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.
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.
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.
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!
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?