Dr James, 0s:

Let's talk about what most people want to achieve hypothetically, and that is early retirement. And here's the thing I don't think that everybody means what they say on that one, because the true concept of retirement is when you sail off into the sunset right, or at least that sums people's definitions where you sail off into the sunset and you never, ever, do any work, ever again. But I don't necessarily think that people want that, that I think that people think that they want that, and I think that not doing any work whatsoever sounds ideal, but it actually gets really, really, really boring and really, really, really dull. And what I'd hate for people to do is spend their whole life looking forward to being retired, only to get there and realize that they're not actually enjoying it that much, because then you spent your whole life not giving yourself permission to be happy and sacrificing your, your, your, sacrificing your time, sacrificing your energy, sacrificing your mental well-being, uh, rat racing in order to get to that position as soon as possible, only to realize that it wasn't actually everything that it was hyped up to be. So I think we have to take that with a little bit of pinch of salt, or at least explore what we mean by that. I think it's always good to have some level of activity in your life and possibly work Really. It's just about making yourself happy. So if that is how retirement should in fact look, isn't that feasible that we might be able to achieve that a little sooner? Because isn't that just called having a good work-life balance as well? That's more how I see things. Anyway, let's distill that down. I really like the definition of retirement that goes a little like this this definition is something I picked up from a book ages ago and that definition is retirement is the day that you stop exchanging present unhappiness for the future promise of being happy. Stop exchanging present unhappiness for the future promise of being happy. There's a little bit to digest there. We're going to break that down right now. Let's think about it like this Present unhappiness what does that mean? It doesn't mean we're unhappy in the present. It just means that we are making some level of sacrifice in the here and now in order to earn money, in order to obtain wealth that we can later use to be retired, that we can later use to be happy in theory, in every given moment. But I don't really think that's in human nature, or at least we have to work on a lot to actually achieve that future promise of being happy. Remember, it is only a promise. There's no guarantee that we'll actually be happy when we get there. And then also, as well as that, who's to say, who is to say that we'll even will get there? That's another thing. There's no guarantee in life whatsoever. And, again, that's why I think that you shouldn't go too hard on sacrificing everything on the here and now. That's why I think you have to enjoy the journey as well as the destination. Stop exchanging present unhappiness for a future promise of being happy. So, for me, how I interpret that is we're sacrificing our happiness to some degree in the here and now in order to make provisions for the future, in order to set aside a pot of cash and make some investments that are going to allow us to, in theory, be happy in the future. That's how I understand it, that's my definition and that's how I see it. Therefore, on that basis, there's three ways to become retired. So the first one would be well, if we completely annihilated our outgoings, as in we were to be able to reduce those down to absolutely nothing. We, in theory, have enough money to be able to sustain ourselves. Now here's the thing, the problem, the reason why that's quite difficult is, to some level, we lack our creature comforts and we enjoy the little things that make our lives easier, like central heating and having food in the fridge, etc. So, whilst it's a good idea to keep our an eye on our outgoings, to some level to live that life where we completely reduce our outgoings to nothing, that's not so fun and that's what keeps people participating in the game. The game of capitalism to some level is that they do enjoy these things. Therefore, you can do it. However, is it that much fun, if you ask me? Probably not, but it's worth knowing. That is the first way that you can retire Reduce your outgoings to nothing, ie become a hermit. The second way that you can retire is is is is you can have enough wealth so that you don't have to work anymore. Now, that's easier said than done, because the holy grail is to be able to achieve that in our relative youth. Now, realistically, it's. You know, most people spend their whole lives trying to get there and most people do retire whenever they're 60, 65, so we know that that's not no easy thing to do. It's not really easy to generate a huge level of wealth. Uh, in the here and now, in order to be able to step away from her work and retire and, realistically, to last your whole life, you're probably going to need like two, three million, in my opinion, even if your outgoings are relatively modest. Therefore, the question then becomes how do we generate? And if you want to live in the UK as well, of course that's going to vary based on the person. For some it might be less, for some it might be more, but let's just use that number as a figure that we can pull out of the air. So, in other words, we have to be able to figure out a way to generate two or three million in the here and now, in an instant, not so easy to do. That's the second way that you can retire. The third way to retire is to just find balance, is to give yourself permission to be happy in the here and now, because then you're not exchanging the unhappiness that we talked about before, we're not really making any sacrifice, we're actually enjoying our life the way things are, and that can be attained, that can be done. That's about finding your best work-life balance. That's about doing something that you enjoy now. Easier said than done, and I know that we people throw around these sayings like hey, you know, find what you love and you never work a day in your life, and everything along those lines. Find your passion and every you know. The rest becomes easy, life becomes easy. And I know there's all this kind of wishy-washy things that people say, and they do have some validity. I'm not being entirely disparaging about them, I'm just saying that it's it's it's. It's easier said than done. Right, and I I just want to emphasize that because I definitely don't want anybody getting the impression that I'm making it this out, that it's straightforward. Remember, only so many people get to attain this reality. It's very, very few people do attain it and that suggests that it is difficult. But, like I say, the first step to attaining it is understanding it and therefore we can make progress towards it. We can start channeling our energy into productive things that are going to take us closer and closer to that goal. So remember those three means of attaining retirement. The first one is not that feasible. If you ask me, there's got to be some level of creature comfort. The second one is again not that feasible. We have to be able to generate a huge amount of cash in an instant in order to achieve that. The third one is a lot more attainable for most people, but we just have to understand that it's a thing and also deconstruct that concept of retirement. Anyway, let's go one layer deeper and let's talk about most people's financial journeys. Let's talk about most people's investing journeys and how that looks, because usually that is the thing that most people do, or most people that. That's. That's the conventional means of attaining retirement right and regardless of whether you, you know, regardless of what your philosophy is, we're going to need money for some level, because most of us want those creature comforts we were talking about just a second ago and for for me, I think, a really great way of looking at the concept of retirement. Another definition of it is when we get to choose and decide what we want to do in any given moment, rather than feel like we have to work more than we'd like or sacrifice more than we'd like. Again, different philosophies. For some people it'll be slightly different. That's just another way of defining it. So, like I say, it's the point in time where you get. Another definition is it's the point in time where you get to choose to work rather than feel like you have to, because that's a completely different energy. When you feel like you're deciding what you'd like to do in any given moment, rather than being forced to. It's the whole concept of uh. It's like it's like that saying you know, um, oh, I have to do this, I have to go to work, whereas if you change the word have to get, I get to go to work it completely changes your perspective on the matter. And you know, for me, that is one example of a way that we can when, when, when, when, we uh have that perspective and when we attain that place where we have really life balance, it's maybe more of a get. We have more of a work-life balance. It's more of a get to situation, it's more of a wow, lucky us. You know, we're living our dream life and we're doing it in the here and now. That, to me, is freedom, that is happiness and that, in in a way, that is something that any of us can retain or can, can obtain potentially, and it's it's, it's possible. Let's just say that anyway. Back to what we're saying about the investment side of things. Whenever it comes to your investments and whenever it comes to your assets, again, people like to make these things a little bit too complicated. If you ask me, it's a really simple way that you can break it down. You really only have three positions or relationships with your own retirement date. You're either either on your way there you've reached there, or you're close to reaching there, or you've already passed that stage and you're already retired inverted commas. Now how that corresponds to your wealth and your net earnings. Your net wealth is that you're either still building wealth or you've got enough wealth to be able to retire, or you're dipping into that wealth and taking some profit and using that retirement pot to sustain your outgoings to some level to provide you cash flow. You're either in the accumulation phase, in which you've grown your wealth, you've reached your retirement you're or you're in and around that area which is known as the pinnacle point of your wealth, the tipping point, and the third phase. The financial wealth planning term for the third phase that we talked about a second ago, where you're taking profit and you're selling some of your assets, is the distribution phase. So every single person in this face of this earth is either accumulating in the accumulation phase they're close to the pinnacle point or they've hit the pinnacle point, as in they are, in theory, retired, they're close to the pinnacle point, or they've hit the pinnacle point, as in they are, in theory, retired they obviously have to crunch the numbers or they are in the distribution phase where they're starting to sell some of their assets and live off it a little bit. And really what you do. This podcast is entitled how to retire early. Really, how you achieve that is based on which phase you're in, because you're going to have a slightly different strategy. Let's say someone is still in the accumulation phase, or they're, they're close to the start of their journey, maybe they're only, they're only qualified five to ten years. This is a typical example. Not everybody's going to look like this. But let's say somebody's qualified, maybe five, ten years, fifteen years, something along those lines. There's a good chance that they're working either as an associate or in their own clinic. They're building up wealth, they're beginning there there. Well, they're beginning, or they already have been doing for quite some time. They're setting aside some money, they're investing it in an asset portfolio and that's growing and growing and growing in the background whilst they live their life. Someone in the accumulation phase wants to speed up their retirement. Then, really, there's only really two big things that you can do. You can either increase your income and I've done loads podcasts on that in the dentistry invest podcast. In fact, there's a really good podcast, uh, episode 300 of the dentistry invest podcast is really good. It dives into assets and how they work and it gives everybody a really good framework through which they can use to decide, uh, how they might want to go about increasing their income. That's your first lever. Your second lever is optimizing your investments. The average fund in the UK, according to fundsmithcom, provides a 6% return every single year 6.3% to be precise. However, if we know that the stock market again not financial advice if we know that the stock market again not financial advice if we know that the stock market can return 10% a year on average, then where's everybody's 4% going? Where is that wealth going? Where's it gone? How can we tap into it? Because an extra 4% every single year is a massive uptick in your investment portfolio. When you understand how to harness that correctly, when you understand how to harness that correctly, when you understand how to leverage that correctly, whether you want to understand how to do it yourself through learning and reading, and understand the world of investing, how to tap into that, or you want to go down the route of having an advisor hold your hand. Either is good, just make sure that you're getting the most out of your investment portfolio. When I say the average fund, what I mean is the average portfolio. However, it can be the case that somebody can do much better than that. Uh, whenever they have more bespoke guidance, shall we say. But got to be very careful about that. Not financial advice is worth the conversation at the very least, because the difference between a six percent and a ten percent portfolio is huge, and I actually, in terms of returns and how soon one might be able to retire, and I actually have some data and stats that illustrate that. If you have a 10% return, if you have initial investment of 10,000 pounds, and you have a 10% return on that investment portfolio every single year for 40 years, you will have 450,000 pounds at the end of that 40 year period. Now, 40 years might sound like a long time, but if you work from 25 to 65, which most people do, actually that's quite normal that people might work for that level of time and be investing alongside it. And remember that's only on a 10 thousand pound one-off contribution. If you contribute throughout the course of the journey as well, then there'll be even more in there. Now let's compare that to an eight percent return. An eight percent return on ten thousand pounds over the course of 40 years, eight percent every single year, of course, increasing the size of the eight percent increase every single year, compounding, uh over the, over the the course of 40 years, will give us a return of two hundred thousand pounds. So we just lost 250k because of a two percent return. We lost that much. That two percent that we lost, that we missed out on because we possibly didn't have a portfolio optimized, literally cost us more than half of our portfolio. When you get down to six percent, that number then becomes 130,000 pounds. So that makes a huge difference. It's literally one third what you could have had. Six percent versus ten percent is a massive difference that four percent really cost us and that's due to the eight wonder of the world, as einstein refers to it as that eight wonder of the world being compound interest. Really cool quote by albert einstein. Didn't know he was into finance. There we go, but yes, anyway, really, really really drives that home. So anyway, long story short, if we're going to summarize what I've just said if you're in the accumulation phase, ensure that your income is sufficient, not just because you can live the lifestyle that you want in the here and now, but also so that you can contribute sufficiently towards your investment pots. And then also really, really, really, really really ensure that your investment pots are optimized and you're getting the return that you'd like to either read, learn and understand how to invest yourself, or go down the route of having an advisor, one who's actually going to be able to get you some really good returns and ensure that you will be making sufficient progress towards your retirement goals, because we're literally talking about pulling our retirement date forwards here by about 5, 10, maybe even more years, just because we had the right advice in the first place. Again, can't make any promises in terms of returns of investment not financial advice, but it is. It goes some way to illustrate what's possible, which is extremely useful. Let's talk about the pinnacle point. What is the pinnacle point? The pinnacle point is when somebody is retired, as in when they can live off their assets for the rest of their days. Now, here's the thing about the pinnacle point you have to actually crunch the numbers and do some math for somebody in order to be able to say whether or not that they're at the pinnacle point. And that's because it's different for everybody. Everybody's outgoings are going to be different. Everybody's financial obligations are different. Therefore, everybody's going to need a different amount of money. Everybody's investment portfolios have grown by a different amount. Everybody's had a different set of life circumstances, which has meant that they have a specific level of money is going to be the expected return on our investments going forwards, whether or not there's any supplementary income from any residual investments that we have over the years that might provide cash flow, everything along those lines. And that's where financial planning can really, really, really help. To calculate someone's pinnacle point, you need to know the numbers, you need to know the math. It's impossible without doing a full scale financial plan on somebody and when I say that, what I mean is a full, fact-found report as in understand, as in the process, the due process that a financial planner will take you through before they are able to say that specifically and be able to plan and manage your assets to give you the cash flow that yields cash flow yields every single year that you need to retire. That is what we do at Vedera. Financial planning. That is something that any dentist can benefit from, however, particularly somebody who's getting closer and closer to retirement age. Maybe they've been working for about 20, 30 years, something along those lines. Not always people don't always fit into these neat little categories. It's obviously going to be on a person by person basis, but broadly speaking, uh, that is true. Maybe someone who's because they've been working for that amount of time, they've got a reasonable amount of assets built up, maybe they are. Maybe they've exited their dental practice or another business over the years, maybe they're close to exiting the dental practice, maybe they've had the practice for a number of years and they'd like to exit or see if it's feasible that they might be able to step away. That's where cash flow planning can really, really, really help and that's where a company like ours for their financial planning well, that is the clues in the name that's exactly what it does being able to figure out that number for somebody is extremely valuable, and it's not unusual that somebody in that situation may realize that they've already been retired for a number of years. Purely because they didn't necessarily purely purely because they never actually sat down and crunched the numbers and figured out right just how much do I need and how much do I have already. Not so many people take stock. It's so common and frequent to just get stuck caught in the motions of just repetitive, repetitive, repetitive. Doing the same thing day in, day out, without even necessarily thinking about it. That happens fairly frequently. That happens fairly frequently and you know what else is not unusual to one of the financial planners in vader look hurley, who has been on this podcast before, has said and over the years, that he's noticed that it's not infrequent that dentists have too much whenever it comes to retirement age. And actually it's quite feasible that they might have been able to reduce their workload a little bit sooner if they would have just had the opportunity to think about it. And it's precisely that it's an opportunity and we should regard it in that fashion. And when I say that, what I mean is not everybody has that chance, or has that has their eyes open, shall we say, or even has the has has the opportunity to listen to a podcast like this and have it laid out for them. Anyway, that would be the pinnacle point. And then the third phase is the distribution phase. The distribution phase is where we're living off our assets and we're able to supplement some of our household income via taking profit from the asset portfolio that we've built up over the years. Now, if you've absolutely nailed the accumulation phase and you've done the math at the pinnacle point, then what that would mean is it's just a simple case of checking in with the plan every single year your financial plan so that you know that you are on the right path and you know that things haven't changed. There's going to be a few variables in there that people can't predict with 100 accuracy. Inflation is, on average, three percent, but that doesn't mean it is every single year. Sometimes it's more, sometimes it's less, and of course you have to be able to touch base on that. The markets return an average of 10 every single year, but that's an average. The clues in the name they go up 75 of the time. They go up three years out of four, but there's always that one down year. So of course you have to account for that in your strategy. Maybe reduce your outgoings a little bit if your portfolio is not performing that year as expected and it needs a little bit of time to recover. So the distribution phase. Like I say, an ounce of pre-work is worth a pound of post-work is a saying that I love, and what that means is, during the accumulation phase and clinical point. If you've completely nailed that, the distribution phase should, in principle, be quite simple and what we have to do is, once a year, check in with our financial planner, make sure we're on the right path, make sure we're doing the right thing, adjust the strategy as and when needed and enjoy our retirement, because that's what we work so hard for throughout the course of our life. In summary, really, what we got to do if we want to retire early is, first of all, nail our definition of retirement. How can we know what retirement looks like unless we clearly define it, which we have done? Second thing we need to understand is what phase we are in in our investing journey. Are we in the accumulation phase? Are we in or in, or around emphasis on the word around, pinnacle point, because we need to actually define that by crunching the numbers or are we already retired and we're selling some of our asset portfolio, uh, month on month in order to give us cash flow? As in, we're in the distribution phase. Then the next stage was to get really granular and to just think about what we can do in each one of those phases. For those who are in the accumulation phase, really your two biggest levers are accelerating your income level, increasing your income level so that you have more money to invest, or increasing or optimizing the returns on your assets. And really, if you're going to optimize the return on your assets, that can only really look like one of two things. It's either going to be reading and learning this stuff independently so that you can execute on it with a great deal of confidence. Not everybody will have the time to do that, not everybody will have the confidence to do to do that, and in that case, what you might like to do is get the assistance of an advisor who'll be able to allocate you a really, really, really good portfolio that's going to give you some really good returns and accelerate your journey. It's all about. It's all about. It's all about ensuring that you're making sufficient progress, rather than no progress at all, which a lot of people do, or a lot of people are in that camp. If we're closer to the pinnacle point, really we need to crunch the numbers so that we can figure out what's going on, what's happened, in order to be able to say whether or not we are retired. That's where a conversation with a really good financial planner will help do or a lot of people are in that camp. If we're closer to the pinnacle point, really we need to crunch the numbers so that we can figure out what's going on, what's happened, in order to be able to say whether or not we are retired. That's where a conversation with a really good financial planner will help. And finally, if we're in the distribution phase, we'll just ensuring that we're course correcting regularly, ensuring that we're meeting with a financial planner at least once a year to understand that we're still on the right path and things are panning out as expected and we can continue to enjoy our retirement.