How to Retire on $80,000

Published: 09th January 2009
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The problem with paper money is that it rewards the minority of people who can manipulate it and makes fools of those who work and save for it.- Adam Smith

We're told our whole lives to study hard so you can get good grades so you can go to a good college, so you can get a good job so that you can make a lot of money, so that you can drive a nice car, so that you can find a beautiful wife, so that you can have a big house and beautiful kids so that you can be happy.

If only life were that simple. Nobody tells us about the rampant consumerism and the pressure to keep up or get left behind. So most people will find themselves deeply in debt by the time they're in their mid-30's with a car payment they can't afford and a house that's bigger than they need. The next thirty years is spent trying to keep up with the mortgage, and other bills while saving for the kids college tuition and trying not to get laid off in a bad economy.

If we fast forward to retirement and take a look at data from the Bureau of Labor and Statistics we see that even after working for a lifetime most people will still end up broke. If you were to take 100 people at 25 years old and you met up with them 40 years later 15 would be dead, 1 would be wealthy, 4 would be financially independent and the rest would be dependent on either the government or their families for their retirement.

So why is it that most people are so concerned with doing what everyone else is doing? The fact of the matter is that when it comes to money what most people are doing is wrong. They will spend the best years of their lives working and trying to save only to find themselves in need of assistance at the end of it. So perhaps a bit of unconventional wisdom is needed.

Money vs. Time

Conventional wisdom and your financial advisors will tell you that you need to have at least $500,000 in the bank making 5% interest a year to make $25,000 that puts you slightly above he average per capita income in the United States. . But how long will it take you to save that $500,000 and could you really live off that little money comfortably?

The trick to retiring early is to find a way to make your money work harder for you. There are ways to make 5% per month instead of per year that the banks don't want you to know about simply because it is what they do when they take your deposits.

While these methods are not necessarily for everyone they are for those people who don't want to spend the best years of their life working and are able to exercise a bit of discipline and are willing to take some risk.

Retiring on $80,000

How much does someone need to retire? Let's say you need $2,000 a month to live on. If you were to save $80,000 with a return of 5% a month you would have $4,000 a month. You could use $2,000 a month to live on and $2,000 to reinvest every month to grow your principal.

The Credit Spread

So how does one earn 5% a month rather than the 5% a year that most people get from a money market fund? One way is by using Credit Spreads. A Credit Spread is two stock options of the same type with the same expiration, but with different strike prices. One of the options is purchased and the other is sold. The concept is very simple but like anything it does require a bit knowledge, skill and practice. There is an advantage to using this technique of buying a stock because there are basically 5 things that the market can do-


1.Make a small move upwards

2.Make a small move downwards

3.Make a side ways move - i.e. in a given time frame, the market price "goes practically nowhere" or before that time frame expires, returns to its original point.

4.Make a large move upwards

5.Make a large move downwards

If you buy a stock the only way you can make much money is if the markets make a large move upwards. Whereas with a credit spread you can make money in 4 out of 5 of these conditions or 80% of the time. Even if the other 20% hits you there are still ways to end up at break even or with a profit.

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