The Vancouver Province published an article last week (original visible here) discussing how the average person is at more risk than ever of not being able to afford retirement.

This situation stems from an increasing cost for quality health care (except here in Alberta), and longer life expectancies.

The article really focuses on making healthy choices now, so that you are healthy down the road. While this is obviously great advise, it's not the whole story.

One aspect that they barely touched on is the financial planning aspect of getting older. They said "Perhaps most important of all, workers need to personally plan ahead for a long, potentially expensive retirement" and "individuals need to accept greater responsibility for their present and future health, and to factor the cost of health care into their retirement planning [...] They need to open their minds to the possibility they could outlive their assets, and seek advice from those who have access to the full spectrum of solutions"

So, what's the solution to this problem?

Simple - people need to stop living for the moment and buying depreciating assets. We've somehow slipped into a world where (no doubt at least partially because of marketers) the new iPod and RV somehow get purchased on consumer credit, often before retirement planning is ever considered.

Making the matters worse is the banking world that has convinced us that by automatically buying $300 of mutual funds every month will make us filthy rich by retirement. This when more people are retiring broke and the banks are making over $4 billion per year - that's *each* of the big banks.

So, now that we know part of the problem, how do we keep it happening to us?

One answer is to do our best to stop buying depreciating assets, and start buying appreciating assets - things that go up in value. I guarantee you can't sell that iPod, RV, or almost every vehicle manufactured for more than you paid.

It's tough to do, and nobody is perfect at it - I'm sitting here preaching this, but I have lots of things that go down in value. The trick is to buy depreciating assets with cash, and borrow money to buy things that go up in value. It might mean waiting a few extra years for that new car - which is tough, trust me - but it's the easiest way to get money to work for you, instead of you working for money.

The classic example of this is to borrow money to invest in an asset that provides you a monthly dividend payment that is at least as much as the cost of that loan.  If you can do this, you have sucessfully purchased an appreciating asset with the bank's money, and you essentially got it for free. In this case the only 'out of pocket' investment you have made is your credit rating, which is often unaffected because banks love to lend money for houses - it's how they make all that money.

I'll wrap up this post now, since I could go on for hours.  If you would like some more thoughts or info on this investment strategy, please get in touch - I'd be happy to discuss it further, or meet for a coffee.



David.