According to Fidelty.com and CNN.com, the average IRA balances across the country are on the rise. Â That should be good news but this news is not very comforting to me! Â Consider this…
The average IRA account invests in various stocks, or collections of stocks. Â Over the past several decades the stock market has averaged just under 6% increase. Â That means that a $100 investment today will be worth almost $106 next year. Â The fact that the market is growing is generally good, however, this retirement vehicle is what most Americans are planning to live on when they retire.
If a person is going to live on this nest egg they would have to withdraw from their retirement account because these accounts don’t have any regular cash-flow. Â So then this person would have to withdraw less than 6% in order to preserve the account and not use it up completely. Â So if choose 4% as the amount of money we can withdraw annually, assuming that the market continues to grow by 6% every year, then that retirement account should never disappear.
Looking at the statistics from Fidelity, the average IRA account for someone who retires at age 70 is $164,300. Â That means that the average American will be able to withdraw $6,572 / year or $547.66 / month to live on in retirement. Â For most Americans, $550 / mo is not enough money to live on, let alone enough to enjoy the golden years. Â That isn’t even factoring in the inflation (the rising cost of good and services over time). Â So that $550 today may only buy $400 worth of goods in 10 years. Â And no matter how you look at it, this retirement plan has a bleak ending.
If we consider that most people could survive on $40,000 / year (before taxes) then one would need to create a nest egg, a retirement account of at least $1,000,000 before they retire. Â If you factor in inflation at only 3% annually, by the time you retire you may need something closer to $3,000,000 to maintain the same value in “today’s dollars”. Â And if you plan to live for any length of time in retirement then you would need even more money to start in your retirement account.
Today, the average person is contributing between $3,000-5,000 into their retirement accounts each year. Â That isn’t nearly enough to reach $3,o00,000+ before they retire at age 70. Â But suppose, if one was to take that same annual contribution, through a self-directed IRA, and correctly invest that money into an appreciating, cash-flowing asset such as real estate then their contribution could create a retirement fund in just 5-10 years that would be worth $2-3 million dollars in assets and $6-8,000/mo in on-going cash flow.
Would you consider an investment in real estate a financially responsible way to compliment your retirement account? Â Or what other strategy are you considering to make your retirement years really golden? Â Please share you comments below.
IRA Balances - A Scary Proposition
