Retiring Early May Come Down to Your "Financial Personality"

In his book What Will I Do With My Money? Ray Linder discusses four "financial personality types." Are you a protector, a pleaser, a player, or a planner? It's worth finding out, because your financial personality type often determines how successful you will be in meeting your retirement goals.

If you would like to retire "early," or at least in a reasonable time frame -- say, by age 55 or 60 -- which of the following categories would you want to be in? 

  • Protectors value structure and security and may be the most risk-averse of the four types.
  • Pleasers have the most empathy and concern for others and may focus on social causes rather than their personal financial gain.
  • Players live for the moment and seek instant gratification, rather than long-term rewards.
  • Planners have the ability to look to the future and delay gratification.

There is nothing wrong with wanting to help others or living for the moment, but most who fall in those categories will not be able to retire early. Many of the protectors can get there, but to have the best chance of early retirement, you want to be a planner.

I'll discuss a few ideas on how planners can get ahead of the others on the retirement curve.

Delay the dividend
As the book explains, those who plan for the future and delay gratification will most likely be able to retire when they want to. One way to do this is to reinvest dividends you receive back into the stock, rather than cashing that periodic check. Postponing gratification until the golden years allows you to pile up a nice nest egg because of the effect of compounding.

Low-cost retailer Wal-Mart Stores  has been paying and increasing its dividend at a relatively high rate since the 1970s using cash generated from a tried and true business model -- i.e., offer items at lower cost than competitors, diversify, open new and different types of stores, and expand into new markets.

Wal-Mart started an online retailing operation in 2000 to diversify beyond its brick and mortar stores. In 2011 it started operating in Africa. The company will also open more than 240 new "Neighborhood Market" grocery stores to complement its regular stores and super centers. This is clearly a company betting on its own future.

And speaking of that dividend, it has been increased at a compounded annual rate of 24% over the last 35 years or so. That's better than money in the bank -- or in most other investments.
Reinvesting dividends over the last 10 years would have resulted in a 30% higher return for investors.

WMT Chart

WMT data by YCharts.

So long as Wal-Mart sticks to its forward-looking, shareholder-friendly philosophy, it should help the planner keep adding to the retirement nest egg.

Delay the selling -- hold on for the long term
Looking at historical data, the planner will have recognized that trying to time the market is a fool's (with a lowercase "F") errand. No one has been able to consistently predict what the overall market, or even one or two individual stocks, will do going forward. It's best to simply buy stocks of solid companies that possess several key qualities and hold on to them.

The planner type who purchased stock in industrial conglomerate United Technologies in 1983 and held on until today, reinvesting dividends along the way, would have netted a compounded annual total return of 13%. The overall performance during the last three decades has beaten the total return of the benchmark S&P 500 index by more than 2-to-1.

UTX Total Return Price Chart

UTX Total Return Price data by YCharts.

United Technologies has been able to compete at a high level by doing some long-term planning of its own and focusing on key markets.

In the mid to late 1970s the company realized that providing products intended for the commercial and residential building market would pay off in the long run. As part of that forward thinking, UTC scooped up well-known commercial entities Otis Elevator and Carrier Air Conditioning. That deal is still paying off today: The company is showing solid results from those businesses, which reside in the newly formed "building and industrial systems" segment of UTC.

Even today UTC continues to look ahead, and it sees that aerospace is in the midst of a long-term growth spurt. Recent reports indicate that there will be a need for new aircraft worth nearly $5 trillion over the next 20 years. UTC is poised to take advantage of that trend as a major subcontractor on many aircraft flying today and in development, including the Boeing 787 Dreamliner and the new Airbus A320.

To further profit from the aerospace trend, UTC acquired Goodrich last year and created a new segment called "propulsion and aerospace systems," which will allow major airframers like Boeing and Airbus to go to one place -- UTC -- for all of their subsystem needs.

So the intelligent planner can also reach retirement sooner by investing in businesses like UTC, which regularly peers deeper into the future and beyond the next quarterly report. Another delay in gratification pays off in the end.

Foolish conclusion
The wannabe early retiree with the "planner" financial personality has the best shot at getting there.

Planning ahead by reinvesting dividends in companies like Wal-Mart, which has been successfully executing a long-term plan of its own, and buying shares in forward-thinking companies such as UTC and holding them for the long term are key parts of the planning process.

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The article Retiring Early May Come Down to Your "Financial Personality" originally appeared on

Mark Morelli owns shares of Wal-Mart Stores and United Technologies. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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