Few people ever seriously contemplate retiring before age 55. Of those who do, not everyone is able to retire early. So how will I be able to retire around age 35? It has taken planning, good decisions and a healthy dose of luck. Let’s see how it has happened so far.
My wife and I were married while I was still in university. Because she had already graduated, she worked while I continued my studies. Both of us have a real aversion to debt, so we spent very little. It was helpful that I was able to qualify for the local student rate at Laval University, making tuition about 60% of the cost at other universities. We also rented a very small apartment for $350 a month. We ate mostly rice and noodles, and rarely ate out. Looking back, it seems incredible that we lived on about $900 a month for the two of us (including tuition and books). When I finished, we had no debt and some small savings.
I say “finished” because I hadn’t graduated yet. I had four or five Chinese language and culture classes to finish, and we decided to move to Taiwan for a year. I was able to complete my classes while my wife worked at a private pre-school. We enjoyed it and we earned good money, so we decided to stay a second year. Even though the Canadian dollar strengthened while we were there (eroding our savings), we came back with enough money for a small, one year old, used car and a 25% down-payment on our home.
When we moved back to Calgary, I started work as a financial advisor. Our first child would arrive in a couple months, so we decided to buy a home. Since it’s a big commitment and we planned to have more kids, we made a choice to buy as large a home as we would need, so we wouldn’t HAVE to move later. We didn’t qualify for a mortgage, since I was just starting to work, but my parents co-signed the loan for us. In hindsight, buying a home worked out very well. Home prices in Calgary have soared since that time, and our home value increased by about 75%.
Since I work as a financial advisor, I have access to a lot of information about investing. Even though in our office, we focus on financial planning and generally use investment funds, I took an interest in buying individual stocks. We invested our own money and I learned by doing. As in anything, especially when learning, you win some and you lose some. What worked especially well was buying income-paying equities like income trusts and REITs. Having cash distributions deposited to our investment account each month makes up for other mistakes.
Then the market crashed. It wasn’t fun, but after realizing that I had no control over the market, I started to see it as an opportunity. One of the REITs we owned was being given away at little more than a third of its previous price. We bought as much as we could afford, $15,000. That’s when it was useful to have excess equity available in our home. In a couple months, we sold the REIT for a 70% gain, and bought another REIT, which subsequently doubled in price. Our new REIT was worth about $50,000, which I attribute to good timing and a lot of luck.
These days, we almost exclusively buy investments that pay income. In fact, we get so excited about buying shares that when we feel there is a bargain available, we stretch to buy as much as we can. It leaves little money for extravagances, but our investment accounts produce almost as much cash as we spend. Because we took a chance and bought income trusts and REITs while the market was low, we got some yields over 15%. We can no longer find deals like that, and can’t expect all income trusts to maintain their distributions. We’ll spend the next two years paying off our debt and adding to our investments. Our goal is to have enough income to cover our after-tax spending, with some excess, just in case. Because we are focused on income, market fluctuations matter less, and it’s fairly simple to tell how well we are progressing towards our goal.
Through good choices, fortunate timing and a healthy dose of luck, we’re very close to our retirement goal. We spend only a relatively modest amount, and we use our cash to buy investment income. When our income is equal to our spending needs (with some excess for safety) and our debts are paid off, we will be able to retire. This strategy should work for anyone, but the timeline is very dependent on external circumstances. We’ve been “lucky” in that, as the saying goes, luck is when preparation meets opportunity.
What are the events that have moved you toward your goal of early retirement? How much of a role did luck play?
Disclaimer: There is a real risk that companies can go bankrupt and, even if they don’t, cash distributions are never guaranteed. Nothing in the preceding should be taken as investment advice.