Tag Archives: Findependence

A good resolution for 2021: Choose Financial Independence

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Amazon.com

By Michael J. Wiener

Special to the Financial Independence Hub

Many of us dream of financial independence.  Chris Mamula, Brad Barrett, and Jonathan Mendonsa offer many practical ideas for achieving financial independence (FI) and enjoying the journey along the way in their book Choose FI: Your Blueprint to Financial Independence.  They avoid many of the problems we see in the FIRE (Financial Independence Retire Early) book category.

The authors avoid the biggest problem with most FIRE books.  It’s annoying to tell the story of a high-income earner deciding to live like a student his whole life and retire in his 30s, and then say “you can too!”  Although I point out the bad parts of books, I can forgive a lot if my mind is opened to a good idea.  For this reason, I’ve enjoyed FIRE books even if they have some bad parts.  This book manages to avoid the worst parts of other FIRE books.

The authors don’t bother much with retirement.  FI gives us choices so we can “scrap the idea of retirement completely and focus on building lives we don’t want to retire from.”  The life you build can involve paid work, leisure, or any other pursuit you want.

Rather than focus on just one story, the authors draw from the experience of many people who have sought FI.  A common theme is the importance of enjoying the journey.  If you see your pursuit of FI as suffering for several years until you hit your magic number, you’re not doing it the right way.

FI’s benefits start even before you reach the target

You benefit from pursuing FI even before you reach your target.  “If you have a mortgage, a couple car payments, a family to feed, and nothing in the bank, what choice do you have when your boss asks you to do something stupid?”  I was able to push back somewhat with my boss in the late part of my career, and this got me more money and autonomy.

If reaching FI seems like an unattainable goal, it may help to break it down into milestones.  The authors suggest “getting to zero” for those in debt, “fully funded emergency fund,” “hitting six figures” in your portfolio, “half FI,” “getting close,” “FI,” and “FI with cushion.”  This last stage is defined as having a portfolio equal to 33 times your annual spending needs.  This is a sensible target for a young person with a long remaining life who doesn’t really know how spending needs will change with age. Continue Reading…

Determining your Financial Independence number

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By Mark Seed, MyOwnAdvisor

Special to the Financial Independence Hub

Passionate readers of this site have long understood I’ve never been fully convinced about the “retire early” element in the Financial Independence Retire Early (FIRE) movement.

I mean really, what 30- or 40-something is never going to work for any money ever again??

(Answer = you know it.)

Surely some of them will hustle a blog, a course, a book, a podcast or other at some point. The list goes on.

Such FIRE-seekers and very early retirees are not likely misleading people on purpose: some are just simply entrepreneurs …

Forget “RE”, “FI” is the worthy goal

While I couldn’t care less about the retire early part of FIRE, I am working towards the FI part and have been doing so for at least a decade now.

I think most people should absolutely strive for FI instead of early retirement. (See this 2019 blog, Strive for Financial Independence, not Early Retirement).

How much do you need to save for any comfortable retirement?

“It depends.”

According to Fidelity, to be on track for a healthy retirement:

  • You should have x1 your annual salary saved up for retirement by age 30.
  • You should have x3 your annual salary saved up for retirement by age 40.
  • You should have x6 your annual salary saved up for retirement by age 50.
  • You should have x8 your annual salary saved up for retirement by age 60.
  • You should have x10 your annual salary saved up for retirement by age 67.

As a 40-something, according to the pros we should have at least x3-x6 of our annual savings in the bank.

I’m glad I don’t listen to Fidelity. We’re beyond that milestone and we’ll be better off financially (sooner) because of it.

Here in Canada, MoneySense did some similar work on this a while back:

 

MoneySense - how much is enough

Do you really need this much? $1 million or $1.5 million? More?

“It depends.”

I can’t tell you unfortunately: since that answer comes with a complex set of income needs and wants and everyone’s spending goals are very, very different.

I can say with a rather firm set of certainty that if any Canadian or U.S. citizen that amasses this much portfolio value by age 65 and has modest spending needs they will be far better off financially than most.

Our FI number

For years, I’ve pegged our FI number to be around the $1 million portfolio value mark not including any home equity (and our soon-to-be debt-free home: we have to live somewhere!), excluding our workplace pensions, and excluding any future government pensions such as Canada Pension Plan or Old Age Security.

I largely arrived at this number by using a rather standard FI formula.

Financial Independence means:

  1. earning enough passive income from my assets such that my asset-producing passive income is > general expenses, and/or
  2. amassing a portfolio value such that reasonable withdrawals will be > general expenses for many decades on end.

What are reasonable withdrawals???

You could argue the birth of any reasonable and therefore any safe portfolio withdrawal formula was originated by U.S. financial advisor William Bengen.

4% rule

You can read about his genesis for the 4% rule and why it still makes sense by reading this blog from earlier this year: Why the 4% Rule is (still) a decent rule of thumb.

Following Bengen and largely reinforcing his work, three professors at Trinity University published a paper about safe retirement withdrawal rates.

Those professors looked at stock and bond data from the mid-1920s through to the mid-1970s and their conclusion was that essentially over any 30-year investment period in that range, a retiree could safely withdraw 4% of their total assets per year without much fear (meaning barely any fear) of running out of money. Only in a handful of cases, the very worst cases in any 30-year period, would the portfolio go to absolute zero.

So, let’s look at that context when it comes to our goals:

If we managed to enter retirement with our desired $1 million goal of invested assets (along with no debt of course), then we could reasonably expect to assume we could withdraw $40,000 per year for our living expenses from that portfolio with very little fear of running out of money.

Henceforth, the study by those three professors from Trinity University, The Trinity Study, have set the framework for a gazillion FI number crunching exercises to this day and likely the same number into the future …

Determining your FI number 

Here are some options to crunch your math. Continue Reading…

Retired Money: The trouble with playing with FIRE

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My latest MoneySense Retired Money column looks at the trouble with playing with FIRE. Click on the highlighted headline to retrieve the full column: Is Early Retirement a realistic goal for most people?

FIRE is of course an acronym for Financial Independence Retire Early. It turns out that Canadian financial bloggers are a tad more cynical about the term than their American counterparts, some of whom make a very good living evangelizing FIRE through blogs, books and public speaking.

The Hub has periodically republished some of these FIRE critiques from regular contributors Mark Seed, Michael James, Dale Roberts, Robb Engen and a few others, including one prominent American blogger, Fritz Gilbert (of Retirement Manifesto).

No one objects to the FI part of the acronym: Financial Independence. We’re just not so enthusiastic about the RE part: Retire Early. For many FIRE evangelists, “Retire” is hardly an accurate description of what they are doing. If by Retire, they mean the classic full-stop retirement that involves endless rounds of golf and daytime television, then practically no successful FIRE blogger is actually doing this in their 30s, even if through frugal saving and shrewd investing they have generated enough dividend income to actually do nothing if they so chose.

What the FIRE crowd really is doing is shifting from salaried employment or wage slavery to self-employment and entrepreneurship. Most of them launch a FIRE blog that accepts advertising, and publish or self-publish books meant to generate revenue, and/or launch speaking careers with paid gigs that tell everyone else how they “retired” so early in life.

How about FIE or FIWOOT or Findependence?

Some of us don’t consider such a lifestyle to be truly retired in the classic sense of the word. Continue Reading…

Comparative saving for Financial Independence: Is the world financially stacked against women?

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By Billy and Akaisha Kaderli, RetireEarlyLifestyle.com

Special to the Financial Independence Hub

Why do women lag in retirement savings as compared to men?

Are women at a disadvantage for reasons too numerous to list? Is it sexism? Are females not good savers? Big spenders? Is it really true that women get paid less for the same work performed? Is the world financially stacked up against women?

I read lots of articles noting all the reasons that “women have it harder” than men when it comes to saving for retirement. Regularly listed are the following:

  • The difference in men’s and women’s wages, also affecting their Social Security amounts later: but the articles don’t give honest insight into why the wages vary. This leads the reader to conclude that it’s sexism that determines pay.
  • Women often live longer than their spouses, “forcing” them to live on one SS check instead of two:  however, by women living longer, this gives more time for their investments to compound.
  • Women take off work to raise children or to become a caregiver to a family member, thus affecting their career path earnings. See the tools offered below which – if used – both stay-at-home-moms and caregivers can become financially independent.

Think outside the box

I don’t enjoy reading articles that tell me “statistically,” I’ll be settling for less and that I don’t have options. Or that “according to the numbers” – somehow – I am doomed to a mediocre savings rate and career path. Or because I am a woman, I’m going to have it tougher in life: all across the board.

So, let’s think outside the box for a moment.

First things first: education and career choice

It’s called OPEH.

OPEH is an anacronym for Occupation, Position, Education and How many hours worked a week. These four things affect a person’s income far more than one’s gender.

And we, as women, have choices in all of these categories.

Occupation

Georgetown University composed a list of the best paying college majors and the percent of men and women majoring in those fields.

The highest paying majors were Engineering, Math and Science. Men dominated these job choices, so their career path was set to earn a good, solid wage with upward mobility.

The lowest paying majors were those in Psychology, education, and social services. Women dominated these fields, so their career path was set to earn less than the above-mentioned choices that males made. These different career choices limited their upward mobility within their jobs.

We women have a choice as to what field we want to excel in, and we need to choose wisely.

Position

Teaching young girls the value of STEM courses (Science, Technology, Engineering and Math) will place them in careers where they will earn more. Upward mobility in STEM careers is greater and this will translate to better earnings on their future bottom line.

Education

Within those STEM fields, males tended to gravitate towards a specialty or training that paid better. In other words, males once again made different choices for their focus. Nothing is stopping us from making these same choices. Our brains are every bit as good, wouldn’t you agree?

Hours worked per week

Even within the same job categories – and this is important here – one of the things that differentiated male workers from female workers was the willingness of male workers to put in more hours per week on the job. Males were more inclined to be on call or be at the office any time the firm might call them. Continue Reading…

5 years of Findependence: The Hub celebrates its fifth anniversary

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How time flies! Five years ago this Sunday — Nov. 3, 2014 — the Financial Independence Hub [aka “The Hub”] was launched. From the start the idea was to publish a blog every business day, 52 weeks a year. Thanks to a wide variety of guest bloggers and other contributors, that has been achieved: as of this writing, the Hub had published almost 1,700 blogs.

For those curious, this link will take you to the very first Hub blog, which outlined the planned direction. From the get-go we tried to make a distinction between traditional full-stop Retirement and Findependence, which of course is the contraction for Financial Independence. The related book is Findependence Day (available in both Canadian and US editions).

Findependence is different from Retirement

Even some of the republished blogs the past week indicate how much the term Financial Independence has caught on, although sadly, the term Findependence less so. Just a few days ago, regular Hub contributor Mark Seed published a blog on Strive for Financial Independence not Early Retirement.  (We’re working on getting him to use the term Findependence but Rome wasn’t built in a day!)

I wrote much the same thing soon after the Hub was launched in 2014: Why Financial Independence is a better term than Retirement.

I may as well take this opportunity to clarify a few things about how the Hub operates. First though, we’d like to thank our advertisers, some of which (like Vanguard) have been with us since almost the beginning. It’s that kind of support that means the Hub remains free to users, who by now realize that most Hub blogs publish around 9:10 am, with a daily digest going out around 10 am.

Where the Hub’s content comes from

Why daily content? I guess it goes back to my days as a newspaper reporter and columnist, when my personal motto was “A story a day keeps the editor away.” Of course, it wouldn’t be much of a Semi-Retirement if I had to write a blog for the Hub every day all by myself so from the get-go we were open to guest blogs. An early supporter was Robb (and Marie) Engen of Boomer & Echo: skip over to the Hub’s search function and you’ll find dozens of stories by them. And by the way, that search tool can be very useful in accessing any of the 1700 blogs or so that the Hub has published: they’re still there; you just have to retrieve them with the tool.

Also early in giving us permission to republish blogs were Patrick McKeough of The Successful Investor, Adrian Mastracci of KCM Wealth Management, Mike Drak, my co-author on Victory Lap Retirement, Billy and Akaisha Kaderli of RetireEarlyLifestyle.com and many more. Just this year we’ve added a few more excellent bloggers: Mark Seed of MyOwn Advisor, Michael Wiener of Michael James on Money, Dale Roberts of Cut the Crap Investing, Fritz Gilbert, the Plutus award winning blogger behind Retirement Manifesto and a few more I hope I’ve not forgotten.

I can hear critics questioning the rationale of this republishing approach: all I can say is that you can consider it sort of the Greatest Hits of Financial Independence, given that our goal has always been to be — as you can see in our slogan elsewhere on this site — North America’s Portal to Financial Independence. We are chiefly an aggregator, although there is also original content.

Yes, I try to write a blog most weeks, though as regular readers may realize, they tend to be “throws” — summaries of paid columns or blogs I’ve written elsewhere, including MoneySense.ca, the Financial Post, Motley Fool Canada, the Globe & Mail on occasion, and Money.ca. Think of it as a sort of one-stop-shopping for what I personally write, even as I retrench a bit as my Semi-Retirement unfolds. (I’ll be 67 in April). In a way, the outside revenue I get from writing for the mass media helps defray the Hub’s modest costs, and of course helps to promote the site to new readers.

Apart from republished blogs, the Hub also regularly tries to publish at least two pieces a week of fresh content written by a variety of other contributors: financial advisors and other investment professionals, occasionally marketers or  firms representing a cross-section of the financial services industry.

The Hub’s 6 categories for the Human Financial Life Cycle

We try to publish a wide selection of topics corresponding to the human financial life cycle: if you’ve not noticed, take a look at the blue menu near the top of the site and you’ll see that our blogs are categorized in six sections. We start with young people (Millennials) who are just getting started in their financial lives. So we start with Debt and Frugality, followed by Family Formation and Housing: they will be interested in topics like real estate and buying their first home, mortgages, interest rates, credit cards etc. From almost the Hub’s inception, Zoocasa.com’s Penelope Graham has contributed excellent articles monthly on the real estate industry. Continue Reading…