A Review — How’s The BoomerHerd Faring On The Retirement Front?

by | BiggerPockets.com

The short answer? Terrible. The long answer is, as usual, somewhat complicated and nuanced — or that’s what the media preaches. The other day I saw something on TV that had me playin’ it back to ensure I’d heard it right the first time. In a nutshell, they said . . .

If a couple making around $75,000 a year manages to save about $800,000 — they’ll be fine in retirement. 

First off let’s show how they’re likely to be — fine. (Read: OK)

The Social Security website has a retirement benefit estimator. It says that a couple making that much will end up at 66 with roughly $23,300 (rounded) a year. (That figure will change a bit per tax payer history.) That’s before taxes, which, if they live in a state like New York, Illinois, or Heaven forbid, California, will be more than a smidgeon. ‘Course, their SS checks aren’t their whole retirement, as they arrive at 66 (Yeah, I know, remember 65?) with $800,000 in their 401k. Like most Americans, that’s where their ‘savings’ end up, their employer’s qualified retirement plan. Since Moses’ son died, the advisors for qualified plans have been telling their clients to transition to more and more risk averse positions as they approach retirement. Fair enough.  Makes sense.

Once they pull the retirement trigger, they’re then advised that they should expect their invested capital to generate, give or take, about a 4% annual pre-tax return. In this case that means roughly $32,000 a year. That brings their gross income at retirement to approximately $55,300 a year. If they live in California as I do their total tax bill (state/fed) could well be about $5,500 annually. We’ll assume they own a home, and have successfully paid off any loans. This leaves ’em with real estate taxes and insurance, which we’ll peg at about $5,000 a year. Add to that auto insurance, home repair and maintenance, utilities, and there’s another $4,200 — and that’s being generous. Let’s fix groceries at $400 a month, then round up to $5,000 yearly. That’s not including eating out. No entertainment. No travel. Oh, and the cost of gas wasn’t included.

After state and federal taxes, and the modicum of normal living expenses mentioned above — clearly not an all inclusive list — they’ll have just under $3,000 monthly for travel, hobbies, visiting far away family, clothing, and the acquisition of a replacement car when their 2005 sedan gives up the ghost. This doesn’t account for health insurance, an expense somebody told me is goin’ up, and might continue. 🙂 See what I mean? They’re probably just . . . fine.

However, 4½ years later the feds notify them that they’re ‘not takin’ enough out each year from their retirement plan’. They’ll then be instructed to begin cannibalizing principle, which involuntarily puts them in the race they — and you — never wanted to enter. It’s the race between the day you die and the day you run outa money. Still thinkin’ $800,000 in your employer’s retirement plan is ‘fine’?

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An Alternative to Consider

Yeah, I know, this is a real estate investment site. It’s a real mystery what I might be about to suggest. 🙂 I won’t go through the whole script. However, the same $800,000 in equity would yield in the range of $4-6,000 monthly, much of it tax sheltered if well planned. Furthermore, you’d have a de facto ‘bank’ in that your property would be debt free. Need $100,000 quickly? Pick a property, pull it out tax free. But, what about the money you didn’t put into your 401k every paycheck the last 15-40 years? I have a suggestion for that too. Call David Shafer about diverting that money into an EIUL. Those still in their 20s and 30s can generate an income at retirement of $5-15,000 and more — tax free — via an EIUL. Recently a client called me to thank me for bringin’ EIULs into their plans. At 20-something they’ll hit 60-something with about $200,000 a year in tax free income. That’s over and above what they’ll do in real estate. Oh, and don’t forget the discounted notes they’ll be acquiring in their Roth type self-administered plan.

By the time they hit retirement age the income they’ll collect by the middle of February AFTER taxes will more than our example couple makes in a year BEFORE taxes. Now granted, they’ll be benefitting from the decision to go this way in their 20s, a distinct advantage to be sure. Their current combined income now is more than many, fewer than some, but not spectacular. They live up to their kneecaps. They work hard and keep their noses clean. But the key factor separating them from the herd, is that they have a Plan and are executing it on Purpose. They’re definitely not repeating the mistakes of the BoomerHerd. Those mistakes are now comin’ home to roost in a very big way.

Don’t follow the BoomerHerd to what is at best an OK retirement, and at worst a complete calamity. Learn from their mistakes. Boomers are fast becoming the generation that’ll work themselves into their graves. The common denominator? They followed flawed plans, and then tried to remedy the unacceptable results with a Do-It-Yourself approach.

They’re none to happy with the retirement most of ’em are facing.

Photo: Pedro Ribeiro Simões

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. Jeff, you have often commented on this blog about the mistakes in traditional investing (stocks, bonds, mutual funds and IRAs/401ks). Here you tout an alternative (actually two or three alternatives) but leave out the details (as you mentioned).

    I will agree with your post in terms of promoting a LIFETIME strategy for generating a RETIREMENT PLAN. Just as you raise alarms about the tax problems in 401k plans, you never even mention tax problems with permanent life insurance plans.

    What tax situation will that 20-something face at age 85 and 90 if he/she withdraws $200,000/year from an EIUL starting at age 65?

    The devil is always in the details.

    • Jeff Brown

      Great question, Kevin. I’ll let the actual EIUL expert, David Shafer answer that question on the technical side.

      My answer is based more on common sense and experience.

      1. If they were smart enough to figure out how to hit retirement with more after tax income than they grossed before retirement, I gotta think they’d figure out how to allow for potentially outliving any given income source. Over $200k tax free for 20-25 years or more is likely sufficient for them to have planned ahead. 🙂

      2. Their specific details include at least four retirement income resources. Considering the fact that their living expenses are less than before retirement, and their after tax income is far greater, one could reasonably conclude they’d probably figure things out.

      Again, your technical question is a great question. I’ll prevail on David for a professionally reliable answer.


    • Kevin, that is an easy one. Properly structured EIULs would allow tax-free withdrawals.
      The actual term used for the withdrawals are “loans against the policy” which is a critical distinction to the IRS, allowing for the tax free withdrawals. This has been a feature of permanent life insurance for several generations and the IRS has ruled on this several times.

      • Kevin, and one more thing, if the client found themselves in a position to not needing the income from the EIUL, they could put the life insurance in a life insurance trust [ILIT] and the death benefit could pass to their heirs free of even estate taxes [whatever it might be at that future date].

      • Again, the devil is (still) in the details.

        David and Jeff, a key factor to using “loans against the policy” to supplement the policyholders spendable cash is that they are exactly that …. A LOAN. That loan has to be repaid either during the life of the loan OR at death taking the loan balance and interest out of the cash death benefits. These are also SECURED loan …. secured by the cash value within the policy. If the cash policy is insufficient the insurance company may not grant the “loan against the policy.” This insufficient cash balance may result from poor performance of the investment within the policy, large and growing fees charged against policy values, or excessive withdrawals.

        You have not illustrated the cash values on any policy for someone through retirement years. Many Universal Life policies (such as an EIUL) could end up with insufficient cash values to support large loans in the later year. At worst, the insurance company could require an 85 year old policy holder to make additional premium payments into the policy to sustain the policy’s cash value or the policy may lapse and all of those loan become TAXABLE withdrawals. No a pleasant prospect for a policy holder.

        • Kevin, respectfully you do not fully understand the things you are posting on.
          1. The loans never have to be paid back.
          2. The expenses actually are front loaded so get smaller after year 10 of the policy, not larger as you suggest.
          3. The interest credit never goes negative so bad market years don’t cause a need to add cash into the policy like the variable universal life policies.
          4. All my policies include a rider that doesn’t allow for so much cash to be taken out that the policy is forced into surrender. When the rider is instituted the policy is frozen at current levels and guaranteed to death so no tax event can happen.
          5. Yes, if there is not enough cash in the policy you can’t get more out [like a real loan]. So there is no indebtedness available. But that is not the purpose of the policy to get into debt.
          6. The structure of the loans are such that they won’t cost you anything if that is the option you decide on [called a wash loan].
          7. I most certainly do illustrate policies taking out loans through one’s retirement age. Of course we are talking future events so we need to speculate on average returns. But I always illustrate with a lower rate of return than the historical average in order to have a margin of error between what has happened and what the illustration demonstrates will happen.
          8. Throughout the full 15+ years of EIULs, no company has increased fees inside this product, even though we have had at least one really bad bear market in that time period.
          9. The companies I use have been around for more than 130 years and are among the most financially stable life insurers in the world.
          10. The annual market risk is absorbed for the most part by the insurer, while the real risk is in long term world-wide economic growth. This long term growth is what allows the insurance companies to offer this product. Since these companies have managed to invest successfully to support all their products for over 130 years, through the great depression and the latest major recession [and all the bear markets in between] I feel comfortable offering this product as a great retirement income vehicle.
          11. There is no “risk-free” vehicles to support retirement income, only strategies that by applying what we know are likely to work.

        • Kevin, don’t understand what you are asking?
          An insured that lives to 105 would have life insurance settlement that would go to their heir(s) at death just like one that dies at 65, 85, 90, or 115. By the way after age 94 permanent life insurance stops charging insurance charges in the policy.

  2. Hi Jeff, do you consider it still advantageous to be placing money in 401k up to the company match? (No more – No less.) That is what I currently do with the 401k. My previous company matched 100% what I put in, and now with my current employer they match 50% of it. I’m 30, my wife and I have 3 properties so far. What I don’t put in 401k, is going into getting more and more long term hold rentals as our retirement plan. Thanks for mentioning EIUL, I will look into it.

    • Jeff Brown

      No Nick, I don’t. That’s an entirely stand alone post. Suffice to say that all the match is is a second hook in your lip. 🙂 This is something you wanna understand, down to the fundamentals. If you’re interested, email me and I’ll explain in full. Also, a conversation with David Shafer would be very enlightening.

      • I agree that a 401k isn’t a great way to save.
        However what is the justification of not getting the company match.
        It is free money. If they match 100% then you get an instant 100% guaranteed return.
        Hard to beat that!

        • Shaun, you have to look at what you are trying to accomplish. If your objective is retirement income, then you should put your money in the place that has the best chance of producing the most after tax retirement income for you. Most folks will end up paying more in taxes than they got in a match as Jeff has pointed out. Then there are the limited choices to invest with the company funds and of course the issue of “sequence of return” risk. Finally, there are penalties and taxes which means to maximize the match you give up a large amount of control over your money to rules and regulations of the government and your company. So it really isn’t free money, but money coming with a serious handicap to your goals. You need to decide if those handicaps can be worked around or if they are fatal to your retirement goals.

  3. Jeff Brown

    Hey Shaun — We clearly have something in common, our insistence on results being the final arbiter. Though my friend, David Shafter, will surely be able to address your question in more detail than I, let’s look at the results, ok?

    If the employer match has been workin’ so well — i.e., doubling the return, how is it Boomers aren’t arriving at retirement driving cars with solid gold rims? Virtually all Americans who’ve steadily contributed to their employers’ 401k for at least 20 years, along with some sort of a limited match, have reached retirement age, or come within 10 years of it, and realized that plan has failed them miserably. Almost all of ’em had employer matches. They’re either retiring far below the income for which they’d planned, or have postponed retirement altogether.

    Think about this. If a 45 year old with $300,000 in a 401k gutted it, paying 50% in taxes and penalties, they’d end up with $150,000. They’d then have 20 years to turn that amount into a retirement worth living. Would you rather keep the money in the plan, keep contributing and hope for the best with employer matches? Or would you take your chances with half the money in your own hands with 20 years to control your own destiny? It’s my contention, and it’s not even close, that Americans can create a far more attractive retirement income for themselves with half the money they currently have built up in their 401s.

    Again, if the employer match was workin’ so well for most Americans, how come they’re all not retiring with a second home at the beach? 🙂

    It ain’t workin’, Shaun. In fact, it’s a giant FAIL.

    • What I want to make clear is I do NOT think that a company sponsored 401K is a great way to save for an abundant retirement.
      Generally not even a satisfactory method to be comfortable.

      I am strictly talking about taking the free money.
      Whatever the company matches that is your instant guaranteed return for that investment.

      Simple example, guy makes $50K a year and his company matches 100% of the first 5% he puts in.
      So he does that and puts in $2,500 and then the company does too, at the end of the year he has… $5,000. That is 100% more than he started with!
      Give me another investment that will yield that high and has virtually no risk?
      Also if it is a traditional plan he is doing this with pre tax dollars and between federal and state income tax (assuming no other income, so fairly low brackets) he will probably save $700+ in taxes that year too (Which he should use to invest outside of the plan). If it is actually a Roth style then no tax savings but he will avoid any taxes at retirement and avoid a lot of taxes and penalties for pulling out his own contributed funds after some amount of time (I think 5 years).

      Again this is VASTLY different than saying someone should max out their contributions and use these plans as a sole means to getting to a big fat early retirement.

      Get your free money and then invest the rest in real estate or other higher yielding investments than the crappy funds in most plans.
      With this 401K money let’s say our guy works the same job 10 years, no raises, and does just his match that whole time and gets no growth on any of the contributions (no losses either). At that time he would have put in $25K and gotten $25K in matches for an account value of $50K. One will not be able to retire on this, but not a bad chunk of change for no risk and no effort.
      Our buddy now leaves that crap job for another one, or to maybe go into real estate full time or something. At this time take that $50K and rolls it into a self directed account and then use that free money to invest in real estate, or notes, or as a private lender or the huge gambit of things available.

      • Jeff Brown

        I get where you’re coming from, for sure. However, even given your scenario with the match, over the long haul, the ultimate after tax income, even if treated as ‘supplemental’ would’ve been significantly inferior to what the taxpayer could’ve accomplished outside the plan. It simply doesn’t produce results. In fact, I’d go as far as to say that the scenario you posed would be a great bar bet. It sounds good, but wouldn’t produce anything near what David would without the hint of a match. It wouldn’t be close. I’ll go even further than that. There are times when the things David and I have our clients do that results in significantly more tax free and/or after tax income than the ‘matched’ 401k yields before tax. Again, it’s not even a fair comparison.

        • That is great to hear.
          Please elaborate on these riskless high yield investments that will involve no effort.
          Since that is what you are arguing against you must have an alternative.

          Again I’m not saying that a 401(k) is where people should just park money and assume they will be living the good life come retirement. My point is use every avenue open to you to the best of your abilities.
          So far you haven’t given any reason to think someone with a employer match in the sponsored plan should not take the free money.

          Here are simple numbers.
          As I said previously our hero works at his crappy dead end job for 10 years making $50K with no raises and only puts in 5% with a full match. At the end of 10 years he has his $25K and the $25 in matched money with a $50K balance with no growth.

          Now take that same $2,500 a year and invest in something else.
          If he gets a year over year compounded 25% return he ends up ahead in year 8, drop that down to a barely millionaire return of 20% and it takes until year 9. Go all the way down to just being hard money lending rates of 15% and you just beat it in year 10.
          Of course if you take into account the probably >$7,000 in tax savings over those 10 years then at 15% it is break even.

          This is assuming they don’t earn a single penny of growth over that time.
          At a barely keeping up with inflation level of 4% then all of a sudden our match KILLS the 15% return investment. Even just investing the 401(k) money in a S&P 500 index fund should easily out perform any non-match investment not getting compounded yearly returns at least in the low 20%s.

          This is just a random example I pulled out of my a$$et$ to illustrate. Obviously different time frames, different yields, different matches, different dollar amounts can all tip the scales in different directions to make a plan look better or worse relative to what I have here.
          Point being that these plans have some benefits and a prudent investment strategy is to evaluate all open options and design an overall plan that takes advantage of all the opportunities available.

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