Posted by Robert on January 17, 2011
This is a guest post by Robert, who lives in Calgary and works as a financial adviser. He is married, has three kids and plans to retire at age 35. Robert and his wife then plan to return to school and become teachers, eventually living and working overseas.
Recently, I attended a screening of the film Race to Nowhere at the Calgary Public Library. This documentary puts forward many of the challenges faced by children in the pressure cookers that American schools have become. One of the major themes of the film is to question how we define success. Does it mean getting into the best colleges? Does it mean making bundles of money? In a competitive environment, not everyone can be first, or get accepted to their preferred school, or make the most money. But everyone wants to be successful.
People, who are consumers, tend to define their success by their patterns of consumption. Why should this be the case? I know instinctively that I am more than the clothes and jewelry I wear, the car I drive or the restaurants I eat in. But when I meet others, my first reaction is to try and form an opinion of them based on what is outwardly visible: their patterns of consumption. I think this mental habit is what causes us to try and define ourselves to others based on our consumption, and then we slip into deriving our own value from our patterns of consumption. Even people who don’t earn more can still spend more, thanks to easy credit.
Financial success is a narrow definition. It is handy, because it can be easily measured and compared. Happiness is impossible to measure, and it’s more difficult to create and sustain. Abraham Maslow suggested a hierarchy of needs that helps us think about what things we seek and how they contribute to our happiness. In the lower levels are physical needs, which allow our survival. This is where money and consumption typically fit. Above that come our social and emotional needs, which are more likely to contribute to our happiness. This explains why many people place so much value on their job, given that it provides income and also an opportunity to interact socially. Ideally, a job will also include meaningful work, actions that make a difference, which corresponds somewhat to Maslow’s highest need of self-actualization.
This suggests two conclusions to me. First, when someone feels they need money (which is just a tool) in order to be happy, there is a chance that they have in mind something else they really need. It may be more social interaction (eg. eating out) or more meaningful activities (eg. management position). It’s possible however to meet these needs without money. For the examples I gave, a person could have the same social interaction with friends over food by eating in; a person could also have a position of responsibility and influence through volunteering for leadership in their community. The second conclusion is that people must find a way to define their own success and happiness that is separate from their job and their ability to earn and spend money before they retire. Because retirement means removing oneself from the workforce and living on a fixed income, defining happiness based on work and income will no longer be possible.
One example of someone’s self-perception in financial independence follows: “But it is not like I don’t work. For income in addition to that from my annuity (that is double what I need to pay the bills) I own rental units and I write, publish, and market books. To stay engaged I do some money coaching (pro bono), always have a home renovation project going, and, being financially independent, I have the time to devote to being a husband and Dad to an 11yo. And therein lies the real payoff: When you achieve financial independence, your time and your life can more closely reflect your own vaules. The trick is to figure out those values and then build that life.” (comment by tmgbooks)
What constitutes success in your life? How do you derive meaning and happiness? Do you expect that to be the same in retirement?
Posted by Canadian Dream on January 14, 2011
People often just assume having a pension is a good thing, but after a number of years with different employers and different plans I’ve noticed that not all of them are good. Actually some are bad and others are just out right ugly. So how do you tell if your pension plan is good, bad or ugly?
First you need to determine what kind of pension plan you have: group RRSP, defined contribution or defined benefit. I’ve personally been in all three so this is how you can tell them apart. A group RRSP has no vesting period meaning you don’t have to stay with the employer for a set amount of time (typically 2 years) prior to being about to keep your employers contribution. A defined contribution plan often does have a vesting period, but it doesn’t guarantee how much you get at retirement. The performance on the pension plan is determine by the stock and bond markets. Lastly the defined benefit plan typically won’t give you balance that you have invested, instead there is a formula that will tell you how much you can expect from the plan when you retire.
Now what makes a plan good, bad or ugly? Well having been in all three and talking to other people about there plans this is what I’ve noticed.
A good pension plan regardless of type should be open with information to you. For a Group RRSP and defined contribution plans you should get at least quarterly statements with how well your money has preformed and you should be about to get information about the fees associated with your investment options. Also if you have a good plan your fees should be low. How low? Well the best I’ve seen is this plan has a ‘Balanced Fund’ with a Management Expense Ratio (MER) of just 0.32%. Which is in the range of Exchanged Traded Funds (EFT) and damn good since in Canada most mutual funds are well over 2%.
Now if you MER is over 2.5% for your Group RRSP or defined contribution plan you are starting into the bad category. Pension plans are suppose to be about having larger pools of money invested and that is supposed to reduce your costs. Unfortunately this often doesn’t happen and people end up paying high fees for lousy investment returns. Also if you find it hard to get information from your pension plan I often will group those plans into the bad category as well.
Then there is the ugly set of plans. I literally had a defined benefit plan once at a company where I didn’t know what my contributions were into it. I didn’t understand how much I was supposed to get out of it. Actually I didn’t really understand just about anything about that plan until I was leaving that workplace and taking my payout option. Now this isn’t to say all defined benefit plans are in this category…I have hear of some plans that are good at keeping their membership informed on what is going on with the plan. Even if the news wasn’t what people wanted to hear like 2008 was a bad year.
So if you have a pension plan how is yours: good, bad or ugly? If you don’t have a pension plan, how you rate your RRSP?
Posted by Canadian Dream on January 13, 2011
My oldest son is just on the edge of being done with birthday parties that are just family. In the next year or two I fully expect him to start getting invites to parties and then want a have friends over for his own party. Yet in the mean time I still get to pull off the easy version where we just have some coffee and cake in the middle of a Saturday afternoon.
Our typical birthday party for our kids are low key affairs. After all, all the kid really wants are a few presents and a cake. So we give him just that. Granted I tend to have fun making the cakes since I typically do something different each year. In my past my boys have had boat cakes, construction sites, giant cars, race tracks and dinosaur cakes. Yet ironically making fun cakes don’t really cost a lot of money (I love candy from the bulk bins). So this year I’m trying my hand at a Lego themed cake with ingredents that set me back $11. Then I just need to pick up a few decorations from the dollar store (mainly balloons, which also double as toys) and we have an party for less than $20.
It is sort of amusing to me to read stories like this one where parents spend $1000′s on a child’s birthday party. From my own memories I most treasure the feeling of just being really special for one day a year. I got to pick what we had for supper on my birthday as a small kid and then the restaurant we ate at when I got older. I also got to pick what kind of cake I would like and I got a few presents. What more did I need?
So if you have kids, how much do you spend on their birthday party (and what age are they)? If you don’t have kids, what did you remember from your own birthday parties as a child?
