For a few years now, I’ve been inspired by early retirement. We’re certainly not there yet but we’re starting on a good path. Using this site as my guide to document our financial freedom journey I’ve been fortunate to meet a number of fine folks who are willing to share their own financial stories with me. Today’s post is a retirement essay from a reader – because if you save like this you can retire like that, in style.
- Name: “RBull” from Canadian Money Forum
- Age: mid-50s
- Family status: married
- Retired: fully since 2014; semi late 2011
- Retirement plans: Travels the world a few times per year; enjoys financial freedom to the fullest
How did you get started in investing?
First off, life begins when you’re debt free…but I’ll come back to that later. The investing part started for me at age 22 when my career started to take shape.
I did the usual big bank mutual funds routine for several years with a rep until I DIY’ed but was largely still with mutual funds, although dabbled in things like futures, Vancouver exchange penny stocks. Mostly through luck I did well with this but wisely stepped away from the gambling table with all my chips and some from others.
In marriage we consolidated assets and continued investing in mutual funds on our own for a year or so until I made the mistake of hiring a broker to manage our money. That lasted less than 12 months which also prompted me to start the Certified Financial Planner (CFP) course in my early 30’s and begin in earnest to learn more about investing.
As time went on I became more conscious of seeking lower cost mutual funds. I stopped chasing hot funds to purchase approx 15 quality blue chip dividend payers beginning in my mid 30’s – the usual big names. About 7 years later also purchased several Exchange Traded Funds (ETFs) to give me more international diversification at low cost. We were always 100% equity invested, until retirement…
What was your savings rate to get you to where you are now?
I would estimate our savings rate averaged a little over 20% for about 20+ years. We didn’t have the Tax Free Savings Account (TFSA) until more recently so we maximized contributions to our Registered Retirement Savings Plans (RRSPs). We also built up a healthy non-registered portfolio after the RRSPs were nicely funded, although we raided this account several times (other stories!). We were disciplined with our savings rate. It was a big key to early retirement.
Index investing using low-cost Exchange Traded Funds (ETFs) seems to be a sensible way to invest. What’s your take?
Earlier this year I read Millionaire Teacher by Andrew Hallam (a book I know you’re fond of Mark) and it has reinforced my belief that indexing and keeping it very simple is the way to go. Approximately two years before retiring I sold almost all my stock positions to purchase broad market ETFs to simplify the portfolio, increase diversity and keep fees low.
This year, I intend to release my grip on a couple of small stock positions I have. I have considered these companies the “explore” part of my portfolio (like you do) but it’s time to let them go. At time of writing (during the market swings of mid/late August) our portfolio is now 54% equity, with about 46% fixed income, of that about 12% cash. However we will need to consider rebalancing again due to the widening gap from our 60/40 asset allocation target.
We stay disciplined with our asset mix. We plan to maintain a modest “cash wedge” that keeps us happy and secure if things go bad.
On that note RBull, what does that happy cash-wedge-like portfolio help pay for in retirement?
Plenty, it’s a very good life. I feel we are very blessed.
We enjoy our seaside home and have hobbies ranging from gardening to motorcycling, kayaking, running, fitness, reading, home and vehicle handyman projects.
In our first year of retirement we were “away” 4.5 months. We traveled in Atlantic Canada for about 2 weeks, have done 7 weeks of cruising (Mediterranean, Caribbean, and Bermuda); spent 10 weeks in the southern US; we also spent time in Manhattan, Rome and New Orleans. We have recently booked arrangements for a trip to Asia this fall for five weeks. After that, we have a seven week Spain trip in the spring. We may spend some winter time in California in Feb/Mar 2016.
You might already know I’m a hybrid investor: I invest in many individual dividend paying stocks and I use a few index funds for extra diversification. What are your thoughts on my game plan?
I understand the dividend situation and I agree with putting Canadian dividend paying stocks in a non-registered account for the dividend tax credit.
I’ve owned lots of good dividend stocks and dividend oriented ETFs like XDV and CDZ in the past but I’ve ditched them all. It took me a couple of decades to arrive here but I’m happy with mostly broader-market ETFs now.
Some of the ETFs we own are: VTI, VEA, VWO, VCE, ZRE and we give the equity side a tilt to lower volatility with ZLB and USMV. My overall ETF cost is around 0.17% on equity assets. On the fixed income side there simply aren’t good options out there currently, due to the interest rate environment.
Although I don’t really like bond ETFs (since your actual return is a moving target) we have about 6% between VSC and VAB to help with balancing/maintaining our asset allocation.
Back to you, I think your plan will work very well as long as you stick to it AND keep a disciplined savings rate.
You might find as you get older you invest in more ETFs like I do, which may not be a bad thing since it will reduce your risk over individual stocks.
There is lots of debate in the personal finance community on investing using the TFSA first vs. RRSP first vs. simply paying down your mortgage. As someone who was financially free in their early 50s, what’s your take?
I don’t think there is a perfect recipe for everyone. I will say that the TFSA works for most Canadians and the RRSP is likely best used by medium to high-income earners, given their tax-rate with contributions to this account will likely be higher than their tax-rate at time of withdrawal.
Getting back to your question and my earlier comment, I think life begins when you’re mortgage free. We paid off all debt when I was 35 and that was 3 houses and about 20+ years ago. But we also saved a lot while having a mortgage.
If I had to recommend one universal thing to your generation (and perhaps people in general) it would be to work on killing debt and staying out of it, even with rates so (unusually) low now since this encourages more consumption and leverage. It’s never going to get easier to eliminate debt than with today’s ultra low rates.
I recently wrote about lacking consensus on retirement withdrawal strategies. What’s yours?
I’m still working on it! Seriously though, investing is perhaps easier than divesting with a total return approach.
- We plan to keep enough cash on hand to cover about 1.5 years of expenses and weather market dips.
- We have one moderate (early retiree reduced) workplace Defined Benefit (DB) pension to rely on, so that provides for general expenses. I only had benefit of a Defined Contribution (DC) plan for about 10 years, which is now converted to a LIRA.
- We expect our RRSPs/LIRA to generate about $32K per year conservatively (total return). We will rely on this until depletion, likely early to mid 70’s.
- Originally we were planning to take Canada Pension Plan (CPP) at 65 but it’s looking more like age 60 now, that will provide us with about $12.5K per year.
- We intend to take Old Age Security (OAS) at age 65, that will add another $12K or so, assuming it’s still around! (BONUS! Our plan doesn’t include it!)
- We’ll keep building our TFSAs with any funds we do not spend from RRSP withdrawals/non-registered dividends and interest since this account is tax free, not income tested and can grow nicely over time when funds are needed in 20 years or so.
Our plan is projected to age 95 for the youngest person that well exceeds our family longevity history.
If I had to summarize:
- We’ll draw down our RRSPs first as we require funds, contributing some or fully to TFSA.
- After RRSPs are gone we’ll draw down the non-registered account in our 70s.
- We’ll spend from our TFSAs after that, which should be fine since we don’t expect to travel as much by our mid 70s.
We eat healthy and work hard to stay in shape so we’ll see!
Lastly, any retirement worries RBull?
Not really. We are fortunate to be in comfortable financial shape; we are lucky people. I can confirm financial freedom is an amazing feeling. If you continue to save, invest and kill debt (while having some fun) you’ll be more than fine.
Thanks to RBull for sharing this retirement essay. What do you make of his story and what questions do you have for him?
You can find more retirement essays from folks that have successfully “been there, done that” on this Retirement page here.
I don’t currently own any individual stocks- all ETF’s for equity, a couple for bonds but mostly individual bonds & GICS on the FI side. The equity ETF’s are mentioned in the article. The stocks I used to own are the typical dividend blue chippers-mostly buy and hold but I did a bit of trading back then too.
Good to hear from you RBull. Thanks for the reply.
Good summary, I may have missed this before but what individual stocks does RBull own? I would assume the usual big banks, telcos etc but was curious which ones he owns (or used to own)
Thanks Dividend Wisp. We feel very fortunate.
I agree with the realism on Mark’s site. He does a great job.
Good luck on your financial journey.
Good to hear from you Deane. Hope all is well 🙂
Good to hear from you too Mark.
Yes, we’re doing great.
Hope all is well RBull, thanks for checking in.
Thanks for sharing this story, I recently stumble onto this site and have found some good information here to help with my own journey. It’s very motivating to read about authentic story like these.
You’re welcome Johnny. Thanks.
Good to have another interested poster on this site.
Great stuff Johnny. Happy to have you as a reader.
A very nice read. I agree with the others, it is nice to see someone who is already where we want to go. And the how and why on their money management is nice as well. Gotta like the realism here, compared to certain Canadian newspapers and their ‘investor/early retirement profiles.’
That’s what I liked about RBull’s story as well. Focused and disciplined. Something we can all copy. Thanks for reading.
Thanks Money Grower UK. Yes, it can be done.
Nice to see young folks taking an interest in their finances and setting up goals. Best of luck to you.
Thanks Brian Robben. You’ve got a lot of years ahead of you to enjoy and to build a solid rock for your financial freedom. I was your age when I started and fortunately it worked for me. Good luck to you.
Great post with some really informative tips.
I am still in my early 20s and I am looking to be financially free early in life. This post puts it in perspective and shows that it can be done.
I’m only 22, but reading this post is a good reminder toward the benefits of saving and investing to reach financial freedom. Good stuff!
SPBrunner, that’s a fair comment and one I agree with. Although some context is needed to better explain our situation.
Our basic living expenses are covered by the pension. We could live on this (if needed).
Between actual cash and “near cash” (individual bonds & GICs maturing at various intervals annually) ) we have more than 5 years worth. Adding the distributions/dividends, interest, coupons to the pension provides a comfortable retirement, without tapping equity or FI principle. This is before considering CPP & OAS. However, we intend to carefully deplete principle over time (not in market dips) and maximize lifestyle since we have no need to leave a legacy.
With several income buckets and good cash reserves we should be able to weather market dips.
Thanks for the comment Deane.
The only comment I have is that I would think that cash to cover 1.5 years of expenses in market dips is too little. I have 5 years of cash or near cash for this. 3 years is probably enough as most bear markets do not last longer than 3 years, but I like a margin of safety.
Good questions Susan. Not doubt Deane will respond and likely clarify, I recall he has a very conservative and generous cash buffer to weather market dips.
From Peter: “Start (saving) as soon as you are financial comfortable to do so, don’t put it off. Your life depends on it.”
Too bad its only those who are already saving that follow this. Should be part of a package given to new parents.
From Peter: “You have to put money in perspective if you want to live a simple, stress-free and happy retirement. How much money do I need to retire on? Make as much money as you can and stop working as early as possible. Keep it simple!”
When we were late 50’s the bank told us we would out-live our savings by 70 to 75, so I really started saving and found a better way to invest. Now that I’m 73 and KNOW that I will never out-live our investments (barring serious health problems), life’s stresses have nothing to do with money. But your right Peter, everyone has to look at their won situation and do what they feel good about.
Thanks and good luck to you Peter.
Thanks. That’s an estimate for our personal savings only and it’s not something I tracked too carefully over the years. For 10 years my wife also contributed 10% to her pension and for 10 years I contributed 6% to mine. I also invested in a company I started, operated and sold.
I wish you the very best towards reaching your goals.
Mark, I’m very glad to hear it has been inspirational to your journey. That is very satisfying to me.
Interesting read. I always enjoy hearing from someone that is already enjoying early retirement. I was actually surprised to read he had a savings rate of 20% – although this is quite great, I usually think of early retirement needing a much higher rate. It makes me feel good about reaching our goals!
Thanks Jess. I know his story was very inspirational for me and our journey.
You’re welcome Henry.
We’re back home now. I’ve got lots of chores around here before winter and our next round of traveling.
Thanks, Deane: Hope you are enjoying your trip and all the best.
No offense taken whatsoever from this corner Henry. I enjoy reading different perspectives and also having the opportunity to state my own opinions.
It sounds like your investment strategy is working well for you.
I’m also not always correct although please don’t tell my wife.
Same Deane, I’m not always correct around this house either but my wife knows! 🙂
No offence to anyone or their choices. I’m probably a minority when it comes to an investment strategy and most people would not feel comfortable with my choices. I do express opinions and provide comments, but like it or ignore it. And I’m not always correct, just enjoy these blogs and having a chance to chip in.
I appreciate your “chip ins” Henry. Keep them coming. I learn a great deal from folks like yourself who have been there, done that!
As was suggested by BeSmartRich up thread there isn’t only way way to financial independence. There are some common themes such as avoiding debt and saving a good chunk of your income that are important, but the specific investment choices are possibly the least important factor.
Sounds odd, but my tact now is not to maximize returns or income. I am looking for more balance, safety and only enough risk to meet our needs/wants for a good life. I am more interested in maintaining a portfolio that provides asset allocation between equity and fixed income, broad diversity, simplicity and relatively low cost. Our assumptions are for a 1% real return on investments, which I believe is relatively conservative. If we do better, great, we can live it up more. If we do less, we can handily adjust the discretionary part of our spending. We’re content with this approach.
If we really wanted or needed more we would have worked longer and/or continued to invest more in equities with a bias to higher dividend payers. There are “costs” to that strategy that we didn’t want at retirement time and don’t really want or need now.
For others a different route is a better choice. Knowing what works for you is a key to sleeping well at night and to enjoying your financial freedom and the journey to it.
From our personal experiences to date, I think our savings rate is by far the most important factor in us trying to reach FI in our early 50s. Without a decent savings rate, picking stocks over ETFs over mutual funds is almost pointless.
I don’t think your approach now sounds odd at all. You are at a secure point in your financial life whereby you don’t feel you need to take on major risks. That’s just smart investing, even though I think the 1% real return is rather low. Better to be conservative anyhow, this way, you’re not disappointed when the stock market doesn’t cooperate nor will you need to pinch pennies at any point in the future.
In the end, the best investment strategy is the one that reaches your goals and helps you sleep at night. I’m certain even though your paths are different you, Henry and others who have shared their FI stories a bit here have done just that 😉
Like most things, everyone has an opinion on investing. I prefer Deane/RBull’s approach with ETF’s and neither of us are novice investors.
That’s the beauty that comes with investing Marko, everyone can take a different path. Hard to argue with RBull’s approach, retirement by early 50s is very impressive. I recall you have done very well with your approach as well – Kudos.
I agree that a novice starting with an etf would probably make less mistakes than trying to pick stocks. But like everything else there are things one should learn. Too many sites suggesting etf investing don’t provide a full picture, just pluging the advantages of etf’s over Mutuals.
I agree. In some ways, ETFs are the new mutual funds. They are many ETFs that add little value to the investor and the financial companies that run then are of course, capitalizing on this lack of understanding. Buyer always beware.
In the meantime I’ll happily DRIP my banks, pipelines, telcos and energy companies as much as possible for years to come.
The numbers above don’t line up with the headings which are
Non Eilg Div
Ret of Cap
Each number after the yer starts with 0.
Below is a breakdown of the ZDV etf distributions since inception (excluding 2015). Note that the distribution doesn’t grow, in fact in 2015 it will drop again from 2014. Also there is a Return of Capital which means hey are returning some of your own money as part of the what they call Income. Another reason I don’t buy etf’s.
Year Elig Div Non Elig Div Cap Gains Ret of Capl Total Distribution per Unit for Tax Purpose
2014 0.702553 0.000000 0.044796 0.052732 0.800081
2013 0.725100 0.000910 0.000000 0.105990 0.832000
2012 0.524729 0.000000 0.053298 0.158044 0.736071
2011 0.027212 0.000000 0.000000 0.083788 0.111000
Thanks Henry. I still feel investors nervous about selecting and holding the course with their own stocks, that ZDV is a good product for them. If it helps them not tinker with their portfolio – this is a good thing – no?
That said I’m not one to tinker with my portfolio. I simply buy more stocks and ETF units when I can. DRIP them. Stay the course, that’s it. Very boring but I think the process is working for us.
I’ve always thought the “ROC” is a play on words myself. It does sound better than “here is some of your money back”, which is not good marketing 🙂
Thanks for sharing the data from BMO.
Great story. I retired early (at 50 years old) so it was fun reading.
Thanks for reading Steve. Congrats on your early retirement.
You’re welcome Marko.
Sounds like you’re living well too. Early retirement is great for those who want it and are prepared for it.
Thanks for the response Deane. It sounds like you are living life well 🙂
DivGuy, I’m not really sure what you’re asking specifically, although I’ll try to answer.
We have places we want to visit over the coming years. We research these destinations and make plans including estimating costs (budgeting). The trips must also fit into our annual financial budget (how much we plan to spend) and leave us enough for a good lifestyle while at home.
Before retiring we kept an eye on all our expenses to be able to determine our basic living expenses. This along with an annual budget for travel and other discretionary spending allowed us to come up with a very good idea of our projected/planned spending. So far we are on extremely close to our planned spending without following it too closely. This is good news and working well so far.
As I plan a one-year RV trip next year, I would like to know more about the financial freedom part and traveling. How are you making plans for taking advantage of this while still having a good lifestyle?
Thank’s for sharing!
Well, we’re far from financially free but our goal is to “live off dividends” early in retirement so we can have our cake and eat it too: financial freedom and travel. We will also minimize expenses in other areas of our life to accommodate this, such as downsize the home, go down to one car, and a few other things.
I’m sure other retirees can chime in on what they’ve done – mine are just plans!
All the best in your RV journey Mike,
Sorry, I have been and am still traveling with little access/time to respond to this thread.
Marko, I haven’t converted to a RIF since I prefer to have maximum flexibility with when, if and how much withdrawals are at this point in my life. I have no fees for withdrawals with my holdings, and see little benefit to converting anything to a RIF at this point. I will convert some of it by age 65, and perhaps sooner as our needs evolve.
Thanks again for the support from everyone. I’m happy to answer any questions anyone has.
Loved reading this post. It’s always great to hear from someone that has achieved early retirement and living off investment. Very interesting stuff about investing mostly in index funds to further diversify.
I’m glad to hear you enjoyed the post, thanks for reading and your comment.
15 of my holdings are in ZDV and those 15 represent 31% of their total. Agree that its got many good stocks, but there are 26 I just wouldn’t buy. As I don’t trade often, actually rarely, I prefer to eliminate any fees on the investments I hold. In addition my dividends and growth are higher than the etf (probably because they buy & sell and the mer).
You can’t argue with your success Henry! 🙂 I also prefer to eliminate fees where I can. I guess this is why I don’t have many ETFs (only 3) and don’t intend to hold more.
Thanks for sharing Mark. I love reading other people’s strategies and investing success stories a lot. Lots of things to learn from as there isn’t only one answer to financial independence.
Same. It was great to have RBull share his story. I learn from others, regardless of their investing approach. At least I try to. Thanks for reading and sharing the site BeSmartRich.
Looked at ETF’s which would include the stocks I own and calculated the annual Mer. The three funds were ZDV, ZRE & ZDY and it would cost me $5,292.19 per year, approximately 6% of my current dividend income. Seems like a lot of money just to spread my money over 172 stocks than the 20 which I researched and feel good about.
Interesting how you packaged that Henry. I own many holdings in ZDV and ZRE directly. I decided long ago to unbundle my REIT ETFs (ZRE) and own the top-5 or so REITs individually and avoid all the fees in the process. This is why I won’t own ZRE, VRE or anything else like it.
ZDV is a great dividend ETF for the price I think. ZDY would be more expensive with the withholding taxes than ZDV. I own a few stocks in what it holds.
Thank you RBull and to Mark for sharing another real life experience and financial strategy.
I am curious as to why you would draw down the RRSPs as opposed to converting them to a RIF? Will you wait until 70+ to convert the RRSPs to a RIF?
It was great of him to share. Maybe RBull can answer your question? I suspect it’s really about flexibility for him/them, they can decide how much to draw down RRSPs in any given year and adjust it accordingly (for tax reasons) vs. a fixed, minimum, payment schedule (with the RRIF). I’ll let RBull answer!
Thanks so much to everyone for the kind comments. Mark, thank you for the “help” with my story!
Best wishes to all of the good folks on here and CMF.
We’re back on the road now!
Happy to share your journey.
Thanks RBull for sharing your journey. It’s good to hear from a Canadian who went through some ups and downs, and found the right balance between living in the now and saving for later. Hope you continue to enjoy your travels and adventurous retirement.
I thought his essay was well done… Thanks for reading.
RBull, thanks for sharing your story and future plans.
I always like to hear from others on how they ‘did it’! It inspires the rest of us to get there as well.
Also, thanks for your positive contributions on the CMF forum.
Same Andrew, always great to learn from folks who have been there, done that. Indeed he is an excellent contributor to the forum.
He’s correct that Debt Elimination is critical. Then the fact he started saving at such a young age is definitely the second step to achieving success. He’s luckier than most by having a DB pension, even if modest, but the fact that he developed a strategy that suited his objective and stuck with it is definitely the third step.
Nothing wrong with retiring early, but I always enjoyed working and did not even think about retiring till I was 65. Even then I continued working part-time providing online accounting services. One shouldn’t worry about when one wants to retire as long as you enjoy your work and family life.
Develop an investment strategy, save and work on having your savings grow and continue to grow even when one does retire. Running out of money, even at 95, could be a reality unless your saving can generate an income that exceeds inflation
It seems starting to save early, and often, is a universal truth to all early retirees.
I also found it interesting about his progression, from mutual funds, to dividend stocks, to low cost ETFs. Again, I’ve seen others go through this same process…but I’m stuck between stocks and low-cost ETFs…I remain a hybrid investor.
You raise a great point about enjoying work. That certainly makes life/things easier on the road to financial freedom. Thanks for the insightful comment.
Thanks for this. I like reading about people already there and their experiences to try to understand how to balance today’s needs with tomorrows requirements-while trying to foresee all the ups and downs between those points. Need to have enough for a good retired life but don’t want to be the richest corpse in the graveyard and miss out on those experiences when we’re young enough to enjoy them with the kids.
Absolutely Keith and you’re welcome for the article. The reader was a very diligent saver but they also enjoyed the “good life” on their way to retirement. I like these stories as well because I learn from people who have been there and done that. Thanks for reading – hope you’re enjoying the weekend heat!