How much do I need to retire?

When thinking about financial freedom and retirement, we often forget why we want to free up our time.

One of the best exercises is to create your ideal day and see how much it costs. 

Here’s mine:

  • 06:30 AM: Wake Up
  • 06:45 AM: Meditate
  • 07:15 AM: Read/Write
  • 08:00 AM: Take kids to school
  • 08:30 AM: Play golf
  • 12:15 PM: Workout with a friend
  • 01:30 PM: Picnic lunch with wife
  • 02:15 PM: Pickleball with wife/friends
  • 03:30 PM: Pick up kids from school
  • 03:45 PM: Snack/Homework Help
  • 04:30 PM: Play
  • 07:00 PM: Family Dinner
  • 07:45 PM: Build a Fire
  • 08:00 PM: Family Dessert (s’mores)
  • 10:00 PM: Fall asleep reading
determine how much it costs to have your ideal day 

For me, 11 of the 15 parts of the day are free. The remaining is $49:

  • Play golf: $35
  • Lunch: $5 (groceries)
  • Dinner: $8 (groceries)
  • Dessert: $1 (groceries) 

For me, a years worth of ideal days costs me $17,885 ($49×365).

The Equation

Add your annual ideal day cost to your:

  • Annual Living Expenses (mortgage, insurance, car payments, gas, taxes, etc.)
  • Annual Travel Budget (for the really ideal days)
  • Annual Savings (college fund, etc.)

Now you will have a good idea of how much you need per year in order to retire.

Now, multiple your yearly number by (100 – retirement age goal). This gives you the TOTAL amount needed, assuming you live until 100.

Now it Gets PErsonal

Congrats! You have your total amount needed in order to retire: the magic number!

This is where it becomes very circumstantial on when you can actually retire. It depends on your age, your health, passive income level, investment portfolio, risk tolerance, debt, among other factors.

Two people of the same age, who both have $6M as their magic number may be a decade (or more) apart on their ability to retire.

Don’t forget about your ideal day

It’s easy to get lost in the magic number. To get lost in spreadsheets and what-if’s.

Don’t forget your why. Don’t forget about your ideal day!

Is Cryptocurrency For Me?

Yes.

Currency is a figment of our collective imagination. The US Dollar – it’s just coins and pieces of paper that billions of people believe have value. The actual metal of the coin nor the paper of the bill have much, if any, value.

If currency is a figment of our collective imagination, why can’t a new currency take hold in our imagination?

Well, it’s already happening.

The top banks, leading investment firms and wealthy individuals across the world are starting to believe. The banks and firms are offering ways for their customers to invest and they, along with prominent individuals are investing in cryptocurrency themselves.

The next generation of wealth (Gen Z: birth between 1997-2015) are believers. They are the adults of tomorrow. The bank VPs. The creators of wealth. The transactors of currency.

If the banks believe. If the prominent individuals believe. If the future generation believes. What say you?

What is Cryptocurrency?

In its simplest form, it is internet money. No person, country, bank or entity owns it. Any person with an internet connection can acquire it.

Is there just one Currency?

There are over 5,000 different cryptocurrencies in the world. The most well-known is Bitcoin.

Where do I buy it?

There are 100’s of online “exchanges”, but the most notable are Coinbase, Bittrex, Binance and Gemini. Not every exchange has every coin, but they all have the most widely known coins (Bitcoin, Ethereum, etc.).

Why do people believe in Bitcoin?

Believers of Bitcoin typically focus on 3 key attributes: Decentralization, Efficiency, Trackability.

1. Decentralization

This is the biggest difference between fiat currency (like US Dollar) and Bitcoin. It means the banks don’t control it. A country doesn’t control it. The collective people do.

There’s a fixed supply. No one can print more Bitcoin.

2. Efficiency

The value of bitcoin is the same in South Africa as it is in the United States. No currency conversions needed. No boundaries to be concerned with. No middlemen doing the transaction. The coins can be transferred immediately over the internet with immediate audit-ability through the blockchain (the technology backing Bitcoin).

3. TRACKABILITY

All transactions made with bitcoin are recorded on a public ledger (blockchain). This ledger is constantly updated and is immutable. No one can “fake” the money because the ledger would deny its existence. Anyone who cares to know can find out how many bitcoin are in “circulation” at any given time.

How Risky is Cryptocurrency?

Every investment has risks. Cryptocurrency is a healthy risk.

If your portfolio only consists of some combination of index funds, cash and your house: you’re not risking enough.

If you’re under 40, you’re really not risking enough.

Why?

The younger you are, the more time you have to bounce back from a risk gone wrong. Opportunistically, the more time you have to enjoy a risk gone right.

The collective imagination of cryptocurrency is building.

What say you?

How to Turn $10k into $46k

So you have some money to invest into a stock portfolio. For argument sake, let’s say it’s $10,000. 

Where do you put it?

Simple answer:

  • 35% US Stock Index Fund
  • 35% International Stock Index Fund
  • 10% Small Cap Index Fund
  • 10% International Bond Index Fund
  • 10% US Bond Index Fund

Set it. Forget it. 

(Some people just want the answer and move on)

For those that want to know more detail:

Why Index Funds?

Funds are a grouping of stocks. Every fund has an ‘expense ratio’. It’s the fee that the fund charges to manage the fund. A low expense ratio is typically found in “Index Funds” and can be as low as .05%. A high expense ratio is typically found in “Mutual Funds” and can be as high as 1.25%. You should never have a need to go over .3% – meaning Index Funds are the way to go.

But, .3% is nothing, why should I care?

You know that $10,000? Let’s say you selected a .6% expense ratio vs a .10% ratio. In 25 years, you’ve thrown away $3,345, assuming average market return. 

$3,345! 

For just selecting a lower expense ratio. $3,345 for a single click – that’s a great return on a click!

Why no individual stocks?

Picking individual winning stocks is like picking the winning horse at Kentucky Derby. If you pick the right one, you can really make great money. 

It’s difficult to pick the winner. This is why index funds are the recommended approach. Sacrifice some upside and all but eliminate risk. 

Why 20% bonds and 80% stocks?

This asset mix is right in between aggressive and conservative. 

Bonds (20%) are a safer investment (read: low risk, low return). 

Stocks (80%) are a more risky investment (read: average risk, average return).

There is a definite relationship between risk and upside. The more risk you take on, the more upside you have. However, the more downside potential as well. 

If you want to be more risky (more upside), you could shift the mix to 90/10 or even 95/5. 

As stated above, the fact that we are investing in index funds makes the overall investments much less risky vs individual stocks. 

What if I already have investments in the stock market?

You need to balance your portfolio across all of your holdings.

  • Do you have a 401k?
  • Do you have a Roth IRA?
  • Do you have existing stocks/bonds?

If so, it’s time to apply your asset mix (the %’s above) to the entire portfolio. 

What return should I expect?

Nothing is guaranteed. Historical performance is no indication of future performance. 

With this asset mix, historically you would see a 5-8% return each year. Over 25 years, your $10,000 turns into $46,000. 

You spent 15 minutes setting up the account, don’t touch the money for 25 years, and you add $36,000 to your net worth. 

Where can I invest?

There are unlimited institutions that will happily accept your money. 

My top 2 recommendations would be Vanguard or Fidelity. Both offer low expense ratio index funds, have good apps to track your investments and are large institutions that will be around for the long haul. 

Conclusion

Investing doesn’t need to be rocket science. If you have funds you want to invest in the market – make it easy on yourself:

  • Setup an account
  • Deposit $
  • Determine your asset mix (i.e. 80/20)
  • Invest in the appropriate Index Funds
  • Leave it alone
  • Enjoy the returns in the long-run

Happy investing!

Finance Books

Rich Dad Poor Dad by Robert T. Kiyosaki

Quote: “The rich focus on their asset columns while everyone else focuses on their income statements.”

Takeaway: Build passive income streams so you’re no longer reliant on a 9-5.

The Next Millionaire Next Door by Thomas Stanley

Quote: “Income is what you bring home today. Wealth is what you have tomorrow. And the next day. And the next day.”

Takeaway: There is a big difference between income and net worth. You do not need a high income to become a millionaire. Those who consistently live below their means, are weary of consumerism, and automate savings will turn into millionaires.

Unconventional Wealth by Mike Conlon

Quote: “I know that money isn’t the only source of happiness, but I can tell you that money can get you one of the most important gifts we have in this life – freedom!”

Takeaway: Mike Conlon is a self-made millionaire. He has built a business that provides affordable housing options for many Americans who need it. Mike’s enthusiasm for the industry and for wanting everyone to see that it’s possible comes through in this book.

The Four Pillars of Investing by William J. Bernstein

Quote: “With relatively little effort, you can design and assemble an investment portfolio that will prove superior to most professionally managed accounts.”

Takeaway: If you’re going to invest your hard-earned dollars in the stock market, you don’t need to know much. You don’t even need a financial advisor. Define your portfolio mix (domestic/foreign, stocks/bonds, small cap/large cap), get started and let it grow.

Principles

It’s one thing to have principles. It’s another to write them down.

Here are our principles:

Parenting

  1. Love them openly
  2. Let them slam their finger in the drawer
  3. Lead by example

Finance

  1. Live below your means
  2. Know the value of your time
  3. Take risks

Health

  1. Everything in moderation
  2. Earn your junk food
  3. Take the stairs

Relationships

  1. Be present when together
  2. If you think of them, tell them

Sports

  1. Try
  2. Learn from losing
  3. Do the little things

Life

  1. Guard your calendar
  2. Smile
  3. Say yes more than no

What are your principles?