks, etc) so they should know.
Why does it take a million dollars in your retirement fund to retire?
There are a number of answers to that question:
- 1. Most retirement funds yield about 8% per year (historical average) so one million dollars in a retirement fund will earn about $80,000.00 per year. That along with an average of $15,000.00 from social security will give you less than one hundred thousand dollars to live on.
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2. After you retire every day is Saturday. What I mean by that is you will have many more opportunities to spend money. While you are still working your opportunities to spend are limited by your available free time. Don't go to work and see what happens. Unless you sleep all day, you'll end up spending money. -
3. Your cost-of-living will actually go up after retirement. For one thing, the cost of nothing goes down. You still pay for your home (even if it's free and clear) with taxes, insurance, maintenance, security, home improvements, and communications and entertainment. After you retire, you will eat out more often. You will take more vacations, side trips with the kids and grand kids (the zoo, Sea World, Disneyland), and cruises (it's hard to take a cruise while you are still working). You will play more golf or go fishing or whatever else consumes your interest. And you will discover that nothing is free. -
4. Inflation is your enemy. If you are living on the entire yield from your retirement funds, then next year you will be able to buy less with the same amount of money (your yield). And this will continue every year until you can buy nothing at all. The way to combat this is to use less than the total yield, adding the balance to the fund each year. This is going to be hard to do. -
5. If your total cost of living pre-retirement is about $100,000.00 per year then expect to need $115- 120,000.00 post retirement. If you have less than a million dollars in your retirement fund, then you are going to need to dip into the principal in order to survive. How long you can do this will depend on how much you start with and how much you take out every year. Suffice it to say, it isn't going to last forever, and it probably isn't going to last as long as you need it to last. -
6. Expect to live forever. If you only have enough money to last ten years, then what? Maybe you only have enough money to last two tears at your current lifestyle. Then what?
The answer is simple, either work until you die, or build up your retirement fund. But don't expect your retirement fund to increase all by itself.
Einstein said "the definition of insanity to doing the same over and over and expecting a different result." If your retirement fund is a little anemic, then time isn't going to cure it. You need to do something differently. You need to do something radically different. Most retirement funds are invested in the stock market. I suggest you look elsewhere for a better return on your investment.
Choices
My first choice is real estate, It should be yours, as well. Real estate offers many, many diverse investment opportunities.
Real estate also offers many investment choices that can return in excess of 15% PER YEAR (ROI) on invested capital. Look at the difference between an 8% ROI and a 15% ROI over a ten year period:
$100,000.00 invested at 8% yeilds a total of $215,893.00 (principal and interest)
$100,000.00 invested at 15% yields a total of $404,556.00 (principal and interest)
So, in the above example, your principal invested at 8% doubled in just under 10 years, while it quadrupled in nearly the same time period by getting a 15% ROI.
But if this still isn't enough money to retire on, then you need to look for a better return than 15%. Is this even possible?
Of course it is possible, but remember, there is an direct relationship between risk and reward. The higher the sought reward, then the higher the risk you will need to take.
But let me soften this picture a little bit. If you don't take the risk, then it is certain that you will have to work until you die or reduce your lifestyle significantly. So what you are really risking is your fate. Will you have to work until you die OR can you retire in style? This is hardly a Hobson's Choice.
If you risk the insufficient Fund and lose, you still have to work until you die, but if you win, then you can retire in style. On the other hand, if you don't make the bet, then surely you will work until you die. It seems that common sense dictates that you make the bet. Give yourself a chance at life without the need to work.
Strategies
My favorite real estate strategy for retirement is to purchase a piece of land outside of town, but in the path of progress. If you pick well, a 1000% increase is very possible. Your $100,000.00 could become the million dollars you need.
Maybe you don't feel comfortable picking the right parcel. Maybe you don't have enough money for the purchase or if financing is involved, you don't have sufficient credit, or you don't want to risk your credit. Losing the cash is one thing, but losing your credit is quite another. Another way to do this is to "partner" with others on the purchase. This can either be by taking title as tenants-in-common or by taking title in the name of an LLC. Either way you are in for a part of the profit without a credit risk.
A word about real estate values: the higher the use, the higher the value. And if it has no use, it has no value. Many of my strategies revolve around this concept. Change the use, change the value. In my preceding example of land outside of town, use was changed by "civilization" closing in on the property.
There are many ways to change use, limited only by imagination (vision) and daring. Building a "spec" house on a vacant lot is an example of change of use by both daring and imagination.
Asking the zoning authority to change the intended use of a parcel is both daring and visionary. You will need to "sell" that vision to get your use change. But if you are successful, then you have increased the value of your real estate by use change.
Another simple use change is to plant trees on a vacant parcel. The trees will grow and eventually produce income.
If any of these ideas are interesting to you and you want to be able to retire in a reasonable period of time, give me a call.
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