2911: [Part 2] Starting to Save for Retirement at 40 by William Cowie with Get Rich Slowly on Passive Investing

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[00:00:56] [SPEAKER_03]: This is Optimal Finance Daily. Starting to save for retirement at 40. Part 2. By William Cowie with GetRichSlowly.org.

[00:01:07] [SPEAKER_03]: And I'm your host and personal finance enthusiast, Diana Merriam.

[00:01:10] [SPEAKER_03]: Now today's post is a continuation from yesterday. So if you're new here, I'd recommend listening to yesterday's episode first.

[00:01:18] [SPEAKER_03]: But if you're all caught up, let's hear part two and continue optimizing your life.

[00:01:28] [SPEAKER_03]: Starting to save for retirement at 40. Part 2. By William Cowie with GetRichSlowly.org.

[00:01:36] [SPEAKER_03]: Number 3. Working Harder.

[00:01:39] [SPEAKER_03]: There are investments out there which are less passive than, say, index funds, but which, if you learn to do them well, may be more profitable.

[00:01:48] [SPEAKER_03]: Probably the most visible example is rental property.

[00:01:52] [SPEAKER_03]: Few investments have proven themselves over so much time and in so many countries as the classic home next door which you rent out.

[00:02:00] [SPEAKER_03]: As anyone who has ever taken this route will attest, this is not a passive investment by any stretch of the imagination.

[00:02:08] [SPEAKER_03]: A friend of mine who succeeded at this very well called it a second job on steroids.

[00:02:15] [SPEAKER_03]: To enhance your success, you will have to do renovations and repairs yourself.

[00:02:19] [SPEAKER_03]: And you'll have to deal with finding tenants and dealing with the inevitable problems they bring.

[00:02:24] [SPEAKER_03]: But in 20 years, you can turn this investment into a self-perpetuating income stream with a built-in hedge against inflation.

[00:02:32] [SPEAKER_03]: That's only one example.

[00:02:34] [SPEAKER_03]: There are many.

[00:02:35] [SPEAKER_03]: I alluded to the Detroit bond issue.

[00:02:38] [SPEAKER_03]: If you're willing to spend time to research a specific investment like bonds, you will in time be able to discern opportunities that others who rely on simplistic formulas pass over.

[00:02:50] [SPEAKER_03]: The key, once again, is exploring options and setting aside the time it will take to get beyond passive investing.

[00:02:58] [SPEAKER_03]: Pulling It Together

[00:03:00] [SPEAKER_03]: Unless you are a mega-earner, there is no painless way to recover the ground you lost.

[00:03:06] [SPEAKER_03]: Chances are you'll end up employing some combination of the strategies outlined so far.

[00:03:13] [SPEAKER_03]: Tighten Your Belt

[00:03:14] [SPEAKER_03]: In order to pull it off, the first thing you'll need to do is some serious belt tightening.

[00:03:20] [SPEAKER_03]: In your 40s, you'll be close to your maximum earning potential.

[00:03:24] [SPEAKER_03]: If you're not investing for retirement now, simple math says that you're probably spending it all.

[00:03:29] [SPEAKER_03]: The same math says that in order to invest, you will have to cut back that spending.

[00:03:34] [SPEAKER_03]: If you plan to invest a lot, you will need to cut back a lot.

[00:03:39] [SPEAKER_03]: There really is no getting around that.

[00:03:42] [SPEAKER_03]: A budget is your first essential step.

[00:03:46] [SPEAKER_03]: Slaughtering sacred cows will be next.

[00:03:49] [SPEAKER_03]: Club memberships, eating out, travel, shopping, even your nice home.

[00:03:54] [SPEAKER_03]: Every one of those things, near and dear to your heart, will have to go on the chopping block.

[00:03:59] [SPEAKER_03]: Things will only get worse if you don't.

[00:04:02] [SPEAKER_03]: The second step is getting rid of any consumer debt.

[00:04:05] [SPEAKER_03]: When my wife and I arrived at this point, the view we took was that if we needed to eat bread and water, we'll do it.

[00:04:12] [SPEAKER_03]: Fortunately, it never quite came to that.

[00:04:14] [SPEAKER_03]: But you get the point.

[00:04:16] [SPEAKER_03]: To succeed, you need a mindset of no entitlements and a microscope for all expenses.

[00:04:22] [SPEAKER_03]: You might even have to take a second job.

[00:04:25] [SPEAKER_03]: That will help boost your income to get the money for that catch-up investment.

[00:04:30] [SPEAKER_03]: There is hope.

[00:04:32] [SPEAKER_03]: In summary, getting started with retirement planning in your 40s will not be easy.

[00:04:37] [SPEAKER_03]: And that's putting it mildly.

[00:04:40] [SPEAKER_03]: Almost everyone has some slack they can cut out in order to free up money to invest.

[00:04:44] [SPEAKER_03]: Everyone has a few hours every day to invest in a second income and or learning more about a particular kind of investing to get beyond what passive investments can generate.

[00:04:56] [SPEAKER_03]: That's the bad news.

[00:04:58] [SPEAKER_03]: The good news is that it's not impossible.

[00:05:00] [SPEAKER_03]: There is hope.

[00:05:02] [SPEAKER_03]: A commenter or two on previous posts have noted that such a heavy emphasis on getting money for a nest egg may be overkill.

[00:05:10] [SPEAKER_03]: Money isn't everything.

[00:05:11] [SPEAKER_03]: That is true.

[00:05:12] [SPEAKER_03]: But money is the emphasis on this blog.

[00:05:15] [SPEAKER_03]: And the only time to address the problem of taking care of yourself when social security is not enough is now.

[00:05:22] [SPEAKER_03]: As I said earlier, although it gets more painful the later you start, it is never too late.

[00:05:29] [SPEAKER_03]: Addendum.

[00:05:30] [SPEAKER_03]: Life isn't always kind.

[00:05:32] [SPEAKER_03]: There are a few listeners who, like me, blasted through the black-themed birthday party with nothing in place for those final years.

[00:05:39] [SPEAKER_03]: Others encountered situations that set them back to zero.

[00:05:44] [SPEAKER_03]: Some of those predicaments might have been of their own making, perhaps poor choices.

[00:05:49] [SPEAKER_03]: But they could just as easily be due to events being sprung on them through no fault of their own.

[00:05:55] [SPEAKER_03]: Lenny, a friend of ours, lost her job last week when the newspaper company she worked at for almost 20 years decided to shut down her division and eliminate all those jobs.

[00:06:05] [SPEAKER_03]: They gave her a terrific recommendation.

[00:06:09] [SPEAKER_03]: But recommendations don't pay the groceries when you're 75.

[00:06:13] [SPEAKER_03]: Another friend buried his wife of a few decades this month, claimed by cancer.

[00:06:18] [SPEAKER_03]: It's not hard to imagine that illness and care wreaked havoc on their finances.

[00:06:24] [SPEAKER_03]: Life isn't always kind, nor is it predictable.

[00:06:27] [SPEAKER_03]: But this post is for those who, for one reason or another, are not on track to retire, but realize it's time to get busy and do something about it.

[00:06:36] [SPEAKER_03]: Life isn't always kind, but we don't have to make it harder for someone else.

[00:06:40] [SPEAKER_03]: Are you older and starting to save for retirement?

[00:06:44] [SPEAKER_03]: What options are you pursuing to deal with a shortened horizon?

[00:06:48] [SPEAKER_03]: What would help you overcome the challenges?

[00:06:54] [SPEAKER_03]: You just listened to part two of the post titled,

[00:06:58] [SPEAKER_03]: Starting to Save for Retirement at 40, by William Cowie with GetRichSlowly.org.

[00:07:04] [SPEAKER_03]: And I'll be right back with my commentary.

[00:07:06] [SPEAKER_03]: Buy low, sell high.

[00:07:08] [SPEAKER_03]: It's easy to say, hard to do.

[00:07:11] [SPEAKER_03]: For example, high interest rates are crushing the real estate market right now.

[00:07:16] [SPEAKER_03]: Demand is dropping and prices are falling, even for many of the best assets.

[00:07:21] [SPEAKER_03]: It's no wonder the Fundrise flagship fund plans to go on a buying spree,

[00:07:27] [SPEAKER_03]: expanding its billion-dollar real estate portfolio over the next few months.

[00:07:31] [SPEAKER_03]: You can add the Fundrise flagship fund to your portfolio in just minutes,

[00:07:36] [SPEAKER_03]: and with as little as $10, by visiting fundrise.com slash OFD.

[00:07:43] [SPEAKER_03]: That's F-U-N-D-R-I-S-E dot com slash OFD.

[00:07:49] [SPEAKER_03]: Carefully consider the investment objectives, risks, charges, and expenses

[00:07:54] [SPEAKER_03]: of the Fundrise flagship fund before investing.

[00:07:58] [SPEAKER_03]: This and other information can be found in the fund's prospectus

[00:08:02] [SPEAKER_03]: at fundrise.com slash flagship.

[00:08:05] [SPEAKER_03]: This is a paid advertisement.

[00:08:09] [SPEAKER_03]: I absolutely agree that real estate is the fastest way to reach financial independence.

[00:08:15] [SPEAKER_03]: While it's not a passive investment like index funds,

[00:08:18] [SPEAKER_03]: I would describe it as a front-loaded effort type investment.

[00:08:22] [SPEAKER_03]: It can become passive over time, but you're essentially starting a business,

[00:08:28] [SPEAKER_03]: and it requires a bit of upfront work.

[00:08:30] [SPEAKER_03]: If you compare an index fund investor to a real estate investor,

[00:08:35] [SPEAKER_03]: the index fund investor will need to invest more,

[00:08:38] [SPEAKER_03]: but will take on less risk and less work to meet their goal.

[00:08:43] [SPEAKER_03]: The real estate investor will invest less money,

[00:08:46] [SPEAKER_03]: but take on more risk and do more work to get the same result.

[00:08:50] [SPEAKER_03]: It was easier for me to focus on index fund investing because I had a high income when I was working.

[00:08:57] [SPEAKER_03]: But I have plenty of friends who didn't make even half my income,

[00:09:01] [SPEAKER_03]: and yet they reached five faster because they were willing to hustle with real estate investing.

[00:09:07] [SPEAKER_03]: The reality is that if you're getting a late start,

[00:09:10] [SPEAKER_03]: you're likely going to need to make a dramatic change to catch up.

[00:09:14] [SPEAKER_03]: This could mean drastically increasing your income,

[00:09:17] [SPEAKER_03]: or selling your house,

[00:09:19] [SPEAKER_03]: moving to a lower cost of living,

[00:09:21] [SPEAKER_03]: selling your cars, etc.

[00:09:23] [SPEAKER_03]: That may sound scary to someone who's set in their ways

[00:09:26] [SPEAKER_03]: and used to a certain standard of living.

[00:09:29] [SPEAKER_03]: But I think being destitute in your elder years sounds even scarier.

[00:09:34] [SPEAKER_03]: If you got a late start,

[00:09:35] [SPEAKER_03]: you are certainly not alone,

[00:09:37] [SPEAKER_03]: and there's an incredible community of people

[00:09:39] [SPEAKER_03]: ready to share learnings and cheer you on.

[00:09:42] [SPEAKER_03]: Check out the podcast and Facebook group called Catching Up to Fi.

[00:09:47] [SPEAKER_03]: My friends Bill and Jackie do a wonderful job helping people just like you.

[00:09:53] [SPEAKER_03]: But that's going to do it for today.

[00:09:55] [SPEAKER_03]: Thanks so much for listening every day and all the way through.

[00:09:58] [SPEAKER_03]: And I'll see you again tomorrow for more Optimal Finance Daily,

[00:10:02] [SPEAKER_03]: where your optimal life awaits.