What, no pension plan? No early retirement package for the owner?
Of course not, you’re an entrepreneur and not dependent on anybody else to look after your welfare. But have you looked at the hard realities of exiting from your business to a comfortable and happy retirement? There are some special challenges.
When you do start looking it’s hard not to be envious of the friends and family on well-funded civil servant or big corporate pension plans. How did you miss that concept? Well, it may be too late now to change career paths, but it’s not too late to plan your exit strategy. Continue Reading…
Below is the text for a speech I delivered Monday evening at Toastmasters Port Credit. I’ll be devoting some full blogs to Toastmasters in time, probably under the Entrepreneurship section, because it helps people of any age cultivate two critical skills: public speaking and leadership. Since the idea is to speak without notes, my actual delivery was not identical to what you see below. It has been adapted for the blog but in a few days I may put up a video of my performance, which was clocked at around eight minutes. I imagine this expanded version would take 15!
Jon Chevreau (Twitter).
Thank you Mr. Toastmaster, fellow Toastmasters and esteemed guests. As I look around this room, I see a mix of people: everyone from students and those just embarking on the workforce to people who are already retired.
I’ve worked as a financial journalist for more than 20 years and can tell you the word Retirement is a favorite word of both the financial industry and the media. It’s a handy way to depict a far-in-the future “dream” that conveniently helps banks, mutual fund companies, insurance companies and others sell various financial products, from funds to annuities. And we in the media are almost as fond of the term retirement: I’ve seldom witnessed a newspaper, magazine or web site that turned away financial advertising!
I’m 61 and you could call me semi-retired. But my message to the younger people in the audience, and even some of the middle-aged ones who fear they’ve not saved enough, is FORGET RETIREMENT!
Is this heresy? Not at all. Because there is a better term: Financial Independence. As some of you may know, a month ago I launched a new web site called the Financial Independence Hub and everything I’m saying here can be found at the site.
XY Planning’s Alan Moore
In fact, it includes a guest blog by Alan Moore of XY Planning Network in the US who posted a blog on exactly the topic I’m talking about here. The X and Y refers to Generations X and Y, so he is providing financial planning advice to millennials and young people. And he too is telling them to forget about retirement but instead to seek Financial Independence.
Aren’t the two terms the same thing? Not really. To me, Retirement is the full-stop retirement our parents or grandparents enjoyed if they were lucky. They got a job out of college, enrolled in a Defined Benefit pension that guaranteed a certain steady future stream of income, hung in for the gold watch for 30 or 35 years, then retired at the traditional retirement age of 65. They could now watch day-time TV, golf, nap, play bridge or putter in the garden to their heart’s content for a decade or three. This is what I call the “full-stop” sudden retirement.
Perhaps some of you here are now enjoying such a retirement. Like Mark over there.
Show of hands: how many of you younger people here think they’ll be able to rely on a DB pension when they’re as old as Mark or me? And how many think they’ll stay with a single employer long enough to collect a big enough pension that they’ll never have to work again?
To the young, Retirement is a remote unattainable concept
The problem with the term Retirement is that it seems so terribly far away for young people. The official retirement age keeps rising: it’s now 67 for younger folk instead of 65, if you’re talking about the eligibility age for Old Age Security, and I wouldn’t be surprised if it reached 70 at some point. So telling a 20-year old they should cancel their SmartPhone service in order to save money for a retirement half a century away is hardly an inspiring message, is it?
But that’s what all the retirement peddlers want you to do: put away 10% or preferably 20% of your income by practicing delayed gratification. They may tell you that you’ll need a million dollars or more in order to retire one day. Too often, sadly, young people hear that and figure it’s so impossible they may as well give up and spend it while they have it.
In other words, they are telling young people that in order to enjoy a decade or two of leisure when you’re old and grey, that you need to deny yourself pleasures like travel or eating out while you’re enjoying your youth.
Let me tell you, any of the grey hairs here would probably love to take their retirement savings and use it to book passage on a time machine that would let them relive the Swinging Sixties. If you’re 20 today, I imagine that your 70-year old future self would feel the same way about your life right now.
A more attainable goal
So what do I suggest as a substitute for the word Retirement? I call it Findependence, which is just a contraction of Financial Independence. I’ve written a book, Findependence Day, which is just the day you’ve reached Financial Independence. The ebook I talked about in my third speech here is a sort of “Coles Notes” summary of that book.
Financial independence is generally used to describe the state of having sufficient personal wealth to live, without having to work actively for basic necessities.[1] For financially independent people, their assets generate income that is greater than their expenses.
In practice, I think this means being able to survive without the single stream of income most call a full-time job.
Leaving the nest at 27 is NOT Financial Independence!
Defined this way, Findependence can occur decades before the traditional Retirement, so it’s a goal that young people may find is more worth shooting for. Interestingly, last week I blogged at MoneySense and at the Hub about a study about young people and their financial readiness to leave home. They used what I consider an incorrect definition of financial independence: that if they left the nest and stopped depending on the Bank of Mum and Dad, that they were therefore financially independent. If they could get a job and pay their rent, that was the definition, which resulted in the absurd headline that most millennials hope to be financially independent by age 27.
I don’t think so. Even with DB pensions, the earliest most people aspired to Financial Independence was 55, which is the earliest some pensions permit early retirement. Anyone hear of Freedom 55? That London life campaign was one of the most successful sales pitches for Early Retirement. Yet only a few government workers or business executives who strike it rich ever retire that early.
Why do billionaires keep working?
Why is that billionaires like Warren Buffett continue to work? Or young tech entrepreneurs like Mark Zuckerburg? Don’t you think Zuckerburg, who’s all of age 31 or so, couldn’t be findependent by now? Obviously, they have passion and are driven by purpose.
What does that tell you? Age 55 is way too young to “retire’ in the classic sense of doing nothing: playing golf, watching daytime TV, reading all day. Yes, many people THINK they’ll travel all the time once they retire but as I wrote on another blog last week, travel is overrated and expensive, and is really something you would only want to do some of the time, not ALL of the time.
Integrating the Three Boxes of Life
Findependence is about integrating education, work and play. On my sister site, Findependence.TV, I’m interviewed about a concept called The Three Boxes of Life, which is the title of a classic book by Richard Bolles. In the old days, we started life in the first box, Education, spent 15 or so years there, then graduated to the second box, Work. We stayed there for 35 to 50 years, and then came traditional Retirement, the third box of total play and leisure.
On the video, I talk about there being really only a single day: you work a bit each day and make money, you learn a bit each day and at the end of the day, you may “play” by getting some exercise, reading, watching TV or whatever.
On the site, there are blogs on concepts like mini-retirements and the four-hour workweek. Wouldn’t it make more sense to take the occasional mid-career sabattical or series of three-month vacations earlier in life, rather than saving it all for ten or 20 years of doing nothing when you’re too feeble to appreciate it? That’s why the subtitle of Findependence Day as well as The Financial Independence Hub is “While you’re still young enough to enjoy it.”
Plan for Longevity, not Retirement
Meta celebrates her 98th birthday. With Alizon Sharon (c) and Ruth Snowden (r).
Life expectancies are on the rise because of advances in medical science and more of us are practicing better health habits, with a focus on proper diet and exercise.
We can all expect to live a lot longer than we once thought, which is why the “Hub” ends with a section on Aging and Longevity. There you’ll find some blogs by Mark Venning of ChangeRangers.com, who coined the phrase “Plan for Longevity, Not Retirement.” I think it’s a great concept.
And it isn’t just a theoretical concept. On Sunday, we had a dinner party for a female friend of ours who celebrated her 98th birthday. She showed us a custom-printed card from – get this – her co-workers. You see, Meta still works two half-days a week at a local printing company. So she still spends a little time in the Work box. She also reads a lot, swapping books with my wife (Ruth, above), so part of her days are in the Education box. And she still travels and parties, so that’s the Leisure box.
If you’ve been reading this web site since its launch five weeks ago, you’ll know that Findependence, or Financial Independence, is quite a bit different than the traditional “full-stop” retirement depicted in many advertisements from the financial industry.
I like the perspective of the author of the book pictured to the right, who “reimagines” retirement to be a sort of spiritual/vocational half-way house between the decades of full-time work and career and the “eternity” that awaits us all at the end of life’s journey.
Joyce Li is a project manager and motivational speaker, originally from Hong Kong, now living with her family in Brampton, Ont.
Many consider defined benefit pension plans the gold standard of retirement plans. Through the ups and downs of the markets, defined benefit (DB) pension plans remain the one thing that employees can count on in their golden years. DB plans offer employees some much-needed stability in retirement. For those without the luxury of an employer-provided pension plan, the alternative is RRSPs. With RRSPs, you contribute throughout your career and hope that your investments perform well enough so you can enjoy a comfortable lifestyle in retirement.
Defined Benefit Plans Disappearing
While workplace DB plans used to be widespread in the private sector, they’ve been disappearing at an alarming rate over the last couple of decades. Now only a third of employees have any kind of pension plan at work, let alone a DB pension plan. The dot com bubble in 2001 and the financial crisis in 2007 only sped up the pace at which employers are looking to “de-risk.” De-risking comes in many forms, but the most prevalent is switching from a DB plan to a defined contribution (DC) plan or group RRSP.
Defined Benefits vs. Defined Contribution
With a DB plan the employer bears most of the investment risk. If investments underperform, it’s up to the employer to make up any shortfall. However, with a DC plan or group RRSP, employees bear the brunt of the risk. If their investments don’t pan out, they’ll have to make tough decisions like scaling back their lifestyle in retirement or working longer (if they’re physically able to).
Having worked as a pension analyst at a global pension and benefits consulting firm for nearly five years, I have a unique perspective on what’s been unfolding in the realm of pensions. I’ve watched as pension plans on which I work have closed DB pension plans to new entrants, forcing new hires to enroll in DC plans. Although I still have a DB plan at work, even my own plan has been scaled back in recent years.
How do DB Plans Fit into My Findependence?
That brings me to the main point of this article: are DB plans part of my own Findependent plans, or I am so much into self-employment and Internet businesses that I feel they’re okay for really conservative members of my generation, but perhaps not for myself? Despite working as a financial journalist to supplement my income, I still see DB plans as an integral part of my Findependent plans.
Even though I don’t plan to retire until at least age 55, it’s still nice to know I have a guaranteed DB plan waiting for me when I do decide to call it a career. A DB plan will provide a large chunk of my money in retirement. Because of that, I’ve been able to invest more heavily in equities in my RRSPs.
I’m a big fan of the Canadian Couch Potato investment philosophy. I chose the TD e-Series funds because of their great track record and low fees. I’m invested heavily in equities – I have 30% invested evenly in Canadian, U.S. and International equities, with only 10% in bonds. I wouldn’t have been able to take this position without a rock-solid DB plan waiting for me.
What About Everyone Else?
If you’re a younger worker in an industry where you plan to change jobs every few years, a DB plan probably doesn’t make much sense. But if you’re someone like me who’s willing to spend their entire career at a company once they find a job they love, a DB plan can be a great way to build up your retirement income as a reward for your years of service.
Some people refer to DB pension plans as pyramid schemes without getting the facts straight. For the most part your company pension plan is safe. Workers in Ontario have added protection – up to $1,000 of your monthly protection is guaranteed by the government.
Would I ever consider trading in my DB plan? Not a chance. I see my DB plan as an important part of my journey towards Findependence. I know I can count on it when it matters most.
Sean Cooper is a Personal Finance Expert and Financial Journalist. He is a first-time homebuyer and landlord who aspires to reach findependence by age 31. Follow him on Twitter @SeanCooperWrite and read his blogs and request his writing services on his website: http://www.seancooperwriter.com/
Overspending is a common problem for many people; it creates debt, anxiety and relationship problems, even among high income earners. All too often, people’s spending habits seem to rise to meet – and exceed – their incomes.
So why does this happen? What compels people to overspend when they already have the items they truly need? The answer lies deep within each person’s spending personality. Recently, I read Dr. April Benson’s book I Shop Therefore I Am, and was fascinated by what the contributing authors uncover about the emotional and psychological factors influencing our buying habits.
I thought it would interesting, and beneficial, to touch on the six key spending personalities they explore: image spenders, bargain hunters, collectors, compulsive shoppers, co-dependent spenders (a.k.a. gift-givers) and bulimic spenders. Continue Reading…
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