Jun 192019
 

Dale Jackson retired at the age of 55. He didn’t win the lottery or start his own successful business. He just worked and saved diligently throughout his career as a media journalist, most recently known for writing investment articles for BNN Bloomberg.

He explains how he achieved early retirement in a recent interview. Here are some highlights below.

  • Keep an eye out for opportunities

Jackson explains that “opportunities come along for every generation.” Most of the time economic recessions are seen as bad times. But it’s actually an opportunity to speed up the retirement process. Asset values are down so we can buy more stocks at a discount. Interest rates are low so we can pay down the mortgage faster. Another example he points to was in 2011 where the Canadian dollar was worth more than the U.S. dollar. That doesn’t happen often. So with the suggestion of his financial advisor Jackson sold CAD to buy USD and that was one of the best currency trades any Canadian could have made during this past decade.

  • Diversify your holdings

Speaking of buying US dollars. It’s not enough to simply hold other currencies. We have to keep our money constantly working. Jackson says that Canada isn’t big enough to make up a diversified portfolio. But the United States is. 🙂 Buying U.S. companies in USD is highly recommended, especially when TFSA and RRSP allow for US dollar accounts. He uses the following graph to explain how over the past 10 years the resource-heavy Canadian stock market index (TSX Composite) has advanced only 55% while the S&P 500 in the U.S. has more than tripled in value! Uh oh. Poor Canadians.

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Aug 292018
 

According to a recent Northwestern Mutual study, nearly 1 out of 3 Americans have less than $5,000 saved for retirement. The average retirement savings for all Americans is $84,821. That’s a far cry from enough. Experts typically recommend building at least $1 million in savings by retirement. So it doesn’t look good for the average American. And we aren’t doing much better up here. A CIBC poll shows that 32% of Canadians between 45 and 64 have nothing saved for retirement. 😮

The 3 pillars of retirement savings

I recently finished reading a book called The Subtle Art of Not Giving a F*ck by Mark Manson, which explains that we can’t possibly care about everything in our lives because that would be too exhausting. So we have to choose what’s actually worth giving a hoot about. For those who are having trouble saving for retirement the best way to get ahead is to focus on a few things that will make a substantial difference. 😀

Below are 3 important factors that are absolutely the mutt’s nuts to building up a retirement nest egg.

Income

This is the number one tool to accumulating wealth. You can’t have savings if you never have income. Prioritize finding new ways to make additional income. This could be through a side job. Investment income is another method that requires patiences but ultimately has extremely lucrative results. For example this is what consistently investing in dividend growth stocks for 10 years can do in a bull market. 🙂

Another strategy that usually gives a lot of mileage is to constantly apply for new jobs. Every month make it a goal to send your resume to a few different companies, and follow up with any interviews or feedback you get. The worst case is you decline a job offer with a lower salary than what you’re currently earning. But if you are offered a better compensation package then you’ll receive an immediate raise in your career, either by joining the new company, or negotiating a higher salary with your current employer. 😉

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Aug 312017
 

There’s a general rule of thumb that says if you retire you can safely withdrawal up to 4% of your nest egg every year without it running out before you kick the bucket. Financial advisor Bill Bengen, now retired, came up with this guideline after testing a variety of withdrawal rates using historical rates of returns for stocks and bonds. He published a study in 1994 about how 4% was the highest sustainable withdrawal rate retirees could use.

But 1994 was over two decade ago. How does the 4% rule hold up today, after the great recession? Bill recently did some further research into the topic and according to him, the 4% rule still holds true today. 🙂 In fact, he is even confident that retirees can safely withdrawal not just 4%, but actually 4.5% if they are okay with their nest eggs lasting for only 30 years.

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In a Q&A session on Reddit last week, Bill explained the methodology, details, and implications of his findings. He says that 4.5% is the “percentage you could “safely” withdraw from a tax-advantaged portfolio (such as an IRA, 401(k), RRSP, or TFSA) the first year of retirement, with the expectation you would live for 30 years in retirement. After the first year, you “throw away the 4.5% rule and just increase the dollar amount of your withdrawals each year by the prior year’s inflation rate.”

For example, if you had $1,000,000 in an RRIF, you would withdraw $45,000 in the first year of your retirement. Let’s say inflation during this year was 2%. This means in the second year you may withdrawal $45,900. Overall, Bill recommends a 50% equities/50% bonds mixture at the beginning of one’s retirement.

As for how recessions, interest rates, and government policies affect the safe withdrawal rate over time, Bill reassures us that these factors have little bearing on the safe withdrawal rate. There are only 2 major factors that count.

  1. Encountering a major bear market early in retirement.
  2. Encountering high inflation during retirement.

Bill explains that both these factors “drive the safe withdrawal rate down.” His research is based on data going back to 1926. He tests the withdrawal rates for retirement dates beginning on the first day of each quarter, beginning with January 1, 1926. The average safe withdrawal rate for all those 300+ hypothetical retirees is, “believe it or not, 7%! However, if you experience a major bear market early in retirement, as in 1937 or 2000, that drops to 5.25%. Add in heavy inflation, as occurred in the 1970’s, and it takes you down to 4.5%.” So far, Bill has not seen any indication that the 4.5% rule will be violated. Both the 2000 and 2007 retirees, who experienced big bear markets early in retirement, appear to be doing okay with 4.5%.” 🙂

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Jun 152017
 

We’re Living Longer

I don’t know how the term “aging gracefully” can be a compliment. To me it just sounds like a nicer way of saying you’re slowly looking worse. 😛 When the government pension (CPP) was first introduced in the 1960s, the average life expectancy was about 71 years old. The idea was that most workers would retire at around 65 years old, and receive 5 to 10 years of CPP benefits in retirement. And that was the case for awhile. 🙂 But today, the average life expectancy in Canada is over 80 years old which puts more pressure on the CPP investment board to perform well. It’s not unreasonable to assume that my generation of workers (millennials) could have a life expectancy on average of 90 years or older.

According to a Telegraph article, we could witness in our lifetime a world where most babies will have a life expectancy of 100 years or longer! 😀 It’s nice that people are living longer than previous generations. But it’s also kind of sad to think about getting old. Can you imagine having sex when you’re 90? It’ll probably be like trying to shoot pool with a rope. 😕

Young adults are also starting careers later today than in the 60s. So with relatively less money going into the sovereign wealth fund, and more people withdrawing, many economists are worried about the future sustainability of government benefits on the local, provincial, and national level – not just in this country, but all around the world.

If generation Y folks are likely to live to 90 years old, then planning to retire at 65 may not be financially feasible unless a large amount of wealth is saved up first. For those who are planning to retire early like myself, it is even more difficult. Assuming I reach financial freedom by 35, I will have 55 years of living in retirement if I choose to. That sounds great. But the reality is I will most likely be working on and off, or on a part-time capacity throughout my 40s and 50s because there are only so many non-productive activities I can do before I get bored and start working on something economically productive again. 🙂

So instead of planning to live until 80 years old, most healthy people my age should be aiming for 90 as the starting point. And with that it means accumulating more personal savings for retirement. But also keeping in mind that there is no set retirement age anymore, so plan to be flexible with work schedules to accommodate a balanced lifestyle.

 

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Random Useless Fact:

Aug 182016
 

Early Retirement 

For professional skiers the best time to retire is when they start to go downhill. But what about the rest of us? Well for most people the question isn’t at what age we should retire, it’s at what income. 😉 People who want to retire early seem to have a clear and consistent focus to grow their wealth so that it can provide them with enough passive income to sustain their lifestyles forever. This can be done through a number of ways such as reducing living expenses, increasing income, and making high investment returns. 🙂

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I recently read a CNBC article that featured a couple, Carl and Mindy, who retired in their early 40s with a million dollars. And they did it pretty much the same way as most other early retirees.

In 2012 the husband-wife duo with 2 kids already had $570,000 saved up. But they were inspired to retire early so they set a clear goal to build a portfolio of $1 million and no debt. And earlier this year in 2016, they have accomplished their dream. 🙂

The CNBC article suggests that “anyone can do the same — and you don’t have to be an investment banker raking in millions. All it takes is smart decisions along with intelligent saving and investing.

Here are some steps the couple took to reach their financial goals.

  • Track spending – “My wife and I wrote all of our expenses in a book,” says the husband.
  • Live in an affordable location –  The couple resides in a low-cost area in Colorado, and lives on $2,000 a month for the whole family. They mention this would not be possible in San Francisco or Manhattan.
  • Cut bills – “I learned that you don’t need a lot of money,” said the wife. “My quality of life has not changed since we became laser-focused on cutting out our expenses. I don’t need the cable TV. I don’t need a super-expensive phone plan. I don’t miss all this stuff because it didn’t really add to my life,” she said.
  • Invest in appreciating assets – The couple bought a $176,000 fixer upper home that they estimate is now worth over $400,000. They also I bought 2,000 shares at Facebook at $30 a share which is now worth around $120 a share!
  • Consistent savings – They’ve continuously put away $2,000 per month into their investment portfolio.

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