If you are planning for retirement, check out a book called Worry Free Investing by Zvi Bodie.
Then ask a Financial advisor if you can substitute INFLATION PROTECTED MUNI’s (a specific type of Municipal Bonds) for the TIPS (Treasury Inflation Protected Securities) that he recommends in his book …
… THEN you just may have ‘guaranteed protection’ against BOTH inflation and taxes, possibly for life.
Now, THAT’s a winner!
Bring it on baby!
In a recent post, I shared one view (not mine) on what it takes to be considered rich …
…it’s $5 million !
Now, here is an article by Bankrate that brings that number right down to the other end of the scale …
Check out this table showing the spread of annual income:
|
Income level (percentile) |
Median income (rounded) |
| Level VI (90 to 100) | $170,000 |
| Level V (80 to 89.9) | $99,000 |
| Level IV (60 to 79.9) | $65,000 |
| Level III (40 to 59.9) | $40,000 |
| Level II (20 to 39.9) | $24,000 |
| Level I (less than 20) | $10,000 |
Source: Before-Tax Family Income, 2001 Federal Reserve Board Survey
First, let’s see where you stand in relation to this table?
If you aren’t in the top brackets (although, many of our readers are), it might be comforting to note (according to the Bankrate article): “if you are bringing in $40,000 a year, you’re doing better than half the households in America. Or, as a Washington think tank recently pointed out: If you’re a teacher married to a policeman, your combined household income puts you in the top 25 percent of all households in the nation.”
What intersted me most, was the relatively low income that it takes to be at the absolute middle of the top 10% of all income earners in the USA … ‘only’ $170,000.
This amount seems to correlate with a New York Times survey that said the ‘rich’ were bringing in between $100,000 and $200,000 per year …
… and, if you are like most Americans – earning less than $40,000 – this sounds like a king’s ransom … but, it’s not.
You see, there’s a big difference between what you might bring in as income and what some people call sustainable retirement income .
Take a look at what the Bankrate article tells us how much these same people currently have as their Net Worth:
|
Net worth (percentile) |
Median net worth (rounded) |
| Level VI (90 to 100) | $833,600 |
| Level V (80 to 89.9) | $263,100 |
| Level IV (60 to 79.9) | $141,500 |
| Level III (40 to 59.9) | $62,500 |
| Level II (20 to 39.9) | $37,200 |
| Level I (less than 20) | $7,900 |
Source: Family Net Worth, 2001 Federal Reserve Board Survey
Look at the top level, the same ‘rich’ people who earned $170,000 a year in the first table, only have a median net worth of $833,000 according to the second table.
Now, if you take this $833,000 and apply the ‘safe’ annual withdrawal rate of 4% as advocated by most misinformed financial advisors (for me, the safe withdrawal rate is more like 2.5% p.a.), it seems like these so-called ‘rich guys’ can only afford to spin off $33,000 a year.
Now, that’s less than the teacher and the fireman! So, what’s wrong?
Well, for a start there are actually very few really Rich people in this country – so few that there should be another category in BOTH of the above tables: the top 1% of the USA population by Net Worth and Annual Income.
Secondly, the so-called ‘rich guys’ earning $170,000 are just like the rest of the working population working at a JOB … Just Over Broke.
When their job stops, they stop being ‘rich’ … period.
So, where do you stand?
This is a cute video … I feel much the same way about making millions … if I can do it, you can do it!
Enjoy!
When people look at charts like these, I wonder what they see?
Sure, I see a drop in confidence … Blind Freddy can see the panic in the market right now.
But, I see something FAR more important:
Do you see how the Millionaire line (> $1,000,000 Investable Assets) is ALWAYS higher than the Affluent line (>$500,000 Investable Assets)?
One of characteristics of rich people is that they are Optimistic … the richer they are, in general, the more optimistic they are.
As the chart shows, they have their ups and downs … overall, though, they are always more optimistic than others and their highs are higher!
You see, Rich people are used to buying low and selling high … right now, optimism across the board has dipped …
BUT, I guarantee you this:
The Rich are now thinking about buying whilst the rest are still thinking about selling ... I’m out there looking for bargains right now!
What are you doing?
Who would have thought that you could learn so much just by watching television? Maybe, my kids are right? … In their dreams!
A few nights ago I watched NBC’s Deal or No Deal, the Howie Mandel tour de force. It basically works by having people select one suitcase out of 26 offered then accepting or (usually) rejecting larger and larger offers by a mysterious ‘banker’ (just some guy in the control booth punching out a simple computer algorithm) as they eliminate suitcases.
If the contestant stays right to the end, they get keep whatever is in ‘their’ suitcase … a 1-in-26 chance of being $1,000,000, but, much more likely an amount from$0.01 to $500,000.
Ho hum …. usually …
But, the episode I was lucky enough to witness was a SPECIAL episode, because they put out TEN (10) suitcases containing $1,000,000 (with the other 13 suitcases having smaller amounts … the largest suitcase without $1,000,000 in it now held just $10,000. In other words it was a close to 1.3 : 1 chance of winning a million for the contestant, in theory.
Why was this so special … besides the obvious?
Well, it allowed two or three chances to really see
(a) How the ‘banker’ stiffs the contestants on the ‘offers’, and
(b) How the clueless contestants make their decisions.
Usually, it is very hard to work out the correct ‘odds’ when the ‘banker’ makes his offer and Howie sells a hill of beans to our hapless hero (i.e. the contestant) … just try this online version of the game to see what I mean …
But, last night, because there were so many $1,000,000 suitcases left at the end, there was (all approximately) one 1-in-4 chance offer, one 1-in-3 offer, and TWO 50/50 offers that even Blind Freddy could see.
Here were the odds and the ‘banker’ offers on each (now, these are approximate because I didn’t write them down and I didn’t record the show):
Offer 1: $170,000 for an (approx.) 25% chance of $1,000,000 being the chosen suitcase
Offer 2: $240,000 for an (approx.) 33% chance of $1,000,000 being the chosen suitcase
Offer 3: $330,000 for an (approx.) 50% chance of $1,000,000 being the chosen suitcase
Offer 4: $380,000 for an (approx.) 50% chance of $1,000,000 being the chosen suitcase
Would you have accepted any of these offers?
To me, and my maths is probably off, but 33 cents in the dollar on a 50/50 chance sounds a bit light … and, I would not have accepted ANY of these offers.
Anybody who regularly chases 50% chances with only a potential 33% payout will VERY QUICKLY go broke!
What did the contestant do??? She ….
…. rejected the offers [big anticlimax here].
But, I think that she should have accepted ANY ONE of these offers … in fact, I was shocked when she didn’t accept offer 3. or 4. on my table above!
Why?
Because, we haven’t considered her investment and return. You see, she invested NOTHING (except some time) in the ‘deal’ yet was offered hugely large amounts to simply pick up and go home …
… life changing amounts … possibly more money that she is likely to save in her entire lifetime …definitely, 2, 3, or even 4 times the Net Worth of the typical American family!
What does all of this mean?
If you are investing relatively small amounts of your portfolio on investments, gambling, game shows – basically anything where you are chasing a commensurate return – then pay close attention to the ‘odds’ (otherwise known as risk/reward).
But, if you are making the occasional BIG BETS – those all or nothing, bet the farm-type of gambles (such as changing careers, starting a business, etc.) – then you had better have a clear idea of how life changing the outcome will be.
… then, go for broke!
You’ve read the blogs … you’ve bought the books … you’ve talked to your financial advisor (your wife).
They’ve all told you that you need to pay yourself first! So you are … 10% of your gross salary !
You’re putting some aside in your 401k (with some employer match) and you have a little change going into the cookie jar next to your bed.
Great!
You’re already doing two-and-a-half times better than what CBS News calls ‘most people who only save 4% of their salary”.
But …
… it won’t make you rich!
It will stop you from being poor and may even fund a retirement if you start early enough and are willing to take a 30% pay cut.
The problem is, you can’t just save yourself to the retirement of your dreams on the average salary … you have to at least earn more and save most of the extra.
Look at it this way … the amount you can save is limited …
… limited to less than 100% of your salary, and for most people, limited to something between 0% and 20% of their salary.
But, the amount you can earn is only limited by your imagination and your capacity for hard work.
Here are some examples of ways that you can increase your income:
– Change jobs (maybe)
– Work longer shifts (yuk)
– Ask for a payrise (why not?)
– Take on a second (third?) job (horrible)
– Join an MLM ‘opportunity’ (do your homework carefully!)
– Renovate some houses (now may be the time to get back in)
– Start trading some stocks (better know what you’re doing?!)
– Start a business ‘on the side’ (my favorite!!!)
Whatever you choose: Start Small … Finish Big!
The point is not how YOU should do it, the point is you CAN do it … if you are prepared for some hard work and sacrifice now for a better future. Are you?
If you keep paying yourself first at only 10% of your current salary in your day job, and 50% of the additional money that you earn (after paying off debts), THEN …
… you just may retire RICH!
Let me know if you think this can/can’t work for you …
There is plenty of ‘investment advice’ floating around im books, in newspaper ads and, yes, even in blogs!
You know you need the financial education to get ahead, so how do you tell the good from the bad?
For a start, try the Fedral Trade Commission’s Test Your Investment IQ …
Done? Now take a look at this BS Detector – it’s aimed at real-estate ‘gurus’ but will work pretty much for any type of financial advice.
And, if you have an interest in investing in real estate, and want to read some books, here is a very opinionated assessment of a number of the s-called real estate gurus out there and some of their books.
You might be surprised at some of the names ….
It seems that this guy doesn’t like ANYBODY, but he has some interesting things to say about them.
If you’ve been to some of these seminars or read some of these real-estate investing authors, let me know what YOU think.
I read an article from the Epoch Times in Australia recently. Apparently, Australia is the country most people around the world would like to live in 20 years time (presumably, this means when they retire).
So, how well does the typical Aussie live in retirement?
AXA (the big French multinational insurance giant) questioned workers in 26 countries and here is how the Aussies perform:
The average retired Australian EARNS $1917 a month.
The average retired Australian SPENDS $1437 a month.
By my reckoning, that means that the average Aussie is living an idyllic retirement lifestyle of $17,000 a year (I couldn’t buy much more than a Big Mac and a Starbucks Latte a day for that!) …
… and, for the really big yearly shindig, they have a whopping $5,800 a year spare to spend on holidays, cars, boats, cigars! By the way, these are Aussie dollars, so take off 20% to convert to US.
The concept of an ‘idyllic retirement’ in Australia (or the US, or most Western countries) takes a lot more money than that … unless, your only passion is surfing every day!
So how do financially astute Americans compare ….
… pretty similar: living off $27,000 a year in retirement, and somehow ‘saving’ $11,000 for all those fine things the Aussies are also chasing!
My question is this?
When you calculated your Number, was it anything like $30,000 or $40,000 a year? I bet it was MUCH MORE. And, that’s the problem with these surveys … they assume that you can (or want to) live off just 70% (or even 100% or 120%) of your current salary when you retire.
Do you?
In a previous post, I weighed in with my thoughts on the Rent v Buy question. The answer for most people, at some stage in their lives, is to … buy.
But, how much to spend?
Boy, this is a biggie! I mean, your house is usually your biggest personal purchase. So, here goes …
You should INVEST no more than 20% of your Net Worth into your house!
[To calculate your net worth, try this calculator at CNNMoney.com: http://cgi.money.cnn.com/tools/networth/networth.html , then come back and read on, because you need the second half of the equation …]
The ‘20% Rule’ tells you how much of your current net assets you should INVEST, it doesn’t tell you how much house you can actually afford to buy …
… because, houses can be financed!
So, the 20% rule tells you how much deposit you can afford. And, the bank will then tell you how much you can afford to borrow (unfortunately, they won’t tell you how much you SHOULD borrow … only how much you CAN borrow).
Put your deposit + mortgage together, and there’s your house!
For example, say that you have saved $200,000 and it is sitting in the bank. And, assume that you have a job, but no other income or assets. Then you can afford to put down a $40,000 deposit on your house; the bank will look at your income and tell you how much you than then afford to borrow.
Why 20%? After you ‘invest’ another 5% of your Net Worth in ‘stuff’ (car/s, furniture, possessions), it means that you are never investing LESS THAN 75% of your Net Worth (that would be the $150,000 that you have left in our example) in income producing assets (like investment property).
It also tells you that you should never build up more than 20% of your Net Worth as equity in your own home without then borrowing against the remaining equity to invest.
So you should conservatively revalue your house at least every 3 – 5 years and withdraw any excess equity and add it to your investment pool!
If you can’t afford to trade up to a bigger house without breaking this rule … don’t trade up! When you get rich later, you’ll be happy you waited now.
But, if you can’t buy your FIRST (very small!) house without breaking this rule, then buy it anyway … as soon as you have enough equity, borrow against it to invest in long-term, income-producing assets, and keep rechecking this post.
Add to: | blinklist | del.cio.us | digg | yahoo! | furl | rawsugar | shadows | netvouz