*****Caveat: I am neither a CPA nor an attorney. Contained within the Investing section of this website are my opinions as a business owner. You must consult qualified professionals BEFORE implementing any suggestions contained here. You, and only you, are responsible for the actions you take.*****
A few weeks ago, I came across a documentary by PBS entitled, “When I’m 65.” It addresses the issue of “saving” for retirement. I recommend that you view the video first – so that the remainder of this blog would make a lot better sense to you in response to the issues that are being raised.
At the very beginning, the narrator asks, “Are you saving enough? Are you saving at all?” I did not care for this line of questioning but, chances are, it is NOT for the reason you’re thinking. Then one of the interviewees clarified the core of the issue; “your future paycheck.” Although I’m pretty sure she, too, is an advocate for “saving for retirement,” I give her an A+ for the phraseology that hit the nail on the head.
To those of us who chose to invest (instead of save) for our future, “securing” your future paycheck has a completely different connotation than “saving” for it. Let me be blunt. “Saving” implies you are entrusting your hard-earned money to a number of other human factors for which you have no control. Been there, done that, lost a bundle and, as you probably guessed it, NEVER going back there again.
How do you secure your future paycheck? This very issue has been the focus of every fiber of my being since the dot-com bubble burst in 1999-2000. As most of you already know, because of the way my “savings” were cut not just in half but more like down to one quarter, I have zero interest in “saving” for retirement by relying on someone else to manage my money. So, what’s the solution?
This is where I beg to differ from what the documentary recommends, which is to basically stay the course and keep on saving through 401(k). Instead, I would recommend that you start giving yourself a solid financial education on how best to invest your hard-earned money. The younger you start, the better.
In my humble opinion, this solution is the first step to start figuring out – for yourself – how best to secure an inflation-adjusted, steady passive income for as long as you live. The key phrases are (1) “inflation adjusted” and (2) “passive income.” If you heed this one piece of advice today and begin to invest for your own future, you will thank me long after I’m gone. You’re welcome.
In my case, perhaps because of the late-in-life start in addressing the issue, I could not think of too many options other than owning rental properties, bought at the right price. Having multiple, cash-flowing rental properties will eliminate the need to worry about “running out of retirement funds” no matter how long you live. In the event of a hyperinflation, your “savings” will dwindle fast. In contrast, your rental revenues will go up in line with the rate of inflation.
If your choice is to accumulate rental properties, you start with one property and learn everything you can from it. From the start, each property must cash flow positively with a minimum of 15% return on investment, net of all expenses. When you successfully prove that you have achieved this with your very first property, then you are ready to ramp up your business by accumulating more. (I wish I had me as an advisor when I started. Oh, well…)
The business of real estate gives you several different ways to make money. None of the other methods, however, gives you the luxury of a stream of “passive income” that rental properties do. Why is “passive income” so important? Remember, we need to make sure that you have revenues coming in with or without you having to work to get it. It addresses such concerns as, “What if I become incapacitated?” Cultivating an excellent property-management company, who gets the job done on your behalf, is an essential part of successfully executing your rental business that generates “passive income” month in and month out.
Here is a valuable quote from Tom Wheelwright, CPA, and author of “Tax-Free Wealth.” “Very simply, passive income is income that comes from dividends, rents, and business. It’s taxed at a much lower rate than earned income, which comes from appreciation and capital gains, or from your paycheck. In order to become a super investor, you must find good, cash-flowing investments that produce passive income.”
Happy investing!
