Will the Liberal landslide delay your Findependence Day?

The “Hair” Apparent? National Post.com

The Financial Post provides my take on last night’s Liberal landslide, as it pertains to Financial Independence in this blog that just was published online: So long $10,000 TFSA, and other personal finance fallout from the federal election.

The gist is that we’ll likely lose the $10,000 annual contribution TFSA limits that were only hiked earlier this year but as aging boomers move into semi-retirement or full retirement, it’s likely they’ll fall into the middle tax bracket where the Liberals’ 1.5 percentage point cut should provide several hundreds of dollars of annual tax savings. There are also significant implications for an expanded Canada Pension Plan, Old Age Security and I expect that Ontario will now no longer see a need for the Ontario Retirement Pension Plan or ORPP.

Plenty of other links via my Twitter feed (@JonChevreau), which can also be viewed under the new “Social” tab over at the Hub.

UPDATE Oct 21. See the updated version of this blog at sister site Financial Independence Hub, with links to various Financial Post stories by me, by Jamie Golombek on tax bracket changes, Garry Marr on lost TFSA limits, and Fred Vettese on an expanded CPP and probable elimination of the ORPP.

How Ernie Zelinski retired Happy, Wild & Free

How-to-Retire-Happy-Cover-3D-2-2-AI have a lot of books about Retirement and Financial Independence in my personal library, but I seldom go through any one twice. Today’s review is an exception because of a lunch I had with a friend we’ll call Albert (not his actual name).

Albert is a former client with whom I’ve kept in touch. He’s now 70 and just begun to retire. Because of various circumstances, he was unable to engage in most of the basic practices described here or at our sister site, the Financial Independence Hub:  so no taxable or tax-sheltered savings for Albert.

Fortunately for him, he bought a house in Toronto at something like a third of what’s it’s worth now, and it’s that home equity that has allowed him to finally stop working. He has no dependents and after going over the pros and cons took out a reverse mortgage.

The Joy of Not Working

But that’s not what this blog is about. Over our lunch, Albert told me he’d been at the public library to check out books about Retirement. Two were by a Canadian writer who has achieved massive international success through self publishing: Ernie Zelinski. He’s written 15 books but the two best-known were the ones Albert got from the library: The Joy of Not Working and How to Retire Happy, Wild and Free. I told him I’d read both a long time ago and likely reviewed them when they first came out.

Retrieving Wild & Free from my office shelves, I noticed I had read it in November 2003, when I was 50 and (as it turned out), still more than a decade from my Findependence Day. I started to flip the pages and noted I had underlined many passages, some of which I reproduce below.

It holds up well. Note the subtitle of Wild & Free: “Retirement Wisdom that you won’t get from your financial advisor.”

Connoisseur of Leisure is now 65

Photo of Ernie Zelinski

Ernie Zelinski

Zelinski is an interesting character. He lives in Edmonton, Alberta and opted for semi-retirement when he was 30, despite having a net worth of minus $30,000 at the time. Born in 1949, he turned 65 last summer. Zelinksi, who is unmarried, has long described himself as a “connoisseur of leisure” who used to work just two or three hours a day.

That work was mostly writing his books, generally in various Edmonton coffee shops. He religiously adhered to a daily writing regime that clearly worked for him: as of 2015, The Joy of Not Working has sold 280,000 copies, Zelinski told me this week.

Zelinski self-published Joy between 1991 and 1997, at which point he handed it to Ten Speed Press, later acquired by Random House. While it has slightly outsold Wild & Free, he makes more from the latter because it’s self published. He says it was rejected by 35 British and American publishers and sent me three rejection letters to confirm it. One New York giant publishing house told him in 2003 that “the retirement shelf” is quite crowded but “we hope you prove us wrong.”

I’d say he did: He has since negotiated 111 book deals with publishers in 29 countries. The two big titles continue to sell, so much so he says he can’t qualify for Old Age Security. “I’m making the best money ever in my life. Only 1% get it clawed back … I guess I’m a 1 percenter among 65-year olds.” He now works about half an hour a day. How he spends the other 23-and-half hours you can divine from his books.

Do we focus too much on the financial side of retirement?

As I perused the pages of Wild & Free once again, I was struck by how little the book dealt with the usual financial matters that the personal finance press tends to focus on. Here’s one passage I had underlined 12 years ago:

“… the biggest mistake you can make with your retirement planning is to concentrate only on the financial aspects.”

Some of the points in the chapter summaries include “You are never too young to retire,” “Retiring too late means you don’t get another chance to do it right”, “Life is short — and so is money,” and “It’s better to live rich than die rich.”

The book nicely touches on the dilemma debated just last week in a MoneySense blog I wrote that was repurposed here at our sister site (aka “The Hub”) under the headline, “Retirement Planning would be so much easier if we knew (exactly) when we were going to die.”

I have to admit that once I re-read the passages I had underlined in 2003, and much more that I hadn’t the first time around, I thought to myself: “Why am I working so hard when I really don’t have to?”

It’s not about loafing but about staying active

Zelinski’s list of things you can do in Retirement takes multiple pages to list and it got me thinking about my own oft-postponed semi-retirement. When I put the book down for the second time, I was even inspired to go back to a hobby that had obsessed me between 2004 and 2011 or so: Internet bridge. Over those years, I had encountered many cyber personalities from around the world and was pleased to reencounter several of them once I did.

While Zelinski doesn’t use the term Findependence, his vision of Semi-Retirement is certainly consistent with this website’s insistence that our last few decades need to have purpose:

“This I can assure you: You won’t find genuine joy and satisfaction by spending all your time sleeping, relaxing, loafing, and watching TV, hoping to live up to the ideal of a true idler … To retire happy, wild, and free, you must stay active.”

As I have noted in other blogs about Extreme Early Retirement, Zelinski is certainly no loafer: he was smart enough to get out of the corporate jungle early in life so he could become an entrepreneur: in addition to his publishing empire he still speaks a bit. Sounds corny but it’s another case of “do what you love and the money will follow.”

I could go on at length but if you want more, go ahead and buy the book, or for $2.99 you could buy this summary e-book by Bob Matthews. It certainly made me think and I’d love to hear from Zelinski fans who have implemented his ideas over the years.

Just drop me a line at jonathan@findependenceday.com. In fact, Ernie himself supplied me with a few letters from readers who achieved an even more happy, wild and free retirement than the author himself.

We’ll revisit them in a few weeks.

The GIS-TFSA gambit revisited


Fred Vettese/Morneau Shepell

My latest MoneySense blog is a followup to an interesting piece by actuary Fred Vettese about the curious phenomenon of wealthy couples being able to contort their finances between ages 67 and 70, by which they can receive the Guaranteed Income Supplement or GIS.

Considering that the GIS is aimed at seniors with no savings and minimal pensions, the idea of putting such a gambit in place offends some, although as the blog points out, most of the readers who contacted Vettese just wanted more details on how they could benefit from the strategy themselves.

Hypothetical but max out your TFSA while you can

I’ll be doing more on this but it seems that the strategy is not so much likely to become widespread as it is an example of the inherent contradictions and unintended consequences that accompany such a proliferation of government programs. This one is based on suspending most sources of income from 67 to 70, except Old Age Security (OAS) and the GIS, plus taking tax-free income from the Tax Free Savings Account or TFSA. TFSA withdrawals are neither taxed nor trigger clawbacks of OAS and GIS. In fact, it’s arguable TFSAs were created expressly to motivate low-income workers to save without being penalized by the taxes and clawbacks that accompany RRSPs and employer-sponsored pensions plans.

Will Ottawa move to crack down on this theoretical loophole? Who knows but the TFSA was the Conservative administration’s creation and if they lose the next election, it’s quite possible the Liberals or NDP would move to tweak either the TFSA rules or the GIS qualifying rules. Best advice? Max out the TFSA while you still can!

No need to be pessimistic about retirement, Hamilton says

Here is my MoneySense blog about Malcolm Hamilton’s talk to the Retire Rich event on the weekend.

Or you can read it here below:


Malcolm Hamilton (left) and Yours Truly. MoneySense.ca

Actuary and pension guru Malcolm Hamilton has already achieved what many MoneySense readers aspire to do one day: he retired at 62. But, he confessed at MoneySense’s Retire Rich on the weekend, despite his vast pension experience and gold medals in mathematics, he probably over saved. “I was cautious and now have more than I need. I have no good use for the money, although I might if we have another 2008.”

Now 63, Hamilton is mostly retired, although he is also a senior fellow for the C.D. Howe Institute and continues to do some writing and speaking. As one of the media’s go-to-sources for all things retirement and pensions, he reiterated a theme that has long been picked up by the country’s financial writers. He continues to believe most Canadians don’t need to “replace” 70 or 80% of their working incomes, which are the percentages usually proffered by our financial institutions. Most of us will be able to get by with 50% or even just 40% of what we earned in our working lives. “No one can tell exactly how much we will need to save. Canadians are unduly and irrationally discouraged about their prospects.”

Headlines downplay the good news on saving

He highlighted several pessimistic headlines produced in recent editions of our newspapers, most of them variations on the theme that Canadians aren’t saving enough. Not making the news were statistics like the fact Canadians’ collective net worth doubled from $4 trillion to $8 trillion in the 13 years between 1999 and 2012, and that’s after inflation is backed out. And that was over a period where interest rates hovered near historic lows, the stock market crashed twice and the world experienced a financial crisis almost as severe as the Great Depression of the 1930s.

Over that same time, Canadians’ retirement savings also doubled, from $1.5 trillion to $3 trillion, Hamilton said. “There’s something good going on that doesn’t seem to be reported.”

Most Canadians retire voluntarily between 60 and 65. On average they retire at 62, although that is “creeping up.” That’s not as early as most retired in the 1990s, he said, but it’s earlier than the late 1960s and 1970s, “when seniors were poor and almost no one retired at 65.”

Like Hamilton himself, most of today’s retired seniors don’t spend the money they have and own houses that are mortgage free. If they ever face financial duress, he said, they could tap the equity from those homes: renting rooms out, selling or downsizing, or resort to reverse mortgages. But most don’t do any of those things. “They live in their houses as long as they can. They don’t access home equity. They don’t withdraw money from their RRSPs as fast as possible. They continue to save as seniors.”

While the event was billed as “Retire Rich,” Hamilton said “saving for retirement is not about getting rich. If you want to get rich, you save as much as you can all the time and never spend. You live like a pauper but you won’t be happy and your marriage won’t last. Retirement saving isn’t about getting rich; it’s about finding a way to save enough of the income earned in your work life so that in retirement you can have a similar standard of living.”

Those making a minimum wage can save nothing and end up with as much disposable income in retirement as during their working lives. That’s because at age 65, the Government will give a single Ontario resident $19,000, most of it after-tax income. That consists of $7,000 from Old Age Security and $11,000 from the Guaranteed Income Supplement, $2,500 from refundable tax credits and “believe it or not” $500 from CPP, he clarified in a later Q&A session. “There is no poverty for Canadian seniors; the poor people in Canada are young.”

Why 52% replacement ratio may be fine

MoneySense subscribers attending such an event will of course be aiming for a higher retirement income. Hamilton said a typical Toronto couple with two incomes totaling $120,000 a year probably spend $480,000 on a modest house and have two kids. If they save five times their gross earnings and accumulate $600,000 in capital, they could replace 52% of their income in retirement. To get there, they’d simply need to save 6% of their income between ages 25 and 65, at which point they could retire. They would direct 23% of earnings to taxes, CPP and EI, and another 23% to pay for the house and kids. In all, 52% of their gross working income goes to taxes, savings, the house and children. At 65, all those expenditures disappear. The $600,000 capital will replace 20% of the income they were earning in their working lives, and CPP and OAS will generate 32%, for a total 52% replacement ratio. That will allow them to spend as much on themselves as they did when they were working.

Ironically, childless couples that rent will need to replace more of their working income – probably 70% — because they have been accustomed to having more disposable income. For parents, the house and kids should be the spending priorities in the first half of their working lives. They should be fine if they start to save a reasonable amount by their 40s.

Retiring Retirement

falkHere’ a post from my Financial Independence blog at MoneySense.ca, posted this week from the Morningstar annual conference held in Toronto on Wednesday. Pictured is Michael Falk, a partner with Illinois-based Focus Consulting Group, and I’m reporting on his talk entitled Prime Minister, There’s a Hole in My Safety Net.

And as promised a few weeks back, here’s the second-chapter summary of financial lessons learned in the second chapter of the new US edition of Findependence Day:

Chapter 2: Money Money Money: It’s a Rich Man’s World

• The best investment is paying off debt

• A line of credit lets you consolidate high-interest loans at one combined lower interest rate.

• A more effective method is to spend less than you earn.

• Avoid paying only the minimum monthly payment on your credit card. Better yet, pay balances off in full and never pay a dime interest.

• Build a six-month cash cushion.

• Mutual funds offer young investors professional security selection and diversification and through equity funds, exposure to the stock market.

• Financial Independence is not the same thing as Retirement. It means you continue to work because you want to, not because you have to.

• As your portfolio grows, you can lower investment management costs by using a discount brokerage, buying low-cost passively managed investments, and engaging a fee-only financial planner.

• During Semi-Retirement or the “First Retirement” you can give back to the community by volunteering, and discover talents you never knew you had.




“Giving up” on saving? Don’t embrace this kind of defeatism

From time to time I see some in the media asking the question whether people are “giving up on saving.”  This was the thesis of a Maclean’s cover story last year and a version came up this week in the Financial Post.  It’s not a stance I sympathize with, which is why  I wrote a version of today’s blog earlier this week at www.moneysense.ca.

Here, I’ve reproduced and expanded on that blog.

It’s a free world of course and everyone can choose to maximize consumption today, even if it means paying more tax because of foregoing contributions to tax-assisted retirement plans (RRSPs in Canada, or in the United States, contributions to IRAs or 401(k)s.)

But giving up on saving does have consequences. This choice means you’re also giving up on more consumption in the future, and giving up the chance for freedom (or financial independence) while you’re still young enough to enjoy it.

People are perfectly free to spend to the full extent of current income but leaving no margin for error for job loss or other emergencies is just plain foolish. Any financial planner will tell you that enough savings to last six to nine months without employment income is the minimum prudent emergency cushion—an amount that can now be well taken care of by the cumulative $25,500 in TFSA contribution room now available to any Canadian 18 years of age or older. (For the benefit of any American readers, the Tax Free Savings Account is the equivalent of Roth plans, although TFSAs were only introduced in 2009. Same idea but different rules. See also note at end of blog).

Alternative is working till you drop

Beyond the customary emergency savings, giving up on saving for longer-term goals like retirement really means resolving to stay in the workforce (employers and circumstances permitting) right until 65, or 67 in the case of younger people. Indeed, the November issue of MoneySense did show how people can retire in luxury merely by finding a low-cost place to live (most of them outside the country) and living off such government income sources as CPP, OAS and GIS (in Canada) or Social Security (in the US).

While such a strategy is theoretically possible, “luxury” is a relative term and relying only on government money in old age strikes me as dangerous from a diversification point of view. In the U.S. in particular, given the nation’s parlous finances, putting all your eggs into the basket of Social Security seems an overly optimistic gamble. Not for nothing do the financial gurus counsel a three-legged stool that also includes employer pensions and private savings and investments, not to mention part-time work, real estate income and other “multiple streams of income.”

Frenzy of Rationalization

In the end, taking a defeatist attitude to saving is just making excuses. Blaming low interest rates or volatile stock markets is what my wife and I dub “a frenzy of rationalization” or FOR. It’s true that young people today have far more financial temptations than did the baby boomers: we never had to budget for cell phone plans or Internet access, nor were we under pressure to constantly upgrade to newer and better smartphones and other technological gadgets.

But again, if your perceived “needs” exactly equal your income, then the best you can hope for is to break even financially as the years pass, and that assumes steady employment. Lose that source of income and the trouble soon begins. Saving and investing means ultimately benefiting from the magic of compound interest (or compounded reinvested dividends). Giving up on saving and falling into debt should unemployment strike means the reverse and negative outcome: being subject to the disaster of compounding debt—and unfortunately, the interest rates that seem so minuscule if you’re a creditor turn out to be very high if you’re a debtor.

Far better to be a net beneficiary of even modest interest and dividend income than a victim of it. And that’s why, even though I’m personally on the cusp of Findependence I’m still not giving up on saving.

US edition of Findependence Day nearing publication

If you’re reading this blog, you shouldn’t need an explanation of the word Findependence, since this entire web site is dedicated to the book, Findependence Day. The original novel described here can be considered North American in scope but it has a lot of Canadian content with just a sprinkling of U.S. material. This will be rectified in a few months time when I’ll be releasing a new all-U.S. second edition of the book.  Watch this space for  updates on that.

Budget 2012: Older boomers dodge OAS bullet

While the pre-budget hype was that Canadian baby boomers were going to have to delay their retirement after Thursday’s federal budget was unveiled, their Findependence Day has not been severely postponed for anyone who is now 54 years old or older as of March 31, 2012.

As expected, the Old Age Security eligibility age will rise gradually from the current 65 to 67 but this doesn’t start to happen until 2023, according to the just-released budget.  When you add the 11-year notification of this change to the six-year phase-in between 2023 and 2029, I’d agree with Finance Minister Jim Flaherty that Canadians [or their financial planners] have “ample time to make adjustments to their retirement plans.”

For younger people born on or after Feb. 1, 1962, OAS eligibility will be age 67. Technically, boomers were born between 1946 and 1964 but in my view, if you were born between 1962 and 1964, you likely didn’t grieve over the JFK assassination and can hardly be considered a true baby boomer.

Delaying retirement: OAS takes a leaf from deferred CPP benefits

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