Posted by Robert on August 30, 2010
A few weeks ago, a journalist contacted me through this blog, requesting an interview about early retirement. I shared my story and some of my ideas and experiences regarding starting early and enjoying success at a relatively young age. I enjoyed my conversation with Jacqueline Nelson from Canadian Business magazine and looked forward to seeing the article in print. As many people who have been interviewed for an article before can probably guess, the article ended up being very different from what I expected.
The current issue of the magazine contains an article called: Top 10 Retirement Mistakes and How to Avoid Them. The link opens in a new window, so feel free to click on it and read it at your leisure. I contributed to ideas number 8 and 9: plan for a long life and don’t plan to inherit your retirement fund. Those ideas could both be related to early retirement planning, but I know it’s a bit of a stretch.
First, if I were planning to retire at age 45, how would I inherit money? My parents will be in their late 60s, not likely to be leaving an inheritance. And I have many brothers and sisters and cousins. I don’t expect to receive anything from my grandparents, but even if they leave money, it’ll be split many ways.
Second, how many years will I need my investments to provide income for me? As I mentioned to Jacqueline, there’s not much difference between planning to spend down the capital over 35 years (age 65 to age 100) and planning to never touch the capital. Retiring at age 45 leaves 55 years during which investment income will be required. This can only safely be accomplished by never spending capital. As the authors pointed out in the article, a 4% withdrawal rate is likely to achieve this. Coincidentally, 4% income can be produced by dividend paying common and preferred shares, as a way of producing income and protecting capital.
I was lucky to get to share some of my expertise with a wider audience, pointing out two dangerous assumptions people might make when approaching their retirement. Many of us readers of Canadian Dream are already aware of many of the others. We understand the costs associated with our children, if we decided to have kids. We don’t plan to work into old age, but are young and able enough to work if we need to. We are careful with our spending and likely won’t need a million bucks.
What did you think of the article? Is the financial press helpful, or merely distracting? Where have you found the information that has been most helpful to you?
http://www.canadianbusiness.com/managing/strategy/article.jsp?content=20100816_10031_10031A fre
Posted by Canadian Dream on August 25, 2010
I was having a discussion with someone who asked “If your site is about early retirement, how does that help a broke 50 year-old?” To be utterly honest most of the planning ideas on this site will apply to anyone regardless of age. Early retirees have some particular issues that are unique, like a reduced CPP pension, but otherwise planning to retire at 65 when you haven’t started planning at 50 is similar to what I’m doing. You have a really tight time frame to save and not much compounding interest to help you out.
So what are the steps for a broke 50 year-old to retire? Well they go something like this:
- Lower Your Expectations. Replacing 100% of your current income when in your peak earning years is not realistic anymore. You just don’t have the time to save for that. But relax most people retire on just $30,000 to $40,000 anyways so a 50% target actually might be realistic for you.
- Live Well Below You Means. Start practicing on living on a lower income starting now. You are going to need to cut your expenses to boost your savings and ensure you pay off all your debt prior to retirement. So rein in that spending.
- Spend on Happiness. The trick to step 2 is not to feel deprived while doing it, so start looking at what really makes you happy and focus on keeping some of those items in your budget. Then hack out the rest of your wasteful spending (everyone has some so don’t feel bad). Just remind yourself when you go to buy something: do I really want this or do I want to retire? Retirement usually wins.
- Cash First, Invest Later. Don’t panic if you don’t know much about investments at the very start because it doesn’t matter that much. An extra 2% return on $50,000 is only $1000 in a year. Compared to losing more than 2% or more in a day from a bad investment it really isn’t worth the risk of investing in things you don’t understand. Park the money in a GIC or term deposit for a year and get to work on educating yourself. Then invest when you have a better understanding on what risks you can handle.
- Count Your Blessings (Literally). Retiring at 65 means OAS and CPP payments. Figure out how much you will get and include that in your plan (especially since CPP which won’t run out of money until long after you are dead). You will be surprised to see how much easier that makes things (up to $30,000/year for a couple). So don’t panic thinking you need a million dollars to retire. If you pay off all your debts and have a modest nest egg of $200,000 to $400,000 the majority of couples would be fine.
Then one last little suggestion: have some fun in life! Retirement isn’t only about money, you also have to plan what you want from your retirement. So start day dreaming on what you would like to do in your retirement and try out a few new hobbies or rediscover some old ones. Heck, you might even decide you want to keep working part-time past 65 and that’s ok too.
What advice would you give to a broke 50 year-old? Please leave a comment and share.
Posted by Dave on August 10, 2010
I was watching Chris Rock’s “Kill the Messenger” and he had a bit about jobs versus careers. His general feeling was that people with careers “need to learn how to shut the f— up when you’re around people with jobs”. I think that this is generally a correct statement. I have friends that absolutely love their work and it’s all they talk about, but I am not one of those people (although, I generally don’t talk very much so maybe I would if I was more outgoing?). Chris Rock goes on to tell his tale of working a “job” at Red Lobster scraping shrimp off of plates, and how he is now blessed with a career and wishes everyone could be blessed with a career that they enjoy.
I’m not sure whether I would classify my current work as a job or a career. I’ve been working for the same company and in the same position since I got out of university six years ago. I think that the work I do makes a difference, which adds to the enjoyment I get out of going to the office. Yet the bottom line is I noticed when I was on vacation that if my job/career was taken away from me tomorrow, I don’t really think I’d miss it that much. I would find something else to do that I found interesting and hopefully provide enough money to live on.
When people ask me if I like what I do, my general reply is: “On a Monday morning, other than waking up to an alarm, work is not something I dread going to.” I guess that is not exactly a positive statement, but it’s true. Yet I’m not sure if my mindset really allows me to look at any work as a “career”. My paycheque allows me to do things I want to do when I’m not at work. I don’t dislike going to the office, but I’m not the kind of person that would put in extra hours for free because I love my position so much.
Someday, when I have the savings to allow it, I will leave the workforce. I have read stories about how people run out of things to do in retirement, but I don’t think I’ll be one of those people. I think that my future career as a capitalist/retiree will bring me much greater enjoyment than working for eight hours a day (no matter how rewarding the my current work is). After I retire, I might just be one of those people that need to shut up when I’m around people with jobs and will never have enough time in the day to get done what needs to be done but I am looking forward to my future career.
So do you work at a “job”, or do you have a “career”? If you have a career, how did you come to find it? Did you stumble into it, or aspire towards it?
