Automatic Pilot, Part IV
by Richard
Now a treat for the overachievers among our readers.
We must first assume that you have punched every ticket suggested so far, and after maxing out the basics of home ownership, funding of your two core retirement accounts, and providing for future health and education funding, you still have room on your plate for more.
This could be a very long list, but I’d like to give you just another three solid side pockets to fill.
I. Build up Fixed Income
The first goal is to have you bulk up the fixed income side of your balance sheet. Two simple means are at your disposal, and are easily accessible on line.
- Build a CD Ladder: Don’t expose yourself to long maturities. 12 months will do the trick. Don’t feel you are confined to what your local banks are offering. By using bankrate.com, you have access to the full panoply of banks nationwide.By constantly rolling over these 12 month maturities you have a hybrid instrument that functions almost as a money market account, but with rates that may yield twice as high a return, with the added feature of having a fixed income structure that is highly sensitive to changes in interest rates.This is especially important, now that rates are in the basement.
- Buy I-Bonds: I’m in a funk about this option now, as the government has yanked the nominal rate down to zero before adding the inflation component.But this is both an ultra safe investment, and a tax shelter in that you can push all income off to the future when the bonds are redeemed, a period potentially as long as 30 years.
II. Consider Investment Real Estate
I offer this with caution, but you might have the temperament and skills to be a part time landlord, building a small portfolio of rental houses.
Be honest in doing your self-skill assessment. If you can handle the inevitable hassles of leasing, maintenance and repairs, this can be a very lucrative venture.
This is best for families that are more or less permanently rooted in their community…an important consideration as this cycle can take literally decades to completely unwind.
The model would be to use prudent leverage, so that rental income will pay off the mortgage balance. Cash flow may be nominal during the repayment period, but once the loan is paid off, you will have substantial monthly income to supplement your work or retirement income.
Ideally, you will have the talents of a handyman, bookkeeper, diplomat and psychologist so that you can deal with the full gamut of human behavior quirks that are in store for you.
III. Be Your Own Boss
This is the big Kahuna, so first take a long breath.
Most of us are destined to work for someone else during our working lives. And a strong minority of us are appalled at that prospect. If you have the moxie to launch your own business, you open up a wealth of opportunities to enhance your family’s wealth. Or maybe blow it all.
Surprisingly, our ham-handed government will come to your assistance, in allowing you to write off an incredible variety of expenses, and especially in opening up a whole new alphabet of retirement goodies, including the SEP-IRA and the Regular or Roth Solo 401-k.
For those of you who strike it rich relatively later in your career, and who wish to make up for lost time, there is the Solo Defined Benefit Plan, offered at a very competitive rate by Schwab, Fidelity and most other major discount brokers.
I can’t advise you what business to launch. But I can tell you that you are more likely to be successful if you can monetize a skill you already possess, and do so without adding major overhead.
And by major overhead I mean business rent and salaries.
If you could bill yourself out as an expert in your field, without violating your non-compete clause at the day job, you hedge against the possibility of failure, by holding on to your slave job while you build out your private practice.
Best of all, is the freedom that comes with this package. No downsizing. No forced moves. No age discrimination.
No more petty office politics.
No guarantees, but really, what have you got to lose?
It’s all indoor work…and no heavy lifting.
