Monthly Archives: December 2013

The Retirement Spend Down

401K - 2013
401(K) – 2013

Creating several budget projection spreadsheets was critical, if I ever wanted to maintain a positive monthly cash flow during my retirement years.   Since I had decided to retire early, I would only receive a substantially reduced pension from what I could have earned had I waited until I was 65.   Thus the reason to sharpen the pencil and to balance the books accordingly.

Defined Benefit Plan

Clearly there is a huge trade off to be made here – retire early with less fixed monthly pension income vs. retire later with a larger fixed defined benefit pension.  Some fixed income pension plans are indexed to inflation, at least to some degree.  My decision was to ensure I had sufficient time to enjoy my retirement at a younger age and allow me to pursue other post retirement opportunities.  Thankfully, I had also saved some money through the Registered Retirement Savings Plan which I could draw on in case of any unexpected emergency type expenses.

Reduced Expenses

Before any possibility of balancing the retirement budget, I had to first pay off any outstanding debt.  Thankfully after 30 years of working, I was finally able to pay off the house mortgage.  What an incredible relief that was.

However, I also knew I had to and could reduce my post retirement monthly expenses in the following areas:

  • Travel to/from work
  • Work lunches
  • Contributions to a Registered Retirement Plan
  • Short and Long Term Disability Insurance
  • Employment Insurance
  • Life Insurance
  • Contributions to the company’s matching savings plan
  • Donating our second automobile to my daughter to reduce maintenance, licensing and auto insurance expenses
  • Income taxes, given a lower marginal tax bracket with a reduced pension income

Then with a few more discretionary budget item cuts, I actually managed to balance the post retirement budget.  The challenge of course was to execute on that budget plan.   Then at age 60, both my wife and I decided to start collecting our Canada Pension Plan, albeit a reduced one, actually a 30% reduced one (6% for every year under the age of 65).  Again we both wanted to ensure we enjoyed our early retirement to the fullest and not wait for the increased payout later on.  I’m pleased to say, that after 8 years in retirement, this decision has proven to be a successful one to date.

Defined Contribution Plan

Alternatively, more and more people are managing their own pension plan through payroll deductions into a Defined Contribution Plan which in many cases the company will match that contribution.  However, the plan is entirely managed by the employee and not the company, as is the case with the Defined Benefit Plan mentioned above.

The challenge is for the retired employee to determine how much to draw down or spend down on the total retirement investment portfolio.  Some experts say to draw down 4% per year on the total value of the retirement savings portfolio.  That’s a fairly simplistic approach given earning fluctuations in the market place and annual inflation.

Perhaps a better approach would be to draw down a fixed amount to begin with and then add an inflation percentage increase year over year.  For example, if your retirement income requirement was $40,000 annually, then you could increase that amount by 3% per year to account for inflation which means in year two, you would need to draw down $41,200.  Either way, you would need at least a retirement savings portfolio in excess of $1M to ensure you wouldn’t outlive your retirement savings portfolio.  The approach of reducing post retirement expenses would still need to apply.

I realize that I have described two types of retirement pension plans which would likely be applicable to many.  However, I would be remiss if I didn’t mention that some will chose a different route entirely.  One that would involve mini-retirements.  By that I mean, the entrepreneurs who own their own business could decide to take extended vacations, sabbaticals or mini-retirements to travel the world, for example, to regenerate themselves and then return to manage their business.  This approach could continue for many years and for some well beyond the age of 65, given a lengthy and healthy life.

This is a lifestyle that I am unfamiliar with but would love the chance for a do over. That would clearly fall into the would have, could have and should have category.   However, if you have the opportunity to be a successful entrepreneur where you can run your own business remotely, with little effort, by all means take a close hard look at this retirement option.  After all, we need to be happy and excited about our life in whatever retirement approach we take.

 

It’s Time for a New Beginning

I remember driving home from my last day at work thinking “so this is what it feels like to be retired”.  You could not wipe the smile off my face.  I was both relieved and excited to start that new chapter in my life.

I woke up the next morning and took my time to really smell the coffee.  I had chosen to retire in late June so I had the whole summer ahead to enjoy my new found freedom.  How quickly you realize that you have so much extra time, at least 8 hours in a day, to take on those “Honey do List” items.

Our children had all moved out so my wife and I needed to find a common ground to enjoy each other’s company without over staying each other’s welcome so to speak.  I loved to work outside the house on the landscaping where my wife enjoyed woodworking and making house renovations with a little of my help.  However, one thing we really enjoyed was playing golf together.  We had found a balance between being apart and being together.

Almost immediately, our daily schedules began filling up with weddings to attend, social gatherings with friends, golf outings and travelling to be with our children and grand children.  Having retired fairly early,  I quickly realized that I needed more in my retirement life.  That’s when I landed my part-time job at the local golf course.  I once again had a purpose.  I had a reason to get up early and work 4 or 5 hours and then still have the time to come home and spend the rest of the day relaxing.  I had truly found my dream come true retirement life.

After working for 35 years you become accustomed to meeting goals and achieving something meaningful.  My maintenance work at the golf course was the fix I needed to feel whole again.  To feel that sense of purpose that others would appreciate.  I certainly wanted to eliminate any possibility of boredom or at worst any chance of depression.  No way that was happening.

I can’t stress enough the importance of feeling your retirement is that one opportunity you get in life for a new beginning.  There is so much out there to chase after.  Let your imagination wonder.  Take that chance, you have nothing to lose and everything to gain.

 

The Retirement Countdown

As year end approaches and with the holiday season upon us, there is a huge sense of excitement in the air.  This is a time for family and friends to rejoice and reconnect.  It may also be a time when many have chosen to spend their last few days at work before they retire and recharge into that new chapter of their lives.

Trust me, the countdown to these last few days of work probably started about 365 days ago.  Some will have countdown counters set up on their workstations to remind them every day.  Nevertheless, as the “big day” approaches, there is both a sense of relief and anticipation.  It is also a very emotional time.  Co-workers have most likely planned a retirement party for you, where some over the top speeches will be heard and some excessive drinking might take place.  You will likely be coerced into making a speech which surprisingly might be easier than you think.  After all, you knew this day was coming. You would have prepared your retirement checklist and done all of your homework well ahead of time.  You’re now fully committed to this new beginning.

The Retirement Checklist

In the back of your mind, you would have double checked your retirement preparation checklist and it might have included (to name a few):

  • The post retirement budget
  • The honey do list
  • The part-time work options
  • The mind and body activities
  • The travel plans

You’re ready.  You can do this.  Be strong.

Saying Goodbye

However, saying goodbye to all of the people you worked with, some maybe for many years, is a difficult and even awkward thing for some.  Hey, even tears will be shed.  Sure there will be the promise to keep in touch and perhaps meet up for drinks every so often. But deep down you know that several ties will be broken for ever.  It’s just simply tough to say goodbye.  But the time has finally come to pull the trigger and just say it – “I’m Retired and so help me, I promise to be Recharged”.

 

Understanding the Generation Gaps

Vive la différence!  As a Baby Boomer I realize how different I was from my parents and grandparents.  More importantly, one really needs to understand what their children and grand children are challenged with in today’s world.  Despite our huge socio-economic differences, we will all retire from our working lives someday and we need to ensure those days will be the most fulfilling, rewarding and satisfying ever.

It’s important to understand the differences between the various generations and how we can share our knowledge.  Depending on the year we were born, experts have labelled us as either Baby Boomers, Generation X, Y or Z.  The generation definitions have been defined by many.  The following source was from a class on “Connecting across Generations”.

Silent Generation or Traditionalists (1927-1945)

Marriage is for life; labor union generation; Korean and Viet Nam War generation; in grade school, the gravest teacher complaints were about passing notes and chewing gum in class; readers; the Big-Band/Swing music generation; strong sense of trans-generational common values and near-absolute truths; disciplined, self-sacrificing, & cautious.

Baby Boomers (1946-1964)

The “me” generation; “rock and roll” music generation; ushered in the free love and societal “non-violent” protests which triggered violence; self-righteous & self-centered; buy it now and use credit; too busy for much neighbourly involvement yet strong desires to reset or change the common values for the good of all; the first TV generation; quite conversational & skilled vocal & writer advocates; poor on marital skills…the first divorce generation; optimistic, driven, team-oriented.

Gen X or the Busters (1965-1979)

Raised by the career and money conscious Boomers amidst the societal disappointment over governmental authority and the Viet Nam war and the scoff-law attitudes coming out of the protest times; school problems about drugs; late to marry (after cohabitation) and quick to divorce…many single parents; are iconographic…clothes labels are large & shows of caring (turning out for a worthy-cause rally) are fully sufficient expressions (while government, charities, agencies will see to the work of it); want what they want and want it now but struggling to buy; conversationally shallow because relating consists of shared time watching video movies; short on loyalty & wary of commitment; all values are relative…must tolerate all peoples; self-absorbed and suspicious of all organization; computer generation; survivors as individuals; cautious; skeptical, unimpressed with authority, self-reliant.

Gen Y or the Millennials (1980-2002)

Facebook, Twitter, Instagram and other instant communication technologies may explain Generation Y’s reputation for being peer oriented and for seeking instant gratification. Thrive in a multitask environment but yearn for personal relationships.  Generation Y, like other generations, is shaped by the events, leaders, developments and trends of its time. Members of this generation are facing higher costs for higher education than previous generations.

Current Gen Z or the Digital Generation (2003+)

The Internet, technology, war, terrorism, the recession, and social media shape their lives. Gen Zs are tech savvy.  Social media has connected them globally to their peers. The internet has connected them globally to knowledge.  They are bright, and their IQ scores are higher than previous generations.  They are flexible in nature and expect flexibility from institutions. They are accepting of diverse populations.

The Current Trend

Suffice it to say, changes in technology have made a huge impact on all of our lives, from Gen Z to Baby Boomers. Several changes for the better, thankfully.  However, as more and more Baby Boomers retire from the workforce, they leave with knowledge and expertise that companies are finding extremely difficult to replace.  That knowledge and expertise needs to be passed along to the next generation.

Finding a mentor in the workplace can be awkward. Generation X and Y individuals will typically migrate towards the baby boomers to seek out guidance but the technology gap alone can be daunting. You need willing volunteers that want to pass on their knowledge and many baby boomers are actually eager to please. Let’s face it, the learning opportunity from a baby boomer mentor far outweighs any of the awkwardness. Furthermore, baby boomers can learn so much from the younger generations.  It needs to be a two way street.  There are so many lessons to be learned and pitfalls to be avoided.

 

 

 

Money Management – Lessons Learned

Managing money is not as simple as it sounds.  Manage it, or it will manage you!  The skills required to successfully manage your own money are not really taught in school, yet they are so important.  So many books have been written on this subject yet the information that is shared is tough to follow.  Gratuitous advice is provided by so many, like “Spend less than you earn, invest the rest”.  How easy is that?  Well first you have to earn more than you spend and in these tough economic times that’s not always that easy.

When you’re young and carefree, the farthest thing from your mind is saving for your retirement.  There is nothing wrong with that.  I sincerely believe one should enjoy their youth as much as feasibly possible.  You might have a family to take care of, a mortgage to payback and the typical car loan.  These are all important stepping stones in life for so many.  However, the day will come when reality sets in and some serious financial retirement planning will be required.  Some say, one should start planning and saving, to some degree, for their retirement between the ages of 27-30. The reason is – we are living so much longer than our grandparents or great grandparents.  No one wants to outlive their available income stream during their retirement years.

Some of the basic money lessons I learned that helped me meet my retirement plan goals were:

  • Lesson 1:  Minimize the debt load, pay off those credit card balances monthly, and never ever just pay the minimum balance. I can honestly say that I never once paid interest on an outstanding credit card balance.
  • Lesson 2:   Live within your means, stick to your budget. A general guideline for determining your monthly budget is to allocate 50% towards your fixed monthly costs (e.g. rent/property taxes, food, utilities, etc.).  Then another 20% towards some type of savings be it short term loan repayment or long term (e.g. retirement).  Lastly the final 30% could be used for yourself to buy clothes, entertainment etc. Download a free copy of money management software and track your expenses against your budget.
  • Lesson 3:  When you are ready and saved enough for a down payment, buy that first house/condo. Grow your personal equity value.
  • Lesson 4:  Ensure you save 10% of your earnings every month for your retirement investment plan.  Participate in your company’s matching contribution plans.  Many companies will match any contribution their employees will make to a Defined Contribution Plan.
  • Lesson 5:   Be sure to set up an emergency savings account equal to 6-8 months’ worth of your expenses.  Be prepared for that unexpected expense requirement.
  • Lesson 6: When you have saved that first $100,000, find a reliable Financial Planner/Advisor who can grow your savings through the stock market with diversified blue chip company shares which pay out healthy dividends with growth opportunities in the stock price and its dividends. Make use of all of the tax avoidance investment opportunities available. In Canada, we have Registered Retirement Saving Plans (RRSPs) and the Tax Free Saving Accounts (TFSAs). Similar offerings exist in the USA and these should be taken full advantage off, again with the guidance of an experienced and trusted Financial Planner/Advisor.  Keeping in mind, that any non-registered investments/savings, depending on your marginal tax bracket, for example, interest from Savings Accounts, Guaranteed Investment Certificates and Bonds, are taxed at the highest level when compared to capital gains or corporate dividends.  Thus all the more reason to invest in a diversified dividend paying stock portfolio.  You not only avoid paying higher income tax on your dividends you can also enjoy a 50% tax break on any capital gains you achieve if and when you decide to sell any of your preferred or common shares.
  • Lesson 7:  Real estate investment opportunities are out there but there is risk with over inflated market values, troublesome renters and unexpected maintenance expenses. However, there are Real Estate Investment Trust (REIT) stocks that deal with commercial real estate investments which pay out reasonable dividends and can appreciate when real estate markets are up. Best of all, there are no calls in the middle of the night from renters.
  • Lesson 8:  Life insurance is really required when you get married and then even more when you have children. Term insurance is the right choice. Our mortality is something we all have to deal with.
  • Lesson 9:  Learn how to prepare your own tax return.  Purchase an Income Tax preparation software package and enter your own information and find ways to avoid paying tax through helpful tips and hints provided by the software. Income tax avoidance is totally legal.  Income tax evasion is illegal.  Everyone who wants to manage their own money needs to understand how much and why they pay income tax.

These are some very basic money management lessons that served me fairly well.  Granted there is always room for additional risk/reward options given your age and as opportunities present themselves these can be pursued with an open mind, again with the guidance of a reliable and trustworthy Financial Planner/Advisor.

In an upcoming blog posting, I plan to conduct an interview with my personal Financial/Investment Advisor where I will document her responses to some key questions on what’s involved in financial planning and investment advice for one’s retirement.

Let the Journey Begin

The alarm clock buzzes, it’s 6 AM and time to get up for work.  Your trip into the city is a long one.  If your driving it’s survival of the fittest.  If you’re using public transportation then maybe you’re just dreaming of the day when this whole rat race thing will end.

As the work day lingers on, whether it be meetings on top of meetings, a never ending list of emails to read and respond to, or a job jar so full, you’re ready to simply surrender.  But then your mind will occasionally wonder to that ultimate day when you will finally have a stress free life.

However, dreaming about leaving the work place for some kind of retirement is one thing. Being able to take action on that dream is a whole other matter.  In fact for many, that decision to retire is one filled with uncertainties and actual fear.  Procrastination will tend to creep in. Perhaps the most important issue that rises to the top of the “fear list” is how can one afford to retire and maintain a decent standard of living?  How long is one even able to live and enjoy that stress free life?  Could one actually outlive their retirement income stream?  All legitimate concerns.

Fear of the Unknown

Actually the first fear that one always seems to deal with is our mortality.  We all know we only have so much time on this wonderful planet and we need to use that precious time wisely. When I mention the word retirement I am absolutely not talking about old age nursing home life.  I am talking about a whole new chapter in your life.  A chapter where one can recharge and be the person you always wanted to be.  I am talking about making every day count for something.  I will post more on that subject in the future, but for now, let us deal with the financial affordability concern with retiring and recharging.

Research

The best way to alleviate the fear of retiring is to perform some rudimentary research on what’s really involved.  There are hundreds of websites that deal strictly with the affordability question.  There are a few good books on the subject as well.  I particularly liked the book by Charles Schwab – You’re Fifty – Now What?.

If you are fortunate to have earned a pension, then “Hello Pension, Goodbye Tension”. There are so many retirement calculators out there, all you need to do is “Google” it.  The bottom line is  everything depends on how much you have saved, how much you’re going to inherit or how much your defined benefit pension will be worth at retirement.  When I performed my research into the whole affordability question, I could not believe how many so called experts had differing views on what’s actually required.  I mean 60%-80% of your current income.  Come on, that’s a huge range to factor in.   If you are or have been saving for your retirement, I cannot stress enough the importance of engaging a trusted Financial Planner/Advisor to help manage your money.   Manage it, or it will manage you!

I found the best tool to determine whether one could afford to retire, whether it be early or later, was to simply develop a monthly income vs. expense budget.  Thankfully several expenses can or will be eliminated once working life ceases and retirement begins.

In today’s fast changing corporate world, several companies are offering early retirement incentives.  The decision to retire early is not an easy one.  It’s one thing to answer the affordability question, but what about the lifestyle after retirement.  What on earth does one do to stay active and healthy?  I highly recommend reading Ernie Zelinski’s book,  “How to Retire Happy, Wild, and Free”.  This book is filled with lots of tips to help you keep active and to live every day stress free.

The Honey Do List

I remember when I first retired and everyone warned me that just wait until your spouse gives you the dreaded “Honey Do List”.  Well it turns out that list will likely contain a job jar that only lasts about 4 months.  OK, then what?

Part-Time Work

After completing all of my “Honey Do List” in about 2 months, I decided to look for a part-time job.  There are lots of part-time jobs for the semi-retired – again just “Google” it.  But I certainly did not want to re-create another stressful part-time job situation.  After all, I was pleased to leave that life behind.  After thinking about several job opportunities, I decided my true passion was to get away from an office job and to work outside in the fresh air.  I applied to be a greens keeper at a local golf course.  After all, I was already used to getting up early for the long commute into work.  This golf course was only 10 minutes away.

What a weird feeling it was, having to develop a resume for a job I had absolutely no experience with.  After handing in my resume, I was called the next day for a job interview, sitting outside on a picnic bench where the golf superintendent asked me a few questions and boom, I was hired.  To make a long story short, I worked at that golf course for 7 years, cutting greens, approaches, tee decks, changing hole locations on the green, top dressing the greens etc.  I could not believe the joy I had, knowing that at the end of my shift, I could actually state clearly what I had achieved.  Amazing!

The transition from a working career to a part-time job made the whole process virtually seamless.  I loved every minute of it.  I highly recommend it for anyone who is thinking of retiring early.

Suggested Books to Read

How to Retire Happy, Wild and Free by Ernie Zelinski

You’re Fifty – Now What? by Charles R. Schwab 

 

So You’re Retiring – Now What?

 

For some of us, retiring has been a long desired destination.  However, we all know by now, that it’s more of a journey than a destination.  I realize that retirement is not for everyone and it’s very much a personal decision on whether to retire early or as late as possible.  Now, thanks to the internet, information and knowledge can be shared instantly throughout the world.  If you are reading this blog you are one of many who have learned that knowledge is power –  power to overcome any doubts, worries, anxiety or even procrastination.  My goal is to provide you with some of that knowledge to help you on your retirement journey that can be both exciting and fulfilling.

About the Author

My name is Vance Page, as a baby boomer, I was both anxious and worried about retiring.  So many variables to think about.  Why should I even think about retirement?  How does anyone deal with it all?  When is the best time to give up your career and start a new one?  What on earth will you do with yourself?  Who can you rely on for some direction and guidance?  Where should you move to or even move at all?

Well, after retiring early at the age of 56, I have spent the last 8 years experiencing the retirement journey and believe me I am recharged.  I would like to share these experiences with you through this blog.  Hopefully, this could help relieve some of the anxiety and worry about this whole journey.  Granted my journey will be different than yours, nevertheless, it should provide you with a benchmark of what could be expected and more importantly, a very positive feeling of things to come.

What to expect from this blog

My goal is to be as transparent as possible in the upcoming blog posts.  For example, here are some of the topics on my retirement journey that I would like to share with you:

  • The early research into what’s involved in retiring
  • The financial affordability concern and how to deal with it
  • Downshifting from work life, to part-time work, to an active lifestyle
  • Golf anyone?
  • Time is your friend – use it wisely
  • Second guessing – reliving work memories
  • Fear of the unknown
  • What about downsizing?
  • Looking into Active Lifestyle Community living
  • Keeping the body moving and the mind active
  • Meeting new people, new neighbours and making friends for life
  • Volunteer to do something, anything
  • Venture into the new and challenging
  • ….and many more

I am very excited about my venture into something new and challenging through these blog postings.  So, welcome to Retire and Recharge.  Enjoy the ride!