Tag Archives: Financial Independence

Work Optional: Retire sooner to live your best life

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By Vicki Peuckert Cook

Special to the Financial Independence Hub

If you’ve spent any time reading about personal finance lately, you’ve likely heard about the “FIRE” movement. FIRE means Financial Independence – Retire Early.

Suze Orman got headlines by announcing she hated the FIRE movement (but she changed her position a few weeks later.) While Clark Howard “FIRE’d” before it ever became a popular thing to do. (If you think “retire early” doesn’t pertain to you, I strongly urge you to keep reading!)

Whether you agree with people who want to retire early in their 30s or 40s or not, it’s not hard to support the idea of becoming financially independent. Making work optional at some point so you can choose how to live your best life makes good sense.

Tanja Hester and her husband, Mark Bunje, left their careers behind to retire early (at ages 38 and 41) after reaching financial independence. Tanja’s new book, Work Optional – Retire Early the Non-Penny-Pinching Way teaches you how to get there too: no matter when you start or what age you’ll be when you leave work for the last time.

Retiring Is about your life, not just your money

It’s hard to think about retirement without focusing on money. After all, retiring without a solid financial plan – especially retiring early – is a recipe for disaster.

Tanja clearly explains what a bad idea it is to think you can just get back into the workforce if you run out of money in retirement. Her conservative advice is to Make Your Plan Bulletproof by diversifying your “magic money” sources.

Tanja doesn’t just tell you what to consider. She provides action steps and detailed information on ways to shore up your finances before quitting your day job for good.

What I really love about Work Optional is how Tanja embeds the importance of financial planning within retirement life planning. She redefines money as a tool to “help you live your best life as soon as possible.”

This helped me think about early retirement less as a race to get done with work but as a path to defining “living” according to your own terms.

Work Optional is organized in 3 main sections:

  • Determining what kind of life will thrill you
  • Creating a conservative financial plan to be able to live that life
  • Adapting to live your best “post-work” life

You can see that crafting and living your retirement dreams bookend the part of retirement planning most people really focus on: money. But Tanja doesn’t let you skip the tough questions you need to answer in order to transition to living the retirement you want.

She knows there is more to it than money, and she asks you to dig deep and engage with the most critical person in your retirement planning: YOU.

You have to do more than read

If you’re on this site, you probably listen to podcasts and read plenty of articles, blog posts, and books focused on personal finance. When I started on my own FIRE journey, I read everything I could find. Even with all of the information I had, I was still hesitant to act.

Did I really understand what I was reading? What if I missed something and made a mistake? Did new information come out that would help with my retirement planning? Continue Reading…

Women, Wealth and Retirement

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One of my very first financial planning clients was a single woman in her late 40s named Rachel who lived in Toronto and worked as a self-employed consultant to the not-for-profit sector. She made good money but lacked the confidence to manage her day-to-day finances and save for the long term.

Moreover, Rachel provided care for her aging parents and was under a tremendous amount of stress: enough for her to worry about her own health and whether she could maintain her current workload.

We worked together to establish a budget and cash flow projections for the next 12 months. During that time, we checked in monthly to ensure her income and expenses were on track and updated her plan accordingly.

Having always come from a place of fear about her financial future, Rachel quickly realized the path was not as bad as she once made it out to be. Most importantly, I never made her feel bad for things she didn’t understand: I just offered support and encouragement, along with tools that were easy to understand and implement.

After just one year she felt empowered about her finances and confident about her financial future. This new-found confidence also shone through her consulting business as she managed three straight years of record revenue growth to help further strengthen her financial position.

Meanwhile, her parents’ health continued to decline, so Rachel decided to scale back her workload and spend more time with her mom and dad. Now she only works on enough projects throughout the year to reach a specific annual income target that meets her monthly spending and savings goals. She has enough confidence in her financial plan to turn away other business opportunities to focus on her well-being and spend more time with her parents.

Rachel now joins a growing list of financially well-prepared Canadian women. Earlier this year, RBC Insurance conducted a survey of Canadian women over the age of 45 with household income of $60K+. The survey found that women are relatively well-prepared financially, but still express varying degrees of confidence when it comes to their financial future.

Highlights include:

  • The majority of women over 45 have a very clear idea of what they would do with a sudden lump sum of money, with only a quarter worry about being able to manage the money properly.
  • Canadian women have also mastered the household money matters. More than nine in 10 (92 per cent) agree they have a strong understanding of their finances.
  • Yet despite this, 24 per cent say they won’t be able to maintain their household’s financial situation if their spouse or partner were to pass away and one-third are not confident that they will be able to afford the lifestyle they want to live through retirement.
  • Interestingly, single women were only slightly more likely than married women (36 vs. 34 per cent) to cite a lack of confidence in their ability to afford their lifestyle in retirement.

Retirement planning is a challenge in any household, let alone one in which a spouse dies early. If that spouse happens to be the household’s chief financial officer, what’s the surviving partner to do?

Even though I manage our day-to-day finances and retirement savings I do want my wife to have an understanding of our financial position:  both current and future. I want to set up our finances in a way that’s easy for her to manage in the event of my untimely demise. I also want to ensure that she can maintain a comfortable lifestyle in retirement.

I’ve made sure to include my wife as the beneficiary on my RRSP. That way, if I died, she could have my RRSP assets transferred to her RRSP through a tax-deferred rollover.

I have a term life insurance policy in place that will be enough to pay off our existing mortgage and provide another $300,000 or so to live on.

I also have a defined benefit pension through my current employer. If I died, she would receive 2/3 of the pension I was receiving for the rest of her life.

Annuities: A Missing Piece of the Retirement Puzzle?

The idea of guaranteed income for life is appealing to me as a way to simplify our finances in retirement. Continue Reading…

How do insurers calculate your home & auto insurance premiums?

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By Matt Hands, Ratehub.ca

Special to the Financial Independence Hub

Insurers look at historical data, as well as real and perceived risks when calculating your insurance premium. If we dig a little deeper, we can identify specific factors that affect the price you pay for home and car insurance. Even better, we can determine which of those particular factors can help you save money and get you closer to financial independence.

Car Insurance Rates

Factors beyond your control

Age: There are certain factors that you can’t change:  like your age. A younger driver will pay more for car insurance because, with less experience on the road, there’s a higher chance of an accident. Historical statistics have proven time, and again that younger drivers take more risks than more mature drivers.

Location: Where you live affects your insurance premium, so unless you’re willing to move, there’s not much you can do. Specific location factors that impact pricing are: number of accidents, levels of fraud, the value of claims, theft & vandalism, as well as climate considerations. For instance, if you compare Ontario car insurance quotes vs. Alberta car insurance quotes you might find, all things being otherwise equal, that Albertans pay less for car insurance. The reasons for the cheaper pricing could be any number of reasons from lower claims volumes to population density.

Factors you can use to save money

Your Car: It should come as no surprise that the more expensive the vehicle, the more it will cost to insure. We don’t have to compare Maseratis to Civics to find better pricing though. The Insurance Bureau of Canada (IBC) uses the Canadian Loss Experience Automobile Rating, or CLEAR table, to determine how cars may be rated differently when calculating their insurance premiums. Use IBC’s How Cars Measure Up Guide and browse for vehicles with lower collision or comprehensive claims that will result in lower insurance premiums.

Your driving activity: This point is three-fold. If your general driving activity is safe, if there are no accidents, no speeding tickets or other major offences on your record, you’ll save money on car insurance. Your driving history, or the longer your driving activity is free and clear of any blemishes on your record, the more your insurer will reduce your monthly payments. Finally, how much you drive will affect your premium. The more you’re driving on the road, the higher the risk of an accident, and the more you’ll pay for car insurance. If you can walk, take public transit, or shorten your overall commute, the more you’ll save on car insurance.

Level of Coverage: To pay the least amount of car insurance, you can opt for the minimum coverage if you own your car outright, but keep in mind, this exposes you to significant costs should you be in an accident.

For instance, you can opt out of collision insurance which protects your car against damages sustained in a crash. You can decide against comprehensive which protects your vehicle against damages from events not related to driving, like a tree falling on your car after a storm. You can also choose to only take the minimum third party liability allowed in your province. This puts most of the risk on you though, and if anything does happen, you’ll probably be paying much more than your monthly premium.

Higher Deductible: A quick and easy way to pay less without touching your coverage is to increase your deductible. The deductible is the amount you pay after being approved for a claim, but before the insurance company will pay their portion up to the limit specified in your policy. If you increase your deductible from $500 to $1000, this is a signal to the insurer that you’re taking on more risk, and they’ll reduce your premium accordingly. Continue Reading…

How Baby Boomers can be frugal, yet still live it up

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By Gloria Martinez

Special to the Financial Independence Hub

Baby Boomers have reached the point in life where they have either retired or are quickly approaching it, and that last paycheck is causing many to become more frugal. Being financially responsible is never a bad thing, but it shouldn’t take over your life. According to Forbes, being excessively frugal can “be a bigger problem for [a Baby Boomer’s] social life, family, and friends, not to mention physical health.” It is important that you find the right balance between saving and preparing for the future while also living in the moment.

Fulfill important responsibilities first

Before you can focus on having fun, take care of your health and well-being first so that it doesn’t become a constant worry. Some of the problems Baby Boomers face include declining rates of health due to obesity, diabetes, and various other health issues. Healthcare costs are continuing to rise as well, feeding into that constant need to save.

Your health is what will carry you through your Golden Years, but it comes at a cost. Now is the time to start exploring your healthcare options, including signing up for Medicare. Research Medicare Advantage plans, such as those offered by Humana, as they offer important health benefits and coverage, including dental, vision, and hearing, along with original Medicare benefits. While on the topic of your health and well-being, go ahead and make sure you have your end-of-life documents in order, including a living will, power of attorney, life insurance, etc. This might also including pre-paying funeral expenses or looking into long-term care insurance.

Explore ways to have frugal fun

Catch the Travel bug with a Road Trip

Traveling is a common activity for retirees, but when you add up airfare, travel insurance, and the cost of luxury destinations and cruises, travel becomes a huge expense. To save and make getting to your destination part of the fun, opt for a road trip. A road trip gives you the flexibility to travel anywhere, any time, with a personalized travel plan for a day trip, weekend getaway, week-long excursion, or a cross-country trek. Go at your own pace, and pack in the sights and experiences youwant to see.

Give that Hobby a try

Careers, families, and various other obligations don’t leave you with much free time, but retirement does. Maybe now you can finally find a hobby that you enjoy. Some of the most common Boomer hobbies are cooking, DIY projects, sports, and volunteering, but the possibilities truly are endless. You might even find a hobby that you can use to make a little extra cash. For example, you can sell produce from your garden at the farmers market, sell handmade furniture with your knack for woodworking, or make jewelry to sell at local boutiques and fairs. Continue Reading…

Smart ways to divvy up your tax refund

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Situation: The income tax refund is a welcome sight for many taxpayers.

My View: Park it temporarily to reflect on its best use before allocating it.

Solution: Evaluate family needs and options that provide lasting benefits.

Income tax filing season is under way once again. Accordingly, I examine some smart ways to apply your tax refund. First, a little trivia:

For what year did Canadians last file a 1-page Federal income tax return?
It was the 1949 tax year.

I think of allocating the income tax refund loosely within these categories. For example, you can spend it, save it, invest it, reduce debt and help others.

Start by parking the refund into a saving account to resist impulse, say for 30 to 60 days. That provides you sufficient time to reflect and evaluate your needs and best options that apply.

Try your utmost to arrange lasting usefulness from this source of cash. Many of the allocations you will make are not reversible.

Everyone can reap benefits from these simple best practices. I summarize some sensible ideas in dealing with tax refunds:

Reduce debt

  • Repaying credit card balances are top notch, risk-free allocations.
  • Trimming a line of credit, mortgage or student loan is very desirable.

Invest it

  • Contributing to the RRSP boosts the retirement nest egg.
  • Adding to the TFSA generates tax-free investment income.

Help others

  • Donating to a charity of your choice is a noble cause.
  • Helping out someone less fortunate than you is generous.
  • Making RESP deposits helps pay the rising costs of education.
  • Funding the RDSP for a special needs family member is unselfish.
  • Lending it at the prescribed rate to the lower tax bracket spouse.
  • Assisting an adult child to purchase a vehicle or residence.

Save it

  • Leaving it in your saving account is a worthy choice.
  • Supplementing your family business capital is worthwhile.
  • Adding to your investment plan is productive strategy.
  • Improving your career or education fulfills goals and dreams.
  • Rebuilding the family emergency account is beneficial.
  • Setting funds aside for the next income tax instalment.

Spend it

  • Replacing an aging vehicle and appliance helps.