I haven’t done a buncha research on this, but in talkin’ with the really old farts in my family, a couple of whom were born in the 1920’s, I’ve learned some interesting/alarming little factoids about retirement back then. For 99%, retirement appeared to be the ultimate Do-It-Yourself project — sink or swim — but in reality it hardly ever turned out that way. Even when subtracting the wealthy and the good-for-nothings from the equation, it’s my guess that well over 80% of our population back then were unsuccessful in providing for a completely independent retirement. I say that even though most were lucky to live even a decade beyond the day they stopped ‘makin’ a living’. 130 years ago you could die from things we treat today by a trip to the drugstore, or 5-10 days on an easily obtained prescription.
Whether you lived in a densely populated east coast city, or somewhere ‘out west’, retirement was, to be charitable, a challenge. Why do ya think there was such an emphasis back then on extended family? It wasn’t just to have more unpaid employees workin’ on the farm/ranch, or with jobs in the city, it was to survive financially from year to year — and that was easy compared to providing for retirement. In fact, I’d go as far as to say that retirement for most in the 1800’s was having created a family who gave a damn about you.
There was no Social Security, and company pensions in those days were not only few and far between, but penurious by design. Churches and various charities took up as much of the slack as possible. But the bottom line was, if you hadn’t saved/invested enough to support yourself ’till death, or you didn’t have an extended family who welcomed your continued non-productive presence post-working years, you were pretty much outa luck.
Fast forward to today, and take a look at the 40-something couple (or single parent for that matter) with 2-5 kids, decent employment, and relatively good health. When retirement looms 15-25 years hence, and they’re lying in bed one night unable to sleep, one wonders what that retirement looks like to them. Do they smile a bit with childlike anticipation, turn over and fall asleep, or does sleep then elude them ’till the wee hours?
The sooner you realize you’re essentially on your own, the better off you’ll be. The worst enemy most people face when confronted with this subject matter is denial. The strategy of ‘pretend and extend’ will end for many in, “Hi! Welcome to Wal-Mart.”
I’m dumbfounded to see how most folks tend to treat their 401Ks/IRAs no differently than either Social Security or the soon to be extinct (except for gov’t jobs of course) job pension. That is, they think of it as inevitable. To those who’ve relied upon these so-called ‘plans’ to fund their retirements, I ask this question:
How’s that been workin’ out for ya so far, Skippy?
I don’t mean that to sound as cavalier and harsh as it surely does as you read it. That question came a couple years ago from yours truly while speakin’ at a seminar in the midwest. I’d been comparing a few strategies I’d been implementing for clients to the job related plans now so prevalent. Someone in the audience saw where things were goin’ and took umbrage — extremely so. She said I was not giving the true real life picture. When asked if she had a 401K at work, she nodded with pride. I asked here how long she’d been contributing to it — about 18 years or so. Did her employer help out? Yes, the first 3% — dollar for dollar.
Then I asked her to do a timeline comparison. What was her 401k worth 12/2006 and what was it worth that day? (early fall of 2008)
I waited a few more seconds, then asked her the above bolded question in as kind a tone as I could muster. Though more silence ensued, no answer was necessary, as we could all see that her plan hadn’t panned out. Duh. If it’s any consolation, she’s rowin’ a boat in a flotilla made up of millions of boats being rowed by more millions of folks just like her.
Here’s what I told her then, and what I’m tellin’ you now.
You’re on your own. Take what capital you have and get it workin’ for you in a way engineered to keep you in more control. Fortunately, for the most part, sophistication isn’t required, though a professional surely is. There are two things you should be doing with laser-like focus and persistence.
1. Invest in income producing real estate with the goal to owning it debt free. Yeah, I know, it’s not that simple to execute correctly, but the concept can be understood by a slow 12 year old. Find an expert, pay them, and get going.
2. Set up a totally separate basket of retirement income by starting an EIUL or three. That brings up a true story illustrating how superior EIULs are to 401Ks and IRAs.
NOTE: An EIUL is an Equity Indexed Universal Life insurance policy. It’s another post altogether, but the end game is manifold. It provides tax free income in retirement, no-strings access to money in emergencies, and your heirs won’t pay a dime in estate taxes upon your death.
On another much read real estate blog, (not mine) I authored an extensive post about the relative superiority of EIULs vs job related ‘qualified plans’. I was tarred and feathered, burned in effigy, and generally treated without even feigned respect. The vitriol was surprising, surpassed only by the partial truths and total falsehoods used to ‘discredit’ what I’d written.
I waited awhile and tried again. Same result. Then the correction virus hit Wall Street with a horrific vengeance, and retirement plans generally lost 30-50% of their value faster than people could hit the panic button. I waited awhile for the dust to settle, then went back on the same blog again and wrote about EIULs one more time, but with the gloves off. I asked them the bolded question above. The result in the comments section that time was, as you may’ve already surmised, crickets.
The silence was deafening. The folks who had their capital in cash flowing real estate were fine. The ones who’d also rerouted or already had other funds in an EIUL, had ‘enjoyed’ returns of 0-2% annually while their neighbors saw their 401Ks/IRAs lose nearly half their value.
And for the record? I make no money directly, or indirectly from anyone using my ‘in-house’ EIUL expert. I give this advice when it makes sense cuz it’s the right thing to do.
Anywho, where were we? Oh yeah — Back To The Future
Think 19th century when it comes to planning for your retirement. As all of us can readily see the number of retirees moving in with family has been increasing, as well as those who’ve avoided it only by workin’ well into their 70’s. Let us not fantasize these trends are the result of design. Furthermore, younger family members are movin’ back in with Mom and Dad — 19th century. I wonder in what context they ponder retirement? It seems reasonably likely many of their generation will do retirement planning with the assumption they’ll be on their own, reliant solely upon the results of their own persistent efforts.
The longer it’s been since your 40th birthday, the louder you must hear the tickin’ of your own retirement clock. For many, Big Ben must seem almost silent by comparison.
Back To The Future — Tick-tock — Time is not your friend.