Category Archives: Retirement

The Money Machine

“Have I got a deal for you?” He said with a glint in his eye. “This little machine will change your life.”  It was a small machine just bigger than his hand covered in gold paint with lots of gears.

“What is it?”

“Why it’s s money machine? It will produce a new dollar every three months forever.”

“Oh, that sound cool.  How much?”

“It’s only $100.”

“Pardon?  You want me to pay $100 for something that makes only $4 a year.  Why that would take like 25 years for me to get my money back.  Are you crazy?”

He frowns, “No, but with enough of these machines you won’t have to work.”

I frown and do the math in my head “Ya, if I buy like 10,000 of them. That would take like forever. No thanks.”

While the above story is a complete fabrication, it does point out something very key about people: they don’t like to wait.  Of course the real irony of it all is the money machine is real.  It just goes by another name called “investing.”

I suppose that is why so few people actively try to reach an early retirement, they aren’t willing to put in the effort into buying their money machines and keep them running.  Or they do buy one and then freak out when it fails for some reason and assume all other money machines are bad and should be avoided.  Goodness knows that I’ve had a few failures myself, but I keep buying.  Actually, most of them run just fine with little work required by yourself.

My personal money machines comes in two types: index funds and dividend paying stocks.  Neither takes that much time after I got them up and running.   The index funds are in our RRSP accounts in index exchange traded funds (ETF) take 15 minutes a year of work to keep up.

The dividend paying stocks are mostly in our TFSA accounts and after the initial research to buy the stock it really only takes me a few hours a year to skim the annual reports and do the occasionally adjustment (like sell one of my bad picks and buy something else).

Yet in the end, our investing has paid off.  It does take a LONG time and it will feel like you are going no where until you break the $100,000 barrier in investments but then it all gets better.  The compounding starts to work for you and you realize that after you have 100 money machines, it will buy the next one for you with no further money required from you.  So hence my point early, if you can wait a bit and get the ball rolling with compounding buying money machines (or investing) can pay off.

So what’s your favorite type of money machine?  Real estate, stocks, bonds….really they do come in a rainbow of colour options? 😉

My Wife’s Plans

Jay the other day asked the following:

With your plan to have $5000/year income from your wife’s work, that’s the only part I question. Obviously you know the situation better than I do, I’m just wondering if she’ll want to end sooner because you’re not working and she’ll want more time with you. I don’t think you’ve written enough on the subject, its ready for a post.

Thanks Jay for pointing out to me that I haven’t discussed my wife’s plans much on the blog.  This is despite us personally having many discussions on the topic.  So what exactly are her plans?

Well in general I think you all know that she has no intention of stopping working for now even when I retire later this year.  We discussed it and she decided that she enjoys her work and isn’t ready to stop yet.  So in total she puts in about $7200 a year of income to the house from her business.  The business has been running since 2006 (with the exception of a year long maternity leave) so it is mature and the income is stable overall.  So I’m not worried about her having less income for long periods of time which could impact our plan.

The interesting part of her situation is when she stops working she has very little desire to ever work again.  Unlike me where I can see me picking up some income after I leave my day job.  So in that regard we need to ensure when she stops that we don’t need any further income from her in the plan.  After a few discussions she has indicated she sees herself working for another five years or so.  This of course gives our investments some time to grow and eventually cover her retirement income as well over that period of time.  In order to give her control over the timing of that I gave her the following guideline: as along as we keep the current house you have to keep the daycare. The reason for that guideline is simple.  We bought the house expressly for its layout being suitable for her business.  As such, when it comes to just us as a family it is a bit too big.  So we plan on downsizing the house in the longer term, but to reflect that in our plans I put her in control on when she wants to move and retire.

Of course, that is the plan but has Jay points out: what happens when she changes her mind?  Well I really don’t see that occurring to just spend more time with me.  In fact, if I’m honest, I have concerns about the opposite occurring.  We aren’t used to spending more than evenings and weekends together expect for vacations.  So if anything I may be ‘requested’ to leave the house periodically to allow my wife to recover from me invading her routine.  But if she does insist of leaving her business earlier than five years we would then just sell the house and downsize.  The left over equity would then fund her remaining commitment to our expenses.  Which keep in mind is a small amount at just $7200/year for five years.  So worse case, after a year she wants out.  We are only missing $28,800 which is like 7.2% of the assessed value of our house.  Not a big deal.

So hopefully the provides some information on my wife’s plan.  Even with working another five years she will still be an early retiree compared to most people and likely done work by the time she turns 45 or so.

I hope the helps explain things.  Do let me know if you have any follow up questions.

Peak Earnings

I was chatting the other day with someone about my plan to retire early and they noted that if things go wrong that “You may never earn this much ever again.”

To which I frowned and then replied, “But that doesn’t matter.  I’ve NEVER spent my entire salary, so who cares if I fail and go back and earn less? I don’t.”

You see that is perhaps why I’m a LOT more relaxed about my plan to retire early than most people.  I’m not obsessing about the fact I’m currently at my peak earning potential in my life.  That I believe is the logical flaw that sucks in a LOT of people who fall into the one more year syndrome.  They erroneously assume you have to keep working since you can potentially never earn this much income again.  They confusing having to work again in the future with having to have the same income and/or career.

The issue comes down to this, even if things go horribly wrong and I have to go back to work for a while I am under no obligation to go back to my current career or pay range.  Honestly, I earn currently north of six figures and only spend a bit over $30K a year.  So in reality if I have to go back to work to save some more money my actually target is to earn more than $30K a year to allow some savings while paying the bills.  So any job that pays $31K or more will work.  It’s just a matter of how much do I want to save and when I quit again.

Of course this ignore the reality that we already have substantial assets and I would likely notice things going wrong sooner than later.  Thus in fact I won’t even need to earn more than $30K to pay the bills, the fact of the matter is earning ANYTHING would result in me saving some money.   So even some mindless minimum wage job at half time would be enough to help build up my savings again.  It would just be at a slower rate than I’m doing right now.

So yes, I’m currently riding my peak earnings towards my early retirement date and if that is the case, so be it.  I can give up the really high saving rate and roll the dice on my current plan.  Yes, I may lose and have to go back to work at some point doing something, but if I win I will have an additional 25 years of time to do things that interest me.   I know what I’m choosing.

So what about you?  Would you spend an extra year or two working at my current job to buffer against ever working again or take the risk of having to do some work in the future? Would you care if you worked again in the same field or not?