Will Your Pension Plan Expire Before You Do?

Is Your Pension Plan Enough?

What will last longer: you or your money? It's been something that has crossed my mind more and more, I started thinking about this every year as I would see my family and friends around me retire. Growing up the oldest in the family, I had a different experience and feel for responsibilities. I noticed my parents would put everything into us as children and now watching what my parents do to take care of my grandparents has inspired me into planning for the future.

As the oldest, I felt responsible to ensure that this was taken care of for my family financially so we could enjoy our time together, not stress about where the money will come from.

Life is too short to stress over a financial struggle. To create financial wealth is a choice, we can all start to learn more about a topic that will drastically change our lives forever.

"He who fails to plan is planning to fail"  - Sir Winston Churchill

This is simply about how much of your wealth you can keep as you develop your long-term plan.

Most people decide that we have lots of time to look at retirement and this is our first mistake... You see if you had just taken the time to do it right as soon as we become working adults, we could retire by the age of our choice! 10 years is more than enough time to create a real financial edge in your life I know because I achieved that, but more importantly, I lost it as well and this is where I gain my true experience and insights.

Is it safe to depend on your place of work for your retirement?

What would happen if that company went out of business?

What happens if the economy changes a few years before you're ready to retire and they have to lay you off?

I started asking myself these questions when the company that I thought had the end all be all of retirement plans completely changed the retirement packages, I was now left with a significantly different outcome for my future.

Think about this... You have retired, you are 75 years old and you've run out of retirement income... what if you have another 20 years? All of a sudden you are too old to get a career and you are having to go back to work for minimum wage! You aren't a spring chicken anymore, and your cost of living goes up because your body just isn't what it used to be. This is a REAL problem! How do you survive? Well, your family is now affected, and you know that can also be a struggle if there was no planning for this.

What can you do in this situation? The best thing to do is think ahead of the what if's... CREATE a PLAN.

Here is how I look at the situation.

What monthly income do you desire? When you know that number then you can start with the end in mind and plan backward!

Every $500 of passive income a month will equal $100,000 invested making you 6% a year as a benchmark.

If you would like to make $60,000 a year then you will require $1,000,000 of seed capital. This means you will only live off of the money you make on an annual basis. To protect yourself from any unforeseen changes in your income you will want to create multiple streams of income. My target is to achieve 10 different streams of passive income. Now, this could be overkill but it's a goal that I set for myself and I intend to complete it.

How It Works: An Example in Real Estate

To give you an example, I started to create my first stream in real estate. Let me break down what this would look like... I figured that my pension plan would only carry me for so many years and never be more than what I was making at my job which is very accurate. My understanding of retirement before I started my journey was that I would work 40 years at 40 hours a week to live off of 40% of my income because I would have my house, car and any other loans paid off by the time I was ready to retire. 

What I did was look at one single family home rental valued at $500,000. If I found the right deal I could get that home and rent it for a positive cash flow. Which means after the mortgage and bills are paid for I would make a few extra hundred dollars every month... but more importantly, after 25 years I would have a home completely paid for free and clear. This is the point where you can now collect the full rent as passive income! To further that one more step I would borrow back up to 80% of the value of the home on a line of credit at an affordable interest rate from the banks for some more private deals or even another couple properties, which could be done before the 25-year mark.

What this might look like at the time of writing this you could borrow this money at 4% and let's say you invest this capital and earn 8% you would be profiting 4% in your pocket. Example $400,000 x 4% = $16,000 cost to borrow then your 4% profit gives you $16,000 income, rinse & repeat.

To recap say ball park $30,000 a year rental income after some expenses and the home valued at $500,000 with no mortgage. Reinvest $400,000 of that mortgage free home at a cost of 4%($16,000) a year to make you 4%($16,000) more income on top.

$30,000 + $16,000 = $46,000 a year from one rental... now just keep adding to your portfolio. Sounds easy right...? Well it isn't that easy if you are doing this on your own, you will need guidance and learn some skills which may only come from experience of doing the task at hand.

You Can Do This Too!

You see, this whole path came from me wanting to secure my financial future and it does work... if you work. However that is not where it stops. Continue to create multiple streams of income as you free up your time and this is where the real work begins. I made it my personal goal to create 10 streams of income to reduce the damage done if one stream got hit, as it would only hurt 10% of my wealth.

Another noteworthy rule is never to risk it all into one new venture or deal: as you grow your wealth you will want to leave room for error. I found it extremely difficult to get re-centered when you have the feeling of something to lose. I have since improved my mental game to ensure I can be level headed under pressure.

The best part of doing this early on is you have time to recover from any mistakes you may make. Once you have been challenged as an entrepreneur you will learn pretty quick what your limits are when is comes to your growth plan. Just remember at the end of the day you are working on freeing up your time. More money can be made but your time cannot be replaced, so invest it wisely.

A few ways to create more income for your future are as follows: real estate, coaching, traditional businesses, online businesses, paper assets, commodities, private investing, start ups, etc.

What you want to avoid is putting it off. The plan should be simple and you must be consistent. I recommend you consider taking a percentage of your income off the top of every paycheck and start building your wealth. This could be for something under $10 a day when you really think about it. At a certain age your lifestyle will change, due to health, interests, passion or skills. At the end of the day, your future is your responsibility and to ignore that will only lead to hurting those closest to you.

If you don't know where to start I would suggest you start with grabbing some books from the business section (or audio), understand that skills are the real value. Wealth creation is a learned skill and will allow you to always be ready for life's curve balls.

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