This might sound odd but I am grateful for 2018 being a crappy investment year. Yes, you may now say: WTF?!?!
I think perhaps my greatest fear about my early retirement was the markets would go the hell after I retired and then I would be forced to go crawling back to my old workplace and beg for a job. Yet after that partly coming true in 2018: the bad stock markets part. I realized that I don’t have to go back to my old work at all. I still have a lot of money saved up, I can still live my life and find other means of making money that don’t involve my old job.
In short, I faced down perhaps my biggest fear about my early retirement and realized the greatest gift about early retirement isn’t really about having all this time off. The greatest gift is the choices that come from having financial stability. I have time to consider my options and try other things to make money. I don’t have to reach for my old career for a solution if I don’t want to. Simply put: I’m not limited by my previous choices in life.
Most of our adult lives we end up bound by our previous choices. If you buy a car you end up bound by your payments for it. Or if you buy a big house, you also end up bound by your payments for decades. And so very slowly you bind yourself to all these chains of monthly obligations that keep you at your job. You can’t quit without having another job lined up because your payments consume so much of your money each month and you don’t have much for savings.
Yet going for financial independence you in fact create the inverse of that situation. You pay off your consumer debt and you get more choices. You can invest a hobby like beer making to help save more in the future and still enjoy life. Then you pay off your mortgage and get more choices. Do you want to go part time instead of full time now your mortgage is gone? You save and invest your money and you get more choices. Do I really want to apply for a job in another industry? Until one day your investments earn enough you don’t have to go to work each day and your choices explode into a millions of pathways for you to choose.
Now this sense of freedom can be terrifying at first but over time you choose the life you want to live. I choose to write on this blog because I enjoy helping others get closer to early retirement and help those to adjust to life after retirement. I choose to help out at my kids school library because I get to spend an afternoon each week in a room just full of books. I choose my life one thing at a time because I enjoy them not because I need to pay my bills and I’m not afraid anymore.
So what is your greatest fear about early retirement?
Well with the Christmas over you might be focused on cleaning up the cardboard and packing up the tree before getting ready for the New Year’s fireworks. Yet this is also a good time of year to get some financial items in order before the New Year hits. The good news is many of these items only take a few minutes to take care of.
For retirees like myself you should consider pulling money from your RRSP and/or your TFSA for living expenses for next year. Why now? Well with the TFSA if you pull the money out now you regenerate the contribution room on January 1. Which may come in handy if you want to shift money around and maximize your TFSA to reduce your long term tax burden. After all, why keep money in a taxable account when you have contribution room in an TFSA? I would rather pay a small capital gain now and reduce the long term tax liability.
As to the RRSP, the fun part of those funds is if you have no other income for the year you can pull money out of it up to your basic income tax deduction and pay zero tax (the exact number can vary by province but generally you are safe around the federal deduction limit of $11,809 for 2018). The key point here is you eventually get your money back. You still have to pay the withholding “tax” when the money comes out but you get it back when you file your taxes next spring (it really isn’t a tax but rather an bulk estimate of income tax that is automatically deducted when you take the money out).
I already did both of those items. I pulled the cash sitting in our TFSA accounts out last month and then this month I pulled just under $7000 out of my RRSP. Which honestly felt more scary than it was…why? Because I pulled the money from the bond portion of my RRSP. That way I can ignore the noise of the stock markets which seem to acting closer to a yo-yo than anything else lately.
Finally, you might also plan to sell some of your investments, which I know sounds nuts given my last statement but there are situations where that is a good idea. For example, you might purposely sell off that dead end individual stock you own and that is worth a faction of its worth to create a tax loss which can be used to offset some capital gains from those investments that did turn out and you are getting out of. I’m personally not in this situation but it can be useful at times.
Finally, you likely want to gather any copies of tax documents you might need to get a jump on your taxes. So that might mean updating your accounting records for your small business or/and downloading digital copies of bills if you use your home for your business. Often this can be done fairly quickly and make the tax season a bit easier.
So what do you for a year end financial clean up?
With two clicks of my mouse I cut off the saving that I had previously been automatically been putting towards my children’s education each month since shortly after they were born. It wasn’t a huge amount of money only $167/per child per month so it wasn’t like I had to do it because of cost cutting or anything.
So why? Well because I hit the goal I had set for their RESP fund. It had recently broke the $80,000 threshold I had set for the total amount saved for both kids. So that gives both kids an even $40,000 each to help cover the cost of their education. Yes I’m fully aware that won’t fully pay for a post secondary degree depending on what they take and where they take it. You see we never planned to pay for all their education costs. We instead wanted them to have a better start than we did.
My wife and I after graduation had a total of $60,000 in student debt back in 2000 which actually was fairly low for two bachelor degrees when we both we paying for living costs as well as the usual tuition and book costs. But it did take us a while to pay off those debts so we wanted out kids to end up with a better start in life than we got. But rather than trying to guess how much to save based on the wide spread of costs depending on what my kids take for post secondary education we decided to instead just save a flat $40,000 per kid to cover the basics and let them decide is the additional cost above that amount is worth it.
Also if I’m going to be completely honest I really only expect one of my kids to go to university. My one son loves math and science so I can totally see him taking a engineering, science or geology university degree. The other son will likely end up with some other post secondary education like a trade or diploma. For him school has always been an effort and frankly I don’t see him in a university, but should he want to try the money is there regardless of what he chooses to take.
On the plus side now that we have stopped those payments to their RESP we can now use their Canada Child Benefit (which over the summer went up to $340/month) to actually pay for those kid related expenses like new clothes and food for my 13 year old who is growing at an insanely fast pace right now. Like seriously the kid has grown almost six inches in a year and eats at times like a bottomless pit (given my own memory of those times growing up this is hardly surprising). Also the money helps pay for their activities like swimming lessons or other classes they want to pursue.
Of course some people might wonder why stop investing in their RESP at all. Why not not just keep saving and pay for all their post secondary education costs? Well when I went to university I saw some of those kids who had all their costs paid for by their parents and at times it didn’t end well. Kids would party too much and study too little and waste everyone’s money and time by failing badly at most of their classes. So I really want my kids have to come up with some of the money for their education. It might be from working a summer job or applying for scholarships I really don’t care how it gets paid as long as they have to do some effort to get it. I want to balance my kids having a good starting point in life with my kids not getting entirely a free lunch.
So how do you handle saving for your kids education? Do you plan to pay it all or partly or none?