Tag Archives: Financial Independence

Millennials want to FIRE at age 50

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By Mark Seed, MyOwnAdvisor

Special to the Financial Independence Hub

Whether you agree with the FIRE (Financial Independence, Retire Early) movement or not – it’s a big thing.

Personally, I’m a huge believer in clear goals. If FIRE at age 50 is your goal, go for it.

Goals can be positive, purposeful and motivating. I think goals are great because they force you into choices.

Pursuing financial Independence is a choice.

That said, I’ve learned to let go a bit. Spend a bit. Relax a bit. Enjoy things just a bit more. 

In case you missed it, some people can work too hard, too long and save too much for retirement.

Make FI a goal but not life’s final destination

I make financial goals like these every year to help me/us stay focused on our choices.

Whether you are in your 20s, 30s, 40s or 50s aspiring for some form of earlier retirement than most – if that’s your choice – just consider what you’ll do with your time when you get there. FI is a great goal, just don’t make it a final destination.

Millennial FIRE at age 50 case study

I’ve been fortunate to receive emails from dozens, if not hundreds of readers in recent years asking me what it takes to build a 7-figure portfolio, can I retire with X amount of money, and what would a world of living off dividends and distributions could be like.

Well, I will tell you my goal to live off dividends and distributions remains alive and well!

I will continue to answer those questions from readers as much as possible – so keep them coming.

But given those questions, I figured I’d share yet another case study for a reader/lurker on my site.

Before we get to that new case study, a reminder you can check out these previous posts about folks striving to retire or semi-retire earlier than most AND what that takes:

Here is one proven path to retirement ignoring any 4% rule.

Karla and Toby are 54 and 56. Can they retire soon with $1.2 million in the bank and no company pensions?

Mike and Julie want to spend $50,000 per year in retirement starting in their 50s…how much do they need?

This 50-something couple wants to FIRE at 52. How much can they spend?

Millennials want to FIRE at age 50 – can they do it?

A reader of the site emailed me to discuss their early retirement dreams. Let’s look at their case study and find out what it takes to FIRE at age 50.

Here is their profile and what they told me:

  • Judy (F), and Shane (M), aged 35.
  • Judy is currently pregnant, and they are expecting their first child later this year.
  • They live in Kingston, ON.
  • They both work full-time for now.

“Mark, can we FIRE at 50?” If so, “what will our assets look like at age 50 assuming we try and max out contributions to our TFSAs at minimum every single year?”

To help answer these questions, I once again enlisted some help. Welcome back Owen Winkelmolen (no affiliation) who is a fee-for-service financial planner (QAFP) and founder of PlanEasy.ca. Owen specializes in budgeting, cashflow, taxes & benefits, and retirement planning – working with both individuals and young families to help them with comprehensive financial plans from today to age 100.

Owen, thoughts for Judy and Shane?

Thanks Mark and glad to be back on your site. I love these case studies!

First, before we share the results, let’s provide some inputs and background data for context. Based on their information to you, we’ve included this information below in their projections with some assumptions as well:

  • Judy works full-time, for now, making a solid $95,000 per year as engineer with performance bonus opportunities at work of up to 15% (although the latter is never expected).
  • Shane is an HVAC mechanic making up to $80,000 per year.
  • They have a sizeable mortgage: $350,000. They hope to have it paid off in 10 years and as of now, with a child on the way, they have no plans to move.
  • For the most part, they’ve been quite smart – owning both cars/vehicles. They plan to replace Shane’s truck in another 5-7 years so they have established a “car fund”. They have $15,000 saved up already!
  • They’ve read your site Mark (about your emergency fund and have gone well beyond that with a child on the way) and keep about $25,000 in cash as an emergency fund. 

Mark to Owen: we did it – why we have an emergency fund.

  • They’ve worked hard and investing wisely. Mark told me they have about $100,000 invested inside each of their TFSAs – contributions are now maxed out since they’ve been contributing to their TFSAs since account inception.
  • RRSPs are not yet maxed out – there is only so much money to go around. Judy has an RRSP value of $110,000; Shane about $90,000.
  • They have also told Mark they intend to start contributing to a Registered Education Savings Plan (RESP) in the coming years for their child.
  • Neither Judy nor Shane have any workplace pension.

We’re going to make a few assumptions based on the information they also provided:

  • That their home has a value of $500,000 now and they will pay off the mortgage as planned as best they can.
  • Their interest rate is about 2.3%, with payments estimated to be about $2,200 per month.
  • They have no other debt – no credit cards, nothing.
  • We’re not sure if they plan to have other children so we won’t make any assumptions there!
  • We’ll also assume Judy sticks to her plan and stays at home for a bit but will return to work/work form home after about 6 months have passed. Shane also wants to be at home a bit. For daycare, they are lucky, they told Mark they have some help!

Owen: here is what the FIRE at 50 math says!

Judy and Shane have done an excellent job setting themselves up for financial independence and early retirement. Their plan is very robust and includes lots of flexibility. That flexibility will allow them to choose to spend more in the future and find a better balance between saving and spending or retire earlier than they planned. Continue Reading…

Was the F.I.R.E. movement doused by the pandemic?

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Cutthecrapinvesting: Image by Mohamed Hassan via Pixabay

By Dale Roberts

Special to the Financial Independence Hub

F.I.R.E is an acronym for Financial Independence Retire Early. It is a very popular movement that gets a lot of attention in the blogosphere and on social media. The idea is to eat excess amounts of ramen noodles, squeeze your budget until it squeals, save 90% of your income, invest like crazy in an all-stock portfolio, and then never work another day of your life after the age of 38. I’m kidding, please don’t “OK Boomer” me.

In reality, most from the F.I.R.E. movement will not “retire” early, but many may reach a wonderful form of financial independence. In 2020, was the F.I.R.E. movement doused by the pandemic?

2020 brought us a very quick and violent stock market correction. It was the most violent in history, but so was the recovery as governments and central banks came to the rescue of stock and bond markets. Looking back it feels like a blip. But in the moment it was more than scary, considering that we did not know the path of destruction that SARS-coV-2 might leave behind.

We still don’t know.

Did the F.I.R.E movement change course?

From what I read from my F.I.R.E friends (they’ll say I’m being rather presumptuous with the use of that friends description), they embraced the volatility. After all, volatility is not risk, if you can handle that risk, and you have an incredibly long time horizon. Volatility and falling stock prices are an opportunity, whether you are seeking to build that growing dividend stream or plan to one day also harvest shares to create retirement income.

In March of 2020 I asked …

Is this an incredible investment opportunity or what?

In the Globe and Mail, Brenda Bouw offered how F.I.R.E investors are managing through the pandemic. (Sorry that is paywall, but I’ll give you the important deets). That is a great piece with some good commentary, especially from advice-only planner Jason Heath.

The F.I.R.E. traps

F.I.R.E. followers need to be extra vigilant as their nest eggs need to last decades longer than those who retire in their 60s and 70s. There is the perception that the F.I.R.E. gang have less risk, because they are young. In fact the opposite is true. From Jason …

“You may need to over-save and underspend longer than you might think when you’re pursuing the F.I.R.E. movement,” says Jason Heath, an advice- and fee-only certified financial planner at Objective Financial Partners Inc. in Markham, Ont. “When you’re retiring at age 40 versus age 65, there’s so much more margin for error.”

Jason also pointed out that funds can quickly disappear because of costs associated with an extraordinary event, such as a serious injury or illness that requires long-term care or having a child with a disability.

“If you don’t budget for the unexpected, that could really compromise your early retirement plan,” he says.

Of course it is true that the F.I.R.E. folks may have the opportunity to go back to work if need be. But it’s also important to use the word “MAY.”  It’s not a given that health would permit the opportunity to work. There is no guarantee that meaningful work would be available. I hate to be a Dale Downer, but this is the reality that we should accept and recognize.

The good new is, they won’t actually “retire”

Nobody really retires early except for teachers and other public servants. So if you want to really retire early, you know where to apply for a job. You’ll need that guaranteed, defined benefit, indexed-to-inflation-for-life pension. And those may be hard to come by these days as governments are also doing the math on funding or backstopping those options.

Most will use that F.I. and ditch the R.E. And most will admit to that reality. They just want that freedom to do more of what they want in life with respect to leisure and travel and work. And that’s why I am a big fan of the movement. It is based on a wonderful end game (freedom) and it employs some more than important financial basics, behaviour and lessons.

You build wealth by living beneath your means. Here’s my personal finance book. OK, you may notice, it’s a blog post. Who needs a book? It all ain’t rocket surgery.

Everybody say FIWOOT!

Jonathan Chevreau calls it all Findependence. That’s perfect. Mark from My Own Advisor frames it nicely with his own acronym …

I prefer Financial Independence Work On Own Terms (FIWOOT) versus FIRE The Financial Independence Retire Early (FIRE).

Here’s Mark’s Weekend Reads.

Dance with the one that brought ya?

The greatest mistake within the community will likely be the commitment to an all-stock portfolio. There is that expression that you might ‘dance with the one that brought ya’. But that’s not the case when it comes to protecting your wealth and your F.I.R.E. Continue Reading…

Retiring at 50: How achievable is it?

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By Emily Roberts

For the Financial Independence Hub

Most of us dream about and count down the days until our retirement, picturing ourselves at the beach, enjoying a cocktail while laughing about the days we spent slogging away at the office. These thoughts can be what get some of us through the workday, and even if you love your job and could never picture doing anything else, retirement is still the end goal for all of us so that we can enjoy our later years in peace and tranquillity.

Yet some of us go one step further and think about early retirement. While this may seem like an unachievable dream for many, it can in fact become a reality if executed properly. Retiring at 50 isn’t impossible, but it isn’t easy, either. Typically, people will retire between 65 and 67. This can seem like an age if you dislike your job or simply wish to slow down.

If you are wondering how you could retire early but also the benefits of retiring all together, read the following guide. Not only will it explain the advantages of retirement, but it will also list of the best ways to increase your chances of an early retirement as well as the signs that you may not be ready to retire just yet.

Good reasons to retire

There are many good reasons to retire. For starters, you may be unable to complete your typical day-to-day duties at work as you age. This is especially true for those who work in a physically demanding role such as construction or mining. Your body will be unable to keep up with this labour-intensive work and you are more prone to injuries.

However, retirement is a time for you to slow down and enjoy life. Rather than worrying about getting up and making it to the office in time, you can live your life at your own leisurely pace. While this may seem odd at first, the time you usually spend at work is now yours to do with it as you wish. If you’ve always wanted to focus on your art, then retirement can be the perfect time for you to focus on this hobby and passion of yours. Furthermore, if you have a family, retirement can provide you with the free time to focus on reconnecting with your family (and friends!) and make long-lasting memories with them. This is especially valuable for those who have grandchildren.

Other benefits of retiring include being able to look after your mental and physical well-being. Having a career and being so focused on your job can cause you to forget about what is important: your health. We neglect healthy, balanced meals with those that are quick and typically full of saturated fats. We also lose track of time or are simply too tired to head to the gym even though working out consistently is essential. What’s more, some of us simply need to focus on our mental health more than others and heading to work and working specific hours can be harmful to our mental well-being.

Why Early Retirement can be beneficial

There are numerous benefits associated with retirement; however, there are even more linked to early retirement. For instance, when you retire early, you are able to focus on yourself and the hobbies you have longed to invest time in but was never able to before. With the free time and extra drive you have to spend on your hobbies, you could even consider turning your hobbies into a means of making extra money. For example, if you love to paint or draw, then you could always sell your artwork either online and through a website such as Etsy, or you can make a day of it and sell your work at a local market or yard sale. While you will want to have the mindset of this being a hobby that could potentially bring in some income, this can be a great way to bring you purpose while you’re retired. Continue Reading…

Valentines Day: Is it easier to find true love or achieve financial independence?

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According to Love and Money – a survey from TD exploring the financial behaviours of more than 3,000 married, in-a-relationship or divorced North Americans – half of Canadians surveyed (49%) believe it’s easier to find true love than financial success.

However, that’s not to say those Canadian couples surveyed aren’t feeling cautiously optimistic about their future financial goals.

Despite challenges from the pandemic, nearly nine in ten (88%) respondents are currently saving for something. For those already in committed relationships, the survey also reveals that for most couples (45%) it has been easy to talk about money during COVID-19.

Nearly half (49%) say the pandemic has led to more open and constructive conversations about their finances, including the need to adjust spending habits by reducing spending on non-essential items (62%) and delaying larger purchases (36%).

With Love and Money revealing that six out of ten (60%) couples surveyed are having trouble meeting their financial goals during the COVID pandemic, it’s clear that having conversations about money are critical. In fact, “not talking about money with my partner on a regular basis” is the top financial mistake noted amongst Canadian respondents.

Fortunately:

  • 77% of Canadian couples surveyed say they typically open up about their finances within the first year of their relationship: including 56% who get very candid within the first six months.
  • Among Canadian married couples and those in a committed relationship, 85% say they talk about money every month.

But even though it seems most Canadians aren’t shying away from the (financial) “talk,” the TD Love and Money survey also shows that some Canadian respondents may be more likely to ask for forgiveness than permission.

  • Among the 8% of who admit to keeping financial secrets from their partner, 62% don’t ever plan to disclose them. Canadian couples surveyed admit to hiding a secret bank account (29%) or significant credit-card debt (22%).
  • Only 53% of Canadian Millennials say they agree with their partner on what expenses constitute a ‘want’ or a ‘need’.
  • 81% of Millennials admit to making unreasonable financial decisions, and one quarter (25%) say excessive and frivolous spending was one of them.

Tying the knot: Insights from both sides of the border

As expected, walking down the aisle looks very different during the pandemic, as many North American couples deal with the impact of lockdowns, gathering restrictions and reduced income. Consequently, Love and Money reveals that of the engaged Canadian couples surveyed whose wedding planning was impacted by the pandemic, more than half (56%) either postponed or downsized their nuptials.

When it comes to the big day, the TD survey also shows:

  • 53% of Millennial respondents in Canada think it’s okay to take financial risks when planning a wedding, versus 63% in the U.S.
  • 46% of Canadian respondents say the couple should pay for all wedding expenses, versus 35% in the U.S.
  • 49% of married Canadian respondents spent less than $5,000 on their wedding and 31% spent between $5,000 and $15,000, versus 49% and 20% respectively in the U.S.
  • 14% of married and engaged Canadians and 11% of their U.S. counterparts did not buy an engagement ring nor see it as necessary.

Biggest concern is not being able to retire

In terms of financial worries, the TD Love and Money survey also reveals that the greatest financial concern among Canadians is the fear of not being able to retire. Despite this concern, only one third (32%) of Canadians say they meet with a financial advisor on an annual basis. Continue Reading…

Master your Mortgage for Financial Freedom

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By Michael J. Wiener

Special to the Financial Independence Hub

Many people have heard of the Smith Manoeuvre, which is a way to borrow against the equity in your home to invest and take a tax deduction for the interest on the borrowed money.

It was originally popularized by the late Fraser Smith, who passed away in September 2011.  Now his son, Robinson Smith, has written the book Master Your Mortgage for Financial Freedom, which covers the Smith Manoeuvre in detail for more modern times.  Smith Jr. explains the Manoeuvre and its subtleties well, but his characterization of its benefits is misleading in places.

The Smith Manoeuvre

In Canada, you can only deduct interest payments on your taxes if you invest the borrowed money in a way that has a reasonable expectation of earning income.  Buying a house does not have the expectation of earning income, so you can’t deduct the interest portion of your mortgage payments.

However, if you have enough equity in your home that a lender is willing to let you borrow more money, you could invest this borrowed money in a non-registered account and deduct the interest on this new loan on your income taxes (as long as you follow CRA’s rules carefully).  A common mistake would be to spend some of the invested money or spend some of the borrowed money.  If you do this, then some of the money you borrowed is no longer borrowed for the purpose of investing to earn income.  So, you would lose some of your tax deduction.

With each mortgage payment, you pay down some of the principal of your mortgage, and assuming the lender was happy with your original mortgage size, you can re-borrow the equity you just paid down for the purpose of investing and deducting any interest on this new loan.  Some lenders offer mortgage products with two parts: the first is a standard mortgage, and the second is a line of credit (LOC) whose limit automatically adjusts so that the amount you still owe on your standard mortgage plus the LOC limit stays constant.  So, after each standard mortgage payment, your LOC limit goes up by the amount of mortgage principal you just paid, and you can re-borrow this amount to invest and deduct LOC interest on your taxes.  This is the Smith Manoeuvre.

Smith describes a number of ways of paying off your mortgage principal faster (that he calls “accelerators”) so that you can borrow against the new principal sooner and boost your tax deductions.

Compared to a Standard Mortgage Plan

Ordinarily, mortgagors pay off their mortgages slowly over many years.  Their risk of losing their home because of financial problems is highest initially when they owe the most.  This risk declines as the mortgage balance declines, and inflation reduces the effective debt size even further.

With the Smith Manoeuvre, the total amount you owe remains constant (declining mortgage balance plus LOC balance) or may even increase as your house value increases and your lender is willing to lend you more money against your house.  So, your risk level as a function of how much you owe doesn’t decline in the same way as it does with the standard mortgage plan.  You could argue that your financial risk does decline somewhat because you’ve got your invested savings to fall back on in hard times, but your risk certainly doesn’t decline as fast as it does with the standard plan.

Leveraged Investing

Smith likes to say that the Smith Manoeuvre isn’t a leveraged investment plan.  He justifies this assertion by saying that you’ve already borrowed to buy your home, and you’re now slowly converting this mortgage that isn’t tax deductible to an LOC debt that is tax deductible. Continue Reading…