Why Many Rich People Can’t Afford to Retire

They tell me they can’t afford to do that. There are a few stories I want to share with you today.

But really, the question that I want to unpack is, “Why?” What is getting in the way of these people? Why do they feel that they can’t step out? Why do they feel they can not afford it? 

And these are all people, by any definition, who would be considered wealthy. 

So I want to just give you some food for thought on not only the why, but also what you should be thinking about if you find yourself in this situation and want to give yourself an early exit or an ability to redesign the way you live your life.

Client Case Study #1

The conversation this week that prompted me to record this episode was when I was having a conversation with a woman who I’ve become reasonably close with over the last 12 months.

She runs a fabulous business. She’s talented and effectively, but she’s found herself in a situation where her health has deteriorated over the last two to three months.

She recognises that she’s burning the candle at both ends and she just wants to take some time out.

She’s decided that she’s going to take a short sabbatical and just really reduce the stress levels and the intensity of her workload.

From my point of view, when I was chatting with her, it’s obvious that she’s done a lot of really good stuff.

She has a self-managed superfund. She’s invested in real estate. She’s done all the right things. She’s been a share trader, all sorts of things.

This woman, I would argue, is pushing up against the traditional retirement age.

I said, “Well, what’s stopping you from just pulling up stumps altogether?”

I think, from conversations I’ve had with her in the past, I think she’d really like that.

But her response was that no, she just doesn’t actually feel she can quite afford to do that.

She’s talented; she has her own business. Her husband has his own business. They’ve earned tremendous money over a 40-year-plus career in business.

Yet with whatever net worth they have, they still feel that they cannot step off.

As I said to you, this is such a common story. I’m hearing it time and time again from business owners who are crushing it by all accounts, but who feel that they’re just not in a position to let go of that income stream.

They’re so heavily reliant on it to bridge the gap between whatever their investments are producing and what they need to maintain their lifestyle. Most savvy investors don’t necessarily want to get pushed into the corner of having to sell down assets. So what other choices do they have?

The sentiment is, “Well, I’ve just really got to keep working and hustling till my asset base reaches a new high, at which point it’ll generate enough income for me to live comfortably.”

For these guys as well, often, legacy is a major consideration. How do they leave something behind as well?

So that’s what prompted me to say, “Look, I think this is becoming a conversation that I’m hearing on repeat.”

I probably can’t do it full justice in one podcast episode, and I’ve probably touched on it in many past episodes.

But today I just really wanted to record this despite being a very horse in the throat.

I really felt like I wanted to get this one out while it was fresh on my mind.

Client Case Study #2

I remember maybe 10 to 15 years ago, there was a hairdresser I used to go and see who ran a wildly successful salon.

I can’t even imagine how much money he brought in. He lived in one of the most affluent suburbs in the city, had a beautiful home, kids in private schools, and drove a Mercedes that he switched over every couple of years.

And yet I remember saying to him, “You’ve earned so much money. Why do you work so hard?”

I mean, the poor guy used to work six or seven days a week, never took holidays or very rarely took holidays, had a huge team, but just felt he couldn’t afford to take his foot off the gas. 

I think he and this woman that I just mentioned a minute ago are in the same boat of being people who have hustled and redlined and worked hard. 

Perhaps it’s that the habit of working hard is a difficult one to shake, and that’s possibly a conversation for another podcast.

But I think that there are a couple of things that I want to pull out of these stories, and then I want to share a couple of case studies with you.

One of the things that most investors are completely single-minded about, particularly in the early days of investing, is the idea that they have to focus on assets and investments that will deliver growth.

That makes perfect sense because what you want when you first start out as an investor, and I often refer to this as the four seasons of investing, when you start in spring, the starting point when you enter the workforce is how do I just create some surplus that I can then use to access investments that will grow over time? 

The problem that we experience, particularly here in Australia, but it’s a worldwide phenomenon as well, is that the majority of investments that are available to most people in the market only offer growth in a speculative market, and I just want to qualify what I mean by that.

If you think of a spectrum when it comes to the quality of your investment, at one end of the spectrum, you might have an investment grade.

An investment-grade means the investment already stands on its own two feet. There’s not a lot of speculation about it.

There’s extreme underwriting and due diligence done on the investment as it is, and based on profitability analysis, and what you can do to the asset to potentially improve its value, there’s very little speculation. 

Then, down the other end of the spectrum, you have what I call speculative investments. 

Now, this is not my concept. I must totally give attribution to my dear friend Mike Slotnik on this one, and I think I’ve mentioned this model in past episodes.

But I want to bring it specifically up in reference to today’s podcast because I think it’s really important that you understand when you’re selecting investments.

Although you think you’re doing as much as you can to stack the odds in your favour, what most people are doing is speculating.

They want growth assets and they’re speculating, and so what that looks like is that you are buying assets and you are hoping and praying that the market continues to rise.

Whether you’re talking about property, whether you’re talking about shares, to some degree, even a lot of the blockchain stuff, you’re buying at a certain price and you need the market to rise to get that growth.

What you need to recognise, however, is that there is an element of speculation in that model.

So the challenge that exists with that is that if you come to a point in history, like where we are right now, where there is a huge, huge amount of volatility and uncertainty starting to brew in the market, then those speculative investments, where you are banking on a rising market, become harder and harder to pull the trigger on. 

I think the real question that you have to ask yourself is if you were to take a haircut across the board, in terms of the investments that you hold, and I’m going to say worst-case scenario, let’s say the market tanked and you lost 20%.

The problem is you lose on those investments, and in fact, in general, if the market goes sideways or if the market drops, you lose on those speculative type growth investments.

Key Takeaway #1: Consider the Costs of Capital Growth

So I just wanted to give you that as context and then really the three keys that I want you to think about when it comes to your own portfolio because I do want this to be really relevant.

I want nothing more than to be a spokesperson for how to invest from a different mindset so that you can achieve what you want long before the traditional retirement age, or if you’re in the unfortunate position that maybe retirement isn’t too far away, that you can really change your trajectory and get to a really happy outcome in a very short space of time if you can embrace what I’m about to share.

So, number one, I would say you need to pause and think about the burdens that come with growing more capital.

I say this as the starting point because a lot of people that I’m speaking to don’t actually need more capital.

They’ve actually got a really solid network. They’ve already done a lot of work to grow their wealth and get to the position that they’re in today.

The issue that they face is that the capital that they have just simply isn’t working hard enough, and unfortunately, particularly in my market and many other markets around the world, the types of investments that most people are buying do not lend themselves to strong income.

So the thing that I would say to you is, and what my hairdresser and my other friend that I spoke to this week expressed, was that they felt the only way to solve their financial problem was to grow their net worth even more to tolerate the very poor cash flow that came so that they could afford to retire.

I mean, effectively, what everyone is trying to do is create an income stream for themselves outside of their business so that they can put themselves in a situation where they’re not completely dependent on that one source of income because, as we all know, tides can turn, and things can happen.

If there’s any fracture or interruption to that income, then you can be really caught with your pants down.

So the first thing I want to say is that I really want you to pause and consider the burdens that come with growing more capital and really ask yourself the question, “Do I actually need more capital? Or is it that I just need to get the capital that I have working a little better for me?”

The burden that comes with growing capital is that, potentially, you may have to take on more leverage.

You may have to expose yourself to more speculative types of investments. You may reduce your protection from volatility.

So if we think, for example, about the share market, you need to find more capital to buy shares, so you can either do that through trying to access the equity that you already have, or you’ve got to actually just save it either through dividends in your business or personal savings.

If you want more property, it’s the same. You’ve got to apply leverage. You’ve got to deal with the banks, and that comes with its own bag of snakes.

If you are someone who has already got a reasonable property portfolio and a reasonable share portfolio, or you’ve got some equity behind you, it might not appeal.

I know certainly a lot of people I speak to, there are only so many properties they want to own because of the administrative hassle and all the burdens that come with it, aren’t quite right, the right next move for them.

You want to pause before you think about taking on more speculative investments, particularly with where we are in the market now.

If anything, I feel that this is a time to be de-risking your portfolio, reducing leverage, and really raining down your exposure to that volatility.

Key Takeaway #: Challenge Yourself

The second thing that I really wanted to make as a point for consideration is that, let’s say you’ve got a reasonably good net worth and you have it predominantly at the moment in investments that are producing very little cash flow.

It doesn’t mean that they’re not performing well for you because, for example, in the property market, most people who’ve invested in property over the last 20 to 30 years have laughed all the way to the bank, myself included.

A lot of my net worth is made up of equity that grew in my sleep, and I’ve had a bit of a set-and-forget type portfolio. 

The question, though, that I want you to consider is, if you were to take a small percentage, I call it minimum viable, and you could play with this number and put that capital to work in a way that it was producing consistent income, how would that transform your overall property or wealth performance portfolio?

Client Case Study #3

I want to actually talk you through at least one example here, and I’m just going to bring it up so I get the numbers right.

So this is a case study from the event that I ran on the weekend that I wanted to share.

These guys have six investment properties and a net worth of about 4 million dollars. They’ve got three underperforming properties. They have very poor cash reserves and reasonably high lifestyle costs.

Now their great frustration is that the income stream coming off these properties is a far cry from what they need to be free to just walk away from their business.

If they were to take, and this is me just playing with their numbers, let’s say they’ve got a net worth of 4 million dollars. 

If they took let’s call it 20% of that portfolio, say $800,000 and put it to work, earning a net return of say 10%. Let’s say that’s roughly $80,000 a year. They weren’t going to let it compound and they were just going to start earning that money. They were looking for opportunities where they could just start earning that money now. It’s $80,000.

But that $80,000 completely outperforms or at least is equivalent to, the cash flow that they have across the entire portfolio. At the moment, they’re getting one to one and a half per cent net cash flow across that portfolio, so around the $50,000 mark.

But by adding that extra $80,000, they’ve bridged the gap between where they are right now and where they want to be, and effectively they’ve shaved at least 20 years off their timeline to financial freedom.

So the point I’m trying to make here is that it’s up to you to do the numbers. I mean, I can certainly help people who are interested, but the idea of taking a small percentage of your portfolio and asking it to work a little harder than how it’s working right now without rocking the boat.

I’m certainly not suggesting that anyone rush out and sell their portfolio in order to do that

I’m saying, how can you have your cake and eat it too? How could you keep the investment properties that you have and bake in some income-producing investments? 

You’ll start to see whether it’s 5% of your net worth, 10%, 20%, or maybe even as much as 30%. You can completely transform your relationship to time and have the freedom to choose when you step off.

I don’t want to go too much deeper on those guys right now, because I do feel that I think the point is it could be any number. So that was my second thing.

Consider for yourself, given your current net worth, if you were to take a small, minimum viable percentage of that capital and put it into a cash-producing investment and just pick a number like somewhere between 8 to 12%, what would that mean to your timeline?

What would that mean for your overall portfolio performance?

Key Takeaway #3: To Overcome fear, Educate Yourself

The third and final piece that I want to really stress, and again, this has come up in questions that I’ve had from people.

The idea of investing money in income-producing assets is so foreign to some people, even because they’re just not in the mainstream. They do exist. They’re viable. They’re real.

They have certainly been the private playground of a lot of individuals over the last couple of decades, but there’s a lot of fear, and I understand that fear, and certainly my own experience, which I’ve shared with many of you, has been that I’ve done it all wrong.

I started investing with the wrong people in the wrong cities with the wrong strategy so I’ve had plenty of cuts and bruises along the way.

Yes, it’s easy to make mistakes, but through experience, I’ve found that I’ve been able to ratchet my way into better and better networks and the thing that has struck me as the single most important thing is the greatest tool you have to overcome fear is to educate yourself.

The Two Wealth Models

There are a couple of points I want to make here.

The two wealth models that I see predominantly being used by people all over the world are either one or the abdicating model, which means I don’t have the headspace or time.

I don’t understand this stuff. I’m not an expert. So I’m going to give all my money to somebody else and just hope they do a really good job with it. 

The other model is the lone wolf model, which I’ve actually spoken about in a past podcast, which is that I’m going to do it myself. I’m going to scour the net, consume as much content as I can, and I’m going to go out there and find the deals myself. 

To some degree, there’s definitely an element of education in the lone wolf model, which I admire and I certainly have done that from time to time, but it’s really hard. It’s really hard work.

I can say that it took me a lot of time, money, and expense, hundreds of thousands of dollars, in fact, to get to where I am today.

But I would say to you that there are opportunities out there to educate yourself on options around alternative investments, outside of the mainstream, where you can take control of your investment decision-making and, really, that’s the ultimate goal.

So whether I’m talking about the abdicating model or the lone wolf model, what I’m really saying is that those models are tough. 

Both of them, the abdicating model, are tough because you are basically outsourcing all decision-making to someone else, and the truth of the matter is that there are countless studies that show that if you want to be wealthy and get premium returns, you cannot outsource your wealth-making. It just doesn’t work. 

On the other end, there are a lot of people who are trying to adopt the lone wolf model and have varying degrees of success, but it’s a hard model.

So I’m really hugely a fan of if you’ve got a timeline now, which is a bit tight, or you just don’t want to waste any more time, then educating yourself with the right people to overcome any fear is really the thing that will get you over the line in terms of giving you the confidence to start thinking outside the square and accessing investments that do sit a little left of feel and outside of the mainstream.

I’ve said this before, a lot of people are concerned that alternative investments are really risky and weird.

Again, I would say to you that the fastest way to de-risk something is number one is to be educated on it and understand it, because then you know how to rule investments in or out, so education is crucial.

They’re the three things I wanted to really give you as practical takeaways today.

Three Key Takeaways Recap

But I really want to just summarise again: if you are someone who has a relatively good net worth, a good balance sheet, if you earn good money, but you feel crippled by the lifestyle costs that you have and an inability to duplicate that income stream outside your business, and you are looking for another way, you must consider alternative investments.

You must educate yourself about them. You’ve got to find a way to put a percentage of your capital into these investment deals so that you can ratchet up your cash flow and put yourself in a position where you have a choice.

Move away from speculative investments that can create basically just more of what you already have, particularly as we go into these highly volatile times. Look to de-risk your portfolio, not increase the risk.

As I get older, I certainly realise that maybe I’m getting a bit old in the tooth, but when I was younger, I was happy to the red line and hustle and take some big risks. 

As I get to a point where I want to work less and I want to enjoy my life, I certainly am not prepared to take the risks that I did 20 years ago.

I recognise that it’s been part of my journey to take big risks and experience a couple of big losses along the way, but it doesn’t have to be the way that you invest from here on in.

It saddens me greatly when I talk to people who are maybe approaching 50 or in their fifties who felt they had no choice but to take on something hugely risky just because they felt they had no other choice and it was going to be the thing that got them over the line, only to find that they’ve lost the lot.

Final Thoughts

So guys, where I want to leave this today and my call to action is to go through those three points, apply them to your own portfolio, have a think about what that outcome would mean to you, and if you want some help working through those things, please reach out.

I’m more than happy to communicate. Just send me an email at salena@www.www.inkosiwealth.com.

But until next time, please take care and stay safe in this freezing cold weather.

If you’re a business owner feeling frustrated that despite doing everything right in the property investing playbook and you’re no closer to financial freedom, then head over to www.inkosiwealth.com to learn more about how you can use alternative investments to catapult your investing income and blend strategies to shave decades off your timeline to financial freedom.

If you’re interested in understanding how to create wealth through alternative strategies, please check out my programs, where I help you catapult your investment income and blend strategies to shave decades off your timeline to financial freedom.

Or, you’re welcome to get in touch today, book a call with me, and I would be happy to talk you through it – no obligation!