I want to talk about a topic that's been rolling around in my head since my post last week on earning the first million dollars. When an idea strikes, I mull it around a bit in my head and come up with a few tenants of my main argument and then set to writing it all down. At first, I had planned on writing about planning for retirement and the magic number one will need, which then leads into the magic number one still needs to earn and save before the golden years sneak upon us all.
But, having just spent several days with my folks, I wonder how many baby boomers like my parents are approaching retirement without a real idea of what it takes to retire. Which of course, begs the question, do they have even a fraction of what they need now with retirement only 10 - 15 years out?
I'm fortunate in that my parents do talk about retirement with my sister and I. But, I always leave the conversation having distilled and contemplated their version of things thinking, "I don't think that's quite right." So, when I got my first job at 22, I went to the Bank of America homepage and started clicking around, looking at the retirement calculators and savings charts. I was shocked at what it told me. If I continued to make $30,000 annually and wanted to maintain my current lifestyle I needed to save a minimum of 1.5 million dollars.
Bank of America Retirement Calculator
This kind of cash was not at all what was being thrown around in conversations with my parents. I realized then, that they didn't know how much cash it took to retire on schedule, between 62 and 70 years of age. From what we had discussed, I figured that what they had saved was probably going to run dry about five years in to their retirement or they'd never be able to retire.
That's probably about the time the entrepreneur lightbulb went off in my head. My parents did it "right." My dad has been a hard-working employee his whole life and my mom was a stay-at-home-mom that made some money on the side while my sister and I were growing up. Then, once we learned to drive she was employed for some years at a local university. Even still, taking the prescribed course in life, they're having a hard time saving and earning enough to retire.
It occurred to me then that retirement can mean something else entirely when you're an entrepreneur.
I still have a goal of saving a minimum of 1.5 million dollars by the time I'm 65. There's no argument for how great that would be for one's peace of mind. However, if I'm living on passive income, investment income and I own a variety of income producing business ventures - 65 is just a number. I won't stop earning at 65 like an employee does, therefore there's not a deadline to have earned my "retirement."
My dad, very smartly, went to a financial planner a few years back. Unfortunately, he received a rather nasty shock. He was told in no uncertain terms that technically speaking, they don't have a retirement nest egg. I know my parents aren't the only ones with this mindset; thinking that the act of saving any sum of money in a traditional retirement account constitutes having adequately prepared for their non-working years.
My friend's father lost his job a few years back as a real estate broker. Her father is a few years older than mine, meaning he was truly staring down the barrel of retirement. Her parents were panicked to say the least. My friend was considering relocating so that she could purchase their house from under them to bulk up their savings. If one is just a few years out, wouldn't it be a reasonable assumption that perhaps they could economize a tad each year and still make their retirement funds stretch? It was such a shame that a couple so close to retirement didn't have the resources to simply adjust their plan and slide into an early retirement.
I think the baby boomers are at a strange disadvantage in terms of their retirement mindset. I recall my dad telling me when I was younger who of his friends would have a pension when they retired. Even though he knew pensions were dying out, I think it was still common to think that your employer had your back. Now, instead Bank of America suggests thinking about what you can do in your "second career" as a semi-retired person. Why not be an entrepreneur? That's what my parents did!
-Grit Don't Quit, folks.
