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Tuesday, July 29, 2014

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?

Finding a New Normal

Posted by Dave on June 3, 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.

I spent the entire weekend outside, cutting and connecting wood in an attempt to make our backyard look like a place where somebody lives, rather than an unused barren patio with a small wheat field growing between the stones. This project is something that both my wife and I have talked about doing for the entire 5 years that we’ve lived in our house, and (hopefully) over the next week or two will be able to complete. There is some added pressure that we don’t have to deal with when doing most of our half-finished indoor projects – the neighbours can see the progress we’re making and we’re kind of the dirty kids with a ripped up yard until we get sod laid down and everything cleaned up.

With our mortgage paid off, our “sprint” to complete that project is now over. Financially, we’re waiting for our paycheques that come this Thursday to settle all outstanding debts we have and to begin replenishing our personal savings that we kind of wiped out to cover the last amounts owing to our mortgage company. After that happens, we have to sort out what our new “normal” will be for the coming decade.

My wife and have split our bills based on our respective incomes. She pays for Internet, hydro, gas, property tax, and food and I pay for everything else – house, car, life insurance, gas for the car and up until now, our mortgage. My wife is also in charge of saving a good portion of her income for our annual “large” expenses – vacations, home improvements, and a car in the past to name a few.

We will now be in a new race – to save the approximate half-million dollars or so that we’ll need to live off of for the (hopefully) 50 years that we’ll live after we retire, and do so as quickly as possible. Before May 23rd, 2014 (forever known as $40 Steak Day in our house), our intention was to minimize the amount of interest we were paying our mortgage lender. Now, we’re psyching ourselves up for the next 10 years ahead of us – more 40 hour work-weeks, higher earnings with our new investment income, and more opportunities to learn.

I’m looking forward to the next few years, I have a lot to learn about investing and look forward to this unique opportunity to try not to screw up our finances too much. The good thing about our financial plan is that if anything significant goes wrong, we will hopefully be able to work an extra year or so to fix my mistake, and still be able to retire relatively early.

I Don’t Want to Be Rich

Posted by Tim Stobbs on May 23, 2014

It’s sort of amusing to me that when ever I mention my plans to retire by my early forties that the average person assumes I’m trying to be rich.  When in fact, that never was part of my goal at all.

Why? Being rich in my mind always means more than I already have.  Rich conjures images of exotic vacations, buying whatever you want and fulling my even whim.  Which in theory I could reach if I kept saving and worked until I was like 65 at the same rate of savings I could manage to have over $4 million dollars saved.  So I could be rich if I wanted, yet I don’t want it.

What I really want in my retirement is to be comfortable and perhaps the odd little luxury beyond that.  Why?  Because that is all I really need to be happy in life.  I’ve never spent $100,000/year so even if I had it I won’t know how to spend it, expect on things that really don’t matter much to me.  So what is the point of being rich and having everything if that won’t really give me what I truly want in life: time.

I want time to write, to read, to go for walks, to help others, garden, visit friends and family.  I want to live my life not chained to a job.  I want time to nap when I feel like it, cook, research a new interest, build things with my hands, watch movies, play with my kids, go for a run or anything else that comes into my head.

To me that level of freedom is worth giving up being rich.  We often mistake money for freedom, because we are sold the idea we can buy ourselves out of any problem.  Yet in reality, there are often many other solutions we fail to realize exist.  For example, we often complain how we have no time now to do things, but rarely do people consider part time employment.  I know I’ve previously done by 80% and 90% time and I have to say both were eye opening experiences.

For example, 90% time gives you an extra 26 days a year off (or equal to over five weeks of unpaid vacation).  In my case I took every second Friday off and it was wonderful.  You could do errands on that day and then actually leave your weekend free to relax and enjoy the time with your family.  Why wait to be rich when I could enjoy more time now?

So in the end, I’ll keep my modest lifestyle and my dream of more time.  It seems to work for me.  How about you?  Are you ever tempted to be rich?