Are you awake to see opportunities?
Why is it that some people have the knack to see an opportunity and seize it, and others just watch them pass by?
First, let me say this. I hate the word ‘retirement’. I think our social mantra of working for 40 years has turned the act of choosing not to be employed to be misunderstood, and the term ‘retirement’ has become the end game for those enslaved in employment. I don’t see it that way, but I have to use a term that people seem to understand. Regardless of your age, the choice to leave the 9-5 world and become your own person again can be scary and threatening, so in this episode I want to explore the process of leaving the workforce safely.
Let’s change the the term ‘retirement’ to ‘unconstrained’
Let’s also recognize the average life expectancy in the USA as for 2018 (according to CDC numbers) are 78.7 years for a male and 81.1 years for a female. But these numbers have been reduced significantly since then due to COVID, opiod epidemic, etc. and those numbers are more likely about 3 years shorter now.
Social mantra has taught you that you need to have 40+ years of work before you deserve to be unconstrained. I 100% disagree with that, and I’m living proof that you don’t.
Life has 4 quarters:
1. Emergence & Growth
2. The Building phase
3. The optimization phase
4. Senior years
This is your physical and emotional life journey. Your financial life doesn’t have to follow this.
It is about numbers, but not the numbers you probably think.
If I read another article that comes up when you Google “How much do I need to retire”, when the first couple of paragraphs start with ‘a study from X states that Y% of Americans don’t have enough saved to retire’. But when you eventually dig down the general consensus is $1.5-2 million.
Great. Who has that? Certainly not most working Americans. In fact, according to CNBC, 28% of Americans in their 60s have less than $100K in their retirement savings.
So other than crawling into the corner of the room in a depressed state, how is it that so many still retire?
The general theory is that your retirement comes from three sources of income:
1. Social Security
2. Pensions (if you are luck to have one)
3. IRAs/401K/Other savings
First, Social security can’t be drawn from until you are 62, and at that rate it isn’t much. Most will draw it at 65. That means that if it represents a core part of their income stream (average is about $1500 a month), then most will delay retirement until 65. This also follows Medicare eligibility, since health care premiums are the single largest line item on the expenses for most Americans and they need the employer to provide it.
That means you are constrained until 65, if you buy into this crap.
Let’s also make an obvious but anxiety enducing statement – you are trying to let your physical & emotional life journey be directed by your financial journey. Let’s get real here – money has no right to define your life. Firstly, it can’t – if you are getting old, that’s the normal process of entropy in the universe. Money doesn’t define that, so to have it give you some arbitrary age that you have to leave the workforce, is stupid. What if you get sick 10 years prior? What if you can’t do the hard labor that your job has been about when your hip or back goes out? You are not a machine that can run endlessly, so why make the assumption that your physical journey has to meet some financial goals? What right does economics have to determine the quality and longevity of your working life?
And what if you don’t want to work anymore?
That’s kinda what happened to me. I love technology. I’ve been a technologist since I was a kid, and I’ve worked professionally in the computer industry since 1978. I’ve seen the advancements of invention and helped guide people through their embracement. But when I started to see technology defining the human experience, rather than humans defining it, I didn’t want to support it anymore. Well that philosophical observation and my decision to change what I did came at a cost. When you have been earning $250K per year on technology for decades, and you go from that to $0 – well, it hurts a bit. The clients continued to tempt me back into technology, kinda like that old scene in The Godfather, Part 3, where Al Pacino says…. <insert>
What exactly are we trying to do here? Simple. Get a regular stream of income without having to work to get it.
We call that financial sustainability, and as I have taught you can become financially unconstrained once your Smart income reaches 150% of your burn rate.
It is all about math.
If you understand this, then you don’t have to subscribe to the social mantra.
But so many make the transition incorrectly. They assume that what they have done all of their working life meant nothing – they want to NOT do that ever again. That’s kinda like saying, “I am a human being, but I choose to no longer be one”. This is naïve and dangerous.
So many studies show that those that work until the age of 65, have a massive stress placed on them once they make the jump into retirement. Because they are poorly prepared for it, and it isn’t about the money. It is about the emotional journey that they are on.
You see, what you mentally get up every single day for 40 years telling yourself is who you are – what you embrace as a mission for your life…. Well that doesn’t go away easily. You might have some illusion that you can “retire early” and go live on a beach in Costa Rica, but you can’t avoid getting up every morning, looking at yourself in the mirror and dealing with the void that is there. The void that used to be filled with who you are based on what you chose to define yourself as. If your employer filled that void for you, then you now have the responsibility to fill it yourself.
Sure, you can say, “Well if I had all this time to myself now, I will do x with it.”. But have you ever tested that? Have you lived in those shoes before? What if X sounds great on the surface, but it won’t replace 8 hours per day of labor that used to be disciplined with the boss looking down on you, or the bank wanting the mortgage payment each month. When that discipline goes away, do you have the self-discipline to replace it?
And what if your math is wrong. What if you calculated that you had enough money, but you never factored in that cost are going up faster than your investment dividends.
So many don’t have the emotional skills to handle the transaction, nor the financial acumen to understand macro-economics and inflation. The FIRE movement sells a great dream to those stuck in some dead-end job and wanting to get out, but they don’t tell the nightmare story of the transition:
1. There is no protection for inflation
2. It (currently) requires investments in relatively high risk areas (ie. Stock market) in order to generate enough returns
3. It doesn’t speak to why people work in the first place
80% of the reason most people work is for ego and a sense of fulfilment from their activities.
Take that away, and you have the recipe for an early grave. You see “work” is in our human DNA.
But the entire process of becoming unconstrained has to be considered in parallel with what quarter of life you are living in.
I believe that unless you are in Qtr 3 or later, you have no business ‘retiring’. You should, however, consider that you are still able to take risks, progress, grow and speculate/invest in your future. Because you have a long future ahead.
That doesn’t mean you need a boss to do it.
But it does mean that if you think that the FIRE process means quitting your job, and sitting on the couch playing Xbox all day, then you are mistaken and you have not earned the right to not be employed.
Consider that your social interaction with other people often came through your work. Well that is gone now. You can’t hang out with friends when they have jobs all the time, so you are now lonely. Who do you replace that interaction with? Is it other retirees? Sure, that’s fine if you are in your 60s or so, as there is an abundance of others at that age. But what if you are in your 30s or 40s? Do you sit around all day, driving your spouse crazy, or do you find some way to fill the social void?
What do most end up doing? After they get through the honeymoon period of being free (travel the world, etc.) they seek out alternative missions in their lives. That is healthy, but in a capitalistic world, that requires capital. You can’t start any new venture (whether it is a passion project or a business project) without some startup capital. And that means you are eating into your savings.
And if you choose not to have a mission, then you are outcast from the social mantra. You have become lazy, and you run the risk of physical breakdown. It is what happened to my father, and if you embrace the Boeing study, what happens to the majority of their retiring workforce after the age of 65.
If you have a mission, and you need to be free to pursue it, then you have my blessing though.
And that’s really the key thing that has to be considered before you quit your job because you made a lot of money on the stock market and think you are eligible to leave the social mantra.
You are reliant on the social mantra. You can’t just quit it.
It is hard, it is scary and you better have something ready to replace your 40+ hour work days, or you will drive everyone around you crazy. Sure, you might have money, but you went (in their minds) from being “gainfully employed” to being a slouch – a loser.
Now I want to also state that if you are in Qtr 3 or Qtr 4 of your life, you have the right (in fact I would suggest you have the responsibility) to slow things down a bit. You don’t need to be working like someone in their 20s. What’s the point? If you do what you enjoy, you don’t have to do it for 40+ hours a week to get the enjoyment. At some point it becomes a burden and you don’t enjoy it anymore. Better to scale it back gradually so you don’t lose what you enjoy, because you will want that later.
How many of those who were forced into retirement are sad afterwards? They feel unwanted, and unable to be of value. You can’t afford to slump into that. You need to keep yourself valuable.
But let’s get back to the math part.
You need income that comes in regardless of what you do, that can meet or exceed your expenses. The income and the expenses are variable. They are not fixed.
If you fix one, and the other is not, you run the risk of having a monthly net loss which you have little resources to cover for.
This is where I recently watched a really interesting YouTube video from a guy who worked for his working career as a Federal Law Enforcement officer, and at the age of 52, retired with a pension. He explained his journey through this, and it is really interesting. I will link to his video in the show notes.
He relied entirely on the combination of a pension, his social security and some savings, to get through this. Yet his pension only represented about $1500 a month of income. He was too young to get social security, so he had to find a way to survive while he transitioned through this.
And what made matters worse, was that a few years after he retired, he was diagnosed with brain cancer. This guy is a rock star though – he fought and beat it. But imagine the medical expenses. Even with insurance or govt. funded healthcare, he would still be out of pocket at least $10K per year to cover additional costs, co-pays, deductibles, etc.
Yet he found a solution to all of this. And a new mission in life.
You see, it doesn’t matter if you are 65, 60, 55, or 52 like this guy, or in your 30s or 40s…. If you choose to leave the workforce where you were generating income every month, and rely on that income being replaced, it usually won’t be anywhere near what you think it will.
And the earlier in life that you elect to do this, the higher the risk factor of things that go on you never expected to happen.
Some of us find peace in the idea that a counter party will have our backs. That our math calculations are based on the goodwill of our employer pension fund, or the government paying social security, or the stock market shining positively on our investments. Yet we all know, deep down, that none of these entities give a crap about us.
They are offering these incentives to keep us working. To keep us on the treadmill as long as possible. “Just keep working, because after X years or service, you will be eligible for the pension”. Yet so many that subscribe to this illusion find themselves disappointed when the pension program is shut down, or it doesn’t pay anywhere near enough to have a decent lifestyle. Or when we assume that we are not responsible for our future, so we defer that to the govt social security program – a program that openly states that it shouldn’t be used for more than 30% of your income needs.
Or that you put all your money in the stock market, because some confident, smart investment adviser told you that the stock market always goes up, only to find that the economy goes into the natural recessions that it does 50% of the time, and now your money isn’t earning more than the cost of living. Or that you come face to face that the government & central banks have been lying to you for years about what the rate of inflation is, but the true rate is more like 8-10% and your investments are returning 6%. So over time, your money is worth less and less and your expenses are ever increasing, and you have no way to hedge your investments against the long term risk of currency devaluation.
What’s the answer?
Well society will tell you that you have to reduce your standard of living when you retire. Do you want to do that? You’ve been living the high life all your days, and now you are expected to reduce your standard of living? To what? Maybe you are part of the 78% pay check to pay check crowd that has enough trouble getting through the month while you are working. What if you take a 50% cut in income?
Those people realize they can’t retire, and continue working as their life expectancy age decreases.
But those that find a way to exist on a lower standard of living can get through. It isn’t easy though. They have to change habits. The idea of taking your family out for dinner as a social interaction, isn’t viable anymore unless the kids pay for it. The idea of the vacations all the time comes with the burden of working out how to pay for them. You ration things. You cut back and those become “special occasions” rather than a routine part of your world. You learn to say “NO” when in the past you never said that – you just found a way to pay for something. Put it on the credit card now, but you could pay that off later.
You can’t do that when you retire.
Look, if you are in your 70s and your desire to travel, socialize at restaurants, etc. has left you, then you will spend less. But consider that if you find yourself infirmed and your spouse or family cannot look after you, the costs of nursing care, retirement homes, etc. will likely steal all of your assets from you. If you are in such poor shape, you probably don’t care anymore about money. Maybe the govt will step in and help fund it. But that’s not the endpoint goal you are seeking, right?
What am I doing?
I’m 56 years old as I record this. I stopped working when I was about 50. I didn’t call it retirement. But I did transition entirely to generating my income as “smart income”. That means that when I recognized revenue in my personal finances, I only recognized revenue that took less than 5% of my time to generate it.
That was by design. I needed to find a way to have all my time, and yet still make my income. I worked out a formula that said that if I can get a handle on my expenses – my burn rate, and I could budget a number that was frugal, but decent – a number that represented a standard of living I wanted to maintain, then I just had to generate my smart income to 150% of that number.
That’s it. I didn’t rely on counter parties for my income, and I diversified it so that if one source failed, I had others to cover me. I used rental real estate income as the cornerstone of this strategy, but offset it with digital income from hosting services for customers, web applications that generated subscription revenue, commissions from work done in the past, dividends from stocks, annuities, etc.
This diversification worked – it got me through economic ups and downs and because I used rental real estate as my core strategy, the rents adjusted for inflation, and the asset value of the property continued to increase. This meant that if I needed to liquidate and sell the assets, I could and would come out with cash.
But with all of this in place, I still track my budget numbers every month. Sure, on paper I’m worth multiple millions. But that is irrelevant because in order to realize that money, I have to liquidate my assets which means no ongoing stream of income anymore. Those that flex on YouTube with the Lambos, private jets, etc. telling you that if you buy their course, you too can have all this wealth, are generally lying through their teeth to you, and don’t tell you anything about the day to day costs of living over the course of your life. They have no long term strategy – they only want you to live the rock star or rapper lifestyle, until your short term life runs out, or your money, or both.
That’s not viable. What is viable is a strategy that is a whole life strategy. Something that covers all quarters of your life and adjusts accordingly.
With all of this though, there is the costs of living. That’s a big deal – particularly when your income is consistent, but not likely to get the big windfalls that you might have had in your working life. Why? Because you were in a position before that you could afford to take risks. You would bet on something, and although more often than not it didn’t work, you could afford to take the loss. When it did work, you got a boost.
You can’t afford those sorts of risks when you are on a fixed income for your latter years. You get conservative and you get protective. You philosophically start to align with more conservative values, because they are now the mast that you embrace on the ship. This is why most older folks skew more conservative in their politics than the younger, who are more progressive. Because progress only happens when you take risks, and you need years ahead of you to counter the “what if it all goes wrong” risk because you can recover from that. A 65 year old cannot.
But let me get back to my strategy.
Originally, my wife & I (and this was 20 years ago) thought that we would live and work in the United States because this is where the “action is”, particularly in my industry of computer technology. I couldn’t have done the things that I have done in my home country of Australia.
And yet that is where we are both from. The idea was that we would raise our daughter, and milk the US economics for everything we could, save up our money and then one day, return back to our home country to retire. The govt social security of the US & Australia together would give us more than enough to live, and we could retire into the sunset there. In a place that was known, comfortable and we could adjust back to.
Well that didn’t work out. Australia, that used to be 50% of the cost of living to the USA, turned the opposite direction. The lure of ongoing Chinese income from exports made the Australian economy buoyant and with that, more people took on more and more debt in their lives. At one point, the average debt to income ratio in Australia was 200:1, meaning that people were shouldering 200x their income in long term debt obligations. And the biggest one of these was real estate.
Property prices doubled, then doubled again. A small bungalow house in the Sydney suburbs was now $1.5 million, and the value of the $AUD at one point exceeded the Forex value of the $USD. Wages went up and up, based on the demand in the mining sectors, so that the average miner was earning $150K per year for manual labor. Until the robots started to replace them.
Meanwhile the supporting industries (like trucking, etc.) all saw wage inflation. In order to meet the labor requirements, immigration was opened up, that saw that the population diversity changed, where 1 in 4 of the people there were from Asia. The govt never invested back in building bigger cities, better roads, rail, airports, etc. meaning that the population swelled and broke the infrastructure of the cities. Everything was congested and people were forced to move out of their homes to the outskirts in order to have any sign of some land. And with that, new mortgages for more expensive housing, etc.
This all worked until China no longer wanted Australian exports. When the government, around 2015, started to criticize the Chinese communist party for their actions on human rights, etc. and eventually through to 2020 when they openly called for investigations to the origins of the Coronavirus, the Chinese completely dropped Australia for exports. The result was that the music stopped and few people could find a chair.
Yet rather than a crash in the housing sector, govt stimulus kept it going and actually increasing ever more. The costs kept going up and up.
And so when we realized this was all in play, my wife & I realized the truth – we can never return home.
Imagine that. Imagine that your future plans for your “golden years” are destroyed. Not because of anything you did – you worked hard, you were responsible, you saved, you became financially sustainable. Yet you can’t go home now.
On top of that, our daughter is American. She will likely want to craft her own life story in America. Just as I did. I can’t deny her that.
The thing is that we had to find a way to become sustainable here. We did – hence my teachings on financial sustainability. I mean I’ve done very well here. Sure, a lot of that in the earlier years came from technology, but the bulk of it was built on smart income assets – particularly rental real estate.
Meanwhile though, costs are going up and up. I’ve seen, first hand, how that worked in Australia. When you think you are on a good thing – that the economy is booming and it can never go down, then you feel you have the right to buy the bigger house, get the nice cars, upgrade your appliances, etc. You can afford to shoulder more debt. Australians did that. It didn’t end well though.
And that’s my fear here. I don’t believe that this govt stimulus that has pumped trillions into the economy to keep it afloat can work long term. That the inflation that comes from pumping more money into the money supply can be a long term strategy that won’t have a backlash effect. That’s kinda what happened in Australia.
If the costs (which are high to begin with) in the day to day expenses in the USA continue going up, there will come a time when my income has to go up in parallel with it. Thankfully rental real estate dividends (the rents) do go up with inflation, but I’ve lived through times when it didn’t. Employment is the biggest driver for this, so if we find ourselves in some economic pinch, and it reflects poorly on employment numbers, then we are SOL.
And so we have a plan B.
Since my wife & I were planning on returning to Australia, and now we can’t, the ability for us to move to a foreign country is still open to us. And since our daughter is here in the USA, we wanted to be close to her. At least within a couple of hours flight to where she is. This is not uncommon where parents who raise their kids find that their kids move to another state or city to work and build their lives, but they stay behind in the family home.
Well we also wanted to find a place that had a much lower cost of living, and an upward economy but was not based on debt. Where things are done with cash, to remove the risk of debt load.
More importantly, though, we wanted to find a country that had a social infrastructure that supported the elders. Where elder care was natural and embraced. Where family mattered and where the things that really make us better humans are embraced – good friends, good food, healthy living. And that the costs of preventative and elective healthcare was affordable. If you had some adverse event in your life, you could afford to cover it.
That’s why we are investing in Mexico. This includes buying property there and also to get our immigration status locked down. For all members of my family. From my wife & I, to our daughter too. That way she has safe haven should she need to get out from America. I’m not saying that she has to, or even that we have to, but without a plan B, there isn’t anyway to diversify the risks here.
We will take our time to transition, and we will do this over the course of years. But it is a strategy that I believe will work for us. That will give us the benefit of international diversification and yet doesn’t force the issue. Yes, there will be times when my income reduces and when that happens, it may accelerate the process of moving to Mexico.
Right now, a couple can live on a high quality of life (not the “you must drop your standard of living to retire” mantra that is in the USA), for about $2500 a month in Mexico – at least where we are moving to. Most will tell you that they could do it for $1500 a month, but we like to go out to eat, do things, etc. so budget accordingly. But try doing that in the USA. In Phoenix, the same quality of life with all the costs of healthcare, insurances, taxes, accounting fees, maintenance costs, etc. will likely be 2-3x what Mexico costs are.
The risks associated with financial extortion in the USA are high – particularly with government taxes, legal compliance costs and banking charges. Those things go away in Mexico. Not only do we get a much lower cost of living, but if we continue to generate income in the USA, we can claim up to $100K of foreign earned income exclusion from taxes. That basically means that if we do this correctly, there won’t be any meaningful taxes due.
The Internet is high quality – often fiber optic and even this week Elon Musk’s Starlink program announced satellite Internet will now be servicing Mexico as well as the USA.
Where we intend to live is within a 45 minute car trip to a Costco, Home Depots, even an Apple store. I can get access to all the resources that I have been needing in the USA, and with each year that goes by, the expansion of Amazon into Mexico has turned the waiting time to get things down to days rather than weeks. Sure, you probably won’t get same day delivery on Prime, but really…. Do you need that?
And we are a 3 hour flight away from Phoenix.
The biggest obstacle is being away from our daughter, so we will transition on her schedule – not ours. We will let her organically work out what she wants to do with her life, where she wants to do it, etc. without forcing the issue. We even have given her the gift of a residence VISA in Mexico, should she wish to use it. The economy there needs talented people – particularly as the USA moves away from China for manufacturing, and the benefits of a strong association with Mexico are very strong.
Now this is my family’s strategy. It may not be yours.
But what can you summarize from all of this?
1. You need to generate income from not working. Financial sustainability is key, and your income must be tied to inflation proof sources. Rental real estate is a core part of that (for us).
2. You have to realize that the social mantra of retirement has failed us. It is on you to have a strategy that doesn’t rely on social security, pensions, etc. but has some way that you can counter the risks of a counter party letting you down.
3. The earlier you retire, the more risk you take on. Do it too early, and it will be an emotional adjustment that might be too hard to take. Do it too late, and you run the risk of physical health issues that come from the stress of adjustment.
4. You need a mission – something that you do, that you define yourself to want to get up in the morning to embrace. Failure to do that, and you won’t have a life worth living.
5. Things change. Don’t be too stubborn to adjust to change. When you have a strategy that doesn’t work, be able to pivot. And able to at any age. Just because you are older and more conservative, doesn’t mean you won’t have to pivot and make change a part of your life.
But the biggest take away here is that your habits – particularly the subtle and subconcious things that are fed to you every day at work, or on the news or that your financial advisor might be telling you, do not take into consideration the reality of life journey. They would prefer that you never leave the workforce at all, and they structure the social mantra around this. The illusion of retirement is the dangling carrot that is hung out in front of all of us donkeys to go after.
But when it comes time to leave the workforce, the true reality of whether you were sold a bill of goods for your retirement comes clear.
My advice…. Never retire at all. Find a way to earn your income without having to expend energy. Financial sustainability is a whole life strategy that works, and coupled with frugality in your early years, you can regain control of your life and your options.
Giving up control of all of this to a faith based mantra of retirement, isn’t working. Look at the numbers and realize that we are at massive risk here. We need to have a better solution for the future.
I hope my story here helps you understand how the quest to be unconstrained has empowered my ability to do this. Nothing is perfect, and everything needs constant monitoring and adjustment, but that’s really what our podcast and the Unconstrained movement is all about. Adjust as situations change, and be prepared to pivot. Constantly assess risk and constantly seek out opportunity.