Most Americans Won’t Retire Comfortably: Here’s What They’re Doing Wrong

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Several years ago I spoke at a well attended real estate investment conference. The demographic makeup of the attendees was all over the chart. It was a truly eclectic gathering. After my turn for speaking was over, several people asked if I’d sit with them and shoot the breeze, plying me with donuts and coffee. Somebody surely told ’em what a cheap date I am. It ended up being around 20 of us in one of the break rooms.

Turns out they were interested in something I’d said in passing about retirement income and income taxes. See, I often wonder aloud about the seemingly oxymoronic statement made by some, insisting they will show us how to “retire well” while magically lowering our tax bracket significantly. Up ’til about 10 years ago, I kept my professional thoughts on that assertion relatively private, only explaining my position and assessment of that statement to clients. Then, off the cuff one day at small professional gathering in Phoenix, I commented on the essence of that tenet. In a nutshell, I thought it was an excellent example of the working definition of oxymoronic.

It begs the question: Just what do some people define as “retiring well” for Heaven’s sake?

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How Americans Are Retiring

My cynical side tells me they want us to compare our potential retirement income level to our parents’ and grandparents’ experience. Well, holy crap on a cracker BigGuy, I sure hope you can help me navigate to a better ending than the retirement hell so many Boomers are living. Ten thousand moms ‘n dads a day — every day — are having their 65th birthdays. Wanna know what the average balance is in their so-called retirement account at work? Usually less than $100,000. Gee — I wonder if they’ll experience the luxury of a lower income tax bracket in retirement? 🙂

At what point do we question the logic of that advice?

Typically, Americans tell me their plans have them retiring at 65, give or take. ‘Course, many of ’em would love to retire around 4:30 yesterday afternoon. That was in fact the consensus at the impromptu group chat at the aforementioned conference. That’s when I posed this question:

Is it reasonable to expect to create more than $3-4,000 in monthly retirement income if you have 15-35 years and sufficient discipline and capital to invest?

The response wasn’t immediate. They’d never really given serious thought to that question. Ask yourself, though. Why is that? It’s my contention after hearing from literally thousands of people, that they bought the “You’ll be in a lower tax bracket” crappola hook, line, and sinker. Combine that with their parents’/grandparents’ experience, which they see firsthand, and that belief seems wholly reasonable. Add to that their own experience, and well, they pretty much drink the Kool Aid at that point, purposefully or not.

Related: I Quit My Day Job, Retired Early & Started a New Venture Using Real Estate: Here’s How

What Sort of Retirement Income is Reasonable to Expect?

A loaded question if there ever was one, right? There’s no one right answer, as so many factors come into play. How old are ya? Married? Kids? What’s the household income? Can you save money each month, or is the budget too tight now? Do you rent or own where you live? Do you have savings now? Enough to begin a modest investment plan? Do you live up to your kneecaps or your eyeballs? How’s your credit? And the list is almost endless.

If you’re counting on your 401k at work, you’ll be fortunate to end up with even mid-six figures as a balance as you drive away from the office for the last time. Even with half a million bucks, your income will very likely be no more than $20-30,000 a year — and that’s before the tax guys knock on your door. ‘Course, with that balance you’d be in a pretty small minority of retirees. In the end, most will end up cannibalizing their retirement principal long before they reach the end of the road.

Here are some thoughts I’ve found to be very helpful.

  1. Stop listening to the people who advised your parents. How’d it work out for them so far, right?
  2. For the love of all that’s holy, please stop doin’ things on your own.
  3. Get a pro to generate a long range plan for retirement through investing. Sounds pedantically simple, I know. But a solid plan will get you farther than where most folks end up. A well thought out and executed plan cannot be overvalued.
  4. No plan should be generated ’til you know exactly where you are now, financially. We can’t get to Point B if we don’t know where Point A is. Duh.
  5. Maximum flexibility over time is a must for your plan, as things will change almost from the first step. Murphy knows all of us and where we live. He will eventually find you, and it’ll be your turn to be in his barrel.

However, there is, broadly speaking, an answer to the main question.

Given 20-35 years most folks should be able to create a retirement income roughly equal to or better than the most they ever earned on the job as an employee. Unless income tax rates are cut, it’s not freakin’ likely they’ll find themselves paying less taxes. That won’t be true if significant portions of that income is tax free, an option pretty much everyone has on their menu — IF they have a solid plan.

Related: Your Retirement Plan May Not Be as Secure as You Think: Here’s Why

The reason most folks we know don’t retire that well and indeed find themselves in a lower tax bracket than while working is cuz they listened to the same advice that undermined their parents’ retirement. 

It’s now 2015. The national experiment has been goin’ on since around 1980. That’s 35 years. Those who’ve turned 65 or soon will have learned the hard way that not worrying about taxes cuz they’ll be in a lower bracket anyway, was the fastest way to a life sentence, not retiring well. I see it on a daily basis, and it’s beyond sad.

How are you planning for your retirement? Do you agree with my assessment?

Leave me a comment 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.


    • Jeff Jenkins


      A couple things:

      Real estate within a self directed IRA is certainly not the way to go. How can you benefit from cash flow if it’s going straight back into your IRA? You can’t. Cash flow is money flowing back into your bank account, not a retirement account.

      Additionally, IRA’s are not tax-free, but tax-deferred. Real estate done correctly outside of an IRA can truly be tax free. I know people that retired in their twenties or thirties because they avoided retirement accounts. Remember, “retired” means when your monthly passive, or investment income equals your monthly expenses.

      We are not after a fixed sum or net worth. It rarely works out that way.

      • Curt Smith

        Jeff, agree re net worth. but RE in a SD-IRA grows faster thanks to no taxes taken out of rent received each year so more houses can be bought inside the IRA in a give unit of time than outside an IRA, then once distributions are taken there’s a much larger base of rent each month to siphen off.

        Might you give some details re “real estate done correctly outside … ” ?

      • Gordon Cuffe

        I was only referring to the fact that a person does not have to pay taxes on withdraws from roth IRA’s after the age of 59 1/2. I agree the fastest way to retire is to make way more money than your expenses so that you can buy real estate as fast as possible . Then the goal might be to own it free and clear as fast as possible so that you have stress free passive income.
        Are you referring to owning real estate free and clear and not reporting the income on your taxes or deducting depreciation and expenses from your taxes?

      • Jeff Brown

        Hey Jeff — Gordon did in fact say Roth IRA, which means his retirement income would indeed be tax free. Your point about not having real estate inside your retirement account though is solid, though your reasoning mistimed, at least from my experience. The vast majority of investors have a primary goal of maximum retirement income, not income now. In fact, they’ve proven in spades they don’t need more income now since they’ve already saved significant capital from income not needed to live.

        On the other hand, cash flow now, to the extent it’s not at the cost of overall capital growth, can be redirected so as to be a significant factor in one’s retirement plan, often allowing the investor to either retire with more retirement income, retire earlier than anticipated, or both.

  1. Hey Jeff,
    Always interesting read.
    I read all this average retirement account balances stuff too, probably from the same sources as you. I’ve got a roll-over IRA, a 401K a Roth, a self directed IRA. My wife has an IRA and a Roth, so we have 6 retirement accounts between us, if each one has 100K, that’s much different than 100K per individual or per family.

    The talking heads selling the kool-aide like to tell the peeps that will listen, invest more (with us), you will need more (with us), you will need 150% of your pre-retirement salary in retirement so you need to invest more (with us). This, perhaps may be a cynical view. This is my, simple observation.

    I don’t subscribe to any of it, my retirement account savings is considerably smaller than my non retirement savings, although the brokerage will see a sub 100K balance here since it is invested in real estate notes (rehabs, etc). Between the J-O-B, REI and other investments I make a very nice living. The wife and I are are both careful with the cash. We live off of 40-50K a year (no mortgage, no car payments). So, I wish that the, talking heads, like, you suggest would really make it a plan to plan for a “plan”.

    We had a plan put together years ago, I’ve been tracking it and stayed ahead of schedule for years. When the plan was put together, the “talking heads”, neglected to add so much stuff/assets that it made my plan appear that I had to contribute more more more (with them). I would be under achieving in every category, not able to retire until 60, 65 comfortably, my kids education funding was incredibly inadequate. The big miss for them was complete lack of understanding of REI and unwillingness to try to model it. With that, I’ve been able to retire since 50 and be comfortable, but they keep paying me to show up at work and help out and it ain’t that bad. I’m 52 and keep adding to the “egg”.

    Summing up this long winded, multithreaded kinda coherent stream of thoughts, be careful of the talking heads plans for you. If ya are still reading this, and y’all’s are real estate investors, make sure the plan and the plan creator understand the power of REI and the talking heads don’t make the plan that claims you need to invest more (with us).

  2. Curt Smith

    Hi Jeff what might you add to:

    – so what are they doing wrong (besides listening to wrong folks) ?

    – what should they be doing instead?

    My wife retired from school teaching… Talk about drinking the coolaid. Teachers are screwed! Not in social security, can’t get spousal benefits etc etc, crying jags every morning saying she can’t go to work but she did anyway. No one knows what it’s like to be a teacher. But she did save $200k in her 403b and got a small pension (cheap state GA).

    Post retiring we put all $200k into rentals at near the bottom in 2010 in a cheap (then) city for rentals of Atlanta. Today we are buying rentals in rural GA for $30k all in and renting for $850/mo. In 4 yrs we now are cash flowing $6k/mo into her SD-IRA and street worth $600k, in just 4 yrs. Our organic purchasing new inventory per year is accelerating actually.

    We tell our story to everyone. No one has asked us how they could do this too. It’s a harsh call on my part, but in general American’s are lazy, make important decisions by copying someone else and resist the hard road of entrepreneurship . Sunday football, beer and cheetos are the main quests that I see.

    Yes I’m sorry for the folks with $100k in their retirement accounts and I’m extremely progressive where I care about their situation. I don’t know where the brain damage occurred to the 90%. It may have been in our educational system that is designed to create sheep for the corporate mill. Advertising lobotomized self discipline and now every room has a flat screen and 4 cars.

    Admittedly I woke up from the above rut only 5 yrs ago reading Wendy Patton books off amazon and I married right. My wife does not follow the crowd since retiring and is a full partner in our REI business. She kicks herself for being steered into teaching but I remind her that at least for a few years she’ll have a retirement check (till that is clawed back). More than I have from IT.

    We expect to do alright now that we course corrected to being aggressively into land-lording and continuing to add more inventory. We are starting a new high effort and hard work business when most folks are wanting to retire,,, because our retirement math says we have to. We’ve decided we have no-choice!

    BPers will “get” our story. My frustration is that everyone else doesn’t. We are changing our friends as a result… The local REIA has great folks to spend time with and do business. Nice to be with friends here on BP as well!!

    • Hi! I loved your aggressive entrance into landlording! I’m a teacher, too and I REALLY want to jump in, too. I have one rental. Something in your post about the 403b caught my attention. We can use our 403b to invest in real estate?!! Please share more!!

      • Curt Smith

        Hi Donna, Spouses of teachers rarely get a chance to retell the horror of Monday mornings. It was torture for both of us.

        You can’;t use your 403b while still teaching. You are loosing so much to fees thanks to the crummy laws setting up 403b and 401k systems.

        My wife tells of her reading on some teacher blog a teaching couple who made a fortune by quiting every 4 years moving to a new teaching job but staying in the same retirement system so as to keep their defined benefit acrual, but allowing them to roll their 403b funds. What ever state situation allowed them to move their 403b to a SD-IRA which they invested much more productively, even in real estate, and are making 2x to 4x what folks stuck staying in the 403b system make. I think they often had to move to small cities to do this, jumping from one county to another but staying in their state retirement system.

        Good luck!! You too can take the aggressive path but you’ll have to move every 3-5 yrs.

        Most corporate job folks aren’t so tied to a county or state as teachers. We changes jobs all the time. Roll that 401k into a SD-IRA and buy rentals!

    • Jeff Brown

      Hey Curt — The problem with listing all the things folks do wrong, is that some of those things are wrong universally, while many others are merely wrong for some. The same goes for what they should be doin’ instead.

      I strongly recommend you speak to a pro to find out what you might ‘tweak’ about your plan. My guess is that you guys have a solid start, but could end up far better with some easy modifications to your overall thinking. Good luck!

    • Katherine Thorndike

      I like your thinking Curt Smith. The traditional investing for retirement just didn’t work for me. Of course I do the max to my Roth IRA but I don’t like giving my $ to financial advisors to invest and don’t trust my company 403B. They don’t match anyway.
      So, my retirement plan is as follows:
      I live simply in an energy efficient solar home that is paid off. I am happy with my hybrid prius that gets me where I want to go at 52 mpg.
      I currently have two rentals and will be looking at more until my income is around $4,000 per month. This is not including my Social Security and income from my Roth. All combined will be much more than I need for my day to day expenses. I can play with the extra.
      My contractor son will manage my properties when I can no longer do it myself. Another child will take over if he is unable.
      Nothing is guaranteed but I feel much more comfortable doing my own investing in real estate than putting my money into someone else’s business in the stock market. I lost quite a bit in 2008 and don’t want that experience again.

  3. Ryan Arth

    Excellent article Jeff.

    And cheers to Curt’s comment as well.

    I am frightened for what is going to happen when the majority of this country needs supported. I don’t care about saving everyone, as they would argue with me until the end, I just don’t want what I have sacrificed for to get taken out “for the good of all”.

  4. Mark F.

    In my work I talk with a lot of retirees about their finances, and I can tell you that it’s really opened my eyes about following the conventional wisdom. Saving in your 401K for years on end simply isn’t good enough if you want to have an abundant retirement.

    Even if you amass $1 million in your 401K (pretty darn good by anybody’s standards), if you follow the conventional wisdom and allocate conservatively at retirement, you might earn around 4% annually as long as the market doesn’t crash. That’s only $40,000/year pretax, which isn’t much to show for after decades of work and saving.

    Seems to be the main beneficiaries of the 401K is the financial services industry, who gets to charge 2% – 3% on your money whether they make you anything or not. You’re left over with the scraps. That’s not a very good deal in my book.

    I’m thankful for BP and writers like Jeff who show that there’s a better way than following the conventional wisdom.

    • Jeff Brown

      Hey Dumitru — The thing is that most folks anticipate there are various formulas to follow, which is the furthest thing from reality. In fact, my experience with formulas for investment success over the years has been nearly tragic. One size very rarely fits all. Therefore, your gut instinct is on target, as the ‘sheep’ modalities are simply not working for most folks.

  5. Larry Schneider

    The saying of” never put all of your eggs in one basket” is as true today as it was 40 years ago. Strive for multiple sources of retirement income. Job, hobby, and real-estate is just one example. Forty years ago I got into single family homes to rent. SOURCE 1. Every other year I bought a house, No hurry, no creative financing, no apartment buildings. Just take my time to work on fixing up a small house and finding a good tenant. I had 20 homes at retirement and 15 now with no mortgage. Average rent is $850 a month plus utilities. At my job, I put the max allowed into my 401k.. SOURCE 2. I found here that financial advisors were mostly worthless other than to tell me to sell off all real-estate as it may take years to “unload”. I should invest the money with them. . I discovered I could paint small pictures and sell them at art and craft festivals. SOURCE 3. Most people don’t know that the person sitting in a booth with old blue jeans and a torn tee shirt can be making $5,000 on a weekend. Some sell furniture , jewelry, baskets or a dozen other things.

    I’m now comfortable in retirement and look forward to my next cruse or 3 week ski trip. When asked how I did it I tell everyone………………… Don’t be like 90 % of Americans. instead get your lazy rear end out of bed early, banish “sleep- in” from your vocabulary, turn off the TV or sell it, stop spending money buying stuff just to keep up with the Joneses, don’t waste time on the internet, develop multiple streams of income with real estate being one if it suits you.

  6. Natasha Sadikin

    Thanks for the post! It was an extremely informative read 🙂 I was just posting questions on BP about exactly this issue (putting money into my retirement account vs into a diff account to accumulate for my first real estate transaction). You definitively answered my questions! I agree with the point about being careful with advisers. We went to a ‘free’ consultation with a financial adviser, and while they did sit us down and go over our numbers very carefully with us (showed us how much we really needed to make to retire well — a whopping 4MIL?!), they tried to get us to sign with them and put a majority of our money into a mutual fund with a 4.5% transaction fee for any money we put in. Yikes! Glad we got out.

  7. Larry Schneider

    Jeff…… Sure , chat any time. My phone and e mail are on my profile. Any e mail from a Yahoo carrier will not be received and is a blocked address. This is due to the tremendous amount of spam that comes thru with Yahoo.

  8. Jeff S.

    Used to subscribe to Money Magazine and what a downer when talking RE. I would be owning more properties right now if it wasn’t for that mag. Funny thing though they used to have articles about future millionaires and they were all doing it with RE. They stopped those articles.

    Anybody have a pension? Took a class in my 30’s and she said to get multiple streams of income. I was flat broke at the time and decided to get a job with bennies and save up. Glad I did because with a pension, a little rental income and a good cash horde, work became an option I chose to do without. Problem is there are not many pensions left and my former employer does not offer them to new hires. Poor souls.

    • Saberian Younger

      Yeah, I’m one of the lucky ones with a gov’t pension. They take 7% out of my paycheck then match 7%. Vest at the eight year mark and then at full retirement age they match 250%. Retirement age is yrs of age + yrs of service = 75. Full retirement on this pension will be at 53 yrs of age. It’s by far the best public service pension in our area. I also have a 457b that I use and several rental houses.

  9. Great article. Leave those talking heads alone. Do your own research and roll up your sleeves in real estate. Since 1991 my real estate investments have surpassed my 401ks 403bs and mutual funds by far. The problem with talking heads is they don’t know the real estate in segment strategies. Their goal

    • Didn’t finish post. The goal of the talking head is to get you to invest more and thus they have bigger fees later on. I love real estate investing. Before I can make a withdrawal via refinance or selling the property I really need to consider the pros and cons. I can’t count the number of times I made withdrawals against my retirement accounts for “emergencies”. What is retirement? The ability to enjoy freedom and life at an age in which you can share your wisdom with others. And casually go to the mailbox knowing that no banker or lawyer is threatening to confiscate your shelter or freedom.

  10. Ken p.

    My thoughts on saving for retirement were skewed for years by my father’s spectacular results in the financial markets. Like some of those writing above, he was a teacher, and he saved in his state’s TIAA/CREF retirement plan. He retired in 1997 earning less than $60k, yet he was able to use only HALF of his retirement savings to buy an annuity that pays $75k/year, with survivor benefits for my mom. He benefited from being fully invested in the stock market since the early 70s, pulling everything out in December 1999 (fearing Y2K), thereby capturing almost all of the greatest bull run ever, the dotcom boom, with none of the bust. He also benefited from high interest rate assumptions in the annuity he bought. A few years ago, more accurately after the 2008 crash, I started to believe the same rosy outcome is a lot less likely for me and my generation. With interest rates super low, annuities like he bought cost twice as much now, and the asset bubbles the Fed keeps creating mean it’s only a question of when, not if, the next market crash occurs.

    My wife though still wants us to max out on-the-job 401k savings before starting other savings. Using savings somehow scraped together after the 401k, we’ve been able to buy some rental real estate, and that is doing well to the point I’m hoping to convince her to cut back on 401k contributions in favor of more REI. After being pounded by market downturns in 2000, and again in 2008, and with thousands of baby boomers retiring every day and no longer buying but rather selling, I don’t care to continue to hitch our retirement wagon entirely to the stock market.

    • Curt Smith

      I agree with your realization that continuous out sized gains in stocks is a mater of cherry picking the time frames.

      Ken if you or your wife are teachers and if anyone researches the public empoyees are quit screwed with very (very) high fees in their TIACREF funds. Math shows the difference between retail equivelant funds and TIACREF fund fees end up eating 25% of your balance after 20 yrs.

      A crafty teacher couple figured out how to game that rotten system. They’d move school districts within their state, staying within the vesting of the state system, but they where entitled to roll their 403B over into an IRA which they rolled into a SD-IRA and bought real estate every 2-4 yrs. Yes they had to move counties every 2-4 yrs, but they DOUBLED their SD-IRA appreciation rate vs staying put in the same county and savings locked up in a poor performing TIACREFF 403b.

      The best idea is to quickly get out of teaching and into a better paying job and real 401k/SEP/solo 401k job situation where you are happier working and your retirement savings are actually going to appreciate per your own choices.

      My wife retired from teaching and would do it completely different now. She’d not have wasted all that time being under paid and treated so poorly by the county and public. At least though since she retired we rolled her 403B into a SD-IRA we bought good rentals at the bottom and have 4x’ed the SD-IRA’s value in 4 yrs.

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