March 17, 2022

JF2753: How Much Do You Need To Retire? Should You Stop Working? | Actively Passive Investing Show with Travis Watts



In this encore episode, Travis Watts and Theo Hicks provide their insight on reaching early retirement, navigating financial freedom, and setting goals following retirement. 

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Travis Watts: Hello Best Ever listeners and welcome back to another episode of The Actively Passive Investing Show. I’m your host, Travis Watts. Today we have something a little bit unique, it’s called an Encore Episode. The topic is how much do you need to retire, and should you stop working when you retire?

It’s come to my attention that a lot of our viewers and subscribers here are relatively new to the channel, so there were a lot of episodes we recorded in years past that haven’t been heard. So instead of trying to recreate or repeat myself, we decided to do something a little bit different and we did a bit of a mash-up of a few different episodes that were recorded about two years ago, and I want to extract the answers to these questions from those episodes. I think they were well done. It’s back when I had my co-host, Theo Hicks, with me.

The topic at hand has just been something that is very relevant today. I mean, in the last probably month or two just working in investor relations, I’ve had a lot of calls with baby boomers retiring or looking to retire or recently retired. A lot of people are asking questions like these. I’m never giving financial advice, I’m not a financial planner, so please seek licensed advice, but there are some good key concepts to consider and think about, so we’ve addressed them here in this encore episode.

I’d love to hear from you guys too if this concept is something you like, where we can extract some of the best bits and pieces of previous episodes to address maybe a new question or a topic at hand. So like, subscribe, comment, reach out anytime if I can be a resource. Enjoy today’s episode.

Theo Hicks: How to know when to retire? How much is enough? Now, before I let Travis describe it, I don’t see many people asking this question, I don’t see many blog posts covering this topic. I think Travis did a really good job explaining what we need to do in order to, number one, just be aware of this kind of stuff in general, and then number two, what we should do to figure out when, if ever, we have reached the point of maybe we don’t need to work as much, or continue that grind. I’ll let Travis take it away and then we’re going to have our back and forth.

Travis Watts: In this blog, I use the story of a CEO of a tech startup company. It starts with the tail end of this guy’s career, saying he just took his company public, he’s got stocks that are going to vest over the next five years. Once they do, it will be estimated this guy will have about a $5 million payout. That kind of sounds like the ultimate American dream. But as we dig a little bit deeper, we get a little more into this story and we figure out that the way this journey started was this guy worked at a Fortune 500 company for the first decade of his working career, had a high salary, had some stock options there as well, so in those first 10 years, walked away with approximately $2 million in total investments, a paid-off home, things like this, and then launched his own company afterwards, went into business for himself.

He had actually previously sold a company, that was his second venture and out of the second decade of his life. Then here, we’re taking a look at the third. So the question really is, as much as that looks like an amazing success story to a lot of folks potentially, how much is enough? Was it possibly enough when he had a couple of million dollars and a paid-off home? Could he have potentially retired in his 40s, maybe in his 50s? Now he’s 60, looking at a couple of kids in their 30s that he wishes he could have spent a lot more time with in his life. A lot of people get caught up in these success cycles. It’s just one business to the next, to the next, to the next; I made one million, now I need to make two. I made two, now I need four. I made four, I need eight. But where do you stop?

Theo Hicks: I was talking to someone — I can’t remember what his name was, maybe two weeks ago on the podcast. He really had an exit plan right when he started. He knew exactly how much money he wanted to get in real estate before he fully stepped away. Let’s say I know what enough is – then what? What do I do after that?

Travis Watts: Identify first what is important to you, what are the most meaningful things in your life, what does that look like, what brings you the most fulfillment You got to write this stuff down; this can’t be just done in your head one time, this is just setting goals for a lifetime. Then you have to reverse engineer now. How much is that going to take?

I think what a lot of people find, myself included, is when you really nail this stuff down, you might find it’s a lot less expensive than you might think. The problem is, in general, we don’t stop to think about these things. We just think, “I’m working now, I’m going to work till my 60s, whatever.” We don’t give it much thought and we just go on the treadmill.

Then one day you’re waking up in your 60s thinking maybe either, “I have a few regrets, maybe I could have actually pulled the plug back in my 40s or my 50s, spent more time with my kids, maybe travel a little more, had less stress, if nothing else.” And the purpose is not to say quit working or retire in the traditional fashion, especially if we’re talking about someone in their 40s; I think it’s about finding what you’re truly passionate about.

Theo Hicks: I know some people’s goals in real estate are to actively invest until they’ve built up a large enough nest egg that they can passively invest with someone else, and then live off of that interest.

Travis Watts: Yeah, that’s exactly it. That’s my big message to the world, too. Obviously, I’m a huge advocate for passive income and passive investing, that’s my story. The point is you and I, Theo, are very fortunate to have jobs and careers that we genuinely enjoy. We like to be creative and expressive, we both write blogs, we both do the podcasting stuff in various outlets, and that’s amazing. But you also have to remember, most people aren’t doing that; most people are caught in the golden handcuffs. Either a nine to five situation, or they’ve climbed this corporate ladder so high that they make a really nice salary, so they’re kind of trapped.

So until you start putting some of your income towards investments, whether it is passive investments or not, it’s hard to branch away and have this balance that we’re talking about no matter what your approach is. But I think we all need to get there, we all get there at one point or another. What’s the average American retirement like? 67 is the retirement age; I don’t know, something like this. You’ve got social security, you’ve got possibly a pension or your 401K.

This is basically passive income at that point. You’re not having to exchange your hours and your labor in exchange for money. So we’re going to get there somehow, at some point, hopefully. It’s just a matter of if you focus on the stuff earlier in life, you can get there potentially a whole lot faster than perhaps your 60s or 70s.

I was introduced to this video and came across it on YouTube. Unfortunately, this is on the fly right now, I can’t remember what the guy’s name is, but if you type in, I think, “retire at 36” or something like that, “retired at 36”, there’s this guy who had a passion for boats and sailing. That was really his life purpose, it was his hobby. He was a consultant, if I remember right, an IT-type consultant, made really good money, worked full-time, grinded it out up until 36, ended up just buying the sailboat and just living out on the boat and in the Caribbean.

He “retired” at 36. He’s the one that introduced me to this concept of “enough.” He said, “That’s the hardest thing to do, is to pinpoint that number, this number would be enough for me,” and then take action when you hit it. Because that’s the scariest part, is taking the leap and saying, “God, I hope this is enough. I hope I’m right.” But it was for him, and this guy is, who knows, in his 50s now or something.

But it’s an amazing story. His alternative was just more and more and more and more money, but then that would have kept him longer and longer and longer away from sailing. And what if he had passed away or came with a debilitating disease or something? I mean, you never know, life is short. Something to think about.

Theo Hicks: When you’re sitting there saying, “What’s enough? Well, “I want to have a BMW, and I want to have a million-dollar mansion, and I want this,” which is obviously fine. But that “enough” number is going to be way higher than if you’re just going to graduate from college and you’re in an apartment. Like, “I really just want a three-bedroom house and it’d be nice to have a car and to be able to go out to a restaurant once a week.”

Travis Watts: Yeah, that’s a great point. As far as things like talking about a BMW or a 10-bedroom house or this, that, and the other, you’ve really got to ask yourself why are you doing that? Is it because you genuinely wholeheartedly love BMWs, and you’re passionate, and you’re a car fanatic, that’s your hobby and interest? Or is it because you’re keeping up with the Joneses? Or it’s because you think, “Well, society expects this of me. I’m a dentist, or a doctor, or a realtor. I’ve got to drive this really fancy car. What will people think of me if I don’t?”

You’ve got to really understand, this takes a lot of soul searching and looking deep, but at the end of the day, it’s probably the ladder in most cases for most people. And nothing wrong with those vehicles; I’ve owned nice vehicles like we talked about before. I chose to buy them used, pre-owned, and I have owned luxury vehicles. So there are ways to go about it, but is it you’re doing it for yourself and not trying to impress other people?

Break: [00:12:22][00:14:18]

Travis Watts: Okay, so you’ve gotten to the point of let’s say early retirement or retirement in general – does that have to mean that you don’t work anymore? What happens when you retire early and you’re in your 30s or 40s? Does that mean that it’s time to go move into that retirement community and start playing pickleball?

Theo Hicks: I definitely fell into this early on, for sure. I think I’m slowly getting out of it, and your blog posts definitely solidified some of those things in my mind. So with that being said, let’s go through it.

Travis Watts: The idea here is that we all have a lot of preconceived ideas about what retirement is, what that means. I think that we all want to would be contributing in some form or fashion. Successful individuals that are far beyond what they need financially to retire – why is it that they keep “working?” Well, it’s because they have a mission, they have a purpose. That, to me, is really what financial independence is all about. It’s having the option to work, but not the obligation to work.

Theo Hicks: Well, then maybe rather than just quitting and going into real estate full-time, try to figure out a way to transition into a job now that will help you reach your long-term goals.

Travis Watts: Yeah, and there are usually two types of people. There are those that love their career and they’re passionate about it, and then there are those that really despise what they do. I was in the latter part of that initially, and then the passionate side later. But the point would be this – if nothing else, for either side of that, just get started. Again, to the whole theme of this blog about not having to quit work – it doesn’t have to be so extreme, like “I work a W2 job today, and tomorrow I quit and go full-time real estate.” Just start, just have a rental property, REITs. In the stock market, you can get in with $10.

Most people think of investing in terms of capital gains, in terms of equity, in terms of fix and flip a house, in terms of buy a stock at 10 and hope it goes to 15 and sell. That’s how most people associate investing. But I flipped that into passive income, cash flow. Specifically, living on cash flow and creating multiple income streams early in life, to where you’re actually putting yourself in the situation that statistically 60 and 70-year-olds are in, in retirement. I’m passionate about helping people reach those levels, so that they can do essentially their highest and best work.

Theo Hicks: The other thing you said too that I wanted to also mention about what retirement actually means – is it just doing nothing? It’s continuing to do something that you want to do. Again, you also gave some examples of things that you’re doing now that anyone can really do now to start to figure out the type of life that they should be living once they retire. Do you want to talk about that too?

Travis Watts: Sure. A lot of passive investors, I’ve come to learn, are just simply highly paid professionals doing whatever it is they do, and they’re looking for a place to park capital that’s not going to require their time. Think about being a dentist or a doctor, and then taking two days off a week, Saturday and Sunday, and going and trying to fix and flip houses. You can’t even day trade stocks, it’s the weekend. So a lot of this active stuff just doesn’t make sense for certain types of people.

When a doctor, an attorney, or an engineer reaches financial independence, what they have is an option. An option to – and here’s the three things I point out. An early retired doctor might set up a smaller practice that operates without the pressure of optimizing profits, and without dealing with the hassle of insurance companies, one of the biggest headaches in the industry. An early retired attorney might refuse all cases that are based on questionable ethics.

You have an option to say “I’m not going to do this work, I’m not going to take on stuff like that.” Or you can be a lot more picky and choosy with what you do. And the engineer might continue working. For example, they might contract instead of being a W2. They might go part-time instead of full-time, or they might be compelled to create new software. So those are just some things to think about of what we’re talking about. None of these folks in these examples stopped working, but they were able to move on to something that was more fulfilling and brought more into their life.

Theo Hicks: Yeah. Another example, more real estate related too, if you are someone who wants to transition from active, retire from that and become a passive investor… I’ve talked to a few people recently who were full-time active real estate investors and then they hired someone to oversee the company. I’m sure they took some time off, but then once they were ready to get started again, they started some sort of consulting program or mastermind group where they teach other people to replicate what they did. That’s just another example.

The other thing that I really liked about this blog post that you mentioned – the question you want to ask yourself to figure out what you should do once you retire is what you value. You gave the example – and we talked about this in a past episode – if you value stuff too much then you’re going to have a hard time reaching that number. Because you’re going to have this luxurious lifestyle that’s going to cost you a lot of money to maintain, and you’re going to need a higher passive income to cover that. You gave examples in here about things that were high costs, but resulted in low happiness, and then things that were lower in cost that resulted in higher happiness.

You talked about how you could upgrade to a Ferrari or Lamborghini, but would that ultimately make you happier? Maybe once you buy it and then when you’re driving it once a month, or once a week, whatever, but it would bring you further away from your financial goals, your family goals, and your travel goals, because of that reason, “Now I need to make that much more money, invest in that many more deals to cover that Ferrari cost.” So you gave other examples of things that resulted in happiness. I’ll let you talk about what those are.

Travis Watts: When I was a kid, Theo, I remember when I first was learning about money and how much things cost, and I would see a Lamborghini or Ferrari and then ask or research how much those are. I’d think, “Oh, my gosh. That car is $200,000. That’s not even in my world, that’s not in my reality. That’s insane.” As you progress through life and one day, you’ve got a couple of 100 grand and now you’re thinking “I could really buy that car cash.” Then you think, “How dumb would that be? How much happiness would that give me, versus what if I invested it and I got 1,200 bucks a month in cash flow? What could I do with 1,200 bucks for the rest of my life?” For most people, that’s social security benefit right there, 1200 a month; that’s crazy. And maybe less.

A couple of things that have added some tremendous value at a low cost were my wife and I went and backpacked Europe for our honeymoon, and I bought the custom-ordered shoes, like a forever sole, breathable, washable, they collapse down, you can roll them up, you can put them in your pocket… They’re amazing. They were like 100 bucks and I can’t even begin to tell you how much value that added, not only to that trip, but every vacation we take, I’m wearing them. I love them. And they don’t wear down; they’re just phenomenal.

The other thing is my wife’s got scoliosis, so her spine’s like an S-shape. I bought her an inversion table. We’re always trying to experiment with things that make her life easier, and eases the neck tension and the back pain. It’s just a little table, you strap your feet in, turn it upside down, and it decompresses your spine. I don’t know how much they retail for, probably a couple of hundred. And I can’t tell you, man, every time she gets on it, she’s so happy; it’s so fulfilling and physically rewarding.

This whole thing is about finding things that bring value and happiness into your life. What we really value is travel, vacations, spending time with family, and these little things. A nice pair of shoes that are comfortable. Just to wrap it up, that’s the whole point, I think.

Theo Hicks: My dad, for example, he retired as a bus driver. He loves talking to people, and so every morning… Not now, but before COVID. Every morning at [6:00] AM, he’d go to the little bus shop, where the buses are, and other retired bus drivers are there and they’d just talk about whatever for two hours. He really enjoyed doing that. Again, it could be something as simple as “I like talking to people, so I’m going to do a part-time job where I’m doing something as simple as driving a bus, or being a cashier, where I get to hang out with people all the time.”

Travis Watts: You just made me think of it. I know we’re both Tim Ferris fans, so 0 I forget which book, 4-Hour Workweek, or one of them… He’s sharing the story of the New Yorker business guy that goes down to Mexico on a fishing trip. This guy takes him out on the boat for a few hours comes back and he says, “Alright, thanks. That was great. It was amazing. Do you have more customers today?” He said, “No, I only do one trip a day and get some fish for my family and do this.” He says “Well, why don’t you do more? Why don’t you do like five trips a day? You’ve got plenty of time to do it.”

He’s talking about, “Well, I like to come home, take a nap, visit with my wife, play with my kids. In the evenings have some tequila or whatever, and play music with my friends. That’s my life.” And the New Yorker is like  “Well, can you imagine though, what if you did more of these trips, made more money, you could buy two boats, then you could hire employees to run those boats, and then you could have a whole fleet of ships. When that gets successful, you bounce out of the business, then you could headquarter in the States, then you could run this big operation, and then you could franchise…”

The guy keeps asking “And then what? And then what? And then what would I do? And then what would be after that?” He goes, “And then you can retire, come down here, have a quality of life, spend time with your family and your friends.” The guy already had all that, he already had the quality of life. That’s one more example of having enough.

Theo Hicks: That’s a perfect story to end with. Is there anything else you want to mention before we sign off?

Travis Watts: I guess for anyone listening, just think about this question – are our goals and your aspirations more set around the quality of life, or having quantity? Meaning money in numbers. I was guilty of this early on when I would set goals. It was always money goals. One of my first goals is, “I want to be a millionaire. I want to have 10,000 a month passive income.” But when you dig a lot deeper, it’s what do you really want out of life? How do you want to live your life? That’s really what the question is.

Theo Hicks: We’ll end the episode on that note as well. Thanks, Travis, again for joining me for The Actively Passive Investing Show. Best Ever listeners, as always, thank you for listening. Have a Best Ever day and we’ll talk to you tomorrow.

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