Why The Average Retirement Savings Won’t Cut It

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If you have read my previous articles on self-directed IRA retirement, you know that I am a strong proponent of saving now to invest in your future. Unfortunately, many people don’t take this advice seriously or never got it in the first place.

But don’t take my word for it…

According to a recent study conducted by Fidelity Investments, the median retirement account for 55-year-olds is $130,000.

Let’s say that these retirees were to convert all of their retirement funds into a cash flow investment yielding 10%. Even then, they would only have $13,000 per year to live off of without eroding their principle.

Now, why do you think that is?

  • Bad economy?
  • Bad luck?
  • Global Warming?


You know as well as I do that the reason the median retirement account is not going to help people retire is because the “median” person did not save for retirement.

This may sound cold, but it is a mathematical fact.

If you were 55 years old in 2013, you were born in 1958. Let’s say you started working when you were 22 and made the national median income every year until you were 55. Each year, you put 5% of your income into a retirement account and invested in an S&P 500 index fund.

Your first year in the work force, 1980, you would have made $16,542 and put away $827.10. In 1981, you would have made $17,974 and invested $898.70, and so on.

The average return of the S&P 500 since 1980 has been 11.23%, so we will use that as the rate of return.

At this rate, the average person would have $411,384.16 in his retirement account by 2013.

For frame of reference, $411,384.16 placed in a reliable investment yielding 10%, would generate more than $41,000 per year in cash flow, without principle reduction, which is very close to the 2013 national median income of $51,017.

Clearly, this return is much better than the $13,000 per year in cash flow that the average retirement account could yield.

And that is just the median  “average” person.  Remember: only about 30% of people 25 and older have college degrees. If you have one, you are in an even better position to be saving for retirement.

So, here’s the question: Is it really that so difficult to save 5% every year to invest?

If the answer is “no”, then do it!

If the answer is “yes”, then I advise you to consider how much harder it will be to save money when you are living out your glory years with only $13,000 in annual cash flow.

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