Retirement: The American Dream or the American Nightmare?
At 68 years old, his dream was to retire in 2 years. After the first meeting it became painfully evident that the dream of his to retire, buy an RV, and tour our beautiful country was not going to happen when he expected. In fact, at this rate it would not happen at all.
This story, although sad, is all too real and all too frequent. It’s no secret that retirement is looking more and more unrealistic for Americans every single day. So what is the issue? What is preventing Americans from retiring? Let’s begin to unpack this issue and look at the top factors that are getting in the way:
1. Not enough income:
The average family I see is making roughly $50,000-$60,000 per year in gross household income. Let’s be generous and use the $60,000 figure. After taxes let’s say that is $48,000/year. Now take a mortgage payment of $1300/mo (based on a payment that is 25% of their household gross income. Again this is being very generous). Now they only have $32,400 left. Between the car payment, student loans, credit cards, and all other debts and we are at roughly $18,000….and don’t forget groceries, gas, utilities, clothes, and adding a little fun on the weekends….maybe a few lunches out. Oops we’re entirely out of money!
2. Too much debt:
Most families I talk to have at least 1 car payment, a mortgage payment of at least 30% of their gross monthly income, at least 2 credit cards, and roughly $30,000 in student loans. These are all debts that captivate a fixed percentage of their monthly income. Being enslaved to these payments not only ties up their cash, but it forces them to pay interest rather than earn interest. Don’t be fooled. There is no such thing as “smart” consumer debt. Debt that is not used to increase your income is not a good idea under any circumstance.
3. Not enough savings:
It’s no secret that here in America we have some of the highest average wages in the entire world! But our savings rate shows no correlation. As illustrated above, most people have spent their paychecks before the money even arrives. Sadly, for those that do save, it is only a few hundred dollars each month in their bank, which has such a low rate of return that if it were any lower it would be negative. 90% of Americans have gone from saving at least 5% of their income on average to a negligible amount per month. And for those that do save, they make the mistake of putting the money into an employee retirement plan that they cannot touch until they are 60. That helps when you’re 60, but if you want it now you’ll pay up to 50% in taxes and penalties to access those funds.
4. The wrong kind of “assets”:
I know what you’re thinking here: aren’t all assets good assets? This is where we are wrong. An asset is only something that can pay us an income. The average person I talk to has roughly 60% of their total assets wrapped up in their primary residence (which usually has little to no equity due to the mortgage attached to it) and the other 30–40% locked away in a retirement account.
Let’s handle the primary residence thing first. A house, although it may be comfortable and nice and everything else that caused you to buy it, is not an asset. A house costs us money; it does not pay us money. According to the Robert Shiller’s Housing Price Index, from 1900–2012, when adjusted for inflation the average home in America only appreciated by 0.10% per year. That does not include debt, interest paid, taxes, insurance, or repairs. Once those things are factored in, an individual actually loses money on a home year after year. (This does not mean never buy a home. It means buy a home because you WANT a home. Do not buy a home and then justify the purchase with false, pie in the sky financial reasonings) Whether you own or rent, keep your payment less than 25% of your income and ensure that you are able to save as much cash as possible every month with the intent of investing it. If you rent, know why you are doing it. If you own or want to own, know why you are doing it (and know it’s not about assets).
Now for the 401k.they, along with a host of other defined contribution plans, have only been around roughly 45 years. I recently worked with a client who over the last 17 years just in an S&P 500 index fund made only 3.14% per year in his 401k after fees. This does not factor for inflation. Inflation averages at 3.15%, which means this client actually lost money every single year in his 401k for almost 2 decades and his statement would have never shown it. Assets are things we can access NOW that can be easily understood, tracked, converted to cash, and produce recurring passive income. A 401k meets almost none of that criteria. (This does not mean never invest in a 401k. It means, if you invest in anything at all, make sure you understand it, can track the returns, it can be easily accessed and converted to cash, and will pay you recurring passive income)
The wealthiest in our country’s history have historically owned mostly small business equity, investment real estate, and some publicly traded stocks as their assets. Success leaves clues. So does failure.
5. No professional guidance:
Competence breeds confidence. That has always been a motto of mine. How can you win a game that you don’t know the rules to? If you don’t have a coach? If you don’t have a plan? You can’t! Nobody has ever retired on accident. Zero dollars per month at a zero rate of return for zero years equates to….you got it….broke! Zig Ziglar has a great quote that says, “You hit what you aim at and if you aim at nothing you will hit it every time.”
Many Americans stay on the sidelines when it comes to money for a few big reasons: they don’t understand how it works, they don’t have enough money due to the previously mentioned areas, and most importantly they don’t feel they can trust anyone in the financial services industry to do the right thing for them. They are afraid of being lied to, sold, and taken advantage of by a slick financial product or insurance salesman. My team will work with you as your personal Wealth Coach. A coach has your goals and your best interests at heart. A traditional financial advisor simply shares opinions, sells products, and charges fees. If you want to work with a great coach, we are ready when you are!
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Own Your Potential!
Jerry Fetta is a husband, son of Yahweh, Entrepreneur and owner of 5 privately held businesses. Jerry lives in Alaska with his wife and 2 dogs. His no-nonsense approach to business, finances, and life speaks truth and provides clarity to his clients and followers. His personal mission in life is to empower millions of leaders to own their God-given, ultimate potential.