Building a seven-figure retirement portfolio has become practically a staple assumption in the financial world these days. It’s the kind of money that will buy the kind of luxury retirement that ordinary people dream of. And even if it isn’t an absolute requirement for a high-end retirement right now, inflation guarantees that you’ll probably need several million if retirement is a few decades off. But in absolute terms, you don’t need a seven-figure retirement portfolio – unless of course retirement of the rich and famous is your goal of life.
You probably won’t have a seven figure retirement portfolio – get comfortable with that reality
The vast majority of people won’t have anything close to a seven-figure retirement portfolio by the time they reach 65. It’s not that it’s impossible – it’s just that it is highly unlikely for the majority people. Most of the people who will have that kind of money by the time they retire are already quite well-off beforehand. And statistically, some people will be millionaires, with or without retirement savings.
Right now, there are about 9 million millionaire households in the US, out of a total of more than 115 million households overall. That means that just under 8% of all US households have achieved millionaire financial status.
Considering that there are presently 44 million people in the US who are 65 or older – versus 9 million millionaire households – it’s clear that the vast majority of retirees are not millionaires. This is even more obvious when you consider that many of the 9 million millionaire households are headed by people who are younger than 65.
The vast majority of retirees and would-be retirees will do well to live in a life of at least reasonable comfort. And for more than a few, retirement will be no more than a pipe dream.
But as the saying goes, aim for the stars – but keep your feet on the ground.
That’s exactly what we’re going to talk about – mostly the feet on the ground part.
Even if you do, it may not be enough to provide a full-time retirement
I think that most people are painfully aware that the costs that most affect retirees – particularly health care – are the ones that are rising in price the most aggressively. Despite all of the pretty looking million dollar retirement portfolio projections, a seven-figure portfolio may not buy you a luxury retirement if health insurance premiums are costing $5,000 per month when you retire in 30 years. It is no longer inconceivable that $1 million won’t be enough to retirement on.
And that assumes that you will have a stable, high earning career from which you will be able to make maximum retirement contributions between now and the time you retire. It also assumes perpetual double-digit investment returns in the stock market.
But rest assured that between now and the time you retire there will be layoffs, a career crisis or two, health and family issues, periods of low retirement contributions, and periods of low investment returns, including one or more stock market crashes.
Even if $1 million – or even $2 million or $3 million or more – will be enough to live a luxurious retirement, you may never reach a portfolio that size, often for reasons that are completely beyond your own control.
The Good News: Many people without large retirement portfolios do just fine in old age
I know large number of people who are retired and don’t have large retirement portfolios. And you know what? They do just fine! I realize that the current belief system is that if you don’t enter retirement with a big fat retirement portfolio, you’ll be going into old age naked, hungry and destined for homelessness.
That’s not true, and never has been. A lot of people are probably living with a large dose of anxiety out of fear that they won’t have enough money by the time they retire. In fact, according to a recent study, two-thirds of working households between the ages of 55 and 64 with at least one income earner have retirement savings equal to less than one times their annual income.
Do they all end up in the poor house? Statistically – not even close.
The whole concept of retirement is changing – will you be ready?
If you don’t enter retirement as a millionaire, you’ll do what you’ve done all your life – you’ll make your life work. Some people are better at that than others. They live quite comfortably, even out of all proportion to their financial resources. How good you are at this may determine how well you live in old age more than any other single factor. Now is the time develop those skills, especially if the likelihood of a million dollar retirement portfolio doesn’t look like it will be likely in your future.
Stop thinking of retirement in the traditional sense, and expand your mind to consider the many possibilities. Even if you won’t have millions of dollars at retirement, you can still have a good life – and that should really be the main goal in retirement and throughout life.
Think deeply about how you can incorporate some or all of the following ideas and strategies into your retirement planning:
Create a purpose for your life. Somewhere along the road of life, we get caught up in the quest for money. But what if life really isn’t all about money? In truth, it isn’t – unless you allow it to be. Try focusing on creating a purpose for your life that has nothing to do with money. When you find that purpose, you may even find yourself making more money.
You don’t need to retire to be successful. Retirement is largely viewed as one of the most important measures of a successful life. We can all appreciate that, but that doesn’t mean the inability to retire equals failure. If you continue to lead a pleasant, productive and enjoyable life past 65, you’ll be successful even if you never retire. Going forward, it’s likely that the majority of people will live some form of semi-retirement. If you can find some way to live without working as hard as you do right now, that may be all the need to do.
Practice living beneath your means. If you can master the art of living beneath your means, you’ll not only be more comfortable with a lower cost lifestyle when you retire, but you’ll also have more money to invest between now and then. People quite literally survived during the Great Depression by living beneath their means. Most of us can certainly do that, especially when it comes time to retire. Start practicing now.
Swear off debt from now on. One of the biggest threats to retirement is debt. Just by eliminating it, you will increase the quality of your life in retirement. Debt requires a higher level of income to support; by getting rid of it, you will lower the amount of income you’ll need.
Even if you won’t have a great big retirement plan, save what ever you can. None of what I’ve written here should be taken as a call to abandon saving money for retirement in favor of other strategies. You can save as much as you can between now and retirement, but view these other strategies as a form diversification to use in conjunction with your retirement savings. The idea is to broaden your preparations to be ready for whatever may happen.
Focus on developing your skills and talents – not your job. What kind of work would you do if you no longer have a family support, a mortgage to pay, or kids to put through college? You should have an answer to this question years before you retire. That will give you time to develop the skills and talents that you’ll need to help you at least supplement your income when retirement comes. Many people today focus on keeping their jobs, even years into retirement. But a better strategy is to find a way to strike a balance between your passions and your skills and talents. It’s doable – I’ve managed to do just that with freelance blog writing. You don’t have to do what I’m doing, but know that such changes of direction are possible - once you identify what it is you were “born to do”. I know others who are doing the same. Don’t drop the ball on this one!
Retirement isn’t all about money! When it comes to retirement planning, attention turns reflexively to money. But even retirement isn’t all about money. The condition of your health will be a major factor. So will your family relationships. And your friendships and community involvement. And how you occupy your time – will you finally get do those things in life you feel passionate about, or will you continue to pursue low grade entertainment to fill the hours? And as you get older, you also get closer to the grave – what is the state of your faith and spirituality? It may not be important to you right now, but it will as the horizon of your life approaches. Will you have sufficient “oil in your lamp” (see Matthew 25:1-13) as the end of your life comes into clearer focus?
All these things will become even more important in your retirement years than they are right now, and that’s especially true if you won’t have a big fat retirement portfolio. Start considering them seriously now, and building them up wherever necessary. The smaller your retirement porfolio will be, the bigger everything else in your life will need to be.