Are you planning for your retirement? Do you feel confident that you’ll be able to retire and live as if you were still working? After all, that is the plan isn’t it?
Many of us look at recent retirees and just assume that they’re living the dream. Their lives are full of exploration, travel, and big spending. After all, they probably have millions in the bank. This is the assumption, but is it really true?
If you are like the average person, you have definitely thought about a retirement fund, but you might not have necessarily set one up yet (this is where being average will make you broke).
If you are a step above average, then you most likely opened up a 401(k) account through your work and contribute a portion of your check to this fund each week. This is great and all, but do you have any idea if what you’re contributing will allow you to retire in the fashion that you’ve imagined?
The Lump Sum Retirement
For those that are actually being proactive about saving for their retirement, many of them are following the “Lump Sum” plan, which means that they are basically contributing toward a 401(k) or 403(b) and have no other investment plans. Since there is basically no such thing as a pension anymore (for 99.9% of the companies out there) and Social Security is scheduled to go backrupt soon, the one lump sum fund is all there is.
First of all, many of you might be saying, “But I’m very diversified within my 401(k)! Not only am I investing in Mutual Funds, but I also have money in Bond funds.” While a typical financial advisor would agree that you have diversified your investments, I am not fully convinced. Here’s why.
Did you have money invested when the stock market crashed in 2009? How did your funds compare between 2007 and mid 2009?
No matter how “diversified” you were in the market, you still saw your investment plummet by 30, 40, or even 50% in just 2 years. This is why I am not a big fan of the lump sum retirement. If the market tanks, your entire investment is affected.
If you want to truly diversify your investments, you need to get more involved. Sure, it’s nice to just click a few buttons on your computer and add to your retirement funds, but if you want your hard-earned money to be safe, you’ll want to do more. So what is there besides the stock market or bond market?
Well, my personal favorite is real estate. Granted, it’s not for everyone, but it has been a tried and true method for hundreds of years. Not only could the value of the property increase, but you’ll be earning a monthly income as well!
If you’re able to aquire five rental units that each rent out for $500 a month, you’ll have a consistent cash flow of $2,500 all throughout your retirement! Then, if you get sick of being a landlord in your old age, you could sell the properties and live off your million bucks! It’s a great way to diversify outside of your 401(k).
There are other ways to diversify of course. You could start a business that creates nearly passive income. Something like a carwash or a storage facility. These businesses keep bringing in the cash, but you don’t necessarily have to be there to earn it. Hungry for more ways to diversify?
Invest in precious metals (not through an online trade…actually buy the metal). Or, perhaps you could invest in collectibles. Or, if you already have a lump sum of money, perhaps you’d like to be a lender and earn money off the interest. There are endless possibilities.
As long as you focus on investing your money in many different areas, you’ll be much better off than if you depended solely on your 401(k) investment.