Don’t Do Retirement Planning the Hard Way - Deploying Your Money (2024)

by Nyiko Mongwe | Mar 6, 2019 | Financial Freedom, Retirement Planning | 0 comments

Most people go to school, so that they can get a job, so that they can work and pay off a mortgage, then live off the retirement savings that they spent their entire careers trying to build up. Does this sound familiar to you? Is this the path that you are on?

I wish I could say that the path that I just described is the path that the unskilled or uneducated often take, but this is,in fact, a description much more akin to that of a professional. Let’s won’t even get into what this path may look like for non-professionals who generally don’t profit from wonderful remuneration packages with corporate benefits.

You can probably gather from my tone that this path is not a path that I am particularly excited about. If you were to assess this formula, you would notice that only one financial technique is employed here, namely: saving. Is this the only way to create wealth though? Even then, if your only action was to work to earn money and put that money away, could you really say that you created this wealth?

If you were to Google “World’s Biggest Companies that Started in a Garage”, you would find the following companies listed:

• Amazon
• Microsoft
• Disney
• Apple
• Google
• Harley Davidson
• Hewlett Packard
• Mattel
• Dell
• Nike

Many of these are not just listed on the stock exchange but form a part of the Dow Jones. This means they are MASSIVE. All of these companies have a global reach, yet they were started in various garages of homes.

I know you are probably reading this, thinking:

“But I am not an entrepreneur. What does this have to do with me?”

Since you are reading this blog post right now, I assume you are serious about your finances and do a lot of reading to this end. You have probably seen a couple of infographics that postulate an ideal amount to have saved up in your retirement funding by the time you actually retire. Most commonly, these will show different ages, and how the amount that you have to set aside monthly to reach this goal increases dramatically the longer you wait.

This is not me trying to say that saving up for through an authorized retirement vehicle is a bad idea. Au contraire mon ami (on the contrary my friend) I am the biggest proponent of this method of retirement planning. It has several critical advantages:

• Contributions to these types of funds are often incentivized through tax relief
• The growth of these funds are usually taxed at a reduced rate
• For those who are employed, your employer may also contribute to one of your retirement vehicles, thus subsidizing your retirement planning
• These funds are legislated, often times this can serve to save you from yourself, protecting your funds until your retirement
• Such funds are generally protected by law from creditors and lawsuits
• These funds have to be invested through accredited and authorized service providers, protecting you from making unwise investment decisions or being a victim of unscrupulous investment opportunities

I could go on, but I trust that you get the point by now

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Onesimple point that I am trying to make is this, and take this from me, a Financial Advisor for over five years now:

Saving through conventional means alone will never get you to retire without a significant reduction in your standard of living

The moment I realized this with the greatest profundity was when I was sitting with one of my closest friends, who, naturally, is also a client of mine. We were conducting the annual review of his financial portfolio. As an investment banker, he is good at what he does and is rather in demand in his field. Not surprisingly, he is also very serious about the management of his finances. He had asked me to crunch some numbers and give him an idea of how he was trekking towards his retirement.

I did soand presented my findings to him. When I presented to him where he was, where he should be and the changes he needed to make to his contributions to catch up, he had a look on his face and responded to me; both of these I will never forget.

The look on his face was one of utter helplessness; he slowly continued to say to me:

“But I can’t say that I have been wasting money.”

I died inside because it was true. He and his wife are one of the soberest couples I know, yet even though he was living frugally and investing as much as he possibly can, he was still significantly behind on a retirement plan that would not have to see him take a massive pay cut upon retirement.

That night, as I drove home, I couldn’t help but think about how sad it was that so many people who make so much less money than him, and have less financial resolve would never get to retire well.

Also, some countries may afford their residents significant cushioning through social security. Such a subsidy places a dramatically reduced burden on these individuals to save with desperate fervor towards their retirement. This being said, the US and Nordic social security systems are starting to experience significant pressure (with the latter even incentivizing families to have more children to have more people paying taxes in the future to keep the system alive). The cost of raising children has increased quite dramatically over the years and people are starting to have less children. This means that there will be less people to contribute to programs such as social security in the future. Many analysts warn that making long term plans to depend on social security may not be one of your best ideas, as the fiscal system may not be able to carry these programs for much longer, with a looming collapse forecasted by some to be as imminent as 15 years from now.

Most of the people that I have come across that did not benefit from owning a business or inheritance, yet retired well, often have the same subtle pattern in their story. They paid off a mortgage early, say in their forties or so, put that property up for rent, while they acquired another mortgage. Some managed to do this twice before retirement. By the time they retire, they own one or two rental properties.

This is where the magic lies and sadly, too few people realize this. I must emphasize that the people who achieve this are ordinary people with ordinary jobs.

Another of my closest friends has a father who is a doctor. Since last we spoke about it, he had told me that his dad owned 15 properties rental. His father is a full-time doctor about ten years away from retirement and not trained in property or business. He does, however, read A LOT. I have myself been lent two books from his library. These were books on property investment – go figure, right?

I know you may be reading this, thinking, “But he is a doctor and doctors make a lot of money.”

This man has been the most frugal man ever since I have known him. He still is. I have no doubt in my mind that this has everything to do with his success on this front.

But let’s say, for instance, I were to humor you on the notion that his success is reserved to people who earn as much as he does. What would you say if I were to postulate to you that if he was able to achieve controlling 15 properties by his age, you can with your income, achieve, say, 5? Would you still have an excuse?

I read a lot around the topic of retirement, and everybody’s advice for bolstering your retirement savings, more so for late starters, is usually one, or both of the following:

• Save More
• Retire Later

This formula simply does not work, we need something more. Take a moment to think of the people in your life who have followed this formula and how far it has gotten them.

I started off this blog post by illustrating the potential of humble beginnings. When I test out whether a general principle holds true, I like to apply it to both its polar extremes. Yes, it is probably not in all of our destinies to grow ourselves to Dow Jones proportions, I concede.

This being said, all of the businesses that got there did used Multiplication as their arithmetic tool to get where they are today. They used, and continue to use, Multiplication.

Making pennies and putting a penny away periodically should not be the only strategy you employ if you want to have a decent retirement. This is Addition, and is very hard work. You need to put a penny away while you also make means to buy a penny making machine and own it outright before retirement. If you achieve this on time, use the machine to buy another machine. Find a way to Multiply.

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Let us now bring it back to our level. I made an example of my friend’s father who has successfully used Multiplication as a full-time employee and continues to do so. Thus, we know that it is possible and that you don’t have to be a serious investor, businessman or entrepreneur to achieve this.

The simple formula is this:

• Live Frugally
• Pay Off All Debts Quickly
• Build Up a Rental Portfolio (Passive Income)

How many properties do you think you can control by the time you retire?

Property is not the only path to Passive Income. Read, Types of Income Properly Defined: Passive Income Redefined, to get an idea of what other kinds of Passive Income bases you can build for yourself. Real Estate is just my favorite and I think it’s the easiest to learn, as long as you understand that property

If you are an older individual, it is not too late to apply this approach. More than this, this approach could be your last resort if you can afford to invest the majority of your earnings.

Read, Your Mortgage is a Poverty Trap to learn more.

Let me know what you think in the comments