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The Wealthy Retiree, Part 3

Lesson #2



                  Quaero’s fingers began to burn as he rapped aggressively on Will’s apartment door.  It was Tuesday afternoon and he was late to his now regular meetings with Will Pecunious, a wealthy resident of the senior living complex where Quaero worked.  Will spent time teaching Quaero his secrets to financial success in retirement in exchange for a sandwich.  The heat from the chicken parmesan hero was now relentless as he knocked.

                  The loud clicking from behind the door gave Quaero the delight that he would soon be able to rid himself of the painful scorching.  Will opened the door and before he could say hello, Quaero barreled through and put the sandwich on the table inside. 

                  “Sorry Will” he apologized, “It’s just out of the oven”

                  “Quaero, I like your style.  Hot and fresh!” Will replied as he took a long whiff of the sandwich and smiled like a kid shaking a wrapped gift on Christmas morning.

                  Just as Quaero turned towards the living room he saw a figure sitting on the couch.

                  “I hope I’m not interrupting” he stammered concerned he would miss today’s lesson. 

                  “Not at all” Will assured him.  “Quaero, you know Nancy from next door, right?”

                  Quaero made his way across to the carpeted living room to shake Nancy’s hand, “Of course, so good to see you.  How’s that garbage disposal working?”

                  “Oh, just perfect, thank you.  Nice to see you too.” Nancy said with a beautiful smile.  She was in her late 70’s and had a very graceful beauty about her.  “I hear you’ve been getting lessons from our good Mr. Pecunious, here.”

                  “I, ugh, yes, well, sort of.” Quaero stammered trying not to look as uncomfortable as he felt discussing his finances with the whole community.

                  “Oh, don’t fret dear.  It’s because of Will and his great advice that I have been retired so comfortably for these many years now.  What lesson are you on?” she inquired.

                  “Number Two!” Will called out from the kitchen where he was prepping his sandwich.  “This is a good one”

                  “Oh, Lesson number two is a good one.  Do you mind if I sit in?  I just love Will’s lessons.”

                  “Of course not” Quaero replied just as Will came out of the kitchen with two plates covered with half the sandwich each. 

                  “Here you go, my dear” said Will as he handed Nancy a plate, linen napkin, and utensils. 

                  “Okay Quaero, did you and Maria agree last night that you will live below your means at all costs” Will drilled.

                  “We did.  We both have always strived to, but see the importance of it even more in retirement.”

                  “Good, so lesson two is about finding out just what that number is.  Are you ready?”

                  “You bet I am!”

                  “Great.  Start by totaling up all the guaranteed income sources you will have in retirement.  When I say guaranteed, I mean Social Security, Pensions, and Annuities.  Do not include dividends, rents, or royalties.  Those will come later.”

                  Quaero took out his notepad and began writing furiously.

                  “Let’s assume your guaranteed income sources provide you with $35,000 a year” Will continued.  “That is the foundation of your retirement income.  Next, look at your entire investment portfolio and multiply it by 4%.  That will provide you with additional income.  Again, if we assume that you have a $500,000 portfolio, you could expect to draw $20,000 a year from it to supplement your income sources.”

                  “Wait a minute!” Quaero stopped him looking concerned.  Why only 4%?  There are years where my investments return 15%-20%.  4% seems really low.”

                  “Yes and there will be years when your investments lose 10%.  That is the price we pay for investing in assets that grow.  They are often volatile.  We’ll talk about your investment strategy in another lesson, but for now, understand that we are looking to average 7%-8% returns annually.  Living on 4% allows you to keep money in the portfolio to grow so your income can keep pace with inflation.”

                  “Got it!” Quaero said.  “That makes sense.”

                  “So, this year you will draw $20,000, but next year you will increase your income an additional 3% to $20,600, the year after that, $21,218. It’s like a cost of living increase.  As prices go up over time, so will your income.  Got it?”


                  “Finally, irregular sources of income can be included at the end as “mad money” or savings.  This way, if an irregular source of income stops or is held up…….”

                  “Like a tenant not paying his rent.” Nancy jumped in.

                  “Right Nancy, if a tenant stops paying rent; you won’t have to wonder where your next meal comes from.  The same is true of royalties or irregular dividends.”

                  Quaero was writing furiously as Will paused to take a bite from his sandwich.  Mouth full, Will continued, “That’s it, my boy.  If you follow and live by my first two lessons you can be fairly confident that you will never run out of money in retirement.”

                  “I think I can live with that”

                  “I did” Nancy said.  “When all my friends were out spending too much money as the market was doing well in the 90’s, I lived on my 4% and never had to worry about crashes or recessions.”

                  “Very good information, thanks Will” Quaero said. 

                  “Come back next Tuesday with tuna on rye and we’ll talk about how to increase those numbers if you want to live a little more comfortable lifestyle.” Will said.

                  “It’s a deal.  I really am going to like tomorrow’s lesson” replied Quaero as he rose from his chair to get ready to leave.

                  “Most people do.  See you tomorrow, Quaero.”

                  Nancy tuned to Will as Quaero walked out the door and said, “Is it time to rev up old Lucy for the next lesson?”

                  Will just smiled and nodded.


Next Issue:  Lesson #3:  “Need More Money?”


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