Tag Archives: retirement

Be your own President by turning your retirement savings into your very own monthly 'social security' check

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I read an interesting post on Free Money Finance – one of my favourite blogs in the ‘Making Money 101’ space – the other day; FMF said:

Here’s an interesting report on the value of Social Security :

The average monthly benefit for retirees is $1,045 in 2007. A 65-year old who wanted to buy a guaranteed income of that size – with payments that go up with the cost of living and continue for a widowed spouse — would need to pay an insurance company about $225,000.

Firstly, if you are rubbing your hands and thinking “I need to save $225k LESS” for my retirement now, you have rocks in your head!

Why?

Relying on a government hand out is always bad advice … as the population ages there will HAVE to be changes in Social Security – none of them good … for you!

My advice is simple: PLAN to go without, GRATEFULLY ACCEPT what you are given.

But, there is an even more interesting lesson to be learned here:

The government is prepared to pay you 2% of that ‘invisible’ $225,000 that they have effectively put aside for you, each year … and INCREASE it each year to keep up with the cost of living … nice.

 How would you like to be able to set up your own plan that works exactly the same way?

 There is a way!

It’s safe … it’s legal … and, it’s easy … and it’s all covered in this book by a highly respected professor.

Here’s what you do …

 You invest your lump sum at (or before) retirement in special inflation-proof government bonds called TIPS.

TIPS are as safe as Social Security because they are US Federal Government Treasury Bonds … the difference is that you put up your own money so, unlike Social Security, the government can NEVER get out of it’s obligation to:

a) Pay you back your Principal (the amount you put in) plus the value of inflation! And,

b) Pay you a 6-monthly dividend (call it your ‘social security check’) also adjusted for inflation each year.

This is not financial advice, as you will need to see your own financial adviser to determine:

1. If this strategy can work for you;

2. How much to expect in bond interest each year; and,

3. Whether you should substitute inflation-protected MUNI’s for the TIP’s that the author recommends … useful if you are investing outside of a tax-shelter (e.g. ROTH IRA).

Let me know what you think?

A very useful tool for serious real-estate investors …

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I often get asked about what tools I use for analysing various investment: for example, businesses, stocks, or real-estate.

Today, let me tell you a little about a very useful on-line data service that I use (and, you may have at least already heard of) called RealtyTrac … if you are an aspiring real-estate investor, this is definitely one of the tools that you will want in your kit-bag.

RealtyTrac is an on-line database, primarily known for listing foreclosures, but it also offers so much more:

Real-estate of all types (from homes to huge commercial developments); Foreclosure listings across the country; For Sale By Owner (not as many as the MLS, but you will find quite a few); Bank-Owned; and, Pre-Foreclosure.

 The last two are the ones that you want to get into, because foreclosures can be difficult (often auctioned and you can’t be sure about title etc. before you buy) and because these last two are more like ‘normal’ purchases  …

… that is, you can plonk down some refundable earnest money and do your due diligence before you buy. The rest of the sale process is somewhat similar to any other real-estate sale, but at generally ‘distressed’ prices … at least, if you are patient, selective, etc, etc.

For example, right now, I have set RealtyTrac to look for commercial property – retail, office, industrial, apartments – in the $1 mill. – $3 mill. range.

I have asked it to show me real-estate within the geographic areas that I am currently interested in, and of those last two types (i.e. Bank-Owned; and, Pre-Foreclosure).

I have recently added For Sale by Owner, because in the commercial sector 99% of owners will still have an over-inflated view of the real value of their real-estate, but 1% may have an under-inflated view (they may not have really researched the market; they may have under-managed, hence under-rented their property, etc.) …

… But I also have some pretty specific financial criteria that whittles down the hundreds of properties that may be within my nominal range … I will be happy to share these in a later post if enough people want to read about it.

I think RealtyTrac costs about $35 a month, so you need to be serious about buying before you signe up … but you can start a free trial  if you just want to ‘kick the tires’.

Be warned: they take your credit card so be sure to call up and cancel before the trial period is over and they automatically start charging you!

Fire up your true passion … hot passion drives massive action … massive action drives incredible results

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When talking about money, and how to make lots of it, I always start by asking you to imagine your DESTINATION.

Where is your life going? What will your life have been about when it’s done?

Most people fail not because their financial goals are too big, but because they are too small …

… that’s not a misprint. Let me explain.

In 1998, I had a business that was losing $5,000 a month (after 5 years of operation … sometimes it’s a good thing not knowing when to quit!) … I was struggling to take home $30,000 a year (having given up a lucrative career paying a LOT more) … and, my wife had to work full-time to help support us.

My vision was too small …

But, in 1998 that all changed; I read a book that I highly recommend to anybody in business that showed me how to envision my life when it was DONE, and how to envision a business to support that life.

Overnight, my vision changed …

… it became big … very, very BIG.

And, that vision rang true to my subconscious and buried itself deep in my psyche … it’s still there today, constantly egging me on to my ‘new life’ … a life that has nothing to do with multi-million dollar homes and very fast cars (not that I don’t have them, and not that they aren’t VERY NICE to have) …

… but, a life that has more to do with how I USE that wealth to enrich the life of others, thereby enriching my own life in ways that I just couldn’t even imagine when I was Just Over Broke.

With that new life blueprint firmly entrenched in my little mind, almost immediately, I started taking bold (ok … scary) new steps with my business, my investments, and my life to move towards that new, big vision.

I became absolutely resolute and driven to that single-minded goal …

The result … $7million in 7 years … ethically and safely (really), and for me, in multiple streams of income all in areas that I was passionate about.

Why did this work for me? In truth, I don’t know and don’t care … it just worked!

Also, I am not a great believer in The Secret and other ‘visualize and ye shall receive’ New Age beliefs – if you could ‘dream yourself’ to $2 million, why not just imagine $2 billion and be done with it? Better yet, dream $20 billion and help Bill and Melinda Gates save the world …

If pressed, I will say that by going through this process, you find then fire up your true passion … hot passion drives massive action … massive action drives incredible results.

Simple!

So, what’s your big life vision? Your whole future depends upon being crystal clear on this …

Do you know how much you will retire on?

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If you are like most Americans, the chances are that you have virtually no idea how much you will be able to retire on …

In fact, only 1 in 3 do. And, everybody else in the world is pretty clueless, too … at least according to this AXA survey:

Do you know how much you will retire on?

It gets worse, of those who do know (or think they know) how much they will retire on almost half don’t think it will be enough:

Retirement Shortfall

… and, I bet that 90% of the other half are simply settling for a LOT LESS than their dream retirement.

Don’t let that be you … start by working out your Number, and let’s go from there …

Is your home an asset? A simple question with a not so simple answer …

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According to InvestorWords.com an asset is:
Any item of economic value owned by an individual or corporation, especially that which could be converted to cash.
Examples that they give include:
Cash, securities, accounts receivable, inventory, office equipment, real estate, a car, and other property.
Now, here’s a definition that I like even better …
… it’s Robert Kiyosaki’s definition of an asset from Rich Dad, Poor Dad: 
 

Poor Dad vs. Rich Dad

My Poor Dad Says   My Rich Dad Says
       
  “My house is an asset.”   “My house is a liability.”
       
  Rich dad says, “If you stop working today, an asset puts money in your pocket and a liability takes money from your pocket. Too often people call liabilities assets. It’s important to know the difference between the two.
  
I don’t always agree with Robert Kiyosaki, but to me, this nugget is one of the best pieces of financial wisdom ever written (and, I have HIGH standards). Why?
Because, I have seen TOO MANY people base their ENTIRE financial strategy on the VALUE OF THEIR OWN home … 
But, your own home is ONLY A PLACE TO LIVE!
It’s only BECOMES an asset when you either (a) sell or (b) put the equity to work for you … until then, it’s just a piece of paper (title deed).Let me share a true story from my own family:
In the 60’s my Grandparents bought a 2-story downtown property with some friends … over the course of 40 years it became old, underdeveloped compared to the multi-story buildings that had sprung up all around, and simply didn’t bring enough rent in to allow her (and her partners) to keep up with costs (personal, and property-related taxes, maintenance, and holding costs).But, they tightly held onto the building because it was an ‘asset’ …

My Grandmother is still alive (she is now 95) and last year I had to LEND HER $40,000 (really! And, she wouldn’t let me just give it to her! Amazing woman …) because she couldn’t afford her share of the real-estate taxes.

Just before Xmas last year, she gave my son a check for his birthday … it bounced!

Happy ending, though …

She (yes last year at the age of 94, and on her own because her partners all live overseas) finally negotiated the sale of this building for $18 million (!) to a developer who way overpaid because he is putting up high-rise luxury apartments.

NOW it’s an ASSET. What about your home?

Do you ever get the feeling that you are too ordinary to be successful?

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Paul Potts

Believe it or not, this man went from being a total unknown to selling 1,000,000 CD’s last year …

… who is he and how did he do it?

If you want to win big in the game of life, you need to find out what it is that you are passionate about, and then go for it …

… no if’s, but’s, or maybe’s.

You can turn that hobby, talent, or passion into $1,000,000 in a year and $7 million in 7 years if you have the passion, this blog will show you how …

If the humble, ordinary, unconfident (really … he says so himself!) man in the picture can do it, then we all can! So, who is he?

Even if you already know his name, watch this YouTube Video … I can guarantee that it will change your perception of who you need to be to win in life:

http://youtube.com/watch?v=1k08yxu57NA

BTW: he went from being a complete unknown to win over $200,000 in this competition and then went on to sell a million CD’s last year …

Now, why don’t you go back and expand your Life Vision?

Why does real-estate investing crush your 401k mutual funds?

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You know that you can’t just save your way to a fortune … right?!

So, what to do with that ‘extra’ cash that you manage to scrounge from time to time?

In a previous post , I pointed out that we are at a UNIQUE point in history.

For the FIRST TIME that I can recall BOTH money AND real-estate are cheap!!

If you save up a deposit (AFTER paying of any pesky credit card debt) and plonk it down on a rental property (or even your own house, if you ain’t got one yet) and LOCK IT IN for 30 years, how can you EVER go wrong?

If you do buy to live in it, eventually you will move on – just keep it as a rental FOR EVER.

I don’t know what will happen over the next year or so, but over 30 years it’s a no-brainer …

… your mortgage payments remain flat (you fixed them, remember?) …

… the value of the house doubles every 7 years or so (and, you will take advantage of this ‘spare’ equity, won’t you?) …

… and – here’s the kicker – your rents rise roughly in line with inflation … see how that compounds over 10, 20 or even 30 years to spin off income that will help you stop working!

And when you eventually do retire, the real-estate strategy STILL kicks your 401k’s butt …

This built-in inflation-protection makes real-estate a great adjunct or alternative to so-called safe retirement strategies such as the Grangaard Strategy and Worry-Free Investing (two of the best that I have come across).

Try doing any of that with your 401K or mutual fund!

Do you really care that weekly contributions of $34 could potentially grow to over $76,000 in 20 years?

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I just received a hilarious e-mail in my in-box from Fidelity. It said: Did you know that weekly contributions of $34 could potentially grow to over $76,000 in 20 years?*

*This hypothetical example assumes a participant earns $30,000 every year and defers 6% of his/her weekly pay ($34/week) at the beginning of every week for 20 years to a tax-deferred retirement account earning a 7% annual rate of return compounded weekly.”

Why is that funny? Well, in 20 years, $76,000 won’t even buy you a car!

That’s the problem with these “save your way to $1,000,000” advertisements (and, books) …

… while you certainly should put away at least 10% of your gross income (hopefully, it eventually comes to a lot more than $34 a week!), and

… while you may (and should try to at least) make it all the way to $1,000,000 in the bank (or CD’s or 401K) by the time you retire in 30 or 40 years:

(a) You will probably be too old and tired to enjoy it … hell, I’ve waited to 49 to retire and I already feel too old .. and

(b) $1,000,000 will buy you diddly squat because of a little thing called inflation.

Inflation is the thing that causes a  sixteen ounce loaf of bread to cost $0.19 in 1950 and $2.10 in 2008!

You don’t have to look too far to see this inflation-effect taken to it’s extreme: in Zimbabwe raging inflation is the thing that means even Z$750,000 isn’t enough to buy that $2 loaf of bread!

What does this mean if inflation averages, say, just 3%?

Let’s say that you are 25 years old today, aiming to save $1,000,000 by the time you retire … by the time you reach 65 and cash in your $1,000,000 ‘retirement check’ that would be the same as your grandfather retiring today on just $315,000 savings!

Does that sound like a lot? Let’s see …

$315,000 would give your grandfather just $15,000 a year to live on (allowing for small yearly ‘pay increases’ after 65, so that he could also keep up with inflation).

Would you want to retire on just $15,000 a year?

No?

Then the only choice that you have left is to try and get rich … quickly, slowly, any legal, safe and ethical way that you can …

Stick with me, and I’ll show you how! Really.

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Are you Rich, yet?

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I like reading, and sometimes commenting on, other people’s blogs.

There are some really good ones out there (check out the Blogroll in the sidebar) … especially helpful to people still in the saving/debt cycle.

 One that I read is Pinyo’s very open blog; in one post he says:

 “From The Millionaire Next Door by Thomas Stanley and William Danko, you net worth should be:

Net worth (or Assets – Liabilities) = your age X your pre-tax income / 10

If you have twice that, you are indeed on your way to become wealthy! Stanley and Danko call them Prodigious Accumulator of Wealth or PAW

I did a quick calculation yesterday in my beat up 98 Ford Contour, and our net worth should be about $345,000 according to the formula. Right now, we have about $730,000 including home equity. This mean we are a pair of PAW!”

 That got me thinking … when was the last time that I actually bothered calculating my own Net Worth?

 Why even bother? 

You see, the problem with all these external measures is just that … they are external.

If that’s what you want, Networth IQ has a free tool that helps you measure your own Net Worth … and then compare it to others.

But, the real definition of wealth is how much YOU need to live off each year (indexed with inflation) for the ‘life of your dreams’ …

… your real dreams (hint: for most people that does not require a Ferrari and a Lear Jet).

Multiply that annual amount by 20 – 40 (to be 99% sure your money will last as long as you do) … if you already have that, congratulations, you are RICH!

Simple and accurate … for you.