Most of your investing life you and your adviser (if you have one) are focused on wealth accumulation. But, we tend to forget, eventually the whole idea of this long process of delayed gratification is to actually spend this money! That’s decumulation as opposed to wealth accumulation. This stage may also involve downsizing from larger homes to smaller ones or condos, moving to the country or otherwise simplifying your life and jettisoning possessions that may tie you down.
Despite Valentines Day being right around the corner, Canadians appear to be more optimistic about their financial futures than their love lives, according to a survey released Wednesday. Here is the press release.
TD’s second annual Love and Money survey gauged the financial behaviours of more than 1,700 Canadians who were married, in a relationship, or divorced in 2021.
It found that 60% of respondents claimed it’s harder to find true love than financial success, up from 51% in 2020’s report.
For those in committed relationships, 51% said they’re experiencing barriers to meeting their financial goals and are delaying milestones like planning a wedding.
74% of divorced Canadians feel their financial status is the same or better than when married: 54% said it is easier to manage their finances post-divorce.
The survey also explored millennials’ unique approach to love and money, including their intolerance for financial ‘red flags’ that would cause them to leave their partner:
They never offered to pay for anything (86%)
They were secretive about their finances (81%)
They didn’t seek professional financial advice (77%)
As for life post-divorce, 52% said they learned a new financial skill like tracking their spending (28%), making bill payments (24%) and saving for retirement (23%). 57% said they are spending less after divorce while 45% consider themselves financially better off. 54% said it’s easier to manage their finances post-divorce.
TD says the survey also reveals the downside of not talking about finances in relationships. Divorced couples were less likely to have regularly discussed money during their marriage, with only 29% of divorced respondents saying they talked about money weekly with their former partner, compared to 50% of married couples who say they have the talk weekly.
Millennials, Love and Money
Millennials are more likely than other demographic cohorts to keep their money separate from their partners, with 49% of respondents saying they have no common accounts or shared credit cards. Millennials are also less tolerant of ‘red flag’ financial behaviours: they say they would leave their partner if they never offered to pay for anything (86%); if they were secretive about their finances (81%); or if they didn’t seek professional financial advice (77%).
Financial challenges of committed couples
The survey also shines a light on the financial challenges of committed couples. It found 28% are keeping a financial secret from their partner, up from 8% from the 2020 report. Of those keeping a secret, 64% don’t plan to ever tell their partner. The survey also shows that a secret purchase is the most kept (42%), followed by a secret bank account (29%). Continue Reading…
When I created this blog over seven years ago, the sole purpose was to chronicle our journey for financial independence and joyful life. I wanted to share my knowledge with like-minded people. I could have just focused on writing articles about money and personal finance.
But I didn’t.
Right from the start, I put a strong emphasis on the joyful life aspect, because I realized that having all the money in the world does not automatically make one happy. Happiness needs to come from within and finding this internal happiness is a daily practice. I realized, that writing about money gets old quickly; I wanted to write about more than just the money.
Being the sole income earner of the family (for now), early retirement was never really a goal I had in mind. My focus has always been on financial independence. I want to reach financial independence so Mrs. T and I can have more options in life and have the freedom to work because we want to, rather than working because we have to.
Perhaps the reason that early retirement isn’t on my radar is because I enjoy what I do at work. Having been with the same company for 15 years, over a third of my life, I feel fortunate that I am still working at the same company where I started my engineering career.
To me, early retirement has always been just one of the nice things that we would have in life one day. It does not mean I must retire early in my 30s or 40s to make myself happy. Or that I must hit a specific FI number or hit a specific FI date.
Perhaps I am unique compared to most people, as I grew up in a family where multiple family members either retired in their early 40s or became financially independent but continued to work. Money has never been a taboo subject in my family, which has had a very positive impact on my life.
Another unique thing about our family is that we technically are financially independent, but we choose to prolong our financial independence journey. We wanted more flexibility, so we set the goal to create a dividend portfolio that had enough dividend income to cover our annual expenses. We set a goal of becoming “financially independent” by 2025 or earlier, but we aren’t too worried about whether we hit the goal by 2025 or not.
One of the distinctive benefits of having a dad who retired early and a stay-at-home mom is that my parents were always there when I needed them. Unlike many of my school friends, both my dad and mom could attend many of my school functions, like sports games, band concerts, and field trips.
Now I am a dad of two young kids, I am even more appreciative of what my parents could do for me and my brother when we were growing up. Always available and present at my kids’ important life and school events is something I want to achieve. I am practicing it right now as best as I can with a full-time job.
Growing up, we went on extended road trips because both my parents were free during school summer break. When I was in high school, every summer we would go on road trips that usually lasted over a month.
One year, we flew to Toronto and drove around Eastern Canada and the Eastern United States. Another year we drove from Vancouver to Alaska and back. Another time we drove from Vancouver to New Orleans and back. Then once to Prince Edward Island to drive around the Maritimes and Maine. Throughout high school, we also drove to Banff and Alberta multiple times.
My extensive travels growing up is the exact reason why I want travelling to be part of my family’s life in the future. I want Baby T1.0 and Baby T2.0 to learn invaluable lessons that can only be learned from travelling and seeing the world with their own eyes. There are so many things that you simply cannot learn from reading books or sitting in a classroom. You must see them and experience them yourself.
We have been very fortunate to have travelled quite a bit with both kids already. We went to Denmark multiple times, we visited Japan and Taiwan, and various parts of Canada and the US.
Although I am involved in the FIRE community, shamefully I didn’t know the acronym until a few years after I started this blog. For a while, I was confused whenever people used this acronym.
For a while, FIRE was the only acronym, then folks started coming up with different acronyms to categorize FIRE. There’s lean FIRE, fat FIRE, barista FIRE, and the list goes on.
FIRE has been getting more and more mainstream coverage lately. Almost every other day I would come across articles on so-on retired at age 38, or someone who retired at age 27 to travel around the world, or someone who retired after saving extremely aggressively for 5 years, or someone who retired by saving up one million dollars in less 5 years.
To me, FIRE is flawed in these articles.
They don’t provide the general public with what FIRE really means.
Almost all of these articles only focus on the early retirement aspect and provide a false image of relaxed and luxurious life in retirement – travelling around the world, leaving the 9-5 rat race, saying FU to the employers, and sipping piña colada on the beach. Early retirement is all fun and games. There are no drawbacks and no negatives to early retirement.
But it is a lie, because no matter where you go, you will always bring yourself. So if you are not in a happy place while pursuing FIRE, you sure won’t be happy once you reach it.
Many of these articles also fail to acknowledge that many of these early retirees are not really “retired” in the traditional sense. In fact, many of these early retirees are still earning money through side hustles or even part-time jobs.
These articles are click baits. They are there to get the average Joes and Janes to click on them, read, and feel more miserable about their lives.
Because most of them cannot fathom the idea of financial independence or early retirement. A small minority even gets so fed up with the idea of early retirement, they become trolls and leave very negative comments on these articles.
The fundamental problem with FIRE
The root of the problem is that too many people hate their jobs.
They despise what they do at work, they don’t like their bosses, they don’t like their co-workers. Through media, these people have been told that owning expensive things will make them happy. Purchasing things will solve all of their problems.
So, they mindlessly spend money on things they don’t need, only to find out that they need to somehow make more money to sustain their expensive-never-ending-purchasing-spree. They work simply because they need the money to pay for the new things that would supposedly make them happier in life.
Therefore, they continue to clock in and clock out every day despite hating their jobs. Due to how they feel about their jobs, they are constantly looking forward to the weekend or their next vacation, because that’s when they can be completely free from their jobs. And so, the Monday blues sets in whenever they are back to work from weekends or their vacations.
To them, FIRE is an escape. The happy ending. The escape route. The finish line.
They tell themselves that they will only be happy once they are retired. Before they get there, they will never be happy. They constantly remind themselves how miserable their life is and how wonderful their life will be once they are free from their 9-5 job. So, they constantly look forward to that retirement day so they can give their employers the middle finger and tell their coworkers to get lost.
This video is a perfect example of this endless vicious cycle of going nowhere and believing that buying things will lead to happiness.
Connecting life problems to not having money, financial independence, or retire early is simply incorrect and fallacious.
Reaching financial independence and retire early does not automatically mean that you have crossed the finish line and that automatically makes you happy. If you are in a bad relationship with your partner or spouse, do you really think everything will be rosy when you have more money? Most divorces are caused by money issues!
If there are marital problems, FIRE certainly won’t solve them. Over the last few years, we have seen some prominent figures in the FIRE community ending their marriages… Continue Reading…
It is a common question from readers. How do I create reliable retirement income with ETFs? It is a simple answer if we consider the last 40 years. A simple mix of Canadian, U.S. and International stocks has provided the necessary growth component. Core bond funds have offered the required risk management. Stocks for offense. Bonds for defense. A typical balanced or balanced growth couch potato portfolio did the trick. Today, we’ll look at the 2021 returns for retirement ETF portfolios.
In early 2019 I posted the simple 7-ETF portfolio for retirees. Please have a read of that post for background on the ETFs, risk, and the retirement scenario.
Seek retirement and investment advice
You can self-direct your investments if you have the knowledge and you understand your risk tolerance level. But I’d suggest that you contact an experienced fee-for-service financial planner who has expertise in the retirement arena. With a fee-for-service advisor you will pay as you go. You can pay by the hour, or perhaps pay a flat fee for the evaluation and plan. You might then set off on your own to build the portfolio with all the right pieces in the right place.
Your retirement ETF will be one piece of the retirement funding plan. The following represents a model for consideration and evaluation.
The 7-ETF Portfolio for Canadian retirees
You may choose to go more aggressive or more conservative in your approach. And keep in mind the above is not advice, but ideas for consideration. That said, I do see it as a sensible conservative mix. You may decide to add more inflation protection by way of energy stocks or commodities.
And let’s cut to the retirement funding chase. Here’s the returns for the 7-ETF portfolio for retirees for 2021. Charts and tables are courtesy of portfoliovisualizer.com
Yup, that simple mix delivered a return of 13.8% in 2021. That is a very good return for a conservative mix that has a 45% bond allocation.
Here’s the returns of the individual assets for 2021.
With inflation fears dominating the back half of 2021 the inflation-sensitive assets of the Canadian High Dividend VDY and REITs performed very well. Keep in mind that two of the assets are in U.S. Dollars. You can substitute and use Canadian Dollar holdings. See the original 7-ETF post.
At Questrade you will hold dual currency (U.S. and Canadian dollar) accounts. You can buy ETFs for free.
Vanguard VRIF ETF for retirement
Recently I also looked at Vanguard’s VRIF Retirement ETF. That retirement funding ETF delivered a very nice income increase for 2022.
Here’s the VRIF distribution scorecard
Distributions per share.
2020 0.83
2021 0.87 (4.5% increase)
2022 0.94 (7.6% increase)
The portfolio income
Portfolio visualizer offers that the starting yield (2021) in the 7-ETF portfolio would be in the area of 2.8%. You will sell assets to create additional income.
Creating that retirement income
You may choose to ‘fund as you go’. While you will have portfolio income (from bonds and dividends) that is accumulating, you will likely have to sell assets to create the desired portfolio income. The basic idea of asset harvesting would be to keep the portfolio close to the original asset weighting. You do not have to be exact in this regard.
You may choose to sell assets monthly, quarterly, or you may even move the assets to a cash (ETF) at the beginning of the year to ensure that you have your retirement income for the year safely stored in cash. Of course, consider fees and taxes.
Retirement spend rate
Here’s an example of a 4.8% spend rate. That is to say, each year you would spend 4.8% of the initial total portfolio value. Each $100,000 would create $4,800 of income, before taxes, each year. A $1,000,000 portfolio would deliver $48,000 of annual income, before taxes.
The chart runs from January of 2015 to end of 2021. This is for demonstration purposes. I have not adjusted for inflation.
So the good news for this simple mix of ETFs is that you would have enjoyed a decent spend rate and the portfolio value would have increased by 17.4%. Of course it is favorable to have a buffer to weather the storms such as the great financial crisis that began in 2008, or the dot-com crash of the early 2000’s. An increasing portfolio value will offer that much-welcomed cushion.
The bonds and cash help in that regard as well – to protect against severe market corrections.
And keep in mind that we enter the retirement risk zone about 10 years previous to our retirement start date. We need to de-risk and prepare the portfolio well in advance.
And here is an interesting approach. You can remove sequence of returns risk (entirely) by going very conservative as you begin retirement. You would then increase your stock allocation (and growth potential) in retirement. That is called a retirement equity glidepath.
A portfolio spend rate example
Here’s an example with the 4.8% spend rate from the year 2000. That is a very unfortunate start date as 2000 is the first year of the dot-com crash. U.S. markets were down three years in a row. Canadian markets suffered as well.
We see that the Balanced Portfolio is still chugging along in 2021, while the all-equity global portfolio went to zero in 2017. We have to protect against an unfortunate start date.
Keep in mind that there are many periods when the most optimal option is an all-equity or equity-heavy portfolio that would provide greater retirement income. But with an aggressive portfolio you run the risk of retiring and running head first into a severe market correction. You don’t want to gamble and hope that you get lucky. Most retirement specialists would recommend a Balanced or Balanced Growth model. Continue Reading…
A “perfect storm” of challenges faces Canadian investors this RRSP season, according to a a national online study conducted on the Angus Reid Forum Panel for Co-operators, released Tuesday. Jan. 25.
After surveying financial professionals across the banking and wealth management sectors, the panel believes this “perfect storm” can be attributed to the uncertainty of this past year and to DIY [Do It Yourself] investing strategies.
2022 is poised to be a unique RRSP season because of multiple unique market conditions, the study finds: 58 per cent agree that in the face of rising consumer debt, natural disasters (climate change), Omicron, and looming hikes in interest rates, we are approaching a “perfect storm” of challenges, a figure that jumps to 65 per cent in Quebec.
Key findings
80 per cent percent of respondents say that when people experience financial mishaps or losses, many feel overcome with doubt, which leads to indecision and in-action.
76 per cent hypothesize that for many Canadians living in urban centres, home ownership is increasingly feeling out of reach, and because of this, many are looking for DIY investment strategies.
93 per cent say the majority of Canadians have unleveraged opportunities in that they haven’t maximized their RRSP planning and TFSAs.
“By initiating a much-needed national conversation around financial literacy, the hope is that more Canadians will feel empowered to seek counsel from a financial advisor and develop a strategic financial plan to help achieve their goals,” Co-operators said in a press release.
Conducted in January 2021, “Canadian Attitudes on RRSPs” was designed to examine the state of RRSPs, TFSAs and retirement planning strategies that Canadians are using to secure their financial futures – all from the perspective of industry professionals with their ears to the ground across the country.
Consumer confusion appears to be rampant when it comes to understanding the different roles of RRSPs and TFSAs. 90 per cent of financial professionals believe most Canadians” have a lot of confusion” about those two key retirement savings vehicles.
This is reflected in similar confusion about Saving versus Investing: 70 per cent say they see Canadians declining in their ability to differentiate between saving and investing.
The study also sees what it calls “unleveraged opportunities”: 93 per cent think the majority of Canadians haven’t yet maximized their opportunities with RRSP planning, TFSAs, and other programs.
A majority (85%) of industry pros attribute the influence of today’s “culture of now” as hindering people from seeing retirement planning as a priority.
The venerable Registered Retirement Savings Plan (RRSP) also seems to be suffering from the challenge of an “old school image”: 57 per cent say too many Canadians today see RRSPs as “an investing tool of the past” that is no longer as attractive today.
Adding to the angst is the continuing decline of availability of Defined Pension [DB] plans offered by employers: 85 per cent think defined benefit pension plans are going extinct. They too are viewed as a thing of the past: something Canadians don’t expect to have when they retire.
No surprise then that Early Retirement is largely regarded as a myth: 92 per cent of advisors believe that because most Canadians aren’t saving enough for retirement, concepts like “early retirement” are becoming more elusive.
What’s holding Canadians back
When it comes to identifying the causes for Canadians holding back on retirement saving, the survey found financial losses generally contribute to indecision: 80 per cent of advisors say when Canadians experience financial mishaps or losses, many become overcome with doubt, which then leads to indecision and in-action. In addition, 73 per cent see a stigma of shame among many Canadians around financial mishaps or losses.
Just the fact they feel they are not saving added to their stress: 80 per cent see many Canadians feeling paralyzed from the stress of not having enough savings to meet their long-term needs. And many also feel pressure to be perceived as “financially in-the-know.” 65 per cent think there is social pressure among Canadians to appear “financially savvy.” Continue Reading…
It’s not easy, it will likely take more work, but you can retire early on a lower income.
Following a few early retirement case studies posted and linked to on my site in recent months, I got a few great email replies from readers. I’ve captured a couple of their comments below verbatim:
“Mark, let’s be honest. Not every 30-something has a 6-figure job like your Kingston engineer here.”
“Mark, can you link to that post on your site where the 60-year-old wants to retire on a lower income? That seems far more representative for many Canadians.”
A lot of people like the idea of early retirement but facing facts, few folks have the means to pull it off.
You can only comparison-shop so much. You might not have the time to take on side-hustles. You tried to save as early as possible, as often as possible, but life got in the way.
I’ve argued people really don’t need any more financial advice. There are 80,000 books saying the same things.
But people do appreciate good coaching when they see it and feel it. People tend to appreciate the lessons learned shared by others – to tailor their own path. They genuinely want to be better over time.
At least my readership feels that way … which is very inspirational …
So, for today’s post, I thought I would act on one reader’s email to me in particular and highlight how she can still retire, maybe not earlier than most, but retire all the same without some of the financial stressors she is feeling today.
How to retire on a lower income – case study
Read on for information below from a reader I’ll call “Kat” for privacy reasons, and where I’ve changed some of the information to be tailored for our case study:
Hi Mark,
First off, love, love, love your blog and look forward to reading your weekend roundups every Saturday.
You mentioned that you will be featuring a case study of a millennial couple soon and wondered if you are in the need of any more case studies?
I feel my situation is dire and I would love to hear your feedback (I know you can’t give direct advice) on what I could do better for me…
Quick background – I’m 43, separated, 2 kids (one is 19 and in university now, the other is 14). I work full-time making less than $45,000 per year. I’ve had financial issues in the past. I have around $30,000 invested, in mostly my RRSP. I am way behind at my age (for retirement planning). I don’t have a lot of disposable income, so I’m trying to put aside $300/month now.
I have lots of questions for you but thoughts on the best route for me (meaning, TFSA over RRSP I have now?). What can I do with my $300 per month? What might that give me in terms of the next 25 years of saving and investing? Could I retire at age 65 or 67?
I currently have ETFs in the Canadian versions of S&P (VFV), international (VEE) and high dividend XEI. I am torn with sticking with this route of buying ETFs or also diversifying to include Canadian stocks with good dividends. I have a few of these stocks already, but not much.
I was thinking that if I don’t have a larger enough amount to live off at retirement, at least if I could have a small dividend income stream (say $5,000 would be ideal), that will help me bump up my monthly income with my OAS and CPP payments …
So, some questions:
At my current income level, say $42,000 per year, saving $300 per month, is it better to focus on building up ETFs and get as much growth as possible? Or, do half and half (50% ETFs and 50% stocks)?
What income might I be able to expect at ages 65-67, in addition to my OAS and CPP? I know I won’t retire with a million dollars, but trying to figure out what that might be – assuming growth or dividends or both helps.
Please let me know if you are interested in doing a case study! I’m not sure how many of your readers are in similar positions to me …
Thanks so much for your amazing blog and all your articles. I read them constantly and have them bookmarked!
Signed,
Kat.
How to retire on a lower income – results
Kat, happy to run some inputs and assumptions for you. Here’s what the projections say and assume since so much can change over the coming decades. On that note, we encourage you to annually monitor your progress to any personal plans!
1. Salary – we have assumed that you will maintain your employment role, for the coming years, with salary increases aligned with inflation at about 2%.
2. Investing – given your salary, and because we also believe in tax-free investing (i.e., using the TFSA for wealth building), we have assumed you will contribute at least $300 per month on average inside this account; contributions will increase over time aligned to inflation (2%) per year, and finally because you have a few decades to invest, you will be in mostly equities (instead of bonds) and earn annualized 6.5% over the coming decades.
3. Government benefits – assuming you will continue to work, and therefore contribute to Canada Pension Plan (CPP), we have assumed it might make sense to delay these CPP benefits until age 70. We leveraged your desired, latest retirement age date of 67 to start taking Old Age Security (OAS) – so that’s when that income stream will kick-in.
The math says you can essentially continue your current after-tax spending in retirement Kat!
The other good news is, we see your taxation in retirement being sustained quite low while you draw down tax efficient income from primarily your TFSA starting at age 67. Continue Reading…
Posted By 
Despite Valentines Day being right around the corner, Canadians appear to be more optimistic about their financial futures than their love lives, according to a survey released Wednesday. Here is the press release.
Posted By 
These articles are click baits. They are there to get the average Joes and Janes to click on them, read, and feel more miserable about their lives.
