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Wednesday, August 20, 2014

A Change in Finances

Posted by Dave on July 2, 2014

My wife and I currently have almost completely separate finances. We each have our own share of bills that we pay every month, and our own share of savings that we’re “expected” to contribute, but beyond that, we don’t really have any other financial expectations about each other.

We’ve been together for about 8 years now, and this is how our financial situation has worked, and will probably work for the foreseeable future. We don’t really have any shared expenses – I think if we had kids or a dog, or something shared beyond actual bills, it would be more useful to have something like shared accounts or pooled finances.

Retirement will necessarily force a change our finances, moving from our almost completely separate financial lives, to almost fully integrated in about 10 years when we’ll start tapping into our savings and investments. This shift will change things significantly.

At this point, I’m not all that sure how our accounts will look when we retire, but there will be a bit of a change in the way that our finances are run. Right now, we have an “allowance” for ourselves, which I tend to spend on beer and golf (paying to walk around and get frustrated), and my wife spends on wine and semi-disposable “girl clothes”.

From discussions with friends, my wife and I will be about 20 or so years behind mixing our finances together. I’m not too sure how much of a shift this will actually cause, as the combined finances will mainly be used to pay bills, which will happen automatically. It will be how we equitably deal with the remaining funds that will be the major shift in our financial life. I’ll have to get used to “our” money being used for what I would think is a frivolous purchase, while my wife will probably roll her eyes at me paying to wander around and sweat for an afternoon.

This kind of thing is what we’ll have to discuss quite a bit before our salaries stop and start drawing on our combined savings. A “wait and see” approach seems like it wouldn’t be a good idea – we might have different ideas on how our end retirement would work, which would cause some issues in our early retirement years.

How significantly do you think your financial relationship would change with your partner on retirement?

Just Easier

Posted by Dave on June 17, 2014

I wake up most mornings, weekend or not at around 6:30, usually with an alarm. Most of the time I’ll lay there for 20 minutes, reading my phone – psyching myself up for the coming day. I took this past Friday off to play 18 holes of golf, do a bit of housework and go to watch some horse races (pretty good day, right?). Knowing I had the day off, and my tee-time wasn’t until 9:30 the next morning, I had stayed up late reading a book I wanted to finish (I am working my way through the Dresden Files).

Having almost nothing to do the next day, my morning played out as it normally does, with me being wide awake at 6:00 in the morning with no alarm and ready to go for the day. I normally don’t take a random Friday off, to do something locally with no real schedule (beyond the tee time for a course that was 20 minutes away). The weird sort of energy I got on waking up with about an hour and half less sleep than I was planning on was nice.

The main question I get when I tell people what my financial plans are is “What will you do?”. My father, who retired at age 60 last year, but has a similar personality as I do is having trouble finding free time with his day – he’s so busy with various projects around the house. He wonders where he found the time to get done as much as he did when he was working, which was taking up close to 11 hours a day with commuting included in his day.

My current retirement countdown (to my 45th birthday) stands at 3,831 days. While there are many things I would like to do and learn in the next decade, I look forward to 3,832 days when I can wake up and do whatever I want that day, much like my golf “hooky” day I had on Friday. The number of “prime-time” hours given to work is significant – working for 8.5 – 9 hours (factoring in the odd extra bit of time worked or commuting time) per day is usually when I would be most able to do the things that I like to do.

I’m hoping that in a decade, I will have the kind of energy like I had on Friday – seemingly boundless, mainly due to the fact that what I was going to do that day was 100% up to me.

Do you have those kind of days? If you’re retired, do they still exist?

Risk Tolerance

Posted by Dave on June 10, 2014

Dave 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.

In my post last week, I stated that I hoped to be able to save $500,000 in order to retire. At a 4% withdrawal rate, this level of savings would provide more than enough money to support my wife and I. If I were to adjust the $500,000 for inflation of 2.5%, compounded over the next 10 years, I would be at $640,000 – still much lower than was seen as prudent.

I’m not really sure what the answer, or what the right amount of money to retire would be. Is it $1.5 million? This amount of money would give me more annual spending money than I ever would have spent in any year in my life. I know how much my wife and I spend right now, and if anything, for 10 or 15 years, this amount may decrease.

We are by nature “home-bodies”. We read a lot, have quiet hobbies and other than visiting family and friends, don’t really leave our house all that much. I can’t see our desire to essentially be left alone by everyone much of the time (we are kind of cranky as well) changing. I look forward to days I can spend just walking, either around a golf course or in the city, cooking elaborate meals, and consuming more information.

I realize that I may sound naive, but at age 34, the only reason I can see in upping my amount saved (and therefore my years at work) would be to provide a buffer to disease. If there’s one thing that would significantly alter my wife’s and my plans, it would be a long bout of cancer, a debilitating disease like alzheimer’s or a bad stroke, or any other myriad of issues that could arise as we age (in what we hope is a graceful manner).

The odds are pretty good that at some point either my wife and I will have some sort of issue arise that will incapacitate us either temporarily or permanently. If something hits us during our working life, I am covered by my work for Long Term Disability insurance, and I make enough to cover the vast majority of expenses that we would incur.

After retirement, we could purchase Critical Illness insurance to cover some diseases that we might get, which would provide a lump-sum payment to assist with treatment and healing, or we could assume that something like this would cost say $100,000 and budget for that. Either way, I’m not sure how you budget for these type of unknowns. Do you give up on retiring at 45 in order to have that extra buffer available, or do you retire when you want to, live as healthy as you can and hope it all works out?

I’m fairly risk averse, but I’m also 34, talking about would could happen to me a lifetime from now is kind of silly, but is something that I take into consideration. I’m just not all that sure how much to plan for and to give up for a “what if”scenario that may never materialize.

If you have made it to retirement age, how did you decide on “your number”? Did you take into consideration the risk of critical illness or other health issues?