Let’s talk retirement. Everyone knows what retirement is, I assume. Many spend years preparing for it, while others go on as if it will never happen. As a former volunteer for AARP, I would give presentations and seminars on finances, including retirement. Although I do not claim to be a financial specialist (anymore) I was more than happy to answer any questions about retirement…answers that I had researched, or even yet, learned from personal experience.
I always share my story of how I first learned about wealth. Unfortunately, it was not something I learned from my parents. There was no talk about finances in the home, except that money was important. It was never explained why it was important. My examples, however, of how important money was about keeping up with the Joneses and appearances.
It was not until I accepted a temporary job at a brokerage firm called Charles Schwab. Up until then, I had always had this brainwashed idea of how people became rich. Somehow, television, mainstream media and my ignorance had me believing that rich people’s parents were automatically wealthy, and they left their money to their children.
Upon taking the temporary position at the firm, I would give out quotes to investors as to what a certain security was trading at. I gave quotes on a variety of securities such as stocks, bonds, treasuries, mutual funds and more. Later, I would be promoted to Broker Associate and study hard for my Series 7 and Series 63 license.
The more I worked with clients and began to understand the markets, I understood that not all wealthy people were handed down riches, many worked hard for what they had. I was pleasantly surprised to see the workings of a brokerage account when it was started from scratch. Here is an example of what this might look like:
It is 1996 and 30-year-old Jessica opens an account with $5000. She has an automatic monthly deposit of $200. She diversifies her portfolio with technology stocks, long term and short-term mutual funds. In addition, she opens a ROTH-IRA and deposits the maximum allowable amount each year. Within that IRA, she invests in less volatile securities, while letting her earnings (and losses) along with any stock splits and dividends accumulate. She takes no withdrawals because she knows that there will be a stiff tax penalty for taking a withdrawal before age 59 ½.
Back to her stock account. Jessica decides that she wants to invest in Apple, which at that time was trading around .22 cents a share and considered a penny stock. She has no idea that it will grow to the popularity it has today, but she loves technology stocks because she feels they are the wave of the future.
Fast forward to today, Apple has had various stock splits of different variables. What is a stock split you may ask? There is a complicate explanation for this, but simply put, it is when a company takes shares of their stocks and split them into multiple new shares to increase its liquidity, but the stock’s value remains the same.
For example, if you had 25 shares of a stock valued at $100, and the shares split 2 for 1, you now have 50 shares valued at $100. Well, why would anyone want to do this? My simple answer is that for a stock such as Apple, or Google even (which we’ll touch on in a minute) has increased over the years from .22 cents to the $130 per share it is trading at the time of this post. Let’s look at like this:
25 shares of AAPL (that’s the Nasdaq simple for Apple) valued at $100.
After a 2 for 1 split,
50 shares of AAPL valued at $100.
After several split variations, dividends, stock options, stock reinvestment, etc., she would have something like
1000 shares at $130 per share…. 1000 X $130 = $130,000. Not bad, eh?
Now let’s fast forward to 2004 and beyond. After using search engines such as Lycos, Yahoo, Alta Vista and Netscape, comes a company called Google. Jessica decided to liquidate some of her other stocks and purchase 1000 shares of GOOG at $85 a share. She now has GOOG stock worth $85,000. It has had two major stock splits. Jessica’s Google shares would look something like this:
1000 shares of GOOG (that’s the Nasdaq symbol for Google) valued at $85,000
Google splits twice, but into much more complicated A, B, & C class stocks. Again, I am no longer a financial expert nor am I a financial advisor.
Taking that out of the equation, those same 1000 shares that were valued at $85,000 in 2004 are now valued at the very least, 2.4 million dollars. This does not include the splits, dividends, or stock options.
I think you are beginning to see my point. So, Jessica, now 55, has a nice little nest egg invested in her brokerage account as well as her retirement account.
Many of us are like Jessica, on the other side of our dash. And maybe we made some bad choices, or didn’t make the best, or didn’t even know we had choices and we’re thinking to ourselves, “I’m 55 and I don’t think I’ve saved enough money, and I don’t think I’m prepared for retirement. Will I have to work another 20-30 years? If I do, will I live long enough after to even enjoy retirement?”
These are all great questions, and they all have several influencing factors. Unless you have a lot of money laying around, many cannot (with guarantee) invest in more of the volatile options, and the less volatile ones likely won’t produce enough income within the years between age 55 and 65. Will social security be a factor in your retirement? Will life insurance? If you are unsure, I would strongly urge you to seek out a financial counselor, or a financial advisor to help you out. You might find that things may not be as bad as they look. Do not try to go it alone. And in the process, teach your children and grandchildren how to build wealth so they are not waiting and depending on an inheritance to see them through.
I am currently in the process of searching for financial professionals that we can have a discussion with an ask some basic questions to have on the channel and the upcoming podcast. If you are a financial professional, counselor or advisor and would love to share valuable information with our audience, please contact me at info@othersideofthedash.com or at (336)525-1850.
I hope that anyone reading this has found this information somewhat useful and I hope that it has caused you to really think about what your retirement will look like in a world where things are constantly changing.
