How Has Your Retirement Plan Been Workin’ Out For You Lately?

by |

OK, I’ll go first. My retirement plan got knocked down three times in Round 1, back in the 80s.

You know, back when I turned 30 and knew absolutely every freakin’ thing that mattered. 😉 We’ve all been there, right? In a very short period of time I lost three properties. It was at that point one of the BawldGuy Axioms was born, though I didn’t realize it at the time. It wasn’t by any means original with me, but it’s become part of my DNA.

It said, “Nobody beats the market.”

I’d mistaken knowing and understanding the market with beating it. The market gives what it gives, and allows us to take it in the way it pleases. It’s called goin’ with the flow.

Those who constantly counsel us to row our investment kayaks up the river against the rapids? Let them have all the ‘fun’. Eventually their kayak will be headin’ in the same direction as yours. ‘Course, they may not be in it, and theirs might be upside down. But I digress.

Spoke with a highly experienced and intelligent guy earlier this year. He had a little over $400,000 in his 401k at work. Now, I realize that’s a lotta money. But it took him just over 20 years to do it, and he’d been puttin’ in quite a bit each year, five figures. His annual yield came out to 2% or so.

Those are 22 years he’ll never get back. Did he do better than most of his family and buddies? Yup, and by a whole bunch. How’s that for depressing? See, his ‘plan’ was to throw sizable gobs of cash each year into his 401k, then do all the really smart things he’d been advised to get done. He’s still in his 40s.

Let’s say he continues putting in around $15,000 yearly for the next 20 years. Let’s further assume he gets better at generating higher yields. In order for him to add another $600,000, he needs only to earn 2.25% on his current $400,000 plus the next 20 annual contributions. Voila! He does it.

Related: Are You Willing To Sacrifice Your Potential Retirement Income At The Altar Of ‘Local Control’?

He’s now 65 with a million bucks inside his now former employer’s 401k plan. Those advisers have told him since his first days on the job that when he retires the smart thing to do is to become very risk averse. Pretty sure that’d be human nature at that point, but let’s all agree it’s sound advice.

For the record, I have this same conversation, more or less, several times a month.

How to Purchase Real Estate With No (or Low) Money!

One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.

Click Here to Download

His Dream Retirement Income

4-5% max yield is what he’ll be ‘enjoying’ in retirement.

(‘Course, that begs the question, doesn’t it? The same experts who told him how to earn 2%+ will magically be able to show him how to double that in retirement.) On a million bucks accumulated over his adult lifetime he’ll be traveling around the world on $40-50,000 a year, BEFORE taxes. Not.

Thing is, the vast majority of Americans don’t get within sniffing distance of even 30% of that much in their 401k at retirement. Think they don’t see that train comin’ their way many years before that last day at work? You bet your last dollar they do. It’s not a fun moment, either.

I have these conversations a few times weekly. ‘Course they wouldn’t have contacted me if they’d been giddy about the retirement for which they were headed. Many of them bring up the test I challenged them to take.

For a few weeks or so they asked anybody and everybody if they knew just one person who’d retired on even $40,000 a year from their employer sponsored 401k. Seems that question often engenders some fairly interesting conversations. Who knew that listening to advice on investing for retirement from a guy your boss brought in to work might not pan out? 🙂

Real Estate — Discounted Notes — Certain Insurance Strategies

Those who insist on bumpin’ around in the dark, still do much better in real estate/notes/EIULs than anyone they know ever dreamed of doing at work with a 401k.

Think about it a second. If, over 25-40 years you acquired just four small rental properties bringing in $20,000/year apiece in gross rents at retirement, you woulda created the same $40,000/year retirement income as the guy with a million bucks in his 401k. And remember, that’s with the assumption that you Gumped your way through with no professional help at all.

Related: Frankly My Dear, Retirement isn’t as Bad as it Now Appears (at Least not With the Help of REI!)

Take discounted notes for example. If you had just a third of that guy’s million bucks at retirement, you could create the same income he did — $40,000. Maybe more.

I know, cuz I’ve seen me do it. 😉 What if you’d actually gone away from the DIY approach, and found a mentor or real estate investment pro? Here’s what’s not only possible, but likely. You’d end up in 20-40 years with a retirement income either close to or exceeding the most income you’d ever made on the job.

People, that’s whats SUPPOSED to happen.

Here’s a little secret:

Wanna know why 401k advisers tell employees their income taxes will be lower, and not to worry about taxes in retirement?

Cuz they know those employees will have substantially less income then, compared to what they’ll ever make working. Wanna know why that is? Cuz they listened to those guys for most of their adult lives.

Takeaway Question:

Why would anyone ever do that to themselves on purpose?

We can’t beat the market. We can beat the retirement killing, spirit sucking returns of employer based 401k plans. That strategy has had over 30 years to prove itself. It’s failed miserably from where I stand. Invest your hard earned after tax dollars elsewhere. Wanna know why so many parents are now moving in with their kids, or getting reverse mortgages, or selling their homes when they don’t really want to? They relied on those well meaning ‘experts’ at work. They never once took the bull by the horns and acquired solid, real world expert help.

They’re not living a retirement now. They’re serving a life sentence. Too dramatic? Bet you know of people yourself who’ve had to make decisions dealing with all these harsh realities. I know, ‘It’ll never happen to me.’

Over the last nearly 40 years I’ve heard that utterance hundreds of times. When hearing it now, it never fails to sadden me.

What are you doing about your retirement? 

Be sure to leave your questions below!

About Author

Jeff Brown

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.


  1. James Pratt on

    Reality bites. It’s very sad to see people who retired and find out that their retirement plan was their financial advisers retirement plan, he/she was the only one who made any money. For me, RE is the only way. It keeps up with inflation and if I want a raise, just increase the rents.

  2. Of course, a 401k plan should not be one’s only vehicle in retirement. Pretty much everyone that contributed to a 401k has social security credits. That adds another $30k or more. So even with just these two sources, he has got $70k yearly income. That isn’t a bad lifestyle with a paid off house. Not fabulous, but not bad. Sure he’d be a lot better off with some rental real estate on top of it.

    How this guy only earned 2% is beyond me. He really must be a terrible investor. I think most people have been receiving 20%+ returns the last 5-6 years just by indexing.

    • Hey Matt — DALBAR says in the last few of their 20 year ‘lookbacks’ that the average American with a work related 401k has enjoyed yields of around 3.5% or so. Since 1984 they say it’s been around 3.84%.

      Frankly, I stick to my question in the challenge. How many folks do we know who’d love to hear how they sacrificed for decades for a lousy $20-40k a year in retirement. For the record, the vast majority don’t come within sniffing distance of $40k/year income from their 401k.

      • Hi Jeff, great post (as always).

        To answer your question about knowing people who earn more than 40K from their 401K, I suggest that it depends on who your circle of friends are. I know some relatives that will not see 40K, but I doubt they ever contributed the max as those people are low wage-earners. I know many friends and relatives who probably have well over 1mil.(this is almost never a topic of conversation). We’ve always maxed out the 401K (only one of us has a “real job” and a 401K). It is disheartening to see the returns after 3 decades. I fully agree that you need a lot more to retire comfortably than a 401K.

        Our 401K only represents about 12 to15% of our net worth. This due, in large part, to the RE investments that started our early 20’s. As we have another 10-15yrs of max earnings, I expect this percentage to drop as other investments grow. Many fail to save enough or do other things to boost future retirement earnings – I’m talking about those who have/had the where with all to do so. We are not counting on anything from SS as I firmly believe that “means testing” is going to happen.

        Now, my question for you. What percent of NW do you recommend be in a Note Fund and how do I find a good one?

        • Hey Cheryl — You can go to to find a solid note fund. 🙂 That fund specializes in first position notes which, I’ve found to be exceptionally rare.

          There’s no answer I’ve ever found to a what percentage of net worth should be in notes. What I have learned is that it depends in large part on the individual investor, how much real estate they may own, how old they are when they start, and whether or not they have access to a Roth ‘envelope’ for note investing, along with their own portfolio.

          I can get more specific if you’d like to chat. Have a good one.

    • “most people have been receiving 20%+ returns the last 5-6 years ”

      Most people I know only have 8-12 mutual funds to choose from. Certainly no more than 20 in the best cases. Most people don’t give their 401k’s a second thought let alone rebalance them. The “lifestyle” funds are a little improvement, but not much.

      I suppose real estate would be a lot less profitable if everyone had the will and knowledge to do it.

      Most people with a shred of common sense know social security for the Ponzi Scheme it is. I will not count on it as the system will collapse of its on accord or the government will means test it and steal it away from the people who counted on themselves for their own retirement.


      • Not sure what the amount of funds in a plan has to do with returns. In almost every plan there is a S&P 500 Index Fund or something very similar. The S&P 500 is up over 100% the last 5 years. Just a fact.

        The author’s rant is a straw argument. 401ks are bad because you can’t completely rely on them as the sole source of retirement income. You can pretty much make the same argument with any investment instrument including real estate. Much better to have multiple streams of income.

        BTW, real estate, especially anything related to SFR, is a terrible investment if you are skeptical of the government. The mortgage interest, depreciation, and capital gains deductions are huge tax benefits that are much more likely to disappear as these deductions generally perform poorly from an economic point of view, especially the mortgage interest deduction.

        I invest in real estate too, but telling people not to take advantage of their 100% or 50% match is silly and most likely self serving to peddle some product where they are making money.

        • Jeff Brown

          A straw argument, really? I’m still waiting with baited breath for the first person who can find more than one person who’s retired with even $40,000 a year income in retirement from their 401k. Your argument re: employer match is hardly worth the time it takes to refute. All those folks nobody can find who’re making the above mentioned amount per year in retirement?

          They ALL had matches. 🙂

        • Matt,

          Crappy funds to choose from almost always result in crappy returns. My experience is working with friends’ 401k’s whose employers had 20,000-100,000 employees. None had “index” funds. One had a mutual fund that tried to “mimic” the Russell index. It wasn’t until my job was offshored that I was able to get my 401k funds into individual stocks and RE that I made big gains. Incidentally, I congratulate you on your returns!

          Based on the fact that we are chatting on this site indicates to me that we are both a little more financially driven than most people. People who save in 401k’s are better off than those that do not – and the latter do exist – but I think the author was just suggesting that there are better alternatives. His example was anecdotal, but I don’t know anyone who grew rich off their 401k. Telling people not to take advantage of their 100% or 50% match is indeed silly, but I don’t remember reading that above. I did get a chance to talk to the author for an hour earlier this year regarding another article he penned and not once did he try to sell me a product or service.

          You will get no arguments from me regarding multiple streams of income and SFR. Losing my job was the best thing that ever happened to me as it allowed me to invest in alternatives to the equity markets. I have notes, apartment buildings, private placements and do multiple fix and flips (when I can get them at the right price).

          In the end, the secret is to make your money work for you and not the other way around.

          I wish you continued success.

  3. Ive created a name for this type of retirement. “Scrimp and save, then beg and borrow”.

    Tech Bubble: 40% loss
    Housing Bubble: 40% loss

    Where is the “the market returns an average of 8% anually” crowd?

    Not in my 25 years of investing. What happens when im 65 and the student loan bubble burst? Another 40% loss? Ill tell you what ill be doing. Begging and borrowing.

  4. Great article Jeff!

    Do you happen to have links to credible resources like DALBAR that shows the average rate of return in the average 401k?

    I 100% agree with you but it would be great for my own use to have the specific stats to show people.


  5. Hmmm.. if i was getting 20% returns for the last 5 to 6 years in my 401k i would be a multimillionare. Which I am not. THEN, and only when Im 59 can i allow the guvment to take half of it in taxes. 401k is a racket. Its depending on you to FAIL in life. Who the hell wants to be in a lower tax bracket when they retire im order to pay less taxes? Weve all been brain washed. The larger you grow that pie, the more the guvment gets. That is a FACT.

    • The S&P 500 was 752 in 2008. It is 1,980 now plus you can add in dividends. It is pretty simple math if you index. It is going to be tough to repeat that going forward though.

      I am sorry you don’t understand the benefits of tax deferral. It is much easier to grow a financial nut in a tax deferred account. It goes hand in hand with the concept of interest compounding. Even savvy real estate investors understand this. Dave Van Horn always states he wish he understood the power of tax deferred investing earlier in life. Doesn’t mean you can’t take your IRA/401k balances including the company matches and invest in real estate including notes.

    • Chuck,
      Do you not understand how compounding works? Sure, I will be in a higher tax bracket when I retire. But that will be courtesy of not paying taxes on the investment income in my retirement plans over the years. Plus, courtesy of the Roth element of those plans I will have money that is tax free over and above that. Using a retirement plan wisely can actually allow you to have more income after retirement than before. When I retire, soon, I will almost double my current income without touching the principal, and without depending on Social Security. And I won’t mind being in a higher tax bracket even a little bit.

  6. Justin Fortier on

    If your employer has a “match” program where they will match your contributions up to a certain percentage, opting out would be like losing out on free money. Then most 401k programs that I’m aware of allow you to borrow 50% of your vested balance up to $50k and you pay yourself back with interest and no penalty. I just used this technique to supplement my savings and purchase a 4 unit complex. Another benefit is the loan payments automatically come out of my paycheck and I don’t even notice having the loan. Cheers.

  7. So you get free money for the government to tax. Great. Please calculate in all the fund and admin fees. Its a racket. Only people making money is the mutual fund companies and your companie who is matching you. You think your company is trying to help you retire? They are shedding cash to pay less taxes. YOU are left with the tax burden.

  8. James Evertson on

    I would add to your comment about retirees moving in with kids and not having money the idea that pensions are a thing of the past. In years past a company you worked for set aside money for you into a pension (whether they did this well or efficiently is not the point here). The point here is that when the responsibility was “transferred” over time from the employer to employee, the average employee did not calculate what they needed to save on their own to make up for the expected shortfall. They did not save what they should have and now an entire generation has to face the music.

    In regards to a match on a 401k from an employer: You cannot make the argument that an employer match isn’t valuable. If anything, you can get your match, wait the required vesting time if there is one, and yank it out of your 401k prematurely. If your employer gives you a $1 match and you’re in a 30% tax bracket you still net close to $.60 after taxes and 10% penalty. That after tax non-qualified $.60 is a meaningful return on your $1 qualified. Even if you yanked both your contribution and the match you would have $1.20 after tax nonqualified instead of $.70 you would have by not contributing to the 401k.

  9. Look. I have a 401k balance with a 6 figure balance. It doesnt pay my bills, doesnt spin up an income and Im not in control of the money. The ONLY reason I do is because of the matching. Im just saying that there is better uses for that capital that will bring in income TODAY rather having my employer being in control if it. I hate the idea of building up a mountain of gold only to draw down 4% hoping my money dont run out before I die. To each there own. Id rather collect cash flowing real eatate and build up a stream of income to replace my W2 salary versus working until Im 60 .

    Id also like to here from ANYONE that thier 401k produces 40k a year im income without drawing the principle. Please enlighten me on that retirement model?

    • James Evertson on

      In no way am I suggesting this but I am simply answering your question.

      First, I am assuming you mean providing $40k/yr in retirement as the general point of a 401k is for retirement. Retirement assumes you are not working anymore which means you can move your 401k. If you want $40k/yr in retirement go find a corporate bond and reverse engineer the coupon to extrapolate how much you would need to yield a coupon payment of $40k/yr. Make sure you take into consideration the YTM and the premium or discount one would pay for said bond to achieve that yield.

      Example: For simplicity of numbers let’s take a new issue that pays 4% coupon and trades at par (no discount, no premium). 40000/.04=1000000. So you would need $1,000,000 in your IRA to yield 40k/yr. When the bond matures you will be given your 1,000,000 back.

      Once again I do not suggest this strategy and you should do your homework or seek advice from someone you trust before you make any investment decisions; I was simply answering the question.


  10. Nice strategy for some to be sure. The idea for me to be sitting on a million dollars making 40k per year in California just wont make ends meet for me. Thats heart breaking. I want to be wealthier as i grow older with a larger income not have to scale down and scrimp amd save. Thats just me. Not trying to be combative or negative. I dig everyones insight on this.

  11. People — With the exception of one or two commenters, who understand Roth, and the actual pitiful results of a traditional employer based 401k, the rest are failing to address my challenge.

    If it’s such a solid retirement vehicle why are so many Americans — WITH MATCHES — entering retirement with such sad little 401k income? Is DALBAR makin’ stuff up year in and year out about the shameful 20 year annual average yields? Are people retiring with seven figure balances?

    Where’s the results of the all powerful employer matches? Until these questions are answered, I’m content to read the arguments talkin’ about millions of Americans who apparently exist only in my imagination. 🙂 These poor folks are hitting their 50s and older, and realize they’ve been had. I know one thing for sure. I’m not imagining the emails and phone calls I get from them when the realization of impending and crushing disappointment dawns on ’em.

    • The reason why the average American does not have 7 figures in their 401k are as follows.

      1. Most people don’t contribute consistently to their 401k plans. Some just start when they realize they are getting close to retirement.
      2. It is misleading to just cite 401k info as many people move their 401k balances into IRA’s when they change employees.
      3. Many Americans raid their 401k plans from loans or straight withdrawals.
      4. Many people panic in market downturns and sell. That is why they underperform the market by so much. This can happen in real estate too.

      Those of us with any financial understanding who make consistent contributions and don’t make the obvious mistakes above will have big retirement balances. It really isn’t complicated.

      Your argument could also go like this. Most Americans with jobs are not properly prepared for retirement. Therefore, people should not have jobs.

      I agree the 401k is a flawed vehicle and people need other instruments like real estate. However, the real reason Americans, especially the irresponsible baby boomer generation, are in such a mess is because they didn’t save nearly enough and have terrible investing habits.

  12. I have a 3-legged stool plan, maybe 4 legs. Rental income starting now, small pension added in at 65, along with starting to withdrawal investment income. Social security at 70. It should be more than I make while working, even if I live to be 200.

    And $400K is not a lot in a 401K, that’s why you should also do a Roth and additional after tax savings.

  13. Whats a pension? Never heard about them. (Says the disgruntled UAW brat).

    Agreee with the multi-leg approach. 401k, reits, raw land, rental income, self storage, savings, and….wait for it……Social Security. Maybe I should be adding some notes and bonds? Not too familliar with those vehicles.

  14. Jeff

    Great read.

    The one thing I have noticed is what I call “failed retirements”. These are people who have retired from a high tempo, well paid position and retire. Then they come back (in a lesser position) in about 12-15 months either because of money or because of boredom. That is a lack of planning and imagination in both respects.

  15. @Stephanie. That is exactley my concern with retirrment. Just being disconnected from the day to day grind might bore me to tears. I asked my 75 year uncle how he adjusted when he retired at 51. He absolutely had no qaulms about stating he loved every minute of it. Retired with a pension from GM, so no 401k.

  16. Jeff,

    Great article. For most Americans they will learn the sad truth about 401ks when it’s too late. Your article is completely correct and those who rely on it exclusively will discover it’s a mirage.

Leave A Reply

Pair a profile with your post!

Create a Free Account


Log In Here