by Ted Halpern
A great part of my role is gaining valuable insights into what successful people have done to build their wealth. After over 20 years doing this, plus the combined experience of our team, we have a wealth of wisdom about wealth accumulation!
One trend I’ve noticed is that when very successful people hit their early 50s, they start thinking about early retirement. Dependents are out of the house, so the monthly financial demand is less, and at this age people typically reach the peak of their career. They have achieved their goals and may have no further rungs to climb on the ladder—so why not? Mission complete.
Not quite. At this point of life, you are at the summit you worked so hard to reach in your 30s and 40s! Do not put out this fire just as its reaching a roaring blaze. Enjoy it, and take advantage of the amazing opportunity to create a true legacy for your family and the future using compound interest. If you can keep working another 5-8 years, then your portfolio has an opportunity to DOUBLE! Added savings and time are the best ingredients for financial success.
Remember the “Rule of 72.” This calculation gives a ballpark figure of how long it would take for an amount to double. For example, if you expected about 10% annual returns for your investment, divide 72 by 10. Your investment would double in 7.2 years. You may have four or five “doubling periods” during your working career—so if you have the ability to add one more, in most cases it’s a no-brainer.
A client came to me with a situation where taking advantage of an extra “doubling period” would be extremely beneficial. He was 50 years old, with both kids in schools that were fully paid for. He was thinking about working until 55 and was estimating he would accumulate as much as $10 million by that age. Roughly 60% of this was in tax-deferred accounts, so after taxes, that amount would be more like $7.5 to 8 million. Remember that Uncle Sam owns about a third of your tax-deferred accounts, such as 401(k) accounts.
If he stayed working until 60, then perhaps with peak savings and more time, this $10 million could be worth $20 million, or close to it! Yes, Uncle Sam is still a partner we cannot divorce, but $16-17 million net of taxes is powerful. This particular client may not need that amount for living expenses in retirement—but achievement means more than being able to sustain bills without working! Creating a legacy is a different kind of motivation than simply having “enough.” You could fund your grandchildren’s tuition, create a charitable plan to help others not so fortunate, and enjoy even more room in your cash flow to go see and taste all that life can offer! You have worked so hard to scale this summit. So take in the landscape view and open your eyes to the many ways to create a lasting mark on the future with your wealth.