How much does a retiree really need?
Headlines such as this break my heart: “With $15 Left in the Bank, a Baby Boomer Makes Peace With Less.” But I predict that we’re going to see more and more like this in the coming months and years. That’s because the problems with retirement age people are bigger than anyone imagines.
This story is merely a collection of symptoms of the bigger problem. It’s the story of Kathleen Wolf, a woman trying to do the best she can. She has spent many decades living and working in Monterey, California. She built a very happy and prosperous life there. But with the subprime meltdown, her considerable wealth in real estate disappeared almost overnight. It didn’t take long for her bank balance to reflect that she had just $15.
At that point, Kathleen was facing a very different retirement than she ever imagined. Instead of enjoying a comfortable California lifestyle, she made a difficult decision to declare bankruptcy and move across the country looking for an affordable lifestyle in Iowa.
Kathleen says the weather is not as good as California, and there aren’t any yoga classes in her new town of just 700 people. It’s not how she envisioned her retirement. But she’s hopeful. It would be interesting to check in with her in another ten years to see how she’s doing.
I wish the very best for Kathleen. But with a very limited amount of money in the bank and expenses that will continue to grow, it doesn’t look good for her.
Here’s The Real Problem Most Retirees Don’t Understand
The vast majority of people will retire with palm trees and sandy beaches in their dreams, but they’ll be shockingly unprepared to enjoy it. That’s because when you retire, you will probably have a big fat zero in your income. You might have a little bit of a pension, and maybe a little bit of social security.
“But Andy, what about the money in my 401(k) account? And what about the equity in my house?” It’s nice to have those things, but the Federal Reserve shows us that the average net worth of Americans nearing retirement is just $168,900. That’s lower than any time in recent history, even lower than it was back in 1989! Even if someone were to liquidate all of their 401(k) money and sold their house, that $168,900 would not last for very long.
We haven’t even discussed expenses yet. Over time, how often do expenses go down over time? The answer is simple – NEVER. Not only do the expenses keep coming in, they keep growing. Your utilities get more expensive, your food gets more expensive, clothing gets more expensive, the gas for your car gets more expensive.
The Answer Is Simple
Sometimes the most obvious answer is the right one. When your income disappears at retirement, what if you could replace it with a new source of income? Or even multiple sources of income.
That’s what the rich do to ensure their ongoing level of lifestyle. They learn to buy assets that contribute to their income by sending new cash flow into your account. And they avoid buying things that suck your wealth dry with heavy expenses. Because when you learn to create passive income, you won’t be forced to cut corners like Kathleen. You will be able to live well and enjoy your dream retirement.
So much of retirement advice in the 401(k) world revolves around the phrase “how much do you need to survive.” It’s a conversation of survival rather than abundance. That’s why I encourage people to buy real assets, to start a business, and to go for their dreams and live in abundance.
Don’t make aim for making do with less – aim for MORE.
