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My next read will be Emily Guy Birken’s The 5 Years Before You Retire: Retirement Planning When You Need It the Most. Not 30 years. Not 6 months. What do you need to know and do if your timeline for retirement is roughly 5 years out? If you would like to get your own copy and read along with me, please let me know! Sometimes we get people who come into our office and say, “I just retired! I’d like to talk about what I need to do.” It’s not uncommon that what they need to do i

I’ll wrap up our engagement with Smith’s work where we started. Thinking chiefly of the native tribes in North America prior to the American founding, he writes that “every individual who is able to work is more or less employed in useful labour, and endeavours to provide, as well as he can, the necessaries and conveniencies of life, for himself, and such of his family or tribe as are either too old, or too young, or too infirm, to go hunting and fishing. Such nations, howeve

In an earlier chapter we learned that there are three components of the price of something: Wages Profit Rent In our final chapter with Smith, he explores profit. Profit, by definition, is what’s left over after all other expenses are covered. If you are in the business of corn, after you pay for the land, pay for the labor, pay for all other expenses related to growing the corn (seed, fertilizer, tractors, storage, etc.), the money that’s left over that does not need to go t

While some people enjoy their work more or less than others, it’s rare that someone would continue to do their work if they did not receive financial compensation for it, either because it’s no longer worth their time or because they would need to do something else to afford to continue their lifestyle. But people get paid very different wages (as we saw with the minimum wage worker and heart surgeon affording different amounts of pins), so here Smith writes about what influe

Smith has established that the price of a commodity is composed of three parts: wages, profit, and rent. Here he makes a further distinction. These three combined form the natural price, which may or may not be what the commodity is actually sold for, the market price. “The actual price at which any commodity is commonly sold, is called its market price. It may either be above, or below, or exactly the same with its natural price. The market price of every particular commodit

We read last time that when we buy something, we can think of the expense not in terms of the price tag, but in terms of our labor required to exchange (through money as an intermediary) for the good or service we desire. Here, Smith explores further what makes up the price of an item. According to Smith, there are three components of the price of something: Wages Profit Rent “In the price of corn, for example, one part pays the rent of the landlord, another pays the wages or

As Smith promised last week, here in chapter 5 we will explore “what is the real measure of this exchangeable value; or wherein consists the real price of all commodities.” In other words, what does something really cost? Let’s take Smith’s book that we’re reading now, which you can buy in paperback for $20 (or Kindle for $1, like I did). You might say it costs $20 (plus tax), and you’d be right. But for Smith, that’s not the real price. You did not dig in the ground to mine

Let’s say you worked in Smith’s pin factor, and ended each day with the credit of production for 4,800 pins. How beneficial would it be if you got to take half of those home, and stop at the butcher and baker on the way to trade your pins for their meat and bread? What if they were not in need of 1,000 pins daily? What about paying your mortgage with pins? The absurdity of trading our individual production units (pins, beef, bread, etc.) seems obvious to all of us who have li

While I was getting licensed to work in financial planning, I took a job doing assembly line work for a company that makes generators and power tools. For a time, my day was composed solely of taking folded cardboard boxes, opening them up, and putting them on the conveyor belt assembly line. From there, the next person would place a metal transfer switch box for a specific line of generator inside, and then it would go down the line for the next 10 people to each do their in

I asked last time, “Left to your own skill and only what Mother Nature provides (no tools you don’t make yourself), is there a single thing you use today that you’d be able to make on your own?” My answer is simple: No. I could not make my car, let alone the rear view mirror. I could not make my clothes, let alone the thread to stitch fabric together. I could not make my oven, let alone the cast iron used to fry my eggs this morning. Thinking of Friedman’s pencil, it’s likely

Think of a pin. Walmart sells 1,000 for $11, or 1.1¢ per pin. In your current or former line of work, how long would it take you to earn 1.1¢? At the Wisconsin minimum wage of $7.25, it would take about 6 seconds. Now imagine you had to make a pin on your own. From mining ore, to refining the metal, shaping it, cutting it, sharpening it, forming the plastic head, and combining them. Would that take you more or less than 6 seconds? (Yes, it’s a rhetorical question). This is no

My next read will be a segment of Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations. Smith shares the following example in his introduction. Thinking chiefly of the native tribes in North America prior to the American founding, he writes that “every individual who is able to work is more or less employed in useful labour, and endeavours to provide, as well as he can, the necessaries and conveniencies of life, for himself, and such of his family or tr

Perkins offers one final charge, and a summary of his book: “Chase memorable life experiences, give money to your kids when they can best use it, donate money to charity while you’re still alive. That’s the way to live life.” Perkins admits, “I’ve given you an impossible task: to die with zero.” While he would like for everyone to perfectly optimize for this, he knows there are too many unknown variables for each individual, and he is okay if nobody does this perfectly. In hi

Can you imagine a 20 year old with no money? Probably not too hard; that’s most of them! What about a 25 year old? 30? 40? At what point is it concerning that someone is still at a $0 net worth? (Unfortunately, many today are young and have a significant negative net worth, given school and/or consumer debt. But let’s put that aside for the time being). If “all” that you put at risk is all the money/net worth you have, and the worst thing happens — you lose it all — but you’r

As Perkins often reminds us, in order to enjoy an experience, we need some mixture of time, money, and health. The least flexible of these is health. The typical retiree has the most time and money in their late 60s and afterwards, but likely is not eager to go mountain bike riding, multi-day backpacking, cliff jumping, or a host of other things that require a level of health (or at least recuperating joints!). Because of this, Perkins recommends planning around that factor m

Perkins rightly draws a distinction: “We all die a multitude of deaths throughout our lives. [...] The day I die and the day I stop being able to enjoy certain experiences are two distinctly different dates.” With each passing year through retirement, it is more likely than not that the list of things we can experience gets shorter. He acknowledges that we ought to delay gratification given the practical reality that consuming 100% of income/available funds immediately often

This chapter is a bit refreshing after what we’ve been reading. Perkins acknowledges that, especially when we’re young, we can indeed overspend on present enjoyments. We should not be on auto-pilot saving mode, delaying all gratification, nor should we be on auto-pilot spending mode just because we’re young and free. His recommendation is to “Strike the right balance between spending on the present (and only on what you value) and saving smartly for the future.” While he woul

To summarize this chapter in one sentence: decide how much of your wealth you’d like to give to your children, charities, or other beneficiaries, and do that now rather than waiting until you’re gone. Most inheritances (from small bank accounts, to the sale of mom and dad’s home, to leftover IRA money, etc.) occur around the age of 60. Often at this time in their life, the “children” are close to or already retired themselves. They’ve saved up their own money, and while the i

Perkins acknowledges, “dying with exactly zero is an impossible goal.” By this he doesn’t mean spending all your money now and living destitute the rest of your life. He means spending your last dollar as you take your last breath. His recommendation is to use two primary tools to get as close as we reasonably can. Firstly, life insurance companies make it their business (literally) to estimate how long you will live. While almost nobody is “average”, with nearly 100% falling

This chapter answers “why” we should aim to die with zero, while the next addresses “how”. For Perkins, the “why” is simple: If we have money left over, we did not efficiently maximize our “enjoyable experiences”, which, for him, seems to be the meaning of life. To illustrate: Imagine you take home $100,000/year while working. After a happy retirement, you die and have $200,000 left to your name. For Perkins, the waste is not necessarily that you did not spend that $200,000,