Last week, I read a disturbing article on the state of retirement savings.

Kate Davidson’s Wall Street Journal piece was based on a recent survey conducted by BlackRock.

The survey revealed some bleak statistics about “pre-retirees” in the U.S. (age 55-64).

  • Average retirement savings: $136,000
  • Expected annual retirement income: $45,000
  • Estimated income from average retirement account: $9,129 annually
  • So the average pre-retiree expects $45,000 in annual income from $136,000 in savings (plus whatever else they save before retiring). Needless to say, that’s near impossible.

    The gap between expectation and reality is unnerving.

    What’s an underfunded pre-retiree to do? With near 0% interest rates and short-time horizons, options are limited.

    When Conventional Wisdom Doesn’t Help

    Where to start? First, let’s review the conventional wisdom on retirement.

  • Start saving early
  • Invest aggressively in growth stocks when young
  • Switch to bonds and blue chip stocks as retirement approaches
  • It’s fantastic advice for young people.

    At the same time, that advice is worthless to pre-retirees who don’t have enough saved right now. Especially to the millions who aren’t even close to their goals. A 70% retirement shortfall simply cannot be made up in 10 years by investing in bonds and blue chips.

    Barbell Strategy

    We know most Americans close to retirement don’t have nearly enough savings. We also know that traditional investments are unlikely to get them to their “golden years” in comfort.

    What if the best option for underfunded pre-retirees is something else altogether?

    Perhaps it looks something like Nassim Taleb’s “barbell strategy” described in his 2007 best-seller, Black Swan.

    A barbell portfolio, as described by Taleb, is one that holds a large amount of ultra-conservative assets. Think CDs, cash, or short-term government bonds. This “safe” side of the portfolio might make up 60% to 90%.

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