Are you Prepared for Retirement?

Whew, I am starting off with a very tough question for most people, including myself. There is a difference between being “ready for retirement” and “being prepared for retirement”. I think most of us tend to be ready for retirement when we realize that there is no “big” payoff at the end of a career in the workforce. In the end, we spent most of our time making someone else rich. That’s not to say our work wasn’t important, however, being a “hard worker” usually doesn’t pay off in the way we all expected. Now we are approaching full retirement age (some of us at least). We need to become prepared for retirement. We want to be even more comfortable in retirement than we were during our working days. How do we prepare to make more money in retirement than during our working days? We have to change our mindsets. The typical retiree is trained to think that their income will decrease in retirement. Sure, your “earned income” should decrease to zero. However, your “overall” income should increase. In order to evaluate if we are ready for retirement, at least mentally, let’s answer some questions.

1) When do you plan to retire, at what age?

This will give you a timeline of your full retirement. Remember we are still going to be able to generate income after we retire, so you can set this at any age. We don’t believe in living off of a fixed income. We can generate as much money as we like. I set my full retirement age at 50 years old.

2) How much cash flow do you need monthly to “excel” in retirement?

Do not aim for a low number. If you want to travel, include that in your calculations. If you want to eat out 3 times a week, include that. Remember, cash flow is the difference between your income and your expenses. Do not adjust your cash flow number to meet your income. We will increase income as needed. My number is $10,000 a month of cash flow, after expenses.

3) How much are your projected expenses, plus 25%?

How much do you plan to spend on running your life? Expenses include mortgage, utilities, and car. You always want to add an extra 25% to ensure you have room for emergencies. My number is going to be $4,000 a month. Even when we pay off the house, I will keep the number set at this. We will need to eventually get new vehicles and the like.

4) What will your sources of income be?

This is the hardest part for people to grasp. We military types are lucky enough to get a great pension after 20-30 years of service. Our civilian sector employees will most likely receive 401k with matching contributions. THIS IS NOT ENOUGH to have the retirement most of us want. For some, military retirement will be very lucrative. Remember, military retirement is not an asset because it cannot be passed on to your heirs. We need to generate more income, preferably from our assets and businesses. Some of us will go back into the workforce, which is also an option. I am personally trying never to work a nine-to-five job ever again. Let’s look at how we can generate income from different sources.

1. Residual work income- This is the money from our time in the workforce. This includes pensions, 401k, TSP, social security, and disability payments. 
2. Investment income- We should begin investing for income as soon as we understand what our retirement goals are. Even $1,000 a month of investment income is a game-changer. In order to invest in the stock market or bond market, we need to understand the different investment vehicles at our disposal.
3. Rental Income- Most people I talk to do not want to own rental property because it is too much work. Rental income is some of the most passive income you can make. Yes, there are some days where it sucks, but 95% of the time, money just comes in. Don’t forget that renting out rooms and/or Airbnb are also options in this space. There are even more options such as renting out space for storage or buying and renting billboards. The options are truly unlimited.
4. Business income- What is something you enjoy doing? What did you do for your nine-to-five job? How can you monetize that? When people hear business, they start to freak out and imagine the worst possible outcomes. Remember, if you are doing everything right, you shouldn’t need to have a huge business. Start with your goal in mind such as to generate $2,000 a month from your business. Then before you start, prepare for the day when someone else takes over for you or you can automate the service. That way, once things are running smoothly, you can step away and keep that residual income coming in.

Putting it all together. When you put all these techniques together you can truly craft a great retirement, full of adventure and suspense. As I said earlier, you can then adjust your income to exactly what you need. For example, if you need an extra $700 a month, you can either rent a room out or buy another rental property. Or you can expand your business a little bit. Maybe you go back to work a part-time job for a year to increase your investment assets to achieve the $700 a month. Once you understand the different types of income, you can tweak each income class to generate the income that you need. My goals are simple, I want $6,000 a month from each of the income classes. The one I have to work on the most right now is business income. I have a YouTube channel, blog, and Amazon Affiliates. We are also looking into potentially starting a small bamboo business at our home. That is why I enjoy this method. I can look at my income classes and directly adjust each one.

Remember, this is a cash-flow based retirement. Not an “I want $1 million in the bank” retirement. Class flow is king because it makes you learn the different income classes that will ultimately set you free. Even better, real estate, businesses, and investments can be left to your heirs. So it will also set them free as well. 

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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it.  I have no business relationship with any company whose stock is mentioned in this article.