Half way through a three-week vacation in Turkey, I’ve been experimenting with the idea of integrating a little work with the travel. As my daughter has noted after a long summer of independent travel, everyone has SmartPhones these days and it’s not hard to find places with wireless: all hotels and most good restaurants have them, and many other places as well.
Roaming charges from North American telecom suppliers are prohibitive so we do what the student travelers do and leave the devices permanently in Airplane mode. That means enforced SmartPhone vacations from email and social media during times between wireless access but hey, it’s a vacation too, right? And anyway, who wants to be connected all the time?
In blogs earlier this summer (a summer that for me has extended through a lovely September in Toronto and now an even sunnier continued summer in Turkey), I described Tim Ferris’s idea of mini-retirements, described more fully in his best-selling book, The Four-Hour Workweek.
For me, the longest vacation I’ve had until now was two weeks long: my honeymoon in 1989, and two subsequent fortnights (as the British call them) in Europe and Scandinavia. So three weeks is a record but I can see how those of us from colder climates might eventually want to arrange their “Findependence” to include stints of eight or ten weeks in a row nicely timed to avoid January, February and the first half of March. (the depths of winter in Canada and the northern United States).
I’ve referred before to the American folksinger Phil Ochs and his (I believe) last album, entitled Rehearsals for Retirement. I won’t rehash my usual distinction here between traditional Retirement and Financial Independence but suffice it to say that a longer-than-the-normal two-week vacation can be considered either a Mini-Retirement or a Rehearsal for Retirement (or both?).
You can “work” during Mini-Retirements
Since my notion of Findependence sees a continued role for work and creativity well into one’s 60s and 70s, a Mini-Retirement or Retirement Rehearsal simply means travel along the lines this Turkey trip has gone but more so.
As you can see by reading these words, I felt moved to write this blog while still abroad, if only because I need to have some words to surround the photos that accompany it. I’ve been posting such photos to my Twitter and Facebook feeds all along but not without the context a longer blog can provide.
As was the case when I was blogging from home this summer, I’m composing the first draft of this on my laptop outside. As I sit on the second-floor balcony of the Su Hotel in Bodrum, Turkey, the sun is hitting my feet but the rest of me is in shade. Below and in front of me I can see a long lap pool that at night is lit up in my favorite shades of blue and green. Even at mid-day you can still hear the odd rooster crowing, though nothing like they do around dawn. Later, during a final edit and with lunch beckoning with the family, I’m sipping a glass of local red wine.
The longer the Mini-Retirement, the more work may play a role
Thus far, this vacation has resembled the one-week and two-week versions: nice accommodation, meals out, guided tours etc. Not what I’d term guerrilla frugality! In the future, if and when we attempt a ten-week stay somewhere like France or Italy to get away from winter, I can see ratcheting down expenses considerably from these levels. Probably, we would rent a house or villa for several weeks, shop for groceries and wine locally, and prepare our own food in our temporary home, just as we would do at home in Long Branch, Ontario. We would have full Internet access and all the gadgets that accompanied us on this shorter vacation: Kindles, iPhones, Blackberries, iPads and laptop computers.
Even during this Turkey trip – wireless permitting – I’ve surprised myself by staying on top of the news as much as I have and similarly monitoring and posting to various social media. The quantity is no doubt much reduced, perhaps to the relief of all concerned. But this trip has confirmed in my own mind that it is indeed possible to combine business and travel to some extent, even if the pleasure/work ratio is slanted heavily to the Pleasure side. For the curious, we do have a family member who is keeping the home fires burning: that means the cat is getting fed and orders for the Findependence Day book are being fulfilled with no delay. The cloud accounting software I described some weeks ago can be accessed remotely, as can our bank accounts and discount brokerage accounts.
While I’ve only made a stab here of testing the idea, I suspect that the longer the mini-retirement (or extended vacation) and the more you settle in one particular spot, the more “work” would play a role — defining “work” as something that creates invoices or at least moves forward long-term creative projects that might one day bring in revenue.
In short, the rhythms of life continue. In many respects, it’s the best of all worlds and I look forward to trying an extended “Mini Retirement” as early as January of 2016 (plus of course shorter vacations in the meantime).
It’s not often I read a book twice and even rarer that I’ve reviewed the second edition of a book. The rare exception is Daryl Diamond’s newly revised Your Retirement Income Blueprint, published by Wiley Canada in 2011 and now in 2014 by Milner & Associates Inc.
A major reason is revealed in the back-cover blurb I supplied for the new edition. When the original came out, I was still fully employed and the idea of retirement or financial independence were just theoretical concepts. But as I say in the blurb, now that I’m transitioning from employment to semi-retirement or self-employment, “I intend to use Daryl’s blueprint as my personal plan for drawing income from a diversified portfolio and other income sources.”
Different skill set for decumulation
Diamond rightly points out that there is a world of difference between wealth accumulation and drawing an income. He’s probably also correct that there are a lot fewer financial advisors who specialize in decumulation, compared to the legions who are focused on wealth accumulation.
Diamond – who like myself was born in 1953 – lays out a six-step plan for creating and implementing a retirement income blueprint. Even on a second read, I still found myself underlining certain passages that must not have penetrated my thick skull originally. Things like the Age Credit and Pension Tax Credit tend not to be top of mind until you actually stand to benefit from them. (And I don’t yet but can see the day fast approaching when I would!)
Where Diamond really adds value is the way he integrates tax planning with a logical order for drawing on various retirement income sources. His “Cash Wedge” or “Floor and Upside” concept seems to me a variation of Asset Dedication: setting up enough cash flow to draw down on for the first two or three years. His discussion of the order in which to draw on government and employer pensions, annuities and registered and non-registered investments is masterful. And his recommendations are not always obvious. For example, he’s generally in favor of taking OAS and CPP benefits relatively early, in part because he has an acute understanding of how higher income later in retirement can impact the aforementioned age and pension credits, or indeed receipt of OAS benefits at all.
In a similar fashion, he advocates using non-registered (or what he terms tax-paid) assets when you move into higher tax brackets.
Sweet spot for age and pension credits
While the editions aren’t hugely different – the blue front cover is virtually identical in both editions — Diamond and editor Karen Milner have done a good job updating everything to 2014. So, for example, you will learn (on page 158) that the tax-efficient net income “sweet spot” in 2014 for someone aged 65 or over is $34,873. Or, a few pages later, that the federal “tax-free zone” is $18,054, which rises to just over $20,000 if the pension credit is generated.
He also makes it clear that letting vehicles like tax-deferred RRSPs grow indefinitely can be tax-inefficient, since that creates what can be a “tax trap” after age 71, when minimum and fully taxable RRIF income starts to kick in. So he shows how you can start withdrawing income from RRSPs or RRIFs to get you to the top end of any given tax bracket, even if the extra (and taxable) income is not required that particular year. He’s also a big fan, as I am, of the Tax Free Savings Account or TFSA.
No doubt I will frequently consult this book personally as I progress to later stages of the “Findependence” journey I’ve been chronicling in these blogs.
All I can say is the $26.95 retail price of the book is trivial compared to the tens of thousands of dollars that could be saved by implementing the steps in the proper order.
As I noted Thursday in this blog and elsewhere, I’ve always believed Canadians should have higher RRSP contribution limits and/or the equivalent space in registered pension plans.
It seems the C.D. Howe Institute agrees, based on this paper released Thursday, and which has already created a fair bit of publicity. I’ve received some email on this site (via firstname.lastname@example.org) to the effect that “only the rich” benefit from more RRSP room and that, in any case, low-income earners are better off with TFSAs.
I’ll quote from some of the skeptics below, but first let me reiterate the point that Ottawa will eventually get any tax revenue it may lose by raising RRSP limits now. As any retiree with a substantial RRIF knows, forced annual RRIF withdrawals will be fully taxable and may even result in the clawback of OAS or other benefits. That’s why some question my statement that higher-income earners should welcome more RRSP room.
Two pluses, one minus
I know those with big RRSPs will eventually pay the piper but remember two things. One, several years or decades of deferred and compounded growth on investments is worth a lot. Second, most of us can expect to be in a lower tax bracket in retirement than when we were working. If you can defer tax while you’re in a 46% tax bracket and pay it many years later when you have no other income and are in a 23% tax bracket, that to me is a fair trade.
A 72-year old reader with the first name James makes the following counterpoints:
… when the other shoe drops and you are withdrawing money, here are the nasty realities:
1. You may be paying higher tax rates than when you put it in! This is true in my case and you do not have to have amassed a huge fortune for that to occur.
2. The whole nasty business of clawback, which has huge potential marginal tax rates.
3. The fact that the government controls the rate at which you reacquire your own money – regardless of your needs and limitations.
Any reform of RRSPs therefore should not only deal with maximum deposit limits but should remove any restriction on the amount and the timing of withdrawals. If I want to leave it in there until I die I should be able to and it can then by taxed in my estate (as a lump sum, which the government would love!) or passed on to one more generation – the spouse.
In the absence of hard numbers on this situation, I tried very hard to come up with my own scenarios using a sophisticated hand-held financial computer, and concluded it was better to collapse my entire RRSP before my 72nd birthday, but I may be on shaky ground without stronger financial planning tools than I had access to.
What if we didn’t tax CPP and OAS benefits?
Another reader, James from British Columbia, makes a suggestion that has occurred to me in the past. Instead of introducing an expanded CPP that will antagonize employers by in effect hiking their payroll costs, why not just make CPP and OAS income go further in old age by not taxing the income?
There could be a means test to apply some tax rate for high income earners, as there is now on OAS, but people who earn under $75,000 per year, for example, would pay no taxes on CPP and OAS benefits.
That simple, stroke-of-the-pen policy change by Ottawa would boost retirees incomes by at least 15% on those sources and not cost a single job. Nor would it require any provincial consensus.
It would cost Ottawa tax revenue, so of course it’s a nonstarter, but it’s not difficult to eliminate the job-killer argument if the federal government really has the will to help low-income retirees.
My take on a C.D. Howe brief issued Thursday on the case for raising RRSP contribution limits can be found in my Financial Post column today here. Also note the many comments that follow the piece, some reflective of the emails I will highlight in Friday’s blog. You can find the full e-brief here.
And in case it’s not clear in the column, I absolutely think this is a good idea: always have. It’s true those with lower incomes may not need RRSPs. TFSAs may be a better solution for them, especially if they want to avoid clawbacks of OAS or GIS in old age. But the vast majority in the middle class who lack employer pension plans (especially the lucrative DB plans) could benefit from higher limits. If, as is likely, they will retire in a lower tax bracket than they were in their high-earning years, then an RRSP is almost a necessity. And as I point out in the piece, since only a minority of Canadians are in a position to max out their RRSPs, it shouldn’t cost Ottawa all that much because of more upfront tax deductions. And unlike the TFSA, which will reap no bonanza for federal coffers on withdrawals, RRIF income will eventually bring in lots of tax revenue for the government once we retire.
Seems like a win-win to me. Stay tuned for more reader feedback tomorrow.
There’s a must-read on the front page of Thursday’s National Post by Andrew Coyne that you can find here. The piece highlights a new Fraser Institute study about the increasingly bloated costs of investments run by the Canada Pension Plan Investment Board (CPPIB). While Coyne is primarily a political writer and this piece is in part a political one, Coyne has always been a shrewd observer of the investing scene. Over the years, he’s occasionally weighed in on the relative merits of low-cost “passive” index-based investing and higher-cost “actively managed” investing epitomized by retail mutual funds, wrap accounts and (in the case of CPP), actively managed pension mandates.
Coyne doesn’t pull his punches. Near the end of the piece he writes:
It is simply a reflection of what is by now also widely recognized, among those without a vested interest in denying it. Active management is a crock. To consistently beat the market within a given asset class, a fund manager must be consistently smart and well-informed, he must be consistently smarter and better-informed than all the other smart and well-informed managers out there, all of whom are trying to do the same. That’s vanishingly unlikely.
CPP is playing the Loser’s Game
Clearly, Coyne is well aware of the arguments of major financial writers like John Bogle, Larry Swedroe, Mark Hebner, Dan Solin and many more. In particular, Charles Ellis’s Winning the Loser’s Game. (Click on the highlights for other representative books written by those authors. There also others by Canadians like Mark Noble, Howard Atkinson, Keith Matthews, Ted Cadsby and no doubt a few others I’ve neglected to mention.)
So, despite the overwhelming academic evidence that active management is — to use Coyne’s delightfully derogatory term — a “crock,” why then is the Canada Pension Plan Investment Board (CPPIB) taking a flyer on Canadians’ collective retirement funds? It’s about money alright, but not so much about our retirement money than the compensation sought by CPPIB senior managers.
CPPIB salaries depend on willful ignorance
As Coyne points out, compensation for CPP senior managers has leapt from $1.56 million in 2007 to $3.3 million in 2014. Despite this, he adds, this “extraordinary executive bounty” has “hardly” been associated with a comparable increase in the fund. This seems to demonstrate the wisdom of the old saying attributed to Upton Sinclair that “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
Kudos to Andrew Coyne for putting the spotlight on this issue so central to the future retirement health of average Canadians. And it’s not just about CPP. When the federal government’s Pooled Registered Pension Plans (PRPPs) were announced, I commented at the time that they should be primarily invested in passively managed ETFs from firms like Vanguard Canada, which had just arrived on our shores, or the low-cost “core” portfolios of BlackRock Canada’s iShares family of ETFs.
PRPPs also headed for the Loser’s Game
But the actively managed investment industry whose collective salaries depend on not “getting” indexing have mounted a formidable campaign to get a piece of the action of PRPPs, to the point I’m not optimistic we’ll see much takeup from the thousands of smaller employers that currently offer no pension plan at all to their workers.
The labour movement can talk all it wants to about the alternative of a “Big” CPP, but if it entails the kind of active management that Coyne describes, it’s hard to advocate allowing the CPPIB to play the “loser’s game” with even more of our money.
Once it’s no longer necessary to commute to and from a downtown or suburban corporate job, where in the world do you want to be? I touched on this in a recent MoneySense blog on reverse mortgages. Most full retirees know they want to be close to hospitals, universities and libraries. They don’t need to be as close to the downtown core or even be near major transit systems though that can be a nice extra if they value city culture and/or friends and family still live there.
Throughout my personal Findependence journey this summer I’ve been posting photos of the community I live in: Long Branch, Ontario. It’s closer to downtown Toronto than its trendier neighbour to the west, Port Credit. The beach photo below, for example, I put on social media after biking along the (relatively) new boardwalk at the foot of 41st Street. As I commented at the time, at first glance you may think the photo is of some exotic beach somewhere in the south — it’s hard to believe it’s a mere 15-minute GO train ride from downtown Toronto. When I had one-hour commutes either to Don Mills or Bloor & Sherbourne, it sometimes seemed our home’s location was a bit of an inconvenience. It took a 12-minute car ride (or bus) just to get to the subway, which is why the three members of our family have three cars (though the youngest member is abroad so the car is on blocks).
Now that I’m semi-retired (that’s what I’m calling it for the balance of the summer, anyway!), I’ve really come to appreciate the community in which we live. In addition to the beach and bike paths that go from Mississauga to downtown Toronto, there’s a post office (convenient in my line of work), a library (ditto!) and quite recently a Starbucks set up shop: always a good sign for impending gentrification. The photo below of the path by the lake is the indirect route from the Starbucks to my home, during which time I generally carry back a library book or two that was on hold, and listen to podcasts. Not a bad commute!
Mind you, one couple I know on our street doesn’t like all this change and are preparing to beat a retreat for small-town Ontario. Not us: for now, this place is perfect: it’s a great base for full-time employment or part-time and if and when it comes time to “fully retire,” it has all the necessary amenities, some of which I’ve shown in scattered photos in this blog. If you’re still on the “before” end of Findependence, you might want to think about the place you want to be once you do achieve it. Hopefully this blog gives you a few ideas of what’s important.
I’ve not included photos of medical facilities but clearly that should be a consideration too: there are walk-in clinics and hospitals here. Local universities or colleges are a nice extra too: my parents enjoyed their last years in London, Ontario because they were right next door to the University of Western Ontario and took full advantage of it.
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!
A big aspect of planning for retirement is health and longevity. Earlier this summer, I devoted a blog to Mark Venning of ChangeRangers.com. Venning helps clients prepare for two things: making the shift from employment to entrepreneurship, and also to help prepare for a future of extended longevity and life expectancy. That’s “why the word ‘Retirement’ doesn’t work for me. It’s about longevity planning,” he told me, “My core message is plan for your longevity, not for retirement.”
One of several book recommendations from Venning to his students is a book by Lynda Gratton called The Shift: The future of work is already here. It’s not brand new: my copy was published by Harper Collins in 2011. But it’s still relevant, especially to the generation of baby boomers, myself and Venning included, who are grappling with the issues of retirement planning.
Gratton, who is a business school professor, identifies five forces that are shaping the world of work, plus three “shifts.” They’re all worth summarizing here.
The 5 forces shaping our future
3.) Demography and Longevity
5.) Energy Resources
The 3 shifts
1.) From shallow generalist to serial master
2.) From isolated competitor to innovative connector
3.) From voracious consumer to impassioned producer
For baby boomers and others who are nearing retirement, or moving into semi-retirement or self-employment, almost all of these forces and shifts need to be taken into consideration. In earlier blogs like this one — Never Work Again — we looked at the revolution in Internet marketing, which is based on both the Technology force and Globalization. When you can run a web-based business from anywhere in the world merely with a laptop computer and a smartphone, you know you’re embracing these forces.
Gratton’s points on demography and longevity seem particularly apt: this was the topic that most fascinated the team of researchers she tapped into for the book. “We quickly understood that technology is changing everything and will continue to do so, and that natural resources are depleted and carbon footprints must be reduced,” she writes. But demography and longevity “is intimately about us, our friends and our children … It’s about how many people are working, and for how long.”
The dark side: some boomers will grow old poor
In 2010, when Gratton was writing the book, there were four distinct generations in the workforce: the Boomers’ parents, the Boomers, Gen X (born between 1969 and 1979) and Gen Y (1980 to 1995). And coming up is Gen Z, born after 1995. Gen Y will be ascendent in the workplace by 2025 but increasing longevity means the Boomers and Gen X will still be hanging around, wanting to work and contribute in some capacity well into their 60s, if not beyond. Gratton also warns that “some baby boomers will grow old poor,” particularly if they don’t respond to the gift of extended longevity by embracing the forces and shifts that are confronting them.
Because of globalization and technology, the privilege of being born in North America may no longer be sufficient advantage for those who don’t embrace The Shift. Books like The Laptop Millionaire describe how those with wealth can take advantage of outsourcing: for example, hiring English-speaking Filipinos as full-time virtual assistants for something like $250 or $300/month. There is a dark side to these shifts: those not equipped to embrace change increasingly will have to compete for jobs or contracts with people half a world away who are technologically sophisticated and willing and able to work for much less than North Americans.
Gratton devotes big chunks of the book to fictional scenarios of the near future of work, some of them pessimistic, some of them optimistic. All in all, it’s well worth reading. It reinforced my own belief that “If you’re not sure whether you should retire or can afford to do so, then just keep working, preferably in a congenial line of work you can continue to practice well into your 70s.”
Here is my latest MoneySense blog on Financial Independence.
For convenience and archival purposes, I’ve entered a version below:
I’ve always had ambivalent feelings about the expression “sandwich generation,” which was in the news again last week when BMO Nesbitt Burns put out its latest “retirement readiness” study.
The headline number was that those caught between child-rearing and eldercare will be short more than half a million dollars for their own retirement. Defining this generation as those between the ages of 45 and 64, it said this cohort believes they need $818,000 on average for retirement but to date most have saved on average just $258,000.
Why my ambivalence? On the plus side, the sandwich generation always makes for good copy. In fact, the never-published fifth issue of the old Wealthy Boomer magazine I used to be associated with featured just such an anguished baby boomer couple on the cover, complete with squalling kids and ailing parents.
‘Twas ever thus?
On the other hand, I can’t help thinking “Hasn’t EVERY generation” been a sandwich generation? Didn’t the parents of the baby boomers have to raise us and worry also about THEIR aging parents? And didn’t their grandparents go through the same thing, and so on throughout all recorded time?
Ah but the baby boomers are special, aren’t they? Everything we touch becomes a trend and any asset class we embrace soon becomes overheated. Housing in the 1980s. Tech stocks in 2000. Soon perhaps a rush for vacation properties and retirement homes.
I accept the argument that the boomers have been blessed by extended longevity and generally robust health and new medical breakthroughs. Even so, I don’t see why an extra ten years of life expectancy makes the current crop of Sandwichees more special then previous generations. Arguably, the previous generation married earlier than the boomers. I’d even make the case that the boomers generally married and started forming families roughly ten years later than their parents did: say on average at age 29 instead of 19. Let’s also assume that we have ten years more life expectancy. Seems almost a wash, except that we have kids when we’re older. The old folks will pass away at their appointed time, regardless of when we decide to start replacing them with their grandchildren.
In my case, I’m particularly fond of a photograph of my own father taken with our daughter as a youngster. Perhaps Dad was in his mid 80s at the time (he’d be 100 this year had he lived that long) and Daughter was maybe three. In effect, neither of them as photographed there is here any longer. I couldn’t find that photo but the one above shows my late father-in-law and mother-in-law, holding my daughter and one of her two cousins, taken about 20 years ago. Literally, “grandchildren on your knee,” as per the line from the Beatles’ When I’m 64.
The young girls are now young women. The point is that period was a fleeting one and so too was the period of being “sandwiched.”
This phase too will pass
The kids soon grow up and the parents die: all four of our precious elders in our own case. Because we delayed things like so many boomers did, the grandparents weren’t around to see things like college graduation or marriage for their grandchildren. But with their passing comes inheritances (often), which in turn can help pay for the kids’ university educations. The one “problem” (eldercare) eventually resolves itself and helps fix the other sandwich “problem” of the cost of university.
I’ve always loved Emerson’s essay, Compensation. If you’re still a boomer sandwiched between the generations, count your blessings and read that essay. Here’s a passage I underlined long ago: “For every thing you have missed, you have gained something else; and for every thing you gain, you lose something.”
The compensations of being sandwiched
To those still sandwiched, I’d say enjoy this brief time where you bridge three generations. Soon it will be gone and you’ll have plenty of time to pad your retirement savings, especially with extended life expectancy. Take it from me: working a few extra years is no tragedy. Emerson might even view it as a blessing.
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