Monday, June 10, 2013

Raiding Your Retirement is the New Normal

Retirement isn't what it used to be. Unless you are a government employee, the days of "defined benefit" pensions are long gone. The once near universal retirement age of 65 is largely a thing of the past. And while there are many reasons that a person might work past the age of 65, one of the major ones today is that people simply cannot afford to retire.

Consider a person who wants to have a dependable retirement income of $50k per year. That's a comfortable income, but hardly wealthy. According the to Social Security Administration, the average retiree will receive a benefit of $14,760. The other $35,240 must come from their retirement savings and personal assets. How much does someone need in retirement savings to produce an annual income of $35k? If we make an optimistic assumption that they can earn 5% on their investments they will need to have approximately $700,000 accumulated to generate $35k per year in income without depleting their savings.

Unfortunately the situation for the average about-to-retire worker has deteriorated in recent years. While there has been some recovery of value, many retirement accounts were significantly reduced during the recent recession. Worse, according to the Washington Post, 1 in 4 people are using their retirement savings to pay current living expenses. The number is as high as 1 in 3 for people in their forties who have been hard hid by unemployment. As a result of these factors, and generally low savings rates, that same average person will have total retirement savings of about $56K by age 65. If we assume that same 5% return, that generates an annual income of only $2,800 - a 92% shortfall.

What does this mean in human terms? If you are one of the 34% of Americans who say they plan to live out their retirement solely using their Social Security Benefits you are delusional and should seek qualified treatment. For most of the rest of us it leaves us with three generally unattractive alternatives:

1. Continue to work at least part time for the rest of your life. More
    than 60% of American workers expect this to be the case for
2. Lower your expectations for the kind of lifestyle you will have in
    your retirement. About 45% of us expect to do this.
3. Rely on charity and the generosity of family members. Ugh.

This does indeed seem like a dismal picture, but those are the facts and the numbers. I would like to throw out a fourth alternative that is well outside the traditional advice - consider starting a network marketing business. Direct selling is not physically demanding, can be scaled to the time, effort and income goals you want to set for yourself, and requires neither a large investment nor any specialized skill or background to start. According to the Direct Selling Association, 250 companies account for 90% of the direct sales volume in the US, so there is a wide range of companies, products and services for you to consider. Find one you like.

Here's a closing thought. If you had a network marketing business that was generating a monthly income of just $3,000 you would have, because of the residual income feature, the equivalent of a retirement account of $720,000. Problem solved.

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