Saturday, March 31, 2007

My Pension

I have what most people would consider a good pension. It is indexed for inflation which means each year I get an increase (pay raise) based on a portion of inflation. When I retired I had the option of taking all of my money out or keeping the pension. I took the pension and have no regrets. Inflation is an important factor over long periods of time and I plan on having a very very long retirement!

I think an interesting question about my pension is "How much would I need invested/on deposit privately to replace it? Now I'm not sure if any accountant would agree with me but using interest rates in the 4-6 percent range means that my pension, in today's dollars, is equivalent to having a million dollars or so invested privately. From that perspective, I am living like a millionaire. Now to be honest, from just the dollar and sense perspective, I don't feel like a millionaire. But I do feel "like a millionaire" in a lot of very inexpensive ways.

For example, as I write this, I am sitting at a bedroom window looking east from Vancouver Island towards the mainland of British Columbia. The mountains are snow covered this time of year and they look great against the blue sky or any sky for that matter. I look past the computer screen and I can just see the mountain tops poking above the distant cloud cover this morning. It is a clear blue sky here but the mountains have cloud/fog cover. We only have a modest view as views go in these parts and can only see the tops of the mountains between the houses.

I have not seen them yet but I know that over there, below those wild peaks, the grisly bears still live free. I like that idea. There are also birds at the feeder just outside the window. A robin is listening for yummies on the lawn. Sea gulls fly by daily and occasionally a bald eagle or two. I can also jump on my bike and be at the oceans edge in 5 minutes or I can lower gear it up the hill and enjoy much better views. From this perspective I feel very rich.

For me, the bottom line has never been how much money I have...the free things were always much more enjoyable.

Wednesday, March 28, 2007

What Do I Really Need?

Money Diva's post Needs vs Wants got me thinking about this challenging subject.

Where do my "needs" end and my "wants" begin? I'm not sure.

I know I could live a lot cheaper than I do now. I know one guy who lives on a boat. I know beautiful places where I could live in a homemade houseboat with no taxes and no utility bills. I could invest the money in my house in the stock market. It might make a nice retreat to write a fiction novel. Only the seals, sea otters, bald eagles, sea gulls and the sound of the wind in the trees and waves to distract me.

But then...I would have to haul water, firewood etc. Sounds like a lot of physical work. There's also the winter rainy season to consider. I wonder- Could I write a story about a guy who lives on a houseboat and make it all income tax deductible?

Of course my wife would never go for that plan, so I guess my/our needs are somewhere between that option and where I'm at today. For the time being I will stay put and just visit those places on warm summer days when the sun is dancing on the water and you can see the mountain tops

... but it's always good to have a backup plan.

Monday, March 26, 2007

Ontario Lottery - Off The Rails

Another story about Canadian Money.

The story reads, "Unscrupulous" lottery-ticket retailers in Ontario have collected at least $100 million in fraudulent claims since 1999, thanks in large part to a "hopelessly conflicted" provincial agency..."

"In an investigation of jackpot wins by so-called lottery insiders, ombudsman Andre Marin showed no quarter to the Ontario Lottery and Gaming Corporation, which he said ignored allegations of fraud because it was "fixated on profit rather than public service.""

It would not surprise me to hear that a subsequent proper investigation discovered that some of that money found it's way into the pockets of upper OLGC managers. This would explain why the allegations were ignored. Or, it may simply be a case of incompetence.

I think the fundamental problem here is that government should not be involved in promoting or selling gambling in the first place.

Saturday, March 24, 2007

Just A Lucky Coin Flipper?

While surfing the net the other day, continuing my never-ending search for the Pot of Gold at the end of the rainbow - I came across a book review that peaked my interest. It reminded me of many other books I have read. You see, I seldom pass by any promising rocks without at least giving them a quick flip over to see if "the secret" to getting rich might lie beneath.

Many of the books I have read over the years fall into a category of "How To Get Rich Quick". The titles of these books frequently include powerful, emotional triggering, advertising words or phrases such as:

You, Money, Rich, Riches, Easy, Easy Way, Money, More Money, Quick, Secret, Secrets, Good Luck, How To, How I , Teach, Grow, Best, Freedom, Reward, Powerful, Super, and so on.

Did you feel anything when you read them? Words like these have power over us. They tug at our greed, at our desire to be better off, or our desire to escape from some unpleasant situation.
The stock market has been called a "zero sum game". This is a short way of saying that if one person wins $1,000 someone else must lose $1,000 so the balance is $0 with nothing left over. People try all kinds of strategies to "forecast the future" and thereby beat the market. The goal being to be the one making the $1,000 in the zero sum game. This post is about an interesting aspect of the stock market, some might even refer to it as "an inconvenient truth".

The point is that anyone might make a large amount of money in the market simply by random chance if one just happens to be in the right place at the right time. It gets more interesting if the lucky one happens to strike it rich while he/she was trying to beat the market with a special system, a different philosophy, or some new kind of method that in reality has no forecasting value whatsoever.

Here is an example. A couple inherited $50,000 back in late 2002. Let's say the husband, having studied things at length, applied some sort of prediction method. But, for the sake of this example, let us say that his system was totally worthless. His system convinced him to invest the entire $50,000 in the Canadian Stock Market in January 2003. It was invested in an index mutual fund, one that tracked the S&P TSX Composite Index (see graph).

Three years later, their marriage on the rocks, the couple divorced and the divorce settlement split all of their wealth 50/50. The mutual fund was sold in January of 2006. The $50,000 had doubled to $100,000 over only three years because the index had risen from 6,000 to 12,000. Each of them walked away with $50,000 after only three years. Not bad!

In this case, the husband, believing that he had really found "the secret" to beat the market then wrote a best selling book. The title of the book might have been "My Secret: How I Doubled My Money In The Stock Market In Only Three Years". Now that's a title I would at least pick up for a quick peak if I was browsing the investment shelf in Chapter's.

The long term stock market rate is about 7 percent per year. Money normally takes 10 years to double. In this example, the money doubled in only 3 years. A strong bull period following a down turn is the normal course of events. The challenge is knowing when the down turn has ended. But I'm getting off topic.

By random chance the money became available for investment at that point in time due to the inheritance and the divorce timing took it out of the market. Had the timing been different the story could have been very different.

If the $50,000 had been invested in late 2000 and cashed in late 2002, instead of doubling it would have decreased to about $30,000 because the index declined from 10,000 down to 6,000.

Whenever I see one of these books I always wonder "Was the author just one of the survivors?"
Experts talk about a phenomenon called "survivor ship bias". To one unaware of this phenomenon, a lucky winner might appear to be a genius. Even the lucky winner might be fooled by his own random chance success.

A "coin flipping contest" can be used to illustrate how survivor ship bias works.

The long term odds of coming up with a "heads' by flipping a coin is 50 percent. However, if you sit there and flip a coin enough times you will get runs of heads and tails of various durations. In the imaginary coin flipping contest, 1000 people flip and 500 end up with heads. On the second round of coin flipping about 250 come up with "heads" and survive to stay in the contest. And so it goes 250, 125, 62, 31, until only one person is left. Now to someone who doesn't appreciate the odds (probability) of coin flipping, the winner of the coin flipping contest may look like a genius. The winner might even write a book about how to control the flip.

Even if some day I am wildly successful in the stock market I will always wonder...Was it my skill and knowledge, or was I just a lucky coin flipper?

Tuesday, March 20, 2007

Baby Steps Lead To Success

One of the most valuable concepts that I have learned after leaving formal school/university is the concept of "continuous improvement". It is based on the premise that businesses or individuals seldom improve or move toward their goals in large earth-shaking moves. The reality is much more likely to be small steps rather than large improvements. Often, it's three steps forward and two steps back. Not unlike how the stock market works.

The advantage of embracing continuous improvement in one's life is that it is applicable to anyone, or any any time. It's never too late to look for ways to learn how to get better at doing something. It is also very achievable.

I think we can all embrace this concept in our lives. It can be money management, earning power, relationships with other people, how you go about doing this or that at work.

You don't have to improve every day or for that matter every week or month. But if you look for opportunities to get better, learn from your mistakes and your successes, and then start looking for next small improvement.

An entire workplace can adopt this strategy, a small group of co-workers, or a single individual under any circumstances. As an individual I have always found that it was a lot easier to change what I was doing than to try to encourage others to change their ways. Sometimes people will follow you once they see the benefits.

Changing an old habit is a good example. 'Old habits can't be thrown out of a second story window, they must be coaxed down the stairs, one step at a time'.

The Budget - Boomer Impact

Here's my brief reaction to the Canadian Federal Government budget.

The baby-boomer generation is going to have social and political impact for a long time to come (20 more years?). I think we are starting to see some of that grey power in this budget with the benefits to seniors.

In the future, I expect the boomers will use their political might to protect CPP and OAS income as much as possible. I'm not counting on it being successful, but they will try.

In addition, any boomer-politicians who are relatively close to retirement will be inclined to "feather their own bed".

The pension splitting might be useful but I will have to try it out in Quick Tax next year and see if it is a better option. Right now my wife is a dependent which helps a lot at tax time.

My taxes are so low now, compared to when I was working, anything more is ...just gravy. But - gravy has always been one of my favourites and even $200 bucks goes a long way at Tim Horton's!

In a future post I will tell you how to save a couple bucks the next time you and a friend go to Tim Horton's'.

Compost Savings

One of the things I have learned over time is that none of us are perfect and every once in a while I make a boo boo. This was a small one, at least in my mind, the other guy might disagree.

I have been raking the lawn lately which naturally leads to having big green garbage bags filled with what gets taken off the lawn.

We are not allowed to put yard waste in the garbage so every homeowner has to figure out what to do with the stuff. Being a guy who is always looking for an easier and lower cost way to solve these kind of problems...I of course looked around to see what the neighbours were doing.

I saw a few guys take their wheel barrows down to the ocean and just dump it. I wouldn't do that even if I could. I also heard that some people drive to the dump, a long way from home. At least a cost of $5 for a round trip by car. Here and there I noticed that neighbourhoods had established unofficial dump sites in nearby wooded areas. We have a lot of forest around here. Now that seemed to me to be a reasonable trade off.

I ride a mountain bike every day rain or shine for the enjoyment and exercise. As it happens, one of closest unofficial composting sites was close to home and happened to be at the beginning of one of my frequent biking routes. I do large loops, many of which take me through trails in the forest and along the ocean. Most recently, I have been taking my bags, one at a time, and emptying them at the start of my daily bike ride. I was feeling satisfied that i was saving a few bucks and to fight global warming by not using my car for this job.

The other day I took a bag with me, parked the bike on the sidewalk and walked to the back of the lot to spread my grass and moss bits. Some people had dumped their stuff too close to the sidewalk for my liking and I always made it a point to walk 100 feet or so in, well back and next to the bush so things are out of sight. I also made a point of spreading things around rather than leave an obvious pile.

So there I am, hunched over, just opening the bag when I here..."Excuse Me Sir" from somewhere behind me. I stand up and look for the voice. I see a guy across the street in front of one of the newly built homes, pointing toward my bike. My first thought is that my bike has fallen over or that there is some interesting wildlife behind me. We have bears and cougars nearby. I look and think...the bike looks OK and I can't see anything else. I'm wondering...What on earth is he pointing at? I raise my arms to indicate that I had no idea what he meant and he then said..."The Sign".

I then noticed the backside of a sign that I walked past after parking the bike. Now it was starting to dawn on me. Sometimes, I'm a little slow. I have always been that way even when I was young. I dutifully took my bag of contraband and walked back to check out that sign. As I feared, it said.. "No Refuse Dumping". I raised my arms in disbelief and said, loud enough that he could hear me, "What ya no....a new sign!" Now to be fair here, it was a very small sign and it was mounted on a pole about 10 feet high. It's not in your face as you walk past it. I know it is a feeble excuse but it is my only defense. Clearly I was caught read handed- no doubt about it.

So I put my green bag of lawn bits back on the bike and calmly headed down the road. I didn't miss a beat because I knew plenty of other spots where I could spread the compost without interference. As the houses were built over the last year or so, I guess someone didn't like the idea of people using the site as a compost area and convinced the city to put up a sign. Now the guy was very polite about it all.

I don't know about you but sometimes things remind me of a song. For a good part of my bike ride that day this song was playing in my head.

"Sign, Sign, everywhere a sign, Blocking out the scenery breaking my mind, Do this, don't do that, can't you read the sign."- Five Man Electrical Band

Monday, March 19, 2007

Financial Independence

I came across a web site selling a service to help people become financially independent. I'm not recommending the service but you might find their list of self-evaluation statements helpful in evaluating how you are doing.

The following statements are listed for a yes or no response. They suggest that a false response to even one item may impede one's ability to achieve financial independence.

I have no credit card or short term DEBT
I SAVE at least 10% of my income
I utilize a spending plan (BUDGET) and live within my means
I have six months of living expenses in RESERVES
I pay only the TAXES that I am legally obligated to pay
I have written short- and long-term GOALS
I have a WILL (or trust) that is up to date and does what I want it to do
I have a RECORD KEEPING system and I can find what I need when I need it
I am EARNING up to my potential in a career that I enjoy
I can easily COMMUNICATE with my loved ones about money issues
I know my financial NET WORTH
My HOME is an integral part of my overall investment strategy

I tend to agree that anyone who plans on early retirement (age 55 or younger) should have a yes answer to most of these statements.

Sunday, March 18, 2007

Is 80 Percent Required?

If your close to retirement and trying to determine if you will have enough money you won't have to look too far before finding the estimate 'that you need 80% of your pre-retirement income in order to maintain the same standard of living after retirement.' But is that valid?

Eighty (80%) percent is a daunting number that could easily scare off many faint hearted potential early retirees. That's a real shame.

Although "How much?" is a critical question, I was only able to find fussy answers. For example, I spent 3 days at a retirement seminar waiting for the answer to this burning question but never got one.

During my research I recall seeing 60 percent and 80 percent estimates. That's quite a range. Fortunately, I had my cash flow records so I was able to do my own analysis. I didn't look at things from just a percentage basis. My minimum amount was that we would have to be able to live in the same fashion as we had before retirement.

I made a spread sheet in Excel that included estimated spending and incomes for 15 years into the future. I kept everything in today's dollars since my pension was indexed for inflation. I found that we would start out fine and things would improve as Canada Pension Plan and Old Age Security came on line for both of us.

Other blogs have dealt with this same question.

In his post, "Why I Won't Need 80 %" at Retire At 45 blog, S. B. writes... "...after retirement I won't need to be saving money". S. B. has been saving a wopping 40 % of his income.

In my case, the elimination of "voluntary savings" was also an important factor.

If your "socking it away big time" leading up to "pulling the pin" you can think of your savings as a deduction from income - one that will no longer be there after retirement. Saving a lot means you are living well below your means. It can make a big difference.

I must admit that the thought of no longer saving a lot after retirement made me a little nervous since I had been doing it for so many years. Old habits are hard to break. My safety factor with respect to finances was very large.

Million Dollar Journey's post "Retiring Early Part I (The Expenses)", estimated that 54 percent would meet their needs. This post made me wonder about my actual percentage.

Of course it is never just about percentage. A lot of personal factors come into play. We own our own home, we have no other debt, and we have downsized to one car. We are still driving an older car. My spending estimates included an amount saved each year for the next car.

Our life style has always been relatively inexpensive...going to the beach, for walks, canoeing etc. That hasn't changed except we have a much longer season to do outdoor activities (all year) and many more opportunities for these types of activities on Vancouver Island.

The sum of pension income plus interest from investments is about 47 percent of our family income prior to retirement. This percentage will increase over time. If CPP and OAS remain at current levels our percentage rises to a maximum of 62 percent.

As planned, we spent some savings to pay for our more expensive home (not better) on Vancouver Island (compared to Winnipeg prices). There was also the savings spent to buy the boat and savings earmarked for annual boating costs prior to age 60 when CPP starts coming. Savings are bridge-financing the boating hobby in the early years.

You might be wondering...How do you find it, is 47 % enough? If we had more income we could take expensive winter vacations etc. For now, I'm satisfied enough that I'm not out looking for a job.

Friday, March 16, 2007

Cash Flow Tracking - A Simple Plan

If your interested in just getting more out of life, or if your goal is early retirement, keeping track of your cash flow on a regular basis, puts you light years ahead of those who don't.

We have done it for many years leading up to our early retirement and continue to do it to make sure our finances are on-track. It's easy and quick to do each month.

To save time we rounded off every expense to the nearest dollar. The variation from month to month will always be greater than any rounding off errors. We just want to know how much was spent in each categories each month. At the end of the year or two years later, we don't care if we spent exactly $2,411.23 at restaurants... $2,418 is close enough. We don't care if $32 was spent on January 5th or January 19th we just add it to the January total.

We get receipts where possible. When we have no receipt we make a quick note. For example, if we had coffee at Tim Horton's and spent $3.70 it is rounded off to $4. When we get home $4 is added to the "little handwritten list" next to "Restaur"(see below). This small list is kept on top of the stack of receipts.

During the month, all of our receipts are kept together with a large black paper clip. A standard letter sized envelop is used to separate our Master Card receipts within the clip. We keep them separate for checking against our MC monthly bill. The clip and envelop are reused each month.

Individual expenses are not put into a spreadsheet, that is too much like work. Only month totals are put into the spreadsheet. I use an Excel spreadsheet that has the categories listed below. The spreadsheet includes 13 additional columns, one for each month plus the yearly total for each the right. Perhaps 10 minutes of entry time once per month.

We use a one page form (8.5 by 11 inch), with different length columns for each category. The form was made using tables in Word. For example, on our monthly cash flow tracking form, groceries is a longer column and gifts is a much shorter column. Utilities such as Hydro, are side by side at the bottom of the sheet in a smaller table. Shorter columns are stacked one above the other to fill the page.

My Excel spreadsheet has the categories more or less in the same order as the monthly handwritten form. This makes monthly data entry quicker - your not spending a lot of time hunting back and forth.

At month end, or whenever we find the time, or more likely - when we "feel like it", we take a photocopy of the form or print one off, and fill it in by hand. We only enter the amounts spent in each category column. No other details. Groceries might be 158, 89, 105 and so on. Just jot down the amounts and sum each category using a hand calculator. It doesn't have to be very neat, just get the totals.

One advantage of using the hand written monthly sheet and a calculator, is that it allows you to do this chore anywhere. All you need is room to spread out the small piles of receipts. This task can be done at the kitchen table, at work during a break, or at the coffee table while watching TV.

Always getting a receipt when you can makes keeping track easier during the month- no need to remember or write anything down. Just add the receipt(s) to the monthly group under the big paper clip when you get home. At month end, we begin by sorting out all the receipts into little piles by category...groceries, clothing and so on. We also review our check book each month to be sure those expenses are included.

After we have added everything up, we throw out the receipts that won't be needed later such as a cash grocery purchase. We keep all MasterCard receipts and any receipts for auto repairs, or gifts...things that we might want to find in the future.

Finally, we fold the cash flow tally sheet in half with the writing on the outside, staple along three sides (two long and one short), and stuff all the "keeper receipts" into the open end. We keep the "stuffed handmade envelopes" it a shoebox for the year. Whenever I feel like it, I sit down at the computer and input the totals into the spreadsheet. We keep one or two years handy for receipt finding and keep a few years in the basement/crawlspace.

The entire monthly process takes perhaps one hour per month. On occasion when we need to find a receipt if we know the month and year it can be found quickly.

I use an Excel spreadsheet and enter data every month or two. Excel has an "autosum" key at top that makes it easy to build in column totals. Just highlight the vertical or horizontal column plus one extra space at the end and hit "autosum". At year end you can copy the spreadsheet for the next year and clear the data, leaving the headings. I copy the spreadsheet into the same workbook to keep them all together in one file. When there are unusual expenses I use the comment feature in Excel to add a comment for that month/category.

When there is no receipt the spending is recorded on a small piece of paper as follows.

Restaur 4, 9, 15
Grocer 11, 2, 4
Car 4

Our tracking categories include the following.

Municipal Taxes
Income Tax Husband
Income Tax Wife
Auto Gas
Auto Mtnce/Repairs
Home Maintenance etc.
Sailboat Costs
Miscell/Drugstore (Sundries)
BC Medical Insurance
CR TV (Cable)
Natural Gas
Telephone (Home Landline)
Cellular Telephone
Internet Dial-up Service
School Expenses
Auto Insurance&Registration
Driver Licences
House Insurance
Life Insurance
Safety Deposit Box
Savings for auto replacement

When it came time to make the retirement decision...we knew exactly how much we were spending on everything. That was important to know.

Interesting Post

S. B. over at Retire at 45 has an interesting post discussing the 80 percent income recommendation for retirement. The post got me thinking. I recall seeing the 80 percent recommendation prior to when I retired. At the time I thought it seemed too high. I don't think my income is even close to 80 percent. I will have to review my numbers and post them for comparison.

Anyone know the assumptions behind the 80 percent?

ps. Stock Market: Both the Dow Jones Ind Average and TSX S&P/Comp charts continue to look weak.

Thursday, March 15, 2007

Car Cost Savings

Its easy to fall into what I call the "If only I had 20 % more trap". We are continually bombarded with advertisements aimed at selling us on the idea that having more is better. We are told, at great expense, that if we buy a newer car or a faster computer or whatever, this will magically bring us instant happiness.

For a long time I have always driven an older car as a main family car, and our second car was older yet! I find that most everyone I know has always driven newer cars than me. This includes young adults and grandmothers. I have never had a car let me down when I was away from home. I'm not a mechanic, I just know how to do a few simple things.

I have been motivated by the savings between owning a newer and old car. Consider the following example.

The largest cost of a newer car is the depreciation. A new car depreciates 30 percent in the first year and 20 percent for every year thereafter. For example, a $30,000 vehicle depreciates $9,000 or $25 per day during the first year. If we add in a sum for opportunity cost (lost investment dollars) or the cost of a car loan, at a rate of 4 percent, this comes to an additional $3.25 per day. A total of $28.25 per day.

Now to be fair, we need to subtract the cost of a less expensive car alternative. I will use $15,000 for a used car about 5 years old. Depreciation at 20 percent is $3,000 per year or $8 per day. Opportunity cost at 4 % adds $600 per year or $1.65 per day for a total of $9.86 per day. I will also throw in $500 for maintenance over and above the cost of maintenance for a new car, another $1.37 per day bringing the total to $11.25 per day.

The incremental cost for owning a new car in the first year is then about $28-$11 or $17.00 dollars per day. Now this difference drops off each year if you keep the car for many years. Its more extreme if you lease a car and change every few years.

To put this into in a more meaningful perspective, what if you saved only $10 per day on average for 25 years during your working career? How much would you have at retirement?

That $10 per day comes to $3,650.00 saved each year. If you earned 5 % per year on this savings it would grow to $174,000.00. That's not a bad lump sum payment for forgoing the benefits of owning a new car. You don't have to drive a wreck, just something mid-range. You can think of it as creating your own retirement allowance.

Reference: Future Value of an Annuity

Driving an older car can save you money today, get you to retirement sooner, and reduce your expenses during retirement.

Wednesday, March 14, 2007

Atlantic Lottery Winners

I find this story interesting and I'm planning to watch the CBC's Fifth Estate show scheduled for tonight.

A Yahoo news story (link here) got me thinking about how I would go about determining if the ticket sellers were actually stealing winning tickets. I wondered if there might be another possible explanation for the higher numbers of winners among the ticket seller group of the ticket buying population.

Now don't get me wrong...I'm all for "hang em high" if anyone is stealing and I have no affiliation with any ticket sellers, and I don't buy lottery tickets.

However, over the years I have often seen people, well educated technical people, jump to conclusions about the cause of a problem. Police departments are famous for having tunnel vision. This error has put a number of innocent people behind bars for most of their lives.

Statistics are a good tool, but one should have a theory to test. One should also brainstorm for other possible causes of any unexpected statistical results.

I have learned that you only get the right answer when you ask the right question(s). In this case, I wonder if anyone asked...

"Do people who work all day with lottery ticket machines buy more tickets than the rest of the ticket buying population?"

If so, then it may logically follow that the "ticket sellers group" would win more, often simply because they buy more tickets.

Another question..." Can/do ticket sellers steal tickets in some way before anyone buys them?" If so, this would also give them a greater chance of winning. Now stealing unsold tickets is still stealing... but the value of the theft is a lot less.

It may be that there is data available to answer these questions. But the questions should be asked. The Lottery Corp might do a study to answer these questions. The Fifth Estate could also do it.

Having said all that, it doesn't mean that I am incapable of being jealous of large lottery winners. Heck...if I had more money, I could be writing this post from a sandy beach somewhere in the South Pacific!

Happiness After Retirement

Canadian Dream has been discussing happiness the last few days. It's always an interesting topic.

I find it helpful to compare what's happening to what could be happening had I taken another path. I could be back at my old job, just as bored as ever patiently waiting for spring, trying to increase my savings and pension. But instead, I'm enjoying my early retirement by having fun playing at things that don't cost much. For example, in the last few days I have walked the beach along the ocean here on Vancouver Island a couple of miles for the exercise and enjoyment.

While walking I saw a few signs of spring. One young woman juggling rocks...she was actually very good. The next day I passed two young men playing volleyball. A good number of ducks and other sea birds. The weather is still chilly but the view is still great. Not too many people wearing shorts yet.

I will be out on the boat soon.

Tuesday, March 13, 2007

Further Stock Market Drop - Normal Pattern

For years I have studied stock market behavior by observing chart patterns. I won't bore you with all the details, however I will stick my kneck out a little tonight and say that I see a significant probability that the TSX and DJIA will both continue downward for a while yet. The bearish pattern is most apparent in the DJIA index so it may lead the TSX. My success rate with these types of market predictions is usually about 80 percent.

The DJIA looks like will go below the recent low near 12,000 and TSX is likely to go below the low near 12,700. If these predictions come true I would expect the further decline to last for at least a number of trading days.

The critical confirmation here is if the indexes break below the lows established on March 5th.

Link to TSX chart here. Link to DJIA chart here.

Monday, March 12, 2007

Olympic Effort by Retired Senior Betty Krawczyk

"…an Olympic countdown clock was vandalized, despite having 24-hour security. The stone and wood clock was spray-painted with the words "Free Betty". Last week, environmental activist Betty Krawczyk was sentenced to jail time for protests in May 2006 against highway upgrades for the 2010 Olympics"

Betty Krawczyk, a senior well past her 70th birthday, is no stranger to standing up (or should I say sitting down) for the environment.

Quite a retirement activity! Betty Krawczyk allowed herself to be arrested and sent to jail to make her point.

More about Betty at:

Sunday, March 11, 2007

Lazy Man's Way To Save

Although I must admit... that my early retirement plan was quite a fuzzy plan, I did do a number of things that made the decision to retire at age 55 an easy one. One of those things was setting up a second special saving account at our Credit Union. It was a nice simple system. The general idea was as follows. It can be expanded to more than one extra account to help manage your money.

In our main account we had the credit union set up a few automatic transfers out of that account and into the other account(s) at the beginning of each month. After that, everything was on automatic. It was like having deductions come off my paycheck. I would deposit my paychecks twice a month into our everyday use account and the automatic transfers happened without me even thinking about it.

During the years I had a rental property I wanted the rent to go into a special account so I could track expenses and so on. I set up an auto transfer for it as well. I would deposit the rent check along with my paycheck into the everyday use account. This saved me having to fill out a second deposit slip.

From time to time I would then take money out of the second savings account and invest it into GICs or Canada Savings Bonds depending upon which option had the best interest rate.

On paper I kept track of how I planned to spend the savings. Part of the savings were for known annual large expenses such as: auto insurance, Christmas and so on. These annual costs were estimated into monthly amounts and summed to find the total monthly amount to be transferred. In other words, part of the savings were designated and part was unspecified savings for future use. In this way we always had the money to pay cash for things such as auto insurance or the purchase of the next used car and so on.

Its amazing how the unspecified general savings added up over the years. In addition, knowing you have the money set aside for big ticket items also makes life less stressful.

Friday, March 9, 2007

Real Estate Investment

The Winnipeg Sun quoted a Statistics Canada report:

"A housing price report released by Statistics Canada yesterday show new house prices jumped 10.1% from January 2006 to January 2007. But the national figures were skewed by a 40% increase in the oil-boom cities of Calgary and Edmonton. Almost all other major centres showed much more modest gains with Toronto and Ottawa at less than 3%, Winnipeg at 7.8% and London at 4.1%. "

When I look back at my investments, there is no doubt that owning real estate was one of the best investments I ever made. Owning our home, mortgage free, was one of the major parts of my early retirement plan. I can't take credit for the timing because it is tied back to my date of birth and having the dumb luck of being one of the "boomers".

One of the things I discovered recently is that there are mutual funds that invest broadly in Canadian Real Estate. In things like rental properties, shopping center construction and so on.

This means that you can live in a province like Manitoba or Newfoundland where the prices may not be going up much but still invest indirectly in the real estate booms occurring in provinces like Alberta or British Columbia.

My favourite fund at this time is CIBC Canadian Real Estate Fund. The performance history chart of this fund can be seen on the Globefund site (link below).

One of the features I like about real estate as an investment, unlike stocks, is that when prices drop people don't all panic and sell. People tend to stay where they are because you can always live in the house as long as you can afford the mortgage payments.

Thursday, March 8, 2007

Will The Money Last?

I found an interesting site for those thinking about retirement. The site, called FIRECalc, includes a free on-line mathematical model that you can use. You can enter different amounts of savings, how much you would like to spend each year to see if your money would last. It models the US stock market history as if you had retired in the past and lived through the different bull and bear stock market periods. You can pick any time period..for example 30 or 40 years.

As a test I tried $100,000 with a withdrawal rate of 3 percent or $3,000 per year, with only 25 % being invested in the stock market. With a little trial and error I found that this amount would not last 40 years but it would last for 30 years.

The site discusses the impact of retiring close to the start of a severe bear market - the worst case scenario.

I would not base a retirement decision on just the results of the firecalc model, however I think playing with these types of models helps give one a feel for things.

My retirement decision included a good financial safety factor and a plan B, where if necessary, I would find another job or I would reduce my expenses. So far I have not seen the need to do either.

Here's a link:

About Margot Bai's Guest Post on Canadian Dream's Blog

Margot Bai, author of "Spend Smarter, Save Bigger", made a guest post on Canadian Dream’s blog. I have read the free chapters on her book site and have added the book to my library reading list. Margot’s post makes some excellent points and she is an excellent writer.

When it comes to achieving early retirement, I agree with Margot, that ‘buyer beware applies to financial services’, and that we all "need to educate ourselves". I find that I am learning all the time.

On the subject of mutual funds I have a few additional comments. My mutual funds are not locked in, although there is a fee (~2 %?) if you sell them within the first 3 months. Also, not all mutual funds have high fees. I never buy mutual funds with front or rear charges.

The normal MER is about 2.5 % for "stock picker funds". In comparison, an index fund, one that can only be purchased "on-line" with TD Waterhouse, have an MER of only ~0.35 %. This lower MER is an important difference. It gives these index funds a 2 % edge over "stock picker funds" and other index funds... no matter what the market does.

You can find Margot's post at:

Tuesday, March 6, 2007

Eliminate ATM Fees

The recent negative reaction to high ATM fees is understandable.

One of the principles of achieving early retirement is that you must be prepared to do things differently. It is also helpful to keep in mind that if you don't like the results you are something different. I achieved early retirement in large part by finding less expensive ways to live.

With respect to ATM fees the answer is simple...whenever possible avoid using an ATM machine.

We have always made it a habit to go to our credit union or bank and withdrawn a couple of hundred bucks every two weeks. To minimize our need to carry a lot of cash around, we also put a lot of things on our Mastercard. Costs such as gas for the car and restaurants end up on MC. We also pay off our Mastercard bill each month so we never pay interest charges. The credit card receipts also help us keep track of our cash-flow.

S&P/TSX Composite Index Will Come Back

The last few trading days have seen a significant short-term drop in the index. We have seen a total drop of about 700 point so far. This makes for a lot of nervous investors.

A David Berman March 6th article in the Financial Post reported… “The S&P/TSX composite index will be re-balanced in March — probably on or before the 14th”. It sounds like re-balancing is done every three months. Some stocks may be added and some may be removed. We can count on any “loser stocks” being thrown out to protect the index.

We can’t predict how low the index will go at this point but we can be very certain of one thing. No matter how low it goes, the S&P/TSX composite index will eventually rise back above the February 27th peak of 13433.

The high degree of certainty that the index will recover makes an index mutual fund attractive.

Sunday, March 4, 2007

The Natural Order of Things?

“The federal government is creating a new national seniors council and will spend $14 million on funding for seniors across the country” (Yahoo News).

Not sure what the government hopes to achieve with this program. I expect that at the very least we will see a communication link between seniors and the federal government. In any event, the shear number of the baby boomer generation will be a political force in the years to come. All levels of government would be wise to keep tabs on what we are thinking.

An article on the Charity Blog Network includes,

“When older people are faced with a work environment where they are discriminated against, feel unwelcome and are not appreciated for the great value that they provide to workplaces and to society in general, it is only natural that they feel that they should take their retirement savings and go travel, pursue their hobbies, or do other things leading to their self-actualization. If workplaces can provide the respect and dignity that help old people to feel fulfilled in their jobs, it is far more likely that they will want to stay in them. As such, the responsibility for this evolution is shared by us all.”

These news items remind me of the last few years of my employment.

Is it possible or desirable to change the fact that older workers often end up feeling this way? Maybe it’s just the natural order of things…and we should’t try to fight it. I believe that “survival of the fittest” applies to both Canadian workers and Lions in Africa.

Good luck trying to get mid-life employees to be concerned about co-workers who are able to retire. The younger employees would like to see the older ones leave so they can apply for their vacant, often better paying jobs. Many of the younger employees envy those who are able to retire. They would love to have their mortgage paid off and be able to sleep in or go fishing or golfing whenever they like. Image getting paychecks and not having to go to work ever again?

This can sound like paradise to a lot of 30 or 40 year old employees who don’t enjoy going to work all that much. Many retirees who don’t have to work envy those who have jobs and take employment at low paying jobs just to have a reason to get up in the morning, to feel they are contributing, and to have regular human contact. I guess the grass always looks greener on the other side of the fence.

It’s just the natural order of things, an inescapable reality.