Are You Over 45 with a Wealth Gap? The Tough Love Episode

The Hidden Reality Behind an Outward Show of Wealth

In recent conversations with many individuals, I’ve found a common theme: an outward show of being financially sound while internally grappling with a substantial financial shortfall.  

This facade may help in the short term, but it’s not a solution. The time to rectify the situation is running out, and time for recovery is scarce.

Let’s delve into a case study to further illustrate this point.

An Unexpected Reality for a High Earner like Frank

Our character, Frank (name changed for anonymity), represents many people I’ve talked with. Hence, I thought it necessary to share his story.

Frank, a white-collar professional with a successful career spanning over 30 years, has enjoyed a lucrative income for a long time. 

But he finds himself in dire straits despite his considerable earnings, primarily due to a wealth gap. 

His predicament emphasises that an abundant income doesn’t necessarily equate to financial stability if you don’t know how to handle it.

Frank did invest sporadically but never really took charge of his finances or made decisions in his own interest. 

More recently, he has started scrutinising his wealth, asking himself existential questions about life and his financial situation.

How to Navigate the Wealth Gap

Frank, like many others, is facing a significant wealth gap. 

He doesn’t have enough resources to secure the retirement income he hoped for and needs fresh, low-risk investment ideas to yield the desired outcomes. 

Importantly, he needs to understand his options, which traditional financial planners often fail to adequately explain.

In Frank’s situation, most of his net worth is tied up in his home, which he still mortgages. 

He feels trapped in his work, seeing no other way to fund his retirement years than to continue working until he literally can’t.

The financial advice he has received so far – put more into retirement savings, pay off your mortgage, save more – doesn’t really address his fundamental problem. 

The projected retirement income based on this advice equates to roughly 50% of his current spending.

The 4 Different Paths For Frank: What Is Best For His Future?

In broad terms, Frank, and others in a similar situation, have four main options:

1. Do nothing: Continue working, eventually sell the business, invest in managed funds, and live on as little as possible. Unfortunately, this approach may not provide enough to cover living expenses in the long term.
2. “Eat the cow”: Sell the house, downsize, and put more into retirement. This plan allows for more years of retirement, but there’s little to no legacy to leave behind.
3. Downsize and invest: Sell the house, buy a more affordable one, and invest the balance into assets that generate predictable cash flow. This strategy requires letting go of emotional attachments to the current home, but if done properly, it could bridge the wealth gap in about 3-5 years.
4. Maximise dividends: Stay in the current home and maximise dividends while minimising day-to-day expenses. The saved money should be invested in assets that provide a dependable, strong cash flow.

Regardless of the chosen option, it’s crucial to remember that it’s not just about your net worth. 

What matters most is how hard your capital works for you. Your capital needs to be invested in assets that can provide a predictable cash flow, bridging your wealth gap instantly.

Final Thoughts

The story of Frank and his wealth gap isn’t unique. 

If you’re over 45 and experiencing something similar, now is the time to consider your options and start solving this issue.

Sweeping the problem under the rug or simply hoping to increase your net worth by working harder is not a viable solution.

If this issue strikes a chord, I strongly encourage you to reach out and initiate a conversation. 

It’s time to lift the carpet, face reality, and start working towards bridging your wealth gap.