My path to financial independence began when I started my first professional job. I had taken time off during university to travel and work overseas. When I started work, I found that the work was interesting, challenging, and worthwhile, but I kept thinking about all of the amazing places I went and the amazing people I met when travelling. I felt that a few weeks of vacation here and there would not satisfy my wanderlust, and began working on a spreadsheet (so long ago, it was probably in Lotus 1-2-3) to see when I could retire and travel full-time.
By starting with income of A, assuming it would increase at rate B, savings of C, assuming that would increase at rate D, return on income of 8%, income needed at retirement of E, inflation equal to F, etc., I came to the conclusion that I could stop working for money at 52.
This put me on a different path from my colleagues. While I now see a large early retirement/financial independence community online, and a smaller “extreme early retirement” community, when I started working, I only knew the standard model of working until you’re 65, or taking early retirement a few years before that. In the 1990s, London Life was so successful with its “Freedom 55” advertising campaign that it became a catch-phrase for early retirement in Canada, and other financial planners criticized it for promising something the company couldn’t deliver.
In the public service, people work toward their “unreduced pension” date, i.e., the date at which you can retire with a full defined benefit pension. “Factor 90” is an important concept here. When your age (minimum of 55) plus your years of service equal 90, you can retire with a pension equal to 2% times the average of your best five years of salary. It is a pretty good deal. You do pay for it – typically 7-9% of your salary comes off your paycheque to go into the pension plan, but you end up with a fixed, certain and indexed pension.
By planning to leave at 52 in December 2017, I would never qualify for this great pension, but only a fraction of it, delayed, and would have to make up the difference through private savings.
So I began plowing everything I could into a Registered Retirement Savings Plan (RRSP, like a traditional IRA in the U.S.), and some more into a taxable account. The latter was earmarked for taking a year’s leave of absence at some point to travel.
I never wrote out a budget, because I just wasn’t interested. I admire people who do, but I know that I would not follow it. What I did do was set a savings target every year and tracked my progress towards it every month. Every year, I set a higher target than the last, always keeping my eye on the prize at the end – financial freedom.
I bought the hot mutual funds, and paid only scant attention to MERs. I tried to time the markets. I switched back and forth. I put money into a Japanese fund when that seemed to be a good idea (it wasn’t).
Best laid plans… not very much went according to plan. My salary increased faster, through promotions. 8% return turned out not to be realistic. I bought a house to live in and rented out parts of it. I fell in love with a man in another (more expensive) city where I had grown up, and moved there. We bought an apartment together and exchanged rings, so the year’s leave of absence idea went out the window and the travel fund became a general financial independence fund. I got involved in a lawsuit that dragged on and on. I tried my hand at consulting, tempted by the big money. But I didn’t find it fulfilling, so I found my way back to the government, accepting the large pay cut as the price of having rewarding work. The law was changed, so we got married. I finally clued in that mutual funds are a bad deal, stopped chasing the elusive winners, and switched my investments over to exchange traded funds. I began learning about income investing, and started slowly shifting money into dividend stocks and REITs.
When the lawsuit was settled, I took that money, and the remaining money I had in exchange traded funds and put it entirely into dividend stocks and REITs, having developed enough comfort with income investing.
With the legal uncertainty out of the way, and a definitive investment income stream developing, I could now turn my attention to concrete planning for financial independence. I developed a new spreadsheet that factored in pension, OAS, CPP, investment income, withdrawals from different accounts and built in a tax calculator. It is a pretty impressive thing, IMHO. There was no question that Spouse and I would finish work together. I know that lots of couple retire at different times for a variety of different reasons. But since we are both eager to be done with jobs, and we want to travel together, both leaving at the same time makes most sense.
My first cut at our joint financial independence plan had us leaving work in June 2019. Not far off from my original plan. How much money we would need in retirement was a pretty random number, to be honest. I really had no idea how much we would need. (I’ll write a separate post on that issue.) The plan had a lot of placeholder numbers and assumptions in it. As I developed the plan further, and replaced guesses and assumptions with real numbers, I found that we could quit work earlier. Spouse leaves the financial planning up to me (and I don’t have to worry about any technology in our home – yes!), and was quite amused at how long I was spending obsessing over my spreadsheet. He was quite happy though, when every so often I would announce that I had moved our target date six months earlier. And I was increasing our projected income in retirement, too.
In 2014, two things happened. The first was that I got a job I had been pursuing for two years, giving me an opportunity to do something very different and exciting. The other was that I decided I had to stop adjusting the date, and settled on June 2016. That would give me a little over two years in the new job, and allow me to feel that I had fulfilled my commitment to my employer.
Since then, during a couple of times of high-stress, I have a cut a month off, so now we are planning for April 2016.
In the next post, I will discuss how I achieved my vision of financial independence by developing a plan, and taking action. Thank you for reading. Comments are welcome.