Saturday, February 26, 2005

Ethical insights about early retirement

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.

Monday, February 21, 2005

Extreme Commuting

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).

Sunday, February 20, 2005

I will not be the youngest retiree in Canada

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.

Sunday, February 06, 2005

Seizing life-changing opportunities

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!

Tuesday, February 01, 2005

How to painlessly increase your annual registered contribution

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.