Tag Archives: Financial Independence

Financial Independence: While you’re still young enough to Enjoy it

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Image by: Averie Woodard on Unsplash

By Jordan McCaleb

Special to Financial Independence Hub

Financial Independence (aka Findependence) is a dream many hope to achieve, the freedom to live the life you’ve always dreamed of, pursuing passions or simply choosing to work on your own terms. While these are all great reasons, what about achieving this earlier?

This article will explore key investment strategies and asset allocations to accelerate your path to early financial freedom, including the role of precious metals investments.

Traditional Investments & their Limits

It’s important to acknowledge that traditional investments (stocks, bonds, mutual funds, and ETFs) will always be the building blocks when it comes to financial independence. 

However, when it comes to achieving Findependence earlier in life, traditional investments may have potential limitations and risks involved.

Potential Limitations and Risks:

  • Inflation: Inflation erodes the real value of your accumulated savings over time.
  • Market Volatility: Unpredictable swings and downturns can threaten your gains and potentially delay your FI (financial independence) timeline.
  • Economic Uncertainty: Geopolitical risks and unforeseen crises can increase risk and cause market corrections, impacting even the safest portfolio.

While traditional investments form a crucial base for any Findependence strategy, they may not be enough to achieve the resilience and growth required. Achieving financial independence early requires specific and powerful assets to drive your portfolio, providing a balance to your financial ecosystem.

Accelerating your FI Timeline: Beyond just Investing

Accelerating your Findependence timeline requires additional steps. A crucial part is increasing your savings rate, aiming for 50% to 75% of your income, creating a powerful snowball effect that reduces your time horizon. This pairs with increasing your income through career advancement, salary raises, or profitable side hustles.

Simultaneously, optimizing expenses and embracing a frugal lifestyle in areas like housing, transportation, and food can further boost investment growth over time. A key step is defining your (FI Number) typically 25 times your desired annual expenses ($50,000). This lifestyle-specific figure provides a clear target.

Diversifying for Resilience: Beyond the Basics

Beyond traditional investments and accelerating your timeline, diversification involves not just different stocks, but asset classes as well (equities, fixed income, real estate, and alternatives). Each behaves differently under various economic challenges. Diversifying across geographies and industries can protect against downturns in a market or sector.

A crucial concept to know is asset correlation: You want your assets to not run in the same direction. According to Stock Rover, this reduction in volatility can significantly impact overall returns. For example, a portfolio experiencing wild swings of +20% then -20% loses money, while reducing it to +10% then -10% swings leads to a healthier outcome. In essence, a low correlation portfolio better withstands economic turbulence.

Strategic Allocation: The Role of Precious Metals

When aiming for early Findependence, strategic alternative assets are crucial. Gold and silver stand out as a hedge against inflation and economic uncertainty due to their low correlation nature. Historical data from Investopedia reveals that while the S&P 500 dropped almost 10% (2007-2010) during the 2008 financial crisis, a 1971 gold investment significantly increased in value. Gold IRAs also offer tax advantages for those interested in physical metals. Continue Reading…

Simplifying Investing for Financial Independence

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By Billy and Akaisha Kaderli

RetireEarlyLifestyle.com

Special to Financial Independence Hub

Now that 2024 is in the books, I thought I would look back financially to where we started this adventure, from January of 1991. The chart below shows the ascent of the S&P 500 Index over our 34 years of retirement.

On our retirement date of January 14, 1991, the S&P 500 index closed at 312.49. It has recently closed over 6000, making over 8% annual gains plus a couple per cent counting dividends. Hard to imagine, right? With all of the market ups and downs, global turmoil, governments coming and going, businesses expanding and failing, and still producing a better than 10% annual return.

But is this really a one-off period and not the norm?

Using a calculator, we can see that the S&P 500 returns for the last 100 years, including dividends, is 10.660%.

 And recalculating for the last fifty years, total return is 11.411%. Clearly there is a trend here.

Does this mean that every year you invest you are going to have a 10% return? No!

But what it does tell us is that over longer time periods the return on your investment is handsomely rewarded.

However, if we look at the returns since the year 2000 they have been sub par at an annualized rate of just 7.817%.

And finally, since the financial crisis in 2009, the S&P 500 Index produced a total return of 14.934% including dividends.

Investing is not rocket science and does not need to be complicated.

Getting your house in order for retirement or financial independence is not that difficult. Many investment professionals, journalists, and commentators seem to complicate the issue to the point that even we can’t understand it. Safe withdrawal rates, stocks, bonds, balanced funds, commodities, options, laddered portfolios, annuities, offshore accounts, hedge funds, life insurance … are you kidding? No wonder some people are confused and scared!

What’s a person to do?

First, you need to recognize your needs. Let’s be realistic here. How much are you spending now? Not how much do you make a year, but how much are you paying out? With today’s computer online tools and spreadsheets, this is a very easy task to compute.

The longer you keep track of current consumption, the more confident you’ll become of your future spending habits.

Once you know your expenditures per year, take a look at where that money is going. If it’s to pay credit card bills or other consumer debt, you need to pay that off first. It’s fine to use credit cards as long as you completely pay off your balance monthly. And stay out of debt. I know this is not easy, but it’s your future, and the money you were paying in interest can now be invested.

With your debts paid off, you can commit to financial independence. Analysts say a guideline of 25 times your annual capital outlay should be enough to sustain your current lifestyle. With the data you’ve collected in your chart, you can easily calculate a target amount.

It’s really that simple. Continue Reading…

Approaching FIRE [Financial Independence, Retire Early] with a balanced mindset

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Image courtesy Tawcan/Unsplash

By Bob Lai, Tawcan

Special to Financial Independence Hub

I came across this article from The Globe and Mail the other day. The article profiled Jeremy Finney, who retired five years ago at age 41. Soon 46, he is dealing with regrets about early retirement.

According to the article, Jeremy worked at IT and used to push himself to the edge:  70-hour work weeks, back-to-back meetings, working 50 hours straight without sleep. His typical work week meant he was leaving home at 4 AM on Monday to fly to Chicago and returning home late Friday.

The work was so demanding that Jeremy couldn’t take time off around Christmas and from time to time, he had to work through statutory holidays. His job was so stressful that he believes it may have contributed to the breakdown of his first marriage.

That certainly doesn’t sound like a good work-life balance. From the article, my impression was that Jeremy was focusing on earning a high income, saving as much money as he could, and crossing the FIRE finish line as early as possible.  [FIRE is an acronym for Financial Independence, Retire Early.] Spending quality time with his family and having an identity outside of work simply weren’t a priority.

Since I work in high tech, I can relate to this high-pressure, high-demand situation. It’s not unusual for me to have multiple meetings back to back. Since I deal with people globally, it’s also not unusual to have meetings as early as 6 AM and meetings as late as 8 PM.

Sometimes, it can feel like I’m working constantly and the so-called work-life balance is simply not possible.

Three things I learned about work-life balance

Having said that, I have learned a few key things over the years to help me improve my work-life balance:

  1. Setting limits and boundaries. Block off early morning, lunchtime, and dinner time in my calendar.
  2. It’s OK to turn down meetings
  3. If possible, delegate the meeting to someone else

I’m not perfect, but I’m working on getting better at finding the right balance between work and life.

When it comes to FIRE, I think it’s important to approach it with a balanced mindset. The FIRE journey isn’t a sprint, it is a marathon. It takes years and years of planning, saving, investing, and dedication to achieve FIRE. If you approach it like a sprint, I believe you will burn out very quickly. Even if you end up achieving FIRE, you will regret it like Jeremy.

Some additional thoughts on the FIRE journey and approaching it with a balanced mindset: Continue Reading…

Retired Money: An online Canadian Retirement Club

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My latest MoneySense Retired Money column looks at a recently launched Retirement Club devoted to Canadians in or near the cusp of Retirement.

Primarily online, Retirement Club was launched by occasional MoneySense contributor Dale Roberts and a partner, Brent Schmidt. You can find the full MoneySense column by clicking on the highlighted headline:  Retirement planning advice for people who don’t use an advisor.

Roberts, who once was an advisor for Tangerine, is known for his Cutthecrapinvesting blog and in the U.S. for his contributions to Seeking Alpha. While I have no financial or business interest in the club I did become a member. There are regular Zoom calls where (mostly) recent retirees exchange views on topics like the 4% Rule, RRSP-to-RRIF conversions, ETFs, Asset Allocation in the age of Trump 2.0 and many of the topics this Retired Money column often attempts to tackle.

            You can find Roberts’ own announcement of the club – which charges an annual fee of $250 – on my own site earlier in mid-April. (+HST, but it may qualify as an Investment Counsel fee deductible on your personal tax returns). As always check with your accountant, advisor or tax professional).

            My initial impression is that the club seems to involve a lot of work for someone who describes himself as semi-retired. But that seems to be par for the course for financial writers approaching retirement. I’m in a similar boat, as is the American blogger Fritz Gilbert, who recently announced the similarly ironic fact that he was retiring from Full-time Blogging about Retirement. (also in April).

Aimed at self-directed investors

            In his introduction, Roberts wrote that many of his audience are self-directed investors. That jibes with his site’s campaign against high-fee investment funds, in favor of low-cost index funds or ETFs purchased at discount brokerages. While some, like myself, may also use the services of a fee-for-service advisor, many DIY retirees are in effect running their own pension plans. In theory, one of those much-written-about All-in-one Asset Allocation ETFs can do much of the heavy lifting for such investors, but in practice, there’s a fair bit of anxiety about markets, the Canadian government’s rules about TFSAs, RRIFs etc., Asset Allocation, the ongoing Trump Trade War and much more. So it makes sense to gather in one place and exchange views with others going through a similar process.

          In a regular email update to Club members, Roberts explains that “the key concern of Retirement Clubbers is financial security and how to use their portfolio assets in the most efficient and cost-effective manner. That’s why we have a master list of retirement calculators (free and pay-for-service) to test.”

Delaying Government Pensions

         As you’d expect, the Club regularly addresses the major chestnuts of Personal Finance as it relates to those within hailing distance of Retirement. The most common ‘Retirement Hack’ espoused by the Club is to delay receipt of the Canada Pension Plan [CPP] and Old Age Security [OAS] past the traditional retirement age of 65 to allow for more generous payouts at age 70. Most club members lean to taking these benefits as late as possible but of course personal circumstances may dictate earlier start dates.

        To bridge the income gap (from age 60 to 70 for example) RRSP/RRIF accounts will be harvested (spent) in quick fashion: often termed an RRSP meltdown. TFSA and Taxable accounts can also be tapped to provide necessary funding as retirees delay receipt of those CPP and OAS benefits. Continue Reading…

You are too young to retire

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By Mark Seed, myownadvisor

Special to Financial Independence Hub

Inspiration for this post arrived from attending a few retirement parties of late with work colleagues, another one as recently as yesterday and a few more to attend this spring.

Is age 50 too young to retire?

What about age 55? Age 60?

After talking to some work colleagues who submitted their retirement letters and who are now moving on, I know their ages. The celebration yesterday was for someone in their early 60s. They talked and yearned about more time at their cottage, doing small home reno projects, and leaving early morning Microsoft Teams calls in the rearview mirror.

They also talked about their desire to retire now since they “had enough” both mentally and financially: support from the latter after working with their financial advisor or planner and doing some retirement math on their own to bridge the gap between spending needs now and when their pension benefits would kick in, at age 65, including their firm intention to take CPP and OAS at that age too.

Although I’m leaping to lots of assumptions here, this makes me believe that the personal retirement savings of some work colleagues (the sum of RRSPs, TFSAs, non-registered investments or other assets) is likely small to modest beyond a workplace pension: in that they needed to work to ensure they were not sacrificing their personal portfolio too much, too soon. I get that. After decades of raising a family, buying a cottage, paying down a mortgage or two along with other expenses I’m sure, it seems my colleague was more than ready to permanently slow down; cut the cord from work and enjoy their time more while they still have decent health. Good on them. 🙂

This individual is however not the first person to mention the following to me:

“Oh, I can’t afford to retire yet but thinking age 63 or so should be fine since that’s when I can get my full OAS and decent CPP income.”

And my work colleague is hardly alone …

In looking at some stats (Source: StatsCan) the average age of retirement is hardly for anyone in their 50s:

You are too young to retire

These are also not easy times to retire…

Rising general inflation, uncertain tax rates, and higher healthcare costs could very well impact many retirees at any age. Myself included. Certainly, starting to save for retirement early and often and getting out of debt faster than most would be enablers – and I hope they have been for us.

You are too young to retire – is early retirement right for you?

Although many Canadians seem to expect to retire between the ages of 60 and 70 above, there is absolutely no hard and fast rules about when you need or must stop working of course.

Your retirement timeline will depend on many factors, I’ve highlighted some milestone ideas below:

3-5 Years Before Retirement

This is where dreams might start becoming a reality. I was there. I wrote about the emotional side of early retirement back in 2021 as my own evidence.

Somewhere between 3-5 years before retirement, it’s probably wise to get some retirement details in order. Accuracy isn’t overly important IMO but the process of planning is. 

I recall focusing on our desired lifestyle and spending habits to go with it: what early retirement or semi-retirement or full retirement might look like:

  • We started estimating our retirement spending levels, our income sources, and inflation factors.
  • We started evaluating our portfolio returns over the last 5- or 10-years.
  • We looked seriously at our sustainable cashflow from our portfolio (passive dividend and distribution income since we’d be too young to accept any workplace pension or any CPP or OAS government benefits).
  • We started tracking our spending in more detail to challenge those spending assumptions.

1-2 Years Before Retirement

As recently as early 2024 for us, things got more serious.

You might recall we became mortgage and debt-free almost 18 months ago.

You might also recall we realized our financial independence milestone last summer. 

In the year or so leading up to any big decisions, more detailed planning kicked into higher gear:

  • We started to explore ways at work to test some semi-retirement assumptions; the desire but also the financial flexibility to work part-time vs. full-time (i.e., could we still make ends meet).
  • We started to look into post-retirement healthcare insurance options, where needed.
  • We started to talk about our purpose (if not working at all) – what would we do with our time?
  • We started to position our portfolio for upcoming withdrawals.

< 1 Year To Go Before Retirement

Although we might be in this timeline, not sure, since part-time work is now occurring with our solid employer (this could continue for both of us??) but this is where the real retirement countdown calendar probably begins for most people…as you strike full-time working days off your calendar: Continue Reading…