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’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?