Every person has a different idea of the perfect retirement. Some are happy to live off the grid where nobody speaks another language other than English and the best restaurant in town is the greasy spoon. Others are happy to live in a one bedroom or even a trailer to make ends meet. Heck, some are even willing to live in a region where the weather is horrendous for half the year because rent is so cheap.
If the first settlers over 300 years ago spent three months moving across the country for a better life, why not take a Greyhound bus and move in under a week? What if you don’t want your kids to grow up sheltered? What if you love the arts and all different types of food? What if you don’t want to just ride a bike, but drive an actual car with airbags? These are some questions that many readers and friends have posed to me over the years.
Financial Samurai is never going to be a frugality blog focused on saving money so you can live in the woods. Everybody knows you shouldn’t spend more than you make. Saving money is not rocket science. You just do it and there you go. What Financial Samurai is about is maximizing your income through real estate, the stock market, derivatives, P2P lending, risk-free investments, and entrepreneurship. Figuring out ways to make more money is infinitely more exciting than writing over and over again why you need to budget and save. Once you maximize income your options expand tremendously!
MY IDEAL RETIREMENT SCENARIO
1) Diversity. Having grown up in six different countries for the first 14 years of my life, I have a need for diversity. As a result, I prefer living in or the suburbs of international cities such as San Francisco, New York, Paris, or London. Part of the fun of living in a big city is all the great people you end up meeting. The other big plus is all the variety of food and entertainment. I attended international schools while abroad and it was wonderful to hear different perspectives. The only problem with living in an international city is the cost. Living on less than $100,000 for a family of four, or even for one person in some cases really isn’t that great when the median single family home price in San Francisco is around $1 million dollars. But with high cost of living comes higher incomes.
2) Above Median Income. Given $100,000 a year is kind of tight in expensive cities, the ideal retirement income is around $200,000 a year. I’m roughly $85,000 short based on my passive income generation capabilities, which is why I’m still trying to actively figure out how to make more passive income. If I wanted to cheat by including X Factor income, then things are fine. But cheating is no fun! With $200,000 a year (~$140,000 after tax), I can send two kids to private school if needed ($55,000), travel comfortably for two months a year ($20,000) and not have to worry about money when going out to eat ($15,000). The remaining $50,000 will be allocated towards housing and other forms of entertainment. I won’t need to save for retirement since I’m already retired.
3) Travel Hub. I love to explore new places, but I actually dislike the act of traveling. I’m always stuck in the middle seat next to the bathroom between two huge sweaty dudes. I’m also spoiled as hell because I always took business class on international trips since 1999. I even got to fly private several times when I was on the road with company management looking to IPO. I’m not wealthy enough to justify a $8,000 business class 14 hour flight to Asia when $1,300 in coach will do, but maybe someday. As a result of being spoiled, I always look for direct flights to go for holiday. The inefficiency of layovers kills me as does the stress of missing a connecting flight. Now that I have more time in retirement, I’ve opened up to the idea of having one stop over, but definitely not two yet unless they are great places where I plan to stay for several nights. SF (Virgin America), NYC/Newark (JetBlue, United), Denver (Frontier), Atlanta (Delta), Houston (Continental, United), Dallas (American), and Baltimore/Washington (Southwest) are some of the main hubs.
4) Strong Educational Environment. Education continues to be the key that sets people free. After going to business school it has become very apparent that education brings people out of poverty and lets people earn more to do what they want. San Francisco is great because we have Berkeley, Stanford, Santa Clara, and USF. Boston has to be the mecca of education with Harvard, MIT, Boston College, and Boston University. Strong schools attract smart people with innovative ideas. The best hospitals and research centers in America are located in SF, Boston, and NYC as well. Health care will become increasingly important as we all grow older.
5) Moderate Climate. It’s better to live in a place where the weather is great all year around rather than half the year. The best weather in America is in San Diego where the average temperature is around 76 degrees all year. Unfortunately, the diversity isn’t so great hence I have to sacrifice some warmth by living in San Francisco where the average temperature is about 65 degrees. When I want snow, I’ll drive up to Lake Tahoe during the winter 3 hours away so I can actually do something with the snow like snowboard. When I want hotter weather I’ll just drive 30 minutes in any direction except west because that’s the Pacific Ocean. Napa Valley is only an hour and change away and is gorgeous.
I’m not willing to compromise on location, food, shelter and education. To eat is to live. To travel is to be free. To learn is to overcome. Life is too precious to not live where you want. Living is a choice and I don’t want money to get in the way and neither should you.
SO WHAT IF YOU DON’T WANT TO EAT DOG FOOD IN RETIREMENT?
* Don’t retire. If you want a great life but don’t have the money, don’t retire! There are far worse things in life than working a boring 40 hour a week job in an AC filled cubicle. Boredom shouldn’t be the main reason for retirement. You can always fill out your boredom before or after work. If you are bored at work, chances are that you will be bored in retirement because there’s always something to do. Trust me on some of the negatives of retirement.
* Save more money. For the last five years of my career, I ratcheted up my savings from 50% to over 70% of my take home pay because the economy was going to hell and I started to want out. Each year of saving 70% is like banking two years of living expenses if you maintain your lifestyle. If you are not saving money until it hurts, you are not saving enough. And if you are not saving more money, then I question whether you really do want to retire.
* Broaden your relocation plans. Although you can plan to relocate to Middle America where very few people live for a reason other than because it’s cheap, broaden your search around the States and outside the States. Please take your next vacation to Thailand, Malaysia, Philippines, Ecuador, Paraguay, Costa Rica, Spain, Chile, Venezuela and a host of other countries. You’ll be pleasantly surprised to find out how great the quality of life is in other countries at much lower prices. Not only that, you can learn a new language and culture.
* Develop money making hobbies. Hobbies are great because they are enjoyable and don’t feel like work. Hobbies that produce income are even better. The trick is to make sure your hobby doesn’t start feeling like work. I love to write, therefore I love to blog. I’ve found a handful of key products that I endorse and add them to my posts which will help readers with their problems and make me some shekels. One blogger I know is a proponent of living frugally on less than the median household income of $50,000 while making over $40,000 a MONTH from his site! Now that is a killer business model. I also like to meet new folks who enjoy tennis. Hence, one of the things I’ve been toying with is teaching tennis for several hours a week again during the afternoon when I’m not playing tennis myself. There must be something you can do. And if not, just offer a service such as teaching to buffer your income.
* Map out your income sources. Before writing Achieving Financial Freedom One Income Slice At A Time, I really didn’t know what my passive income sources were. Now that I do, I have a clear target of building the income stream to $200,000 by the end of 2015. I’ve aggregated all my financial accounts with Personal Capital and can track my budget and my net worth growth accordingly. You need to get a grasp on all your debits and credits before you can really make progress.
* Consider part-time work. I wouldn’t mind working at the BMW dealer for 10 hours a week followed by five hours a week at Ben & Jerry’s because I love cars and I love ice cream! If I can make an extra couple hundred dollars in spending money while getting the stimulus of meeting new people I’m down. It’s now easier than ever to be a consultant or freelancer thanks to the web. With decades worth of experience, it shouldn’t be that hard to gain freelance work if we properly establish our brand online or reach out to our network.
OUR RETIREMENT IS SHAPED BY OUR UPBRINGING
It’s much better to make more money to live a more comfortable retirement than to scrimp and save to retire on a meager income. Making more money is infinite, but the same cannot be true for reducing expenses. The reason why frugality or minimalism blogs are so popular is because anybody can stop wasting money on crap. It takes way more effort and brain power to generate income and that’s when people start fading out.
Everybody should really create three main sources of income in their lives: 1) Job income, 2) Passive investment income, and 3) X Factor income based on things you truly like to do. Most people just get stuck with #1 because they are too lazy, too afraid, or simply lack the education to invest their savings. Getting to the X Factor is even more difficult because it requires a good idea and even more risk.
So long as you have a day job income, I highly encourage everyone to take more risks during off work hours. Fortune hunt in the stock market. Brand yourself online instead of letting Facebook or LinkedIn own your brand. Start a side business selling something you’re good at. If you don’t try, nothing is going to happen. But if you do, you might just find yourself eating prime-rib instead of dog food!
Readers, what type of retirement do you want to have? Is it worth retiring if you’ve only got $30,000 a year to provide for you and your family? How would you suggest people get over the impatience and continue working for a better retirement? How do you decide when to retire?
Photo: Larry Ellison’s yacht, Musashi Georgetown docked in SF for the America’s Cup 2013.