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Billionaires Don't Save For Retirement; Here's Why The first thing that people think about when planning for the future is securing an income post-retirement. Going from the comfort and stability of regular monthly salaries to depending on...

By Deanna Ritchie

This story originally appeared on Due

The first thing that people think about when planning for the future is securing an income post-retirement. Going from the comfort and stability of regular monthly salaries to depending on depreciating funds can be challenging, especially if you are accustomed to a certain lifestyle.

So if saving for retirement isn't going to work, what should you do instead? Take a look at the ones who made it big in life — billionaires. Did you know that billionaires don't save for retirement and still manage to maintain the same lifestyle and maybe do better even after retirement? Have you ever wondered what they do instead?

Unless you have generational wealth, becoming rich requires a great understanding of money and the market. You might not become a billionaire simply by following them, but you can certainly know the best-kept secrets of growing your money.

Saving Vs. Investing — How Billionaires Become Billionaires?

The biggest difference between a regular salaried employee and a billionaire is the way they handle money. Whether in business or post-retirement, billionaires understand that money is a depreciating asset. The value of $50k today won't be the same 15 years later, thanks to inflation. You can see the difference yourself. The prices of gas, real estate, and even groceries have dramatically gone up.

In a situation like this, if you expect to maintain the same lifestyle post-retirement with stagnant money, we have some bad news for you— it's impossible. So how do you secure your future? Investing is the way to go.

Why Should You Invest?

If you're still not convinced why investing is a better way to secure your retirement life than saving, we have three more reasons for you:

1. It's More Disciplined

When you are just saving a part of your income, it's up to you to decide how much you want to save or whether you want to put that money aside every month or not. And it takes extreme discipline to stick to a particular saving scheme. For instance, if you are running a little short on funds for your next trip, you might be tempted to take money from your savings fund.

On the other hand, if you have invested in an organized scheme, the monthly payments will be directly deducted from your salary and transferred to the investment account. You'll also learn to adjust your life with the reduced salary.

Along with that, since these investment schemes have a definite period and the only way to take the money out is to terminate the scheme altogether, you'll be less tempted to withdraw those funds even when you're short on money for a month.

2. Investments Guarantee A Source Of Income

If you're just saving your money, your entire retirement life will depend on a fixed fund. Let's assume you've managed to save $100k for retirement, and every month you take $3000 from the savings. At that rate, you will use up all the saved money in about three years. So assuming you retired at 60, by 63, you'll be broke again.

Even if you manage to save $200k, it'll only last about six years, and with $300k, you can manage up to 9 years. This is assuming life goes smoothly for you, and there aren't any financial emergencies that could instantly drain a huge sum.

No matter how much you save, those funds will exhaust sooner or later. And let's be honest, in today's economy saving up to $300k is a dream for most of us.

But on the other hand, if you invest in a good scheme, the interests and returns will double up as a second income stream for you, one that's passive and easy to maintain even when old age wears you down.

3. Easier To Build

Building a stable retirement plan through investing is much easier than simply saving your money. That's because investments bring in interests and returns that add to the original principle and create an even larger amount. On the other hand, when you're just saving for the future, the value of your funds will only go down with the year.

For instance, if your goal is to save $300k by the time you retire, it'll be done much faster through investing than saving.

The best part is investing in today's world is highly accessible. You don't have to be a billionaire to grow your money. There are so many schemes with minimum entry thresholds where you can put in small monthly installments that will grow into a hefty sum 15 to 20 years down the lane.

Where Do Billionaires Invest?

You might not have the same funds as billionaires to invest in the future, but that doesn't mean you cannot invest in the same plans and schemes. If someone is that rich, they definitely know the best places to grow money.

Here are a few common places where billionaires these days invest their money:

1. Commodities

Commodities are a great place to invest if you're looking for a secure investing scheme that doesn't fluctuate with inflation. After all, that's what billionaires do. Investing in raw materials ensures that even when the prices are falling in the rest of the market, the prices of your assets will remain stable or might even go up.

Common commodities to invest in include industrial metals and resources like metal, oils, and gases or agricultural products like coffee, wheat, or pork. You can see for yourself no matter how bad the market is; these basic necessities will always be in demand.

2. Bonds

If you're looking for a trustworthy investment option with predictable returns, bonds are a great place to start. Companies or the government use bonds to raise money from investors. When you invest in a bond, you're essentially lending money to a third party, and the bond acts as the guarantee that you'll get the money back with a handsome return.

Depending on the bond terms, investors might also get interested during the bond's lifetime, providing you with a great source of passive income.

3. Stocks

Stocks are perhaps the most common investment scheme. By investing in a company's stocks, you're essentially providing them with fresh funds to invest in their business. Hence, every time they make a huge profit, you get a small part of it. Owning a company's stocks is like owning a tiny part of it.

But it's also one of the riskiest investment options for the same reasons. You have to be with the company both in good and bad times. This means if they fail to make a profit or their stock prices fall, you'll have to take the hit and lose your money.

That's how investments work. The greater the risk, the higher the chances of hefty returns. So if you're looking for an investment scheme that can actually increase your wealth, stocks are a great option.

4. Mutual Funds

Mutual funds are the diluted version of stocks – a little less risk for a little less return on investment. Depending on where you choose to invest, mutual funds can be invested in bonds, stocks, short-term debts, or money market instruments. The extent of risk and reward depends on your choice of investment.

When you invest in mutual funds, the money goes into a group of stocks from different companies and industries. This increases diversity by default, reducing the risk of losing your money even when the market fluctuates. The returns might not be as high as stocks, but it's certainly a stable option for long-term retirement planning.

5. Private Equity Funds

If you're not afraid of risks and have the money, private equity funds are an investment scheme that can add significantly to your net worth.

Under this scheme, the investor (here: you) will invest in start-ups and small businesses, buying a small share of the company. Each time they make a profit, you get a significant share of it. Just like stocks, the risks are significantly higher here. If the company fails to make a profit or goes bankrupt, you are bound to take the fall as the investor.

That's why it's important to keep two things in mind when investing in private equity funds:

  • Invest in a promising company after proper research. Check their competition, market demands, and past sales records before putting your money down.
  • Only invest as much as you can afford to lose. It's not a get-rich-quick scheme. Do not gamble your entire life savings at once.

A huge benefit of private equity funds is that, as a shareholder, you'll have a say in their business operation if you feel your interests aren't protected. Not many investment schemes offer this level of control.

Investing As A Salaried Employee

While following in the footsteps of billionaires and their investment schemes is a great way to grow your money, it's not possible for everyone, especially if you are a salaried employee with limited growth opportunities.

Most salaried employees in the USA are living paycheck to paycheck, barely making ends meet. They don't have the same financial privileges as billionaires to invest a hefty sum in fancy schemes. After all, most of the time, the schemes that offer the best returns also come with significant risk.

If this sounds like you, don't be disheartened. There are plenty of safe and easy investment schemes, even for salaried individuals. Here are our top picks:

1. Traditional & Roth IRA

Traditional IRA (individual retirement account) is open to everyone who earns taxable income. This is the perfect scheme for those who don't have a retirement plan through their employer.

The best part about investing in a traditional IRA is its tax deductible, and the income you make from it is tax deferred. You can choose how your money is invested. Whether you prefer mutual funds or ETFs, the options are endless.

2. Roth IRA

If you don't want your income post-retirement to be taxed, you can also opt for Roth IRA. While the funds you transfer here aren't tax deductible, you won't have to pay any tax for the income you make. Along with that, you can take out the money at any time without any penalty. In case of financial emergencies, Roth IRA provides much-needed flexibility.

Fixed Annuities are a type of contract under which you get a fixed interest against the contribution you make to the scheme. Since the returns are paid out as monthly installments, this plan too can double up as a source of income.

Although there are multiple types of annuities, fixed annuities are the most reliable and offer the best returns. Another benefit of this scheme is there are no IRS limits— you can invest as much as you want to increase your post-retirement returns.

A Mix of Savings and Investments

Investing like a billionaire is a great way to grow your money, but it doesn't mean you'll be that rich someday. Most billionaires never retire at all! While some work till the last day of their lives just out of passion, others generate so many passive income streams during their active working years that they don't need to rely on any retirement savings to rely on— and that's exactly what we are trying to replicate here.

That being said, we're not trying to undermine the importance of savings. No matter how many investments you have, having a separate savings fund is always best. In times of emergencies or smaller goals that require immediate cash, the liquidity of a savings fund will save your day. So whether you're still at your job or preparing to retire, having a savings fund is a must.

The purpose of investing and its returns are here to replace your salary. When employed, you get a salary against your hard work and save a small percentage from it. And when you're retired, you get monthly payments from these investments with zero hard work and save a small percentage— that's the only difference.


1. Is 1 Million Enough To Retire?

Even though 1 million sounds like a huge sum, it's impossible to put an exact number on the ideal retirement fund. Let's say your lifestyle requires you to withdraw $50000 annually from that fund. At that rate, your savings will be exhausted within 20 years. So if you retire at 60, your savings will be used up by the time you're 80. Given the average life expectancy in the US, 1 million should be enough.

But if by chance you live past 80, you'll be in deep trouble. That's why we always recommend investing your money instead of letting it sit in the bank.

2. How Much Money Do You Need To Retire?

It depends. Most financial gurus claim you should have at least 80% of your annual income pre-retirement. This means that if your pre-retirement annual income was $100k, your post-retirement annual funds should be at least $80k.

3. How Should You Divide Your Retirement Money?

A part of your retirement planning should go into investments that offer monthly/ annual payments and replace your previous job. Another part of the savings should go into bigger investments such as your child's wedding, education, or a world trip with your spouse. And finally, a part of your retirement planning should go into insurance for your health, home, car, or anything valuable.

4. Do Billionaires Ever Retire?

Those who work for their passion and want to make a difference don't want to retire early, while some whose ultimate goal is financial freedom retire as soon as they can. But even if they do choose to retire, they create so many passive income sources during their working years that they don't need to rely on a retirement fund.

5. When Is the Right Time To Retire?

There's no universal right time to retire. But speaking from a financial point of view, you can follow any of these thumb rules.

You can retire if:

  • You have saved 10 times your annual income
  • You can withdraw 4% of your total savings and still have enough to last you through a certain period
  • You have at least 80% of your pre-retirement annual income to spend annually post-retirement

In simple terms, when you have enough money to meet your expenses through the remaining years considering inflation, and you're confident you can handle the emergencies, consider yourself ready to retire.

The post Billionaires Don't Save For Retirement; Here's Why appeared first on Due.

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