No need for chit chat, let’s dig right into Part 2 of Late To The FIRE Party’s Interview.\u00a0 Here we go!<\/p>\n
11. Since you\u2019ve recently retired early (congrats!!!), can you please share your withdrawal strategy?<\/b><\/p>\n
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\u2019re aiming to level the taxes across our retirement.<\/span><\/p>\n 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.<\/span><\/p>\n 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\u2019ll 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 Any funds withdrawn beyond what\u2019s needed to cover our spending are moved to our TFSAs in January.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.<\/span><\/p>\n 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:<\/span><\/p>\n 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\u2019s cut.<\/span><\/p>\n 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:<\/span><\/p>\n 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\u2019s 3%, and for cash it\u2019s 1.5%.<\/span><\/p>\n 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.<\/span><\/p>\n 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.<\/span><\/p>\n 12. Speaking of withdrawals, what is the withdrawal rate you use when you withdraw from your portfolio?\u00a0 Are you a fan of the \u201c4% rule\u201d or something else?\u00a0 Why?<\/b><\/p>\n I\u2019m a big fan of the 4% rule. It\u2019s 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 <\/span>said \u201cof all the dads I know, you\u2019re the only one who tells their kids how not to work\u201d. 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 <\/span>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.<\/span><\/p>\n 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\u2019s no changes to government pensions, here and in the UK.<\/span><\/p>\n 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\u2019s 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.<\/span><\/p>\n 13. What are your post-FIRE thoughts\/plans regarding health coverage?\u00a0 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?\u00a0 Did you purchase supplemental insurance or <\/b>are <\/b>you self insuring?<\/b><\/p>\n When we were working, each of us had coverage through our respective employers. I paid $825 a year towards the plan; Mrs LtoF didn\u2019t 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.<\/span><\/p>\n 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\u2019re going to be paying about <\/span>$1,300 <\/span>a year more than we\u2019ll 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 <\/span>Explore FI Canada <\/span><\/i>podcast<\/span>: <\/span>042: Do You Have a Post-FI Healthcare Plan?<\/span><\/a>. We now feel happy with our decision to join the plan, and we\u2019ll be sticking with it for the time-being.<\/span><\/p>\n 14. As a <\/b>parent<\/b>, have you found that having children has greatly delayed your timeline to FIRE?\u00a0 How much money have you spent on your children per year (per child)?\u00a0 What were some of the bigger costs that were worth it and what were some of the bigger costs that were not worth it?\u00a0 Did you ever set up RESP accounts for their post-secondary education?<\/b><\/p>\n By the time we found the FIRE community our children were all working and mostly paying their own way. I\u2019m 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.<\/span><\/p>\n Unlike your <\/span>amazing tracking<\/span><\/a>, Court, this is an area where we didn\u2019t specifically separate out what we\u2019d spent on the children. I do recall <\/span>Mrs LtoF always looked for deals on clothes and books in thrift stores. When we were in the UK, many <\/span>of their toys and bikes were bought used at something called a \u2018<\/span>car boot sale<\/span><\/a>\u2019. As for sports, hockey is crazy expensive, so it was soccer for our children; way, way more affordable.<\/span><\/p>\n 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\u2019s parks. It was the best time we\u2019ve ever had together, and I very much regret that we didn\u2019t do more trips like that.<\/span><\/p>\n The main thing that we spent money on that we regretted, was on a small and cheaply made child\u2019s ATV. It was broken more often than it was running.<\/span><\/p>\n We didn\u2019t open RESPs for our children, and prior to finding the FIRE <\/span>community, we didn\u2019t <\/span>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\u2019re 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).<\/span><\/p>\n 15. If you could go back in time and change things, what would you have done differently?<\/b><\/p>\n Time travel, my favourite topic, and often with unforeseen consequences, so, I\u2019d keep the changes small to be on the safe side as I wouldn\u2019t want to ruin where me and Mrs LtoF are today.<\/span><\/p>\n 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:<\/span><\/p>\n 16. Has discovering financial independence changed how you view your job and life overall?\u00a0<\/b><\/p>\n 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\u2019t found the FIRE community, I\u2019m 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\u2019t 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.<\/span><\/p>\n 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\u2019t need work anymore.<\/span><\/p>\n I\u2019d just like to add that without the distractions of work, I\u2019ve become much more aware of the issues around the world, the conflicts, and the disastrous changes in climate. It\u2019s 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.<\/span><\/p>\n 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?\u00a0 If so, how did you bring it up and what were their reactions?\u00a0 If not, why not?\u00a0 Why do you struggle with this conversation and why do you feel that money is such a taboo topic?\u00a0<\/b><\/p>\n Mrs LtoF and I have been cautious about flaunting our exact financial position. If people don\u2019t ask, we don\u2019t tell \u2013 you asked!<\/span><\/p>\n I\u2019ve 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\u2019s very personal, and seems to be society\u2019s main measure of one\u2019s standing amongst others.<\/span> It also exposes many bad behaviours, poor judgement, and lack of control.<\/span><\/p>\n We\u2019ve 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\u2019t want to make people feel bad about their own situation, but at the same time, I\u2019d be really happy to help them turn things around where there\u2019s a willingness to make some changes.<\/span><\/p>\n In general, I don\u2019t have an issue talking about money, and in fact, Mrs LtoF occasionally insists that I don\u2019t 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\u2019ve 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.<\/span><\/p>\n 18. What pieces of advice would you suggest to someone who is just starting out or someone who is working toward reaching financial independence?\u00a0<\/b><\/p>\n 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.<\/span><\/p>\n 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\u2019m not saying that doing it all yourself is the wrong way to go about it, but just know there\u2019s 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.<\/span><\/p>\n For someone who is already working towards FIRE, I\u2019d say \u201cstay the course\u201d, 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.<\/span><\/p>\n Where someone is a member of a work pension scheme, whether it\u2019s 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\u2019s an extra four days in the plan for no extra work (assuming they do little work on their last day).<\/span><\/p>\n For those who haven\u2019t 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 \u2013 know what you will do when it happens, before it happens!<\/span><\/p>\n Also, review my answers to question 15 for the things we\u2019ll be doing differently when our time machine is delivered.<\/span><\/p>\n 19. What does the word \u2018success\u2019 mean to you?<\/b><\/p>\n I used to think success meant having a huge house, flashy cars, going to high-priced restaurants, and so on. Today, \u2018success\u2019 means something quite different.<\/span><\/p>\n Spoiler alert! In the movie Yesterday (2019), which is set in an alternate timeline where The Beatles never existed, there\u2019s a scene that really sums up what success means to me now. I remember it being a \u2018that\u2019s it!\u2019 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 \u201chave you had a happy life?\u201d. John says \u201cVery\u201d. Jack suggests \u201cbut not successful?\u201d. John replies \u201cI just said very happy. That means successful\u201d. You can watch the scene <\/span>here<\/span><\/a>.<\/span><\/p>\n By achieving FI and changing our mindset around money, we have found contentment and happiness in our lives like we haven\u2019t experienced before; success?!<\/span><\/p>\n 20. Are there any books, blogs, or podcasts that you would recommend for our readers to check out?<\/b><\/p>\n The information sources listed below helped us on our journey. They range from introductions to FIRE concepts to advanced investment analysis.<\/span><\/p>\n Videos<\/b> (in suggested watching order)<\/span>:<\/b><\/p>\n Books<\/b> (in suggested reading order)<\/span>:<\/b><\/p>\n Individual podcast episodes:<\/b><\/p>\n Podcast series<\/b> (add them to your podcast list)<\/span>:<\/b><\/p>\n Blogs and websites:<\/b><\/p>\n![\"\"](\"https:\/\/i0.wp.com\/modernfimily.com\/wp-content\/uploads\/2022\/09\/Chart-Retirement-Income-2022-08.png?resize=920%2C724&ssl=1\")
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