In my early career, I was fortunate to do well financially while working at Goldman Sachs. I also made the decision to live below my means, and to invest intelligently. By my late twenties, I had amassed a seven-figure nest egg, and in my early thirties, I actually took an extended vacation for about five years.
What I came to learn, however, is that you don't have to work for Goldman Sachs – or be a multi-millionaire – to be able to retire comfortably or early.
You don't even have to figure out your "number"…
It's Easier Than You Think
In his 2005 bestseller, The Number: What Do You Need for the Rest of Your Life and What Will It Cost?, author Lee Eisenberg scared a generation of would-be retirees by pointing out that most will never be able to amass the multi-million dollar nest egg they will need to retire comfortably, let alone retire before the traditional age of 65.
Eisenberg's "number" represents the amount of money one needs to be able to retire comfortably for life. I have my differences with Eisenberg's thesis, but there is some truth to the grim picture he paints of investors who haven't adequately prepared for their retirement.
Certainly, one way to make sure you have enough money to retire comfortably, or even retire early, is by accumulating a big "number" – a big dollar amount in your investment accounts – before you stop working.
The key to accumulating a big number early is a combination of good, old-fashioned hard work, thrift, and smart investing.
"Big," of course, is subjective.
There are plenty of smart investors who have less than $1 million and manage to live quite nicely from the income generated in their investment accounts.
In fact, having the right income-generating investments is actually more important than amassing a big Eisenberg "number."
The Income You Need, Delivered
Let's say that in order to retire early, and/or comfortably, you need to generate income of $150,000 per year in pre-tax income.
To do that, you would have to generate a 30% return each year on a nest egg of $500,000, or 3% on $5 million. Obviously, having the $5 million allows you to get that 3% a lot easier than if you had $500,000, but you definitely don't need that kind of capital to live the way you want.
The table below illustrates some of the various ways to get to that $150,000 per year from your current capital base. The yields listed here represent the typical expected yields in that given asset class.
|Yield||Capital Base||Sample Investment|
|10%||$1,500,000||Master limited partnerships (MLPs)|
|20%||$750,000||Top performing MLPs with 2X leverage|
|30%||$500,000||Top performing MLPs with 2X leverage and cap appreciation|
As you can see, the lower your capital base, the more you have to employ alternative income-generating investments to get the kind of return you want.
Securities such as master limited partnerships (MLPs) are the key to big returns, offering yields in the double-digit percentage range. And, if you use leverage to help supercharge your returns in the best MLPs, achieving that $150,000 with a capital base of $500,000 becomes quite achievable.
I'll be back with a recommendation in the next few days. In the meantime, here are the recommendations I've made in the last few weeks…
These Income Stocks Are High Growth in Disguise
Classifying MLPs as "income" stocks is a big mistake. It's a costly one too…especially if it's growth you're after. Yes, the partnerships toss off tons of cash. The high-net worth folks I work with can achieve, for example, $350,000 in cash payouts from investing $5 million in an MLP yielding 7%. But they're more like growth stocks in disguise…
A Safe "Specialty Fund" that Pays Up to $850 a Month
The long-term growth potential alone makes these shares worthwhile. But you'll also get a ton of cash – up to $850 a month, depending on how much you invest. That's what makes these "specialty funds" so special. They do the work, you get the money…
How to Give Yourself a 10% Pay Raise in 10 Minutes Flat
There's only one reliable way to make 10% or more a year… especially now, in a rising interest rate environment. Growth and income are inseparable. The three companies you'll see today are perfect examples of this. And "total return" has never been more important to seek. These shares will pay you 5% to 10% in cash.