I made some terrible bets on the Super Bowl this past weekend.  At the time I made the bet, everything seemed to make sense and I thought I was in a position to come out way ahead for the year with football betting.  Unfortunately, the game did not go as well for me, either as a fan of the New England Patriots or as (I would term it) a somewhat degenerate gambler.  On the plus side, my homebrew beer was delicious, as was all of the food I ate (probably too much) so my Super Bowl was fun, it just didn’t add very much to my retirement fund (which is why I don’t bet very much at all).

As far as gambling goes, the stock market is consistently a gamble – making my retirement plans somewhat risky as this is where I am hoping the majority of my cash will be coming from to fund my retirement.  I’m hoping that in the 10 years I will have to invest, and the 40-some years I’m hoping to live off of these investments there is no significant collapse.

In the off-chance that I invest in stocks the same way I bet on this year’s Super Bowl (and capitalism has carried on) I do have a backup plan.  In my retirement fund calculations, I have not included some funds that will be coming in.  On top of my retirement savings, there are three sources of income which may be added to my retirement.

The first source is my work pension.  I work for a crown agency of the Ontario government and have a defined benefit plan, which at this point is fully funded.  Right now, I have no plans of leaving this company in the near future.  This source should provide a significant increase to my cash flow at age 65.

The second source is Canada Pension Plan income.  From everything I have read, this is a relatively safe bet, even over 30 years from now.  If for some reason it turns out that the statements Prime Minister Harper made that CPP is “fully funded and actuarially sound” is not, I’ll still be okay.  If this pays off, there will be a considerable boost to my retirement account.

Finally, and the one source I am not sure of is Old Age Security.  Depending what you believe and what happens over the next 40+ years, this potential source of income may disappear.

Added all up, after age 65 I should (hopefully) have a considerable buffer in monthly income.  I will be fine without these, but felt it prudent to not include this income – which I really have no control over.

What do you include in your retirement calculations?  Do you have any “extra” sources of income that may be a buffer after age 65? (Or whatever age retirement will be in the future).

Now that I don’t go into an office every day to work and generate income, I’ve occasionally wondered where the time goes. Some days, I accomplish a lot, but other days I read, write, play with the kids, swim, cook and by the end of the day, I don’t feel that I’ve been very productive.

When I was at work, being productive was important. My supervisor expected me to be productive. There was work that was my responsibility to complete, and it needed to be completed correctly, and within a reasonable amount of time. Other employees were also expected to be productive, and we held the same expectations for each other. For example, too much time spent on the phone talking with family at home was frown upon. And if projects were held up because a single employee hadn’t completed their portion of it (me, as often as anyone), there was grumbling from the others.

Now that I spend a lot of time at home, I’ve wondered about the idea of productivity. The basis of productivity is the fact that something is produced, either a product or a service of value. This idea is even generalized across the economy, with the government occasionally fretting about how productivity can be increased. More work per worker should, according to economic theory, translate into more GDP per capita, making everyone better off.

Some people might call me lazy, but upon reflection, I don’t really feel a need to be productive. There’s no question that being productive feels good. I like getting to the end of a day, looking back and savouring all I’ve accomplished. But what really makes me feel good is to feel needed. For example, last week a friend of our family had to go into the hospital, so we arranged to take supper to their family. It was stressful getting dinner together (with my wife) for two families, but when we dropped it off, the stress fell away with their gratitude.

I especially feel needed now that my two sons both have swimming lessons with their classes at school. Every other afternoon, they pile the kids on a bus and take them to a city pool for swimming. The girls all go into the women’s change room with the teachers, while me and one or two other fathers take the boys into the men’s change room. It eats up my entire afternoon, but the teachers continually express their gratitude that men are able and willing to come help with the boys. It sometimes gets noisy and chaotic, but think back to the first day when they crammed all the kids in the special needs/family change room and the help us fathers provide makes it go much smoother.

Now that I’m far less productive than previously, having my money work for me, instead of working for money, I can no longer base my self image on my productivity. Rather, it’s nice to feel needed when I care for my kids and help out in my community. Do you feel needed at work, or simply productive? Where else do you feel needed?

For years, I’ve been mostly a coffee sort of guy and yes I’m ok spending $10/lb on decent coffee.  So you might think this new habit must be expensive, but I recently worked it out and no it really isn’t much more money.  I’ve spent perhaps $30 total over the last three months since I already had most of the equipment.  Instead it is a shift in spending, which actually happens fairly frequently around my house.  You see I don’t believe in being purely a creature of habit.  I change my interests in reading fairly regularly, as do I on my eating and drinking habits.  I consider it an ongoing evolution.

So the point of the matter isn’t that fact I have a not habit, but rather what am I reducing my other spending on to support the new habit (mainly through less coffee drinking).  You can have anything you want, just not all at once.  The fact of the matter is if you really want to retire early you will have to master this concept.  The overall level of your spending needs to stay fairly constant, but that doesn’t sentence you to a boring life or the exact one you have now.  Feel free to splurge once in a while on something or try something new.  Just remember that something else is going to have to give to support that.

Overall this isn’t a bad thing if you keep in mind your level of satisfaction/happiness from your spending on something.  You need to get something out of your discretionary spending, and if you aren’t getting something positive out of it you need to reconsider what you are spending it on.  Or another way to free up cash is to look at some frugal ideas around your fixed spending.  There really isn’t a wrong way to do this, but rather find out what works for you.

After all spending money is the easy part, as I can always find something to spend money on.  The trick is to keep the total the same, which involves a balancing act.

First a little history, what is Old Age Security?  Well despite being called a pension, it really isn’t one at all.  First off there is no money saved for this program despite being around since 1952.  It is paid for entirely out of the General Revenue Fund by the federal government in the current year.  Thus our 2010 tax dollars paid out our 2010 OAS benefits that year.  The programs needs an overhaul…badly.  How so?  Well there are a few interesting facts like the taxpayer to retiree ratio is currently 4 taxpayers to 1 retiree, which will decline to 2 taxpayers to 1 retiree by 2030.  Add in the program is expected to cost $108 billion by 2030 up from $36.5 billion in 2010.  So if you have three times the cost and half that taxpayers that means you need to increase taxes or cut service by six times  today’s payments just to fund this program.    I don’t know about you, but I’m not prepared to pay that much more tax just to keep the status quo.

The other thing people tend to forget is what is the program supposed to do?  While some people do think of it as a pension plan I personally tend to think of it as a social safety net.  It provides a basic income to seniors while some additional funds for low income people with the GIS or Allowance programs.

So what will changing the age requirement for OAS do?  It delays the problem some what and reduces a little bit of the cost, but if you really want to have significant cost savings the government is going to have to do more.  So what is a likely target, in my mind, if you want to be fair about it you start by increasing the claw back provisions.  This way the basic function of the program can stay in place while we take the extra money out the hands of retirees that need it the least.  By the way, the claw back starts when your income hits about $67,600 and by  about $109,000 you have to pay all of it back.   I don’t know about you, but if your making over $75,000 a year in retirement, I don’t really think you need the OAS.

So how would you deal with this huge cost increase to the OAS program?  Raise the age, increase the claw back or something else?  For US readers, the problem is similar for the Social Security program, so feel free to rant or make suggestions.

I previously wrote about problems I was having with my back.  At the time, I decided to go to a chiropractor and physiotherapist in order to attempt to rid myself of the back pain I was experiencing.  I did this for a few months, and the outcome was somewhat unsatisfactory.  Rather than continuing to spend money (well, my benefits provider’s money) I chose to go another route.

Starting about this time last year, I worked to get stronger and more flexible, rather than focus on having a chiropractor or physiotherapist work on little muscles.  I have been able to almost triple the amount I can squat, approaching almost twice my body weight (along with increasing my strength in other ancillary exercises) – in the process, my back pain has essentially disappeared.  I’m no doctor or anything, but I don’t think it has hurt me by getting stronger.

I plan on maintaining this level of strength as far into the future as possible in order to stay as mobile as possible for as long as I can.  This, along with a healthy diet will hopefully give me a good chance of being mobile into my 80′s.

Similarly, I have attempted to build a strong core financially.  I am repaying my only outstanding debt (my house) as quickly as possible, and I am going to invest as much as possible in order replace employment income with investment income.  At the core of my financial plan though is the simplicity of keeping my expenses low.

Low expenses, as a part of my financial plan has provided me with more financial independence than anything else I have done.  I make pretty good money right now, enough that I can keep my goal of retiring at 45 in my sights.  If I decide that I don’t want to do the job I’m doing right now (or something like it), I could find a job that pays minimum wage and I’d be fine financially.  Working a minimum wage job  would limit my early retirement opportunities but it does provide a certain amount of security knowing that I won’t be on the street if my company decides they don’t like something I’m doing or I decide I don’t want to work there anymore.

Much like building my core muscles in my body, I constantly maintain the core of my financial plan by monitoring my spending.  I don’t consider myself a miser or anything, I just ensure that if I’m going to spend my money on something, it’s not a waste.

What do you consider to be the core of your financial plan?  How do you maintain your focus on this over time?

It seems that volunteering is a common theme among retired people. At the YMCA, I met a woman who explained that she’s currently transitioning into retirement. Without being rude, she is quite a bit older than me, probably nearing the normal retirement age. She worked for years as a psychologist, helping children (eg. with ADHD) adjust to their usual environments, such as school. She has decided that she wants a smooth transition to retirement. Her first step was to stop taking on new clients. Each client is a relatively short term project, measured in months, not years. This reduces her commitment (and income, I assume), without ending it all at once. It also gives her a modest amount of extra free time.

Most people, after working full time for the majority of their lives, crave a routine and a feeling that they are contributing to a cause larger than themselves. The woman I met has chosen to volunteer at the YMCA in order to be part of a group effort and to have a time commitment that builds into her routine. I’ve talked with other people who either worry what they would do with the spare time afforded by retirement. They seem to take literally the proverb “idle hands are the devil’s playthings”.

That may hold true for some people, but having the luxury of being able to choose where and how to spend my time gives me options that wouldn’t be available otherwise. My favourite things to spend my time on relate to my interest in public education. I regularly spend time in our school, volunteering in one or the other of my sons’ classes, or joining them on field trips. I also talk with other parents about their experiences with and expectations for our school. I have the luxury of being able to read news, scholarly articles and books related to the education issues that our school and our system are facing.

None of these activities were planned as a transition to help smooth me into retirement. But I think that a smooth transition is certainly worth the effort. I continue to try and sort my activities into a regular schedule that produces a routine. Fortunately, whenever I feel that I’m wasting my time, I can take my daughter (who’s not in school yet) and play with her. Nurturing my kids is time well spent.

Do you have plans to ease the transition from one stage of life to the next?

After driving for an hour with that feeling I finally figured out missing: my dress shoes and my bag of all toiletries.  So I had some time to determine what I was going to do about this.

The dress shoes I determined I was just going to live without.  I had black hiking boots on in the car and some jeans.  So I’ll skip my dress pants and wear the jeans to make due.  I’m not buying a new pair of shoes for just two days.

The toiletry bag was more of a problem.  I’m not going away for two days without brushing my teeth..ick.  So I first went to the hotel to assess what they had in the room.  I was somewhat in luck that they had a little tub of shaving cream along with the standard soap, shampoo, conditioner and hand cream.  I also check the guest services list to see if they offer a program to offer a free…whatever…in case I forgot something. No luck there.

So I then tracked down the nearest drug store and went shopping.  I skipped any of my usual products and strictly looked for the cheapest thing I could get (its just for two days so I live with it).  I found a toothbrush on sale ($2) and travel size toothpaste ($1.29) and disposal razors ($4).  So including tax I covered my mistake for $8.  Overall not too bad.

Yet what stuck me about this entire event was how people tend to over pack as not to forget something when traveling.  I forgot two fairly important things and it only cost me $8 and some minor inconvenience.  If you stay flexible about your plans the reality is forgetting something is likely not a big deal.  It will certainly cost you money for the odd mistake, but really carrying every little thing you may need is more of inconvenience with overly heavy bags in my mind.

So how about you? Do you pack light and accept the odd ‘oh crap’ moment or do you pack everything but your kitchen sink?

I am by far the last person to ask about specific investing advice (for now, I hope to change this in the near future).  What I can tell you is what I am looking at right now in my future investment plan and why I am going to do it this way.

I have an undergraduate degree in Economics (which doesn’t really mean a whole lot, I do not claim in any way to be an Economist, but I sometimes remember some of the stuff I tried to learn in the four years of school I was paying for) – one of the main facets of Economics is an efficient market, whether it is in a labour market, commodity marketplace or in the case of investing stocks and bonds.  The efficient market hypothesis (as it applies to stocks) basically states that prices reflect all known information available.  A lot of investing books use this hypothesis to tout index funds, essentially saying “the market is efficient anyways, don’t try to beat it, just own it (through index investments)”.  I generally agree with this, and think that index investing is right for most people – it’s safe (or relatively safe, as compared to either keeping cash under a mattress or picking stocks based on a hunch) and pretty easy to do, I just don’t want to do this.

I’m not eschewing index investing due to its simplicity – I’m pretty lazy and would enjoy something like a Couch Potato Portfolio, where I rebalance a few times per year and generally don’t worry about my investment otherwise, compared to a dividend portfolio of single stocks, which require constant monitoring.  No, I’m going to invest in things that are going to pay me cash now, not later.

Why is having cash now important to me?  There are a couple of reasons:

1. I’ll need cash when I retire – a constant cash flow that comes from investments such as stocks, bonds and REITS will replace my salary at some point (hopefully).  Having to sell off the stock itself does not seem like a good long-term plan to last through retirement.  Dividends (or interest) paid out will allow me to own the original investment (which will hopefully appreciate).
2. I don’t really trust the marketplace – This may seem like a silly reason to choose an investment, but for me I would rather have cash in my pocket now and see money coming in rather than investing in a company hoping to pull my money out at some future time.  I realize that I am a little crazy for this, but rather than seeing the stock appreciate, I would rather take a portion of my investment off the table.

My first reason is perhaps a little more rational than the second, but they both work for my purposes.  To me, investing has a lot to do with personal preference and these are mine.

Do you invest for capital gains, or cash flow, or a mix?  How do you decide (or did you decide) on the type of investments you were looking for?

Yet 2012 marks a big decision point for me going forward.  Do I try and run again for re-election this fall as a school board trustee or let the term close out and focus more on writing?  After much internal debate over the holiday season and planning I’ve made a big decision.

First off, I should provide some context for this.  Let me first say, being a politician at any level is likely one of the hardest jobs there is.  If you do your job right, things work well and you likely don’t get one ounce of credit.  Then other times you do the right thing in your mind and you might even come out looking like a villain in the media. Regardless of that, you also get to miss a lot of time with my family attending meetings. Not to mention you never had all the facts and frankly you often aren’t a expert in that area at all when you make a decision.  In a nut shell, there are significantly easier ways for me to earn money with a lot less stress.  In fact I can fill out one form at my day job and get an instant 10% raise for less time than I put into my board work.  So the following decision isn’t about the money.

Yet despite the public abuse at times, I feel like I did get some things done over my last 2.5 years on the board like finally get a focus on student achievement and I still have things I would like to finish.  As such I will step up and try to run for a second term this fall during the next election.  Even if this means a four year term this time, I will to serve if the public will have me.

What?!?! Then how do you model that into your retirement plans?  Simple, you can’t.  Depending on the situation your ‘safe withdrawal rate’ can range anywhere from 1.8% to 25%.  This all depends on several factors like the amount of fees you pay on your investments, the rate of return on your investments and the sequence of those returns, and your personal rate of inflation.  In a nut shell you can’t model it yourself because it becomes a circular reference, which you might be familiar with that error if you have ever had to do complex modeling in Excel.  In a nut shell you series of references to other variable results in your last object referring back to your first object, you end up with a closed loop that can’t be solved.

So if you can’t model it why are you telling me about it?  Ah, that is the right question.  I mention this fact because in reality, when you are actually living on your savings in your early retirement period you shouldn’t have a constant withdrawal rate.  Instead you should ramp it up and down depending on those factors I already mentioned.  So in today’s current context with low returns, low interest rates and slightly higher inflation you should consider lowering your withdrawal amount below 4%.  Then when you hit some good years like those leading up to 2008, you can take an extra vacation if you want.

This really isn’t that hard as people already do this in real life prior to retirement.  If you lose a job, your spending doesn’t keep going out at the same level.   You adjust your spending to your lower income as much as you can to ride out the bad times until your income level comes back up.   Yet doing this requires you to have some fat in your budget to cut back on, if you purely rely on cutting back spending.  The other alternative is to increase your income by getting some short term work or selling a non-income producing asset such as your vacation property.

So the lesson in all of this is you don’t want to retire early on the absolute lowest point of your spending, you want to in fact have a bit of fat or safety margin in your plans.  This is somewhat obvious risk planning, but you might be surprised how often the obvious isn’t really seen by people.  So please have a few backup plans when you retire early including some extras in your budget.  That way you can cut back during the lean times if you need to.