Posted by Dave on April 17, 2012
This is a guest post by Dave, who 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.
My wife and I run our house like a business. I wouldn’t say it’s a super awesome place to work, but the employees are nice and the environment is pretty relaxed, and I plan to stick it out until the end. To a certain extent, my formal education made my household planning this way – a degree in Economics followed by an extensive education in business through the accounting classes I have been taking for the past 5 years, this level of thinking just sort of gets ingrained in my thought process.
There are a few ways that my wife and I run our retirement plan like it’s a business:
Profitability:
Much like a business, we are shooting for big profits each year. Our profits come from our salaries and minimizing our expenses to achieve gains year year. We try to earn more money each year to maximize our earnings each year, just like a business.
Meetings:
In order for our financial plan to work, we discuss how our finances are working and whether we’re both still happy with how things are going. Every two weeks we receive a statement in the mail from our mortgage company, showing the amount we have paid down from paycheque to paycheque. Because our mortgage is our main financial goal, this letter gives us the opportunity to discuss how that part of our plan is going.
Additionally, once in a while during car trips we will discuss how our plans are going. Generally, I do this to ensure that my wife is still happy with our financial plan. Between my wife and I, she enjoys “stuff” more than I do – mainly clothes (which seem to be of the “disposable” variety, as they are not built to last more than a couple of laundry cycles). She seems to be happy as long as there is enough money for her to buy a couple of these disposable pieces of clothing a month.
Dividends (Eventually):
Currently, our business is in the growth stage, and everything we have is being invested in the end product (retirement). At a certain point, these investments will start to pay dividends back to us (rather than being re-invested), at which point we will be financially free. In a way we’re are a significantly poorer version of Apple – hold and reinvest gains for 15-20 years and then start paying it out.
I think that people generally get in trouble when they don’t treat their personal finances in a business-like fashion. Where poor “investments” are made (aka: stuff), poor “credit terms” are taken (aka: credit cards), and little day to day thought is put into how or why the money is spent.
Do you think you treat your household finance as a business? Do you think they should be treated differently?
Posted by Dave on April 11, 2012
This is a guest post by Dave, who 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 have approximately 13 years until my projected retirement date – the point where I foresee my investment income overtaking my expenses (at their current level). Until that point, I am selling my time to an employer. This year will be 10 years since I entered the workforce full time, and I have to say I’m glad that I have an exit plan.
Overall, I like my job – I also have a set of skills that is somewhat desirable to potential employers, meaning if I didn’t like the duties I was currently carrying out while selling my time, I could change to another employer. I may not make the same amount of money or have the same benefits I do with my current employer, but I’m reasonably certain I could find something I would enjoy doing for the time being, the thing is though – I have other stuff I’d like to do.
My wife and I live a fairly frugal lifestyle – we tend not to waste tons of money on things that we don’t need and as such are able to think about getting out of the workforce at a relatively early age, as we are able to save a significant amount from our paycheques and put it towards investments.
Additionally, we would much rather do with less “stuff” in order to gain more time to ourselves. I would rather do without the newest gadget, a trip or whatever else in order to gain some amount of freedom over my choice in lifestyle. Most of my hobbies and interests are relatively inexpensive (or at least I make them that way through cost-cutting measures) and I would much rather spend the 40+ hours per week involved in that type of thing then doing what someone else wants me to do.
What the retirement equation comes down to for me, is at what point is the tradeoff worth it? For example, if between the two of us, we could live off of $10,000 per year, we would be able to retire once our investments reached around $250,000 (withdrawing 4% per year). Currently, our budget in today’s dollars is about double that, and this is something that we discuss from time to time in our house. Normally this discussion takes place on a Monday morning, getting ready for work when we’d rather still be sleeping.
As we get closer to some bigger numbers, it will be easier for us to decide – we are still some time away from that $10,000 per year in investment income right now (which admittedly we would have trouble living on in the long-term). I would much rather decide to live on significantly less than a “normal budget” than sell my time longer than I have to.
How do you decide on your exit point? Would you live on significantly less to exit the workforce early?
Posted by Tim Stobbs on March 30, 2012
Well the federal budget came down yesterday, which you can read here the official documents. But perhaps the most significant change for future retirees is the shift to move the start of OAS from 65 to 67 by April 2023 (see chapter 4). That means if you are 54 or older by March 31, 2012, you just won yourself a free pass on worrying about this issue, which means you can stop reading now if you like.
For everyone else, I want you all to take a deep breath and realize something very important: the maximum benefit you can receive from OAS is just $6481 per year in 2011. So in reality you are out just under $13,000 in benefits, so let’s be blunt for a moment: it isn’t a big deal. If your retirement plans are so tight that losing $13,000 screws them up you have more serious issues to worry about like saving a lot more. Even if your a couple retiring you lost at most $26,000 of benefits, which becomes a slightly bigger number, but in the end I can make that up by delaying my plan by three months. My goodness, that is nothing compared to what the stock market can do to my plan in a day at that point.
The reality is the federal government all did us a favour by giving us a 11 years heads up on a policy change so you can now adjust your plan for it. Heck the even gave an extra five year phase in period on top of the 11 year notice so if your 53 today you don’t have to fully wait until 67 to collect OAS. Then as an added bonus the gave people the option to take OAS later starting in 2013 and get a larger payout. You can do that to a maximum of five years which in their example would raise the payout from $6481 to $8814 per year.
In the end the federal budget change despite all the negative media coverage on this issue just made my life easier. In my plan, I had assumed I only got half of that benefit so with this change the program just got a little more stable, so perhaps I will luck out and get more than that. Overall, it isn’t changing a damn thing for me and likely won’t for a lot of other people.
