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You Will Never Retire, Here’s Why… – How Money Works

You pay attention at school, you study hard,
get a good job, work diligently throughout your career all so that one day you can kick
back and enjoy a nice pleasant retirement. That’s the story anyway. But it’s not one that always lives up to
reality. There are countless stories of people with
good jobs, and diligent savings patterns still needing to work well into their twilight years.

This is to say nothing of people that unfortunately
never have the privileges of higher education or a stable career. Recent reports have found that less than 30%
of American workers are on track to retire at all, and even fewer think they will have
a comfortable retirement and they might be right. I know you didn’t want to hear this, but
there are a few BIG factors at play in the world today that are going to act to keep
most younger generations in the workforce indefinitely. This is all before considering the major hiccup
that the covid 19 pandemic has been. A global event that has actually worked to
widen the gap between younger generations with fewer assets and more precarious employment,
versus older generations which tend to be more secure. Now you might think you are different, you
contribute to your 401k, save diligently, subscribe to How Money Works and even invest
regularly into the stock market. Well that’s all great, but I might still
have some bad news for you. There are lot’s of issues at play here… Housing, the stock market and a series of
broader economic conditions which might threaten the general assumptions we make about indefinite
growth.

So it’s time to learn how money work’s
to find out why we will all be on that grind until we are 120 years old. So the obvious first culprit is housing. Affording a home has become a major challenge
for most workers in the USA. I know this problem is nothing new, but there
ARE still a few very important factors that people don’t consider. Even very high-income earners that graduate
top universities and go into fields like banking or big tech tend to be moving to equally high
cost of living areas like New York, Chicago, or San Francisco. Pew research recently reported that a majority
of young adults between the ages of 18 and 30 are now living at home with their parents.

The median age of a first home buyer in 2019
was a 34 and experts agree it’s almost inevitable that figure will be pushed even higher by
the pandemic. What’s more is that young buyers tend to
be purchasing smaller dwellings like apartments and townhouses rather than traditional free
standing family homes. Not because they don’t want to, but because
they can’t afford it. This is a real issue because as most financially
secure people will tell you their house is their biggest asset. This doesn’t just mean it’s the asset
that they own that’s worth the most money either. Owning a house means that you don’t have
rental expenses and even if you are paying a mortgage those payments will at least partially
be building equity in the home itself.

What’s more is that once that mortgage is
paid off you have somewhere to live with very little ongoing costs. Retiring with a home, means that even modest
retirement savings or a pension can go a very long way when compared to someone who will
need to stretch those payments to cover rent. If a homeowner is running low on cash in retirement
it could be a simple as downsizing their family home, a luxury not possible for someone who
hasn’t fully paid off their home, or doesn’t own one at all. Now let’s be generous and take this median
age of 34 to buy a first home, stick a 30 year mortgage on top of it, and suddenly even
this generous assumption of a regular young worker is in their mid 60’s still paying
off a home loan. This is assuming that this person never upgrades
their home, or renovates, or does anything to increase their mortgage from the original
one they take out over thirty years.

The particularly morbid amongst you might
think, well the boomers have to die and leave us their homes eventually right? And… well… yeah I guess so as unpleasant
as that may be it is a reality. The problem is this will likely only exarcerbate
the issue. We saw this in our video on why family fortunes
disappear, inheritance’s that could actually fund a retirement tend to go to people that
are already pretty old and wealthy themselves. Now again the unaffordable housing issue is
a debate as old as modern capitalism, but maybe this isn’t an issue anyway, maybe
you are still unconcerned because you have plans to fun your retirement even without
a house to call you own, well ok, let’s put those plans to the test… The stock market is the other major vehicle
by witch people fund their retirment.

Even fixed income pension funds ultimately
rely on the growth of these markets to provide incomes to their members in retirement, but
this assumption of endless returns may be under threat. To understand why consider a simple example. 10 lumberjacks are working at a sawmill that
creates frames for residential homes. At the moment the lumberjacks are only using
basic hand tools, but if they all work hard and nobody slacks off they will meet their
quotas. One particularly astute lumberjack takes a
portion of his paycheque and over time uses it to fund research into motorized tool’s. His money was well spent because he eventually
invents the table saw. He then saves up a bit more of his money to
buy the materials needed to built 9 copies of his new contraption. He then gives these 9 table saws to his colleagues
who had previously been using those hand tools. This boosts their productivity enough that
they can still meet their quota even if the first lumberjack doesn’t show up to work
at all.

This is what we call capital investment, and
it’s how (at least in theory) we can sustainably fund peoples retirements. The same amount of frames are made, the other
9 lumberjacks don’t need to work longer and harder, and the first lumberjack has been
properly rewarded for his creation with a nice cushy retirement. Of course this is a very crude example but
in reality most people do the same thing just through the medium of the stock market. Companies raise money and then use that money
to purchase capital equipment which will allow their worker to effectively and efficiently
produce goods and services for the economy.

But lets go back to our oversimplified example. Problems start to arise when more of these
lumberjacks get the same bright idea. One might invest into a forklift to make the
work of nine men possible with just eight, and then another might do the same with nail
guns to make the work of the remaining 8 men possible with just seven and so and so on… But every time this happens it get’s a fair
bit harder to find that next thing. Eventually you are going to need an almost
fully automated production line and even then you are probably going to want at least one
worker there to oversea this operation. Every human you take out of the equation and
replace with a piece of capital becomes more and more expensive, especially when compared
to some other alternative investments. Let’s say lumberjack 5 will need to invest
Millions of dollars into a robotic arm in order to effectively retire while still ensuring
the quota of the lumbermill is met.

He might just say it, what I’ll do instead
is just buy the factory and require the remaining four workers to work an extra 10 hours a week
to pick up my slack while I go and retire. Now this guy sounds like an____, but just
think, how many hours a week are you working in your job just to cover your rent? This investment into non productive assets
(as in assets that don’t actually assist in adding value) is a major hurdle. Now the classic example of a non-productive
asset is something like gold, bitcoins, pokemon cards and of course real estate.

Now real estate is weird because unlike these
other non-productive assets it does produce income without needing to be sold. It does this through rent. Investing into real estate has been a particularly
attractive investment for a lot of people which does two things, it increases the price
of real estate, causing more of this issue we saw in the first part of this video, but
it takes away from investments into the types of productive assets that CAN sustainably
fund retirements. There is one other problem beyond this as
well… the overinflation of ALL asset markets. Let’s look at our original example of those
table saws. They were machines that made cut up pieces
of wood, lets say they can chop up 20 pieces each a day. Now let’s replace those table saws with
shares, these are effectively machines for making money in the form of dividends.

Lets say each share makes 20 dollars a day. In both examples the lumberjack would need
to own 9 of each to be able to fund their retirement, 180 pieces of wood would replace
their job at the lumber mill, and 180 dollars a day would replace their income, so either
works just fine. Now counterintuitively problems arise when
these assets become more expensive. Most people think stocks getting more expensive
is a good thing, and it is … for the people that already own them… Imagine each share was trading for $10,000… Saving up $90,000 is a pretty tall order for
a lumberjack on $180 per day but it is certainly possible over a working career.

Now imagine those same shares were trading
for $100,000 while still paying the same $20 daily dividend. If you already owned these shares you would
be feeling great because your on paper net worth has grown handsomely, but our lumberjack
now has to buy $900,000 worth of shares to fund his retirement, which is just no realistically
possible within his working career. Now this might sound like a farfetched example
but it isn’t! it’s exactly what is happening today. To see this let’s look at the price to earning’s
ratio of the s&p 500 (a collection of the 500 largest public companies in America). Historically it has hovered around a multiple
of 15, this means that on average it would take the earning on these shares 15 years
to pay for the share itself. Today, that multiple is sitting just under
50 years, which is the second highest it’s been in history, falling only behind late
2008, which as you all know was a time of widespread economic prosperity In plain English this means people are going
to either need to invest 3 times as much to fund their retirement’s ooorrrr rely on
the next biggest idiot to buy their shares off them in retirement for a 100 times multiple,
200 times multiple, 1,000 time multiple… which BTW certain investor are already doing
for some stocks.

Now you might say, oh well shares aren’t
like table saws with fixed outputs. These dividends can and likely will increase
in the future, right? And sure, that’s almost guaranteed, buuuuttt
it’s still unlikely we will ever see widespread PE ratio’s under 20 again for 2 reasons. 1. if a company DOES start paying out a consistently
high dividend relative to it’s market price, well then investors will buy it which will
push up the price, meaning that it won’t a great deal anymore.

Market forces are a bitch. The second reason is a bit more complicated,
but it’s one that has some leading economists genuinely concerned… Robert J Gordan is an American economist who
published this paper with the National Bureau of Economic Research. Is US Economic Growth Over? Faltering Innovation Confronts The Six Headwinds. It’s a fantastic paper that is surprisingly
readable even to people without a strong economic background. But spoiler alert, Gordon basically argues
that the past 200 years of innovation and economic growth were more or a exception rather
than the rule that we should continue to expect indefinitely into the future. Limitless growth in a finite world… you
do the maths. Gordon basically argues that this generation
is the 5th lumberjack, all the easy innovations that drastically improve productivity have
already been made, and even gradual improvements from here on out will either be very expensive,
or just rent seeking in nature. Working more to shift value around in new
and creative way’s more so than working to actually create any. If this rather bleak outlook wasn’t enough
Gordan argued that this would coincide with what he described as the 6 economic headwinds.

These are forces that will act to slow growth
in economies around the world for at least the next 100 years. These headwinds are, The loss of the demographic dividend – Basically
the economy saw a huge boost when women started to move into the workforce between the 1960’s
and the 1990’s. Now most women in developed countries work
a professional career similar to their male counterparts but that’s just the status
quo now.

We aren’t ever going to be able to double
the workforce again, unless well… you know… we make people work later and later in their
lives. The second headwind is the loss in educational
attainment particularly in the USA. Education is becoming more expensive, less
comprehensive and increasingly irrelevant to the requirements of the modern work force. A 3 year degree simply does not mean as much
as it did 50 years ago, not to an individual or to the economy as a whole. The third headwind is rising inequality, a
touchy subject at the best of times, but Gordan was surprisingly pragmatic about his approach
to the issue. The paper noted that incomes were on average
increasing by around 1.3 percent per year. But that growth was heavily focused in the
top 1%, the remaining 99 percent only actually saw income growth of around 0.75% year over
year. Not even enough to keep up with inflation. That means that if this trend continues it
will be inevitable that larger and larger pools of workers simply won’t have the financial
means to save for retirement.

However if you are in the top 1% congratulations,
you can say nananana your video title is wrong in the comments section. The fourth headwind is the impact of globalisation. Now in theory globalisation should make everybody
wealthier, and on “average” it does, but averages have outliers, and those outliers
in this case will be national workforces that have historically enjoyed high incomes relative
to the rest of the world, like say say probably YOU watching. The other side of this equation is that it
should equalise global wages, meaning it is great for people in countries that have typically
had low incomes compared to the global average, oh and of course the business owners that
can profit from the pool’s of cheap labor along the way. The fifth headwind is energy and the environment.

The growth of the past century was driven
by fossil fuels. A cheap, easily transportable incredibly efficient
source of energy that could power everything from automobiles to jetliners. But of course they are a finite resource that
have come at a cost. This cost will now be paid by younger generations
either in the form of environmental regulations that slow down industrial output, or from
complete environmental collapse that will also slow down production. The final headwind is debt. Household debt, government debt, corporate
debt, it’s all been growing steadily over the years and eventually this needs to be
paid back, this is ultimately going to result in the requirement for more income or less
spending. For the government producing more income is
easy, they just tax more, but for individuals and businesses the only option they might
have is spending less. If someone is already running on a tight budget
then those regular contributions to a retirement account might be what ends up getting sacrificed. Gordon did present a likely outcome to alleviate
this sixth issue for all parties, and you might be able to guess what it is.

Yup, push back retirement ages… Now if this has all been a bit bleak for you
and you still think you are going to make millions overnight then good on you, I will
have to work harder at crushing your spirit next time. But until then you should learn what to do
with your overnight fortune by watching our video on exactly what you should do if you
suddenly make a lot of money. Of course step one will always be to like
and subscribe to keep on learning how money works..

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Exencial Retirement Basics – Should I take a lump sum on my pension?

Hi, this is Jared Snyder. As well as I intended to have a conversation with
you today about a problem I'' m seeing some of my clients battle with Which'' s what to do with. pension strategies particularly, whether we'' re deciding to take
a round figure payout on a pension, or we'' re choosing to take an annuity
whenever a person takes a lump amount, that doesn'' t mean it ' s. all taxed because year. You can do a direct rollover of.
that lump sum amount to an individual retirement account. We'' re really not fretted about.
taxes in this discussion today. We'' re actually simply kind. of checking out, uh, the, the maths as well as then some.
of the various other reasons it might make feeling to choose one.
choice over an additional. So once again, absolutely that trend in,.
in specified benefit strategies, pension is to supply those swelling.
And so when we'' re, when we ' re studying, whether.
And also you ' re trying to decide exactly how to. deal with that. You know, you need, you require sort of
some tools. for just how to assess it.And so actually the evaluation there is. driven by a few factors.
Off, it ' s really driven by'the passion. rates and also the death
tables that the actuarial business that ' s. doing, the calculation for.
what the round figure offer is, is using. As well as what we ' re seeing in. today ' s setting is that. the rates of interest that they ' re utilizing to mark down those future. capital to offer you a swelling sum.Those rate of interest are really low, that makes feeling because rate of interest. below in the us as well as around the world are extremely reduced.
Federal funds rate is at. absolutely no now. So we ' ve got extremely, extremely low rate of interest. The prices that that actuaries are. making use of to discount those future capital to make a lump amount offer. to you are very, really reduced. And our mortality are additionally. pertinent depending upon exactly how far out into the future, the actuarial,. uh, modification would, uh, would certainly assume your, your life expectations. is, um, that also comes into play. That ' s one factor, the passion. prices and also mortality tables.
Another variable is just type of. your comfort level with, uh, what happens if you do that,. take that round figure repayment.
As well as if you do roll those bucks right into. an IRA as opposed to taking a stream of
income, um, if you do that, you ' re, you ' ve reached have a comfort.
level with the variable, uh, degrees of returns that.
you would see on that, that sum of cash versus the.
guaranteed repayment you would obtain as an annuity stream of income.But, uh, simply from the mathematics standpoint or from.
the growth of riches perspective, allow'' s, allow ' s say that if we ' re seeing. rate of interest rates of 2 to 3, maybe three as well as a half percent on. the high-end being used by actuaries to determine a swelling amount settlement,.
that'' s typically what I ' m seeing. Whenever I'' m examining these. kinds of circumstances for clients, we need to ask ourselves, all right, do.
I want to approve what is in significance, a a couple of as well as a half percent.
return for the rest of my life on these dollars? Or do I believe that markets.
can return higher than that? As well as so, you recognize, the greater, the passion.
rate that an actuary uses, the more attractive that annuity.
stream of earnings becomes.If an, if an actuary is utilizing a 5% discount rate, that'' s actually kind of attractive,.
yet we'' re seeing 5% or, you know, we utilized to see also higher than.
that six, possibly 7% price cut rate. In those instances, you have to feel certain that over the.
rest of your life or you and also your partner'' s life
, if you selected a. joint as well as survivor pension plan benefit, that you ' d have the ability to regularly get.
returns more than that 5, six, 7% variety, which is, you.
understand, that'' s a larger, a larger bar to get over.
two to 3% is a lower bar.So those reduced rates of interest are.
truly reducing the bar for participants in defined pension plan plans to state, Hey, I believe I can do far better.
than that with my cash. I think I can expand my cash more.
And also if that'' s the situation, a lump sum may really. One other point to believe regarding whenever.
Whenever you choose them, a month-to-month annuity stream, you can select generally pension plans will.
let you pick either a solitary life advantage, which just suggests as lengthy as you'' re alive.
and you'' re the pension beneficiary, you get the money, but when.
you die, the advantages quit, um, if you select a joint as well as survivor.
benefit, then whoever you name, typically, it'' s going to be your.

partner that you name.Uh, they would receive some degree of advantage.
on the occasion that you were to die, yet when you'' re both gone, what occurs after that if you desire.
assets entrusted to either family, close friends, charity, whomever you.
select, um, than a round figure, you understand, may be a really good choice.
for you. You understand, you simply, you need to have a fairly good degree.
of confidence that markets are going to give us far better than whatever the interest.
rate that'' s being made use of to compute. The round figure offer that you'' ve. been made. Um, you additionally, if you'' re going to choose.
the lump sum offer, you require to be comfy with the.
worry shifting that'' s happening with, uh, the moving of obligations, since really that'' s what a great deal of. this boils down to for the sponsors of these pension, the.
business that you benefit, they wish to get this off their books.They wear ' t desire to have this long-term. commitment over years and also years and also years. And so they ' re shifting the worry. of that from themselves or to a business that they would certainly, uh, you understand,.
assistance have come in as well as help manage the, uh, the pension. They'' re shifting.
that worry to you. They'' re'stating, Hey, here ' s your round figure, go and do. whatever you pick to do with it. It ' s not our issue any longer. So as lengthy.
as you'' re comfortable keeping that, that, that shifted burden as well as you'' re comfy.
that you can have a wonderful investment prepare for those bucks. It'' s mosting likely to catch far better returns.
with time than what you'' re going to obtain. You understand, based upon the rates of interest that'' s being.
related to give you that lump sum quantity in a swelling amount can make.
a great deal of feeling. Uh, just feel cost-free to provide me a phone call or.
email me and also let me understand if you have questions on this. If you'' re. evaluating a pension right currently, possibly you'' re wrestling with this.
precise situation as well as you just want a second collection of eyes as well as a.
sounding board to aid you make an excellent decision.Give me an e-mail

or telephone call. And our group rejoices to be of solution to. you.
Thanks so a lot. Have a wonderful day.

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How To Retire Early Through Property Investing | A Retirement Planning Pension Strategy

– Impossible is probably the
response most people will have when they see the
thumbnail for this video, but let me show you how, by taking action, you really can retire in
two years by investing in a certain type of property. (upbeat music) Hi, my name's Tony Law from
Your First Four Houses, and I teach people how to build
a small property portfolio that generates a great income
for them so they can give up their day job if they
wish because they're now financially free.  So for 21 years, I ran a kitchen
business where I exchanged my time for money, but
in less than two years, I managed to replace that
kitchen income with a passive, or relatively passive, rental
income, and I want to show you how you can do exactly the same. So for this exercise, I'm not
gonna assume that you need 10,000 pounds a month to
retire and live comfortably. In fact, depending on
where you live in the U.K., the average household
incomes seems to be somewhere between 28 to 35,000 pounds
a year, although personally, I might struggle to live on
that if I'm being really honest, so let's just round that
up to 42,000 pounds a with an IRA for investment year which quite conveniently
helps me with the maths because it means that's 3,500
pounds a month that you need as a passive rental income. Now, for some that may seem
a little on the low side, but I think most people
could probably retire and live quite well on that
if they're being really honest if you had no other bills to pay. So we now have a clear goal. We need to earn 3,500
pounds a month passively moving forward, so let's
just break this down. How many rental units does
that actually equate to? Well, it obviously depends
on the type of deals that you're doing and the
strategy that you're following. In fact, to be honest, I've
got a property that by itself, one single property, after
all bills have been taken off, would cover that amount of
money, although for transparency, I've also got other properties
that only cashflow a couple of hundred pounds a month give or take, and it always surprises me,
there are people out there that have got properties
that simply don't cashflow at all, I just don't understand
that, but let's just say, for the sake of this
exercise, that on average, my property portfolio cashflows
about 500 pounds a month after all bills, so if you
wanted to hit 3,500 pounds a month, how many properties do you need? Well it's seven, isn't
it, nice and simple. It's seven at 500 pounds a
month, but can you acquire seven properties in two years? Yes, I know you can. Maybe in year number one
you might do two or three which will leave you maybe
four or five in year number two as your experience and
confidence grows, but I know that you can do it. Is it gonna be easy? No, you're gonna have to
put in some massive effort to hit this target. You're gonna have to
take a tonne of action, but I know that you can do
it, and if you want a list of 15 tasks that you can
do in the next seven days, check out this video because
I'll run you through exactly what you need to do in
order to hit that target. You see, the thing about
property investing that is quite magical, quite amazing
actually, is that you need to work really, really
hard for a couple of years, and if you do, you can replace
your income in its entirety after just maybe a
couple of years of work, and if I can in some way
help you in your journey, well that would make me very happy. I recently updated my 50 point
checklist that will run you through all the tasks you need to take before buying that next
investment property. If you'd like a copy, simply
click on the link here or in the description box
below and I'll send it straight out to you.

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