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Friday, December 19, 2014

Ensuring Stability

Posted by Dave on October 7, 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 am generally a pessimist. I almost constantly assume that the worst is going to happen, which is the reason I am probably over-insured and also the reason why I have a much higher level of savings sitting around doing nothing than is perhaps necessary. My wife would probably classify me as a “Debbie Downer” (Youtube has some very humourous Saturday Night Live clips that may have been brought up in my house as examples).

Sometimes though, I do sit back and look at how lucky I am. Yesterday, I had a great day. I woke up a little earlier than I should have, after a late night of playing board games. I came home, “researched” for my NHL pool that I will probably lose at for the 15th straight year. I also found some reasonably priced “Book of Mormon” tickets to see over the winter, which I’ve wanted to see for a while. Finally, I made plans to cook a big turkey dinner for my wife and I and some friends next weekend, which I’m looking forward to. In all, it was a great day for me. I have a bunch of stuff to look forward to in the short and long-term and got to trash talk my friends during the hour and a half that the hockey pool took.

So, although I’m a pessimist I really like my life. I wake up most days looking forward to what I get to do that day, even at work. To that end, next week I’m ensuring that there are no significant changes to my family situation, by removing my ability to procreate. I’m positive I don’t want kids, and my wife is adamant in her desire to remain childfree. I have volunteered to do this for our “family” because it is much less invasive, and is supposed to heal much easier for guys than girls (which I guess I’ll see).

I have no interest in changing my lifestyle, and neither does my wife. We don’t want to have to concern ourselves with worrying about birth control for the next twenty or so years. For me and my wife, this permanent decision makes sense – it’s really just one less thing to have to worry about for the two of us, so we can carry on with the good times.

I thought as a childless 34 year-old, there would be a bit of a cross-examination by either my nurse practitioner or doctor. Both basically asked “are you sure?” and “you know this is permanent, right?”. I went for my consultation in June, and booked the operation for after golf season, next week. I’ll be taking a couple of days off work to play video games and heal up.

Sorry for the possibly “Too Much Information” health post, I would say that it aligns with my future plans, leading up to retirement. More specifically, it solidifies my childfree status – as long as the surgery works. While I think Early Retirement is more than possible with kids, for us, it would make it much more difficult to even think about making it work 10 years from now.

What They Need to Hear

Posted by Tim Stobbs on September 17, 2014

I was talking to a co-worker the other day who was worried about how her report would be received, since my particular group in the company gets to lead investigations into incidents that occur elsewhere in the company.  We basically get to stick our noses in, find out what went wrong and make recommendations on how to improve things for the company (but we don’t assign blame).  To sum it up, I said “Did you tell them what they needed to hear?  Remember we aren’t here to tell them what they want to hear.”  I hoped that helped, but in reality that phrase sums up a good part of my career.

I’ve never been an ass kisser at work, I just can’t be bothered.  That isn’t to say I’m not thoughtful or polite on how to bring up difficult subjects, but I will always tell people my truthful assessment of the situation.  I figure they pay me a lot of money to think on their issues, they very least they can to is hear the results.  So I know some people don’t particularly like me because I don’t tell them what they want to hear, but I do think the vast majority of people respect me for being honest.

So with that in mind, might I offer a point of advice to people.  The average saving rate in Canada is currently just under 4% and has been as high as 5% in the last few years.  If you continue to save at that rate, you will effective never retire without government help.  What?!?  Why because if you save only 5% of your pay it will take you 66 years to be fully financially independent with no government help (see here for a table of values).  So even if you started at 18, you could be financially independent at 84.  Yes, you are fucked.  Well let’s say, you are bucking the trend and putting away a nice 10% of your pay.  Sorry you still have to work for 51 years, so you will be ready to retire at 69.

The long story short on this, if you want a half decent retirement age (like about 60), you need to save at least 15% starting when you were 18.  That folks is the floor of the saving rate you should have, you shouldn’t go any lower.  Yes, I can hear the screams “But I can’t save that much?!?!?” Actually, you can, you are just choosing to do other things.  If you truly want off this treadmill of work, you need to start saving more immediately.

Of course, that assumed you started at 18.  If you are a 55 year old boomer with crap all saved (oh, and by the way those values don’t include any home equity as savings…so a paid house is required above that).  You are beyond fucked and up the creek without a paddle.  Do you feel that panic settling in, do you want to turn away and bury your head in the sand a bit more?  Good, then you are human, but perhaps let’s give you the good news.

There is of course an alternative.  You need to get your ass to the other end of that table of savings rate, because you can save 80% of your pay you can retire in just 5.5 years, so even if you are age 55 or 60, you can still save enough to have a basic level of comfort.  The trick here is you need to give up your currently lifestyle.  You can’t spend 95% of what you take home anymore, so prepare for some radical discomfort in the short term.  Downsize your home to something half the size NOW, stop buying anything beyond consumables (like food) NOW, sell that second car NOW….I assume you are getting the idea.

Now for your second piece of good news, all of this reduction of spending doesn’t have to impact your happiness much in the long run.  Pardon?!? Yes, I’m being honest here and you can go check out the research, but in fact only 10% of your happiness comes from your circumstances.  So it is entirely possible to be at least 90% as happy as you are now on a fraction of your current spending.

So that is your trade off 10% reduction in happiness to have a worry free retirement starting in just five years.  I know what I would pick, what about you?

A Perspective From the Wilderness

Posted by Dave on September 9, 2014

I spend a lot of my life dealing with really small details. My entire work life is spent analyzing and reviewing numbers and coming to conclusions which I report on and defend to my employer. I enjoy this kind of detailed work, which I feel achieves something at the end of the day, solving number puzzles and coming to conclusions based on the evidence I reviewed. My financial plan is much less detailed, but still entails (at least the planning level) quite a bit of minor details.

This past week, I spent 4 days in the bush with 8 other guys. Over these 4 days, I was up to 40 kilometers away from civilization, only reachable by canoes and leg power. I love these trips, which I’ve taken almost every year for the last decade. I seem to always come back to “the world” completely exhausted, but with a much different view on life.

In the bush, everything the 9 of us need for the period we’re in the wilderness, we need to carry on our backs, whether it’s water filtration systems, food, first-aid supplies, or shelter. We hauled seven 70 pound backpacks and 4 canoes on treks between lakes, around waterfalls, and over beaver dams to ensure we could survive in a comfortable manner. This kind of trip forces a focus on the daily event ahead, rather than planning too far into the future, which is the reason I think I love the trip so much. There’s no way I can be overly worried about work, or house stuff, or whether what I’m doing with my money is the best thing I could be doing. All that really matters at the moment, is pulling water with the paddle, or moving the pack with my feet.

I’m sure everyone would benefit from some level of rough living, to provide a bit of change of perspective from their everyday life. I live fairly sparsely, when compared to most people in my North American demographic. There is a realization when you have none of that “stuff” around you, or even any use for the vast majority of your worldly possessions that these things you’ve purchased are nothing more than “for fun”. This kind of realization allows for more appreciation of what I do have, and makes me think more about the “Wants” on my list.

It’s trips like these and the realizations that come from them that allow me to maintain my current path towards early retirement. The realization that I don’t need more stuff, I just need to be able to afford the stuff and activities that are most important to me, along with (more importantly) the time to enjoy them.

Is there anything you do that keeps your financial plan in-line?