Retirement

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(Photo Details:  Last weekend, celebrating my friend's 50th birthday on the Lagoon at Stinson Beach, CA.  Can anyone guess the relevance to Obamacare?) Last week, I thought I’d be blogging about my experience sh...
(Photo Details:  Last weekend, celebrating my friend's 50th birthday on the Lagoon at Stinson Beach, CA.  Can anyone guess the relevance to Obamacare?) Last week, I thought I’d be blogging about my experience shopping for health insurance on the exchange.  In what I interpret as a good sign, it’s taken me one week to be able to get to the “apply” section of my state’s health insurance exchange.  It looks like a lot of people are looking to get themselves insured, and I’m glad about that.  Apparently I was one of over five million people shopping on the California exchange last week. From the second day, I was able to review my choices, compare prices and coverage, and select the plan that I wanted.  But until yesterday I was unable to actually submit my application.   Yesterday, my application was accepted, but I haven’t been able to purchase the policy of my choice just yet.  Maybe later today—I’ve still got a couple months, so I’m not worried.  Here’s what I’ve learned so far. Should you even care? If you have health insurance at work, no, you shouldn’t care.  Don’t bother reading any further. If you are retired and on Medicare, you shouldn’t care either.  Stop reading here. If you are retired and have retiree health insurance through your former employer, you don’t care either.  Go read a good book. If you are on Medicaid, you shouldn’t care either.  Follow the instructions above. That doesn’t leave many people who still care, I know.  But for those of you that are retired or are thinking about retiring before you are eligible for Medicare, read on. Old rules Up to now, when you retired (or otherwise found yourself without a job), I would have advised you to sign up for health insurance through COBRA.  It’s an expensive option, but it was the only way to guarantee that you could get health insurance.  Then, while you had the safety net of COBRA coverage, you could shop for an individual policy on your own. Two problems existed if you went out on the open market to buy an individual policy outside of COBRA.  The first was that you wouldn’t know the actual price of your policy until you went through underwriting.  The second was that at the end of the lengthy underwriting process, the insurer could decide not to insure you anyway.  So it was a cumbersome process, to say the least. New rules Now you can shop for an individual policy, compare the actual prices, and actually wind up with a policy at the end of your application process. Do I have to buy my insurance on the exchange? No.  You don’t have to buy insurance on the exchange.  In fact if you wish, you can shop and compare providers, coverage, and prices on the exchange.   Then when you find coverage you like, you can go directly to that insurer and buy it through them, avoiding the exchange application process all together. Or you can go through a broker (or on-line broker like ehealthinsurance.com) and do the same thing.  However, if you qualify for subsidies under the new law, you must buy your insurance on the exchange.  On the other hand, even if you don’t qualify for a subsidy, you can still buy your insurance on the exchange, if you have the patience to wait a week or two. Here is where you should start if you will be shopping on the exchange. I assume this is the same in all states, but all of the policies I found on the exchange are the exact same policies I found on the individual carrier websites: same policies, same prices, same provider networks. Can I still go to my doctor? This issue was the most important factor to us, even over price.  When you shop
about 3 hours ago
My wife and I had an interesting conversation the other day, which I thought was an applicable topic for a post here. The gist of the conversation was – what would we do with the money we are currently using to achieve financial independ...
My wife and I had an interesting conversation the other day, which I thought was an applicable topic for a post here. The gist of the conversation was – what would we do with the money we are currently using to achieve financial independence, if our income was cut significantly? We are currently saving somewhere around 65% of our take-home pay, at this time making extra mortgage payments to get our house paid off as quickly as possible. Eventually, this money will be funneled to investment accounts, building our asset base outside of real estate, with the intention of having enough cashflow from investments to sustain our lifestyle – which would allow an exit from the workforce, or at least much less need to work. So, what if we used the money being spent on our house and retirement savings and just blew it all? We tried to think about what we would spend all this money on. The amount of excess dollars would be over 10 times the amount we spend on “variable” (usually fun) stuff in a month. We could pay with cash for a new car every few months. We could go on a pretty fun trip once a month, instead of going away once every 18 months or so that we do now. If we did spend the excess, we would probably just end up with more stuff than we need or really wanted, just to have – we would be like kids who get spoiled at Christmas – too many toys to even enjoy any of them. Like the kids, we’d probably end up back with our favourite activities, which don’t cost very much to do and have sustained us to this point. My wife and I having more money could probably be compared with most people finding cheap credit, which they see as almost “free” money. Home Equity Lines of credit or introductory credit card offers allow people to think they have way more money than they actually do. Most people I’ve seen in these type of situations don’t use that money wisely, and end up in worse shape than if they had just lived “smaller”. Part of the reason saving for early retirement works for us is that we don’t have a ton of “wants”. Saving a significant portion of our income isn’t forcing us to make hard financial decisions, and having a low demand for “wants” in retirement will allow us to live fairly cheaply (the other obvious fact is that combined we make a considerable amount of money relative to our lifestyle). I think if I had an expensive hobby (say something car related), early retirement would be much more of a inconvenience and I probably wouldn’t stick to it. Do you feel like you’re giving up stuff in order to work towards early retirement? Is savings a chore for you?
about 9 hours ago
The University of Indianapolis Center for Aging & Community will host a workshop for aging services providers on Tuesday, October 15 from 9am to 3pm on the UIndy campus. Helping Professionals Help Older Adults Embrace a New Purpose: Rec...
The University of Indianapolis Center for Aging & Community will host a workshop for aging services providers on Tuesday, October 15 from 9am to 3pm on the UIndy campus. Helping Professionals Help Older Adults Embrace a New Purpose: Recreation & Volunteerism is designed to give people who work with older adults a better understanding of how to help their clients develop and pursue a full life through the pursuit of various leisure and volunteer activities.As we age, our purpose in life changes. This may be a result of retirement, changing relationships with adult children, and a realization that we are moving into a new phase of life. Whatever the impetus for that change, professionals who work with older adults can help their clients navigate the changes and identify a new, fulfilling purpose for themselves.RecreationThe morning session of this workshop will focus on recreation. Jeff Gilbert, Manager of the Denton Senior Center in Denton, TX, will join us to explore the broad definitions of "recreation," how to encourage older adults to find recreational activities they love and to embrace new experiences. Jeff will also discuss trends in older adult recreation -- just what DO the Baby Boomers want, as well as addressing the topic of developing recreational opportunities for different cultural groups of older adults.VolunteerismThe afternoon session will be conducted by Pat Gilbert, Network and Civic Engagement Director for The Oasis Institute. As part of the senior management team at the national headquarters, Pat provides leadership for volunteer engagement throughout the OASIS network, which encompasses 43 cities in 28 states. Pat has been a frequent presenter at the Aging in America Conference on volunteer engagement as a key strategy to increase organizational sustainability and social impact.*CEUs will not be offered for this event, however each participant will receive a certificate of completion.CostThe cost of the workshop, which includes materials, continental breakfast and lunch is only $20. Students may register for $10. (Proof of student status required.) To register, click here. These workshops were made possible by a generous contribution in memory of Nelle Worthington, long-time aging advocate and Indiana State Health Insurance Assistance Program employee.
about 21 hours ago
During my last net worth update I commented on the fact my Tax Free Savings Account (TFSA) contributions are now maxed out which would mean I’ve contributed $25,500 in the last five years.  That account balance at that time was $33...
During my last net worth update I commented on the fact my Tax Free Savings Account (TFSA) contributions are now maxed out which would mean I’ve contributed $25,500 in the last five years.  That account balance at that time was $33,100 or a total gain of $7600 or 30%.  The gains are big, but you have to keep in mind that my TFSA is my highest risk account.  Unlike a lot of people who just put their contributions in savings account (paying 1% return which is so tragic waste of this accounts potential I almost weep when I hear it), mine is all invested in individual stocks. So why is a savings account is a tragic waste of potential?  Well let’s say you have maxed your TFSA ($25,500) in a high interest saving account at Royal Bank for a 1.1% yield.  That would be a big old $280.50 in interest per year.  Taxed at a marginal rate of 39%, you saved $109 in taxes. Not bad right? In my TFSA, I buy stocks that mirror my bills since I’m interested in mature businesses that pay a good dividend or distribution.  My current holdings are: AQN, BCE, D.UN, NPI, and REI.UN.  In total these stocks pay me $1982 a year to hold them or if you compare that back to my contributions that is a 7.8% yield. That is a high yield, but like I said this is my high risk account, I would be insulted if I wasn’t being paid well for taking the risk.  Now just on the distributions (39% marginal tax rate) and dividends (17.9% marginal tax rate) I save about $505 per year on taxes.  Yet it gets better, I also save any capital gains taxes on anything I sell as well. So it is safe to say I’m saving likely five times the taxes that people who have their TFSA in plain old savings accounts.  So what’s the deal?  Why do people use their valuable TFSA contribution room on just savings?  Well, the TFSA title tends to confuse some people, but the other thing is people focus too much on their marginal tax rates.  I’ve been asked several times why I’m putting dividend paying stocks in my TFSA since they think saving at your 39% marginal rate is better than a mere 17.9% for dividends.  The issue is how much yield are you saving the tax on, even if you ignore the income trusts in my TFSA I’m still saving $226 per year on tax on just the dividends.  I’ve got much more yield that even at a lower tax savings I’m still coming out ahead. So the lesson for today is: don’t let the your marginal tax rate drive your investing behaviour, check the math when making investing decisions.  So what do you have your TFSA account invested in?
1 day ago
I read something last night that has stuck in my brain “A little success is even harder to deal with.”  Then the author went on to explain how he felt the imposter syndrome for years.  He expected a man with a clip board to s...
I read something last night that has stuck in my brain “A little success is even harder to deal with.”  Then the author went on to explain how he felt the imposter syndrome for years.  He expected a man with a clip board to show up and declare “You sir are a fraud!” who would then haul the author away and force him to get a job that wasn’t fun.  I understand this feeling extremely well…why? Because I have the same feeling a lot of the time. I understand on an intellectual level that I know a lot about retirement.  After reading, writing and talking to retirees for years now I likely have a better understand of how retirement works or doesn’t work than a lot of people.  Yet at the same time I constantly doubt myself because I have never been retired.  I keep expecting the Internet Retirement Police to haul me away to jail and shut down this blog for being a fraud.  Yet after all these years I still wrote a book on the topic that did fairly damn well for sales, got some very nice book reviews, people still read this blog and somehow people still want to talk to me about the retirement plans.  Obviously I’m doing something useful, but often I don’t know what. So while I don’t entirely know what I do for people that is so helpful, I’ll take a guess at it: I remind you all that you are not crazy.  Early retirement for a lot of people is largely pure fantasy, their current situation makes it impossible.  Yet if you are willing to adjust a few parameters on their lives, the impossible suddenly becomes a potential.  Yet that potential is a fragile dream that you think if you even breathe too hard might break.  So when you come across some guy from Regina, SK who is doing something vaguely similar, there is a sense of relief…you are not crazy for wanting to retire early. Your plan might not be perfect, you may need to adjust things as you go, but listen to me when I say: you are not a fraud either.  There are just too many cases of people making early retirement work for it to be a fluke.  It will be hard to do.  You will feel like giving up, but if you can hang on life will get better.  In the end, a little success on a retirement plan is also hard to deal with, but remember to hang on to your dream.
5 days ago
The problem with any personal finance plan, especially a retirement plan is that you’re playing a super long game that you don’t know will be successful until you’ve “made it” – which in a morbid way is dying before you run out of money....
The problem with any personal finance plan, especially a retirement plan is that you’re playing a super long game that you don’t know will be successful until you’ve “made it” – which in a morbid way is dying before you run out of money. Another long game that I play is physical fitness. I work out 2 or 3 days a week, basically lifting heavy things and sweating, with the hope I will survive for a reasonably long time. I monitor my body fat % and weight, and try to keep it within a reasonable range year-round. There are so many “rules” written about personal finance and health, and as much proof as you need to back up claims. An example of a personal finance guideline is a 4% withdrawal rate from investments. There are so many people who think this is too high, while I have read several people who have reviewed the number and said it could be higher. When it comes to physical fitness, there are so many people who say that mindlessly running, whether on a treadmill or outdoors has minimal effect on your fitness level and may cause undo stress to your joints and body which actually decreases “fitness”. At the end of the “game” (life), I may have done everything “right” according to whatever authority opinion or research I have decided to follow to achieve the optimal level of personal finance and fitness and still lose. I might have a debilitating ailment overcome me at age 47 and be out of money by the time I’m in my early 50s, which would defeat the work I’ve done on personal finance and health. While I take the possible negative outcomes into consideration, I try not to dwell on them. These kinds of things could overwhelm me if I allowed them too. I prefer to base my plans on the more probable outcomes which seem (based on the research I have carried out) to have the highest chance of succeeding. I have stopped long cardio sessions based on what I have read, in favour of “sprints” – this works for me because it takes less time (10 – 15 minutes vs. an hour of straight running) and based on studies conducted has about the same impact as running for considerably longer. I will always pick the more efficient way (as I am fairly lazy). I have also taken on the financial plan that I have outlined previously: Get rid of all debt to increase cashflow Use excess cashflow to invest in income-producing assets Live off of income producing assets Whether or not my plans (financial or otherwise) work out, I will really have no idea whether what I’m doing the correct thing. I’m just hoping I “win” the game and make it to a fairly decent age with enough money to do whatever weird thing it is I want to do at the time.
7 days ago
I currently have really good health insurance.  And by “really good” I mean I pay a fortune in premiums, and my insurance company pays for almost nothing.   Oh, and at least once a year I have to spend hours on the pho...
I currently have really good health insurance.  And by “really good” I mean I pay a fortune in premiums, and my insurance company pays for almost nothing.   Oh, and at least once a year I have to spend hours on the phone fighting with my carrier over some stupid little thing. I’ve never come anywhere near my very high deductible, but the lower premiums have saved me thousands of dollars over the last five years.  I really just carry insurance to prevent personal bankruptcy in the case that I actually get something really bad like cancer or a heart attack.  And for that I accept all the mistreatment I receive from my insurer, because I really want insurance.  I want the piece of mind.  Up to now, I was afraid to try and change insurance companies because when we first shopped for individual insurance, we were rejected by several carriers.  (Those guys missed a chance to make a small fortune on us over the last five years; that makes me very happy.) I’ve been reading the comments of some healthy people on the blogs about the new health care law going into effect in January.  How they are so healthy, they are just going to go without insurance and pay the penalty.   But I actually want health insurance.  The simple fact is we’re all going to die from something someday--life is terminal.  And I’m guessing you’re going to want to get treated for whatever that is, and probably for a few things before that.  My mom was super healthy until she got cancer and died at the age of 44.  Anyway, I will be shopping for new insurance tomorrow since a) our carrier just dropped us, and b) I will now be able to get coverage to replace it.  I will be checking out the new exchanges starting tomorrow and comparing that to the coverage I can get directly through insurers and through brokers.  I started the research about a month ago, and it looks like overall, we’ll be in the same place financially—we’ll pay a little more in premiums, but the insurance will actually pay for a few of the things we use each year, like going to the doctor.  So I’m guessing we’ll break about even. But I haven’t posted about all this yet because I don’t want to jump into the fray of all the people saying how awful or wonderful it will be under the new law based on nothing more than conjecture.  After tomorrow, I’ll have some actual facts and will share what I learn.  That is if the world doesn’t come to an end tomorrow.   Can’t keep track of my non-existent posting schedule?  Subscribe—it’s free! Related Posts:             Am I Really Getting Older Like Everyone Else?             Health Insurance for the Early Retiree             What Will I Worry About Now?  
8 days ago
The following is an update of Tim’s plan to retire early.  Please note the house is paid off, so net worth is no longer tracked. To track my progress I’ve decided to track both my expenses and my investment gains.  So once th...
The following is an update of Tim’s plan to retire early.  Please note the house is paid off, so net worth is no longer tracked. To track my progress I’ve decided to track both my expenses and my investment gains.  So once the investments gains are consistently beating my expenses I’m financially independent and can stop working.  I think my ideal tracking of this would be one full year of investment and spending data, but I don’t have that yet.  So for now I’ll do a trailing six 12 month average on spending (but excluding vacations) and investments for the calendar year to date. Investments Account (Contribution), [+/- Gain or Loss less contributions] RRSP $34,860 ($200), [+$210] LIRA $12,860 ($0), [+$220] TFSA $33,100 ($3500), [+$410] Pension $78,680 ($1050), [+$1340] Wife’s RRSP $39,560($0), [+$410] Wife’s Investment Account $85 ($0), [$0] Wife’s TFSA $28,700 ($0), [+$560] My Investment Account $70 ($0), [$0] High Interest Savings Account $1310 (+$600),[$10] Investment Net Worth $229,325 ($5350 ), [+$3480 or +1.5%] (YTD Contribution: $31,048), [YTD Gain: $15,576 or +8.5%], YTD Avg Monthly Gain $1730 Spending Averages Last Month $2095 Trailing Last 12 Months (less mortgage payments) $3256 Results Number of months spending covered by investment gains: 0.53 {Target 1.0 or higher} Commentary: It’s official, I’m procrastinating on closing our investment accounts.  I think perhaps because they are such a small amount of money I just don’t worry about it.  Yet the small things do matter over a longer period of time.  For example, I’m closing in next month on one year of being mortgage free.  Paying off the mortgage didn’t happen by ignoring small things, but rather many little thing over a long period of time.  Any way consider my head smacked and reminder given to myself to get on closing those accounts. This also marks the month where I have finished fully funding my TFSA account.  My wife’s TFSA should be finished next month.  I’ll have a post up later in October with some details on those accounts, like what we are invested in now and the yields. Any questions? (click for a bigger version)
8 days ago
(Photo Details:  View from last weekend's home exchange to San Francisco) A penny saved is a penny earned.  Actually, a penny saved is more than a penny earned after taxes are factored in.  Depending on where you...
(Photo Details:  View from last weekend's home exchange to San Francisco) A penny saved is a penny earned.  Actually, a penny saved is more than a penny earned after taxes are factored in.  Depending on where you live a penny saved could be like two pennies earned. Anyway, this isn’t really a post about taxes.  Taxes are just the icing.  It’s a post about how to earn more on your investments in retirement.  Remembering that a dollar not spent is another dollar (or two before tax) in your pocket.  Here are just a few ways to get more money in retirement.  Solar Panels We just got solar panels on our home.  It’s a big investment, but it’s an investment with a guaranteed return.  How many investments are like that?  Right now the money sitting in my bank account is earning .11%.  The money sitting in short-term bond funds is earning just a tad more.  Long-term bond funds may wind up earning negative returns depending on when and how quickly interest rates rise over the coming years.  And the stock market is sitting near all-time highs.  Who knows the future direction, but I’m guessing the huge returns we’ve been experiencing over the last few years are not going to continue, at least in the short-term. So I took the dollars out of my bank account, where my returns were dismal--basically zero--and affixed those bills to the top of my roof.  The electricity that those bills are generating cuts an actual dollar amount off of my monthly electricity bill.  That’s the same as if my bank account generated enough after-tax interest income to pay most of my electricity bill. Projected out over a 20-year life for the panels, the net amount I’m saving on electricity is equal to a 15% annual “dividend” on my investment.  Oh yeah, and tax-free. Of course, you don’t have to be retired to take advantage of this tip, but the math works better if you know that you will be living in your house for at least the recoup-your-investment period; in my case that’s eight years.  I’m pretty confident I will be living in my house for the next 20 years.  If you’re still working, you might not be able to make that call as confidently. Replacing a Fuel-Inefficient Vehicle Last year we traded in our gas-guzzling car that got about 20 miles per gallon.  I say traded in, but we almost had to pay them to take it off our hands.  It had nearly 200,000 miles on it and was making some noises that I’m sure would have cost a few thousand bucks to fix.  I used the age-old technique of turning up the radio to drown out those noises.  But at some point, I knew that wasn’t going to work anymore. With our new car, we’re getting double the mileage, slashing our gas budget by half.  That works out to a 4.5% return on our investment.  Lower than the solar panels, but still better than I think I’ll earn on the alternatives, at least in the near term. Again this is a tax-free return, so it’s much better than the alternatives.  And now that we’re generating most of our own electricity, I might consider a hybrid/electric car when we replace the next one.    Swapping Homes Two weeks in Australia, two weeks in Montreal, three months in Manhattan, one week in Vermont, four weekends in San Francisco, one weekend in Monterey, and one weekend in Santa Cruz.  Total cost of lodging:  zero.  That’s because we did all of it through home-exchange. I don’t know how much exactly all that lodging would have cost me if I had to pay for it over the last 5 years, but let’s just say it would have run me about $150 per night to be conservative.  That’s nearly $20,000 I’ve saved on travel&#x
11 days ago
You are standing on a cliff with the best view ever, but you are also strapped into this device that is suppose to make you fly, but you keep doubting it will work…so do you ever jump off? While that might sound extreme, it happens...
You are standing on a cliff with the best view ever, but you are also strapped into this device that is suppose to make you fly, but you keep doubting it will work…so do you ever jump off? While that might sound extreme, it happens all the time to people on the edge of retirement.  You can apply logic and do math for years trying to sooth your fears, but in the end the final jump off that cliff into retirement is all about emotion.  Can you answer the question: am I ready for retirement with a firm “yes!”. After all you are entering an entirely new phase of your life where you will start living off your assets rather than focus on growing them.  Fear is a normal response and frankly damn useful.  It’s good to have some fear and double check your numbers and get a second opinion (but don’t take the results too seriously…some places don’t really handle early retirement financially modelling all that well…case in point I’ve seen online calculators that won’t go low enough for my target retirement age). It’s also good to do a little fear testing by playing the game: what’s the worst that can happen?  Some classic examples are: what if I run out of money when I’m 80 (solution: sell the house), what if I get bored (solution: have some hobby or travel plans lined up to keep you busy), what if I miss work (solution: consider what jobs that you could do part time or seasonal).  A large part of fear is not knowing the answer, so if you can come up up with some answers there is less to fear about the decision to retire. Then once you address the fears about retirement you might need a bit of motivation to pull the pin.  So turn the fear game around and play the other side: what if things go better than I expect?  What if I get an inheritance that I wasn’t expecting? Go travel more!  What if I excel at one of my new hobbies and make money at it? I could buy better supplies and try out some really big projects! What if I find a part time, low stress job that I LOVE to do? Enjoy some of the extra money and then perhaps do some charity work with the rest. Life isn’t typically all bad, there are some good things that happen to people as well.  So keep that in mind when you are standing on the edge of your retirement.  That way you can jump off your cliff and go up and out.  So what are your fears about retirement or ideas on what could turn out better than expected?
11 days ago