Category Archives: Investing

Who needs more than $1,000,000?

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Almost everybody will need more than $1,000,000 to retire on … most a lot more!

Look at this excerpt from an excellent report (that I would highly recommend you spend the $5 bucks on) from Retire Early:

” Perhaps the most troubling aspect of safe withdrawal rates is that very few folks will have the financial assets required to [even bother] … While we’re blessed to live in a rich and prosperous country, only a tiny sliver of the US population can comfortably retire on their savings alone. “

In 1998 the median family income in the US was $38,885 so using a fairly safe inflation-adjusted withdrawal rate of 4% would require nearly $1 million in assets.

Since most folks acquire a bit more wealth as they age, about 5% of the 47-year-olds could boast $1 million nest eggs in 1998. “

That’s why the Retire Early report goes on to say:

” More worrisome, is the fact that few people with million dollar portfolios would be comfortable living on $40,000 per year. Most feel that level of wealth should support a more expansive lifestyle…

… it doesn’t, at least not safely.

There’s an old adage in wealth building, “The first million is the hardest. The second million usually comes a lot easier and quicker.”

Why?

To fund even a modest retirement, you’ll need a significant wad of cash. Prudent folks will begin saving aggressively today! “

Good advice indeed!

Are you really on track?

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I read an interesting question on one of my favorite blogs the other day.It was from a couple thinking about retirement asking the usual saving-for-retirement questions, peppered with the usual ho-hum terms: ROTH IRA’s, 401K, HSA, CD’s …

What caught my attention was the opening sentence to their post:

“I feel very knowledgeble about long term investments.  I feel I manage my retriement savings very well and this has been a top priority.”

If you think your ‘retirement is on track’ just because you are saving your 10% or so into all the ‘right investment vehicles, or retirement for you is still a hell of a long way off, I would just ask that you do the following quick ‘reality check’:

1. What is your current Net Worth (try the CNNMoney calculator)?

2. What is your annual income goal to fund the retirement that you always hoped for?

Multiply that by 20 to 40; depending on how certain you want to be that your money will last as long as you do …

3. The difference between 1. and 2. is what you have to make up (ADD a little more for inflation) between now and retirement.

If it’s only a little, keep doing what you’re doing; your retirment is probably ‘on track’ …

BUT, if it’s a lot, maybe you need to think about INVESTING actively (business, real-estate, trading) rather just SAVING (CD’s, 401K’s, etc.).”

The problem is that most people seem to SAVE (or not save) for their retirement without having a clear understanding of what they want out of retirement, therefore, how much income they need to fund that lifestyle.

It MAY have NOTHING to do with what they currently earn … yet, replacing some or all of the pre-retirement salary is what everybody seems to be aiming for. 

So, the issue changes – in my estimation, for MOST people – if they are set to save for a $35k a year retirement, but their dream of living in Tuscany [insert retirement dream of choice: working with the poor in Africa; sailing around the world; quitting my job well BEFORE usual retirement age to become a painter; etc.] requires $150k a year!

Are you really on track for your retirement? 

 

Against the odds …

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For those of you who follow this blog, you will know that a key part of getting ahead is increasing your income.

And, you will already know that I think one of the best ways to do this is to start your own business … perhaps part-time, at first, to limit your risk … and, definitely in combination with other financial strategies that I will be sharing with you over the coming weeks.

For me, the gold-standard in this area is still The E-Myth Revisited by Michael Gerber … a book that I will unashamedly admit changed by life.

But, for anybody heading down the entrepreneurial path, I equally highly recommend a book by Guy Kawasaki (ex-Apple, founder of garage.com) called Art of the Start.

Guy can also be found on his blog, where I found this interesting post, that deals with the various myths around being an entrepreneur.

The problem is that the guest author is an academic who uses ODDS to establish that some types of businesses are better than others, and to suggest that it is the type of business that you go into rather than your ‘entrepreneurial ability’ that determines your success.

Here’s where I disagree …

YOUR odds of succeeding in any business venture are exactly 50/50 … either you WILL or you WON’T succeed!

Obviously, that makes no MATHEMATICAL sense, but going into business rarely does.

That’s why the rewards for those who DO succeed can be so high. If it were easy – and if success was GUARANTEED – we’d ALL be doing it!

For example, we intuitively know that the ODDS of being a huge success are so small in, say, sandwich shops.

In fact, the article suggests that the odds of mega-success in that type of business are 840 times smaller than starting, say, a computer business.

Yet, who wouldn’t like to be Mr Subway, Mr Quizno, Mr Togo, or Mr Potbelly?

I’ll even put up $1,000 that says that each of them knew EXACTLY what they were getting themselves into when they started out.

But, somewhere along the line each and every one of these entrepreneurs … in fact, EVERY SINGLE SUCCESSFUL ENTREPRENEUR IN HISTORY … simply said: “screw the odds”.

Having done some ‘odds screwing’ of my own (a number of times, with great success) over the years, I humbly suggest that you do, too.

Please let me know how well you do …

Let's not confuse 'saving' with 'investing' …

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This goes back to a comment that I received in response to a question posted on another finance blog – one that I happen to like for early-stage savers …

I suggested that for many people, their retirement savings actually won’t be enough to fund their ideal retirement … if they’re happy to accept less, fine!

If not, then I suggested that they may need to do something a bit more active to pick up the pace …

Here is a response that I received:

“Your investing approach of “actively (business, real estate, trading)” sounds more like speculating and your savings approach (CDs, 401ks, etc.)” sounds more like investing to me. Just based on the statistics of individuals who trade rather than index…most get eaten up by fees while compounding growth usually is the better way to go using monte carlo analysis, But who knows what will happen in the future.

Posted by: klauss | February 08, 2008 at 12:21 PM “

My point is simply this:
IF your retirement plan is on track, then keep doing what you’re doing.
But, the vast majority of people can’t simply SAVE themselves into their ideal retirement; they have to INVEST in their future.
I call it ‘investing’ – investing in our future – but, if starting a part-time, work-at-home business, experimenting with actively trading stocks or options [not my personal choice], renovating then holding an income-producing property, etc. is ‘speculation’ to you …
… I simply say:

Bring it on baby!