A good portion of my financial planning clients are in what I’d call the retirement readiness zone, meaning they are 1-5 years away from retirement. They want a check-up on their financial situation and answers to big burning questions like, when can I retire, how much money can I spend, how long will my money last, and how to withdraw from my savings and investments to create the retirement income I need.
Here is a checklist of things to consider when you find yourself in the retirement readiness zone:
How much do I spend?
I get that many people are turned off by budgeting and tracking expenses, but it’s important to understand what it costs to live your life.
Instead of relying on rules of thumb, like you’ll spend 70% of your final salary in retirement, I find that most of my clients want to maintain their current standard of living, if not enhance it with additional spending on travel and hobbies.
Determine your true after-tax spending, including items like property taxes and home & auto insurance that will be with you for life. Add in your desired annual spending on travel and hobbies, and build in a buffer for small unplanned expenses such as replacing an appliance or doing modest home improvements or repairs.
This spending amount is what will drive the decisions around how much to withdraw from your investments, when to take CPP & OAS, and how long your money will last at that spending rate.
Plan your one-time expenses
Besides your regular after-tax spending, you should also factor one-time expenses into your plan. In my experience, the majority of these expenses will include vehicle replacement, travel beyond the ordinary (ex. bucket list trip to Europe), home renovations, and monetary gifts to adult children or grandchildren.
It’s not practical to assume your spending will stay static every single year. Build these one-time expenses into your plan over the next 10-20 years so you have a better and more realistic understanding of what you can afford and how to access these funds.
What you’ll find is that instead of static spending of, say, $65,000 per year, you’ll have several years of spending $75,000 to $85,000 (or more) to cover these one-time costs.
Estate planning
Make sure to update your will and estate planning documents, including the beneficiaries on your insurance and investment accounts.
Consider giving with a warm hand (otherwise known as give while you live) to your children or favourite charity. What I mean is rather than leaving hundreds of thousands, or even millions, in your estate at 90 years old, consider making smaller gifts to your beneficiaries throughout your lifetime.
Some examples include a gift towards a downpayment, help funding the grandkids’ RESPs, and footing the bill for a family vacation with adult kids and grandkids.
In case I die file
It’s common for one spouse to take the lead on financial matters for the household. But this can be problematic if something happens to the chief financial officer of the house – if they predecease their spouse or become cognitively impaired and can no longer manage the finances or investments. Continue Reading…
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…
The fed won. I admit defeat. My point is that what just transpired was merely the most recent bout. Circumstances were extenuating. I demand a rematch. As soon as things begin to normalize, I absolutely believe I will win. To provide a bit of context for how I feel now, here’s a groovy little two-minute ditty from the Bobby Fuller Four to help channel the vibe…
One of the oldest adages in finance is “Don’t fight the fed.” In Canada, that translates into “Don’t fight the Bank of Canada.” That, in a nutshell is what I did. I brought a knife to a gun fight and I lost. Here’s why I lost that figh t… and why I absolutely expect to win the next one:
I took the position that markets (and especially the U.S. market) were expensive in early 2020. Sure enough, markets tumbled a month or two later – not because of fundamentals or valuations, but because of a global pandemic that no one saw coming. For five weeks starting in February, it looked very much like I had been vindicated. I suppose I could have taken credit for being prescient, but in fact, I was merely at the right place and the right time. By mid-March 2020, I was feeling pretty good about my call.
Then it happened. Central banks mercifully came riding to the rescue. It was the right thing to do when viewed through many lenses, including public health, economic stability, and small business viability. They did so with such fury and determination that no one had ever seen anything like it before. Interest rates were slashed to effectively zero. Governments of all political stripes around the western world took advantage of their newfound monetary cover and started sending cheques to what seemed like anyone who could fog a mirror. Before the end of March, markets hit a bottom and began an upward march. A massive bull market was unleashed.
I don’t honestly think anyone could have foreseen what ensued. There was certainly no precedent for markets dropping violently and then recovering equally quickly. To have expected that outcome would be to have expected something that had no antecedent in all of history anywhere on earth.
For nearly 23 months now, interest rates have remained at effectively zero. Pretty much everyone expects that to change in March. If lowering rates is like giving Popeye can of spinach, raising them is like giving Superman a bag full of kryptonite. Forgive many the pop culture references in this post, but I find it helps to make things accessible and vivid. Basically, the artificial party that has gone on for nearly two years and has given almost everyone a false sense of confidence is going to end. Soon. Badly. I’ll eat my hat if I’m wrong. 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…
The “investing world” can seem like a challenging mountain to climb if you are just getting started. The “investing world” itself isn’t a practical term for what should instead be thought of as an interdependent system of markets tied to the valuation of assets.
The tremendous scope of this investing world can push people away from sinking their teeth in and learning about how this exciting and lucrative system works. I could never hope to explain something as complicated and broad as the “investment world” in a single post, so instead, I will focus on a very specific investment market – that of commercial real estate investing – and how you can start your journey as an investor.
Most people cannot afford to be Full-Time Investors
Unless, of course, that is their full-time job. Without the help of crowdfunding real estate investment platforms, real estate private equity firms, or real estate investment trusts (REITs), most retail investors would lack the capital, resources, and time to manage real estate properties effectively.
However, retail investors can pool their capital in a number of ways to add commercial real estate into their portfolios and benefit from the growth of the commercial real estate market.
So, let’s have a look at some of the options:
Crowdfunding Commercial Real Estate Platforms
In the early 2010s, the rise of investing platforms such as Robinhood and Fundrise opened investment markets to millions of new and eager retail investors. With these new investment apps, the average person could now invest in markets previously only available to people who had private brokerage accounts or professional investors who could meet the often high investment minimums.
So, what are some of the investment platforms available to retail investors?
Fundrise
Founded in 2012, Fundrise was one of the first crowdfunded investment platforms. It is currently unavailable in Canada but is open to US residents (don’t worry, there are plenty of options for Canadians, too – see below). Users of Fundrise do not need to be accredited investors to open up an account, but Fundrise does offer accounts exclusive to accredited investors.
Fundrise has several investment tiers, and the least expensive tier starts at 10 dollars, meaning practically anyone can start investing. Investor capital is spread out among many REITs or real estate investment trusts. REITs are a type of mutual fund that takes the investment capital they receive and manages various high-value real estate properties.
Fundrise investors receive a percentage of the profits made by the REITs. Depending on the type of investment account, users saw an average ROI of between 7.31% and 16.11% over five years.
What are some comparable crowdfunding real estate platforms available in Canada?
NexusCrowd
NexusCrowd was founded in 2015 and was Canada’s first online investment platform that allowed accredited investors to team up with institutional investors to invest in real estate.
A benefit of NexusCrowd is that it heavily vets its investment opportunities. It only invests in projects that are at least 50% funded by other investors. If the investment project fails to meet its fundraising goal, NexusCrowd reimburses investors. Continue Reading…
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A good portion of my financial planning clients are in what I’d call the retirement readiness zone, meaning they are 1-5 years away from retirement. They want a check-up on their financial situation and answers to big burning questions like, when can I retire, how much money can I spend, how long will my money last, and how to withdraw from my savings and investments to create the retirement income I need.
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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.
