“John, you’re never actually going to stop working, are you?”
I got a chance to do some scenic hiking this week with one of the most successful retirees I know.
Take a look at the view!
John and I have been friends for about 10 years. I’ve always admired his work ethic, business sense, and passion for life.
So when he invited me to visit him at his mountain home outside Park City, Utah, I jumped at the chance!
Yesterday, John and I took a scenic hike with another friend of his and spent three hours talking about life, retirement, parenthood, investments, and much more.
Today, I thought I would share some of the topics we covered that relate to your Rich Retirement!
Retirement Isn’t Quitting — It’s a Transition
As we trekked up the grassy ski slopes at 8,000 feet above sea level, I had to pause to catch my breath. I was impressed that John, who’s several years older than me, had no trouble carrying on a conversation at this altitude.
“Oh, you bet your butt I’m going to stop working!”
This, after John had just spent the last 20 minutes explaining the different joint ventures he was part of, the boards he served on and the business ideas he’s working on with his kids.
I had to laugh. Because to John, these different projects weren’t work — they’re activities that he’s passionate about and enjoyed spending time on.
It didn’t matter that John was getting paid for these ventures. He still considers himself retired.
This type of active retirement is much more common today.
As a retiree, you’re probably not going to be a traditional employee of a company.
Many retirees do indeed hold down part-time jobs doing things that they love for extra income or healthcare benefits.
But I’ve noticed a trend with successful retirees that I’ve been friends with.
And this trend has been repeated by my clients as a hedge fund manager and the successful retirees that I’m friends with today.
The happiest retirees I know are still active with projects and businesses they’re passionate about.
Instead of just quitting and walking away from work, these Rich Retirees transition into a more flexible and fulfilling period of life.
A Rich Retirement Means Taking Time to Do the Things You Love
John worked his butt off the past few decades to build a successful small business.
This week, he told me about how he got started with just a couple thousand dollars to his name and an idea he thought he could make work.
Looking back, he said that even his wife wasn’t confident that the business would succeed. But John was willing to work hard enough to make sure that it provided for their family.
Even during the intense days when he was working extra hours and doing what it took to make this new venture succeed, John was still purposeful about time with his family.
And I think that’s the key to a Rich Retirement.
It starts well before you decide to retire.
John chose to work hard, but still take time to spend with his family. He made sure that each of his three kids felt special and loved.
And perhaps the thing that I admire most about John’s situation is the way he involved his children in both working hard — and enjoying the successes — at his business.
All three of his daughters know what it means to work hard and be part of the family business.
And all three of his daughters also know that it’s equally important to step back and enjoy the benefits of that hard work.
This weekend, those benefits included the chance to spend time with friends, taking in the autumn scenery, and passing on retirement wisdom to friends like me.
On Selling a Business in Today’s Market Environment
“Zach, just last week I hired a broker to help me sell my business.”
John’s statement caught me off-guard as we crested the summit and started the trip back to his car.
John worked hard on his business for years.
And despite being retired, or “semi-retired” as he calls it, I know he loves keeping up with his business and watching the firm grow.
I asked him, “Why would you sell now that the business is practically running itself?”
John’s answer made perfect sense.
“If I sell the business between now and the end of 2021, I expect to pay reasonable capital gains taxes on my proceeds. But if the Democrats take the White House and the Senate, we could see tax rates shoot even higher. This could cost me and my family a fortune!”
As you know, here at Rich Retirement Letter, I try not to get too political.
You should vote for whoever you think will do the best job for our country. And there are many different issues at stake that should affect your decision.
But when it comes to businesses, the market, and your retirement, it’s important to understand how the election results could affect our economy.
For many small business owners, selling a business before higher tax rates kick-in is a high priority!
And that’s true for investors who have positions with large accumulated gains.
If selling in the next year could help save business owners and investors a small fortune in tax liabilities, it makes sense that we might see selling pressure drive stocks and business valuations lower.
My friend John is trying to get ahead of that trend by selling his company while he can still get a premium price.
When I look at our current markets, I’m particularly worried about some of the stocks with the biggest gains over the past few years.
These stocks have a high risk of pullback because of two reasons…
First, they’re expensive when compared to the earnings they generate.
And investors with big gains may want to lock in profits while tax rates are still low.
The good news is that much of the cash that’s freed up from selling profitable positions will naturally get re-invested into more attractive opportunities.
And that wave of reinvestment should drive the prices of value stocks for small companies higher.
It’s a trend we’re already seeing in the market and one that can help you build your retirement wealth quickly!
Private Equity and the Best Long-Term Plays
As John and I talked about his business, I quickly realized who the buyer would likely be.
John’s broker is reaching out to some private equity companies who have the capital and the business skill to take over a firm like John’s.
If this concept sounds familiar to you, it’s because we’ve been talking about private equity companies — and specifically my favorite private equity firm The Blackstone Group (BX) — here at Rich Retirement Letter.
The hedge fund I managed was included in the private equity category. And I have a lot of experience working for and researching these special investment businesses.
Today, private equity companies are sitting on more than $2 trillion of combined “dry powder” or cash they can use to buy out companies like John’s business.
And because of their lucrative business models, private equity companies can make money in both good times and bad in our economy.
That’s because they generate income from three different reliable sources:
- First, private equity companies charge a management fee for every dollar their customers’ capital they invest. This management fee typically runs somewhere around 2% per year, providing plenty of reliable cash flow.
- Second, private equity companies receive an incentive allocation from all their customers’ profits. So when they invest in successful businesses, private equity companies typically get to keep 20% of the profits made for customers.
- Finally, private equity companies invest their own capital alongside their customers’ investments. So when customers make money, the private equity companies do as well!
Recently, I picked shares of BX as the stock I would buy and hold for 20 years if I had to choose just one. It’s an excellent investment for building your retirement wealth!
It’s Not Just About the Money — But Having the Resources Helps!
Here at Rich Retirement Letter, I want to help you grow your wealth quickly and safely.
But a Rich Retirement is about so much more than just having enough money.
Back at the hedge fund, I had plenty of filthy rich clients who were simply miserable because they weren’t able to focus on the things that matter in life.
Quite frankly, having a balance of working hard and enjoying the things you worked for with family and friends is what living a Rich Retirement is all about.
As I sat on John’s back porch and watched dusk fall over the mountains, I was inspired by John’s retirement success.
And I wanted to share that success with you as well, in hopes that you’ll be able to enjoy similar success in your life!
Sure, we may not all have a business to sell or a house that looks over a beautiful landscape…
But we can all find purpose in our lives, work towards a successful retirement and prioritize time spent with the people who matter to us.