Posted by Canadian Dream on June 8, 2011
This is a guest post by Martin, who is preparing for retirement within the next 5 years; no later than his 40th birthday. He is married, has 2 young children and lives and works in rural Alberta as a regional finance manager for a large energy company.
My family and I have lived in small town rural Alberta for the past 5 years after spending 5 years in Calgary. To provide some context, our town has a population of about 3,500. The nearest small city to us is about 150 KM away and the nearest major city is about 250 KM away (definitely not a bedroom community). We plan to stay here and raise our family during our retirement and beyond that once the kids move on. In examining the details of our retirement planning, we’ve found that living in a small town has significantly contributed to our ability to retire early for a number of reasons.
Capitalizing on House Price Differences
Generally, small town housing pricing is considerably cheaper than in cities. In our case, we sold out of the big city and adequately replaced our house in terms of quality and size for considerably less than our city home’s sale proceeds. In terms of our net worth, we effectively converted idle equity (I’ve never considered my primary residence in net worth and retirement calculations) into active financial investments, pushing us closer to our net worth retirement target.
Reduced Opportunities to Spend Money
The businesses that serve my community are utilitarian; not offering much beyond the basics. Spending money on anything else requires a trip to the city or purchasing online. This necessitates patience and planning which are the natural enemies of needless spending. As for services such as dining, there is too little variety to get excited about eating out. As a result, our dining out is less than a third of what it was when we lived in the city and had easy access to great restaurants.
Lower Cost of Living
There are several living expenses that have decreased by the simple nature of our community. Fuel consumption goes down as everything is so close together. Property taxes are generally less given the reduced municipal services. Local pricing on services (mechanics, movie theatres, home contractors, etc.) are also less than in the city.
Cheaper Environment in which to Raise Children
We haven’t had the chance to prove this yet (our children are too young), but we feel that a small town will help us better control the cost of raising children. Peer pressure regarding brands should be less (goes back to the lack of local availability). Extracurricular activity options are limited. Keeping up with the Joneses should not be as difficult in a small town given the lower average household income (although it only takes one over-spender to mess this up).
On the surface, it may seem that any financial benefits from relocating to a small town come at great sacrifice to quality of life. It is true that there are sacrifices involved and there is plenty that I miss about the city (great ethnic restaurants, cultural opportunities, sporting events). However, there are many intrinsic benefits that come from leaving the city that do not show up in a financial calculation (closer proximity to nature, less traffic, cleaner air, more time, greater sense of community, very little crime). For us, these benefits more than make up for any sacrifices we made when we left the city.
Are you considering moving to a small town as part of a early retirement strategy? Would you?
Posted by Dave on June 7, 2011
This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
Last week, @postsecret linked to an article written by a palliative care worker who shared “regrets of the dying“. It was a very moving article where one of the 5 regrets that people had (I think) link to the early retirement crowd, “I wish I didn’t work so hard”. To me, this is the main reason why my goal is to get out of the workforce sooner rather than later.
Although somewhat morbid, I think in general people tend not to think about their own mortality. I don’t dwell on the fact that I won’t live forever, but I recognize that I only have around 50 years (hopefully) left to do what I want to do. I would prefer at the end of my life to not regret the fact that I continued to work unnecessarily rather than doing things that I want to do.
The risk of leaving the workforce too early to live off of savings is that I may run out of money before I die, or late in my life when I couldn’t make more (too old, or having unneeded skills). To me, this is kind of a trade off – if you have a plan that has a reasonable (greater than 95% on FIRECalc) based on the amount of spending you’ve planned on with a decent emergency fund, I am more than willing to roll the dice on early retirement.
I would prefer to live an overly frugal lifestyle (compared to most people) where I am in charge of all 24 hours of my day rather than give up 1/3 of that time at work. Through work, or trying to get to some “magic” number, or full pension or some other goal based more on the fear of running out of money than looking at the significant positives that can be had by not working (namely more time to look after yourself and your own interests rather than other people’s).
So, rather than sticking around working until I achieve one of the goals above, I will probably end up taking a bit of a gamble around my retirement date. Maybe I will have to cut my annual expenses significantly in retirement because my investments have crashed, but I would rather sit at home and read library books and get in better shape than sit at my desk an extra 5 or 10 years because I thinking I need an extra $250,000 in capital for safety.
How safe do you need to feel before you’d leave the workforce? Are you willing to gamble in order to “get out” as early as possible, or do you have a goal that you are not willing to venture away from?
Posted by Robert on June 6, 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.
A couple weeks ago, on this blog, a commenter asked how it’s possible to save enough money in 10 to 20 years of working to be able to retire young. He suggested that luck must be part of the equation, since he was skeptical that anyone could really save enough in that little time to no longer need to work. There’s a very simple formula that will prepare anyone to retire: earn, spend, save and invest. The more one earns and the less they spend, the more they can save and the better it’s invested, the sooner they can retire. Let’s look at how this works.
Part one: Earn a high income. Not every job has the potential to earn a high income, and certain jobs offer different potential in different regions or times. I started out earning less than $40,000 as a financial advisor, but averaged a little over $100,000 over seven years, including business profits and ownership. It’s not only dentists and lawyers that make good money. Tradesmen in northern Alberta make good money supporting oil companies, commissioned salespeople have theoretically unlimited earning potential, and business owners in any industry can make good money if their company is successful. While earnings six figures isn’t necessary, it’s sure helpful.
Part two: You only keep what you don’t spend, including taxes. Spending is the largest variable that affects a person’s ability to retire. It has a double impact, because the amount spent reduces how much is left for savings, and it also dictates how much needs to be replaced to be able to retire. The less a person can live on, the sooner they can retire and also the faster they progress toward accumulating enough to be able to retire. How much I spend month to month seems to vary between $3000 and $4000 for my family of five. Not ridiculously frugal, but not extravagant by any stretch. This means I saved (toward debt repayment and investment) around 50% of my income, after paying taxes. And I paid very little taxes, by making RRSP contributions and other tax-deductible investments and by making my interest tax-deductible (investment loan).
Part three: Pay off debt. I don’t think anyone should retire with debt, which is probably a big part of the reason most people can’t see retiring before 55 (if that early). Buying a house at age 25 with a 30 year mortgage puts you at age 55 before being mortgage-free. It seems very common to either “move up” to a larger house or borrow against the home to renovate. But this all assumes a traditional mortgage. I have never had a closed, fixed rate mortgage. I took my mortgage as a line of credit, which allowed me to pay back as much as possible, as quickly as possible. I then borrowed back for investment, which made the interest on that portion tax-deductible. I was lucky to buy before the real estate boom, and had a large enough down payment that I expected to pay it off in eight years ($165,000 debt, if I recall). I ended up paying it off in seven years.
Part four: Invest for growth and for income. I was fortunate to have some money to invest during the market crash of 2008-2009. Because I worked as a financial advisor / stockbroker, I was already following some individual companies. When a company I knew well dropped from $3.50 to $1.50, I invested $15,000. I sold at $2.55 three months later and reinvested in another company, which produced similar gains. A year later, I had $50,000 in the account. Since then, I’ve saved and invested more. I’ve also borrowed money to invest, given that interest rates are near historic lows, and given that I plan to sell my house (which will cover all debts) before moving overseas in 3 to 5 years. I have invested in dividend-paying stocks, which produce enough income to cover my monthly expenses.
If applicable: Kids. I don’t think it’s a given that I need to provide for my kids’ post-secondary education costs. They may or may not choose to go to university and they can work part-time or summers to pay for it. Having said that, I’ve saved every Child Tax Benefit and Universal Child Care cheque inside an RESP. For three kids, over six years, that’s worth over $50,000, including the government grants (CESG) paid into the RESP. Twelve years from now, I think they’ll have enough to make it easier to attend university, probably $20,000 (in today’s dollars) each.
Not everyone is able to retire young. Not everyone is able to meet the prerequisites of a high salary or wise investments. But everyone can focus on saving some of their income and paying off their debts, then investing for the future. Some people are “luckier” than others, but it takes wisdom and courage to grab the opportunities we are given in life. What opportunities have you taken advantage of? Are you on track to retire young? Or is it impossible for you?
