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Life Is Short, Retire Early — Plus, Ripping Open the Rich Retirement Mailbag

Posted June 11, 2021

Zach Scheidt

By Zach Scheidt

Life Is Short, Retire Early — Plus, Ripping Open the Rich Retirement Mailbag

A statistic caught my eye this week that I thought I should share…

This year, the number of small business owners planning to retire soon surged.

There’s a significant trend of people deciding they're ready to go ahead and step away from their normal job and start experiencing their golden years.

The article went on to explain that there are some nuances with retirement these days.

One of the benefits of the coronavirus crisis is that technology advanced to make it easier for us to communicate and work from anywhere.

So many workers are now embracing a sort of "retirement light”.

With this setup, retirees can still stay connected to their businesses. But they don't have to put in the same amount of day-to-day work that would normally be required.

This frees them up to enjoy more traveling, more time with loved ones and to enjoy the hobbies and leisure activities they've looked forward to for so many years.

Whether you own a business or not, you can take a page from this playbook and consider a "retirement lite" setup for yourself.

I love the idea of having a more flexible schedule, tapping into some of the many income-producing side-jobs that are available today and enjoying the things that really matter in life.

Do you have a situation like this?

Are you embracing a "semi-retired" lifestyle while doing some consulting work, putting in part-time hours at a place you enjoy (like a golf course or boutique shop) or some other activity that generates extra income?

I'd love to hear about it!

Send an email to RichRetirementFeedback@StPaulResearch.com and let me know what your situation looks like.

I can't wait to hear from you!

In the meantime, let's rip open the Rich Retirement Letter mailbag and take a look at some of the emails our community sent in over the last week.

Pay Attention to Your HELOC Details

Earlier this week, I shared my thoughts on why I'm applying for a home equity line of credit. This may be a good idea for you as well.

Eric H. wrote in to share his experience…

“Zach, I think this is a great idea, nf fact I had one back in 2008. I did all kinds of cool things to the house with it and enjoyed the tax deductions. However, I wanted to share an interesting situation with you about my HELOC.

When the financial crisis hit, the value of my house plunged along with all my neighbors.

My bank took notice and promptly reduced the maximum value of my credit line. They cut me off until I paid some back. Your readers may want to read the fine print on the loan to make sure this doesn't happen to them, or at least be aware if it does.

P.S. Great call on BX!!”

Thanks for bringing up this important issue, Eric!

I remember that season well and heard about many homeowners who also had their lines of credit reduced or eliminated altogether.

While it's certainly a risk to consider, I think we're in a bit of a different situation than we had in 2008.

During that period, home values declined sharply. So it made sense for banks to reduce how much cash was available because the homes weren't worth the amount that could have been borrowed.

Today, we've got inflationary pressures pushing home values higher. There's also a demographic shift driving demand for homes.

And finally, there’s still a huge shortage of homes available for sale.

As long as these trends continue to support home prices, it's unlikely that a bank will cut the amount it’s willing to lend on a HELOC.

If we do see these trends shift and you need cash, it may make sense to proactively borrow against the HELOC before the bank decides to reduce your availability.

But we're not in that type of environment right now.

Oh, and congratulations on your Blackstone Group (BX) profits! I love seeing members of our Rich Retirement Letter community make money from our investment opportunities.

What to Do With the Cash

It's the age-old question for savers…

"What should I do with my cash to make sure it's growing and paying me income?" Here's one I received from Gary P. this week.

“Zach, I sold all my rental units after I retired to lock in capital gains taxes. Just confused about what to do with the cash. I did buy a small amount of gold.”

Hi, Gary. That's a great question!

First, congratulations on locking in your profits. I'm sure it had to be rewarding to see those units grow in value and to lock in the gains.

Plus, you may have taken your profits at a wise time when capital gains taxes were somewhat lower.

I'm certainly worried about how higher tax rates could affect our economy and investors like you and me going forward.

Buying gold is a good first step and I always recommend having some exposure to gold. As inflation concerns pick up, gold and other precious metals should trade steadily higher.

In addition, I'd recommend investing in some blue-chip dividend stocks, taking a very balanced approach. That means buying shares of different types of companies (technology, real estate, financial, industrial, consumer, healthcare, etc.).

Please consider buying shares of solid companies that pay reliable dividends.

That way you're always receiving some income that you can use to fund your day-to-day retirement needs.

Meanwhile, the value of these stocks should move higher, helping to grow your wealth and protect you from inflation.

In particular, I'd make sure you own some shares of U.S. companies that do business around the world.

That way, if the dollar weakens, these stocks will generate profits in other currencies. Those profits will represent more dollars in a weak dollar environment.

And that will help insulate your retirement and protect the true value of your wealth.

The Ethics of Investing in REITs

I have to admit that I cringed a little when I got this email from Rich Retirement Letter member Michael S.

“So as more and more people cannot afford to rent a minuscule apartment, Scheidt and Co. rub their greedy hands together and figure out how the rich can become even richer by profiting off basic living needs. Shameful! Can’t you make money off some other sector that doesn’t put people out on the street?”

It sounds like Michael is referring to my article this week on investing in residential real estate investment trusts (or REITs).

I'll start by saying that I'm a truly compassionate guy.

As a father, I know what it's like to work hard and have to take on extra jobs to provide for a growing family.

Someday maybe we can chat about all the extra work I did early in my adult life to keep food on the table and a roof over the kids.

I'm thankful for that season and the empathy it gives me for people who are struggling financially.

With that said, I don't think REITs are the problem here. In fact, they offer a solution that can help more people afford homes or apartment units.

This is exactly how the free market is supposed to work.

When there’s a profit opportunity, it creates an incentive for individuals and businesses to step in and provide goods or services.

So in the case of the housing market, higher prices naturally give REITs an incentive to build more units and make more housing available for families.

As new units are built and rented or sold, the shortage will be alleviated and prices will drop.

So higher prices actually create their own natural incentives to ultimately bring prices back to a more reasonable level.

I could write an entire book on this subject (and many people who are much smarter than me have).

But for today's purposes, I'll emphasize that investing in a residential REIT and using that income to fund your retirement is not shameful.

In fact, it's quite the opposite.

By investing in this area, you're becoming part of the free market process that makes capital available for building more units, driving prices to a more reasonable level and making housing more available (and affordable) for everyone.

Conservative Income Opportunities

Mark B. wrote in with a question about one type of investment we haven't talked about in a while…

“I would like to have a better ladder of non-investment grade bonds that I could invest in.  Do you know of anyone that covers this area? I am looking to reduce my exposure to the stock market where I have over 60% of my investments. I am looking for conservative alternative investment ideas.”

Hi, Mark. Thanks for bringing up this important subject. Mark is asking about bonds of companies that have a bit more risk.

In the past, these "non-investment grade" bonds have paid higher rates of interest.

So while investors have some risk that the bonds may not be paid back, they're getting more income to compensate for this risk.

Unfortunately, in today's market, there aren't many great opportunities in these bonds.

That's because the Fed has kept interest rates so low for such a long time that there’s a true shortage of income-producing bonds.

And just like any other area of the economy, when there’s a shortage of something, buyers naturally push prices higher.

Bonds (even speculative bonds like the ones Mark is considering) are trading at high prices.

At this point, the risk of these bonds pulling back is overwhelming. And the potential return you can receive when buying at these high prices simply doesn't justify the risk.

So for now, I don't know of anyone I respect who is covering this area.

And I believe until interest rates move higher and until these bonds trade lower, this is an area to avoid.

That's all for today. But I hope you'll keep sending me your questions!

I always love hearing from you and your questions help me know the best ways I can help you grow and protect your retirement wealth.

I hope you have a great weekend and I look forward to chatting with you more next week.

Here's to building your rich retirement!

Zach Scheidt

Zach Scheidt
Editor, Rich Retirement Letter
RichRetirementFeedback@StPaulResearch.com

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