How to Retire When You Have a Low Income

Yahoo brings us an interesting story of 107-year-old Leonard McCracken who has been retired since 1969. Since then, he's been living on a combination of savings, Social Security and a lifetime annuity he purchased before he retired -- and is doing just fine financially. What makes this story compelling is that he's doing so well despite the fact that he never made more than $10,000 a year in his life.

How did he do it? Here are the six keys according to McCracken:

1. Thrift - "We gave up a lot of things that other people were buying in order to break even."

2. Real Estate Investments - "We didn't make a lot of money in every case," he says. "But we made something and that helped."

3. Use Debt Well - Throughout his life, he borrowed when he had to, but he borrowed as little as possible, he says, and he paid it back as quickly as he could.

4. Work Even When Jobs Are Hard to Find - He took a "lowly" job when laid off to make ends meet.

5. Save and Invest Conservatively - All of McCracken's money is in CDs and bonds.

6. Stay Healthy - McCracken has hung onto his health and his wits and has had no major medical bills at all throughout his entire life.

Here's my take on these:

• I think #1 through #4 are solid winners. Regular readers will know that these are principles I recommend as well.
• I'm fine with investing conservatively (that's why I "over save" and estimate a 6% return versus an 8% or 10% return when I calculate my personal investments), but investing in CDs and bonds only is waaaaaaaay to conservative. He could have done a lot better if he was open to buying stocks -- even with the ups and downs we've had in the market.
• #6 is great, of course, but something no one can count on. Of course you can help yourself out by eating right, reducing stress, exercising, and so on, but still there's no guarantee that you'll be completely healthy for so long.

Still, I liked this story. With a couple modifications (Namely a higher income and a bit better investing), Mr. McCracken would be doing quite well for himself. So none of us (most of whom have much larger incomes) have any excuses, right? ;-)

Comments

[RBK]

Yep, #5 is a mistake for most people. Studies show that a portfolio is MORE RISKY with all bonds than with up to ~25% equities because of diversification. Conservative portfolios should always a small amount of equities, and this REDUCES the overall risk of the portfolio.

Using all CDs and bonds leads to a very different (and in many ways worse) kind of risk: not accumulating enough money to last you. It also leaves you severely exposed to inflation risk.

[jim]

I think #5 is something that makes sense for someone who is currently retired but may be a problem for younger people who need to grow their savings. If you're retired then you definitely want your money to be safe and using CDs & bonds makes sense then. You need to keep that money in tact and not be risky with it.

Young people have many decades to invest and should be more aggressive with their savings so putting money into stocks makes much more sense. You have many decades to even out volatility and recover from drops.

[Lurker Carl]

During first 20 years of his retirement, Mr. McCracken received year-over-year double digit returns with zero risk. For the next 15 years, he earned well over 5%. He never had a losing year, never worried about the safety of his principle, didn't need to pick and choose among the advice of financial gurus.

The current low return on his roll-overs are inconsequential at 107 years old.

[Alotta Lettuce]

I love this story, BUT one thing strikes me as odd and/or counterintuitive to the point its making: Mr. McCracken has been retired for over 40 years, and while the fact that he never earned more than $10k in any given year during his career sounds pretty meager in the context of today's economy, it's important to consider what $10,000 was worth WHILE he was earning it, and what that translates into in today's dollars.

[TR]

Was McCracken married?

[Josh]

While he obviously did a great job of saving, a $10,000/year income was pretty good back in 1969.

The farthest data I could find was that in 1975 the median household income was $11,800, which is the equivalent of about $42,936 today.

[Matt]

I went to the full article and I think he made a decent amount of money for his real estate back when real estate was doing great.

Then again you need to put him in the proper time frame. My dad is 83 and grew up as a young boy during the depression. HE LIVE THE DEPRESSION as an adult. When you live during a period like that you learn lifes lessons of just how little you can live on.

Really are you ready to not have cable tv, the internet or a cell phone?

[MBTN]

Of course #6 may hurt your retirement if you are so healthy that you outlive your retirement funds!

[BD]

Rats, I was excited about this article, til I read he had retired in 1969. Like other people already commented, $10,000 BACK THEN was a good amount of money...hardly poor or even "not a lot". It was an average amount of money. You could buy a house for around $10,000 back in the 60's.

So this article isn't really relevant for those of us only making $10,000/yr NOW. :(

And like FMF pointed out, #6 isn't really anything you have 100% control over. No matter how healthy you eat, and how much exercise you get, you could still get hit with health problems, and that will severely affect your savings, especially when you're earning hardly anything to begin with.

[BD]

Probably should clarify about my "not relevant" comment: The financial tips are always relevant, but there isn't anything this guy did that was any different from anything I'm already doing (other than the super-conservative investments..I do have some mutual funds that are a slightly higher risk level than his). And for me, I know I won't be able to retire, ever.

[CB]

$10,000 a year was an impressive starting salary in 1965. A seasoned aeronautical engineer made about twice that much.

Here's more from the web site listed below--2009 is latest possible dare.

What cost $10000 in 1969 would cost $57862.89 in 2009.
Also, if you were to buy exactly the same products in 2009 and 1969,
they would cost you $10000 and $1633.12 respectively.

http://www.westegg.com/inflation/infl.cgi

[Chris]

Of course you have to consider inflation, but if I'm reading this correctly, and I am, $10,000 wasn't his starting salary, but his peak.

[Lurker Carl]

$10K per year was an average salary 40 years ago, not especially high or low. I managed quite well earning a similar salary back then. For reference, minimum wage was around $1.85 per hour which provided a considerably higher standard of living than the current minimum.