You Have About 20 Good Years Left

“You have about 20 good years left”

This is what a good friend of mine said to me about 3 or 4 years ago when I was about 41 or 42. This statement sticks with me because it is so true, and often, the truth hurts.

Many people, like me, put up with a situation they are not happy with just because it is difficult to make major changes and also the fear of what those changes might bring. They figure it is better to just suck it up and continue on their path in the hopes that things will get better.  People that are 40 or so think they have another 40 or 50 years to make those changes or follow those passions.  They think they will take care of all the pent up desires or projects after they retire and have the time to do it. The sad reality is that those things you want to do now either will not be possible when you are 60 or older. Even if you can still do them to a certain extent, it won’t give you nearly the satisfaction that you will get if you do them now.  So if you are around 40, you really only have 20 years to change, accomplish, or experience what you want. Don’t wake up when you are 60 and still be in an unhappy situation or have a long bucket list of things you wanted to do that now you don’t have the desire or energy to do.

Hey, I’m 60, are you saying my life is over?

I don’t want to offend anybody close to or over 60, and I’m sure some of those people will take exception to what I’m saying. They might argue that they can still do the things they did when they were 40 or even 30. Also, the commercials on TV tell you that all you need to do is drink their chocolate flavored supplement drink and you will be playing basketball with your grandkids, hiking that mountain trail, riding through the desert in a 1950’s convertible top down with your buddy of the same vintage, or just throwing a football through a tire hanging from a rope on a tree (whatever the hell that’s supposed to mean). Yes, you can probably still do some of those things above 60, but the effort it takes may be more than the enjoyment you get from it. I don’t plan on giving up on life when I’m 60, but I expect that I will slow down and do things that are less taxing on my body and my energy.

 

Here are some things you can’t put off until after you retire:

Spending more time with your kids and family instead of spending more time at work. Your kids will never be the same age again, but there will always be more hours to work.

Traveling to see the world as it is today. Also, experiencing travel through younger eyes will be totally different than doing it when you are older.

Moving or changing jobs. If you don’t like where you are or where you work, 20 years from now it will be that much worse and you will regret not doing something about it.

Doing anything physically demanding like hiking, swimming, running, cycling or even competing in races. If you don’t do it now, it is even harder and less likely you will do it later.

Start a project, renovate a house, start a business. These all get harder to do, the older you get.

Getting into a new relationship or getting out of one where you are not happy. You only get one life, don’t wake up at 60 and realize you are not happy in your relationship. If you are not happy, your partner is probably not happy either.

This sounds like one of those “quit your job and sail into the sunset” kinds of articles. What about accomplishing something or leaving my mark on society?

Technology will advance and progress will be made in society with or without you. The desire to make the world a better place or have the world remember your name is really a rich person problem. Most people in the world are worried about keeping a roof over their head, feeding their families and not getting killed in a war.  People in some of the richer countries have the opportunity or luxury of even being able to consider retiring, let alone retiring early. The truth is most people’s jobs aren’t that important. Increasing your company’s toothpaste sales by 5% or getting an award for “Best New Stapler Design” is not really important in the grand scheme of things. Even if you think you might be the next Thomas Edison or Henry Ford, last time I checked, they are still dead.

I have about 15 good years left, how many do you have and what are you going to do with them?

A Cautionary Tale of “Safe”, Blue Chip, Dividend Stocks…..In Greece

Everywhere you look these days, the advice given on what to do with your money is to just buy stocks in general, and dividend stocks in particular. I agree with the idea of buying the stocks of companies that actually give you a portion of their earnings every quarter. What I don’t agree with is the idea that any time is a great time to put all your money in these stocks. They say just close your eyes and buy the index of big, safe, blue chip stocks and you will beat the performance of 90% off all the teams of money managers out there forever. Can it really be this easy?

Here is what happened to one investor who tried to do this in Greece:

I was visiting Greece a few weeks ago and was talking with a relative of a relative of mine. I don’t want to give any identifying details on this person but I will give you an idea of what kind of person this is. This man, I will call him Manos, is over 85 years old and is still very active and sharp as a whip. He has had a long impressive career as a medical specialist for a few years in the US and many more in one of the top hospitals in Athens. He has a very nice family, wife, kids, grandkids, and enjoys spending time with them.  As a doctor in Greece, he made a good salary for Greece although I don’t know the details. What he did tell me was about his investment a few years ago of his retirement money into Greek stocks. Manos was not buying risky penny stocks or companies with no earnings. He bought the stocks of the biggest banks in Greece that paid what he thought to be solid, safe dividends that he can rely on in his retirement.

Most people don’t follow the Greek stock market but know from the news that Greece has a lot of economic problems. So how bad are their problems? I don’t know exactly, but I know that they are bad enough that virtually all the bank stocks that Manos bought are down 95% or more. One of the bank stocks he mentioned went from around 40 Euros to about 0.13 Euros. He started with over 300,000 Euros and now has less than 10,000 Euros. How does someone, let alone someone in his eighties, come back from that loss? The short answer is that you can’t.

In 2007 the index was above 5000. In 2016 the index was below 500. A 90% decline.In 2007 the Greek Stock Market (ASE) index was above 5000. In 2016 the index was below 500. A 90% decline.

 

Poor Manos, but that is Greece.  It can’t happen in the US right?

Yes and No. The US is in a different situation from Greece with respect to printing our own currency. As far as having companies that go bankrupt when the economy turns bad, we are in the same boat. Investors that came of age and into investing in the last 8 or so years have only seen a rising stock market.  People have a short memory. How many people remember that Citibank today is really about 90% lower than where it was before the financial crisis? How can that be? Citibank is trading around $40 a share. Yes, that is after they had a 10 for 1 reverse split.  And in case you don’t know what a reverse split is, it is like Photoshop for ugly stocks.

CITIGROUPIn 2007 Citigroup was above $500. In 2016 it is $44. An over 90% decline.

Bank of America

In 2007 Bank of America was above $50. By 2009 it fell below $5. Another 90% decline. Today’s price is still down over 65% from the 2007 high.

     So what are you suppose to do, never buy stocks and just live in an underground bunker with 30 years worth of lentil beans?  No, but don’t put every dime of your resources into stocks at nosebleed levels when everyone is chasing yield and piling into anything with a 2% or better yield and a downside risk of 30-50%. Go and buy some low fee ETFs or like Vanguard’s VT or VTI or something similar. But also have money in other things like some real estate, precious metals, and cash. If you are loaded up to your eyeballs in stocks, when they fall (and they will), not only will you not have money to buy them much cheaper, but you will most likely be selling at the bottom. It’s human nature.

 

When Is The Optimal Time To Retire Early?

Most financial advisers tell you that the optimal time to retire is some time after 65 depending on how much money you have saved for retirement. To me, the optimal time to retire is way before that. So when should you retire?

The short answer is as soon as possible. Of course it depends on a lot of things including your family situation, future obligations, health, and how comfortable you are with the unknown. There are a lot of variables and what works for one person obviously does not work for everyone. That doesn’t mean you can’t take a specific case and tweak it to work for you. I’m going to use the example of my situation because that is the example I know best.

Let’s make some assumptions:

I am a single male with no kids therefore I don’t really care if I have any money left when I die to leave to any relatives.

Assume a life expectancy of 75 years old.

Assume you will not receive any Social Security.

Assume no debilitating health bills.

To compensate for unseen contingencies, we will assume that the money you have when you retire will equal your yearly expenses times the years until you are 75. In other words, if you retire at 45 and your living expenses that year are $25,000, then you need 30 x $25,000 = $750,000 to retire. I am not including the growth in your investments or the increase in your living expenses due to inflation.  In reality, if you have $750,000 today and only assume a 4% growth rate in your investments, while assuming a 3% yearly growth rate in your living expenses, you will still have about $350,000 at the end of 30 years.

First let’s see what a typical worker’s lifetime of work, retirement and savings looks like if they follow the path of pretty much spending what they make and probably only saving in a 401K account:

The Typical Worker’s Retirement And Savings Rate.

As you can see, they probably have about 5 years of living expenses by the time they retire at 65. They might get a small pension and Social Security and this covers a 10 year retirement. For some people this is fine.

 

Now let’s see the different retirement scenarios for people who start saving, investing early, and actively live below their means:

This Is A Person That Saves And Invests But Never Retires.
This Is A Person That Saves And Invests But Never Retires.

This is not a bad outcome if you love your job or career so much that you couldn’t imagine doing anything else with your time. The bad part is that you saved way too much money so you died with a fortune. It’s kind of like how all the money goes back to the bank when you finish playing Monopoly. Thanks for playing.

 

This Is A Person That Saves And Invests And Retires At 65.
This Is A Person That Saves And Invests And Retires At 65.

This person has about 10 years of retirement just like the person in the first graph who didn’t save much, yet also retired at 65. The only difference is that this person dies with way too much money left.

 

 

This Is A Person That Saves And Invests And Retires At 45.
This Is A Person That Saves And Invests And Retires At 45.

This person retires at 45 and still has a lot of good years left to do the things they want to do without being too old or tired to try if they were much older. They will die broke or almost broke but who cares?

 

These are obviously very simplified examples, but the point is that you really can retire early if you are serious about it and plan for it. There is nothing noble about ending up with a lot of money when you die, especially if it comes at the cost of working many extra years unnecessarily.

I have been guilty of this myself. I wanted to quit my job years earlier, but my cautious nature always kicked in and said to me “Every year you stay at work, you’re saving about two years of living expenses.”. The truth is that I never made the decision to leave, they made it for me. I think they did me a huge favor.

 

 

 

 

 

 

Welcome

Welcome to Maximize Freedom

          What is the maximum freedom someone can have? Freedom means different things to different people. It also depends on your age and your situation in life. If you are 10 years old, your idea of maximum freedom may be to stay home from school, play video games and eat ice cream all day, every day. If you are an adult, it may mean not having to work for someone else, or just being able to do what you want, when you want. For someone with kids, it may mean being able to home school them. Some people may consider freedom to be working 60 hour weeks in a job they love. I’m not one of those people.

A little about me

          My name is Nick and I am 45 years old and currently live in the Tampa, FL area. I moved here almost 2 years ago from NJ and was laid off from my job in May 2015. My background is in engineering and finance. I consider myself financially independent, not because I am rich, but because I have been planning for this for a number of years. It also helps that I am single, have no kids, and have learned to enjoy a simple lifestyle. I like to travel and may consider moving abroad in the near future.

So what will I do in this blog?

          I intend to write articles that help people and maybe make them think of things from a different perspective.  I like simplicity, efficiency, minimalism and not wasting time. This blog will differ from the other blogs because I do not follow the belief that anytime is a great time to throw all your money into an index fund and it will all work out great in the long run. I also believe in diversifying not just within your stock portfolio, but with assets physically in other countries.

What I won’t do in this blog

         I will not pretend to have all the answers all the time. There will be no vague low information articles just to get you to buy some overpriced e-book with the “secret information they don’t want you to know”.  You won’t see a cliché article telling you how cutting out Starbucks every day will put you on the road to riches in no time. Also, there will definitely not be a “Top 20 list” article with a 20 page slideshow with a stock photo and one sentence on each page.  In other words, I don’t want people to feel like they wasted their time after reading my articles.

I hope you stick around for my future articles.

Nick