Posted by Canadian Dream on August 25, 2009
Perhaps one of the most terrifying concepts about retirement is living on your investments rather than your job income. It takes a bit of adjusting to the concept and there is the obvious fear of did I get this wrong. Did I get the taxes right? Or did I forget the car insurance? Did I leave enough for food?
So to help get over this fear I’m going to suggest the year before you retire you do a little two fold experiment. First track every penny you spend for the year before you retire. I know it’s a pain in the ass, but it will be highly useful to prove to yourself you have saved enough.
Then second track all of your investment income for the year. Every dime of it. Then when you file your taxes do a test run for that year. This is ideal if you use tax software. Do your regular return and then do a test run with your job income at zero.
Now adjust your spending for the year to match your projected retirement lifestyle. Strip out parking and any job related expenses and add in an real cost estimate of any trips you would have taken if you were retired or hobbies. Then compare your income test run to your modified spending. Is the income higher? If so, great you are ready to go. If not, you likely forgot something or you need to look at your numbers again to satisfied yourself you know what happened and you are not worried about it. Remember this is all about putting your mind at ease so be honest with yourself.
The other great concept about the test year if you can also build up a nice cash reserve to help cover any unexpected expenses or be your first years income when you pull the plug. The cash reserve gives you the option of delaying taking money out of your investments if you hit a down market.
So what do you think? Would the test year be useful for you or not? Or do you have a better idea? If so, please share with a comment.
Posted by Canadian Dream on August 24, 2009
So sorry for a lack of a post last Friday. I forgot to write one before leaving on our last camping trip of the summer on Friday morning. So during this little trip we had a great time. The boys had a fun time at the beach playing in the sand and the water, we ate ice cream, we did some hiking and then visited Saskatchewan’s only winery and vineyard and bought $200 of wine (12 bottles), which is more than I spent on the rest of the trip combined including gas, camping fees and food.
What the hell happened? Well in reality the camping trip was little more than a fun way to make an excuse to go buy their wine. You see I have a soft spot for people who go out on a limb and do something extraordinary and in this case they make excellent wine from a bunch of local materials like sour cherries, Saskatoon berries and even rhubarb. And yes they do manage to grow grapes in Saskatchewan I saw they on the vine with my very own eyes.
The wine has two essential elements for me: a great story behind them and they are different. Actually the couple that sell them are so different that they don’t sell the wine anywhere else than their vineyard. They current manage to sell everything they make so you can only buy it at their winery. So hence after getting hooked on their wine from friends who stopped in one day this has been our second trip to the winery and my wife and I are talking about making it an annual trip.
So yes I spend a lot of money on wine this last weekend, but I enjoyed doing it and will now have a great story to tell every time I open a bottle. I was frugal for the rest of the weekend, which is in short of the point of it all. Spend money on what you love and save it on everything else. Being frugal isn’t about just saving, it’s also about having money to do what you love. Cheers.
Posted by Canadian Dream on August 20, 2009
I picked up The Number by Lee Eisenberg and was pleasantly surprised by the book. It’s a interesting read with a liberal amount of humor so it makes for a quick read.
Lee starts off wondering about his own number and how much he needs for the rest of his life. He then points out the difficulties of actually getting to the number since there are so many factors to consider like:
- Living in a culture where debt is so common getting your finances in order feel like climbing a mountain.
- People being generally utter confused on how money works and have no motivation to learn.
- The old retirement supports like a defined pension or generous government benefits are slipping away for most people.
- Living with the uncertainty of doubt around future benefits like your corporate pension plan going bankrupt or an angry stock market god smashing your savings to bits (the book was written in 2006, so I don’t think he was predicting 2008).
Then through conversations with various experts Lee slowly brings us to face the fact the Number is a sneaky beast that changes colours and escapes the second you think you are close to getting it.
Yet perhaps the most useful things Lee brings people around to understanding is your financial planner now a days needs more than a good model to get the Number, he needs to also be a therapist to extract out of your brain your real desires and needs and use that information to build up your number.
Since let’s face it. If you don’t know what you want to do in your retirement calculating how much you need for it is a useless exercise. You will get a Number, but it won’t be useful to plan anything on. Having a winter home in the US and living in BC is a completely different number than living in a small town in Ontario for retirement. Also are you planning on some work, what are your hobbies, did you want to be near your grandkids, what are you going to do all day?
So overall I enjoyed this book alot. It’s honest enough to say the Number depends on various factors and understanding it all is confusing. Yet in the end, find what works for you and plan for that.
