Many people with larger balances like to ask others what their retirement plan balances are, or to brag about how large theirs is. Here’s the truth about these blowhards – even if you have not a dime in a retirement account, you can still live much better than someone who has $500,000 in a retirement account, by starting your own business.
$500,000 in retirement savings does not go far in the real world.
Let’s be honest about retirement accounts. Many people have predicated everything on a 10% return. It’s not going to happen. It happened for one period of American history that is just that – history. The real return you’ll get on CDs is around 2% to 3%. And stocks are looking like 5% best case, based on predictions by the top fund managers. That means that a $500,000 retirement account will earn between $10,000 and $25,000. Can you live on that? And since most people live 15 years beyond retirement age, don’t think you can just draw down the principal to make it happen – that’s only about $30,000 per year until you go broke.
Retirement accounts leave nothing to your heirs.
If you gut your retirement account, you will have nothing to leave your heirs. Even if you have a small balance remaining, what good is that going to do when you split it five ways, or however many kids or grandkids you have?
The bottom line is that retirement accounts, despite their media frenzy and point of reference for most commercials, aren’t going to support you or leave anything to your heirs.
A better solution: starting a part-time business.
Let’s assume you start a business and build it up, in your spare time, to something that makes $30,000 per year. Not only are you on par immediately with the income of the guy with $500,000 in his retirement plan, but you are building an asset for your heirs. In addition, you can often sell that business to someone else at a multiple of income stream – in other words, you can use 100% of the cash flow and then sell it for a large balance at the end. You’d be putting money in the bank with the retirement account “king” is depleting to zero.
And don’t forget that many part-time businesses grow into big businesses. Look at Steve Jobs and Apple, which began in a garage, or Michael Dell, who started Dell in his college dorm room. And there are many, many, other lesser-known examples.
More than just money in benefits.
A start-up business yields many benefits other than just cash. It also is a source of fun and self-respect and excitement. There are few things as rewarding as working for yourself and keeping 100% of the rewards. You can set your own hours and pick the projects you want to work on.
You build camaraderie with your clients and a social network which is very beneficial in retirement. It can consume your life in a good way. You might even be able to work with your kids and grandkids, if it works out that way.
Let others obsess about their retirement accounts. They can read all day about how to invest to make an extra $5 per month. Put your efforts into something more worthwhile and start a business. You’ll live better than they will, and have fun doing it.