Today’s idea list is going to be about 10 blog posts that I need to write about financial security:
What is Inflation?
- Your financial life is drastically affected by inflation constantly eroding away your wealth.
- All of your future plans need to take this into account.
- Money supply is the root of inflation.
The Saving For Retirement Scam
- Personal finance books all say the same thing: cut back on your expenses and save for your retirement in index or mutual funds.
- The problem with this is that those calculations do not factor in inflationary dollar cost averaging.
The 401(k) Myth
- People who do save for retirement think that once they start pulling down their 401(k) in retirement, things will be fine.
- But that doesn’t factor in the tax situation or inflation.
- 401(k) income is ordinary income, which, when combined with social security income, will probably put you in at least the 25% bracket.
- This will knock down your real returns significantly.
How to Retire without Stress
- In order to retire without stress, we need enough income to support our standard of living (whatever that might be).
- This needs to grow with inflation.
- Inflation adjust your cost of living expenses.
Retire without Stress Plan 1 – Paper Assets
- As we saw in the Saving for Retirement Scam, you can’t realistically rely on average returns to support you in retirement.
- So you need above average returns.
- Calculate 3% and 4% safe withdrawal rates.
- Calculate your required IRR taking into account dollar cost averaging and inflation.
Look at various options to achieve that IRR:
- Distressed Debt
- Dividend Growth
- Stock Picking
- Momentum Trading
- Once in retirement, you may want to shift your portfolio to a more risk-averse style.
Retire without Stress Plan 2 – Real Estate
- Cash flow positive real estate is a great option because it provides income to cover your real life expenses.
- But there is more than one way to skin a cat.
- Play the capital gains game until your asset base is large enough to provide enough income.
- Buying distressed property, fix & flip
- Buying from distressed owners, cash is in the deal
- Tax Sales
- Tax liens
- Holding mortgages
Retire without Stress Plan 3 – Business
- Create and build a business that you can either sell or outsource to retire on.
- If you sell, then you can take your cash and roll it into one of the cash flowing plans.
- If you outsource, your after tax profits need to be able to support you.
Paper Assets in Retirement
- Once you are retired, your paper asset investment needs shift from growth to income.
- What does this really mean?
- If you can construct a portfolio that will be less volatile and throw off income, you can maintain your retirement as long as you need.
- Permanent Portfolio
- 60/40 stocks/bonds
- Bonds held for income
- Extra 1% – Covered Calls
Financial Needs in Retirment
- Kids are grown and gone
- Health costs will continue to rise
- New needs: long term care insurance
- Step 1: Bookkeeping
- Step 2: Review
- Step 3: Planning Ahead
- Step 4: Cutting Crap
- Once you have your budget dialed in, you can find ways to expand your budget.
- Side business
- Whatever it is, it needs to have net profit that can be used in the budget.