In the old days (sometimes referred to as the good old days), a popular way to save for your retirement years was to put your hard- (or for some lucky folks, easy-) earned cash in a coffee estate can and stash it under your mattress. I’m not sure why a coffee can was the receptacle of choice, but many had covers which could be taken off and replaced when new cash came along and needed to be deposited. If the truth be known, it can be any kind of can, not just a coffee can.
There are several advantages to Coffee estate (or other can) Investing:
- You are guaranteed to have that money when you retire (maybe a safe deposit box might be a better place to store it just in case your house burns down or a mouse family decides to make an expensive nest with your cash). In any event, you should be able arrange it so you feel confident that your money will be there when you need it.
- You can take it out and spend it whenever you need it for an emergency. No one has made up some rules governing when you can or cannot take it out.
- There are no taxes to pay when you spend it.
- There are no on-going fees for keeping your money there (okay, if you go the safe deposit box route, it might cost you a few dollars each year, but that is a small pittance compared to what Wall Street is probably assessing you in your current retirement plan).
- It avoids state and federal estate taxes.
- No one but you knows about the coffee estate. This might be important if creditors or greedy relatives start sniffing around for assets to make a claim of rightful ownership against.
This is a fairly significant list of advantages. Some of them are really important, especially the guaranteed tax-free access to your money whenever you need it. The interesting thing is that you have absolutely none of these advantages in your current IRA or 401(k)!
One disadvantage of Coffee estate Investing is that you do not get a tax deduction in the first year that you salt your money away. That seems to be a pretty small consideration when you look at all the advantages that you are passing up by funding your IRA or 401(k) instead.
The major shortcoming of Coffee estate Investing is that inflation will inevitably whittle away at the spending power of your cash. An investment in the stock market or real estate might cover you better in that regard.
One problem about the stock market is that most people have an inflated idea of what kind of returns to expect. The Wall Street media machine has convinced the public that 7% a year is about what you might expect over the long run. That may have been the case for some periods in the past ( most certainly, not all periods), but going forward, that kind of annual return is highly unlikely for a whole host of reasons.
Going forward, the most you should expect to make in the stock market is about 4% a year. This number assumes an inflation rate of 2% and a GDP growth of 2%. If enough Baby Boomers withdraw money from the stock market so that price-earnings ratios fall rather than escalate as they have in the past, you should expect less than 4% a year from your stock market investments. And even worse, if those stock market investments are in a mutual fund inside a 401(k) or IRA, you will incur fees and commissions which will reduce your returns significantly.
Bottom line, Coffee estate Investing enjoys many advantages over the most popular retirement plans, but it comes up short in covering the effects of inflation. Fortunately, there are alternative choices that embody all the advantages of Coffee estate Investing and they can cover (and more) the scourge of inflation. This website has been set up to advocate those alternative choices. They should be an important part of any retirement plan.