Retire at 37

Is Bernstein right (on that one)?

2005-11-03T18:01:00.000-08:00

On Raddr's forums (http://raddr-pages.com/forums/), I've read the following, from Bernstein, relating to early retirement (age 45 or before):

Further, with a time horizon that long, one has to face up to the reality that "merely" keeping up with inflation will seriously disadvantage him or her regarding wage earners, whose earnings will be increasing along with productivity increases.

I don't want to blindly believe that my plan to retire at 37 is feasible, for this reason, I let much place to doubt, questioning and criticism. I must say that I never seen things that way: yes, I planned to keep-up with inflation, but I didn't consider that other people will get "richer" with time. That is, my plan will allow me to have the same standard of living as today, but I could be unable to afford new technologies, products or reach higher living standards. How exactly is inflation calculated? For instance, if we compare the cost of living in 1950 with that of today. If one's income has been increasing along with inflation, does that mean he couldn't afford computers, a cell phone and internet access, since these were inexisting in 1950 and thus, not accounted through years as being part of inflation?

Anyone has anything to say about that?

My Technical Analysis Signals Track Records

2005-11-02T08:09:00.000-08:00

Value of 10,000$ invested in IVV (S&P 500 ETF).

Signals track record

Date Signal S&P500 MySignals HoldStrategy Diff
26/09/2005: Sell 1216.05 9980$ 10000$ -20$ (-0.02%)
2/11/2005: Buy 1202.76 9960$ 9890.71$ +69.29$ (+0.69%)

Note: MySignals = value of portfolio if 10,000$ invested according to my sell and buy signals. 20$ is taken into account for commissions. HoldStrategy refers to holding initial $10,000 invested at the time of inception, September 26th 2005.

A canadian trick for mortgage deduction

2005-11-02T06:03:00.000-08:00

Seems like mortgage deduction is at risk in the US. In Canada, interests paid on mortgage are not tax-deductible. But many use an old, legitimate trick.

Mortage interests are not tax-deductible, but loans used for investment purposes are on gains made by these investments. The trick is to use your investments to pay your mortgage and get a loan of the same amount to reinvest it. Now, your loans are tax deductible. Even if the interest are higher on a personal loan than that of a mortgage, since income tax rates are high in Canada, you generally save (unless your credit score is so low that your personal loan would be too high).

Buy signal

2005-11-02T06:02:00.000-08:00

Now we have a buy signal.

Not yet

2005-10-25T05:52:00.000-07:00

The signal is not confirmed.

Buy Signal tomorrow morning?

2005-10-24T14:06:00.000-07:00

Watch for a possible buy signal, tomorrow morning on the S&P 500. Technical indicators are set for this signal, tomorrow's pre-market has yet to show positive open for the signal to occur.

Annual Report

2005-10-15T15:57:00.000-07:00

The Man Who Plans to Retire at 37 (RET37) Report First Annual Results

RET37 today reported that total wealth (net assets) in date of September 30th amounted to 129k, a 52% increase over previous year. Total earnings were thus $44k for the year. This better than expected result is mainly due to better wages and better investment gains.

In the quarter ending September 30th, earnings decreased to $7700 from $9000 in the previous quarter. The decrease is due to lower gains on investments. Assets in the quarter decreased to $192k from $196k in the previous quarter, due to a payment on a student loan. Liabilities decreased to $63k, down from $75k, thanks to the student loan refund and a mortgage payment. Liabilities include $31k put aside in provision accounts, comprising $22k for contingencies, $3200 future tax provision, $200 for travel, $600 for car repairs, $1500 for home repairs and $2000 to counter bad investing days.

Expenses were stable compared to the previous quarter.

Next quarter previsions
In the next quarter, an increase in working wages is expected. This increase is projected to be 3%. Expenses will also increase resulting from higher heating bills. Investments are likely to decrease for the first time in a year, due to falling stock markets. So far in the 13 first days in the quarter, investments in stock have decreased nearly 5%. About 40% of investments are in stocks, the remaining being invested in bonds, real estate income funds and cash. I plan to increase the ratio of stock exposure to over 60% in the coming months, once I judge that the market is ready to go up again.

What's Your Time Worth?: Money & Happiness - Yahoo! Finance

2005-10-14T06:09:00.000-07:00

What's Your Time Worth?: Money & Happiness - Yahoo! Finance: "Which brings me to the point of this column: What's your time worth? From an economic perspective, is it better to mow your own lawn or pay a service? Iron your own shirts or send them out? Cook or buy take out?"

Saving on printer ink

2005-10-10T07:22:00.000-07:00

I have been printing quite a lot of photos recently, most of them in 8x10 format. Regular ink cartridge cost about 25$ for my printer, and you have just enough ink to print 10 color photos.

Printer companies have been playing an odd game for many years: they are nearly giving away the printer, but charge you many times the value of ink cartridges. In order to ensure you will buy THEIR cartridges, ink cartridges are fancy, including electronic devices that make them impossible for other vendors to imitate. Thus, they make sure you will buy the cartridge that fit your printer.

But there is an inexpensive alternative: buying ink refill kit. For instance, I bought for 12$ a black refill kit and for 13$ a color refill kit. Lexmark's (my printer brand) cartridges contain 10ml of ink, while each kit contains 90ml. Thus, you can fill your cartridges 9 times.

Instead of paying 9 x 25$ + 9 x 30$ = 495$, you pay just 25$. Nice saving, isn't?

The Cure for Interesting Times? Money: Common Sense - Yahoo! Finance

2005-09-26T05:32:00.000-07:00

Ben Stein is now writing a new column on Yahoo! Finance, named "Common Sense" !

The Cure for Interesting Times? Money: Common Sense - Yahoo! Finance: "This column is about how to get more money into your life. It's about investing, especially investing for retirement. "

Market timing

2005-09-25T14:36:00.000-07:00

I've been interested in investing for some years now. After studying technical analysis for two years, I'm now trying myself at what is called market timing. Using market timing makes you buy or sell securities based on chart analysis, prediction techniques that predicts the general mood in the market. I'm particularly interested in timing the S&P 500 index (I buy and sell iShares ETFs, ticker: IVV). Only about 10% of my real portfolio will be exposed to my signals decision, whenever there is a sell, I will keep the money in a cash account at 2.4%.

The portfolio starts with $10000 (for simplicity). I will send signals when the market is closed and my track record will be based on the value of the S&P 500 index when the market opens the next trading day.

My first signal, as of Monday september 26th: SELL.

Cash: $9980 (once $20 commission is removed).
S&P 500 exposure: 0$.

(Disclaimer: Don't invest based on my recommendations, I am a junior investor).

One year later

2005-09-11T12:06:00.000-07:00

It's been a year now that I've started this blog and, simulteanously, my early retirement plan.

October 1st, I will post my first "annual" financial update, I will thus be able to compare my projected figures with actual ones. So far, I think I've reached or done better than my objectives. Wages were slightly higher than planned, I think my overall annualized return on investments where over 10% this year. These better figures were slighly offset by higher than expected expenses, but, overall, I'm in the black.

I'm still as motivated as last year to reach my goal before October 1st 2012, in seven years now.

So what's ahead? We are considering moving. We are owners of a condo, its value increased much in the past years. We could sell and take a profit, then rent an apartment. I have calculated that it would cost lower than actually owning, thanks to the profit and future return on the net proceeds. For us, renting could also mean increased freedom: if one of us lose its job, it would be possible to move in another city or temporarily rent a smaller apartment, for instance.

This year, I expect a wage increase in the 5-7% range, which is more that what I used in my plan (I projected 4% increases for the next 12 years) as projections. I base this expectation on last year increase and my overall performance at work.

Thus, the plan is well on track. On the other hand, the year to come is full of uncertainty and not as rosy looking as last year. Following Katrina, gasoline prices have increased by a large amount, which could result in general inflation, which in turn could slow the global economy and thus, investment yields. But lately, markets have been reluctant to go down despite bad news such as Katrina.

Good luck to all!

MSN Money - The hidden costs of too much stuff

2005-09-01T06:27:00.000-07:00

MSN Money - The hidden costs of too much stuff: "The hidden cost of stuff
Glink's point is that most of us aren't thinking. And so we buy another TV, better speakers, more shoes, another suit, a second car, a new set of dishes, more towels, plus that boat we've always wanted -- without stopping to consider:

Is it necessary?
Can I afford it?
And the most important: What is this new thing really costing me?"

Sympathies...

2005-08-31T14:07:00.000-07:00

During my recent visit to Great Britain, I met a chinese-born woman who now lives in New Orleans and has been living there for many years. I remember telling her how much I'd like to visit Louisiana. I hope she's well today and she was able to leave the area before the hurricane and its aftermath.

I want to express my deepest sympathies with all you guys in Louisiana and Mississippi and other devastated areas. I hope the situation will be improving soon.

Jack

High oil prices could force the Fed to pause...or will it? - Aug. 29, 2005

2005-08-29T11:34:00.000-07:00

Crude awakening for the Fed?
With oil near $70, can Alan Greenspan & Co. keep raising interest rates at a measured pace?

NEW YORK (CNN/Money) - With oil and gasoline prices soaring, it may be tougher and tougher for the Federal Reserve to keep dismissing the effect that oil is having on the economy.

-----

In a previous post, I discussed about the impact of higher gasoline cost on my budget. On the other, my mortgage will be renewed in less than a year. Maybe at least raising gas prices will temper my mortgage cost from raising too much.

Time to save on gas?

2005-08-23T14:13:00.000-07:00

Gas has been rocketing recently, as crude oil currently sells around $65 a barrel. The impact of this on my (and maybe your) frugal budget might be important:

- my condo is heated using oil. If the price of oil stays at its current level, the heat bill should be 40% higher in the coming year. This would raise my condo fees by about 35% or 45$ a month.
- the gas bill itself to fuel the car, which currently is about 60$ a month
- inflation, as higher fuel cost will translate in more costly goods in the forecoming months

How to offset this bill?

First suggestion: investing in a oil-related good company (I already do that) to "hedge" your risk. If oil price continue to climb, the stock should increase in value as the company will make profit. If the oil price declines, you'll save on your bills, but you'll likely lose money in your investment. I think that investing $5000 in energy-related shares may be enough to get this risk protection.

Second suggestion: if its time to change your car, go for a smaller one! You'll save on the fuel bill, on insurances, on maintenance and on payments.

Third suggestion: if your energy bill at home increases, it might be time to invest in better insulation. Insulation helps both cooling during the summer and heating during the winter. The utility bill could be reduced considerably (unless your home is very recent or has already been well insulated) by adequate insulation and the investment is generally rewarded is only a few years. More, your home should also slightly increase in value, since you'll be able to show the buyers the low utility bill.

Forget about a new big SUV and go for the small Chevy Aveo!

MONEY Magazine: Declare financial independence! - Aug. 12, 2005

2005-08-15T09:29:00.000-07:00

Back from vacations, sorry for the silence!

Today, an interesting read...

MONEY Magazine: Declare financial independence! - Aug. 12, 2005: "And look at your own life. Haven't you dreamed, at least once, of setting out on your own path while you're still young enough to enjoy it? "

Very early retirement and financial planning phases

2005-07-09T15:55:00.000-07:00

Most retirement planners consider three phases of financial planning: accumulation, distribution and legacy. On the other hand, early retirees may have different needs.

Take the distribution phrase, for instance. The typical person will retire at 65 and live up to about 80. Thus, its distribution phase comprises about 15 years on the average while accumulation makes typically 40 years or more.

Compare that to what I plan to do: retiring at 37, after about 15 years of accumulation, and likely 40 years of distribution. Might sound impossible, but you need to put some figures on a sheet of paper: if you accumulate fast enough and compound for a reasonable number of years, then, you should be able to withdraw some money forever. The key is withdrawing the right amount and from the right assets.

Safe withdrawal rates is the proportion of your portfolio you should be able to withdraw yearly without risking depleting your nest egg before you die. Planners often use 4% as a standard value, but I personally don't like that much. I think you will likely have many distinct phases in your retirement lifetime, particularly if you retire very early. My guess:

The "early phase": goodbye boss! The first years (1 to 5?), you likely will want to do all the things you promise yourself you would be doing after you retire: travel, relax, starting new hobbies, starting projects, etc. You'll want to enjoy life as much as you can! You likely will need more money those years than subsequently. In those years, I would decrease the value of my portfolio.
The "I'm too young to stop working completely". I guess that after some years of retirement, I might be tempted to work part-time, maybe at an unstressful job, 10 hours a week or less. Maybe I would work only for some part of the year (during the winter, for instance). I would be about 42 at that time. My portfolio would likely increase slightly during that phrase, since the work wages would cover some expenses and returns from nest egg will be high. If the "early phase" took a larger part of my portfolio that what I expected, this would be the right time to get it back on track. Also, adjustements to budget and planning would be done, according to real needs, expenses, etc.
The “Now, I’m ready to retire completely”. Starting 50, 55 or 60 (who knows?), I might want to get back to full retirement. But, having lived 15 or 20 years doing everything that I want, when I want, maybe this part of my life will be less active and more frugal, with health-related expenses increasing, but some other type of expenses decreasing with time.

But who knows?

The Man Who Plans to Retire at 37 (RET37) Reports Q2 2005 Results

2005-07-01T09:04:00.000-07:00

RET37 today reported that earnings for the quarter ended June 30th has increased 28.5% at $9k from $7k compared to the previous quarter ended Mars 31tb, resulting from increased income from investments.

Expenses decreased very slightly from $4299 to $4278 on insurance costs.

Assets increased $15k to $196k from $181k in the previous quarter. Liabilities increased to $75k from $69k. Liabilities include $32k put aside in provision accounts, comprising $22k for contingencies, $2400 future tax provision, $700 for travel, $700 for car repairs, $2100 for home repairs and $2500 fund for investment bad times.

Total wealth (net assets) at the end of the quarter amounted to $121k.

Excellent investment returns in the quarter
Yields on stock and mutual funds were much higher compared to the previous quarter. After getting rid of a bad stock, two stocks were sold after over 10% gain each after less than three months, another one was sold with a 30% gain (bought december 2004) and another stock, still in the portfolio, increased 70% in the quarter, up 170% since April 2004. This was partly offset by slight decreases in three other stocks and near flat results in RRSP ETFs funds, bonds and cash investments.

RRSP portfolio returns increased slightly on a nest egg of $43k during the quarter, but the yield is a non-annualized 6% in the trailing nine months. Other investments include $20k cash in an INGDirect account yielding an annual 2.4%.

A Canadian stock market correction is expected, and as a consequence, about 20k has been transferred, in part into American indexes, a part into a REIT ETF and the remaining amount to cash accounts. About 25k remains in individual stocks.

Forward looking statement
I expect the stock market to be mixed in the next quarter. Canadian stocks could drop if oil prices decline, since the TSX is highly exposed to oil-related stocks. Interest rates are not expected to move a lot in the next quarter, as inflation is kept under 2%. On the other hand, American stocks might increase after two flat quarters and rather bright outlook.

Statement on Retirement Target
Retirement is scheduled for not later than October 1st, 2012. Since the retirement plan was decided ten months ago, results are on track to raise about $175k registered and $169k unregistered and $40k equity in real estate for a total of $384k at 2012’s dollar. Expenses in 2012 would be inflation-adjusted $20k annually.

According to calculations using historical data (using FireCalc) and the number of years before target, I estimate that the probability of retiring by the target date has increased to 74% in this quarter from 72% in the previous one. The main reason for this increase is positive returns on investment.

In pursuit of financial freedom - Jun. 30, 2005

2005-06-30T10:11:00.000-07:00

In pursuit of financial freedom - Jun. 30, 2005: "Ultimately, financial independence boils down to one thing: freedom of choice. "

Money Magazine: 50 Smartest things to do with your money

2005-06-27T06:04:00.000-07:00

Money Magazine: 50 Smartest things to do with your money

A great read, some of the suggestions are a bit odd, but in general, nice common sense advices.

Jack

Real estate and Early Retirement

2005-06-25T06:34:00.000-07:00

Real estates in many parts of North America have boomed lately. House prices jumped as much as 100% in some large cities (New-York, San-Francisco, Vancouver, Toronto, Boston).

Feeling richer, people increased their spending level in the last few years like never before. Many people tap in the increased value of their house by refinancing the mortgage and use the credit to finance projects and spending.

I'm very cautious about the increasing real estate market. Some thoughts:

Your house is no ordinary investment and you should not add your house value to your wealth just as you add the value of you stocks to your wealth. When the value of your house increases, the cost of lodging increases as well, which means that if you need the cash flow from the value of your house during your retirement, you'll have to find some new lodging, which will also have increased in cost. The real gain in wealth is the difference in value you'll get if you sell your house and the cost of lodging somewhere else. Thus, you can actually be wealthier thank to the booming real estate market only if, for instance, you plan to go in a cheaper city or district or get a smaller house.
As your house value increases, so do your tax expenses. If you refinance, the interests on the mortgage also increase.
When people such as Buffet and Munger warn about a real estate bubble, you should be cautious. Any investment that is not cash or deposits has a value that is an estimate by the market and is highly volatile by nature when market conditions change. At the top of the tech bubble in 1999, people felt rich, but they forgot one thing: the stock market goes up and down and unless you are talented enough to know when you are at the top and the bottom of a market, you should not evaluate your wealth based on the value of what you own at a specific date, but rather on a longer term average (the real value of your house is more likely to be near its 10 years average value than as of today), taking into account volatility and risk.

Anyway, nobody that seek to retire early would tap into its real estate by refinancing the mortgage at a higher value. That would mean you are living beyond your means.

FPA Journal - Reality Retirement Planning: A New Paradigm for an Old Science

2005-06-14T16:42:00.000-07:00

FPA Journal - Reality Retirement Planning: A New Paradigm for an Old Science: "Traditional retirement income planning generally assumes that a household's expenditures during retirement increase by a certain percentage each year to reflect historical inflation rates. This type of planning usually results in increasingly higher withdrawals from the retiree's nest egg to help sustain inflation-adjusted expenses throughout retirement.

Reality retirement planning is similar to the traditional approach in that it increases spending for inflation. This strategy differs from the traditional approach because it assumes that a household's real spending needs decrease incrementally throughout retirement."

Beware great deals that aren't

2005-06-12T09:22:00.000-07:00

MSN Money - Beware great deals that aren't

Particularly, I think the used car vs 0% financing on new car is very intesting.

Now, about warehouses... Even if I live the frugal way, I never go to places such as Wal-Mart, even though you would normally save by going there (and I know that prices are actually lower that my local store most of the time). I live near the downtown, so I think going to local stores might be cheaper that Wal-Mart.

Wal-Marts are generally located in suburbs. In my case, the nearest Wal-Mart is a 10km (~6 miles) run from my home. Parkings are always full and it is always the rush hour there, so my average time spent ony to get there and coming back is more than 30 minutes. Since your time has money value, I'm paying myself $10 for these 30 minutes.

Compare this to the nearest local store, where I can find most of what I need, at a walking distance from home.
Time spent to go: 0 minute, since most of the time, I will jump by the store when I'm walking for any reason in front of it. On top of that, the total 20km (~12 miles) run in car to Wal-Mart, at approximately 0.3$/mile costs about $3.5 just to get there.

And finally, I hate going to Wal-Mart and other warehouses. It is noisy. There are children everywhere running into you. It takes so long to check-out. In the parking lot, people are aggressive. It smells bad. I dislike annoucements on the speakers saying "Thank you for shopping at X" or "Security, camera 3, Security, Camera 3".

Asset allocation

2005-05-28T10:34:00.000-07:00

Asset allocation is generally defined as the allocation of an investor's portfolio among a number of "major" asset classes.
There are many asset classes that are more or less specialized. For instance:

Bills
Corporate Bonds
Small-Cap Stocks
Medium-Cap Stocks
Large-Cap Growth Stocks
Large-Cap Value Stocks
Mortgage-like securities
Commodities
Real-Estate investments
International Stocks

Here is my pre-retirement asset allocation strategy:

Four classes: commodities, stocks, bonds and real estate. Currently, about 65k$ invested.
Commodities: 8% of the portofolio, currently invested in two stocks, an oil stock and a company specialized in rare earth products
Real Estate: 17% invested in an Index ETF composed of a wide range of REITs
Bonds: 17% invested in an Index ETF covering a broad range of bonds in Canada (government and corporate)
Stocks: 58% invested in a mix of Index ETFs (covering Canada market, US market and International Market) and individual stocks
The previous target ratio will have to be balanced from time to time as some assets will grow faster than others.

I have mentionned the importance of investing frugally, that is, to limit the cost of investing, thus the ETFs. However, everytime you balance, you have to buy some securities and pay commissions. To minimize these, I will do the following:

18% of my pre-tax salary is retained and invested in a wide range of mutual funds
About 33% of my after-tax salary is also saved and invested at first in a cash account (ING Direct, currently yields 2.4%).
After six months, I will transfer the cumulated amount so far (about 12k$) in a way to reach my target asset allocation. I will buy more in the asset classes that will have decreased in value that those that will have grow.
Inside a single asset class, I will diversify on a yearly basis, that is, I will put all the money in a single ETF the first year, the following year I may select another ETF in the same asset class. The idea is to diversify, but to minimize commissions at the same time.
I keep about 20% of my total portfolio for individual stocks. Most of these stocks are invested short term (less than one year)
Bonds and real estates, which generate income, are mainly invested in registered accounts, while stocks and commodities, which generate capital gains are unregistered, which decrease the tax burden, since 1) only 50% of capital gains are subject to taxes in Canada and 2) capital gains are taxed only when securities are sold, thus a possibility of much better compounding with long-term stocks (my long-term stocks are actually index ETFs)
My asset allocation strategy will change as retirement time approaches and after retirement to decrease the overall risk and have securities that yield more regular income.

Remember that diversification means:

Market diversification: reduce the market timing risk, that is, by investing at the wrong time. Instead of trying to time the market, it is known to be better for most people to invest blindly at predefined dates. Thus, investing every six months, whatever the market conditions, is a market diversification strategy. It is better to do that every month, but it is costlier when you invest in stocks. This is why the money is invested in mutual funds during the six months, before putting the money into individual stocks and ETFs.
Asset class diversification: economy follow cycles that are difficult to predict. When the commodities go well, stocks might decline and real estate stay a safe haven at the same time. By doing asset allocation, you are automatically buying more of an asset class that has been doing badly recently when you do the asset balancing.
Company-specific diversification. A single company can go very bad, even when market conditions are very good. Investing in mutual funds (particularly low fees index funds) and ETFs is a good way to protect yourself from such risks

Jack

Getting rich is simpler than you think

2005-05-26T10:02:00.000-07:00

MSN Money - Getting rich is simpler than you think: "Only three ingredients are needed: income, discipline and time. Chances are, you already have two of them, income and time. All you need to do is add the third, discipline. And armed with the following knowledge, that key third ingredient may be a lot easier to find."

For someone who'd like to retire very early, you have to have: discpline and income. Time, you don't have much, so you have to be VERY disciplined.

Good luck folks.

Allstate.com - Early Investing Information

2005-05-17T00:01:00.000-07:00

Allstate.com - Early Investing Information: "And you should invest aggressively while you are still years away from retirement. This is not the time to sink your cash into a money market account or low-yield bonds. Adopting such a conservative strategy could prevent you from building adequate retirement savings. Instead, create a balanced portfolio; take risk into consideration, but lean toward buying growth investments. "

Where to invest your money, today?

2005-05-15T13:05:00.000-07:00

Technical analysis suggests that the "bull" stock market is coming to an end. With increasing interest rates that lower corporate earnings, the sentiment for the future of the stock market is likely to be more bearish soon. When this is going to happen, nobody knows exactly. Some experts suggest to get out of the stock market now, others think that the bull market isn't over yet.

In an attempt to make a defensive move, I have decreased my stock-exposed portfolio by about 20% recently. Now, I have to decide where I am going to put that money. I'm not sure bonds is the best choice, since the interest rates are still likely to raise in the near future (which drive bonds down). On the other hand, the money market is really sad, with ridiculous low yields.

Very tough days for investors...

Keep your old clunker or buy a new car?

2005-05-08T10:47:00.000-07:00

Keep your old clunker or buy a new car?

In this article, it is said that it is much cheaper to keep an old car than buying a new one, even if you have to put a new engine in your old car.

I used to plan to change my car when it will be seven years old, which will be the case in one year an a half. Now, I'm reconsidering this plan. Maybe I'm better keeping it for another four or five years. If I do so and put aside $200 a month like I'm doing now, I will have accumulated $12k in five years, a large paydown on my next car.

I remember my parents having bought a Chrysler LeBaron GTS. This model was discontinued the next year. We used to think it was a very bad choice, since the car had a bad reputation and the discontinuation. And since its resell value was so low, my parents decided to keep it as long as they could. When they finally sold it to a friend, the car was 10 years old and they put less than 3000$ in repairs during all these years.

If you consider that a new small car costs between 3500$-7000$ only accounting for depreciation, we can estimate they saved about $20k keeping their ol' LeBaron. That's a lot of saved money in five years. That might partly explain why my parents retired before 55.

MSN Money - How much is enough?

2005-04-21T08:16:00.000-07:00

I've come through this: MSN Money - How much is enough?

The question is quite interesting. I think that we could translate it to retirement: when do you have enough to retire?

I think that the reason why most people are reluctant about (very) early retirement is that they don't think you have enough money to retire, they only think you are old enough. Thus they are piling more that needed and set new living standards to justify the over-accumulation.

Take care!

How much is enough?

2005-04-21T08:14:00.000-07:00

The Man Who Plans to Retire at 37 (RET37) Reports Q1 2005 Results

2005-04-04T15:58:00.000-07:00

RET37 today reported that earnings for the quarter ended March 31 has decreased 25% at $7k from $9.3k compared to the previous quarter ended December 31, resulting from decreasing income from stock and mutual fund portfolio.

Expenses decreased 4.7% from $4305 to $4299 on lower car costs, and new provision (100$ a month) for luxury items (mainly, a provision for travels).

Assets increased $6k to $181k from $175k in the previous quarter. Liabilities were nearly unchanged. Liabilities include $26k put aside in provision accounts, comprising $21k for contingencies, $1,500 future tax provision, $300 for travel, $500 for car repairs and $2k for home repairs, up from $25k in the previous quarter.

Total wealth (net assets) at the end of the quarter amounted to $112k.

Flat investment returns in the quarter
Yields on stock and mutual funds were much lower compared to the previous quarter, particularly at the end of March. A single stock, which makes about 20% of the stock portfolio, decreased nearly 25% during the quarter. This was partly offset by a stake in a oil and gas stock (15% of the portfolio), which increased 12%. Bond investments were flat as incomes were offset by a comparable value decrease.

RRSP portfolio returns were a non-annualized -2.1% on a nest egg of $39k during the quarter, but the yield is a non-annualized 4% in the trailing six months. Other investments include $20k cash in an INGDirect account yielding an annual 2.4%. Unregistered stock and mutual funds portfolios amount to $52k.

The stock market correction was expected, as you can see in the previous quarter report. The largest part of stock shares are invested in Canadian stocks (about 60%), American stocks make about 25% and international shares, 15%. About 33% of shares are actually ETFs.

Forward looking statement
I expect the stock market to be mixed in the next quarter. Canadian stocks could benefit from higher energy costs, since the TSX is highly exposed to oil-related stocks. Interest rates are not expected to move a lot in the next quarter, as inflation is kept under 2%. On the other hand, American stocks might decline, as higher inflation could result in interest rates increase by the Federal Reserve.

Statement on Retirement Target
Retirement is scheduled for not later than October 1st, 2012. Since the retirement plan was decided eight months ago, results are on track to raise about $175k registered and $169k unregistered and $40k equity in real estate for a total of $384k at 2012’s dollar. Expenses in 2012 would be inflation-adjusted $20k annually.

According to calculations using historical data (using FireCalc) and the number of years before target, I estimate that the probability of retiring by the target date has decreased to 72% in this quarter from 73% in the previous one. The main reason for this decrease is negative returns on investment.

Planning a travel, frugally

2005-03-25T13:37:00.000-08:00

I haven't posted much recently and there are some reasons for that, you’ll understand why in a few seconds.

First, let’s talk about my retirement plan and financial progress. The current "quarter" has been a tough one, with stock markets going down recently and, particularly, I have been hit hard by a single stock which has been going down nearly 25% since January. As this stock makes 20% of my stock portfolio, I’m bleeding! Stay tuned for my quarter report in a few days :)

I also filed my tax, and I’m rather happy to see I’ll get a modest unexpected refund (about 800$) despite investment incomes and capital gains realized in taxable accounts.

But what has drawn my attention recently away from this blog is a travel I’m planning with my girlfriend. Next summer, we’ll be going to Europe. I’m dying to be there right now!

But such a two-week travel is rather costly, particularly at the time of the year we’ll be there (summer, during an important festival) and in an area known for its high cost of living. As I don’t want to hurt my retirement plan, I have to set a modest budget for this travel, but on the other hand, I want to enjoy it fully. Our total budget is 3800$. Our plan so far:

The initial reason to be there is that I’m going to present a paper in a scientific conference. Also, some of my expenses - those occurring during the five days of the conference - are paid by an university which was part of the project. My girlfriend and I will split the total travel cost in two halves (otherwise, she wouldn’t be able to come with me and I think it is fair anyway).
We’ll need passports, $75 each, total $150.
We have booked seven nights in a backpackers hostel, private room $60 the first night, $90/night the next five nights and the seventh is free. Total = $510. I’ll try to have the university refunding half the price of the room for six nights; this will allow us to save $255, thus, real cost should be $255. We don’t mind sleeping in youth hostels, we actually enjoy this since it is a great place to meet people and you can cook some meals
My plane ticket is paid by the university. The other ticket will cost about $900.
We plan to cook most meals at the hostel. We surely will have some meals at restaurants, and, fortunately, the kind of place we enjoy the most are places frequented by students and young people who generally don’t have much money to spend on a meal and thus are cheap by nature. We surely will enjoy local specialties in a fine restaurant once or two times. Some of my expenses (occurring in the 5-days conf. time frame) will be refunded, we'll have two meals on the plane and there is a free dinner on Sunday at the hostel). Total budget for the 13 days: $600. I think this is the slot where we save the most compared to what people would normally spend.
We have yet to decide where we’re going for the remaining five nights. But we are likely to lodge in cheap hotels (maybe youth hostels) . Budget: $500.
We will buy rail passes that allow us to take the train as much as we want during our stay (and trains rock in Europe). We’re going to use it A LOT, even if we’re staying seven days in the same city. There’s a lot to see in the near area; one hour ride is enough to get to a new interesting location. We’ll be going farther during the remaining five days. Total cost: $560.
I own a digital camera (which not only can take pictures, but also DVD-quality short movies) and will have my laptop with me, so that I will take as much photos and movies as I want for free. I will only print the most interesting ones. I also have a DVD writer and I will thus burn a souvenir DVD. Cost: 1 DVD $0.25, about 25 photo printings of different sizes. Total: 25$.
Total $2890. We have $810 left to spend on extras: souvenirs, gifts, some great bottles of alcohol to bring back home, taxis (we shouldn’t have to use them much, our hostel is next to the train station and the rail pass allows us to use most local and commuter buses), and entries to museum and the like. I hope it will be enough; we’re not the kind of people that bring back one million of souvenirs and we prefer walking in a city to discover it than paying for a guided tour.

Now, I have to find $1,900 so not to hurt my retirement plan (stick to your plan!) and I have four months ahead. Here’s how I will do that:

We'll save two weeks worth of groceries, my share is $100. I could add to that other small savings on expenses we'd have if we were to stay here (gas, electricity, restaurant...), but these are not significant amounts. Yet to find: $1800.
In my monthly budget, I put aside $100 for one-shot luxury items (which include travels and other non essential items that from time to time I will want to have). Unfortunately, I’ve been doing that since January only, I only have $300 in this piggy bank. In four months, however, there will be $700. Yet to find: $1100.
I also put aside $30 a month for smaller vacations, usually to pay for the gas and other small expenses when we’re visiting friends or family outside of our town. There is $350 in this pig bank; I will take $200 from it. Yet to find: $900.
We use to lunch each Sunday to the same restaurant (and btw we always order the same thing, sounds boring but it is actually not). We’ve been doing that for years. We’ve decided that we would not be depriving ourselves too much if we only go there once every two weeks (particularly since we’re going to do that for an exciting reason), for the next four months. I will save: $100. Yet to find: $800.

And now... and now... I told you at the beginning of this post I was to get an unexpected tax refund of about $800, didn’t I?

Ethical insights about early retirement

2005-02-26T08:02:00.000-08:00

How far one can « play the system » to reach early retirement before he should be concerned about ethical and morality issues?

When I first posted about my blog in forums in order to publicize it, some people responded saying that early retirement is unethical, that I should stay part of the system which include working for the most part of you life and be a normal consumer in order to support our economy. I think they are right – to some extent at least.

So, during the last month, I did post a little bit less on my blog and I started a rather lengthy process during which I tried to answer the question: “is it unethical to pursue early retirement?”.

I think the question is relevant. What is actually the difference between early retirement and living on social welfare while able to work? Some would answer: in the first case, you are living on your own money. But is that really true? For instance: if everybody in the society would seek early retirement (I mean: very early, such as retiring before 45), what would be the economic impact? I’m convinced I couldn’t retire early if other people weren’t willing to work until their 60s before retiring.

Common argument in favor of “early retirement isn’t unethical”
- I will retire using money I have earned by my work, I deserve it. If I am able to live on that money by living frugally, I’m not playing the system.

Common argument in favor of “early retirement is unethical”
- You don’t contribute enough to the economic system by being a productive member of the society during most of your lifetime. You benefit from the efficiency of the capitalism world that bring you goods at a low cost but you don’t support this by consuming and producing to keep the overall country production high. If everybody would do as you do, the economic system would crash and we would be back to the middle ages.

My conclusion
One’s role in the society is not limited to being productive. Disabled people, for instance, can, among many other things, help a society remember how lucky healthy people are and to pinpoint the most important things in life: family, happiness, share and not only possessions, for instance. Early retiree can be useful in many other spheres in the society: they can provide help to communities giving their time to charities, they can spare their time trying to improve their neighborhood, and they may promote art and culture to the benefit of others.

An early retiree is unlikely to stay on the beach and do nothing of all of his time. Say I’m successful with my plan and do retire at 37: I will have >40 expected years to live. I will surely find useful things to do. These things could turn out to be more useful, at the end, than what I would have contributed to the society should I have not retired early.
Thus, yes, I think one should be concerned about ethical issues relating to his early retirement project. You shouldn’t be just playing the system (it is particularly true for Canadians who can play the generous welfare system and other benefits low-income persons – such as that of very early retirees - have). My early retirement plan has two parts: reaching financial independence so I can actually retire and planning how I intend to remain useful to the society after this happens.

Extreme Commuting

2005-02-21T14:05:00.000-08:00

Extreme Commuting: "More workers are willing to travel three hours a day. But what is the long-term cost? "

Think about it. I paid a urban condo 25% higher that I would have paid in a suburb. But on the other hand, I save a quite a lot on transportation and have much more free time: my commute time is about 20 minutes (public bus).

I will not be the youngest retiree in Canada

2005-02-20T08:19:00.000-08:00

Retiring at 37? Nothing! Derek Foster did it at 34:

Well, maybe I will be lucky and my investment returns will skyrocket and I will be able to retire younger that he did. But I rather do my plan doing conservative investing, favoring long-term growth stocks over risky plays.

I've read lately an interesting rule-of-thumb: invest your age in cash-deposits and bonds and the remaining of your portfolio in stocks. I'm 30 now, so I should put 30% in bonds and other fixed-income or guaranteed deposits and 70% in my stock portfolio. Also, to improve tax-efficiency, it is better to have the 30% in interest bearing investments in your registered account (interest is taxed more than capital gains or dividends).

I'm currently working on my portfolio to fulfill the recommendations stated above. To increase my exposure to stocks without paying too much in trade commissions (stocks) or management-expense ratios of funds, I transfered about 20k from my ING account (unregistered) to ETFs. I also did transfered another 20k from registered funds to ETFs in my discount broker account (registered). I keep about 30k$ to invest in individual stocks, about half in blue chips and the other half in more risky bets.

I still have too much money in cash however, even if in the long-term stocks should yield better returns that cash, I still think the stock market is a little bit overevaluated right now and that it is not the best time to switch from cash to stocks.

Seizing life-changing opportunities

2005-02-06T13:22:00.000-08:00

I’ve read in a newspaper the results of a research about happiness. This research has been conducted over many years all around the world. The author questioned hundreds of persons that define themselves as being happy. In his report, the author elaborates on six keys to happiness. Among that, one caught particularly my attention. It was actually the first key, the one that is shared by every happy man and woman on earth: the life-changing possibilities that one has and his personal ability to overcome the fear that prevent someone to accept changes or make the leap towards changes. Thus, fantasy is a plus, while routine would definitely need to be eliminated.

But overcoming its fear of change and eliminating routine from our life is not that easy. We have to work and we can’t all have fun, creative and colorful jobs. And then we might have to drive to the job, and dress ourselves accordingly, and prepare our lunch, and take the kids to the school or step by the food store to buy what is needed for the dinner. And after the dishes are washed after that long day of work, you are likely to be tired, and watching TV or a movie might be more appealing that say, doing new or creative activities, those that involve all your attention and will.

I think achieving financial independence will be a way for me to be able to unleash the life-changing opportunities that I might not be able to seize otherwise. And the sooner, the better!

How to painlessly increase your annual registered contribution

2005-02-01T15:22:00.000-08:00

I've done that for the last three years. After getting my annual pay raise, I use the difference to increase my monthly RRSP (401k) contribution. Thus, I increase my contribution with no change on my pay. After three years, it turned out that I am now contributing the maximum amount. It was and still is painless and it is just like I never had that money.

Jack

Frugal investing

2005-01-11T04:40:00.000-08:00

I've posted few informations about investing up to date. Today, I want to talk a little bit about a type of investment called Exchange-traded Funds. As a short explantation, ETF are, like stocks, traded on stock markets and, like funds, they invest in a wide range of investment securities.

Just like funds, they are entitled to management fees. But here is the nice part: these fees are generally much lower than mutual funds. For instance, iShares S&P 500 charge only 0.09% a year. This fund matches closely the behavior of the S&P 500 index.

Benefit:

as a "passive" management index fund, the management fee is low. Since you pay for commissions on trading (as normal stocks), you don't pay for all the people coming in and out of the fung. In the long term, this can save you thousands.
you don't pay capital taxes each time stocks inside the fund are sold. This type of security is known to be tax-efficient
traded as stocks, so you can get your money when you want and buy when you want

Drawbacks:

You have to pay trade commissions each time to buy or sell, thus not well suited for dollar-cost averaging-like stategies

Bottom Line: iShares S&P 500 seems to be a very good investment product for the people who don't want to watch the market, who don't believe they can beat the market and that seek investments for the long term.

How to retire today!

2005-01-06T04:44:00.000-08:00

Paul B. Farrell explains how to take the leap today. It is not my plan to do so, maybe because I'm younger than he was and because I've been cumulating wealth for a few years only. Also, I want to be financially independent, which is not the same that simply quitting my current job to start something new: I wish to be able to quit, start project and survive even if they don't provide new income.

Nonetheless, an interesting article.

Jack

The Man Who Plans to Retire at 37 (RET37) Reports Q4 2004 Results

2005-01-02T13:46:00.000-08:00

RET37 today reported that earnings for the quarter ended December 31 has increased 32.9% at $9300 from $7000 compared to the previous quarter ended October 30, resulting mostly from better return on investments and also from decently higher wages.

Expenses decreased 4.7% from $4506 to $4305 on lower car insurance costs, lower provision for contingencies budget, higher condo fees and higher car repair budget. Car loan has been paid-out during the quarter. The $340 payment has been replaced by a $200 provision for future car purchase.

Assets decreased $35kto $175k from $210k in the previous quarter, mainly due to a small real estate sale (was rental) and earnings. Liabilities amounted to $70k, down $59k from $129k, mainly as a consequence of the real estate sale. Liabilities include $25k as provision for contingencies.

Total wealth (net assets) amounted to $105k.

Good stock returns in the quarter
Returns on stock investments were a healthy 12.2% (48.6% annualized) thanks to luck and strong stock market. Total stock shares amount to $29,200. In the past six months, stock shares increased 24.2% (48.2% annualized).

RRSP returns were a non-annualized 3.1% on a nest egg of $35,000 during the quarter. Other investments include $17,500 cash in an INGDirect account yielding an annual 2.4%. Unregistered mutual funds amounted to $16,000, yielding 6.6% (not annualized) during the quarter.

Forward looking statement
The net earnings in this quarter are not likely to be sustainable, since a large part of it resulted from good investments returns. Particularly, I don’t expect the stock market will increase in the beginning of 2005; worse, decrease in value could be feared as Canadian and US markets might suffer a correction. Future investments will be more conservative, I will likely increase my exposure to bonds and money markets to 40% of my portfolio (from current 30%).

Interest rates are likely to continue their slow way up, which would increase returns of future interest-bearing investments. We expect interest rates to increase by 75 points during the next quarter in the US and by 50 points in Canada.

Statement on Retirement Target
Retirement is scheduled for not later than October 1st, 2012. Since the retirement plan was decided four months ago, results are on track to raise about $175k registered and $169k unregistered and $40k equity in real estate for a total of $384k at 2012’s dollars. Expenses in 2012 would be inflation-adjusted $20k annually.

Wages have increased slightly more than expected. On the other hand, last inflation figure for November 2004 was 2.7%, 0.7% higher than my 2% estimate. However, my expectation is to be able to get returns on investment 4% higher than inflation, on average, which has been largely surpassed in the last two quarters.

Despite good results so far, I remain conservative on future returns. Nonetheless, a good start is always welcomed, since it allows a more conservative approach to future investments to reach the goal. According to calculations using historical data (see FireCalc) and the number of years before target, I estimate that the probability of retiring by the target date has increased to 73% in this quarter from 71% in the previous one. This increase is gained first by the higher wages than expected (a gain that is likely to be kept in the next years) and better returns (a non recurring gain).

Frugal Village.com -Debt reduction, budget living, frugal living, personal finance, crafts, cooking, recipe.

2004-12-18T12:55:00.000-08:00

Frugal Village.com -Debt reduction, budget living, frugal living, personal finance, crafts, cooking, recipe.

There are plenty of this kind of sites on the Web. I am not a do-all-by-yourself guy, but maybe it could be of interest to some of my readers.

Jack

Successful investing starts with saving

2004-12-16T06:10:00.000-08:00

http://moneycentral.msn.com/content/P100648.asp

Stocks : when to sell

2004-12-10T16:15:00.000-08:00

I will not talk about market timing. Knowing when to buy or to sell according to market conditions in order to increase your return is a risky, speculative play. Actually, I’m talking about the timing to sell from a tax perspective.

When you sell losers, you are eligible to a tax deduction for capital loss. On the other hand, when you sell gainers, you will have to declare a capital gain. See: Capital Gain and Losses for more information about capital gains and losses.

If your gain (or loss) is realized before January 1st 2005, you’ll have to declare it in this year tax filing. A general rule (but not always applicable, it depends upon other factors) to consider is: defer your gains the later you can and realize your losses the sooner.

Suppose that as of today, I have some stocks I want to get rid of. I own for $5000 of Intel shares that lost $1000 since its acquisition and $5000 of Google shares that gained $2000 since acquisition. Let us suppose also that I have other realized capital gains this year that sum to $2500. Suppose also a 20% tax rate on capital gains.

Scenario 1: I sell both my Google and Intel shares now. Result: I declare a net capital gain of $3500 and I’ll pay $700 in taxes when I will file my tax form during spring 2005.

Scenario 2: I sell both my Google and Intel shares in January 2005. Result: I file a $2500 capital gain in my 2004 tax return; I will pay $500 taxes in spring 2005. The next year, I will declare another $1000 gain; I will pay $200 taxes in spring 2006.

Scenario 3: I sell Intel today, I sell Google in January. I will file $1500 capital gain in 2004 (taxes = $300) and a $2000 gain in 2005 (taxes = $400).

In all three scenarios, you will pay the same tax amount ($700). The difference is that in scenario 3, you will defer a tax payment of $400 for a full year. Then you can put this money in a certificate of deposit. In this example, you will not save much, but in the long term, this could make a difference.

Exceptions and notes:

Don’t defer is you think your personal tax rate will be higher next year (for instance, you just got a new, better paid job)
You gain nothing doing by deferring gains if you have unused capital losses (if you already have more cumulated capital losses than capital gains). While the government always charges you for capital gains, losses can only be used to reduce gains, so cumulating losses brings is not advantageous [Note: in the US, you can deduct capital losses up to the full amount of your capital gain plus $3,000].
At least in Canada, you can use the current year’s losses to reduce previous years’ gains, up to 5 years back (and get a tax refund)
If your stocks are in a 401k, IRA or RRSP, capital gains and losses have no effect on your tax filing. The gains will be taxable as general income when you will start withdrawing money at retirement time [Note: except for Roth IRA in which you pay no tax at all on earnings].
If you are not sure of what you are doing, consult an expert, particularly if large sums are in play. Particularly, do that only if you were planning to get rid of the stocks anyway.
Verify with the rules in your state/country/province to know the date limit to realize losses for this year if you plan to sell losers.

4 ways to simplify your life and save

2004-12-07T15:23:00.000-08:00

http://moneycentral.msn.com/content/Savinganddebt/Savemoney/P101309.asp

Jack

Don't talk too much about your plan

2004-11-25T04:41:00.000-08:00

When I first started this blog, I tried to publicize it a little bit by posting on some forums. I did receive three kinds of comments:

"go for it", "good luck", "I do the same", "Hope you'll succeed"
"you're full of s***!", "do your homework!", "you surely haven't considered inflation!"

In a post in which I said that when I tell relatives about my plan, they doubt much, someone told me not to talk about my ER plan to relatives (unless they do also have such a plan). More recently, another person on a forum told me I would have to fight naysayers. I agree with them.

Don't talk about your plan too much to your relatives. Some reasons:

They'll try to make you believe that your lifestyle is ludicrous. On the other hand, if you don't tell about your ER plan, they might never notice your frugal lifestyle.
If you fail and must retire a year later, they'll be happy to ensure you remember when they told you it couldn't work.
Some people can even laugh at you and tell about your plan to other people. You would need even more courage to try to convincing them your plan can work.

So stick to your plan, don't be discouraged if, from time to time, the figures doesn't work as planned, make adjustements, don't talk about too much people around you about your plan and good luck!

Inflation is the early retiree’s biggest enemy

2004-11-19T23:19:00.000-08:00

As time goes, the cost of living increases. Actually, this is not really true: prices are increasing, but wages generally increases at the same rate or, hopefully, at a higher rate (when this occurs in a society, it is getting richer).

As prices are increasing, you will need to withdraw more money from your portfolio after retirement. How much more? It is difficult to tell. It depends upon many factors: health of the economy, interest rates, natural disasters, international events, etc.

Year to year, indexes permit the assessment of the increase of the cost of living: these are averages taking into account a basket of goods and services. The most common one is the CPI: the Consumer Price Index. Typically, in the US and in Canada, the CPI increase between 2-3% each year.

However, be aware that this CPI is for a basket of goods and services that does not reflect your own expenses. For instance, the CPI is calculated using many components that are weighted to reflect their relative importance. Thus, food price weighs more in the CPI than travel fares. For instance, in this document: http://www.bls.gov/cpi/cpiri2003.pdf, each CPI’s component is provided along with their weight in the index for many US cities.

How to deal with inflation in your retirement plan
To plan how much money you need to save in order to retire, you need to take inflation into account. Most calculators suggest entering an average value for inflation (say 3%). Thus, each year, you would withdraw 3% more than the previous year.

However, the real inflation that is relevant for you is the annual increase of your budget. It doesn’t matter if, for instance, cigarettes price has increased 10% that year if you don’t smoke.

Personal inflation assessment technique #1
To assess how much prices have increased *for you*, I think the best way is to compare your actual budget with that of the previous year. There are two components in your budget changes:

· Inflation (same items or services cost more than before)
· Increase or decrease in expenses (for instance, you travel more than before).

While you don’t have any control over inflation, you have some control over your expenses. Thus, try to make sure that your budget doesn’t increase more than what you planned in terms of inflation.

Personal inflation assessment technique #2
Technique #1 has some benefits: it really takes into account the increase of your expenses from one year to another. However, it has a major drawback: your budget may be quite different year to year for many reasons. For instance, you may have to replace your old car. You may also have some home repairs. For this reason, I think that you should also use the CPI. For instance, if a given year the CPI has increased 3% from the previous year and that your budget has increased 4%, you can estimate that you spent an additional 1% “new money” that year. If it is the case and if you planned a lower increase in your retirement plan, you’ll need to make some adjustments the following year.

The best estimate of your personal inflation would be to split your budget into CPI components, along with their respective weights in your budget and to calculate your own CPI based on the data provided by the government for each component. Thus, if electricity makes 5% of your budget, you will be able to reflect the inflation for this component into your budget. The overall CPI provided by the government is a much more general measure which might not reflect your consumption habits. However, doing that is quite complicated and you need to be much disciplined to use it. At least, if you use the official CPI, use the figure for your geographical area.

Bottom line
Inflation should be taken into account in your ER plan. Actually, it is the most important pitfall that could break down your plan. If some year your expenses increase faster than what was planned, make adjustments (remember, you don’t have control over inflation, but you do over your expenses).

Determine a date on which you plan to retire

2004-11-06T15:22:00.000-08:00

How many years before you retire?
So you’ve decided to take the leap. You plan to retire early. First, I think you should set a date for this. Setting a date for your retirement plan will have you adjust budget, savings, investments, etc., in order to be able to get retired by that date. If you don’t do it, you might be tempted to procrastinate. For your plan to succeed, you need to stick to it.

Be conservative; add an additional year of work to your plan. If things go as planned, you will be able to retire even sooner, giving you satisfaction and reward. If things go wrong, this extra-year will allow you to make some adjustments by adding up to a year of savings instead of a year of withdrawal, which is why one year make such a large difference in a retirement plan.

Stick to your plan
It is important to stick to your plan. It is possible that the stock markets are going to skyrocket two or three years before you retirement date and that you would be tempted to retire sooner. Don’t. Many of those who retired sooner when the market was high in 2000 had the bad surprise of seeing the value of their nest-egg decrease much (if they held stocks or stock-like investments) in 2001. Don’t forget that the investment return estimates are based over a long period of time, so don’t feel too rich if for some years your portfolio gets higher than expected. First rule: retire at the date you planned, if you can. Second rule: if you don’t apply first rule, retire when the market is low. Thus, you are more likely to really have enough money to retire and there are some chances the market will get back on track when you will start withdrawing money from your portfolio.

Choosing the best part of the year for you to retire
Now that you’ve decided in how many years you want to retire, you have to choose a date. Is it better to retire in December or in June? My suggestion: retire at the beginning of the summer, say June 1st.

First, retiring during the summer will have you enjoy summer days as your first retirement days. This might have an important benefit on your moral, since retiring will be a major change in your life. It can be very stressful for many people. Retiring in the summer will also allow you to have time to be with your relatives (who will have job vacations). Take some good time, thinking about your projects to come, enjoying your new life, etc. Reward yourself for the frugal lifestyle that led you to this achievement.

Many projects you might have will likely begin at the end of the summer / beginning of fall: going back to school, getting a part-time job, volunteering, etc. Retiring during the summer will let you with time to prepare these projects and to decide what you want to do.

There may be a fiscal benefit by retiring June 1st. In the US, Canada and many other countries, tax rates are progressive: the more you gain, the more you pay as a percentage of your personal income. Each progressive step in the tax rate system is named a bracket. For instance, the first $0-$20k you earn might be taxed at 20%, while the part over $100k could be at 35%. The actual value depends where you live (country and state or province).

If you retire in December, you’ll have worked the full fiscal year, thus your personal income for that fiscal year will be that of your salary, say $60k (plus investments returns not tax-protected). However, if you retire in June and don’t withdraw from your IRA or RRSP, your income for the year will be less than $30k. Instead of being taxed at the higher bracket, you will be taxed at a lower bracket. Thus, instead of working for the government, you will have worked a little bit more for yourself. Instead of earning a net $20/hour after taxes, for instance, you will earn a net $30/hour that year.

In Quebec (Canada), people get an additional benefit if they retire halfway during the year. This might also apply to you if you have an employer plan (401k). In Quebec, RRQ is a public Pension Plan. All workers must contribute to the plan if they earn more than $3500. The contribution is set as a percentage of income, up to a maximum. This year, the maximum is $40k. How much you will get from the Pension Plan depends upon the number of years you have contributed to the plan and your average income. But for any year, the income calculated in the average cannot be over $40k. That is, if you earn $80k in a given year, only $40k will be used in the average. Thus, if you retire in June, you’ll add almost a full year of contribution to the plan (depending upon your annual wages), increasing the amount you will obtain when you reach 65, even if you work only a few months that year.

My $15k budget

2004-10-28T22:35:00.000-07:00

Many people have asked how I can live now with $15k.

To simplify things (for me), all amounts are in canadian dollars (CAD). Currently, $1USD ~ $1.23CAD. But as the cost of things in Canada is different than that of the US, doing the conversion might be irrelevant. For instance, my condo here is worth $85kCAD and could be worth over $400kUS if it was located in Manhattan but gas is almost twice the price here than in the US.

Some preliminary informations:

- I'm married. For many expenses, we share payments, that is the case for the condo mortgage, for instance. I specify when expenses are shared or not. Whenever they are, I display my share.

- I am a part-time student at the university, but Quebec has the lowest scholarship fees in North America (less than $1800 a year in most universities). I already have put aside $1000 which will cover my last session. Since it will be the last time I will ever pay for scholarship fees (hopefully, since I will then have a Ph.D), I did'nt include it in my budget.

- I own a five years old car (small sized sedan), last payment on the loan was made two months ago. I don't use my car much (I go working using public transportation and walk a lot), so car maintenance and gas costs are low.

- We have a 2 bedrooms condo valued at $85k with a mortgage of $63k on it. My wife and I both contribute to that, thus the low amount. I show the figures for my half.

- For expenses that vary one month to another, I maintain "virtual accounts". That is, I keep track of my real expenses. If my expenses are lower than my budget for a given month, the difference is kept in the account to use for future months. If my expenses are higher, I "borrow" money in the account. From time to time, I modify the budget value according to keep the balance just over the real expenses. I've been doing that for almost 10 years, thus the amounts are reasonably accurate.

- For one-time expenses related to furniture acquisitions, I have estimated how much money we need to invest each year in order to keep furniture (tv, computer, sofa, appliances, etc.) at their current value. I will no show the details of this estimation, since it is fairly complicated. For instance, a computer loses its value fairly fast and will need to be replaced more often than our micro-wave oven. Some items keep most of their value after an initial loss (ex. a guitar). Some items can be completely worthless after a period of time (ex. my digital camera will have no value in 10 years) while other keep some value almost forever (ex. books)

- Health care is provided by the province universal health insurance, which is free and paid by the government. In counterpart, we pay much more income taxes than in the US.

- Life insurance, travel insurance, invalidity insurance, medication insurance are paid by my employer

All expenses are monthly figures.

Car-related expenses (partly shared)
- I put aside $100 (shared, my wife also puts aside $100) to pay for repairs and to grow a down payment for our next car. We plan to keep our car for two more years. The car value should be over $3500 at that time and we should have put aside in this account about $2500 (hopefully, repairs should be much lower than the $5500 the budget sums to in two years). Thus, when it will be the time to buy our next car, we should be able to pay down $6000 and keep our mothly loan payment to about $200 (thus, my half would be ~$100). Account currently contains $400.
- car insurance: $40
- public transportation: $45 (discount fee as a student)
- gas: $25 (shared)
- car maintenance: $30 (shared) (which I cumulate in a special virtual account; there is currently $650 in this account). Includes normal maintenance (oil and filter, check-up) and other car-related expenses such as driver licence.

Condo (shared)
- Mortgage: $190 (includes life insurance)
- Taxes: $80
- Insurances (furnitures): $13
- Condo fees: $68 (includes insurance, heat and warm water)
- Electricy: $15 (electricity is cheap in Quebec, does'nt include heat and water, see above)

Other expenses.
- Phone, Internet: $30 (shared)
- Grocery: $200 (shared)
- Provision for contingencies: $50 (not shared) (as of today, I have cumulated $6000)
- Summer vacations: $50 (shared)
- Furniture acquisition/replacement: $60 (shared)
- Charities: $20 (I volunteer two hours a week)
- Other expenses $300. Includes everything else, from clothes to gifts, wine, books, cds, restaurant, theater, newspaper, etc. Some of the expenses are shared with my wife, some other aren't. That allows $3600 a year.

The "Other expenses" is difficult to break down, since it varies much as time goes. Approximately:

Gifts: $500/year (my wife and I have decided a few years ago that we would not give gifts to each other for Christmas since we believe this holiday has become too mercantile). We often buy each other subscriptions to theatre or music lessons, for instance, for our birthdays. Thus, the values below will sometimes be lower.
CDs and books: $100/year (we already have >400 music albums at home and >1000 books in our bookshelves, so we have decided a few years ago to limit acquisitions)
Movie rental: $100/year
Theater: $100/year
Restaurant, bar: $1000/year
Lessons: $200/year
Clothes: $400/year (I have few clothes. That way, I throw them away when they become too used, not when they are out-of-date)
Newspaper, magazine: $200/year
Wine, alcohol: $700/year
Others: $300

Total = $14,952 a year.

To insure that I have not underestimated my budget, I've calculated how much money I had a year ago and how much money I have today, from which I removed interests gained on bank accounts, return on investments and other gains. Then, I compared the result with my disposable income. It turned out that my expenses where last year a bit lower than my budget. I probably had spent a bit less than the $300 in the "Other expenses" category.

So now, your turn. Doing your budget, you'll know where your money goes, where you can save and how much money you'll need to retire. What are your yearly expenses?
Later, I will post my after-retirement budget.

Give a money value to your time

2004-10-25T04:41:00.000-07:00

Time is money.

Money and time are connected by two distinct ways: the time value of money and the money value of time. The former is related to the fact that $1 today is better than $1 dollar next year. Why? Because of what you can do this year with the $1 that you cannot do if you have to wait one year to get it. For instance, you could put $1 in a 2.5% return saving account and have $1.03 the next year instead of $1. Or you could reduce your 6% interest mortgage by $1 and save 0.06$ for the year.

Just as $1 today is worth more than $1 next year, 1 free hour today is worth more than 1 free hour in 1 year. That is, for the same reason, this is true because of what you can do during the year with this free hour. Let us suppose for instance that you have the choice between 100 free hours today and 100 free hours when you will be 80 years old. If you use your 100 free hours today, you could learn Spanish now and benefit from it for tens of years, provided you are currently young enough. If you wait until you are 80, you will learn Spanish and benefit from that for a few years only. Or you could die before reaching 80 and never use these free hours.

As a general rule, the later in your life you use your “time”, the lesser this time has money value. Keep that in mind. If you spend 1 hour of you time to save 0.25$ by comparing prices at different stores before purchasing a soap and that this saving will allow you to retire 1 hour sooner (that is, give you one free hour later in your life), you are not even, but you lost some time (and thus money). It is just like if one gives you the choice between having $1 today and $1 in 20 years: you better take the money and run.

Thus, just as well-invested money worth more with time, well-invested time worth more with time. Time is money, money is time. After all, what is money, if not the promise of exchanging some of you own time with the some of someone else?

The money value of time is much more difficult to define than the time value of money, mainly because people are used to give value to money and not to time. How to value what one hour of you time is worth? Let us do the math in an early retirement plan.

Suppose you earn $60,000 a year, from which $40,000 remains after taxes. Suppose you work 40 hours a week, 50 weeks a year. Thus, each hour you work provides you with $20 available for expenses and savings. Savings, on the other hand, can help you retire earlier, that is, it will pay later by providing you with free time.

We said earlier in our example that each hour gives $20 available. Let us set the money value of one hour to $20. Suppose that the value of this $20, if properly invested, is $60 when you will be ready to retire, after returns. Thus, one hour saved today is worth (in terms of money value) three when you will retire. That is, each additional hour you save at this $20 rate will allow you to retire three hours earlier, in this example. The earlier you retire, the higher the number of hours you need to save today to save hours at retirement. For instance, if I plan to retire tomorrow, each additional hour saved today will allow me to retire... one hour sooner tomorrow.

Now, what does that means in terms of savings? Well, it means that if your goal is to reach early retirement, you should not seek savings that make you work more today than the working time you will save later. That is why little savings that make you work make no sense. If you need to get saving coupons, printing them and go to 4 different stores to save 10$, you are not likely saving at all. Actually, you are working now, at very low wages, to retire earlier, yes, but how much earlier? Hardly the time you will have lost to save $10. You better pay $10 more and enjoy your spare time now instead.

Some rules and thoughts:

- Give a money value to your time. For instance, use your hourly disposable wages (the amount you earn each hour after taxes). Use your after-taxes wages since savings you make are also after-taxes amounts;

- Savings that make you work are worthless if the money value of the time you have to work in order to achieve the saving is greater than the money actually saved;

- The later you retire, the more value one hour saved today will have in the future.

Note that these rules don’t suit to everyone. I’ve said that you better not work one hour more today if it only allows you to retire one hour earlier, since the value of your hour today is greater that the value of your hour in some years. But this is only true if we talk in terms of the money value of time.

Time has other features than its money value. Suppose for instance you work 40 hours in an assembly line and you dislike the job, but you have no other choice. Suppose you earn a disposable $20 an hour on this line and that you can work one additional hour by repairing yourself something broken in your house instead of paying someone to do it and save $10. According to what I’ve said before, you could think: I better not work this additional hour to repair my house, since I work one hour now to save one hour in the future by retiring earlier.

However, if you like working on your house more than working on the assembly line, maybe you better do the house repair, even if both have the same money value. You are actually not only exchanging one hour doing something you dislike with one hour doing something you like.

Remember that retiring only is not only a matter of stopping working. It is also a matter of working on things you like, when you want, if you want and where you want.

Jack

Using Cash-Back Credit Cards to retire earlier

2004-10-21T04:28:00.000-07:00

I received a few weeks ago a new Cash-Back credit card with no annual fee. This credit card gives 1% cash back on any purchase made with the card. No points to collect and exchange against useless (and overvalued) items, no restriction on what or where you need to buy to receive rewards, no balance to get the reward and no annual fee.

Now, I try to put as much as I can on my credit card. But to do so, one need to be much disciplined: you should keep track of what you buy (in order not to buy more that before) and you should always pay your bill entirely each month. You should not use your credit card to increase your survival debt.

I’ve calculated that I am able to put about 35% of my actual total yearly expenses on my card. Among things I cannot put on the card are: mortgage payments, city taxes and car loan payments. Groceries, furniture, restaurant, fuel, cell phone bills, etc., all go on the card. The ratio would be higher if I consider only my post-retirement expenses. At that moment, the mortgage should be paid, thus the higher ratio.

As a consequence, the total expenses I would be able to put on the card would be about 50% of all my expenses. That is, my expenses would be reduced by 0.5% when I will retire, thank to the cash-back plastic. That is a modest $80 at today money value, since my expected expenses after retirement (the amount I plan to withdraw each year from my portfolio) is $16 000. A small, negligible amount, you say? $80 a year for 51 years (up to my expected age of death at 80), inflation-adjusted (using 3% yearly inflation increase), invested in a bill that return a real 3% (say a nominal return of 6% - 3%), means a total saving of nearly $10 000 (today’s dollar). If you buy low-energy bulbs, you total savings reach over $20 000 using the same time span. This might be enough to retire some months earlier than planned.

Simple and small savings that bring no feeling of deprivation is one major step towards early retirement.

Jack

What is inflation? Inflation is the most pitfall ahead for your ER plan, make sure you understand what that means exactly.

Putting as much as you can in your RRSP, IRA or 401k plan

2004-10-15T20:00:00.000-07:00

If you are already familiar with IRA/401k/RRSP plans, you will not learn much from this post. Otherwise, if your early retirement plans are serious, you should consider contributing as much as you can in an IRA (or 401k or RRSP) as the first major step of you ER plan.

I don't know much about fiscality related to IRA and 401k plans in the US. I know they are similar to canadian RRSP. I believe that for most people seeking ER, most of your savings should be put in these tax shelters, unless you already have reached the maximum contribution allowed. If you are a Canadian citizen, RRSP is a must, particularly for early retirers. This is likely to be true also for Americans with IRA (or 401k).

Let me explain why early retirers would benefit more than others from these saving plans.
Let us suppose that as of today, I earn $65 000 a year. In Canada, I'll pay about $18 000 in taxes (about half to the province, the other half to the federal government). In Canada, taxes are highly progressive. There are four tax brackets in Canada, three in Quebec. If I put aside $10 000 a year in my RRSP, the tax saved will be that of the highest tax backet. At $65 000 income, the tax bracket is 46% in Quebec (counting for both government taxes). That is, to put aside $10 000, you only need to invest $5400.

The idea behind a RRSP or IRA is that you are supposed to pay back the taxes when you withdraw the money at your retirement time. Money thus withdrawn from you plan is taxed as standard income. The magic, for early retirers, is that you will likely withdraw such a small amount that you will be taxed at a much lower bracket or not at all. For instance, if I withdraw $10 000 at retirement time (and suppose I have no other income), I will pay no tax at all in Canada. Not only have you gained the initial $4600 in tax reduction, but all incomes generated by your investments inside the RRSP are also tax-free.

Keep in mind that this is true only if you withdraw a small amount from the RRSP. If you follow "experts" advice and withdraw 80% or you pre-retirement income, you will not likely benefit as much from your RRSP. Only the tax-shelter (incomes inside the RRSP are only taxed at withdrawal time, thus delaying tax payments and allowing the nest egg to grow faster) benefit will then remain. I don't know for IRA and 401k plans, but there is a maximum contribution you can put in a RRSP. It is the smaller amount between 18% of your gross income and $14500.

Retiring early and being environment-friendly

2004-10-10T07:30:00.000-07:00

Have you ever thought that seeking to retire early could also mean being more environment friendly?

There are two ways to get around ER: increase income and decrease expenses. Increasing income is much difficult, since you have almost no control on it, but decreasing expenses is rather easy. You can even reduce expenses without any sacrifice, with no change in you daily life. And as a general rule of thumb, if it costs you less, it might also be ecological.

I bought five low-energy bulbs last week. Their electricity consumption is 11 watts and produce as much light as a 60 watts bulb. They are more expensive, but they last much longer: 10 000 hours for the ones I bought. Thus, the extra-cost to buy these is offset by their much longer lifetime, and you will not need to change the bulbs for a while, saving time, particularly for bulbs that are difficult to reach.

The bonus: you save about 50 watts to get the same light. For their 10 000 hours lifetime, this is 500kw. Depending upon the cost of electricy where you live, this could help you save over $40 each bulb. If you multiply this by say, 10 bulbs, this sum up to $400 each three or four years (it depends how much you use them each day). Consider a $100 saved each year. That is the amount you will save forever if you switch to low-energy bulbs.

How this helps you with your retirement plan? Use FireCalc. Chances of success according to it and the default value is now 93.9% from 93.2%. Not bad for such a small, environmental action.

The Man Who Plans to Retire at 37 (MPR37) Reports Strong Quarter Results

2004-10-02T14:00:00.000-07:00

MPR37 today reported that net earnings for the quarter ended September 30 has increased 55% at $7000 from $4500 compared to the previous quarter ended June 30, resulting primarily from better return on investments.

Wages were stable. Expenses has decreased 4.2% from $4707 to $4506 on lower insurance costs, lower television cost, lower electricity costs, lower credit costs and marginally higher condo tax.

Assets increased $5000 to $210,000 from $205,000 in the previous quarter. Liabilities amounted to $129,000, down $2000 from $131,000. Liabilities include $25,000 as provision for contingencies, up $500 from $24,500 in the previous quarter.

Net earnings for the three months ended September 30th 2004 were $7000. Total wealth (net assets) amounted to $81 000.

Stronger results from investments in the quarter compared to the previous quarter
Yield on stock investments were a healthy 11% (44% annualized) due to good market conditions and tight investment strategy. Total stock shares amount to $26,000. RRSP return were a non-annualized -0.9% on a nest egg of $33,000 during the quarter. Other investments include $20,000 cash in an INGDirect account yielding an annual 2.25%. This amount has been reduced to about $17,000 in order to increase investments in mutual funds, which sums to $15,000, yielding -3.2% during the quarter.

Next quarter previsions
The net earnings in this quarter are not likely to be sustainable, since a large part of it resulted from good one time investments returns.

In the next quarter, an increase in wages is expected. This increase is projected to be 3%. The mutual fund market are projected to give positive results in the next quarter, particularly after the American elections. Stocks are projected to yield 2% during the next quarter.

Risk assessment
There are some clouds ahead, but overall, the situation is quite under control. My wife could loose her job soon, since the organization she works for have financial problems. This could occur in the beginning of January. The effect of this would be noticeable in less than 12 months, after employment insurance expires. Such a job loss would imply much higher expenses. My job is also at risk, since the company I work for is loosing money. However, job loss is not likely for the next 6 months.

FireCalc

2004-09-19T14:39:00.000-07:00

I just tried a very interesting tool: FireCalc.

This tool lets you enter some data about your starting portfolio, annual withdrawals after retirement, withdrawal changes along the course of your retirement.

I did enter my data and found that my chances of success were about 78%. Quite low. I looked back at the data to see what was going on. There is a flaw in the use of this program before retirement. While the program adjusts figures to inflation, it considers you are retiring tomorrow. For instance, when you enter the value of the house you will sell 10 years after retirement, you enter the value of the house today and the program automatically adjust this value to take inflation into account. Right. But what the program doesn't consider is that if you retire in 8 years, the value of the house should be adjusted for 18 years (8 years from now, 10 years after retirement), not only 10. Thus, the value I did enter, 85 000, was undervalued by about 15 000 $.

The same apply to the other values entered: my social security pension that I will get from age 65 (that is, 28 years after my early retirement at 37) is undervalued by about 20%, since the value when I will retire is larger than the value retirees receive today.

In order to use FireCalc, thus, remember that what the program considers as being "Today" refers actually as if today was the first day of your retirement. Then, adjust these values to inflation for the number of years before you retire.

After the modifications, my chances of success according to FireCalc raised to nearly 92%, with a mean balance after 43 years of retirement at about $600 000.

Why you should not rely too much on experts and calculators

2004-09-17T08:45:00.000-07:00

When I explain to relatives that I plan to retire at 37, some questions naturally arise:

How much will your savings worth by then?

How much money will you withdraw each year?

While calculating how much money you need and how much wealth you have to cumulate before retiring is important, these figures are irrelevant to other people than you. Their situation might be quite different of yours. A little bit later on my Blog, I will provide my personal situation, my current savings and my budget. This information will not mean “Here is what you actually need to retire”. I’ve defined my own needs, evaluated expenses and expectations according to my lifestyle, location (for instance, living in a 100k – 500k city in the province of Quebec, Canada is less costly than living in NYC or San Francisco, for instance), actual income, projected income, the level of risk I am comfortable with, etc. If I say I need $14k a year to retire, it does not mean this will be enough money for you.

However, my Blog might help you retiring much sooner than you think using two approaches:

Finance experts say you will likely need about 75% of your pre-retirement income after retiring to have the same lifestyle. I will try to challenge this assumption. I believe that what matters in defining how much money you’ll need after retirement is post-retirement expenses, not pre-retirement incomes.
Frugality does not mean deprivation. You can have frugal habits that will bring you no more or less happiness than living with higher means and literally wasting your money (a general rule to remember: wasting your retirement money is akin to wasting your pre-retirement time).

Preparing your mind to early retirement

2004-09-14T12:52:00.000-07:00

Before going forward with my early retirement project, how I plan to achieve it and how I will try to convince you to follow my example, you need to get some basic ideas on early retirement. I suggest you read a bit on the subject.

For instance, read some articles on http://www.retireearlyhomepage.com/. Look particularly at the Top ten reasons to retire early and the general rules in How do I retire early? On this site, however, retiring early means "earlier than 65", not retiring at 37. It will give you a fair idea of how you can manage to retire before 65, but not how you can do it at 37.

I also suggest Diane Nahirny book: Stop Working... Start Living, particularly for the thoughts and general principles that are behind very early retirement. In my previous post, I told you that I believe her success story might not be generally reproductible with the same salary. I plan that it will take me an additionnal year to get retired despite wages much higher than hers. But anyway, this book is still very interesting and contains many saving tips, budget management informations, thoughts, etc., that worth the price of the book.

Very soon, I will share with you my actual financial situation, the starting point of my early retirement project.

Happy reading!

What this Blog is about?

2004-09-12T17:56:00.000-07:00

My name is Jack. Well, actually, it is not my real name. I've decided not to use my real name, because this blog will contain confidential data about my financial situation, and I don't like the idea that my friends and family could know such personal information. So why should you? Well, I have a plan. A plan about which I’m going to talk for the next 8 years, in details, to show you what steps I take in order to fulfill it.

This plan, you probably already have guessed it, is to be retired by age 37, that is, in less than 8 years from now. First of all, I need to tell you some facts. I'm not already rich. Today at 29, my net wealth is not more than 50 000$, RRSP included. More, I am an average worker, earning a salary between 57 000 and 65 000 Canadian $ (about US$44 000 to US$49 000). Well, I say average, it would be more accurate to say that, for a 29 years man, I earn more than the average young French-speaking worker in Quebec, Canada.

The first question is: why would I want to retire at 37 and why 37? Well, that's actually two questions. First, I want to retire early because I'm trapped in a work more/have more /improve your position at work spiral. More, I spend 50 hours a week in an office, most of which I stand sat in front of a computer. I don’t like the idea that I will spend most of my disposable time behind a desk. It is not that I dislike my job, I actually like it. But I have many other projects that I’m unlikely to pursue since I lack the time (or I’m too lazy or lack the energy after a work-day to work on these).

I could start my career over, but that would be no good investment. First, my actual salary is rather good. Financial security is important for me, and I cannot imagine myself turning to an art related career, for instance, even if I’d like to. The fact is that I believe there is some rational one should have behind its choice of career. Even if I like arts, I would make neither great musician nor great painter. Science suits me much more. And would I be a musician (assume this would be my second choice of career, should this choice be given to me), I think I would not be 100% satisfied. The fact is that, like many of us, I’d like to do 1000 things. Today a scientist, tomorrow a musician, and who knows what I’d like to do next year. Maybe I’d like to volunteer some time too. Or write a book.

There is only one way for me to be able to do whatever I want, whenever I want. This is possible only is my financial situation allow me to do it. That is, if I wish to write a book and this book doesn’t sell, well, that’s it, I will still be able to buy food, pay my mortgage, the phone company and the hydro. I will feel no hurry to get success. I will not have to wash dishes in a restaurant waiting for my book to gain success. If my book doesn’t sell, well, too bad, I still can try myself to another book or conclude that I’m not skilled at writing. I think you get the point. Or maybe not.

Anyway, I’ve decided that the way to go for me to reach happiness is to retire early and then, do whatever I want of my spare time. I always have thought that early retirement meant retiring at 55 and that it would be difficult to do it. A few weeks ago, a coworker told me about a book written by a woman saying she retired at 36: Stop Working... Start Living, by Dianne Nahirny. I borrowed his book and read it in two days. Well, first of all, I have to say I don’t believe her example will allow you to retire in such a short time as she did with the salary she says she earned (less than 25 000$ a year). She has benefited of conditions that are not likely to be mine or yours in the future.

For instance, in three of four years, she made tens of thousands of dollars (or returns over 300%) by buying condos just before real estate was set to boom and at times when you could get more than 10% on government bonds, for instance. More, she says that she can live 30 years with 80 000$ in its unregistered savings, using 8000$ a year. Well, I don’t know how she did her math, but my calculations tell me that with 80 000$, I could get 8000$ a year for at most 15 years, at current inflation and interest rates.

So I did the math using my data and found that it might be possible for me to retire as early as 37, that is, in 8 years. I was astonished, given that my calculations were conservative, much more than Dianne calculation. By conservative, I mean that it assumes I will not earn any money (other than from invested savings) after that. As I don’t plan to spend all my spare time reading on my balcony, I think this is quite conservative.

Retiring at 37 includes some risks. For instance, my future incomes are based on economic projections, such as inflation, interest rates and yield of return on my investments. But this risk is offset by the fact that at 37, if things aren’t going the way I planned, I will still be young enough to find a job for a few years and get my finance back on track.

If you ever dreamed to be free, free to do whatever you want whenever you want, stay tuned. From now up to my retirement, in 8 years, I will describe my situation, my plan and my progress. I’ll give you details, where I will invest: stocks, RRSP, bonds, funds. You’ll be able to verify that my yields are real and not modified so to exaggerate my success story.

If I succeed, this blog will be my heir to other people who, like me, think that life is too short to spend most of it in an office doing the same thing all over again. If I fail, well, just as any scientific experiments, knowing what doesn’t work should be useful too and maybe this blog will have diverted you somewhat.