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%.

The other 10% to 40% is in high-risk or leveraged assets. Taleb specifically mentions trading options (leverage). But I’ve never had much luck with options, personally.

So I’m going to swap out options for another risky, high-reward asset class: startup investments, naturally.

Using this strategy, maximum portfolio losses would be capped at a reasonable level.

But due to the speculative and potentially ultra-high reward of startup investments, there’s still a decent chance of outsized growth.

And outsized growth is what millions of soon-to-retire individuals desperately need.

Such a strategy seems to fly in the face of traditional retirement advice. But we’re in a somewhat unprecedented spot today. There are no “right” answers to problems this complex and widespread.

To have any chance of solving them, outside-the-box thinking is required.

Closing Notes

What I’ve proposed here is more of a thought experiment than anything else. It certainly goes against everything I learned studying to become a financial advisor back in 2002.

That said, traditional models don’t have much to offer to those who are underfunded and close to retirement.

So I don’t think it’s crazy to ask, “Should pre-retirees invest in startups?”

The whole idea may seem preposterous. But with upcoming changes that will allow anyone to invest in private startups, I believe it’s one worth asking. And I suspect more than a few of the “underfunded” will be tempted by the potential returns of startup investing.

Of course, there are real risks for anyone who invests in startup companies. Lack of liquidity, and the possibility of losing it all, to name two.

But I can’t say that I blame pre-retirees who are considering “rolling the dice” to avoid a $30/day retirement. It may not work, but the alternatives aren’t pleasant either.

Good investing,

Adam Sharp