The sleep easy way to save and invest for retirement
For a few years now, I’ve been inspired and motivated by early retirement. Or, for any members of the “retirement police” out there at least semi-retirement. The ability to work on our own terms sounds more and more appealing with time.
We’re certainly not there yet, to start any part-time work, but we’re slowly getting there. We’re optimistic if we keep our saving and investing habits (along with paying down debt) we’ll be able to start some part-time work in about five years or so. That means some form of semi-retirement is lurking, and that’s exciting!
On our financial 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 another one of those stories.
- Name: Marko Koskenoja
- Age: 58
- Family status: Married without children
- Retired since: 2018
- Retirement plans: Spend as much time outdoors as possible, leave for Ecuador (or someplace similar) on November 1, come back to Northern Ontario for a few months in the winter and leave for the south again for March and April, back to the North for May through October.
- Retirement worries: None and you’ll read why below.
Thanks for this Marko, great to have you on the site. When and how did you get started in investing?
Back when I was a kid my savings went into a savings account at the local CIBC. I learned to save money and live from my savings year-round when I was 15. I got first job working road construction in the summer as a student. I was making $4.50/hr and working about 60 to 80 hours per week. I saved enough money that I could live from it through the upcoming school year. I never had to work part-time at minimum wage jobs and I had more than enough money to enjoy things that were important to me back then.
It was a seminal experience that shaped my thinking about time and money, what the cost of things were; vis-a-vis needs vs. wants.
After school, when I began my full-time career in telecom, I continued my savings ways but bought mutual funds from bank clerks at my local TD branch in Parkdale (Queen & Dufferin area of Toronto).
Funny enough, I lived very close to that area in Toronto for some time. I know that branch. (Been in Ottawa since 2001.) Back to you Marko, what was your savings rate was while you were working?
Maybe 25%? I never had a number in mind. I spent my career in telecommunications sales/management with salary and bonuses/commissions. In that structure I was able to live from my salary and save/invest most of the residual income. I also became keenly aware of the freedom having money provided. I was able to take years off to travel and enjoy life without worrying about paying bills or my future.
Impressive. What was your investing journey and approach? What did you invest in and why?
Probably similar to many who subscribe to the DIY/My Own Advisor approach.
When I started buying TD mutual funds from the local bank branch I had no idea what I owned, what the cost was or what I was actually invested in. (Sounds like me Marko!)
By 2002, I had accumulated a portfolio value of $250,000. At that point I was 42. I decided to quit my job, sell my loft and move home to northern Ontario to be a fly-fishing guide and live a simpler life. Once I moved north I was offered another position in telecom and because I like money I took the job. I did that for another 7 years. I later started my own little business, put that on hold to work for a telecom yet again for 2 years; and then went back into my little business. I turned down a position with Bell in 2014 because I knew I had enough money and at that point I was just grasping….more, more, more. I didn’t need it.
When I moved north in 2002 I transferred my accounts to a local credit union. I unwittingly got duped into Credential and other funds that carried DSCs (Deferred Sales Charges – you can read more about those painful fees and other bad fees for your portfolio here.) I waited for the DSCs to expire and then moved my money to RBC into mostly their indexed mutual funds. I dealt with another bank clerk who was nice enough but didn’t know anything outside of what RBC told her. By then, in 2010, I had $600,000 invested and was starting to read up on investing. I moved my money to DFA (Dimensional Fund Advisors) in Ottawa who basically ignored me and did nothing for 1% in fees. The DFA funds were good though. (I think some low-cost ETFs are better!)
I was induced to move to TD’s Wealth Management group with promises of better returns and service – neither of which came true. At that point I became disillusioned with all advisers. I realized no one cared about me and my money more than me. I also knew that paying TD $1,000/month for non-existent advice and guidance was stupid. That money could be used to fund my retirement. So, I had my money transferred to TD Direct Investing and bought Vanguard, BMO and iShares equity ETFs and bond ETFs as recommended in MoneySense, Canadian Coach Potato and My Own Advisor.
Here are some great ETFs to consider for your portfolio here.
Now I pay a fraction of the MERs I once did. I know exactly what I am invested in and the returns are better.
Smart. Well, I guess you know by now that index investing using low-cost Exchange Traded Funds (ETFs) are a great way to invest. What’s your take on that?
I was a disciple of index investing using ETFs based on the Canadian Coach Potato ideology. I believe having equity ETFs with huge global coverage such as iShares XAW or Vanguard VXC is the way to go when an investor is younger and still in accumulation mode. I think the new Vanguard asset allocation ETFs such as VBAL or VGRO are great. I would recommend those funds for a simple investing approach to young Canadians.
Dividend investing seems to be a sensible way to invest as well, although with more risk and maybe less total return. Do you agree? What’s your take on that?
Mark, I got out of index investing and into dividend investing when I got close to retiring because I could not come to grips with selling some of my investments each year to fund my living costs. I know you like dividend investing as well.
I had planned to use the GIC ladder type approach but I came to realize with some new high dividend (and lower cost) ETFs this was a better approach for me. With the new iShares XDIV and XDG as well as BMOs ZDI, ZWC and ZWU – I get diversity, income, some growth and low costs. I also believe owning these funds (versus wrapped funds or funds of funds) makes them more tax efficient.
So, what are your current income streams? How do you know you have “enough”?
I currently generate almost $3,000 a month in dividends from my 60/40 mix of equity/bond ETFs.
I have about $95,000 in BMO ZPR (preferred shares ETF) as well as $81,000 in BMO ZDB (bond index ETF) in my cash accounts.
My RRSP, TFSA and RRIF have the same equity funds, along with Vanguard VAB and VSC bond ETFs. If the markets correct I might sell some bond funds and buy more equity ETFs.
Our basic living expenses are only $30,000 per year. So, if I now generate $36,000 per year and my wife takes a reduced pension (of $35,000) in two years at the age of 53 we will have more than enough to live from without even considering CPP and OAS until much later.
I thought I had enough when I was single up until 2006. Its matter of perspective I think. However, creating the monthly dividend income stream from my portfolio was a real epiphany for me. I don’t need to worry about selling my stocks and what the markets are doing. I can see why you’re approaching your portfolio this way now Mark.
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 has been financially successful – what is your advice to younger working Canadians on this subject?
I think you need to pay yourself first buy putting money into a TFSA.
Here are great things you can do with your TFSA.
I am strong believer in reducing debt and living below your means. I would also pay down the mortgage ASAP. Also, buying more and more stuff and always having new vehicles (with payments) never brings real happiness whereas spending money on experiences does.
I’ve written about retirement withdrawal strategies on my site. What’s yours?
As suggested earlier I am a big proponent of dividend investing and living off the dividends. Again, I see why you do what you do Mark!
Read why living off your dividends or distributions works.
I know a total return approach may yield overall better returns but buying into selling off your investments to live from can be difficult whereas the dividend income stream just flows into my accounts each month. Easy-peasy.
Any find words of wisdom for aspiring retirees?
If you want to do it, do it as soon as you can. You may love your work but there are many other things in life to do besides work. Just have enough money that you don’t need to worry about how you will pay your bills.
Thanks to Marko for sharing his story. LOTS of insight here. What’s your take? What do you make of Marko’s journey? What questions do you have?
You can find more retirement essays from folks that have successfully “been there, done that” on this Retirement page here.
@JILL – If one of your current stocks is down more than 10-15% – then I would double down on it and not add a new stock. Add the new stock once the current one you doubled down on bounces back.
Marko – good on you – enjoy each day – you deserve it!
Good read. I see a few similarities between Marko and our situation. Probably because we are almost same ages and were subjected to the same financial rules and opportunities as time went by. For example, there was no *on-line* anything when we started. Learning was not as easy as it is now.
^true that. I subscribed to Dr. Morton Shulman’s mail order investing course when I was in my mid/late 20’s. 30+ years ago, opening investing accounts, tracking stocks/prices was more difficult, and trade costs – all by phone were very high.
lol…I enrolled in a rental income thing. I *think* it was Hume Publishing but I’m not sure if that is correct. It was about buying rental properties and how to manage them.
I honestly can’t recall when I bought my first individual stock but I think it was in the late 90’s and that would have been on the advice of my FA I had back then and it was likely BAM.A.
Yes, Hume publishing.
haha Shulman was quite a character. He figured out how to charge 10X+ the amount for his mail order courses vs. writing a book or two.
Good point Lloyd! Life and access to information is so much easier with the internet.
Thanks for sharing Lloyd. I was hopeful Marko’s story would be informative and educational for readers!
This is definitely a story of savings! 2002 $250k, 2010 $600k and currently over $1Mil, congratulations.
I enjoyed the artlcle! I recently began dividend investing earlier in the year in my tfsa. I purchased 50 shares each of CU, Ema , Aqn, bip.un and enb when they were much higher than they are now. Those are the only investments in my tfsa. As an inexperienced investor who is very interested in learning, my question is this: Should a dividend investor with a limited portfolio, concentrate on averaging down on previously purchased stocks if they are good companies, or should he concentrate on expanding the portfolio, ie purchase a bank stock and/or telecom for further diversification. I plan on holding for the long term. I have another $27,000 to invest so I just want to get started in the right direction as a beginner. Thanks for your thoughts!
@Jill: Great question and good for you on considering the DG route. IMO, you should compile a list of DG stocks you would like to own. There are probably about 20-30 good CDN stocks (US has a lot more and as Mark suggests those should be held in an RRSP). You don’t need to hold all 30 Cdn stocks, rather narrow the list to ones you’d feel good owning. There was a good article at Motley: https://www.fool.ca/2018/06/13/is-a-growing-dividend-better-than-a-high-yield/
I personally like Average Yield and Average Div Growth, but if one has 20-30 yrs Low yield and High Gth is good. Lets say you start with 20 stocks in your list. Then when you have funds to invest, buy in the one(s) which meet your buy criteria (one way is to look at the 10yr Ave Yield of a stock and buy when the current yield is close or higher than the average).
You may only find two or three to initially invest in, but the market changes and later others may be better buys. I wouldn’t worry about not being diversified, do not rebalance and don’t sell, hold for the growing Income.
Others may have different recommendations.
@Jill: Our grand daughter took over her BNS DRIP 2 1/4 yrs ago and initially intended to add other stocks, but shes just added funds to the one stock. She’s had 5 div increases and seen her income grow 48% over that period, never mind the price increase. I doubt she’ll add any other stocks till she’s in a position to invest $2,000 or more per purchase. Currently she pays no fees and reinvests the div’s.
It’s a tough question to answer Jill and I cannot provide any financial advice whatsoever however I can tell you that I also own all those stocks and have no intention of selling them. I suspect hundreds of thousands of investors who invest in those stocks would agree…they hold these companies for a) growth and b) income. When those stocks tank in price, I also suspect some investors treat that opportunity as a sale.
Thanks Marko! That was a great read.
You didn’t talk much about the recession in 2008/2009. How did that affect you? Did this coincide with the years you were back at work?
We’ve had a long bull market and I wonder what affect the next recession will have on all the new early retirees, some of whom may not have even experienced the last recession.
Owen – I was in my own business in 2009 and had put another $75K into TSX based equity funds when it was down at 7700 or so in March or April. That worked out well.
The pullback didn’t effect me much as I was in a TD managed asset program more heavily tilted towards bonds. It was pure luck that I rode a good bond bull market then. I’m not a gambler and take only measured risks so back then I thought bonds were a better safer choice for an impending retiree. I got out of that just in time to enjoy more of the equity bull market run.
The next recession will be tough on a lot of over-extended people. It will be interesting to watch what happens.
Thanks for the reply Marko! That’s awesome that you were able to ride the bull market from the last 10 years.
I didn’t have much invested in 2008/2009 (not relative to what I have now anyway) so I always find it interesting to hear how it went for other investors. I don’t have any data to back it up but it feels like there are more DIY investors out there now and I always wonder how they’ll fare during a major downturn.
Great story Marko. Well done.
Many similarities to here – school teacher wife retired at 53, no kids, worked in sales/management plus small business owner, turned off from banks and 1 private investment advisor (that was early on at age 31 though) and fully retired @55.
Awesome that you love the outdoors and have found your paradise and a cheap place to live.
We are in very rural NS. My property tax is $4560, house insurance is 941 ( I just had it raised beyond their assessment raising my cost from $820) utilities run us $5100. Retired 4 yrs and our basic cost of living is approx $38K and we’re spending about 62K annually avg.(remainder on travel) before tax.
Thanks RBull. You got smart much faster than me with getting on to the DIY investing model.
I like that you are spending $24K over and above your basic costs. Life is for the living and travelling is a good way to spend money.
Thanks. Sounds like you’ve got it well figured out now. Congrats.
Agree on life is for the living. I think we’ll be able to turn it up another notch too and still be reasonably “safe” (as you can too), but my conservative nature is still winning out so far. LOL
Our housing expense is similar to yours. It would be easier to retire if one doesn’t have kids I guess. Last year when DH was out of job, I told him if we don’t have kids, he can retire already. So now he is back to earn breads, LOL. Basically with each kid born, our retirement year is delayed for quite a few years. I maxed out my credit card each year to register summer camps for them. Kids are priceless though, so no regrets here.
In the case I have to touch capital for expense, I will begin with RRSP first. Both of us maxed out RRSP every year and if we continue to work another five years (current plan), we should have quite a bit in RRSP. I feel I will have a big headache to try to figure out a withdrawal plan when time comes.
Makes sense for earlier retiree with larger holdings in registered accts. along with consideration of future govt benefits, other income sources. (Doesn’t have to mean touch capital-other than taxes owed-if you transfer in kind or use $ to buy in other accounts.)
We have 3 income sources: 1 work pension, unregistered dividends & cash interest, LIF & RRSP accts(mine) which fund expenses & feed TFSA contributions. When CPP/OAS start will reduce amounts accordingly trying to “smooth” income and tax.
Like you’re saying I thought it would be complicated but once you’re doing it, very loosely utilizing taxtips chart on RRIF withdrawals & monitor VPW it’s a piece of cake. Especially with your math brain! Nothing is going to be perfect but I find much of the decision is deciding how much lifestyle do you want now and later, how much safety net etc.
Thanks, RBull. I might write a small program for my own situation so that I have better idea. I want safety but I don’t want under spend either during retirement.
Our retirement will be in three phases: retired with kids still in house; retired with an empty nest and no CPP/OAS; and with CPP/OAS. The first few years will be the most expensive years for us.
You’re welcome May. I think VPW can do that simply for you, and you can build in some “buffer” in various ways ie
lower return assumptions, calculations with less capital than actually held etc But if you have capability to customize something good for you. I can’t! Yes, I also want safety and don’t want to underspend – at least too much. This is a challenge at least so far for me and my wife.
Got it on the phases.
I see 3 for us:
pre CPP/OAS and active lifestyle
post CPP/OAS and still active lifestyle
post CPP/OAS and lower cost lifestyle but potential higher health costs later on that “may” be accomodated from home sale as needed
I figure with higher health costs, even when one is not that active (less travel maybe) any more, the overall expensive will not go down. Here in BC, dental and visual care is not covered by public health insurance, right now it’s covered under extended health care we get from the company. Once we retire, health care cost goes up right there.
I have reserved the house downsizing money in case the kids want to go top universities in US and get accepted. If they do not, we may delay the downsizing and surely will have more money to spend in retirement. But I always want to be on the safe side, so for now, I pretend that money does not exist.
Even though we are 20 years away from obtaining CPP and OAS we have the same phases…early 60s (pre CPP/OAS), 70s, somewhat active with CPP/OAS, 80s, needing CPP/OAS to fight any longevity risk (and health care costs associated with that if we need to sell our home).
A good read, thanks, Mark and Marko.
Basic living expense $30K! Looks like Ontario is much cheaper than BC. I just got my property tax bill, it’s more than $4K. I estimated our property tax, house insurance and utility bill together will be already more than $10K a year.
I am walking the DGI road for the same reason: easy and less worry about market. I don’t need to watch the market and worry when to sell my equity. But it’s surely a big nest egg to save for. So I am also OK if I have to touch some capital.
Marko’s story proved it again how important to get knowledge of investment. Saving and investing, one has to do well in both of them. I will surely teach my kids from early on.
Ontario is expensive May, don’t be fooled! It depends where you live. In Ottawa, my property taxes for 2018 are $4,200. My house insurance is almost $200 per month (on well, septic). Our utility bills (heat, hydro, internet, etc.) are about $400 per month or close to $5,000 per year.
All that said, I want to thank Marko for his story. Saving and investing with index funds throughout his asset accumulation years and then switching to an income portfolio in retirement seems to be a smart way to go.
My house insurance is $900 per year and our utilities are $250 per month on average.
I agree it depends where you live but costs are relative.
Your house insurance is absurdly high (maybe there are a massive amount of claims there??) but other costs appear lower than here. (our insurance -house, 3 cars, motorcycle together are only slightly more) Our electricity is higher (I heat with it too but at least own a block of Emera that pays about half LOL), property taxes higher, personal tax higher, HST higher! Perhaps the only thing more reasonable is cost of housing, but 7 years ago this place cost a lot more than your condo.
I meant to comment on the income portfolio too.
I have made a similar shift in retirement here with a greater focus on income generation from investments.
I can relate to what you’re saying Marko about reluctance of selling equity assets. It’s a mental thing but certain it will happen here at some point.
As Mark suggested it depends on where you live in Ontario. I live in very rural Northern Ontario within an unorganized township with no services but our house taxes are only $800 per year. In comparison the taxes on my Toronto 1100 sq ft loft were $2000 back in 2001 and my maintenance fees were $300 per month.
May, when we moved to BC from a small city in Ontario, our property taxes were way lower. In Ontario in 2000, we paid $4200 property taxes. On the very different, but similar value house we bought in BC, the property taxes getting the homeowner grant were $2400. And lots of great city services.
Automobile insurance was way higher in BC, even getting the maximum 43% discount for no claims, but I think Ontario rates have risen drastically since we left (only paying $600 a year back then in Ontario!)
$4200 at 2000 is a lot of money!
Talking about services, one thing I really hate is that BC does not have school bus. My kids go to choice program and not catchment school. School ends 2:30PM and no school bus. Community summer camp is full of fun but ends at 3:00PM. Every year how to arrange their after school schedule and their summer camps is a big headache for me. I feel the entire system is very unfriendly for two-income family. But it’s very difficult to raise kids with one income and even it’s possible, what’s the most beneficial way for the society? I believe I make better contribution to the society being an engineer than being a stay home mom.