Finance: Three pillars of happiness for worry-free golden years

PHUKET: Much of my time is spent with clients figuring out exactly what they want for the future – key to their financial planning goals.

Typically it ends with setting aside a certain amount of money each month over a period of time – investing it with a particular objective in mind, or getting clients savings that are sitting in the bank working harder than they currently are.

If you have ever read Stephen Covey’s wildly successful book The Seven Habits of Highly Effective People, you may be familiar with his concept of beginning with the end in mind. I have always tried to follow this approach to financial planning, and in my opinion the end goal we all have in common is to retire happily and spend our golden years worry free.

It makes sense to think about what exactly is required to reach this worry-free state of happiness. I have learned that it basically boils down to three things. It doesn’t mean that having these three things will ensure you happiness, but without them it just isn’t possible. In short, they are time, money and health. In financial terms, they are often referred to as “time freedom”, “financial freedom” and “health freedom”.

To have real financial freedom, you need to first determine what your ideal lifestyle would be. This is different for everyone, and of course, it needs to be a lifestyle that can be maintained within your means.

If, for example, you are living a lifestyle that is not allowing your net worth to grow, or at least be maintained, then worry is going to creep in. Having a shrinking retirement pot is the worst thing facing retirees, and I can only imagine the horror that must come with knowing that you will probably outlive your finances.

This is where “time freedom” really needs to be defined. If your time is really free, then you won’t be spending all day worrying about your finances. While those of us who don’t have to punch a time clock may have partial time freedom, hours spent worrying about businesses problems is not really time freedom in its true sense.

Nor are hours spent worrying about stock market gyrations. Health is an obvious one, because all the money and time in the world means nothing, if you are in hospital or too out of shape to pursue active hobbies that can bring you happiness. You don’t need a financial adviser to tell you to eat right and go get some exercise, but you still ought to do it, or you’ll be the richest miserable person in the infirmary.
The other two pillars are best dealt with by building passive income streams from the various kinds of income investments. Unfortunately we are still in a low interest rate environment where most safe income investments pay next to nothing.

High-yielding dividend stocks, even blue chips, place your capital at risk in the next inevitable crash. High-yielding bonds (high only in the relative sense of the word) place your capital at interest rate risk when rates eventually do rise. Rental properties, both residential and commercial, are illiquid. Money market funds give negative inflation adjusted returns.

So how can you retire and achieve this kind of worry-free happiness in the current environment? It’s not easy, but as with every investment environment, this too shall pass. Preserve your capital as best you can by diversifying and balancing out the above risks as much as possible.

Build multiple income streams from a mix of the above investments and avoid doing anything to put a big chunk where there is significant downside risk – that is, the stock market after seven up years in a row, or long-term bonds at the end of a 30-year bull market in bonds. Both of these markets will eventually crash and provide excellent low-risk opportunities. At the moment, patience is still the most important thing required to reach the elusive freedoms that are difficult to obtain in this world.

David Mayes MBA resides in Phuket and provides wealth management services to expatriates around the globe, focusing on UK pension transfers. He can be reached at david.m@faramond.com or 085-335-8573. Faramond UK is regulated by the FCA and provides advice on pensions and taxation.

— David Mayes