So you’re retired — now what? Many would say congratulations, but it doesn’t end here.
Actually, this period is the beginning of another phase of your life, and it can be as exciting as anything else you’ve done in the past. How you choose to spend your time once you no longer need the income from an ordinary job is something you seriously need to consider. Sitting around to reward yourself for work well done might be appealing at first, but once the novelty of retirement wears off, you may find yourself itching for something more gratifying. This is where the real payoffs of life come from.
When our lives are filled with work-related challenges, household duties, or health and family needs, we often have tunnel vision. Barely are there moments for conversation, and people can blur through our lives without much fanfare. We’re running on the treadmill, catching up with the TV news, and talking on the cell phone simultaneously. Hobbies take a back seat, sometimes for years. There is no down time.
The pace of retirement is less rigid. This fresh approach toward life allows us simply to sit quietly in a park or relax, leisurely having a latte in the newest coffee shop. We flip through a weekly event newspaper and notice a whole landscape of attractive options for self-expression. Discovering that there is no adequate recycling program for our town, we resolve to start one. The local school needs a drama coach, the city’s garden club wants a speaker, or the animal rescue facility is looking for a volunteer twice a week. We check our personal planner, and for the first moment in years, there’s room on our calendar.
We find this fact thrilling, and one thing leads to another.
If you are at all computer-savvy, you could help people become familiar with how to operate a computer, tablet or phone. This is a life-changing skill to those afraid of moving into the cyber world. You could coach Little League teams and discover the power and influence of service, or learn to paint on canvas and auction your work for your favorite charity.
Once you no longer need a job to pay your bills, opportunities to contribute or make extra cash will appear where you never saw them before. For instance, we’ve traded our skills as former restaurant owners to help open a Four Seasons Resort Hotel in the Caribbean Islands in exchange for dinners in their exclusive restaurant. Management then asked us to use our expertise to critique the meals and service, helping the management to prepare for soon-to-arrive tourists.
While in Mexico, as in the style of the Peace Corps, we taught the owners of a neighborhood photography shop how to make and market photos into note cards. The many travelers who visited the area eagerly bought these up, creating a side business and generating much-needed income for this local family. Continue Reading…
The Financial Independence, Retire Early [FIRE] movement has gained awareness and popularity. It’s commonly believed that to achieve this highly-sought-after goal, young adults must live an immensely frugal life, guided by constraints and a “suffer now, enjoy later” mentality that results in the restriction of leisure like traveling. However, maintaining Financial Independence while traveling is entirely possible with a proper strategy.
The Perceived Conflict of Financial Independence vs. Travel
Findependence Hub CFO Jon Chevreau and his wife Ruth avoided some of Canada’s harsh winter by living (and doing a little work) in Malta. Here are the island’s famed colourful boats.
People often feel that travelling can drain budgets and delay retirement. This mindset comes from the perception that travel entails expensive hotels, premium flights and fancy dinners. Instead, try viewing travel as an investment in your well-being and growth.
As enjoyable as exploring new locations and sightseeing are, the heart of travelling is much deeper. Stimulating the brain in new ways can release chemicals like serotonin, lower cortisol levels and improve cognitive thinking skills.
Traveling offers opportunities to broaden perspectives and engage in self-discovery, which is far more valuable than a weekend at a 5-star hotel. By aligning your travels with core financial values, it becomes sustainable and a solid return on investment.
Strategies for Reducing Travel Expenses
Cutting down on travel costs starts with budgeting. Before you even board a flight, you should have decided how much you’re willing to spend on your trip, which is something that differs from person to person based on personal goals and circumstances. Establishing a strict daily budget provides the data required to adjust spending patterns in real time.
Jon & Ruth spent February in this AirBnB in Malta. Rates are lower when you commit to a whole month. Save more eating in with a fully equipped kitchen.
Implementing discipline in your travel spending prevents minor costs from eroding an investment portfolio over the long term. Primary strategies for minimizing the three largest travel expenses include:
Alternative accommodations: Choosing alternative lodging accommodations has become a popular way of reducing traveling costs. Notable options are house sitting, pet sitting and hostels. Alternatively, volunteering opportunities often provide free accommodation.
Off-season transit: Booking flights and transit during the off-season is a great way to reduce costs without compromising the quality of the experience. Booking flights months in advance often results in lower
Local logistics: Prioritize local transit systems and walking over private rentals or ride-sharing services.
Generating Income while Travelling
Building capital, whether actively or passively, is another great way to achieve Financial Independence while travelling. An increasingly popular option is through professional mobility or remote work. Individuals in fields like software development, design and consulting can continue to work and maintain consistent earnings regardless of location.
Jon Chevreau doing a little work over lunch in Rome last week, taking advantage of a restaurant’s free wi-fi to promote the site’s latest blog.
In addition to having a location-independent business, finding passive income streams is a great way to earn while traveling. In today’s digital age, people can start an e-commerce business on their phones, enabling them to be anywhere in the world and still maintain a steady flow of capital.
For those who aren’t entrepreneurial, investing to generate passive income is a great alternative. Even if you don’t have a finance degree, there are plenty of resources online regarding simple and safe long-term investing strategies. These could include ETFs, dividends or real estate.
Being a digital nomad has become a highly desirable aim for many professionals in the modern age. The key to this approach succeeding is finding a way to balance fun and productivity while traveling, and setting the right boundaries where necessary.
Achieving Financial Independence while Travelling
Balancing financial freedom with travel is a matter of strategic design rather than sacrifice. The key to achieving longevity is letting go of extremes, finding balance in long-term health planning and collecting life experiences. By prioritizing mindful choices, it is possible to build a life of liberty that begins today, not in a few decades.
Devin Partida is the Editor-in-Chief of ReHack.com, and a personal finance writer. Though she is interested in all kinds of topics, she has steadily increased her knowledge of the intersection of finance and technology. Devin’s work has been featured on Entrepreneur, Due and Nasdaq.
The investment playbook has changed. It may have performed well for the last several generations, but finding financial stability is a different game in the 2020s. The best practices established by your grandparents have become obsolete. Therefore, you should look to new financial horizons to establish financial freedom in a way that is more accommodating to modern dynamism and volatility.
How traditional Investment Strategies fail to adapt
The contemporary investing landscape is different from that of the last several decades. The techniques of previous generations are less viable. While you may ask your parents or grandparents for investing advice, their strategies could minimize your wealth generation and financial opportunities.
Most of your grandparents likely maintained a portfolio that followed a simple framework: the 60/40 rule. Place 60% of your money in reliable stocks or index funds and the rest in high-interest-rate bonds. Today, this is far from the portfolio diversity modern experts want to see. These kinds of portfolios are only growing 2.2% a year now, so professionals are recommending even more varied investments, including precious metals, collectibles, venture capital and private equity, to name a few.
Past portfolios worked alongside robust pensions that were once common in the workforce. It is less common now for this type of security to supplement a 60/40 portfolio. These factors, combined with lengthening lifespans, mean nest eggs are ill-equipped to make it through potential market downturns and the entire length of your retirement. If you are living in retirement longer than previous generations, then the money has to work for you longer.
Why Economic Shifts demand a different Investment Approach
Interest rates have collapsed, and bond prices are mostly trending less than in previous decades, making them unsuitable for outpacing inflation. This reality is why people are seeking even more places to put their money.
The democratization of investments, such as the rise of cryptocurrencies, has also made market understanding more complex. Pair this with exchange-traded funds (ETFs), real estate investment trusts, non-fungible tokens and more, and you have the most enigmatic market history has ever seen: long gone are the days of just relying on blue-chip stocks.
Additionally, retirement savings have become more of a personal responsibility as the number of pension plans has decreased by millions since 1975. An IRA or a 401(k) is the more common route nowadays, as they are cheaper and less risky for employers. Now, many could view their investments as a replacement for what could have been a pension.
Ultimately, the set-it-and-forget-it model of your grandparents’ investment strategies is missing the wealth-generating opportunities you need to prepare for retirement in this climate. The rising cost of living, the financial influence of technological advancements and geopolitical tensions are only a few other factors that could shape how you divert your money.
Ways to Adapt to increase Risk Tolerance and Wealth
You can diversify while still embracing security. It will allow you to prepare for the unexpected. For example, your grandparents’ generation likely faced fewer natural disasters, as climate stressors have increased in recent years. In 2024, natural disasters caused at least $368 billion in economic damage worldwide, affecting people and their financial well-being.
These are the best ways to consider external factors outside of your control while taking advantage of how the investor market looks today.
Craft your Investment Goals
Many choose to work with a financial adviser, but you should start planning by identifying short-, medium- and long-term goals. These could involve buying a house, starting a business or building for retirement. Each goal has a time frame, allowing you to make informed decisions about your risk. At this stage, evaluating the stability of your job, debt and household expenses is critical. Continue Reading…
I started DIY investing while I was in university. Back then, I bought a few stocks based purely on recommendations. Honestly, I didn’t have a clue what I was doing. I didn’t know much about stock valuation, how to read quarterly and annual reports, or understand company fundamentals.
Since our financial epiphany, I have become far more knowledgeable about investing. Writing about investing and posting new articles on this blog is one way for me to demonstrate that I understand different investing concepts.
After 25 years of investing, here are 10 important lessons I have learned:
1.) Increase the savings gap
Investing is all about saving money, investing that money, and waiting for it to grow.
To save money, one needs to commit to saving money. Living below your means or spending less than you earn is a common concept in the Financial Independence Retire Early (FIRE) movement. But I believe it’s more than just spending less than you earn. It’s about committing to continue increasing your earning power (i.e. income) while decreasing or maintaining your spending.
The difference between your income and spending is what I call the savings gap, or some people call it the savings rate. The bigger the savings gap, the more money you can save and invest toward your investment portfolio.
When you are starting on your investment journey, you really need to rely on injecting fresh capital into your investment portfolio for it to grow. The compounding effect won’t really pick up until your investment portfolio becomes sizable (say $100k or more). This is like rolling a snowball down the hill. If you start with a tiny snowball, it will take longer to increase the size and the speed of the snowball. If you start with a bigger snowball and can add more snow to the snowball as it rolls down the hill, you can increase the size and speed faster.
So increasing your savings gap will drastically propel the growth of your investment portfolio. Work hard on increasing the savings gap without depriving yourself.
2.) Learn to automate
Over the years, I have learned that the less I get myself in the way of our saving & investing journey, the better. Therefore, I focus on automating as many things as possible.
Whenever we receive a paycheque, a certain percentage is automatically moved to our financial freedom account and it is used for investing. We also automate how much money is moved to the different investment accounts each month.
To take advantage of the power of compounding, we enroll in both synthetic and fractional drips with our online brokers so dividends are reinvested and additional shares are purchased automatically.
Some investors I know automate the buying and rebalancing process as well. For example, they would auto-purchase ETFs or stocks every second week or every month. Some use Passiv to auto-rebalance their portfolio until the desired allocation is met (note: we don’t auto purchase or auto rebalance but it’s a worthwhile automation).
3.) Ignore the noise
Nowadays, it’s easy to find news and stock analysis on the internet. Doomsday predictions are everywhere, so it’s easy to react and sell your investment on emotion. Similarly, you can get sucked into hype and fads easily and invest a significant amount of money when you get excited about an idea.
More than ever, it’s important to ignore the noise.
Remember, the stock market is like a roller coaster. It has its ups and its downs. Please do not freak out about the recent pops or drops. We can’t control the market, so why pay attention to all the noise and react to emotion or feeling stressed out about the news? The market is cyclical, bull markets come and go, so do bear markets. There are always ups and there are always downs, too. There’s no other way around it.
The key thing to remember is that the stock market has a tendency to go up over the long term. In fact, a historical long term return is 10% without accounting for inflation.
So ignore the noise and focus on your long-term investing strategy.
4.) Keep it simple
I used to trade on technical and chart analysis. The moving averages, channel breakouts, support & resistance, seasonality, stochastic, and head and shoulders are some of the technical analysis tools I have learned and used over the years. When using these analytical tools to trade stocks, things can often get complicated and it could take time to decide whether to buy or sell. These technical analyses typically require regular monitoring of the stock market, which can be very time consuming.
Over time, I learned that it is best to keep it simple. The idea of hedging your consumption became one of the fundamental pillars of our investing strategy: invest in companies that produce products that we use daily. The harder it is to switch and replace that product, the better. Or the more we and others complain about the product, but find it nearly impossible to find an alternative, the better.
I also learned not to focus overly on the quarter-over-quarter performance. Rather than looking at the micro trends and quarterly performances, we keep it simple by focusing on the macro environment. Are people still buying new iPhones and finding it hard to switch to Android? Are more and more people using credit cards for purchasing rather than cash? Are people relying more and more on their phones and data plans for their everyday tasks?
While technical and chart analysis are still helpful, I learned it is far more important to focus on the simple things like company fundamentals, profitability and product pipelines to understand whether it makes sense to continue investing in the said stocks or not.
Another way to keep things even simpler would be investing in one of the all-in-one ETFs like XEQT or VEQT. This way, you don’t even need to do any research on the companies you own. You simply buy shares of these all-in-one ETFs regularly and dollar-cost-average over time.
5.) Having the right expectations
Unfortunately, many investors believe they can make big profits and multi-baggers in a very short term. They like excitement and if they don’t trade regularly, their hands get “itchy” from lack of action.
This is where having the right expectations is extremely important.
The reality is, investing should be as boring as it can be. There shouldn’t be any excitement at all. It takes years for a stock or an ETF to compound and provide a solid return. Therefore, it’s vital to have the right expectations. You probably aren’t going to get a +100% return every single year. Tracking the historical average, between 8-10%, is totally OK. But don’t forget that the market goes up and down, so you will have a bad year occasionally.
It’s challenging enough to figure out how much you’ll want to spend at the start of retirement. Even more challenging is deciding how your spending will change as you age. These choices make a big difference in how much money you’ll need to retire. They also shape the spending options you’ll have available throughout retirement. Here I explore the good and bad parts of common wisdom on retirement spending to arrive at my own spending plan for retirement.
Spoiler alert: the “go-go, slow-go, no-go” narrative is good marketing, but it has cracks.
Two extremes
Some people focus on the early part of their retirement. They want as much money as possible available early on while they’re still young enough to enjoy it. They seem to think of their older selves as a different person who they care less about than their current selves.
Others focus on their older selves and worry about running out of money at some point. These people usually spend far less than their portfolios allow, and they tend to be resistant to spreadsheet evidence that they’d be fine spending more. Some make frugality part of their value system, and others are genuinely fearful.
A rational retirement spending plan is somewhere between these two extremes. But where?
The default
Before retirement spending research over the past decade or so, the default was to assume that retiree spending would rise with inflation each year. In real (inflation-adjusted) terms, we assumed that retiree consumption would be flat over time.
This doesn’t mean that consumption would be flat in the transition from working to retirement, though. Many expenses go away in the typical retirement. Average retirees pay less income tax, have paid off their mortgages, spend less on children, and no longer have many work-related expenses like commuting and clothing. On the other hand, retirees often spend more on hobbies. Some retirees are exceptions, but retirement experts say typical retirees need 45-70% of their working income to have the same standard of living. But after retirement starts, we used to assume flat consumption over the years.
It’s tempting to think that having retirees’ spending rising with inflation would have them matching the spending increases of their younger neighbours. However, this isn’t true. Human progress causes our consumption to rise faster than inflation over the long term. Compared to a century ago, workers are far more efficient today, and they have a wide array of products and services available that people in the 1920s never dreamed of. Progress will continue, and with each passing decade, more amazing products will become available.
If you want to fully participate in our progressing economy, you would need to plan for annual retirement spending increases of about inflation+1%. It may be rational to decide you won’t need the latest iPhone or whatever amazing new product that will come along, but it’s important to realize that planning for flat consumption is already a compromise. If you were keeping up with your neighbours at the start of retirement, you would be falling behind a decade or so later.
Go-go, slow-go, no-go
Amazon.com
The idea that we should plan to spend less each year through most of retirement has some of the best marketing around. In his book, The Prosperous Retirement, Michael Stein referred to three general phases of retirement:
Go-go years: From 60-65 to 70-75. High activity and spending.
Slow-go years: From 70-75 to 80-85. Activity and spending decline.
No-go years: From 80-85 on. Minimal activity with healthcare and long-term care costs.
This framework is easy to embrace for anyone who is still a long way from the slow-go age. We’ve all seen old-timers who seem unable to do much, and more importantly, they seem very different from us. However, if you ask someone in their early 70s if they’re into their slow-go years, don’t expect a polite response.
Already, most descriptions of the three phases have the go-go years ending at 75 instead of 70-75. With so many baby boomers now in their 70s, it’s not surprising that they don’t like to see themselves as slow-go.
Setting these self-image issues aside, are these older boomers spending less than they did in their 60s? If they are spending less, some will be doing so by choice and some by necessity because they have limited savings. How significant is this group who overspent early? Do you really want to model your own retirement in part on this overspending group?
In the end this vivid narrative paints a compelling picture of someone (but not you!) slowing down and eventually stopping altogether, but it doesn’t prove anything about how you should plan your retirement.
The research
One of the early papers researching retirement spending patterns is David Blanchett’s 2014 paper Exploring the Retirement Consumption Puzzle. This paper along with many subsequent papers have established without a doubt that the average retiree’s inflation-adjusted spending declines in early retirement and increases late in retirement as health care and long-term care costs rise.
That seems to settle it, right? We should follow the research and plan for declining consumption through early retirement, and possibly plan for health spending and long-term care costs late in retirement. But there’s a disconnect. We know what average retirees do, but is this what they should have done?
The average Canadian smokes about two cigarettes per day. Does this mean we should all plan to smoke two cigarettes each day? Of course not. This average is brought up by the minority of Canadians who smoke. If we take the smokers, whose behaviour we don’t want to emulate, out of the data, the average drops to zero. In reality, the best plan is to not smoke at all.
Carrying this thinking over to retirement spending, we need to know how many retirees overspent early in retirement and now regret it. You don’t want to emulate these people. If we could remove these people from the data, the average spending from the remaining retirees might give a better picture of what you should do. In addition, we might want to remove retirees from the data if they badly underspent.
The retirement spending smile
The Blanchett paper refers to a “retirement spending smile” that is widely misunderstood. If we draw a chart of average retiree spending over time, it starts high, falls for a decade or two, and then rises again at the end of life. People refer to this chart shape as a smile. However, in Blanchett’s 2014 paper, the smile actually referred to a chart of changes in retiree spending.
So, Blanchett observed that retiree spending changes little in early retirement, then starts to decline and this decline grows in mid-retirement, then the decline slows or even reverses to spending increases late in life.
Here is a chart of Blanchett’s annual spending change data:
Notice that the points don’t really look much like a smile. The measure of how well a curve fits some data is called R-squared. Blanchett reports that his spending smile curve has about a 33% R-squared match with the data. This is a rather weak match, and is a sign that he didn’t have enough data. Another sign of too little data is the big changes over a short time. There is no obvious reason why the spending drop should be so much more at 80 than it was at 78.
What is important but unclear is how much of this data comes from overspenders and underspenders who you don’t want to emulate. Blanchett considers the question of whether retirees spend less “by choice or by need,” and admits that “it is impossible to entirely disentangle this effect.” To explore this question he divides the retiree spending data into four groups based on whether their spending is high or low and whether their net worth is high or low. He then studied each group separately. Continue Reading…
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