Saturday, December 13, 2014

The ant, the grasshopper, and the tapeworm

Well here we are, nearing the end of another year. For me, this was an okay year. I learned a lot. Met some new people. Had a few adventures. But mostly I worked.

Recently, someone told me that I work compulsively. Those words shocked me, as I had never thought of myself in that way before. But they were right.. I work too much. I suppose I take an ant-like approach to my job.

I admire the ant. He prepared all summer long while the grasshopper basically dicked around watching Pop-Up Video and drinking Mickey's grenades. Suddenly when the snow started falling and the welfare checks stopped coming, the grasshopper got all pissed off and died. At least I'm pretty sure that is how that story went. I haven't read it for a while. 

If I could offer an addendum to that story I would add a third character in there. The third character would be a parasite, like scabies, or a tapeworm. The tapeworm would force the ant to give him 19% of the supplies he gathered, representing almost two and a half months of the ant's hard work for the year. The tapeworm would squander most of the ant's supplies on useless ventures, and give away a lot of the supplies to the grasshoppers so that they didn't have to work. If the ant refused to part with such a great percentage of his hard earned supplies, the tapeworm would send other armed tapeworms out to kick over his anthill, shoot his dog, and throw the ant into a lonely, lonely prison. 

This year I worked my ass off and spent about 50% of my hours alive away from my family. For my troubles I got to pay the tapeworm $4,800 in social security taxes alone. This money was taken from me against my will because the tapeworm says I'm too stupid and lazy to save for retirement on my own. The tapeworm says he can invest my money for my retirement better than I can. 

This is preposterous. 

Let's consider a scenario where I get to keep my $4,800 and use that money to purchase several positions in dividend growth stocks yielding 4%, with an annual dividend growth rate of 6%, and a modest share price growth rate of only 8%. In this scenario I'll assume that I never save another dime for retirement for as long as I live, other than reinvesting my dividends. (Capital gains taxes are zero for my adjusted tax bracket.)

I am 30. At age 62, the youngest age a person can begin receiving social security checks, my investment, which I have completely ignored for 32 years, will be worth $142,999.67 and pay me $3,145.01 in tax free dividend income that year. If I wait until age 66, the "full" social security retirement age, my nest egg swells to $211,186.96 and pays me $4,310.06 in dividend income that year. Certainly this wouldn't be enough income to retire on, but it really is an extraordinary amount of money considering the very little effort put into investing it.

This really wouldn't be hard to accomplish. Strong companies like Altria, AT&T, Verizon, Phillip Morris International, and Chevron all yield over 4% and have a culture of increasing dividends every year. You would be surprised at how many companies pride themselves in their long histories of annual dividend increases.

Now here's where we get real fuckin stupid:

Let's say that not only does the tapeworm let me keep my $4,800 this year, but he also lets me keep my $4,800 every year that continue to work at a job. At age 62 my parasite-free retirement account will be worth $1,327,022.35 and throw off $29,185.41 in dividend income in that year. If I wait another four years until my so-called full retirement age those numbers become $1,982,137.42 and $40,452.90 respectively.
Does anyone out there in their 20s or 30s honestly believe that social security is going to pay you over $40,000 per year when you retire? Now, this may not be a lot money in the year 2050, but it certainly illustrates the point. You CAN and WILL do better than PARASITES with just a little bit of reading and learning. In fact, the numbers I present here are way lower than what you would likely earn with this dividend growth model. I am using a rigid calculator at which doesn't take into account the selective reinvestment of future dividend income into even better stocks. Historically the annual stock market index growth rate is around 12%, and many companies increase their dividends at much greater rates than my assumption.

This couldn't be any more clear. If the federal government left you alone, and allowed you to keep and invest your own money using this very safe form of investing, you could be the owner of a multi-million dollar brokerage account that sheds tens of thousands to hundreds of thousands of dollars per year in tax free or low-tax dividend income in your 60s and beyond.

If conditions were favorable, a person could retire in less than 20 years with this type of investing and enjoy more of this extremely short and precious life. If only we were taught this actually-useful information in high school, we would all be retired by age 40. Check out these websites for more information:

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