What is the image you have in your mind of retirement?

If you are like most people (and like I used to be when I set out on my adult life journey), you probably have an image of an old person with not much left to do, living off life-long hard earned savings.  In fact, most people struggle after retirement because their savings really are not enough to sustain them until the end of their lives.

The consequence of this picture is that retirement seems really, really far away, and most of us start worrying about it too late – and then fail at doing it successfully.

A Better Picture of Retirement

There is another image of retirement, which I’ve become aware of as I started looking a bit wider than the circle of people that were typically around me when I grew up.  I have become aware of the fact that there are people who reach retirement ability earlier than when they are “old”, and then continue working, doing work they love and are passionate about, with no pressure, and make a massive impact on the world around them.  So there is another image of retirement, and that is of being a vibrant, energetic, person who is financially free, and using this freedom to positively impact every area your life touches.

Napoleon Hill found that during the time when he did his research of more than 500 of the wealthiest people alive at the time, most of them had become wealthy after the age of 55.  I have found the same.  Most of the people I know who retired early, ended up making a lot more money after retirement, than before!  And I’ve begun to realize that the main reason for that is that the process of getting to the point of being able to retire, makes you think about money better.  In fact, it seems that process makes people think better about most aspects of balanced personal wealth.

Retirement:  Final End Goal?  Or Major Milestone?

So today I want to challenge you to start changing the way you think about retirement.  I want to challenge you to start seeing retirement as a point where you move from financial dependence on an employer, to financial independence – where you no longer NEED to, but can CHOOSE to have an employer.  See it as the first MAJOR milestone in your career, rather than the end of your career.  And begin to realize that with the right skills and planning, you can reach this point much earlier than you might have originally thought was possible.

So how do you get there?

As with most things:  Step by step.  And the first step is to get a clear picture of exactly how far you are from getting there!

Remember the Personal Wealth Balance Sheet.

Can you wait?

On this sheet, today we are going to be looking at the block called “Income Generating Investments e.g. property, shares, your own business.” This block must be compared to the one next to it, called “Rent, car, leases, food, cell phone account etc.”

In this situation, retirement then occurs when the income from your investments exceed your expenses.  For today’s discussion, you also must have achieved the point where your own business is managed in such a way that you only need to give a relatively small bit of your time to oversee it – not run it actively.  As long as you have not developed a team that can run your business for you, even having your own business definitely does not qualify as an income generating investment – it is just a self-provided form of employment.   Now this may seem to you like an impossible goal.  But it is not impossible.  It is probably just quite far away.  If it really is impossible, it simply means that you will NEVER retire.  The unfortunate truth is that many people retire much poorer than what they could have been, if they had just started trying to retire earlier.

When Will You Start Practicing?

Successful retirement takes practice.  And when you are old and not earning money any more, it’s too late to start practicing.  As harsh as it may seem, one of the first things you have to realize and face squarely (and you can go and do the maths if you want) is that even if you contribute to some pension fund, or retirement fund through your employer, for your entire working life – typically about 40 years or so, you will not retire comfortably by the time you are 65.

Once you face up to that, you realize that something must be done about that.

The good news is that something CAN be done about it, and if you really focus on it, you can begin to firstly make sure that you actually WILL be able to retire comfortably, and secondly, you can begin to move that retirement date earlier and earlier.

The other good news is that the moment you start thinking like this, you begin to develop a whole bunch of skills that begin to impact every area of your financial life positively.  You begin to think about your finances differently, ask different questions, and all of these have a compound impact on beginning to improve your financial situation.

Step 1:  Find Out Where you Are Today

So what is it that can be done?

Well, firstly you must learn how to make sure that you CAN retire comfortably by the age you want to, and what is interesting is that the same skills you need to build in order to achieve that, are the skills that you need to retire earlier.  And the earlier you can retire, the quicker you are absolutely free to do any job you love doing without having to worry about the income.  The moment you do work you really love and are passionate about, chances are that within a few years your income generating capacity will exceed what it had been before AND you will find that you love working so much that you never actually WANT to stop and retire – and so your retirement will just become an extension of a successful, impactful, and exciting career.

So how do you do this retirement thing?

Let’s look at it step by step, from the end.  The first question you have to answer is:

What is the gap between where you are now, and retirement, in financial terms?

You are ready to retire the day that your income generating investments exceed your living costs.  It’s a simple as that.
So the first thing you need to calculate is how far you are from that.  Doing that is really simple.

Take a piece of paper, or a spread sheet, and write down all your expenses.  Electricity, water, car payments, mortgage or rent, food, eating out, clothes, debt on interest – get them all down.

Next to that, write down all the investments you currently have.  Any money you have paid towards a retirement annuity, or a deferred compensation plan, or some type of pension or retirement fund; any money you have saved up in a money market fund, a savings account – anywhere.  This includes income generating assets such as a house or apartment that you rent out.  If this number is really, really small, then you know that you have to do something urgently.  We will look in a moment at what the things are that you can do.  But let’s first just get the picture complete.

Now the next step many people might find a bit difficult.  And if you do find this difficult, this starts pointing you to one of the skills you need to learn.  The next step is to calculate the income that you would get from investing all the money you have saved up.  So if you were to retire today, and you have to make the decision as to how to invest your money:  What income can you get from it?  If you know nothing about investing, then you probably can, at best, put your money in a money market account, or an annuity with an insurance company, and hope to get about 6% per year if your timing is good.  To get the monthly value, just divide it by 12.

So let us say you have R 100 000, (I’m working in Rands here, because most of my readers are South African – but the calculation will work equally well in any other currency) then you will get 6% x R 100 000 = R 6 000 per year.  That is R 500 per month.

If you know more about investing, you might be confident that you can get more than 6% without creating too much risk.  Good for you.  Do your calculation based on what you can be certain of.  But don’t lie to yourself.  Don’t fool yourself into thinking you can easily get 30% without risking your capital, not unless you’ve proven that over at least a decade of investing, and through at least one major downturn in the economy.

So do the above calculation, and compare your potential income

Chances are that this has been a somewhat depressing exercise for you.

But don’t get depressed – because it is actually really, really good to know this NOW, rather than to accidentally discover at age 65 that your income does not meet your expenses.

But we have run out of reasonable length for one article …

So next time, we are going to look at what you can do to start changing this picture.

To Your Balanced Wealth.

About The Author

Ashton Fourie is a Management and Organisation Development consultant with a passion for life-long learning and growth as foundations for meaningful success.  He started out working as an office cleaner for a small cardboard factory, worked himself up, and has since built up 15 years of management experience, obtained a degree in Business Management and is completing a Master’s Degree in Managing and Leading Innovation and Change.  He is married to a beautiful Chinese lady and has a 7 year old daughter and 5 year old son, who are both fluent in English and Mandarin Chinese.

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