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Discussion #38 - Retirement

For many people in this world, retirement is more like a fantasy or a dream that may or may not come true. For the ones who are actually able to pull this off, there are still some fairly large challenges that many face. In a world where productivity has always been a bit of a religion, many modern retirees find themselves asking these two questions virtually every single day: 1. Should I be productive today? and 2. Am I (are we) going to out-live our assets?

It can be very difficult to go from decades of purpose, productivity and hard work (from which we derive much of our significance) to basically doing whatever we want almost every day (even though this is the dream). This can be especially challenging for poor self-amusers, who will undoubtedly spend far more money in an attempt to keep life interesting.

This brings us to the second question: Will we out-live our assets? This may sound a bit harsh, but to me this seems like a pretty sad way to live (worrying about living too long), and it's simply not necessary. A much better idea would be to live within our means (whatever that is), and not downsize ourselves (eventually) into eating cat food and living in a tent. Here are a few suggestions: Instead of downsizing, try renting a few extra bedrooms to host international (or local) students. Keep in mind that residential real estate historically doubles every 10-20 years, and is capital gains tax free if you live in it (5-10% return on investment).

I mean, there will always be your "bubble people" who always think that real estate is a bubble that is about to burst any day now. They are normally skeptics who are likely hoping to buy their dream home for half price. The problem here is that it may or may not ever happen, or it may not happen for a very, very long time. A good example of this is the market in Toronto, Canada. There was a momentary dip of 10% back in the 08/09 global recession, but other than that it's been virtually straight up for almost 20 years. In the last 10 years alone, the average detached house price has gone from $500,000 to over $1.3 million and it's still rising quickly.

The underlying driving force is what matters, and in this (and most) cases it's the law of supply & demand (mainly from immigration), and not "bubble psychology" that is at work. A true real estate bubble is typically similar to what happened in the early '90's in Canada, when property values doubled in 3 years, mainly due to speculative flipping for profit. What has been happening for the last 10 years or so is a slow and steady increase, for solid and stable reasons. Of course, we never know for sure what is going to happen next, but this is what makes investing so exciting.

There is always going to be a roller coaster ride to any investment (that gives you any serious return). I recommend drawing a straight line through the gyrations in your mind. The big question is; can you sleep well at night sitting on the roller coaster you are on. If not, you may want to look for one that is more in your comfort zone, as health is by far your biggest physical asset in life. Some thrive on risk, and get more of an endorphin rush than anxiety from it.

Not one human being in history has ever figured out how to take their money or possessions with them, and most often leaving a bucket-load to your offspring just destroys their work ethic. Every physical asset you buy has an investment value to it. It's a spectrum, cars and computers being at the low end, real estate and mutual funds, etc. being at the high end. We love our cars and tech toys, but as we all know, at the end of the day, they are the worst investments known to man.

Climate refugees will soon be starting to add to the already current rising rate of immigration flowing into the richer countries. As land begins to disappear underwater from rising sea levels due to climate change, the value of higher and drier land will begin to climb at a faster pace. It's simply the law of supply & demand. The population of Earth is rising, and the amount of usable land is shrinking. This is a global trend that will likely never change, and affordable migration to Mars is a long, long way off.

The other huge reason why real estate will most likely keep rising in value, is that as global temperatures increase, so too does the price of building materials (especially lumber), along with the continuous rise in labor costs. In fact, the cost of lumber alone for the average new single-family home in the US went up $36,000 in just a few months in spring of 2021.

Many of the richer countries have a short seasonal window for construction, and if the weather becomes insanely hot for much of that window, productivity tends to plummet (dramatically increasing costs). This will also further reduce the supply of new homes & units to these markets.

It's one thing to be sitting around (enjoying AC) in the extreme heat, but just try doing anything really physical outdoors in this type of weather. You'll be dripping with sweat before your shovel hits the ground. I like to mow my own lawn with a push-mower, and even that can be a challenge in this kind of heat. To work an 8 hour shift in this, often in direct sunlight, day after day, is actually extremely unhealthy, especially for the kidneys.

Ask any nephrologist, and they will tell you that in some extremely hot countries, like Nicaragua & El Salvador, kidney disease is actually now the leading cause of death.

This means that the effects of climate change are not just a "down the road" thing, it's currently the #1 cause of death in a growing number of countries. It's interesting how the recent pandemic has pushed this issue almost completely out of people's minds (for a while). Even once Covid subsides, many will still refuse to see how much climate change is affecting us right now, & these effects will only continue to grow.

I'm not trying to scare anyone, but as an investor, it's critical to know what the trends are. Literally, it's like having a crystal ball. While some may simply view this situation as a housing crisis, there are always two sides to every coin. Older homeowners will eventually be passing these properties down to their children, so the younger generations will still reap this as a very large benefit in the end. Even if there is a reverse mortgage involved, the max borrow limit is normally far less than the value of the home.

The reality is that baby-boomers are actually starting to upsize as opposed to the expected downsizing, as adult children and parents are living with them. Many consider having non-family members to be an enormous invation of privacy, but it's no more so than having servants, a butler, maid, nanny or live-in housekeeper. The only real difference hosting international students is that they pay you instead of you paying them. Plus, you get to learn about their culture in a way that even travelling to their home country on vacation cannot achieve.

Another suggestion is to invest in syndicate mortgages (as a lender). This means that you are lending to real estate developers. This may sound risky, but you have far more control over where exactly your money is going, and you are put on title as a mortgage lender. Normally you will get at least 8% fixed interest (even when rates are extremely low), and sometimes a decent bonus on completion of the project. A typical min. investment is only $30,000 (per project), which means that diversification is easy.

Mutual funds have been a really popular investment vehicle for many years. Unfortunately, for the last 10 or 20 years they've not been performing all that well. The reason for this is mainly all of the hidden fees and charges that are buried deep within many of these funds. In most cases, locating these fees can be a daunting task, as they have many different names. There are definitely people getting extremely rich off of mutual funds, but they are generally not people like you or I. This reality will likely change once enough catch on to it.

Of course there is the obvious risk of the odd fund being in reality a ponzi scheme or similar. Some may also have a ponzi "element" to them, which basically means that they rely heavily on new investors to maintain their high payouts. This can go on for decades (think Bernie Madoff) before ultimately collapsing. Unfortunately, corruption will never completely disappear in the investment world no matter how much policing is incorporated.

The point here is that there's no need for anyone to fear living too long. If wisely invested (and living within our means) the longer we live (healthy), the richer we become. Setting up our lives for this should be a big priority while we are younger, but then should not be a constant worry once we retire. More and more companies are forcing their employees to look after themselves in this department, as pensions are a big expense to them. If we have invested enough (and wisely), then the real reality of retirement is that the longer we stay alive and healthy, the more our investments generally start to earn more money than we ever could with our work efforts, and this just keeps on accelerating.

There is another interesting phemonenon, which I personally find quite repulsive. If a person looks, acts, and feels the part, then others are generally extremely accepting of their retirement. If, on the other hand, one does not, then the opposite is also true as well. If an individual, or couple, chooses to work their "asses" off (sorry about the slang) and get ahead in life, then they more than deserve to relax and enjoy their early retirement. This ridiculous attitude of judgement can be quite annoying, and is just jealousy pure and simple. Obviously people in this situation should just completely disregard this insanity and enjoy the shit out of their early retirement!

This is yet another example of how secretly competitive people really are, deep down inside. We all age differently, and just because someone looks, feels and acts too young to be retired does not mean they should be viewed as a bum. After all, the only real differences between a retiree and a bum are perceived age, poise, affluence, and past ambition. Career history does not come into play until someone knows you a little bit better.

Also, this does NOT necessarily mean that retirees should completely cease and desist from ever working again. Making a little extra cash from a fun little part-time job can be extremely enjoyable (as can volunteerism). There is something completely different and freeing about earning money when you don't have to, verses when you do. This last point is extremely controversial, as youth unemployment is a massive global problem. However, it's not exactly fair to force an early retiree completely out to pasture either. This last point is a tricky one, as there are also many aging boomers who will be retiring in the near future. No one knows for sure exactly how the law of supply and demand will play out in this department over the next 20 years. After that, it's pretty obvious.

Even though productivity has been a massive priority in our lives up to this point (for most of us), it should NOT be the main priority upon retirement (obviously). You would be amazed at how many struggle with this transition in life. If your spouse gives you the gears over this far too much, just remember that this is your retirement too. If you want to stay busy then great, but if you'd rather relax more then this is what retirement is really for.

The sad reality is that many people will have to work until the very end of their life, and may never get to retire. In some cases life is simply unfair in this department, but in many other cases we actually do have a lot of control over our retirement destiny.

Life is commonly all fun & games until around the age of 50 or 60. This is roughly when we human beings begin to age profusely. At this stage of life, it's wise for priorities to begin to change. Dramatically. If you can afford it, early retirement is often a really smart option. It's never wise to wait too long to retire, even if you're extremely healthy with lots of energy. It's much wiser to save some (or a lot) of this for your retirement activities (especially if you have grandkids)!

Condos will certainly always be an excellent long-term investment. However, mainly due to the recent pandemic, single family detached homes seem to be what's rocking the (low risk) investment world right now, and this is not likely to be a short-lived trend.

In my home town of Peterborough, Ontario, Canada, for example, the average home price has shot up 31% in just 2020 alone. Also, basically, double digit gains every year for the prior 5 years (pre-pandemic). This is mainly due to the city's close proximity to Toronto, and the desire for many to live a less crowded lifestyle. Since so much work can now be done remotely online, there is no real need for many to live in the big cities any longer (worldwide). Covid-19 is currently driving this reality in a massive way.

People are now looking for more space, larger lot sizes, and smaller communities to live in, but, they also need to be able to physically get to their main office once in a while. Investing near a large city seems to be a very safe and extremely profitable way to achieve this. Especially during a pandemic, when population density is not a very desirable part of the equation.

Big city living will always appeal to many in the world, who really love this lifestyle, but as an investor, it's always very wise to look at the trends. Recently, the trend is that people want to spread out more, and not be packed in like sardines. I personally love big city activities, but have never been a huge fan of the traffic jams, large crowds, etc. For myself, living in a community like Peterborough, about an hour away from the big city, seems to be the best compromise. Also, 2 (of our 3) adult children are currently taking advantage of the better job situations that big cities have to offer, and it's really nice to be able to visit them often.

For those lucky individuals who are already retired (or are getting close), there has never been a better time to make the move, and start enjoying a far less crowded, and slightly slower pace of life. The city I live in, at approx. 100,000 people, still has a Costco, a Hilton, 2 Walmarts, 2 Canadian Tire stores, 7 McDonalds restaurants, 9 Tim Hortons, 3 Starbucks, and basically anything else you could possibly need in shopping, food, amenities, & activities. For those bigger concerts, sporting events, roller coasters, etc., it's basically an hour's drive to get to them. There is even two high-speed freeways to get you back & forth, a large, almost new hospital, and a large, brand new casino.

This same sort of scenario, is extremely common all over the world. Surrounding almost every major city, there are smaller communities similar to Peterborough. There is even an airport with some international flights, (for when the pandemic is over). An hour & a half drive gets you to Pearson airport, and flights to anywhere in the world. There are also lakes, parks, resorts, and cottages all around us.

Another common health problem, that seems to happen far more when people live in crowded places, is bed bugs. Whether these health issues are nature's way of encouraging people to spread out more, or not, is a matter of some debate, but there is definitely a strong correlation. By far the biggest attraction to big city living, is the normally vast number of good-paying jobs. Obviously, once we're retired, that's no longer an issue. Quality of life becomes the bigger issue, and thus the attraction to smaller cities. Even the air & water quality are normally far better. Combine this with lower daily stress levels, and lower real estate costs, and we're talking major improvement in life quality.

This is of course assuming jobs and income potential are smaller factors in the equation. Depending on your career or business, there may even be great income potential in a smaller community as well, but this is a very big if. Every community definitely needs certain professionals to function, but it's the lack of industry, and large corporate head offices, that can sometimes be a problem. Then again, you may not really care about getting that massive paycheck, and the extra quality of life may be a much bigger priority, even in your younger years. Or, if working remotely is an option, (and judging by recent trends, it is increasingly for many), there's really no need to wait for retirement.

Our first 50, 55, 60, or 65 years of work should just be a launchpad for our investment career, which if done sufficiently, (for most) becomes far more profitable than our work career(s) ever were. (This is assuming we have not left all of our financial eggs in our previous employer's basket). The obvious advantage of cashing out and doing your own investing, is that your entire net worth is then willable to your children, and controlled by you.

If you do love to stay busy & productive, then there are many who actually find their true calling(s) in life after they retire! This is due to the huge amount of freedom & (hopefully) relaxation, that allows the creative juices to flow freely. With the weight of providing for our families, we don't always get the luxury of figuring it out when we're in "the grind". When we do have (or take) the time to stand back & look at the bigger picture, it's amazing how the pieces of the puzzle just seem to fall into place.

For those poor self-amusers who insist on working till they drop, just remember, it's called Freedom 55, not Freedom 65, 75, or 85! Due to the boomers retiring on masse in the coming years, governments are going to want people to work longer (to keep economic growth high, & pension payouts lower), but this doesn't necessarily mean it's the right thing for everyone.

Just remember, those who may judge you for retiring early, & who think you must look & feel completely spent before you can retire guilt-free, are just insanely jealous, pure & simple. Once you possess your financial freedom, then you should be able to enjoy your personal freedom as well, at whatever age your heart desires. This does not mean you should sit around & watch TV all day (as 80% of retirees who choose this lifestyle pass away within 2 years), but it does mean you should have the guilt-free freedom to be as busy or not busy as you want to be, & do the things you really want to do in life.

We may not all make as big of a mark on the world as Ghandi (for example), but something tells me it's not the size of the mark that really matters, but more the quality. This is what retirement can be really good for. We also need to give young people their chance to make their money. Youth unemployment always seems to be much higher than the main rates.

We all have different and strongly held ideologies about what retirement should or shouldn't look like. When to retire is also often a big part of this ideology. While there will obviously be some compromising required in most marriage (or similar) relationships, we must not allow others' ideologies to bulldoze our own. This is (or will be) YOUR retirement, not theirs. As long as it's legal, & morally decent, there is no right or wrong way to do retirement! In fact, that's the most amazing thing about it. This is especially important in the areas of how busy, flashy, and extravagant you wish it to be.

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