FIRE Community Guest Interview #25 – Late To The FIRE Party – Part 2

[For those who did not receive the correct email last week for Part 1 of this guest interview, please ensure you check that out before digging into today’s follow up part 2 post! Sorry about that!]

No need for chit chat, let’s dig right into Part 2 of Late To The FIRE Party’s Interview.  Here we go!

11. Since you’ve recently retired early (congrats!!!), can you please share your withdrawal strategy?

Our withdrawal strategy is dominated by three things: we are ten years max away from starting our government pensions, we have income from an indexed work pension, and we’re aiming to level the taxes across our retirement.

Up to the point we start our various government pensions, our after-tax Comfortable FIRE income level, which now stands at $74K a year, is made up of $35K from the work pension, $36K from our investments (of which $10K is dividends), and $3K from credit card cash backs, and various rewards and rebates.

Immediately I began drawing from my work pension, and despite being able to split this income from age 55, techniques for keeping our total retirement tax bill very low, were closed to us. If we put off drawing from the RRSPs until later in retirement, we’ll pay thousands in extra tax, and likely be hit with OAS clawbacks too. So, to avoid this, our withdrawal strategy requires us to withdraw from the RRSPs early in retirement, bringing our individual taxable incomes up to the upper limit of the 15% federal tax bracket (27.75% with Manitoba taxes); $50,197 for 2022. Any funds withdrawn beyond what’s needed to cover our spending are moved to our TFSAs in January. The end result will be a fairly level amount of tax over the course of our retirement, while at the same time we continue to grow our TFSAs.

If we were to start CPP at age 64, OAS at 65, and UK OAS at 67, and assuming inflation of 6% for 2022, 4% for 2023, and 3% thereafter, our withdrawals will look something like this:

The blue line is our target after-tax income. The difference between the blue and the black dashed line is money taken from RRSPs and pension income that is transferred to the TFSAs and non-registered accounts. The amount from the black dashed line up to the peak of the bars is CRA’s cut.

Based on where we are today, (full-scale invasion of Ukraine, high inflation, stocks and bonds down, GB pound down), this is how our portfolio is projected to change:

The chart shows how our RRSPs, PRIF and LIF are drawn down early in retirement, while our combined TFSAs and non-registered accounts are growing. The growth rate used for our equity/bond portion is 5%, for GICs it’s 3%, and for cash it’s 1.5%.

If we maintain our current spending and gifting level, increasing with inflation, we should be able to leave our TFSAs untouched, providing a significant buffer against changes in legislation, life-changing health issues, and the loss of a spouse.

With stock and bond markets being down these days, we are currently utilizing our cash cushion to supplement the work pension and dividend income. We can operate this way until the start of 2026, at which point, we will likely offload some bonds as per our plan to transition to a more aggressive portfolio.

12. Speaking of withdrawals, what is the withdrawal rate you use when you withdraw from your portfolio?  Are you a fan of the “4% rule” or something else?  Why?

I’m a big fan of the 4% rule. It’s a simple concept that helps get the message across quickly; makes for a great elevator pitch. I push it like a drug dealer when explaining to our children, friends, and strangers at store checkouts. I let them know how FIRE based around the 4% rule can work for them. My eldest son said “of all the dads I know, you’re the only one who tells their kids how not to work”. Having said all that, I do not believe it is a hard and fast rule, and being a firm believer in having a contingency plan, for someone with many years until government pensions come online, I would downgrade the withdrawal rate a little, or build in guardrails, or some other technique to ensure they have reserves to protect against significant negative financial occurrences.

Being moderately close to starting our government pensions allows us to safely go above the 4% rule today, and reduce withdrawals later. If we limited RRSP withdrawals to only what was needed to meet our spending and gifting, our withdrawal rate would average 6% for the first nine years. If we only used funds from the TFSAs and non-registered accounts, then for those same nine years, the withdrawal rate will average 4%. In either case, at the 10-year point, and provided neither of us die early, the withdrawal rate is projected to be just 0.1% thereafter, and even negative if there’s no changes to government pensions, here and in the UK.

As a couple with the latter part of our retirement income based on government pensions, we need to be prepared for the financial hit that will ensue should one of us die early i.e., the loss of the deceased partner’s OAS, UK OAS, a reduction in CPP, an increase in tax, and for Mrs LtoF, a 30% reduction in the work pension. Living expenses are projected to drop by 20%, but this will not be enough to compensate for the income loss, so, the withdrawal rate at the 10-year point would increase to 1.5% for me, and 3% for Mrs LtoF.

13. What are your post-FIRE thoughts/plans regarding health coverage?  As a reference, what did you pay annually or monthly for health related costs when you were employed (be it insurance, co-pays, deductibles, etc.)? What do you estimate your post-FIRE health costs to be per year?  Did you purchase supplemental insurance or are you self insuring?

When we were working, each of us had coverage through our respective employers. I paid $825 a year towards the plan; Mrs LtoF didn’t have to pay anything. Most of our medical and dental costs were 100% covered, including braces for our children. Without coverage, for just me and Mrs LtoF, our costs would have been in the region of $1,300-$1,800 a year, of which the majority would have been for dental.

When I retired, I was able to remain in a group health plan. It covers prescription drugs, physio, dental, etc. mostly at around 80%. The cost is $210 a month, and if nothing changes with our health situation, we’re going to be paying about $1,300 a year more than we’ll be getting back from the plan. Hmm, not such a great deal! I was contemplating leaving the plan until I listened to a very timely episode of the Explore FI Canada podcast: 042: Do You Have a Post-FI Healthcare Plan?. We now feel happy with our decision to join the plan, and we’ll be sticking with it for the time-being.

14. As a parent, have you found that having children has greatly delayed your timeline to FIRE?  How much money have you spent on your children per year (per child)?  What were some of the bigger costs that were worth it and what were some of the bigger costs that were not worth it?  Did you ever set up RESP accounts for their post-secondary education?

By the time we found the FIRE community our children were all working and mostly paying their own way. I’m pretty sure that had we been working towards FIRE when they were young, it would have slowed our journey down a little, but for sure, we still would have reached FI years earlier than we did.

Unlike your amazing tracking, Court, this is an area where we didn’t specifically separate out what we’d spent on the children. I do recall Mrs LtoF always looked for deals on clothes and books in thrift stores. When we were in the UK, many of their toys and bikes were bought used at something called a ‘car boot sale’. As for sports, hockey is crazy expensive, so it was soccer for our children; way, way more affordable.

Our biggest cost that was well worth it, was a two-week family vacation to Florida when they were in their teens. We rented a house with a pool, and visited most of the main tourist attractions, except that is for Disney ($$) as we got the thrills we needed from Universal’s parks. It was the best time we’ve ever had together, and I very much regret that we didn’t do more trips like that.

The main thing that we spent money on that we regretted, was on a small and cheaply made child’s ATV. It was broken more often than it was running.

We didn’t open RESPs for our children, and prior to finding the FIRE community, we didn’t even know they were a thing. Although none of our children went to college when they lived at home, since leaving school they have always had jobs, worked hard, one did an apprenticeship, and today they all earn over $85K a year, so we must have done something right. We’re taking a different approach with our grandchildren and have started individual RESPs for each of them. The money is going into VGRO (80% equity, 20% fixed income).

15. If you could go back in time and change things, what would you have done differently?

Time travel, my favourite topic, and often with unforeseen consequences, so, I’d keep the changes small to be on the safe side as I wouldn’t want to ruin where me and Mrs LtoF are today.

We would have benefitted from a few conversations with an unbiased informed family member or friend who could point us in the right direction for financial success. Someone like you, Court, and many of the other FIRE bloggers out there. The changes we would make include:

1. Learn early about the basics of investing, especially index investing, management fees, and things to avoid. Many years back, I picked up the book The Wealthy Barber, but after reading a few pages I gave up! I just wanted the straight goods, not a story. I should have chosen a different book, more in a style that worked for me.
2. As soon as they are ready, teach our children good personal finance habits, including saving, investing, and what the banks, and credit card and loan companies are all about.
3. Engage an independent fee-for-service financial planner to set us on the right path early, and then engage a second one after arriving in Canada to adjust our plan accordingly.
4. Assess the ‘new’ house more critically: As you saw, we’ve had to spend a fair amount of money on our current house to bring it up to a decent standard, and as we did most of the work ourselves, it used up a huge amount of our free time too. So, before making an offer to purchase, I would meticulously (but quickly) calculate what was needed in both time and money to fix up the property. I would also look more closely at the services available, such as, a decent internet connection, access to public transportation, and bikeable roads and paths.
5. Move less often. Two of our house moves could easily have been skipped. So, we would think more about why the move is necessary, and ask ourselves if it will really give us what we’re looking for, and if we don’t know what we’re looking for, don’t move.
6. Sort out our investments before leaving the UK: Consolidating our UK RRSPs was complicated and time consuming. The asset allocations could have been better too. My investments were way too conservative for the time we had to retirement, resulting in my UK RRSP’s value being 35% less than Mrs LtoF’s for the same money invested.
7. Join our respective employer’s share purchase plans on the first day we became eligible, and at the maximum rate to receive the maximum employer match (free money).
8. Open RESPs (more free money) for our children to plant the seed for further education as an option, even if they didn’t choose to use it until they were in their early 30s. I didn’t realize RESPs were so flexible until I listened to two of the Explore FI Canada podcast episodes: All About RESPs – part 1 and part 2.
9. Contribute to my RRSP as soon as I hit that higher tax bracket. I consider the difference between the 43.4% taxable part of our income minus the 27.75% we pay today as free money (albeit taxable money).
10. Open TFSAs as soon as they become available, and siphon our company shares to the TFSAs when it can be done without paying a penalty i.e., when they have vested.
11. Change vehicles less frequently, and never lease.
12. Don’t buy what we “really” don’t need.

16. Has discovering financial independence changed how you view your job and life overall? 

Yes, it did. Prior to discovering FI, I was fully engrossed in my job. I had no thoughts of retiring, no plan, just work. If I hadn’t found the FIRE community, I’m in no doubt that I would still be working today, and perhaps in a few years, suffering from a stress related illness. My view of my job didn’t change as I believed the work was important to many people, but when we became FI, I did start to feel less driven, and that bothered me. This feeling meant that RE was a necessary next step.

Since retiring, neither of us have experienced any sense of identity loss, or problems with not having things to do. We have so many good things to keep us busy, we don’t need work anymore.

I’d just like to add that without the distractions of work, I’ve become much more aware of the issues around the world, the conflicts, and the disastrous changes in climate. It’s important that I try to manage my consumption of such information, but also support actions and groups that bring about positive changes here on this small oasis in space.

17. Have you come out of the FIRE closet yet? Meaning, do your friends, family, former co-workers etc. know about your financial independence goals?  If so, how did you bring it up and what were their reactions?  If not, why not?  Why do you struggle with this conversation and why do you feel that money is such a taboo topic? 

Mrs LtoF and I have been cautious about flaunting our exact financial position. If people don’t ask, we don’t tell – you asked!

I’ve talked extensively with our children, their partners, and also, when working, with close co-workers about the FIRE community, the 4% rule, low-cost index investing, and achieving FI and ultimately RE, but I never mentioned our financial goals or net worth. No one ever asked where we were on our journey, or how much we needed to be in a position to retire. I think the reluctance to ask stems from a societal taboo around talking about money. Money is clearly a sensitive area for many people. It’s very personal, and seems to be society’s main measure of one’s standing amongst others. It also exposes many bad behaviours, poor judgement, and lack of control.

We’ve benefitted from a steady run of good luck, or perhaps just no significant bad luck, and likely both. As we know, not everyone gets the same breaks, financially, healthwise, or in relationships. The bottom line is, we don’t want to make people feel bad about their own situation, but at the same time, I’d be really happy to help them turn things around where there’s a willingness to make some changes.

In general, I don’t have an issue talking about money, and in fact, Mrs LtoF occasionally insists that I don’t talk about it every time we meet someone. My impromptu FIRE presentations have for sure had an impact on a few people. A number of co-workers told me how they had made changes in their lives after being subjected to one of my FIRE talks. I’ve also given away books on personal finance and FIRE where I suspected it might be well received. I also, of course, point them to FIRE related websites, blogs, videos, and podcasts.

18. What pieces of advice would you suggest to someone who is just starting out or someone who is working toward reaching financial independence? 

For someone just starting out who has a partner, I recommend they have a conversation to see where their partner stands on the idea of working towards FI. Consider sharing some of the video stories of other couples who achieved Fi and retired early. Once you have a sense of their enthusiasm for the idea, proceed accordingly.

For those with or without a partner just starting their journey to FI, they have a choice, gather all the required knowledge and build their financial plan themselves, or, engage a fee-for-service financial planner who understands the FIRE community. I pursued the former path, and it took a huge amount of my time, literally hundreds (many hundreds) of hours to learn, build and model everything I felt we needed to be confident we could achieve our goals. I’m not saying that doing it all yourself is the wrong way to go about it, but just know there’s a vast amount to learn and implement, and paying for a little help could get you moving in the right direction much sooner, and also help avoid costly mistakes.

For someone who is already working towards FIRE, I’d say “stay the course”, and suggest they keep reading the blogs and watching for ideas they can integrate into their own plan. If the FIRE path stops being fun, ease up on yourself and see if Slow FI is more to your liking.

Where someone is a member of a work pension scheme, whether it’s a DC or DB plan, learn which parts of their compensation count toward building the pension and attracts the employer match. Then, when negotiating a pay increase, either themselves or by directing their union, focus on increasing the pensionable side of their compensation, even rolling in bonuses and overtime if possible. Also, for anyone in a DB plan, retire on the day after a long weekend; that’s an extra four days in the plan for no extra work (assuming they do little work on their last day).

For those who haven’t already seen their investments take a massive hit in a market crash, they should build resilience by expanding their knowledge and understanding of past crashes and the subsequent recoveries. Design the retirement plan with such a market crash in mind – know what you will do when it happens, before it happens!

Also, review my answers to question 15 for the things we’ll be doing differently when our time machine is delivered.

19. What does the word ‘success’ mean to you?

I used to think success meant having a huge house, flashy cars, going to high-priced restaurants, and so on. Today, ‘success’ means something quite different.

Spoiler alert! In the movie Yesterday (2019), which is set in an alternate timeline where The Beatles never existed, there’s a scene that really sums up what success means to me now. I remember it being a ‘that’s it!’ movie moment, because it captured what I was feeling about our life after achieving FI. The main character, Jack (who is aware of the original timeline), seeks out and asks a 78-year-old John Lennon a question “have you had a happy life?”. John says “Very”. Jack suggests “but not successful?”. John replies “I just said very happy. That means successful”. You can watch the scene here.

By achieving FI and changing our mindset around money, we have found contentment and happiness in our lives like we haven’t experienced before; success?!

20. Are there any books, blogs, or podcasts that you would recommend for our readers to check out?

The information sources listed below helped us on our journey. They range from introductions to FIRE concepts to advanced investment analysis.

Videos (in suggested watching order):

• Playing with Fire: The Documentary – This is the trailer. Rent the full documentary, it’s great.
• How ‘Mr Money Moustache’ Retired at Age 30
• Canadian couple saved $1M and retired in their 30s – Millennial Revolution
• A couple with two children went for extreme saving and retired in their 30s – The Frugalwoods
• Another couple who semi-retired in their late 30s – Laura and Brad Barrett (ChooseFI podcast)
• FIRE Starters – Short stories about people who have achieved FI (Court and Nic are in there).
• The Simple Path to Wealth – JL Collins
• The 4% rule
• DIY Investing with Barry Choi on the More Money Podcast
• Investing Demystified (5 videos)
• Investing and stock market crashes
• Common Sense Investing – An entire channel of in-depth analysis of financial matters
• Beware of “free” financial advice and hidden expenses:
  • Retirement Plans – John Oliver
  • The impact of charges on investment returns (just think dollars instead of pounds)

Books (in suggested reading order):

• The Wealthy Barber Returns by David Chilton‎
• Wealthing like Rabbits by Robert R. Brown
• Millionaire Teacher by Andrew Hallam
• Quit Like a Millionaire by Kristy Shen and Bryce Leung 

Individual podcast episodes:

• 1st & 2nd Years of Freedom – A personal experience of early retirement
• The Importance of F-You Money – Financial Independence gives you options

Podcast series (add them to your podcast list):

• Build Wealth Canada – Canadian podcaster
• Explore FI Canada – Canadian discussion and interview style FI podcast
• The Mad Fientist – US podcaster
• The MapleMoney Show – Canadian podcaster
• The MoneySaver Podcast – Interviews of leaders in personal finance and investing
• Mostly Money – Preet Banerjee – Canadian, covering a broad range of financial topics
• The Rational Reminder Podcast – Canadian, in-depth investment discussion, also on YouTube

Blogs and websites:

• Boomer & Echo
• The Blunt Bean Counter
• Eat Sleep Breathe FI
• MapleMoney
• Millennial Revolution
• Million Dollar Journey
• Modern FImily (of course)
• My Own Advisor
• PlanEasy

21. How can people get in contact with you? 

I’m good to answer questions in the comments or I can be reached at: LateToFire@outlook.com

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You guys, can you not feel the love that Mr. LtoF poured into this interview?! 

WOWwowWOWwowWOW, talk about attention to detail, I love it!  I also absolutely love all the charts Mr. LtoF included.  This interview easily took multiple days to put together, so truly, Mr LtoF, thank you so much for all the effort you put into this.  This is hands down the best interview I’ve ever read in the personal finance space and I so appreciate being able to connect with Mr. LtoF to have him share their story.  Here were my key takeaways from this interview:

• They were late to discovering the concept of FI yet they still crushed it out of the park once they had their ah-ha moment!
• Surprise, surprise another case of not feeling deprived…! It’s all about figuring out what YOU actually do value and spending your money on that.
• Quote of the interview: “What brings us happiness and joy is, without doubt, being free of the pressures of debt and work, and having the freedom to do what we want on our own schedule.” Boom. That’s what it’s all about.
• Very smart move to have two funds in their taxable account to be able to capture any capital losses to help reduce taxes.
• Wow that UK OAS buyback is pure gold!  What a fantastic job figuring that out!  Of course there’s the opportunity cost of what that $3,950 would be by the time they reach 67 had they invested it themselves instead, but it seems very unlikely that $3,950 could basically buy a $6,660 annuity.  Also genius to incorporate your bonus pay into your salary to boost up your pension!
• We may have to get you away from your acreage so you can get on low cost Public Mobile for your phone and Lightspeed for your internet! 😉
• Things I one day aspire to hear: “of all the mommas I know, you’re the only one who tells their kids how not to work.”  Amazing!!

Thank you again Mr. and Mrs. LtoF so much for being a part of our FIRE Community Guest Interview Series, we really do appreciate it! In our next FIRE Community interview, we’re heading to the States to hear from a former CEO who accidentally retired.

Did you enjoy this interview? Any thoughts or additional questions for Mr. LtoF? Please let us know in the comments below And email them at LateToFIRE@outlook.com!!

Thanks for tuning in and check back next month for the next interview.

We love highlighting other members of the FI community. Please contact us if you’d like to be a part of the FIRE Community Guest Interview series and we’ll see if we’re a good fit!

And in case you wanted to read the previous interviews that make up our FIRE Community Guest Interview Series, here you go!

• FIRE Community Guest Interview # 1 – Empowerment Through FIRE
• FIRE Community Guest Interview # 2 – We Quit Our Jobs To Retire Early & Travel The World
• FIRE Community Guest Interview # 3 – Dividend Investor Reached FI By Living An Intentional Life
• FIRE Community Guest Interview #4 – Pursuing FIRE With Multiple Passive Income Streams in Australia
• FIRE Community Guest Interview #5 – Driving to FIRE Through RV Living
• FIRE Community Guest Interview #6 – From High School Drop Out to Retired at 35
• FIRE Community Guest Interview #7 – Medical Professional Family With 3 Kiddos In The Pursuit of FIRE 
• FIRE Community Guest Interview #8 – Calculated Engineer Family Utilizing Geo-Arbitrage to Reach FI
• FIRE Community Guest Interview #9 – Lessons from a Fimigrant – Let Experience Be Your Teacher
• FIRE Community Guest Interview #10 – From Entrepreneur Making $36,000 to Multi-Millionaire In His 30s
• FIRE Community Guest Interview #11 – Hybrid Dividend and Index Investor Who’s Mastering the FI Mindset
• FIRE Community Guest Interview #12 – Proving Financial Independence Is Possible With Kids In A High Cost of Living Area
• FIRE Community Guest Interview #13 – Making An Impact On The Way To FI
• FIRE Community Guest Interview #14 – Badass Momma Knows Her Worth And Became A Millionaire At 36
• FIRE Community Guest Interview #15 – PhD Couple Reached FI at 40
• FIRE Community Guest Interview #16 – Mindful Minimalist Family
• FIRE Community Guest Interview #17 – FIWOOT: Financial Independence Work On Own Terms
• FIRE Community Guest Interview #18 – French Expats Growing Their Real Estate Empire in the US and France
• FIRE Community Guest Interview #19: Money Savvy Teacher With 9 Properties
• FIRE Community Guest Interview #20: Canadian Expat Supercharging His Family’s Path to FI In the Middle East
• FIRE Community Guest Interview #21: Young Retired Couple Have Mastered The FIRE Lifestyle
• FIRE Community Guest Interview #22: Building Multiple Income Streams To Design Their Dream Lifestyle
• FIRE Community Guest Interview #23: A Single Mom’s Journey to FI
• FIRE Community Guest Interview #24: Software Engineer Immigrant Balancing Her Journey To FI
• FIRE Community Guest Interview #25: Late To The FIRE Party – Part 1

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