The 7 eternal chestnuts of personal finance

Tasty roasted chestnuts

Here is my latest MoneySense blog, covering the 7 big “eternal” chestnuts of personal finance.

For continuity purposes, I also reproduce it below:

One of the world’s best personal finance writers – Jason Zweig of the Wall Street Journal – has said there are only a handful of real personal finance columns to write. The trick, he said (and I’m paraphrasing from memory), was in being able to “reissue” these columns in a way that the public (or editors) don’t notice. Of course, you could go further and say that the news business in general revolves around a few fairly standard memes: if it bleeds, it leads.

In personal finance, however, we’re not in the business of covering disasters and personal tragedies, unless of course the market does a repeat of what it did in 2008. It’s a sad fact that, as investors in Bernie Madoff’s ponzi scheme found to their regret, that when the market tanks we discover who was swimming naked.

The June issue of MoneySense contained 42 items billed as being the “Best Tips Ever.” That issue was a “keeper” and not just because it was the last one with which I was intimately involved. I’m not going to reprise the tips here but instead have come up with a list of seven “personal finance chestnuts” that I hope may be useful to readers and perhaps other PF journalists.

Chestnut #1: Live below your means

This is the granddaddy chestnut of personal finance. If you keep spending your fool head off, you’ll forever be on a treadmill to oblivion. The only way to become financially independent is to consistently spend less than you earn, year in and year out, decade in and decade out. The difference between what you (and your spouse) earn becomes your capital and it must be invested wisely.

Chestnut #2: Pay yourself first

This is closely related to living below your means. The surplus between a higher income and a lower level of spending needs to be directed to savings and investments. Just like your employer takes your income tax off your paycheque before you even see it, you should set up a pre-authorized chequing (PAC) arrangement with your financial institution (“automatic draft” in the U.S.), so another chunk of your paycheque is siphoned right off the top to savings and investments. Yes, you may feel a bit “broke” after the double whammy of paying tribute to the taxman as well as paying yourself first, but as the years go by and your wealth steadily mounts, you’ll be glad you roasted this particular chestnut.

Chestnut # 3: Get out of debt

Starting with non-tax-deductible consumer debt (aka credit cards), then student loans, and finally any lines of credit and ultimately your mortgage. (see Chestnut #4). No investment pays off as well as eliminating high-interest debt and it’s more tax efficient to boot.

Chestnut #4: Buy a home and pay off the mortgage as soon as possible

I’ll keep saying it: the foundation of financial independence is a paid-for home. If you rent, you’re still paying a mortgage: your landlord’s! In that case, your rent will never stop and will keep getting hiked as inflation rises. When you own your own home and the mortgage is gone, you get to live rent-free and you won’t worry about your rent going ever higher in old age. Plus you don’t have to pay capital gains taxes on the sale of your principal residence. (See #7 below). But do accrue for property taxes, maintenance and (for condo owners) maintenance fees.

Chestnut #5: Be an owner, not a loaner

This means owning stocks (or equity mutual funds or ETFs), instead of interest-bearing vehicles like cash or bonds. You’ll never get rich loaning money out, which is what you do when you buy a GIC (or CD in the US) from a bank. If you want to grow your capital and keep up with inflation, you need to own stocks. Better yet, dividends are taxed less than interest and capital gains taxes can be deferred as long as you don’t crystallize profits. You will want some cash or bonds in an emergency fund and as a prudent part of your portfolio once you’re near retirement age.

Chestnut #6: If your employer offers you free money, take it.

Duh! This means you should join the company pension plan, especially if they “match” whatever you put in. And if they give you a discount on the company stock, take them up on that offer too. You wouldn’t say no to a bonus or a raise, would you? Then why wouldn’t you grab the rest of the freebies when they’re on offer?

Chestnut #7: If the government offers you free money, take that too!

This is along the same lines, except of course the government seldom really gives you money, unless you’re among society’s most disadvantaged. For we more affluent folk, there’s no escaping taxes (or death) but you CAN minimize the outflow to the taxman’s grasping hands by taking advantage of whatever few tax breaks he permits. No capital gains on a principal residence is a huge tax break. Apart from that, this means maxing out your RRSP (or your IRA in the U.S.) And don’t forget the Tax-Free Savings Account (TFSA) (or the Roth in the US), which is the mirror image. In the former, you get a tax deduction upfront on contributions; for the latter, you get no upfront deduction but never have to pay tax on investment income generated, even when you withdraw it in retirement. Not quite free money, since you were taxed upfront on the income needed to generate the capital, but almost!

 

 

5 myths of Findependence

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The end of another tough “Findependent” day in Long Branch

Now that a few months have passed since my “Findependence Day” arrived in May, I’ve gotten more clarity about some misconceptions some may have about this concept. I may even have harboured some of these myself at one point in my full-time career. Here are five myths I’ve become aware of: this is not necessarily a definitive list and may be revisited in the future.

Myth 1 After you’re findependent, you’ll play golf all day, or bridge, or read, or travel.

I doubt this will happen for many unless you really burned out in your career. Depending on the degree of your findependence (see my recent MoneySense blog on this) and how much work you wish to do, you’ll soon settle into a routine. Most of your tasks may be self imposed, but impose them you will! Between 2004 and 2011 or so, while still working full time at the Financial Post, I devoted many nights and weekends playing to online bridge. Oddly, now that I have more time, I no longer play online bridge,  although I do make a point of religiously reading Paul Thurston’s bridge column every day on the “Diversions” page of the National Post. Even with no time lost in a downtown office and getting to and from it, I still don’t have time for online bridge. I may resume once I’m “fully retired” later in my 60s but I can’t seem to find the time for it in semi-retirement!

Myth 2: There’s no distinction between weeks and weekends.

For me, at least, the week and weekend routine still operates at most levels. If you’re familiar with my concept of the 4-hour day (normally practiced from Monday to Friday), then on weekends I do not feel obligated to put in either a four-hour or even just one two-hour stint on money-making or creative activities. Of course, you could redirect at least two hours per weekend from money making to creative fun long term projects you’ve always wanted to accomplish. Because at the end of the weekend, once the workweek resumes for everyone else, longer term projects tend to get crowded out by more imminent matters and deadlines. That said, it’s also true that – at least if you work from home – you tend to attend to some errands like shopping in the workweek lunch hour, if only as a break and a way to get out of the house. So instead of a large weekend grocery shop, I tend to run two or three times a week on specific shopping missions, but add in a few items I know we’ll need soon. The grocery bills tend to be lower on any given shop but of course you’ll have plenty more of them.

Myth 3: Findependence is an all-or-nothing proposition involving a certain “Big Number.”

Ah, big numbers. Lee Eisenberg wrote a bestseller on that called The Number. If your initial Number was $X million or $Y100 thousand, you may find you continue to push even once it’s achieved. It may become 2X or 3Y. The moment you can declare findependence may be a moving target, depending on financial markets, employers, health and many other considerations. You need to be flexible.

Myth 4:  The government won’t be there for me (or employer pensions).

I think whether in Canada or the US that the boomer generation can count on the promised social programs and probably the same will hold for succeeding generations. Benefits may not be as generous, may not be inflation hedged, may become means-tested and so on. And yes, these days, it’s hard to count on any one employer pension plan, be it Defined Benefit or newer hybrids that expose workers to some market risk. The whole point of findependence is to establish multiple income streams, which may include part-time earned income or consulting work. That’s a major point Wes Moss makes in his excellent book: You Can Retire Sooner Than You Think.

Government pensions is one basket and an employer pension is a second one but you know what they say about putting all your eggs into any one of them. If I were counting 100% on Social Security or OAS/CPP in Canada then I’d be apprehensive about this. And Moss finds the unhappiest retirees are those who can count on only a single source of income.

But as a single potential flow of income that might account for 20 to 60% of the total, the more you have alternatives, the better. RRSPs/IRAs and other savings are one other vehicle, as are taxable accounts and TFSAs/Roth IRAs. But there are also book or music royalties, real estate investment properties, part-time work and finally the subject we wrote about here last week: Internet marketing and entrepreneurship. The Internet has so much potential for creating multiple streams of findependence income that I almost envy the young people now who would far rather become laptop millionaires than salaried employees.

Myth 5: The act of declaring Findependence is irrevocable.

If you’ve left a job or sold a business, you may think the act of declaring your Findependence is irrevocable. It’s not. The truth is you can rejoin the workforce if you wish, though most of the “findependent” people I know who got there before me show not the slightest inclination for returning to another stint on the 9-to-5 treadmill. Lately, I’ve been listening to a Valdy song, Coming Home, which contains the lyric, “I’m going back to places that I couldn’t wait to leave.” When the odd notion comes into my head that it might be fun being full time again in magazines or newspapers, that lyric can’t help but run through my mental iPod.

So those are 5 myths. I’ll revisit this list periodically and probably add to them. Reader input always welcome. Email me at jonathan@findependenceday

 

The Thousand-Bucks-a-Month rule for retirement

Here’s my latest Financial Independence blog from MoneySense.

mosscoverFor this blog, I’ve added the cover shot of the book from which it’s drawn. For convenience, I’ve included the original blog text here:

Here’s an interesting rule of thumb that most retirees and would-be retirees would do well to adopt. Developed by US financial planner Wes Moss, it’s called the 1,000-Bucks-a-Month Rule. It means that for every thousand dollars in monthly income you want in retirement, you need to have saved $240,000.

So if you want $2,000 a month from your investment portfolio, this rule suggests you’d need to amass $480,000, which just happens to be close to the minimum amount ($500,000) that “happy retirees” in the United States tend to have saved up. Note this rule is to generate investment income that is above and beyond pension income, government pensions like Social Security (in the US) or the combination in Canada of CPP/OAS (Canada Pension Plan/Old Age Security).

This guideline suggests that if you want $4,000 a month from investment income, in addition to the usual alternative sources of income, then you need to have saved almost a million in liquid investments: $240,000 times four is $960,000. If you wanted $10,000 a month, then you’d need $2.4 million, etc. It also assumes you’re at least 60 years old, although it will be a useful benchmark even for those younger than 60 and who aspire to an early retirement.

Close connection to Bengen’s 4% safe withdrawal guideline

Moss uses this handy guideline in his practice (a George-based investment firm called Capital Investment Advisor, of which he is chief investment strategist) as well as on his popular financial radio show, Money Matters. It’s also his number one tip in his recently published book. This is one I think most MoneySense readers would be interested in: You Can Retire Sooner Than You Think: The Money Secrets of the Happiest Retirees, Wes Moss, McGraw Hill, 2014.

So how does Moss arrive at this rule? It’s based on a 5% annual withdrawal rate, which means that $240,000 in investments would spin off $12,000 a year in some combination of interest, dividends and other income (which Moss calls distributions). Divide the $12,000 by the 12 months of the year and there’s your desired thousand bucks a month of income.

But 5%? Who can get 5% these days from bank deposits or even stocks? This is where it gets interesting. Note first that 5% is close to the 4% safe withdrawal rule made famous by financial planner William Bengen. He found retirees could withdraw 4% a year from a balanced portfolio and not run out of money for at least 30 years. (he includes an inflation adjustment but we’ll ignore that here). Moss is a big fan of income investing so right off the bat you can get close to 5% in certain high-yielding dividend stocks (telecom or utility stocks for example, or REITs.) You’ll get perhaps 2 or 3% from fixed income, depending how much risk you want to take but what about the rest? How does Moss stretch Bengen’s 4% to 5% in this low-yielding world?

The rest comes from growth or capital gains, which year by year will fluctuate or even be negative, but over the long haul can be another 1 to 3% on top of the more assured yield from income investing. At worst, it may involve cutting slowly into capital but as long as your income investments are generating by themselves 3 or 4%, Moss assesses that such a nest egg would easily outlast the average 30-year retirement time frame.

There’s plenty of other stuff in the book but I’ll close with just two more points. Like myself, Moss believes retirees should have completely paid off their home mortgage. And he’s not a big fan of annuities.

Never work again?

neverworkagainIn researching the post-Findependence lifestyle, I’ve come across a lot of books that invoke the phrase  “Never Work Again” in the title, or variants that suggest much the same thing. There is, for example, a free e-book with that precise title (shown on the left) but you soon discover that these kinds of books equate the word “Work” with the corporate 9 to 5 routine.

Most of them, like the Tim Ferriss book we looked at earlier this summer, involve leveraging the Internet to create a mobile lifestyle that can earn money anywhere in the world. Other examples are The Laptop Millionaire and Click Millionaires. In the case of Erland Bakke, author of the book shown at the top, if you follow your passion and the money eventually follows, this is no longer defined as “work,” even though for all intents and purposes it is.

These books propose business ownership and the pursuit of multiple clients and at some point leverage their personal time to either employ one or more assistants, or to outsource various pieces of “work” that one either lacks the skills for (like web-site development) or lacks the inclination to focus on.

Better to sell products than time

laptopmillionaireThe fundamental decision is whether to continue to sell one’s time – this is what salaried employees do, as do “one-man band” freelancers – or to pursue the sale of products. The latter route, whether of tangible products or web-based information products, contains the seeds of potentially greater wealth, but of course requires a lot of upfront-time, energy and often capital in order to establish the infrastructure that will later deliver a sort of “freedom.”

I’d still call this work, even if it’s the supposedly glamorous field of “internet marketing.” Certainly, the covers of these books and e-books suggest the hybrid nature of this lifestyle. Typical are the two covers I’ve used to illustrate this blog:  you see someone lounging on a beach somewhere – we’ve probably run versions of this idyllic scene in various “Retirement” covers in MoneySense – but instead of the lounger languidly sipping a pina colada and reading a trashy paperback, we see instead a laptop computer perched on their stomach. They are in fact “working,” however idyllic the environment, not unlike the photo I ran of myself “lazing” in the back yard in this blog earlier in the summer.

Working and Living become intertwined

Far from “stop working, start living,” (to borrow from the title of Dianne Nahirny’s book on early retirement), the philosophy of these books is to combine living with working, taking advantage of the global infrastructure of the World Wide Web to engage in money-making activities anywhere in the world.

Personally, I envisage such activity as a supplement to the traditional sources of “retirement” income we write about regularly in MoneySense. My faith in the stock market was shaken sufficiently by the events of 2008 that I’d be reluctant to count exclusively on dividend income, however diversified the portfolio. And we all know that the phenomenon of “financial repression” practiced by the world’s central banks has conspired to keep interest rates low for the foreseeable future, which makes counting on highly taxed interest income from fixed-income investments equally dodgy. If I were a real estate tycoon, which I am not, I’d want to add rental income. As I am not, I envisage some combination of selling my editorial services and creating new web-based products. These blogs will continue to report on this adventure as time goes on.

 

 

Reimagining Retirement

reimagine-your-retirementThe book pictured I picked up at the recent Write Canada 2014 writer’s conference in Guelph, Ont., the third time in five years I attended that event.

Joyce Li is a project manager and motivational speaker, originally from Hong Kong, now living with her family in Brampton, Ont.  Reimagine Your Retirement is published by Word Alive Press, and is what you might expect from a publisher focused on spiritual writing. Li’s perspective on Retirement is not at all the traditional  “full stop retirement” we think of when we see the ads from the banks and fund companies.

Instead, she views Retirement as a sort of spiritual/vocational halfway house between one’s working years and eternity.  This is not dissimilar to my own view of Findependence or Semi Retirement. In fact, she credits Rick Warren’s The Purpose Driven Life for inspiring her almost a decade ago: she gave six family members copies of Warren’s book, with personalized inscriptions.

Are you haunted by “nagging dreams”?

Li spends time a good chunk of time talking about ”nagging dreams “ that have yet to come true. And who among us does not harbour dreams we’ve not yet been able to manifest in this harsh workaday world and its seeming financial constraints? Li doesn’t make light of the financial side of retirement but seeks a way to reconcile it. And she’s not shy about confessing her own youthful dreams of becoming either a movie star or a pop star.

Spiced liberally with biblical quotes, Li is all about planning: plan the work, work the plan.

In the opening chapters, she reminds us the concept of retirement was non existent in biblical times and throughout most of history.  And whether retirement is  voluntary, involuntary, or delayed, Li doesn’t shy away from the financial side of it. One reality is that “Retirement requires financial support for an unknown time.”

And did you know the bible  has at least 250 verses that discuss money? Interestingly, she says the Bible has “no direct reference to retirement or retirement planning,”  except for one passage in  Numbers 8:23-26.  (“at the age of 50, they must retire from their regular service and work no longer.”)

While she  acknowledges that some plan never to retire, some will partially do so, and some will fully retire to disengage from the workworld altogether, Li’s personal orientation seems strongly oriented to reinvention or reimagination, as the book’s title suggests. This may entail going back to school, or  embarking on a brand new vocation.

The book will find few readers among atheists and agnostics, but will be thought provoking for those who see a spiritual dimension to life, no matter what particular religious affiliation.

A book for writing in

I wouldn’t suggest obtaining a library or ebook version of this book, as Li provides plenty of blanks she encourages one to fill in, with multiple exercises to put self discovery and concrete planning into practice.  She’s all about discovering one’s skills, life gifts, spiritual gifts and passions, then encapsuating what you’re discovered into a personal mission statement that will chart your 20 to 30 years of a reimagined retirement.  She’s a strong believer in the power of visualization, which of course is exactly what I suggest in my own book: drawing a line in the sand and declaring it your Findependence Day, even if it turns out ultimately to be a moving target.

 

 

 

 

Embracing Change

1838 Mark Venning Low Res copy

Mark Venning, Change Rangers, courtesy Mark Venning

As noted last week in my MoneySense Financial Independence blog, I intend to write a series of posts on the mass migration of almost-retired baby boomers moving from large corporations to free agency.

I recently attended a full-day workshop on this topic put on by Mark Venning of ChangeRangers.com. Venning knows well of what he speaks: He has spent more than a decade and a half working with mature (55+ generally) clients who have migrated from corporate employment to self-employment. A big part of his perspective is extended life expectancy and longevity: he prepares clients to continue working at some level well into their 60s, 70s and even 80s. The slogan on his business card and website is Envision the Promise of Longevity.

Claiming your place at the fire

As I argued on the MoneySense blog, 40 years is a long time to go without a paycheque, which is how long someone leaving the paid workforce might have to plan for if they leave paid employment in their early 60s. Add the type of extended longevity that Venning and others envisage (I’m thinking of Lee Anne Davies and her Agenomics blog, or Moses Znaimer of Zoomer Media), and “retired” boomers need to start preparing for this next great stage of their lives. There are of course many books on this topic: we looked at one last week and another I’m currently reading on my Kindle is Claiming Your Place at the Fire: Living the Second Half of Your Life on Purpose.

Leaving the Corporate Womb

But back to Mark Venning and Change Rangers. I can’t possibly summarize his content in a short blog but suffice it to say that in this economy there are many talented people who are either voluntarily or involuntarily being motivated to consider alternatives to employment in large corporations.  One is self-employment, an option that “more and more people 50+ are exploring,” he says.

Compared to 50 years ago, these mature people are in better physical condition, so can expect an extended lifetime. “They’re living longer than they typically used to so they have to plan for a longer period of time,” he told me in an interview, “This is why the word ‘Retirement’ doesn’t work for me. It’s about longevity planning. My core message is plan for your longevity, not for retirement.”

A Portfolio Career

As I see it, there are at least three ways to go when you decide to set up your own shop. One, you may see this as an opportunity to test out clients (and them you) with a view to possible full-time reemployment down the road. Second, you may decide such a “portfolio career” is a more attractive route at this stage of life: when you think about it, a single “job” means just a single client, which is less secure than having several clients. And of course, you don’t have a traditional “boss,” although being your own boss has challenges of its own. And third, while many choose to start such enterprises tentatively as a one-person shop working from a home office, there’s always the possibility of growing the enterprise down the road so that one day you are an emploYER, rather than an emploYEE. And that in turn offers the potential to sell a business.

Free Agent Nation and other books

As I warned, this blog doesn’t even begin to scratch the surface but for now, I’ll leave you with a few book suggestions from a list Venning hands out. One I just read on the Kindle is Dan Pink’s Free Agent Nation: The Future of Working for Yourself. Another I’ve just begun is Peter Block’s Flawless Consulting: a Guide to Getting Your Expertise Used. And a third I’ve put on hold at the library is Alan Weiss’s Value-Based Fees: How to Charge and Get What You’re Worth.

 

Degrees of Findependence

Long Branch section of Lake Ontario. Photo by J. Chevreau

As my parallel Financial Independence blog at MoneySense.ca shows here, there are degrees of financial independence. For one-stop-shopping purposes for users of this site, I’ve included the blog below:

Degrees of Financial Independence

In researching the web for content clarifying the differences between Retirement and Financial Independence, I came across this May 8, 2014 post by J.D. Roth, of the Get Rich Slowly site.

In his “coming to terms” post, Roth finds the traditional word Retirement carries too much baggage, so he prefers the term I also like: Financial Independence. That’s a fairly common stance among the semi-retired and early retirees who write about this topic: the only difference is few have (as yet) adopted my contraction of Financial Independence: Findependence. The reason I invented that term is that I felt if we are to have a catchy popular alternative to the word Retirement, it should be shorter than the two-word seven-syllable mouthful called Financial Independence. Retirement is one word and three syllables; Findependence is also one word and has only four syllables.

A continuum of financial freedom

But whatever the term you prefer, it’s important to realize there are degrees of Findependence/Retirement, or a continuum. This is a point Roth makes in the article flagged above.  He talks about four types of retirement: the traditional full-stop version that begins (usually) at age 65, Early Retirement (launched usually in one’s mid 50s or early 60s, although there is a genre of Extreme Early Retirement that supposedly begins in one’s 20s or 30s). And finally there’s the concept of multiple Mini-Retirements championed by Tim Ferriss in The 4-Hour Workweek, and which I blogged on earlier this summer.

If you reframe the Retirement discussion as being about Findependence, it’s also possible to describe a similar continuum, just as it’s possible to describe different degrees of financial freedom. Roth notes we all begin life completely dependent on our parents, including financially. At some point, children leave the nest but will depend on an employer and/or financial institutions. Once free of consumer debt, a greater degree of financial freedom is achieved, and this freedom expands once you own a home free and clear: which is why I say the foundation of Financial Independence is a paid-for home. At that point, you are no longer paying a mortgage or paying rent to a landlord, although of course you will still have to pay municipal property taxes and if you’re a condo owner you may be on the hook for ongoing maintenance fees. Beyond that, you’ll still need external sources of income for heating, hydro, roof repairs and all the other expenses that home owners incur. And finally, true Findependence arrives (I call this Findependence Day), when enough money is coming in from multiple passive sources of income (Pensions, investments, etc.) that you no longer need to rely soley on income derived from the single source called an “employer.”

Cadillac vs Chevy retirements

But even then, there’s low-level Findependence and high-level Findependence. You may have saved enough not to have to go to work five days a week but may not be so flush that you can eat in fancy restaurants and travel the world 365 days a year. Most people on the Findependence continuum will be somewhere between the latter luxury Findependence and a barebones one that requires eating in most days and restricting exotic travel to a few weeks a year. If the latter, it’s perfectly logical to continue to work on projects or part-time to fund a few more luxuries and the occasional mega-trip.

 

 

YOUR Declaration of Findependence

Fireworks show over Khao wang Historical Park, Phetchaburi,ThailandIn advance of America’s July 4th celebrations, I thought I’d devote this blog to helping retirement savers prepare their personal “Declaration of Findependence.”

The other day at Forbes.com senior writer Richard Eisenberg devoted a piece to this theme, and cited my own recent experience in finally living the life I describe in my book, Findependence Day. Findependence, of course, is merely a short-hand description of the phrase Financial Independence. Findependence Day is the day in the future when you believe that income from all sources — including investments, pensions, rental income, business income, royalties – will exceed income from the single source most of us call a “job.”

So, without further ado. It’s up to you to fill in the blanks to reflect your personal circumstances:

Declaration of Findependence for ________ (your name here)

1.)  Based on my current age of __, I believe I should aim for  the __ day of the __ month in the year 20__. This happens to be the year I turn __.

 

2.)  I understand that as this milestone approaches, the actual date may have to be revised. If financial markets are very strong, I may even be able to move it ahead by __ years. If markets are weak, I may be forced to move it back by __ years.

 

3.)  I am currently employed by ________________ and am enrolled in a pension plan. The earliest date I can take an unreduced pension is ______.  I can also take early retirement by _______, provided I am willing to receive a smaller payout.

 

4.)  As an American  with ___ years in the workforce, I am eligible to begin taking Social Security benefits as early as age 62, which is ___ years before/after my planned Findependence Day. The latest I can take them is age __, in which case the payout will be much higher. Based on my annual contribution statements, the optimal time for me to commence Social Security is age  __.

 

5.)  Depending on whether I was born before or after Feb. 1,  1962, I will be eligible to take Old Age Security (OAS) benefits at age 65/66/67. (Circle one). If OAS is my only source of income in old age, I will also be eligible for the Guaranteed Income Supplement. Ideally, so is my spouse, in which case the day we’re eligible to receive combined OAS/GIS benefits will be our joint Findependence Day.

 

6.)  As someone who enjoys work but not necessarily all the stresses of full-time corporate employment, I see myself being semi-retired or self-employed by age ___.  By adding  $_____ thousands of dollars of part-time income a year to all the above sources of income, my Semi-Retirement could begin as early as ____, which is the year I turn _____. I will call this my Preliminary Findependence Day.

 

7.)  Instead of having one long extended Retirement at the end of my life, I prefer the concept of multiple “Mini Retirements,” and therefore of multiple Findependence Days to fund them. I would like to set the year _____ as the year of my first Mini Retirement, and therefore _______ will be my first (but not necessarily last) Findependence Day.

 

 

 

 

My Declaration of Findependence

FindependenceDayBook_USAs noted by Richard Eisenberg at Forbes.com (here) and NextAvenue.org, I recently made my personal “Declaration of Findependence.” As he noted, July 4th seems to be as good a day to make such a declaration as any other.

It’s been about six weeks since my Findependence became official, although as I confessed to Richard, the timing wasn’t 100% what I would have chosen. As things are working out, however, I actually have a head start on my most recently amended Findependence Day: which I’d planned for next April, when I turn 62 and start to draw modest pensions from my 19 years at the Financial Post and a few shorter-lived corporate gigs.

A moving line in the sand

There’s a scene in the book (both Canadian and US editions) where I talk about the power of “drawing a line in the sand” about your Findependence Day. I do, however, note that it often turns out to be a moving target. External circumstances are as apt to move the date forward as backward.

IMG_0261

Goodbye to the Volvo: photo by Jonathan Chevreau

If stock markets are doing well, as they are now, you can move the date ahead in time. As I told  Forbes.com, I viewed my April purchase of a new Camry Hybrid car as an exercise in “rebalancing.” Pictured is the old Volvo S70 it replaced, and which was featured once in an article I wrote for the National Post. Taking some profits on stocks and paying cash for a new car puts a solid tangible asset at your disposal: and I’ve found it a very pleasant and useful addition to my Findependent life, however fond I was of the old Volvo.

Another way your Findependence Day can be moved forward is if circumstances at work change. These days, the economy is such that if a major corporate restructuring occurs or a new boss comes in to leave their mark, your financial independence may arrive sooner than you think, and perhaps slightly scaled down from a higher level of Findependence down the road.

But that’s the whole point of Findependence and having a reserve emergency fund: you hope for the best but prepare for the worst. As long as you’re debt-free and your investment and pension income exceeds your income from salaried employment, you’re ready for whatever the corporate world will throw at you.

The ultimate boss is yourself

As for what Findependence has been like in practice, in truth it very much resembles the four-year period I spent as a freelance technology writer in the 1980s.  The commute is a lot better although lacking a “buffer zone” to read in or listen to audio books, news or music. You still have to discipline yourself to put in the morning’s “two hours of real work,” as per the earlier blog here on the four-day. And of course, you have to promise yourself to do the same for the two-hour “afternoon shift.”

During the first six weeks, my daughter — now in Ireland — was around the house observing the transition. I joked about what it was like having an unemployed bum hanging about the house. She was having none of  it.  “You’re self-employed, Dad,” she reminded me. End of conversation.

Next time (on July 1st and in time for July 4th), we’ll look at how to declare YOUR Findependence Day.

 

 

 

 

How to work four hours a day

yachts

Photo by Jonathan Chevreau

Last time, we looked at the concept of The 4-Hour Workweek, which is also the title of a book by Timothy Ferris.

How realistic is the 4-hour workweek, which Ferriss equates to the mobile lifestyles of what he terms the “New Rich,”? Well if you’re semi retired, four hours a week of productive work is four hours more a week productivity than the traditional full-stop retirement.

Precursor to 4-hour week from the 1950s

What I find curious about Ferriss’s four-hour a week concept is that it resembles in some respects a much older strategy called the four-hour day. In the 1950s, William J. Reilly wrote a book called How to Make Your Living in Four Hours a Day (without feeling guilty about it). (Harper & Bros. NY 1955). Note the subtitle!

I wrote about this a few times in my old Wealthy Boomer column in the Financial Post prior to joining MoneySense, including one in June 1997. In fact, most of my time in the paid workforce has used some  variant of the four-hour day. Ironically, the person who flagged me to Reilly’s book in the first place was a former boss and still friend, Norman Evans, who took the photo of me in last week’s post. Even though he was my employer at the time, and presumably seeking maximum productivity from me, he was serious about me using the four-hour day.

Two two-hour stints focused on what you’re really paid for

The idea of the four-hour day is that very highly creative people like composers, novelists or even high-level executives, really have only four or five hours of high-level mental daily energy to perform the tasks they have to do. As any office cubicle dweller can tell you, very few people do a high-energy 8 hour day for every hour they’re on the job.  For senior managers and creative types,  what’s important is the high-level brain power being expended: not the amount of time one’s bum adheres to an office chair.

So it’s important, whether you’re a salesperson, executive, artist, musician or writer to spend at least two hours of the workday morning doing the work you’re really paid for: making cold calls or closing deals if you’re in sales, writing articles if you’re a writer, writing a symphony if you’re a composer, etc.

Having done your  two-hour morning stint, you’re free to spend two hours over lunch networking, learning or exercising, as long as you promise yourself to spend at least two hours in the afternoon doing the work you’re really paid to do. In the case of former boss Norman, he often espoused using the two-hour interregnum between the two two-hour work stints for “killing two birds with one stone” concepts like walking meetings.

A corporate compromise: a 4-hour day tucked inside an 8-hour day

As an example,  imagine your morning shift of “real work” is between 10 am and noon, and the afternoon shift between 2 and 4 pm involves being back at the desk making sales calls, editing or writing, budgeting or whatever.  Note that this leaves an hour first thing for doing things like reading the paper, checking email or social media, and the same at the end of the day. Even when I was a newspaper columnist, I practiced a version of this. As an editor, it was trickier. Because at a large corporation like Rogers there are many meetings and interruptions, with staff continually poking their heads in for impromptu meetings.

True, my official hours at MoneySense were more like 9 am to 6 pm, with a one-hour commute tacked on both ends, but within that nine hours was an inner core of two hours in the morning and two hours in the afternoon.

The 4-hour workweek more aligned with Findependence

Admittedly, the 4-hour Work WEEK espoused by Ferriss is a quantum leap of difference: he’s really pushing the envelope with a four-hour workweek. If it works, I’ll revisit his strategy in future versions of this blog but right now, I’m inclined to view findependence as more compatible with a 4-hour work WEEK, and the four-hour DAY as more compatible with salaried corporate employment: even if it’s the variant I describe that requires being there physically at the start and end of the normal office 9-to-5 day.

The Mexican fisherman: working to live or vice versa?

Before closing, I should note that our friend the Mexican fisherman also makes an appearance in Ferriss’s book. This was of course the subject of my current Financial Independence column in the new Summer issue of MoneySense. As I noted there, the Mexican fisherman story is all over the internet and I wrote the piece before I even read Ferriss’s book, but it does indicate the general theme of living in the present, and the folly of forever “slaving and saving” today for the mirage of a single one-time-and-forever “Retirement” in the far-off future. (All on the assumption that employers, pension managers, financial markets,  health, spouses and family cooperate.)

As John Lennon famously wrote in what turned out to be his final album, “Life is what happens to you while you’re busy making other plans.” I can relate  to that, especially this summer, but also firmly believe that if Life hands you an unexpected “Plan B,” the B stands for Better!, as best-selling spiritual author Joyce Meyer argues in her book, You Can Begin Again.

Next time, we’ll also look at the notion of “Second Acts.”

 

 

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