Have you ever read the book Rich Dad Poor Dad? No? It’s okay. You have the chance to save time and your money for a compressed version of the book. James Altucher has done an excellent job concisely illustrating how different working for yourself can be versus working for an employer. His piece is a classic ‘anti-rat race’ proclamation.
Lost in the muddle of your daily activity is probably a thought or two about retirement. It probably doesn’t go much further than that. I know at my current place of employment, many employees make comments about retirement when dealing with certain long-range projects. Often it’s said that they will be retired before X or Y happens. They might be right or they might be wrong. It all comes down to planning and choices.
I’ve borrowed the title of this post from the article linked below, except I’ve put soon in quotes. I’ve done this because soon is a very subjective word. My soon and your soon are probably different. Also, I am of the strong opinion that setting up a proper retirement plan isn’t something that can be thrown together in a few years. It’s a long-term project. By that I mean a project that spans at least 10, but more like 20 or 30 years. It’s something you need to lay the foundation for far in advance and then progress slowly toward where you want to be.
One more word before we get to ten steps…If not comfortable enough with the topics here, don’t have enough motivation to do everything yourself or have some other reason as to why you most likely won’t get through the list, find someone else to do it for you. You can hire someone or you can find a friend or family member to assist you. It’s an investment and the time and/or money spent will be an asset to can appreciate in the present and the future.
1. Pencil out your retirement budget and start adjusting your finances accordingly.
2. Determine a mix of growth versus income for your investment portfolio.
3. Compare your taxes today to what you expect them to be during retirement.
4. Start making plans related to your real estate.
5. If you expect to carry your mortgage into retirement, refinance your home before your income drops during those years.
6. Evaluate your automobile needs and estimated costs in retirement.
7. Give yourself a health insurance audit.
8. Take advantage of your current health program and benefits.
9. Take advantage of employer offered prepaid or discounted legal will and trust work.
10. Make a game plan.
Simply amazing. A picture (chart) is worth a thousand words.
I remember back a few years ago when I worked at the University of California, Merced, I worked on the third floor of a building that was about two blocks from where a Union Pacific rail line operated. A friend/co-worker of mine and I used to joke about how we were going to create an economic indicator based on the frequency of trains that went by per day and how strong the earthquake we felt upon the train passing. If it was a heavy load, the building would noticeably rock. We never got a hold of a seismograph, so our index was only conceptual. Yet, even though it was a joke to us, the actual application of our economic index probably would have been valuable. (For the record, we had named it the “Shaky Index”.)
What economic indicators can you come up with? A lot of people look to the price of gas as a bellwether of future economic expansion or contraction. A host of other commodities are followed by professional and non-professionals to help forecast economic conditions. What else though? What other information that is floating around can be used as a bellwether of economic growth or contraction?
Here are a few ideas…State’s collect taxes and on a monthly basis they publish reports as to how tax collections are performing versus what was anticipated. The level of tax activity is a good reflection of economic activity. For example the State of California’s Controller publishes a monthly cash report that can be found here http://www.sco.ca.gov/ard_monthly_cash.html.
Tourist information can be helpful as well. Las Vegas is a place where wide variety of people visit for many purposes. Many business travelers go there for conferences and families and individuals go there for fun. The broad appeal of Las Vegas makes it a good gauge of economic wellness. As it turns out, the Las Vegas Convention and Visitors Authority publishes a host of visitor statistics monthly. Using some simple current year vs past year analysis, anyone can gain a grasp of whether activity in Las Vegas is expanding or contracting and at what rate. This can be one simple, yet very useful, homemade economic indicator. Statistics can be found here http://www.lvcva.com/stats-and-facts/visitor-statistics/
What other ideas do you have or do you use to measure the economy’s health?
I’m linking below to a Barron’s article that provides four stocks that have sold-off recently and why you should consider purchasing them. In a bull market sometimes it’s difficult for investors to identify stocks that are ‘discounted’. This article attempts to do just that. Where do you find opportunity in a market that has run for quite an extended period of time? It’s a good question and a difficult question to answer. Leave it to Barron’s to tackle this one…
The list is as follows:
- CREE (LED Light manufacturer)
- Lumber Liquidators (Flooring Company)
- Hibbett Sports (Sporting Goods Store/Chain)
- United Natural Foods (Organic Wholesaler)
I remember reading a little over 10 years ago Pat Buchanan’s political and demographic book titled The Death of the West. The book focused heavily on demographic trends in Europe and America, but also touched on Japan’s abysmal situation regarding their rate of reproduction. As it turns out the trend has not changed in the decade that has passed.
Japan, as you can easily see in the charts below, has hit a tipping point. A few years ago, the tip happened in its population growth. The population began shirking because the number of deaths began to outpace the number of births. This shift wasn’t the result of war, famine or disease.
To an investor, why does this matter? This trend matters because, while similar trends may not be as pronounced in the US and many European countries, we all have similar ‘social security’ nets in place to provide assistance to the population during their retirement years. In the case of Japan, if their future workforce is continually shirking compared to the workforce group that they follow, the social security model will become a giant albatross for the entire society and economy.
If this sounds like fear mongering, it isn’t. Take California’s CALSTRS teacher retirement system. Recent projections have the program going broke by 2046. As a result the State of California is likely to move to raise contribution rates by employees and employers over the next 7 years (The amount of money current employees and their employers must pay at each pay period to the CALSTRS coffers.). For employers, it is proposed that rates would go up from 8.25% to over 19% annually over the phase in period. For employees the phased in rate hike would increase their current contribution rate by a little over 2%. This translates into fewer dollars going to educate future generations of workers and fewer dollars in the pockets of current workers to spend in the economic or save. There’s no free lunch here.
Below is Japan’s reality…which isn’t all that far from our trajectory.
In the latest sign Americans are increasingly comfortable taking on more debt, auto buyers borrowed a record amount in the first quarter with the average monthly payment climbing to an all-time high of $474.
Not only that, buyers also continued to spread payments out over a longer period of time, with 24.8 percent of auto loans now coming with payment terms between six and seven years according to a new report from Experian Automotive.
Ten years ago, it was just four years and two months.
We’re living high on the debt hog.
A very interesting segment and thought about how new findings and diet trends can impact your investment decisions. This goes back to what I’ve talked about before…If you can understand trends in society, you’re on track to being able to develop successful investment ideas.
If you’d like to read more, check out WSJ’s, “The Questionable Link Between Saturated Fat and Heart Disease.”
Owning a vacation home is an aspiration that appeals to many people. In the region of the world where I reside, Lake Tahoe is a high profile vacation destination. People flock there year around, but primarily in the winters and summers. In 2012 USA Today named it “America’s Best Lake” and Rand McNally and Orbitz have dubbed it the number one ski destination in America. An area with so much to offer seems like a great place to own a vacation home.
Does owning a vacation property in the Tahoe area make financial sense?
For our example we’ll look to the north eastern shore of the lake. The town of Incline Village was recently ranked as the best place to live in Nevada by the Movoto Real Estate blog. It’s a pristine area with some, if not the best, beaches that Lake Tahoe has to offer. In the winter it has access to a number of skiing areas around the northern side of the lake and in summer it’s home to every warm weather activity you can associate with a lake.
To purchase a single family home that is around 2,000 square feet and has at least 3 bedrooms, 2 bathrooms and a garage, which is located a block or two away from the shoreline of Incline Village, will cost around $850,000 based on my market research. Given that price tag, the 20% down payment will come in around $170,000 and the financing would need to be based on the remaining $680,000. At 4.22% the monthly payment would be $3,331.67 (30 year fixed). If we assume taxes and insurance would cost around 1.3% of the sales price, an additional $920.83 should be budgeted per month. This would take the monthly cost to please the bank, government and insurance company to $4,252.50. Annually that equates to $51,030.04.
Using VRBO.com as a gauge, an average of $230 per night of rental income is a reasonable estimate for our conceptual house in the location of Incline Village described above. If we assume that summer and winter occupancy run 80% and spring and fall run 35%, we can extrapolate how our rental income will cover our annual expense of $51k.
As we see, the estimated income generated, less our assumed 15% expense to cover cleaning and regular maintenance, leaves us with roughly 40% of our annual loan, tax and insurance costs. This isn’t exactly ideal. Heck, it isn’t even half way to covering the baseline expense with buying the property.
Does another option exist? Yes, it does.
The other option that could make this investment ‘work’ would be to have a situation in which you live in the house for the general period when vacation occupancy is at its lower levels. In our model, we assumed that fall and spring would be the seasons where occupancy would be at its lowest. If your need or want puts you in Incline Village for two seasons of the year, then you could factor in your occupancy as a cost you would incur, if you didn’t have the house (A sunk cost). This method isn’t so much ‘investment minded’ as it is ‘living minded’, but still keeps your situation in a financial perspective. Consider the following…
Surprisingly, looking at our living cost as a sunk cost with the combination of the vacation rental during the high season, brings us to a total slightly above our estimated annual baseline cost of ownership.
So, does owning a vacation property in Tahoe make financial sense? If you’re looking at the property as a pure vacation home that must generate enough rental income to cover your fiscal costs, then the answer is no. If the property is used partially as a primary residence during the “off season” and a vacation property during “peak season”, then the answer moves to maybe.
What’s your situation? What are your goals? Where and how do you want to live? What can you afford? There are so many questions to answer when considering to buy a home, let alone a home that is fully or partially a vacation property.
Last week I had the opportunity with my girlfriend to be propositioned for a timeshare purchase. If you’re not familiar, in areas where tourism thrives, a number of solicitors will be stationed in shops or hotel lobbies with pitches on how you can get X gift if you listen to a 90 minute ‘talk’ about their vacation offer. In the case of my girlfriend and I, we were offered a $100 Visa gift card for attending. The location for us was Tahoe (south shore) and the property was a former Embassy Suites resort that Diamond Resorts International had recently purchased. The property is under renovation and will be completely finished in a couple months (August).
In short, the 90 minute presentation was actually 4 hours and 45 minutes (285 minutes). The initial sales person offered us about 4 different sales packages. None of these interested us. I told them that through sites like VRBO and Hotwire I could find vacation rentals and hotel rooms at comparable rates or lower rates. They didn’t take my rational too well and more or less scoffed at the thought. That’s fine, their job is to sell a product, so they need to stand behind it.
After I told them no, then a much more pleasant sales person came over did some closing paper work and threw out one last offer. The offer wasn’t for a timeshare purchase. It was for a 18-month introductory sampler package. The package included a much larger number of points than what was previously discussed and the points were at a much lower cost per point, too. The catch was that it was limited in terms of time (18 months) and the properties you have access to. The selection of properties, given our travel desires in the next 18 months was actually pretty good.
We initially signed on for the deal (We have since canceled…see below for more information). Afterwards I did some comparison shopping to see if I could beat the package and, if I could, by how much. Below are a few tables that illustrate the original offer with the places we thought we’d visit and how the cost measured up with my comparison shopping using Hotwire and VRBO.
The ‘Sampler Package” deal.
Diamond Resort Travel Breakdown
Note – As you see, the total point amount to pull off the travel arrangement goes over the 15,000 by 500 points. For sake of this analysis, I’m going to assume the total of $2,795 stays as is and 15,000 would suffice.
Hotwire.com Travel Breakdown
Vacation Rental By Owner (VRBO.com) Analysis
In the end, when you put Diamond’s promotional sampler package up against competitive travel sources they cannot compete. The power of communication (the Internet) has opened up avenues that simply did not exist before in terms of hotels and especially vacation property rentals. As you can see from above, a little bit of shopping around can easily shave off upwards of 30% from what Diamond had to offer. (I did the comparison in less than 1 hour.)
In terms of cancellation, the policy included a 7 day period in which you can receive a full refund if you either mail or fax a cancellation request to the company.
On a final note, if you are ever in the market for buying a timeshare, please consider the future value of your money that you’re going to put down for the ‘share’. The lowest offer we received was $11,000 to buy in. If you took that $11,000 and assumed you were to earn an average of 8% annually for the next 30 years, you would end up with nearly $110,700. That’s your opportunity cost! That alone should make you pause. Then add the fact that you’re paying an annual maintenance fee per year.
What I’ve said above isn’t an indictment against timeshares. It’s just a few points to consider, if you’re ever presented with a sales pitch that is focused on grabbing a serious chunk of cash out of your wallet.
For the record, we ended up getting $150, not $100, for our time listening to their sales talk. For the amount of time spent, we should have received more like $300.