I remember seeing an episode of Star Trek Voyager in which children were disappearing into a cave never to be seen again. It turned out that the species on this moon that the crew crash landed on had a reverse life cycle. They were born elderly and passed away as children. The idea was that their species thought it was beneficial to live their later years with the "innocence" (name of the episode if you wanted to look it up) of youth.
The Invention of Retirement
I got to thinking in the sometimes odd way I do and thought about how I want to spend my retirement with my wife, children and possible grandchildren. I did some research on how modern retirement was invented- yes, invented. I thought that there had to be a time when society simply did not have retirement in its vocabulary.
As it turned out in Germany 1889, Otto von Bismarck jump-started the first "old-age social insurance" program. A predetermined age, set by the government decided when people stopped working. It worked considerably similar to the system we have today.
With the future of Social Security up in the air, or at least reduced to 75 cents on the dollar by 2033. I wondered what people did before this. The unfortunate truth is that either a person's children would care for them or people would simply work themselves to death as in many cases 40 was considered old.
Only the truly wealthy, the owners of industry had the luxury of retirement as their businesses generated enough cash flow to sustain their lifestyle in old age.
This is the key that conventional retire planning does not seem to take into account; the use of generating cash flow in order to sustain a lifestyle. This is how Star Trek has me thinking in terms of retirement. Retirement is not a magical finish line number in the form of a predetermined age or equity in a retirement account. The average person has so many resources available to them they can determine how retirement fits into their life.
For many, Social Security plays a huge part in retirement planning. Personally; I am not counting on it being around when I retire. So I need to take various steps with my investments to not only generate cash flow but help generate the cash flow over the long term.
I'm looking for long-term dividend growth stocks. Currently I'm in Coca-Cola (NYSE:KO), Wal-Mart (NYSE:WMT) and my newest addition, International Business Machines (NYSE:IBM). My plan is to reinvest the dividends of these stocks over the long term to grow my positions in each as well as add to them over time.
I love Coke, not only does Coke have one of, if not the most, recognized brands in the world. Coke has been returning shareholder value for 51 years by increasing its dividend payout. Coke came through the financial crisis of 2008 unscathed and continued to return shareholder value. I really have no doubt that Coke will continue to pay out a fantastic dividend that can be reinvested to build a colossal position.
Wal-Mart has seen more than its fair share of controversy over the years. Wal-Mart sticks out as one of the best examples that exemplify Peter Lynch's Buy What You Know philosophy. If all the people took the amount of money they spend at Wal-Mart and matched it by buying the company's stock, there might just be less Wal-Mart YouTube videos. Wal-Mart increased its dividend by 18% in February.
International Business Machines
One of the things that stuck with me is that Warren Buffett said in his 2012 shareholder newsletter that he is "late to the IBM party", just like he was to Coke. I may be reading into this more than there is, but if Mr. Buffett is drawing a parallel between IBM and his Coke position, a company he had owned since 1988 (25 years), I'm inclined to believe that he thinks that IBM will return just as much back to shareholders as Coke has and is a fantastic multi-decade investment. Not to mention IBM actually has a road map of how it's going to do so.
Instead of thinking of retirement as a set age or even as equity in my retirement account- the means to an ends if you will- I am thinking of it as the means itself. I do not see retirement as the day I walk away from a lifetime career in pursuit of adventure and finally being able to do what I always wanted to do. I see it as building what I want so that it will be here in years to come. I'm in the process of building what I want to do. This way, in twenty years I will fully be able to have enough cash flow in order to do things that I want to do, before it is too late to do them.
Disclosure: I am long IBM, KO, WMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.