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Discussion Starter #1
Hello all, I am looking for some input and suggestions.
Background, I am considering early retirement in the very near future. I have bought market exempt products myself previously and left most my RRSP’s with an investment advisor, but I have never invested in the market myself. Due to the recent sale of my business I have additional funds to invest.
Current investments – Divided somewhat equally between my spouse and myself
Three private REITS (Res, Comm, Retail) $ 520,000 – Avg annual Yield $33,000 – total return 12% (some in RRSP, Some TFSA, majority taxable)
Two commercial rental properties $ 475,000 – Annual Yield $34,000
ME loans - $300,000 – Annual interest $27,000 (100k each invested in 1,2 and 3 yr notes that I can roll over)
RRSP’s with IA - $475,000 5 yr average return 4%
Cash in various high interest accounts – $1,300,000
Income requirements - I will require $125,000 annually pre-tax increasing with inflation
We are 9 years away from CPP/OAS
Questions –
1) I need to top up our RRSP’s this year due to tax liabilities from the sale – between us we have room of $288k, would you invest with the Investment advisor or directly and if so in what?
2) Would you leave the remaining 1 million in cash with the indications of an upcoming market correction or would you still enter the market now?
3) I need the RRSP’s and my current cash to be relatively safe as I am well aware my market exempt investments are on the riskier side.
4) My current strategy is to draw from cash to top up the income I receive from my first three investments, then when the market corrects Invest $300k in Canadian dividend stocks (TD, GWO, FTS and T.TO) and keep the remainder in Cash/GIC’s. I would have to draw down on cash to the tune of 15k a year until I hit 65, plus I expect about 150k in one-time expenses for vehicles/renovations and a few special trips lowering my cash to 400K by age 65. This would leave my RRSP’s growing untouched until we turn 65. The cash and loan portion (700k)of my portfolio will have been devalued by inflation, but the remaining portfolio should keep pace and then at 65 I add about 30k in annual CPP/OAS benefits between my spouse and I
I welcome your thoughts and appreciate any feedback, before leaving the workforce I am trying to assure myself we are in a good spot.
 

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There are two things to consider when looking at early retirement. One is the financial side and I would say it looks like you have a decent grasp of that. Specifics of how any individual vs. another decides to manage that vary by individual and only the individual can assess the risks/rewards as they perceive them from their perspective. In other words, what works for me may not work for you and vice versa. So I see no point in suggesting anything to someone who appears to know what they are doing (as you appear to). It is only when someone does NOT appear to know what they are doing that some general advice might make sense in my opinion.

The second thing to consider when looking at early retirement and 'am I ready for retirement' is that it is not about whether your portfolio is ready for retirement it is about whether YOU are ready for retirement. Your portfolio as outlined is fine, but what is it that you really want to know? I suggest that really you are now at the FEAR stage of pulling the plug. No amount of assurance as to you having enough money will solve that. Many people could happily retire on the income you now have without having to draw from capital at all.

I am never in favour of drawing down capital but that is my personal belief. I believe in living on the income I have, not the income I would like to have. I believe in working on a Rule of 3s formula of living expenses, discretionary spending and savings with 1/3 being allocated to each. A more common formula many follow is 50/30/20%. It's just a question of what you put first, spending what you want to or spending within what you have. https://www.investopedia.com/ask/answers/022916/what-502030-budget-rule.asp

Since I retired in my early 40s, I did not see how anyone could try to anticipate change over the likely number of decades I could still expect to live. So I saw my 'retirement' as having to be no different than the time during which I worked for a living. It is not a question of retiring and then waiting to die and hoping you will die before your money runs out is it? Why then should we stop planning on living? If we plan to go on living then does it not make sense that we continue to save money for some totally unexpected change that may happen 30 years from now? Drawing down capital never makes any sense to me since I see it as planning to die before the money runs out and heaven help you if you don't. But that's a separate subject so back to your situation.

To put it simply, you have enough money, now you just have to decide to pull the plug and that isn't about the money, it is about taking that next step. I like to use the analogy of a trapeze artist. When a trapeze artist has to transfer from one trapeze to another, the two trapezes do not necessarily meet in the middle. There is still a distance between them and sometimes that distance is greater than can be reached without FIRST letting go of the trapeze you have hold of in order to reach the other trapeze. It requires a 'leap of faith'. I'm sure it's scary every time a trapeze artist has to do it. But it has to be done or you will never reach that other trapeze.

You may well get responses telling you, 'I would change this or that' and going into all kinds of detail on investments which quite a few regular posters here love to do but NONE of them will answer the real question, only you can answer that. Whenever I read a thread where someone is basically asking, 'do I have enough, will my plan work', what I really read is 'I'm afraid to let go because I might fall.' Well, you might but there is only one way to find out.
 

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Discussion Starter #3
Longtimeago, Hmm, nail on the head and all that, yes it is difficult to know if today is the day. The fear, and it is real, is really financial. I have worked since I was a kid, never had a single day out of work. Never paid any head to my "money', just made more and put it away. So the thoughts of leaving the work force and the ability to cover any mistakes with a few more paychecks is indeed scary.
Like many entrepreneurs I knew my business inside out, unfortunately I never spent time understanding financial markets hence some of the questions. I do look foreword to other replies as I have several ideas but am not sure of their validity and if I can learn from someone else's victories or failures then good for me.

I do appreciate your reply, and you are correct it is more of a leap of faith then a simple step. I also agree I really hate the idea of touching principle.
 

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Good day Tayls77, from where I am sitting your portfolio looks very good....! I cannot provide any "investment strategy" as I am only a regular investor and do not feel that I know enough to do so.

Having said that, I feel that your question should be "AM I READY FOR RETIREMENT?" We (spouse and I) retired at 55yrs old almost 5 years ago. It was explained to me that retirement (for illustration) was like a tabletop sitting on four legs (Retirement Pillars). As long as the legs/pillars are present and robust, retirement will be an easy new life. The pillars are as follow (in no specific order):

#1 Financial: (which you have pretty much under control) Public Pension, Private Pension, Investment etc....
#2 Social Environment: Friends, Family, Co-Workers etccc
#3 Health: Mental and Physical
#4 Goals/Objectives: Hobby, Travel, Volunteer, Etc... (Anything that puts a smile in your face)

As you can see, if those four pillars are present in your life, then retirement should be easy for you and your partner. Obviously, if one pillar is not present that doesn't mean that you cannot retire, but it may not be as easy.

Note: After five years into retirement, I can say that we are doing things that we like (Travelling, Volunteering, even Babysitting..LOL, etc...) but the "Decumulation" of our portfolio is something that we found harder to master than anticipated. Having been frugal for most of our life, it is hard to splurge into "luxury"...!

Hope you have a nice retirement.

Keep us appraise of your journey.

Cheers.
 

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Note: After five years into retirement, I can say that we are doing things that we like (Travelling, Volunteering, even Babysitting..LOL, etc...) but the "Decumulation" of our portfolio is something that we found harder to master than anticipated. Having been frugal for most of our life, it is hard to splurge into "luxury"...!
That is a hard one for many. Took a number of years, about 5, before I was willing to let spending creep up too much. But if the portfolio keeps growing, then it truly is time to look at oneself in the mirror and figure out a way to do something about it, even it it is giving money away to family or charity. Our spending (over 13 years into retirement) is now about triple what it was the first few years into retirement. Too much residual does very little good when one is lying prone in a casket.
 

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Discussion Starter #6
Thanks Habsfan59, I think 2-4 are ready, at least I think so. I also think item 1 is okay but have this nagging doubt. I think my lack of investing experience is what causes my concern and frankly for the fees I pay my Advisor he doesn't add to my comfort.
I do look forward to having time to learn more about investing.
Glad to hear you have enjoyed your first five years, your schedule sounds like the exact one i am looking forward to, including babysitting the grandbabies.
 

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Longtimeago, Hmm, nail on the head and all that, yes it is difficult to know if today is the day. The fear, and it is real, is really financial. I have worked since I was a kid, never had a single day out of work. Never paid any head to my "money', just made more and put it away. So the thoughts of leaving the work force and the ability to cover any mistakes with a few more paychecks is indeed scary.
Like many entrepreneurs I knew my business inside out, unfortunately I never spent time understanding financial markets hence some of the questions. I do look foreword to other replies as I have several ideas but am not sure of their validity and if I can learn from someone else's victories or failures then good for me.

I do appreciate your reply, and you are correct it is more of a leap of faith then a simple step. I also agree I really hate the idea of touching principle.
I would suggest to you that the 'fear' is NOT financial. Fear is a feeling, which means it is NOT from any kind of rational, analytical look at your financial position. I would suggest to you that no amount of assurances as to your finances will put even a tiny dent in that fear. It simply isn't rational.

Let me give you another analogy to consider. When I was younger, I used to go climbing. With ropes, etc. on rock cliff faces. Anyone who does any climbing knows that if you are doing it properly, if you fall, the rope will save you. Anyone who climbs also knows you WILL fall sometimes. It just goes with the territory and that's why you use ropes to save your butt when the inevitable happens. Anyone who climbs also knows that there comes a split second in time when you KNOW you are about to fall. At that point in time FEAR is very real indeed. Even though you know intellectually that the rope is going to save you, the fear is still there and the fear is not just of falling, it is of DYING. There is nothing anyone can fear that is worse than death itself. Ever climber experiences it.

From my experience in climbing and the fear it can generate, I used to (don't really need to any more) ask myself one simple question when having difficulty making a decision. 'If I do this and it doesn't go as expected, will it KILL me?' If the answer to that is no, it isn't likely to literally kill me, then just how big a decision is it really?

If you were a climber and came to that split second in time before you fell and I were to say to you, 'make this decision this instant and you will NOT fall.' Believe me there is no decision you could not make without hesitation. Get married, buy a house, change jobs, retire, etc. None of them have the same potential downside to them as falling off a cliff face. So what if a marriage doesn't work out or a house turns out to be a disastrous money pit, none of that will KILL you. It might not make you happy but you will move on and do what you have to do.

When I 'retired' 30 years ago, I said to myself, 'worst case, I have enough money to live on for a decade or more if I had to. Beyond that, who knows what will happen and what will change. But I believe that I will adapt to whatever comes along when it does.' There are no guarantees in life no matter what we do. And here I am, 30 years later, still managing to live quite comfortably. My good and bad financial decisions during that time haven't managed to result in my death yet.
 

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Discussion Starter #8
That is a hard one for many. Took a number of years, about 5, before I was willing to let spending creep up too much. But if the portfolio keeps growing, then it truly is time to look at oneself in the mirror and figure out a way to do something about it, even it it is giving money away to family or charity. Our spending (over 13 years into retirement) is now about triple what it was the first few years into retirement. Too much residual does very little good when one is lying prone in a casket.
AltaRed, I would love to be in the position to give away more money, fear of not being able to help family is one of the largest things holding me back from retiring. Saying that I have lost 2 employees and several friends to cancer over the past few years and wonder why I am still working.
 

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AltaRed, I would love to be in the position to give away more money, fear of not being able to help family is one of the largest things holding me back from retiring. Saying that I have lost 2 employees and several friends to cancer over the past few years and wonder why I am still working.
I think you actually have to be experiencing retirement for a number of years to be able to see the perspective from that side of the fence. Until then, it is just a concept. It obviously also depends on the amount of resources one has. If the stash (investable assets) is not growing, that is one thing, but if it is still growing, that is a bit of an oxymoron. That insight will come when it comes.
 

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Tayls77, I was in the same boat as you when I was 55. Took about 2 years for me to actually get "all in" with retirement, convince myself we had "enough", educate myself enough to get started and start DIY investing to preserve capital. Hit a few pitfalls along the way but now, at 63 I realize it was the best move. It is just so difficult to actually decide to stop working and enjoy life, and nobody knows how long we will be given. My schedule filled up so fast, doing things we enjoy doing and I realize how consumed I was with my business. One of my friends has been considering stopping work (professional) for the last 5 years, has substantially more investments but just cannot get comfortable with the idea of not working. He just told me "next year" again, haha. Good luck on your journey.
 

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I think you actually have to be experiencing retirement for a number of years to be able to see the perspective from that side of the fence. Until then, it is just a concept. It obviously also depends on the amount of resources one has. If the stash (investable assets) is not growing, that is one thing, but if it is still growing, that is a bit of an oxymoron. That insight will come when it comes.
Years ago when my wife was expressing concerns (fears) over her upcoming retirement, it was my brother who said to her, 'you can't see there from here.' It can be difficult for people to understand that concept.

Yet again, Tayls77 is expressing a most probably irrational fear based on no empirical evidence that would suggest otherwise. Tayls77, do you have any family members who now has and who you know will have in the future, the need for help from you financially? Again, I will suggest that FEAR is an emotion and it has nothing to do with your financial situation.

Let's suppose we take your 'fear' of not being able to help as if it were a real thing. How MUCH money would you then want to have sitting in a separate account just waiting to be used to help them? $100k, $1 million? If it is a real thing, then come up with a real answer if you can. I would suggest that you can't in fact do so.

Consider Steve McQueen. What does he have to do with you I hear you asking. Well when he was dying of cancer, he tried every cure known to man including 'quack' cures before he died in a clinic in Juarez, Mexico. Now suppose he was a member of your family and he asked you for help in paying for his treatments. Let's further suppose you had a net worth of $5 million. How much of it would you give up if you thought it might save him? $1 million before you said, 'no, I can't give you any more?' Two million, three or all five?

If looked at rationally, 'one of your largest fears', the fear of 'not being able to help' simply becomes ludicrious. We all want to help when and if we can but we all have to decide when we can help and how MUCH help we can give. If I were to think of the possibility of my brother developing cancer and needing $1 million to find a cure, I could not find that money to give him. Should I agonize over that and go back to work to get that money just in CASE he needs it? Would that be rational behaviour?

Nope, sorry Tayls77, your 'fear' is NOT a reason to not retire, that's irrational. Your problem as Mechanic has now added is simple. "It is just so difficult to actually decide to stop working and enjoy life". It's simple but it isn't EASY. There is a difference of course.

Consider this hypothesis, I notice in re-reading your list of assets, you have not mentioned a home. Do you rent? Or did you just forget to list a home you own and that is mortgage free? It makes a difference. I would expect you have a mortgage free home currently. I see that you appear to live in London, Ontario. The average current home price in London is $416,000 and rising at 11-12% from last year.

The average home price in Chatham, Ontario to your west is $260k and rising at 18% year from last year. See where I am going? In retirement, you can live wherever you choose to, you are not tied to HAVING to live somewhere for work. So in theory at least, you could sell in London, buy the equivalent home in Chatham and probably release $200k to help family in need.

I know I am simplifying it but I'm sure you can get the picture. What you might decide to do tomorrow will depend entirely on the circumstances you face tomorrow. You can't see there from here remember. If someone needed help you would simply find a way to give it if you could. All the London/Chatham example does is show one simple way of doing it. You might not want to move but you would do what you had to do if you had to do so.

Don't try to guess and plan for all eventualities that can occur in the future, it can't be done. The only question to answer is can I retire TODAY under today's circumstances, yes or no?
 

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Discussion Starter #12
Thanks for all the perspectives. You gave me a push in the right direction. I advised everyone I was reducing my workweek to 3 days today. Thanks for all the input everyone.
 

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Thanks for all the perspectives. You gave me a push in the right direction. I advised everyone I was reducing my workweek to 3 days today. Thanks for all the input everyone.
That's a start, congrats. Some people are more comfortable with a 'staged' retirement. A waste of 3 perfectly good days in my own opinion but what the heck, I'm biased. :tongue:
 

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2) Would you leave the remaining 1 million in cash with the indications of an upcoming market correction or would you still enter the market now?
3) I need the RRSP’s and my current cash to be relatively safe as I am well aware my market exempt investments are on the riskier side.
These are classic problems. I think you need to decide on an asset allocation that is conservative enough for your tastes so that you aren't trying to time market corrections. It's just about impossible to time the market like this. Maybe you'll decide you need an allocation such as 90% fixed income 10% stocks. Just trying to make a dramatic example; my point is that at some level of risk, you will be comfortable and should no longer have to think about what the market is going to do next.

Many kinds of assets create returns over the long term. Stocks, bonds, GICs are all assets which will have returns. Cash is the one asset which does not have any returns.

There are also varieties of bonds such as XSH which have short terms. They still provide good returns but if you really need to access the money, you can sell XSH as you wish. The returns of XSH will be similar to GICs.

So I absolutely would not sit on $1 million cash trying to wait for a market correction. Instead, I suggest deciding on an asset allocation you like, and then sticking with the plan. If you fear losses, then use the cash to build up a 5 year GIC ladder. Current GIC rates are well over 2% and you can spread the cash among several issuers, keeping all of it CDIC insured (by government). That is absolutely a better idea than having $1 million cash sitting around.
 

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An additional thought. I couldn't quite understand the whole scenario but it sounds like you're getting your risk and high returns in private REITs and various property related investments.

It sounds like you want to keep your other liquid wealth (currently in cash) very safe. For this, I would not go to an advisor. Advisors will almost always push you into stocks and things, which it sounds like you may not want to get into.

Perhaps as a starting point you should open a discount brokerage account and start investing that cash into GICs and short term bonds. Personally I like Scotia iTrade for their GIC offering. As mentioned above you can use GICs to get CDIC insured returns over 2%. Other amounts can be put into the XSH fund, which has similar returns but is liquid (can be sold any time).

There is no harm in starting out very safe. Over time you may find that you want to put some money into stocks as well, but I think your immediate priority is getting a higher return than cash (nil). Also, I don't know where you keep $1 million cash, but CDIC only covers up to 100K per institution. The rest is not insured by the government.
 

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Discussion Starter #16
Tayls77, I was in the same boat as you when I was 55. Took about 2 years for me to actually get "all in" with retirement, convince myself we had "enough", educate myself enough to get started and start DIY investing to preserve capital. Hit a few pitfalls along the way but now, at 63 I realize it was the best move. It is just so difficult to actually decide to stop working and enjoy life, and nobody knows how long we will be given. My schedule filled up so fast, doing things we enjoy doing and I realize how consumed I was with my business. One of my friends has been considering stopping work (professional) for the last 5 years, has substantially more investments but just cannot get comfortable with the idea of not working. He just told me "next year" again, haha. Good luck on your journey.
I truly do appreciate all the input, I don't have any retired friends yet so this perspective helps.
 

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Discussion Starter #18
An additional thought. I couldn't quite understand the whole scenario but it sounds like you're getting your risk and high returns in private REITs and various property related investments.

It sounds like you want to keep your other liquid wealth (currently in cash) very safe. For this, I would not go to an advisor. Advisors will almost always push you into stocks and things, which it sounds like you may not want to get into.

Perhaps as a starting point you should open a discount brokerage account and start investing that cash into GICs and short term bonds. Personally I like Scotia iTrade for their GIC offering. As mentioned above you can use GICs to get CDIC insured returns over 2%. Other amounts can be put into the XSH fund, which has similar returns but is liquid (can be sold any time).

There is no harm in starting out very safe. Over time you may find that you want to put some money into stocks as well, but I think your immediate priority is getting a higher return than cash (nil). Also, I don't know where you keep $1 million cash, but CDIC only covers up to 100K per institution. The rest is not insured by the government.
Thanks james4beach, I will look into XSH and I-trades today. I bank with Scotia now so that should be easy. My cash is in a 6 month teaser at a credit union so I am getting 3% but it ends this month. If you purchase GIC's through I-Trades is there a fee, and don't you run into the same 100K insurance issue?
 

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Thanks james4beach, I will look into XSH and I-trades today. I bank with Scotia now so that should be easy. My cash is in a 6 month teaser at a credit union so I am getting 3% but it ends this month. If you purchase GIC's through I-Trades is there a fee, and don't you run into the same 100K insurance issue?
GIC commission is buried into the GIC rate, and yes, GIC rates at all discount brokerages are less most of the time than one can get at the online banking retail level (online banks or trusts or credit unions). For example, an Oaken GIC purchased directly from Oaken Financial carries a higher interest rate than the equivalent Home Trust GIC at a discount broker (same company). And yes, you still have to watch the $100k CDIC limit by issuer, although in the case of Home Trust/Oaken, they are separate CDIC members and so you can load up $100k at each. You can look up the CDIC membership list on your own.
 

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Thanks james4beach, I will look into XSH and I-trades today. I bank with Scotia now so that should be easy. My cash is in a 6 month teaser at a credit union so I am getting 3% but it ends this month. If you purchase GIC's through I-Trades is there a fee, and don't you run into the same 100K insurance issue?
Excellent that you're already with Scotia, that should make it easier. Check their web site for promotions and ask if they would give you a $100 incentive to bring new money into iTrade.

You might want to still keep some amount of cash at credit unions or high interest savings accounts elsewhere. This is what I do as well. For example, 200K cash at a credit union and 800K into iTrade.

There are fees for GICs but they are baked into the price/yield so whatever interest rate you see is what you get, and there are no additional fees beyond that. The great thing about a discount brokerage like iTrade is that many GIC issuers are available, so you can spread the deposits over each and get 100K CDIC coverage with each one. An example, using 800K

100K at 2.13% in Montreal Trust Co of Canada, 1 year
100K at 2.18% in National Trust Co, 2 years
100K at 2.24% in Concentra Bank, 3 years
100K at 2.20% in Scotia Mortgage Corp, 4 years
100K at 2.36% in Royal Bank of Canada, 5 years
100K at 2.37% in Bank of Nova Scotia, 5 years
100K at 2.37% in ADS Canadian Bank, 5 years
100K at 2.40% in Canadian Western Bank, 5 years
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Total 800K fully CDIC insured. Actual issuer names at iTrade and actual rates.

That's just a rough example of a GIC ladder but you'd want to build that more carefully and stagger the maturities more. Takes some time to build up a ladder. You'll see that rates are not necessarily higher than a credit union savings accounts, which is a reason why you'd probably want to still keep some cash at the credit union.

But the above is very safe as all those deposits are government backed through CDIC. This is stronger safety than credit union deposit insurance, which is provincial.

Separate from my GICs, I also keep a healthy amount of cash with Outlook Financial at 2.40%. Note that if interest rates decline further (which they might) the 5 year GICs are a benefit.

Both GICs and XSH can be held at iTrade. But note that for non-registered, XSH is less tax efficient than GICs. You may still decide it's worth it for the liquidity.
 
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