The following is an article written by Gary, an avid reader of this site. Gary wanted to respond to my claim about needing at least $1 million in assets to retire well, and maybe more for Generation X and Y. Take it away Gary…
Looking back much like Mark did in this post I can also tell you where I’ve made some investing mistakes. One of the things I did right however is not stressing about a retirement number. It certainly wasn’t a million dollars to retire on, and I didn’t retire that long ago. Here’s my story how I’m living off a portfolio of less than $1 million dollars and for folks nearing retirement, maybe you can too.
Saving early and saving often
I never had a pension plan through work, we had our own business, so I knew early on my wife and I had to look after ourselves. We started saving money in our Registered Retirement Savings Plans (RRSPs) back in 1977. We kept those contributions going until 1982. That year, we bought a cottage which we subsequently sold a few years later. We contributed to our RRSPs again in 1983 and a small inheritance was used to contribute to the accounts. We knew saving early and often would be the key to our retirement plan, and it was.
Good habits and some mediocre advice
During our careers we also worked hard to avoid any credit card balances, actually I don’t think we’ve carried a balance on our credit cards in almost 20 years. To accelerate our RRSP contributions (there were no TFSAs back then) we decided in the 1990s and 2000s to borrow money each year to maximize these accounts. The RRSP loans were paid off promptly every year within 12 payments no matter what! For about two decades we also contributed the maximum possible to the Canada Pension Plan. I knew we’d have to rely on this Plan for retirement, as we do.
Like most working Canadians I guess, with hectic lives without the time or energy to learn about personal finance, we followed the financial advice of our big bank – we invested in mutual funds and Guaranteed Investment Certificates (GICs). This actually worked out fairly well for many years. Later on we worked with a specialist at the bank who only dealt with clients with assets over $200,000. From this person we expected as-good or better results going forward. After five years past we found out we had less money in our account than what we put in! Our mediocre advice (and probably our passive approach to letting someone else deal with our money) prompted us to pull everything we owned out of the bank in 2006. That was the same year I retired. In 2006 we put it all into 5-year GICs. Turns out that wasn’t a bad move – I never saw the 2008-2009 financial crash coming and we didn’t lose a cent.
Post-crash and lessons learned
If I saw the Great Recession coming maybe I wouldn’t have done what I did but everything turned about well in hindsight. Post-crash, when the GICs came due in 2010 we put 60% of our portfolio into stocks (for growth and income) and 40% into a monthly income fund. I’m not a big fan of paying the 1%+ MER on the income fund but we also needed regular cash flow at the time, and we still do. We also kept back enough GICs for three years of expenses, while reinvesting the dividends paid from stocks and the income fund. Looking back this was a good decision for us.
I’ve been retired since late-2006 and have loved every day of it. After selling our small business we bought a 35’ 5th wheel and a truck to tow it. We live in Myrtle Beach in the winter and come back to Canada in the summers – great weather year ‘round for us. Here’s how we make a go of it with less than $1 million in invested assets:
- Me: Canada Pension Plan (CPP) payments at age 60 + Old Age Security (OAS) a few years ago.
- Wife: Canada Pension Plan (CPP) payments at age 60 + Old Age Security (OAS) later this year.
Government benefits will provide just under $2,400 per month which covers most of our basic expenses.
- TFSAs – we love this account and hold bank and telco stocks for income, not much income because the account value is still small but I know it will grow over time along with the income from dividends.
- We no longer own any RRSPs, our investments are in RRIFs (check out Mark’s recent posts on this). Our RRIFs hold a dozen or so Canadian and U.S. dividend paying stocks and a monthly income fund that churns out almost $2,000 per month.
We don’t live large but we are quite comfortable. We live on enough to take cruises in addition to our winters in Myrtle Beach. We worked hard, saved and retired at age 60 with a paid off home with less than $1 million in the bank. Canadians need to save and must be smart with their money but they can also follow our path. Thanks for sharing my story.
Thanks for the article Gary, I look forward to hearing from readers. Thanks for being a fan of this site and my saving and investing financial journey.