Retirement Case Study: skewed in favor of…Are you looking at skewed numbers when making critical financial decisions? A retirement case study was forwarded to me by an associate who is an independent Certified Financial Planner (CFP). She wanted my input on an investment plan that seemed a little one-sided and sure enough, there was a fundamental flaw in that case study. Its focus was too narrow.
The company's article describes a semi-retired couple who want to travel and maintain their lifestyle. Three options are presented. The first option is to downsize and spend less. The second option is to withdraw money from their registered retirement savings plan. The third option is the investment portfolio offered by this particular company which is presented as the most lucrative of the three options. The case study is real. The analysis of this couple's financial options was dismally short-sighted.
The unfortunate fact is that most financial advisors do not present real estate investments as an o ption to their clients because there is no commission attached. They derive their income and livelihood by selling their company's products or a range of bank products. Independent CFP's charge a fee and provide non-biased advice. However, it all depends on how savvy the CFP is. Rich Dad Poor Dad author Robert T. Kiyosaki cautions his readers about the type of advisors you have on your team. If they're not making more money than you are, then chances are they will manage your finances to the level of their current financial success, not to yours.
The first option to downsize and spend less puts you into scarcity mode. A universal principle kicks in: what you focus on expands. So if you are thinking of spending less, you’re going to end up with less and less like a self-fulfilling prophecy. You actually want to do the opposite. Instead of spending less, make more money. Rightsize, Upsize and go for more. This puts you into abundance mode and opportunities will come into your life. The second option to withdraw money from an RRSP is a no-win plan. When you think about it, the government created RRSP’s as a form of forced savings.
To entice people to make regular contributions, the incentive is tax deferral until you withdraw this money in the future. The premise of planning for the future is sound. I disagree with the method. A savings plan is a type of depletion strategy. You're saving up in order to spend in the future. Let's face it. Most people's money will run out during their retirement years. We are retiring earlier and living longer. My grandmother lived for 98 years. That’s an additional 33 years after retirement. Do the math on your projected life expectancy. The third option offered by the investment company appeared like it was the only viable option. Although the comparison was made using home equity as the source of investment funds, not once did they mention real estate investments as a viable investment option. Using a side-by-side comparison,
I took the same $100,000 of home equity and compared their projected return versus my projected real estate investment return. And guess what? There's really no comparison. Real estate is the undisputed winner. Their portfolio requires a 100% cash investment leveraging only 1 profit center: the fund. My comparison requires a 10% and 20% cash investment leveraging 7 profit centers: purchase of 3 single family dwellings.Their portfolio projects $90,000 in cash flow and an investment portfolio valued at $119,471 after 15 years. My comparison projects $81,000 in cash flow and an investment portfolio valued at $708,336 after 15 years. And even the real estate comparison is skewed as increases in rent and principle paydown of the mortgage were not factored in over the 15 years in order to keep the math simple. In actuality, there’s more cash flow and more equity through the real estate portfolio.
Is it okay to have more money than you expected? I thought so. Retirement isn't about saving up to spend less. That model is a dinosaur; extinct. Retirement is about creating passive income that replaces your existing income. It doesn't matter what you do, how you do it or when you do it. You can choose to live the lifestyle of your choice on your terms. If you would like more hands-on learning, you are invited to attend a free upcoming seminar.
Check website at www.OnTheBeachEducation.com for event details.
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