Tag Archives: saving

Merely leaving the nest does NOT constitute true Financial Independence

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Is the little birdie kicked out of the nest truly “Findependent?”

My latest MoneySense blog posted today carries the curious headline that most Millennials expect to achieve “financial independence” by age 27. I put “air quotes” around the phrase financial independence because of course it’s nonsense that merely leaving the nest and putting fewer demands on the Bank of Mum and Dad constitutes true financial independence.

Keep in mind that the research firm cited in the piece seems to use quite a different definition of Financial Independence than the one used at this site or as formally defined at Wikipedia. For research firm yconic, it seems financial independence means merely leaving the nest and landing a job that pays at least the monthly rent: they are merely “financially independent” of mum and dad.

Even with that loose definition, only 56% of older millennials (aged 30 to 33) say they have “achieved financial independence.”

With these savings rates, true Findependence for many millennials is a pipe dream

It’s just as well they’re using such a loose definition because the way the younger generation spends, it’s going to be a long long time before they achieve the kind of financial independence this blog describes.

To sum up the difference, I’d say “our kind” of Financial Independence is being able to stay afloat financially without the traditional source of single income known as “a job” or full-time employment. It’s quite a leap to go from moving out of the parental nest to being able to survive with neither parents nor an employer to keep those regular financial injections flowing into your bank account.

Far from being findependent, almost half the millennials surveyed (46%) admitted “saving money is a struggle” even if they are able to afford to pay the bills. A third say they are living paycheque to paycheque and are barely making ends meet. Fully 43% still rely on their parents for financial assistance, including 37% who look for help paying their student loans off. Does that sound like “our” kind of financial independence?

Non-saving millennials should find a Government job with a DB pension and stay there

I hate to break it to the non-savers but if they don’t start saving soon, they’ll never be able to achieve true financial independence. They had better be prepared to work until age 67 and be able to live on Social Security (in the US) or on the Canada Pension Plan, Old Age Security and possibly the Guaranteed Income Supplement (GIS), or find a good Defined Benefit pension plan somewhere and hang on to the job for three or four decades. (may as well try the Government first: their DB plans are most likely indexed to inflation and ultimately backstopped by taxpayers).

If there’s hope for them, it’s in the finding that most millennials hope to buy a home at some point. I like that because I always say the foundation of financial independence (our kind, that is) is a paid-for home. But even among those who already own a home, 32% got parental help rustling up the down payment. Among those who don’t, a quarter of them (24%) expect their parents to help them with the down payment.

Some millennials do have their act together

I don’t mean to disparage millennials’ aspirations for Financial Independence altogether. Read elsewhere on this site how two millennials aim to be mortgage and debt free in their early 30s. Both of them know all about frugality, saving and deferring instant gratification. Of course they both read the book featured on our sister site!

I also suggest reading a guest blog posted on this site earlier this week on why millennials should be planning NOT for retirement, but for Financial Independence. The true kind, that is!

Some book suggestions

rob_carrickparents12Parents who have yet to kick the little birdies out of the nest might consider giving them a hint about what true Financial Independence entails by investing US$2.99 or C$3.37 in either of these e-books featured elsewhere on this site. Might make a great stocking stuffer! (Just gift the e-book via Amazon and maybe insert in the stocking a card telling them to check their Kindle).

I also suggest that millennials or their parents get a copy of Rob Carrick’s book, How Not to Move Back In With Your Parents.

As we speak, my own daughter is reading it.

Extreme Early Retirement? I call it Extreme Early Findependence!

Savings Thermometer Measuring Money Nestegg IncreaseBy Jonathan Chevreau

MoneySense.ca today is running my column on Extreme Early Retirement from the November issue. It looks at the phenomenon championed by super-frugal savers like Mr. Money Moustache and Jacob Lund Fisker of so-called Extreme Early Retirement.

The idea is to be self-sufficient, do without, live in a small home, eliminate frivolous purchases like cars or furniture and save like crazy for five or ten years: and we’re not talking the typical savings rates of 10 or 15% of a paycheque: more like 50% or more.

Frugality to a Fault?

Continue Reading…

How the wealthy can qualify for “Senior’s Welfare.”

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Fred Vettese, Morneau Shepell

My column in this weekend’s Financial Post looks at the collision course between Tax Free Savings Accounts (TFSAs) and the Guaranteed Income Supplement (GIS) to Old Age Security.

This is a followup to a curious strategy unveiled by Mornell Shapeau senior actuary Fred Vettese a few weeks ago in the Post. I also touched on it in a subsequent MoneySense blog. (Note the comments there).

Vettese showed how even relatively rich couples can contort their finances so they too can collect GIS for three years: generating over $60,000 of tax-free income between age 67 and 70. The furor over this gambit suggests either GIS or TFSA rules may eventually have to be tweaked as a result.

The strategy consists of postponing receipt of employer pensions, CPP benefits and RRSP income until age 70. Addressing younger people now 40, Vettese envisaged taking OAS and GIS at age 67 while drawing on joint TFSAs worth $320,000.

Normally, the wealthy don’t even consider the possibility of collecting GIS because of the low clawback threshold. In fact, the truly rich are resigned not only to not qualifying for GIS but realize even their OAS may get clawed back, in whole or in part.

Hypothetical scenario still far away?

Asked about this, the Department of Finance said it was a hypothetical scenario still far away, but that  “the tax system is continuously under review to ensure it is as fair and as current as possible.”

Advocates for low-income seniors quoted in the article say they should avoid RRSPs and invest in TFSAs instead, since they will result in neither tax nor OAS or GIS clawbacks. And they suggest some simple rule changes to the TFSA or GIS that would nip this “end-run for the wealthy” in the bud.

Those who are wealthy may not wish to go to the trouble Vettese describes to get three years of GIS payments (GIS is however tax-free!). But it may be wise to keep maxing out TFSA contributions while you still can, including for your children 18 or over.

 

How savers can cope with minuscule interest rates

Joe Atikian Saving Money Book
Joe Atikian

By Joe Atikian

Special to the Financial Independence Hub

Savers almost everywhere have nearly been beaten into submission by seemingly perpetual Zero Interest Rate Policies (ZIRP) imposed by central banks around the world.

The simple connection is that when interest rates are low, there is no incentive to save money. The flip side is that low interest rates make borrowing cheap, so people raise their debt load. So, is it still worthwhile to save when interest rates are low?

Continue Reading…

Destination Early Financial Independence: “Retiree at 43”

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Ross Grant, Findependence 43

By Ross Grant

Special to the Financial Independence Hub

I recently connected with Jon Chevreau, who invited me to contribute with a guest blog here on the “Financial Independence Hub”.  I am honoured to participate and hope that sharing my financial independence experience will be of value to you.

At the relatively young age of 43, my wife and I were able to leave the full-time workforce. We were fortunate to have achieved this by establishing a financial plan in our early 20s and then selecting investment strategies that could get us to our goals as quickly as possible.

As fresh university graduates, we had very little in the way of assets. We both started in engineering careers in Toronto. We had your typical expenses with a mortgage, two cars and raising two daughters. How did we save enough in 21 working years to be able to have the choice to not work now? The short answer is that we looked for opportunities to ensure that our savings were as high as comfortably possible and then we focused on ensuring those savings were growing well.

Term Financial Independence was less common 7 years ago

When I left full-time employment, over seven years ago, I told people I was “retiring.” The term financial independence wasn’t as common back then. Unfortunately, there is a negative connotation associated with the term retiring. People seem to picture rocking chairs, watching TV and boredom. I pictured free time, skiing, mountain biking, travelling and all the other things you could do in the world if you weren’t working for 40+ hours per week. I had a great job as an Engineering Manager but really enjoyed my activities in my personal time more than work. I think this is common for most of us.

Destination EFI - CoverLast year, my youngest daughter started her first full-time job. I realized that if she could learn from our financial journey, it would be a great benefit to her. By passing on many fundamentals learned on our path to early financial independence, she would have a great jump-start in obtaining her financial goals. I decided to write a step-by-step book, in a series of letters, so our daughters would have a good financial education base to start with. During my writing process, I realized that publishing my letters in an e-book that I titled, Destination: Early Financial Independence, could benefit others. The e-book is for both for people starting to invest and for those who have been managing their portfolios for some time. My wife often reminds me she is so grateful that I have documented this for her learning too.   I share our personal roadmap from our first jobs to where we are today, managing our own portfolio in retirement with minimal time requirements, yet achieving above-average results.

Our steps can be replicated by others

I always believed the steps we took and the investment process we followed were all quite simple and the outcome could be replicated by others, if they only knew it could be done. When we “retired,” I knew a lot of friends and family thought we were crazy. They were all polite about it, but I could tell from their questions that they didn’t expect us to really stay retired. We would either run out of money or just get bored.

My prior work colleagues started a betting pool as to when I would go back to work. I am happy to report that no one ever won the pool. I wish when I started our financial planning, I had a book I could have referenced that said, “No Ross, you aren’t crazy. Your calculations are correct and you are on the right track. You have actually used conservative estimates and don’t need to worry about running out of money. It’s a beautiful Monday morning, go cycling!”

Fortunately, in the last couple of years, I have come across a number of firsthand accounts of people who have left the work force early, so I am now more confident it is a goal that can also be achieved by others. By documenting and sharing our story, including strategies and processes, I hope you will find many tips that will be helpful towards your Financial Independence!

Below, I have attached the details of how to obtain my e-book, if you are interested.

The book can be read with free e-reader software if you do not have a Kindle or Kobo device.  Links to the free e-reader software is at the bottom of this blog.

Destination: Early Financial Independence, By Ross Grant is available for $5.99 + applicable taxes, on Amazon.

It’s available at Kobo too.

Ross is a contributing writer for Canadian MoneySaver. Ross and Shal were featured in a Globe and Mail article, “Freedom 55? Couple couldn’t wait that long for retirement,” Oct 22, 2009.

Email: RossGrantEFI@gmail.com

Free E-reader software

Amazon’s Kindle for PC

Amazon’s Kindle for MAC

Kobo for PC