Our concern is that we might have assist our parents financially or otherwise as they get older.  This would obviously not be their plan A, but perhaps a plan C where they would move in with us or depend on us to support them financially.  Although this outcome wouldn’t be ideal, I can see the mindset – it’s the same one I had until I was 23 (when I graduated from University) which was that I could “always go home”.

It’s obvious that at some point my wife and I will have to have a frank discussion with our parents regarding their finances and expectation of us as they age and might require more significant amounts of care.  As with most things money-related this is probably a good idea to discuss, but never a comfortable discussion.  This is similar to the discussion I had with my wife, when I learned she was carrying $20,000 in credit card debt.  It was not a comfortable thing to talk about for either of us, but led to a galvanized effort of getting rid of the debt and a more “team-oriented” goal of early retirement when the debt was gone.  In a similar fashion an uncomfortable talk with our parents will hopefully lead to  a better understanding about what they expect from us over the next 30 to 40 years as they age, especially when health problems become more of an issue.

If we find out that our parents are expecting us to support them financially, that would mean we would probably have to work longer for us.  If, for example we find out that one of the sets of our parents have minimal (or no) retirement savings I’m not sure what impact there will be on our own retirement goals.  I would like to say none, but the alternative is to watch our parents live in potential poverty?  I’m not sure I could do that, no matter what my personal retirement goals are.

This sort of planning would be less of an issue if I were planning to retire more conventionally, with for example, a full pension at work and some investments in an RRSP.  That extra money would provide more than enough money to support our household and cover some unplanned expenses.  Retiring at 45 means having more stringent spending plan that requires more discussion around these kind of “other” expenses.

I’m wondering if you have had a discussion with your parents about money, such as this, or alternatively have to dealt with parents who had saved inadequately for retirement?  Do you include some  kind of support payments for your parents in your retirement plan?

This is real life and we only get one chance to make it work. It turns out that the husband had played Monopoly so often as a child, that he wore out the money, the cards and even the board. They then made their own pieces. He understood that there is a time and place for taking risks. Everyone has made some mistakes, but the time for that was behind us. That’s why he chose to work with a professional on the majority of his money. Since he enjoys making investment decisions, he will retain a couple small accounts where he’ll place his own trades through a discount brokerage.

The goal, similar to Monopoly, is to produce enough income from their investments to last for the rest of their life. There is no shortage of choices. We determined that, net of fees, they would like to earn a 7% income from their invested funds. I put together a recommended portfolio of common stock that, on average, yielded 7.45% net of fees. In this way, they don’t need to sell down the capital in order to meet their income needs. At the same time, it provides a small cushion of excess income that will either grow their funds, or provide income for one-time needs. Since they’re not selling shares, they still have that ability as a backup plan.

The husband, who has a more aggressive approach than his wife (which is normal), asked about using some of the equity in their home to invest. He could arrange a loan at under 4% interest and they could invest it at 7% (or better) income. I agreed that the math works and they would come out financially. But, in line with the idea that there’s no room for error, borrowing money magnifies mistakes. If dividends were cut or stopped or if share prices fall, it could have a much larger impact on their financial plan than if they pay cash for their investments. Besides, keeping their borrowing room available gives them a second backup plan, should they ever be in a position to require access to additional cash.

In my own planning and investing, I am somewhat less conservative. I buy investments with higher uncertainty, in order to get higher income and the chance for greater gains. I borrow money when I see a buying opportunity, knowing that I have the earnings to pay it off in under a year. But when I give professional advice, I want to minimize the variety of things that could go wrong. I prefer producing excess income for a buffer, having the option of selling investments as a backup plan, and using little or no leverage so that there is always something to fall back on. It’s an unfortunate commentary that, compared to some salespeople, that advice is considered conservative.

How conservative are you in your planning?

That story is a little over a 10o words.  Simple, short and neat.  So why tell it?  Just to point out perhaps that things don’t need to be complicated even if it is your life story.

In our desire to get to early retirement some people get sucked into all sorts of odd things like borrowing money to invest, researching investment strategies and questioning their own plan at least four times a week if not more.  We often in a desire to get to our goal will try anything to either save money, make money or invest more money.  Which in the beginning is fine as you often have areas where you can find some significant savings fairly easily (eg: increase your insurance deductible, find lower fee investments, and control your reoccurring spending).

The ironic thing is this: after you have all the big things done the rest will have a minor impact on your plans.  It really doesn’t matter all the much to take out a zero interest credit card balance and invest it in a high interest account for six months.  It’s just extra noise and complication that doesn’t need to exist. I would suggest that the extra complication is actually a hindrance to your life since your spending your time looking for dimes when you should be on the look out for dollars.

Controlling your early retirement passion is critical to actually getting to early retirement otherwise you might find yourself adrift in a sea of options because you won’t focus on what really matters the most to your plan.  If you spend too much time on investing you might end up with too much risk, or if you spend too much time on thinking about the future you will forget to live for today and be unhappy.

Perhaps more than anything, it’s finding a way to use that passion we have for early retirement into other ventures.  Passion is a strange thing the drives us to do odd things, but if you control its focus you can accomplish some fairly amazing items like starting a small business or getting very good at your hobby.  It won’t be easy, but you might just make more dollars than you would have ever saved in dimes.

Find a balance to your life and keeping things simple will help to keep you sane as you work to your goal.  After all we all want to get to they lived happily ever after in our story.

So did you find yourself getting distracted on your way? How do you keep things simple?

Self publishing comes in basically two major forms: hire a company to be your publisher or become your own publishing company.  Neither way is wrong, it’s basically a matter of how much control do you want and how much profit are you willing to give up.

The first method of hiring a company to be your publisher is the most simple.  You can create an account at a company like Lulu.com which will then outright just print your book if it is just for you. Or depending on what you are willing to pay they will contract out editing work, cover design and even assign it an ISBN from their inventory to make it a ‘real book’.  If you want to sell the book at a physical store you are going to need an ISBN. Lulu can even do order fulfillment and shipping for you for your customers.  It all depends on what you are willing to pay for the service upfront and how much of your profit margin you are willing to give up.  Also it is important to note they will be the publisher, not you.

The second method of creating your own publishing company is much more involved but gives you complete control of the end product and costs, but its a lot more work. You will need to get a company name, register to get your own ISBN number, submit the data to get your CIP information, hire your own editor and contract out cover design.  Then get printer quotes and still decide on your distribution model.  Which can be either let the printer handle it for a fee or have them ship a few hundred books to your house and you can ship out each order.  The advantage in the second model is you are the publisher so you get to keep more of the money from each sale which makes your break even point a lot easier to achieve.  It’s also useful if you plan to publish more than one title since you can fix your mistakes from the first time.

Now complicating the mix is you can also have your book in an ebook edition.  Which basically consists of getting the file  in the correct format and selling it electronically.  That isn’t even an easy process since you need to decide how much security your want on the file and who you want to distribute it through.

Yet regardless of which method you choose or even if you use a regular publisher, the majority of the marketing work is going to be done by you the author.  You have a product and you are expected to sell it.  This is where I think most authors get uncomfortable.  We write things, we often don’t consider that some marketing is going to be required to sell it.  Since unless your a top tier author at a major publishing firm you are going to have to do the majority of the work.

So my advice more than anything else when you are considering self publishing is: can I sell my book?  If you can’t, don’t bother you will just lose money at it.  If you can, get writing and start pulling books from the library to learn more about publishing to choose the right model for you.

Assets

House $340,000
RRSP $24,000
LIRA $10,200
TFSA $8,800
Pension $23,300
Wife’s RRSP $11,900
Wife’s Investment Account $11,400
Wife’s TFSA $7,300
My Investment Account $6,000
High Interest Savings Account $3,600

Debt
Mortgage $92,600
HELOC $0

Net Worth $354,000 (+$12,300 or +3.6%) [+ 16.3% YTD ]
Investment Net Worth $106,600 (+$1,500 or +1.4%) [+ 8.0% YTD]
Mortgage is down by $28,600 or 66% of my goal for 2010.

The housing market price gap has looked to stabilized a bit so I’ve went ahead and updated my house value on the lower end of the range.  So that was the primary increase you will see this month.

I keep working on my mortgage goal even when I know I won’t hit it this year.  I took a reduction of hours at work which made making the goal impossible.  Yet I still still interested in seeing how close I can get to it.

Any questions?

(Click to see larger version)

The problem arose because I love ribs, and the city I live in happens to have an annual Ribfest that involves copious amounts of food and beer from the main sponsor of the event.  As I previously mentioned, I love ribs (a lot) – and I ate a lot of food at this event, including something called “butterfly” potatoes, which I had never tried before but would highly recommend (it is basically a mound of super thin-sliced potato that is freshly deep-fried) and other food items that I would put into the same nutritional family.

At the end of this festival, I found myself incredibly full, and significantly poorer.  The ribs were $22 per rack, which I had several, beer was $5 each, which added to my bill, and I ate several other things, which I would not classify as “cheap”.  All were fantastically tasty, but definitely not healthy.

For the weekend, I really didn’t do anything to get me closer to either of my goals.  Did I feel bad though?  Not really – I had a great time.  There was good music, wicked good food, and really good beer .  At the end of the day, I guess it all comes down to knowing I’m not perfect.

I’d love to live on $6,000 per year like Jacob at Early Retirement Extreme, I would be able to retire significantly sooner than I am track for now.  I would also love to effortlessly sport a 6-pack on the beach, but I also like beer and other “bad” food, which limits my ability to achieve this goal.  I can recognize that spending around $150 in a weekend on beer or food is not getting me any closer to retirement, but at the same time this is an event that I look forward to all year – I don’t regularly spend that kind of money, or eat that much food, and I will be able to make up the losses over the next few weeks.

So, I didn’t really beat myself up over 2010 Ribfest, I’ll just save some money elsewhere in my spending and I’ll just walk an extra few kilometers over the next few days to burn off the extra calories (which probably number in the thousands) that I consumed over the weekend.

Do you have any similar situations where you knew something wasn’t really going to help achieve a goal, but did it anyway?  From my experience these tend to be the most fun (and usually expensive) times.

The current issue of the magazine contains an article called: Top 10 Retirement Mistakes and How to Avoid Them. The link opens in a new window, so feel free to click on it and read it at your leisure. I contributed to ideas number 8 and 9: plan for a long life and don’t plan to inherit your retirement fund. Those ideas could both be related to early retirement planning, but I know it’s a bit of a stretch.

First, if I were planning to retire at age 45, how would I inherit money? My parents will be in their late 60s, not likely to be leaving an inheritance. And I have many brothers and sisters and cousins. I don’t expect to receive anything from my grandparents, but even if they leave money, it’ll be split many ways.

Second, how many years will I need my investments to provide income for me? As I mentioned to Jacqueline, there’s not much difference between planning to spend down the capital over 35 years (age 65 to age 100) and planning to never touch the capital. Retiring at age 45 leaves 55 years during which investment income will be required. This can only safely be accomplished by never spending capital. As the authors pointed out in the article, a 4% withdrawal rate is likely to achieve this. Coincidentally, 4% income can be produced by dividend paying common and preferred shares, as a way of producing income and protecting capital.

I was lucky to get to share some of my expertise with a wider audience, pointing out two dangerous assumptions people might make when approaching their retirement. Many of us readers of Canadian Dream are already aware of many of the others. We understand the costs associated with our children, if we decided to have kids. We don’t plan to work into old age, but are young and able enough to work if we need to. We are careful with our spending and likely won’t need a million bucks.

What did you think of the article? Is the financial press helpful, or merely distracting? Where have you found the information that has been most helpful to you?

Larry McDonald provides a interesting read and story on the history of Employee Stock Ownership Plans.

Get Rich Slowly shares why he buys local.  I personally like the debate towards the end of the positive and negative points of buying local.

Early Retirement Extreme talks about slaying the ‘enough’ dragon.  I battle my ‘more is better’ dragon at least a few times a week.  Also I can’t resist this post about what is happening to the middle class and why to teach your kids to avoid debt.

Million Dollar Journey points out the downsides of owning REITs, which made a few good points.  I personally like them because I’m lazy and don’t want to be stuck in a single real estate market.

If you ever had to track the adjusted cost base (ACB) for a stock you know how much of a pain in the ass that can be.  Well to your rescue came the Canadian Capitalist with his spreadsheet.  Go get a copy if you need it.

For those truly geeky people that love following every little change in legislation the official notice of changes to the CPP that will take affect in 2012 and 2014.

An interesting article that looks at the stats behind how much do you need to retire.

Tim Ferriss, author of the Four Hour Workweek, takes about the publishing industry and how authors make money (or lack there of).  This came about after Seth Godin recently announced that he will no longer use traditional publishing.  It’s all rather interesting to see an industry in transition.

First off she did not buy any new clothes for the start of school, instead she knows our son tends to our grow this clothes by about October.  So when on vacation she picked up some pants and shirts in the next size up on clearance.  So that was taken care of over a month ago.  The added advantage here is this is my son’s first time at this school so having ‘new’ clothes is rather pointless as he has no friends there to impress.

Then when the school supply list arrived she went shopping for the few items we didn’t have around the house such as:

Shoes – $18.92 (splurge item to get the Transformer pair)
Plastic school box for markers, etc -$2.26
Two Sets of Markers – $5.00
Large Scrapbook – $3.29
School Fees – $13 classroom, $4.50 agenda, $4.50 bus fees for class trips

Total $51.47

So after the splurge item of ‘cool shoes’ the next biggest cost item on the list was school fees.  Overall I’m not complaining about the agenda since I know that is done at cost.  I’m even ok with fee for class trips but I don’t understand what is included in the classroom fees.  So my wife sent a note to the teacher asking so what is up with that, but I haven’t heard what the answer is yet.

Since we are new to this ‘back to school’ shopping I’m not sure how that total ranks compared to other people or what ideas people have on saving money on back to school shopping.  So all you experienced parents out there, how much did you spend this year and do you keep you ‘back to school’ shopping bill down?

So what are the steps for a broke 50 year-old to retire?  Well they go something like this:

1. Lower Your Expectations.  Replacing 100% of your current income when in your peak earning years is not realistic anymore.  You just don’t have the time to save for that.  But relax most people retire on just $30,000 to $40,000 anyways so a 50% target actually might be realistic for you.
2. Live Well Below You Means. Start practicing on living on a lower income starting now.  You are going to need to cut your expenses to boost your savings and ensure you pay off all your debt prior to retirement. So rein in that spending.
3. Spend on Happiness.  The trick to step 2 is not to feel deprived while doing it, so start looking at what really makes you happy and focus on keeping some of those items in your budget.  Then hack out the rest of your wasteful spending (everyone has some so don’t feel bad).  Just remind yourself when you go to buy something: do I really want this or do I want to retire? Retirement usually wins.
4. Cash First, Invest Later.  Don’t panic if you don’t know much about investments at the very start because it doesn’t matter that much.  An extra 2% return on $50,000 is only $1000 in a year.  Compared to losing more than 2% or more in a day from a bad investment it really isn’t worth the risk of investing in things you don’t understand.  Park the money in a GIC or term deposit for a year and get to work on educating yourself.  Then invest when you have a better understanding on what risks you can handle.
5. Count Your Blessings (Literally). Retiring at 65 means OAS and CPP payments.  Figure out how much you will get and include that in your plan (especially since  CPP which won’t run out of money until long after you are dead).  You will be surprised to see how much easier that makes things (up to $30,000/year for a couple).  So don’t panic thinking you need a million dollars to retire.  If you pay off all your debts and have a modest nest egg of $200,000 to $400,000 the majority of couples would be fine.

Then one last little suggestion: have some fun in life!  Retirement isn’t only about money, you also have to plan what you want from your retirement.  So start day dreaming on what you would like to do in your retirement and try out a few new hobbies or rediscover some old ones.  Heck, you might even decide you want to keep working part-time past 65 and that’s ok too.

What advice would you give to a broke 50 year-old?  Please leave a comment and share.