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Thursday, December 18, 2014

Catch the Trade Winds?

Posted by Dave on December 16, 2014

Twenty years from now you will be more disappointed by the things you didn’t do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover.

This quotation showed up on my daily comics feed on Go Comics*, drawn out by one of my favourite illustrators – “Zen Pencils”. The quotation is attributed to Mark Twain, but may have been written by H. Jackson Brown, Jr (Mark Twain’s Estate can’t source it). For whatever reason, out of the 165+ comics that this illustrator has done, this one seems to apply the most to my life.

I am a cautious individual by nature, I keep my head down and do my cushy government job and don’t stray too far away from what would be considered “the norm”. My retirement plan, although aggressive in comparison to most of the population has been set up to be as conservative as possible in order to ensure that it was do-able – Instead of an “Early Retirement Extreme” plan [link], I have more of an “Moderately Aggressive way of Attaining Financial Independence” plan.

I think the thing that most people really worry about missing out on something. Even being a cautious individual who dislikes significant change in my life, I still wonder once in a while if there is something more rewarding or enjoyable that I could be doing with my time, instead of grinding out a corporate career.

The question I ask myself is how comfortable I would be, making a significant career change that may pay substantially less money but give my day to day life more enjoyment. A different way to look at my current life is how comfortable would I be to trade the possibility of being financially independent at age 45 in order to work a lot less now, in order to have more time to pursue some of my interests right now. Maybe if there was a project that I felt really strongly about, like writing a book or excelling at “beer-league” golf, I would think harder about my current life.

My current financial plan will hopefully allow me to “Explore, Dream, and Discover” some more of my hobbies after age 45, and I am hoping that at that time I don’t have any regrets about how I lived my years of early to mid adulthood.

Are you worried about missing out on anything? Have you made a significant career change and been happy you did it?


*I have read the comics almost every day of my life, since I was able to read – I am more than happy to spend the $12 a year that Go Comics charges in order to support this type of entertainment, which brings 5 minutes of entertainment to me every day.

You Might Be Saving Too Much

Posted by Tim Stobbs on November 14, 2014

Despite the fact a large amount of people aren’t saving enough for retirement there also tends to be a minority that save too much.  In some cases, it really is on purpose but for others I would wager that they don’t understand some of core assumptions that go into using the 4% rule.

For those who aren’t as familiar with the 4% rule it is a rule of thumb that came out of the Trinity Study which determined a safe withdrawal rate for a 30 year period using historical market returns.  By it very design it is a conservative number, but in addition there were several other conservative assumptions underlying those results including:

  • You never earn one dime of income from any other source ever again (no part time work, no selling stuff you no longer use, no winning a 50/50 draw that you bought a ticket to support a charity or get a bit of a inheritance from your parents…nothing).
  • You never receive any money from government benefits such as Canadian Pension Plan or Old Age Security.
  • You never adjust your spending during an economic down turn.  If the stock market crashed like 1929 again you would keep spending the same amount.
  • You also never adjust your spending downwards despite the fact Statistics Canada proven this does happen with older people.
  • And your withdrawals per year increase in lockstep of the Consumer Price Index…regardless if you actually need that much of an increase.

Ok, I get for a study you have to make assumptions, but something else tend not to realize about the results is that extending that 30 year period to a total number of years sampled (ie: infinite time frame)doesn’t really effect the results that much.  If you can can handle the 1929 crash at 4% and keep on going along just fine there won’t be much of an adjustment pushing that out over a longer period of time.

So I literally cringe when I hear people planning their retirements with a 3% withdrawal rate, high inflation and assuming no government benefits at all.  You are so overkill at that point it is insane to me.

Let’s break down my experience to date with those assumptions:

  • Have I ever made money other than my primary job? Um, yes, and likely even last week if I looked into it.  Do I plan to do this in the future? Um in my case I’m going to do a lot of writing and hell may even sell a few books while at it.  So that assumption doesn’t hold water in reality.
  • Have I ever received money from the government? Yes, every month I get money which we put in our kid’s RESP accounts.  So granted yes the amount you get might go up or down, but in the end you gain from some tax changes and loss on others every year, but you always get something which is more than nothing.
  • Have I ever adjusted my spending in reaction to a given situation? Mmm, let’s recall I had $9000 in renovations to a structural beam in my house and a 10 week premature baby at the same time…did I adjust my spending: OF COURSE I DID! Bloody hell, do I look like an idiot?  That’s common sense to stop buying the extras when you are in temporary crunch.
  • Have I ever adjusted my spending down over time?  Uh, yes, after buying all the major things for my home I really don’t need to keep buying new stuff when the old things are working just fine.
  • Have I ever adjusted my spending less than the CPI in a given year?  Yep, because the CPI include crap that I no longer pay for like mortgage payments.

So just to recap none of those assumptions hold water in my real life so why the hell would you go MORE conservative than that?!?!  Ugh.  Therefore in summary, might I suggest those people that are being additionally cautious evaluate why they are doing it? The 4% rule is very conservative by its design so adding to it is like putting up a small fort in front of the great wall of China, it just looks ridiculous and doesn’t do anything (other than keep you working longer, but I don’t understand why that would be appealing).

Actually in my case I’m giving serious consideration to using 4.5% withdrawal rate for my next round of retirement calculations since most of the assumptions don’t apply well to me.  I’m willing to take on some additional risk.

So what withdrawal rate do you use?  Why did you pick that value?

It Doesn’t Take Much (Hopefully)

Posted by Dave on November 4, 2014

One of the things that I’m concerned about when it comes to both retirement, and in general getting older is my health. To a certain extent, most health issues that could happen are pretty random. I’m able to reduce the probability of having some of the issues that come with aging by eating right and staying active, but realistically there is always a chance that I could drop dead at 41 from an unseen heart attack.

Rather than be over-concerned with my own mortality, I’m working on the basis that I will stay reasonably healthy with no debilitating illnesses into the foreseeable future. From my perspective, this seems to be the only way to live. If I thought I had say 10 years left, I might as well diet on all of the foods that I try to avoid and spend all of my evenings on the couch, instead of going to the gym 3 or 4 days per week and eating mostly boring foods all of the time.

One idea I read this week from Mark’s Daily Apple *was to include one mile of running into your day.  1 mile is 4 times around a regulation track, which is a good chunk of running, but not enough to really kill you if you’re totally out of shape.  This distance is not really enough to cause significant joint damage, while at the same time giving a pretty good cardiovascular workout.  From my viewpoint as a fairly lazy person, this is the exact type of workout that I can get into as a “better than nothing” activity.  You can get the whole thing done in somewhere between 8 and 15 minutes.  If you add in a few minutes for recovery, you can be back to your “regularly scheduled life” pretty quickly.

I’m sure everyone is like me, concerned with losing mobility as they age. I have family members who have health issues in their 60s who are no longer able to do the things they want to do. I would prefer to do as much as I can to prevent this, deterioration – leading up to the later stages of my life. Whether or not it will be effective is yet to be seen. Eating a reasonable diet, exercising consistently, and trying to keep as healthy as I possibly can.

The whole idea of being able to retire early is to be able to enjoy as much free time as possible. A lot of the stuff for now is physical in nature (golf, walking, and making myself tired in the gym). I’m hoping I’ll be able to do similar stuff until I drop, and I’ll try my best to stay that way, 1 mile at a time.

* – I would recommend Mark’s Daily Apple to anyone interested in their health.  Although the site at times gets a little on the “preachy” side towards the “Primal” (Paleo) lifestyle, it does have a lot of interesting ideas, recipes and stories that has held my interest for the past few years.