How I Learned Retirement Could Be Lonely

Please forgive me for being so personal today. In 2019, I completed my third leave of absence. A big long 8 months for that one after shorter but still extended 6-month periods on the first two occasions. You could say I already tasted retirement three times or at least semi-retirement.

I am very grateful for it. My first go at it in 2012 was quite enjoyable, but I have to say I often felt lonely during my last two prolonged stints away from work. I felt less lonely in confinement the last few months than during those last two leaves of absence. Maybe in part because my two ladies stayed at home with me but probably much more because I worked my butt off.

I was lacking the sentiment of making things better. I missed helping others. For me, it’s not just a question of being around people. It’s more about lacking being useful to society.

During our recent isolation, it was completely different. Many facets of that crisis were and still are unusual and tough yet, the fact my position allows me to help out others teleworking makes me feel a lot better.

It’s funning because before that, the psychological aspect of retirement was never on my mind. I would be the last person to talk about it. For me, retirement planning was all about money and accumulating enough of it to stop working. I was not even considering it and secretly laughed about others talking about it. I mean, how could it be a problem to be on vacation all the time?

Being Passionate About Helping Others

So, let’s face it! Retirement can make you feel lonely!

Psychologically Managing Extended Time Off

Just a few years back, I was the last person to think that psychologically handling retirement could be a challenge. For me, it was a non-issue and talking about it seemed a waste of time. How could you feel bad being on vacation all the time?

Now with a couple leaves of absence under my belt, I must admit that to my complete surprise, my mental wellbeing has been somewhat put to the test. A lot more than expected because to be honest, I anticipated zilch, nothing, no problem at all. With experience, I now know better. It’s kind of ironic because many know me as the one that plans everything. But I did not plan what may be considered obvious.

I have to confess it has been much more trying than I thought. Again, during this year’s extended time off, I mostly battled with guilt and having too much time to think. It may appear silly but, choosing what to do with all that free time can become a burden. You probably won’t feel sorry for me and I know, another great problem to have…

Despite Widespread Belief, TFSAs Can Stay Liquid

A few weeks back, we were kind of stunned when we discovered someone in the family (Ray not to name her) had a lot of money in a savings account but did not register it as a Tax-Free Savings Account (TFSA). Interests gained in that account resulted in a juicy tax bill for her. Unnecessary because she still had plenty of TFSA contribution room available.

The money was not put in a TFSA because it was primarily used for emergencies and to pay for imminent renovations and Ray thought funds in a TFSA were not easily accessible. We checked with other members of the family and again, to our surprise, a lot of them believed TFSA money was not liquid at all. For many, TFSAs and RRSPs are all the same…money stashed there won’t be accessible till…far away retirement. So, many folks have the impression that TFSA money is tied up in some way that would prevent immediate access to their funds. But in fact, this is not true.

It’s sad because despite our financial knowledge and a lot of effort, money remains a taboo subject for many in the family. It seems like the more you are successful with money, the more people get shy and the less they are willing to talk about it. We try to remain humble about all of it, but it appears our glow still scares quite a few. These poor folks (no pun intended) prefer to keep things as anonymous as possible and give their trust to alleged advisors.    

So, another one greatly handled by so-called expert advisors. In this case, with no commission in play, the «expert» simply did not bother.

 

The Frozen TFSA Asset Misconception

Somehow, many people think TFSA funds are frozen and not easily accessible. And, despite the fact we love Disney, we are not talking about Frozen starring Anna & Elsa. And in reality, your TFSA might be more like Olaf, the chill snowman that loves and dreams about summer.

Exploring Better Alternatives to RRSPs

Lately, a lot of our analysis and writing hovers around retirement and RRSPs. We started with a brief post about Not Blindly Contributing to your RRSP a few months back and continued in March with more elaborate one explaining how we were Dealing with Complex Retirement Considerations. Today we persist with some profound thoughts on the never-ending RRSP versus non-registered debate. You’ll still note our research is not exhaustive as it particularly refers to our personal situation.

Some people feel RRSPs are a government scam to take more of their money thru taxes. Many angry retirees almost consider RRSPs as evil when they realize how much tax they owe at withdrawal. They just forgot all about the juicy tax refunds they received when they deducted their RRSP contributions in the first place. Over the years, these RRSP deductions helped fund a great portion of their retirement stash.

We can view RRSP tax refunds as a loan the government allows you to make to yourself. You only have to remember that you’ll have to reimburse it with interest some day (at withdrawal). If you are in the same tax bracket, the interest rate of that artificial loan will be equivalent to your investment return. If you now fall in a lower tax bracket, good for you, you’ll pay less «interest». Similarly, if your tax bracket is higher, tough luck, you’ll end up paying more «interest» via income taxes.

Dealing with Complex Retirement Considerations

As eluded to in our latest Portfolio Update, Boy! is the Canadian retirement system complex. We recently have been doing some research on retirement planning and will now report our findings here. We won’t cover every possibility as we concentrated on our own situation. It should still give you hints on major points to consider. We’ll remain thorough but try not to lose you in all the details. We suggest you pick up all that applies to your retirement situation and refine other pertinent details on your own from there. At least, our exploration should give you a decent head start.

Our main objectives in all those proceedings in to retire comfortably and to try to provide as much money for our kids and grand kids while we’re alive and not only after we die. From the beginning, we thought that minimizing taxes along the way would be one of the best ways to achieve this. As we discovered, it may not be that simple.

12-Minute Financial Tips to Immediately Improve Your Situation

One of the main concepts at the basis of the 12-Minute Approach is improvement. In most cases and in most domains, it’s easy to get to ball rolling with only 12-Minute a day or 12-Minute here and there. It’s no different for your finances. Your family’s financial situation can be greatly improved by investing just a little time, 12 minutes, on it. The idea is to start with 12-Minute and build up from there.

Consequently, today we will try to present a bunch of ideas on how to quickly improve your dealings with money. Note that our intention is not to present an exhaustive list. If you have a minute or even better, a dozen, pick one of these and try to implement it. 

Reverse Marketing Scheme to Spend Less, Save More

When it comes to spending money, especially on big ticket items, we personally like to throw our brain a curveball. This twist also works on recurrent expenses. The trick is to convert all your purchases to measure their impact over your lifetime.

For instance, the cool-giant-flat-screen TV on special at only 3K$ can effectively cost you a little more than 49K$ (for 48 years @ 6%) over your lifetime. If you manage to get a 12% long-term portfolio performance like we do, that single purchase could represent more than 690K$! A lot of dough just to enjoy a groovy TV for a few years...

In the same matter, paying an extra 20 bucks each month on your iPhone plan translates into a corresponding amount between 66K$ (48 years @ 6%) and about 615K$ (48 years @ 12%) over your lifespan.

Analyzing expenses that way sure puts things into perspective and should spur up your frugal nature if you happen to have one.

Financial Freedom Insouciant Mindset

A couple months back, after Preparing for it, we took our first steps Out of RRSPs. Since then, our focus has been more about Minimizing Taxes instead of Maximizing RRSP. To briefly remind you, one of our main strategy has been to keep my taxable income just under the lower tax bracket upper limit.

Many details around the whole process, like the first transfers and withdrawals, made me realize my salary wasn’t essential anymore and that I could stop working whenever I wish from now on. It felt like I literally was at the doorstep of financial freedom.

Strangely, a completely different mindset quickly set in. I deeply felt like everything was now cool and okay. Furthermore, it seemed like it would always be alright. That freedom was a relief and a wonderful feeling. To some extent, the burden of many financial obligations was finally off my shoulders.

But there was another odd side to it. I felt invincible, almost indestructible and some kind of carelessness settled in. It’s tough to precisely describe it. You could call it detachment, nonchalance, disinterest, insouciance…with an added touch of selfishness. In short, I didn’t care about other people and what they thought of me. Having enough money kind of made me feel like I didn’t need others anymore. In that insouciant mindset I became somewhat negligent. With that financial security, I now felt like I could get away with anything.

Experience Living with Only 75% of Your Salary

Could you live with only three-quarters of your salary? Extreme savers may find this quite easy as they probably already save more than 25% of their actual income. But let’s face it; they are still exceptionally rare individuals.

Heck, many can’t even get by with their full revenue.

I’ve been experiencing it first hand myself for the last 2 years. As some of you might know, my working conditions allowed me to take a differed 6-month leave of absence in 2017 and to spread out income deductions over a longer period so I’ve been paid 75% of my salary since 2015.

So today, we’ll talk about financial and psychological implications of having your salary amputated and how my family and I fared with it. We definitely think the broad benefits are worth the hassle.

I’ve been doing it for real but everyone has the option to at least artificially implement it. For instance, by using pre-authorized transfers to automatically put aside a significant portion of their paycheck. It can be a great way to discover if you have the financial means but also the stomach to live with less money. If you prefer, gradually doing it could give you a chance to learn to slowly cope with it. 

Is Living with Less That Hard?

Preparing to Take Assets Out of RRSP

Early in the year, we talked about taking time to think and analyze the possibilities surrounding future withdrawals from our investment accounts. In the initial stage, our reflection concentrated on questions like how? And how much? At this point, we will sadly report that our efforts have not significantly paid off. We have not demystified the 4% rule yet. Neither did we develop or stumble upon a better alternative.

All that analysis still eventually oriented us towards the when?

Too Much RRSP May Equal Too Much Tax

As a result, we recently discovered our RRSP value may be too high and are now considering withdrawing money from it sooner than expected. In that context, it looks like we will deregister an important portion of our RRSPs to avoid future tax problems. Essentially, we discovered that too much money in our RRSPs may result in paying a lot more tax later in life or having a big tax bill attached to our heritage, mostly destined to our lovely daughter.

We will admit having too much money is a good problem to have. But it’s important to start taking measures now to possibly avoid wasting an important chunk of it later. With retrospect, investing more in TFSAs instead of RRSPs would have been a better choice, from a fiscal standpoint at least. Fortunately, it’s not too late for some type of gradual rebalancing.

Our RRSPs grew up faster with larger contributions and higher returns than projected. In that regard, part of the credit can be attributed to our successful DIY investing approach.

Changes in our pension plan conditions also greatly impact our future financial situation. Unfortunately, planning for an early retirement kind of goes against the grain. Consequently, we made very conservative assumptions during the last round of negotiations as initial talks amputated pension benefits by almost half for early retirees like us.  

The final agreement was better or less bad than anticipated, we will only lose about 10% of our retirement payouts. Again, this will probably end up generating additional taxable income later.

With all those factors combined, the perspective of paying more tax during retirement than in active life unexpectedly becomes very probable.

As an example, you can see from the Leaving Money in RRSP Chart that, just a 100K$ portion accumulated in your RRSP today, at 45, could generate a nasty tax bill of more than a million bucks 40 years down the road. RRSPs can be a great tool to avoid paying taxes now as it differs your fiscal obligation. But if your ultimate tax rate is high like in this example at 50%, you might end up paying a big chunk of that deferred tax back.

Now that we know we are going to take money or stocks out of our RRSPs, it’s time to explore related technicalities.

Gradual Transfer to Tax-Friendly TFSA

Let’s briefly get back to how much? Projecting income and corresponding tax levels over an extended period is far from exact science. You can still have a general idea of fiscal implications and take actions that should improve the situation.

Preparing for Extensive Time Off

As 2017 is only a couple days old, I already believe it will be a great year, or at least, it will be a great one for me. Forgive my selfishness but I especially look forward to this brand new year as I will be able to enjoy my second 6-month leave of absence from work. 

So my big project this year: to have time and to enjoy the freedom it can give me!

All this began to truly take shape back in 2015 as I Signed Up on a 2-Year Program that will end with a 6-Month Leave. Despite the fact we are a couple months away from the actual time off, it’s just around the corner, I’m starting to feel it and can’t wait to taste it for real.

This is the second occasion I took advantage of that type of leave. In my 2012 leave, among many ventures, Our Exciting 24-Day Trip to Italy is surely what marked me the most!

Meanwhile, with still a lot of on-going and new projects boiling in my mind, I am ironically lacking what I will have plenty of by the middle of the year: precious time!

Luckily, I can rely on the 12-Minute Approach to help pace myself, effectively materializing many of those ideas while maintaining a relatively healthy balance in my life.

Plan Not to Over-Plan

Get To Financial Independence Quicker With a Smaller House

Living in a smaller house might be one of your most important decisions on your way to financial independence (FI: I like to define financial independence as being wealthy enough so you can choose to work or not). Rest assured, I’m not talking about those tiny houses that seemed to be popping all over. Rather, I think you should own a regular house, only a tad smaller. As we will see further down, downsizing only 20% could get you a long way towards FI.  

Not only will it reduce your mortgage payments but also many other related expenses. Hence, a more modest home will automatically result in less property taxes, less insurance, less maintenance/repairs and also a much more affordable utility bill... Ultimately, it may also save you a lot of time.

A little more than 15 years ago, our frugal nature enticed us to buy a smaller house and we now realize all the benefits of that decision. One of the most interesting consequences will be that we will get to financial independence much faster.

I decided to do some digging on this subject after I played golf with Alvin, a distant acquaintance. Alvin inherited some money and a fancy house in a rich neighborhood from his uncle 2 years ago.

Upcoming 6-Month Leave Signed

I’m glad to announce that my original plan to gradually Escape 9-to-5 is officially reinstated!

I finally consider myself back on the right path as I enrolled again in a great program that will grant me a 6-month leave of absence down the road.

Work Hard but Still Enjoy Life

This will be the second time I take advantage of those special working conditions as I was able to enjoy a first leave in the same fashion in 2012.

The fact that my paycheck will be deducted in early November 2015 will materialize and start this wonderful project that will enable me to take a 6-month leave from May to November 2017. According to this agreement, I will receive 75% of my salary over the 2-year program but actually will only work for the first 18 months.

Even if I don’t mind working hard, I always try to also enjoy life as much as possible.

Boost Your RRSP Contribution With a Short-Term Loan

If you are not able to contribute sufficiently, is borrowing to invest in your RRSP a good strategy?

Repay your short-term RRSP loan with your tax refund

A short-term loan is usually a brilliant idea; you can make a larger contribution to your retirement plan while limiting interest charges.

Towards the end of RRSP season (in February), you can borrow and contribute. You have to make sure to FULLY repay your RRSP loan a few months later when you get your tax refund (in March, April or at worst in May).

This short-term strategy allows you to increase your RRSP contribution without paying too much interest.

Use Government Agencies’ Online Simulators to Determine What You Need to Save for Retirement

Easy to Use Online Tools

Government agencies now provide online services to simulate and calculate your future retirement income.

These services can be used to help determine what must be save today in order to meet your retirement needs.

For Quebecers, CompuPension online service from the Regie des Rentes du Quebec (RRQ) is particularly well conceived. You can access it here:

http://www.rrq.gouv.qc.ca/en/planification/simulation/Pages/simulation.aspx

For other Canadians, the Canadian Retirement Income Calculator from Service Canada will also help you. Use following link:

http://www.servicecanada.gc.ca/eng/isp/common/cricinfo.shtml

Use Online Simulator Before You Consult Retirement Planning Salesperson

This service is effective and comprehensive, among other things; you will do the calculations yourself without being forced to meet so-called specialists that do not always