Retirement Goals

Real Estate Investing in San Diego

Simple vs. Complicated

I just read a great book, “Why we want you to be rich”, by Robert Kiyosaki and Donald Trump. It talks about planning for the future, in which the economy may or may not be as good as we see it today. They talk about some of the many dangers that can derail our current “good times”, such as inflation, deflation, government bankruptcy, terrorist attack, asset bubbles, pension plan bankruptcies, etc. Any one of these things, or a combination, can seriously affect your retirement plans. That’s why they want you to be rich, so that you can sail over any future storms.

But Kiyosaki said something that clarified my thinking about retirement. He said there are two ways to do it, simple and complicated. The simple way is to knock down your expenses to the bare minimum and have enough socked away or coming in to support that simple lifestyle. I’ve run into many people who are currently living or are close to being at this level of retirement.

An extreme case is Jerry, who lives in a motor home and bought a “Thousand Trails” membership. This is a type of timeshare where you can park your RV in any of their parks for two weeks at a time. So Jerry and his wife travel wherever they please, living on Social Security and a small pension. I ran into Jerry in Oregon at a family wedding, and he had parked in the RV lot there, and stayed in Oregon for two weeks to attend the wedding. He has his favorite spots in each park, like the one in the back with the great view, and he just books ahead to get these spots. Winters are spend at that RV city of Quartzsite, Nevada. This is a somewhat nomadic lifestyle, but heck, you get to travel, and you pay no real estate taxes.

Here’s another example of a simple retirement plan. Wayne hopes to retire in a couple of years. He’s worked most of his life at a union job, and by not living extravagantly he has almost paid off his mortgage and has a modest 401K. He figures that with the house paid off and a couple of new cars in the driveway, his pension and Social Security will cover his modest expenses. He will have to do some side work to make extra spending money, but he doesn’t plan to sit around and do nothing anyway, so that’s ok.

Now let’s talk about Joe. I met with him the other day; he is looking to have his elderly mother move to San Diego to be closer to him and his family. Joe will buy a place with his mom, because she is not able financially to make the move on her own. So Joe has the means to make that happen for her.

 

palmtreeJoe’s travel plans this year include a rafting trip down the Amazon with his son, and a helicopter skiing trip in British Columbia with his daughter. Since his wife is not a daredevil, he will take her on a cruise of the Greek islands. Joe is currently on a “sabbatical”, since he never sees himself as retired, just taking a break to explore some other things. He has a high net worth from successful investments in real estate and businesses. He still owns many of these assets and enjoys actively managing them and creating wealth.

OK, so simple or complicated – which one are you? Personally, I must admit that part of me craves the simple. At this stage of my life, I could do it by selling some properties, having a free and clear home to live in, and paying off some other properties to generate a small income. I’d be done! But then there is another part of me that wants to be in a stronger position that that. I would like to help my kids or my parents if need be, like Joe did. And what about when grandkids come along, it would be great to help them get a start in life, or pay for them to go on family vacations. Or if not the family, then just being able to support worthy causes that I care about.

Complicated means having assets that grow faster than the rate of inflation, and that requires hands on investing. Simple means money in the bank that generates interest to live on. Trump and Kiyosaki take the view that simple won’t work over time. You have no control, and the value of the dollar is decreasing.

For Jerry, what if Social Security does not keep up with inflation? What if the price of gas goes sky high? He has no place to get more money to compensate. And for Wayne, his 401K has grown nicely over the long run, but what if the stock market falls when the baby boomers are forced to withdraw funds? He will not have decades to wait for the 401K to go up again.

So as much as I am tempted by a simple plan, I think I need to be more complicated. I believe everyone needs some kind of growth component in their retirement plan to keep up with inflation and protect you from unforeseen circumstances. For me, that growth component is real estate, since that is what I know and understand best.

I guess for me, it is a matter of being in control. Let’s face it, money gives you options. A simple plan will work fine if everything continues smoothly as it has been, if there are no problems with Social Security, pension plan bankruptcies, spiking energy prices, Medicare, or the falling dollar. Kiyosaki and Trump say that you and I can’t control any of those things, so as much as we would like it to be simple, we need to be more complicated. By embracing the complicated, we take control of our own futures no matter what happens.