Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Financial independence through investing
Old 07-29-2013, 11:32 AM   #1
Confused about dryer sheets
 
Join Date: Jul 2013
Location: Toronto
Posts: 4
Financial independence through investing

Greetings, Howdy etc. ya'all

I found this forum through Google searches and registered promptly.
This is my first post.

Seems to be a very active forum with lots of members. I will try and catch up over the course of next few weeks, but following is my introduction, and questions.

I am 37 year old, married with 2 kids, both under 10.
Have been working a corporate job for nearly 15 years now full time.
I wouldn't say I am sick of my job, but I aint thrilled either.

I have worked very hard for the last 15 years, travelled a lot (domestically and internationally) in the first 5 years or so.
I poured my heart and soul into it particularly between 2004 and 2007 and as a result achieved 3 promotions back-to-back.

You could say I am feeling a bit weary now and want to step off the treadmill.
In fact, for the last 3 years or so I have been trying to achieve a better work-life-balance.

That is also the real reason I want to early retire - I want to spend more time with my family (young kids and aging parents), take better care of my health, and get off the high stress treadmill of a full time corporate job.

As for my finances, not including any home equity I am close to $500K in cash and investments (hope to hit $500K by the end of this year).
Home equity is approx. $300K, although I haven't leveraged it in any way (yet).

For the last 6 years or so, I have been investing entirely on my own, after wasting a few years on high fee, underperforming mutual funds.
I am a fundamental investor, analyzing individual stocks and bonds.

Right now I am about 50% equities, 40% REITs and high yield stocks, and about 3% bonds, and 5% or so misc. investments such as pref. shares, convertibles, gold bullion trust, etc.

My plan has been to build up an alternative income stream using investments, both passive dividends as well as actively trading stocks and options.
By active trading, I don't mean I am a day trader.

I have also estimated that as a family we need $4,000 a month of replacement income to maintain same quality of life.
We don't live extravagantly at all - in fact, we have a very modest lifestyle.
A relatively mid sized home, kids in public school, no fancy cars, exotic vacations, or fancy electronic gadgets, etc.
Monthly expenses on average are between $3,500 to $4,000 a month.
Therefore, that is the target replacement income.

So far, the $350K or so that is invested is generating $1,200 a month of passive income.
By the end of this year, I hope to be at $1,500 a month.

By dream goal is to be financially independent by the time I turn 40 (in 2015).
I know, realistically, I won't have enough to "retire", but I hope to have enough passive income to switch to lower demand, part-time work, and devote more time to active investing and other pursuits.

I apologize...this is turning out to be a long post.
Now I'd like to hear from other what they think of my situation.
Is this a pipe dream?
Am I crazy?
Is this a worthy goal?

What else should I be doing?

Above all, I am most keenly interested in hearing about everyone else's early retirement stories, and how others have achieved it, and learn from it.
So if anyone can point me to the relevant threads or blogs, etc. that'll be great too.

Oh and I almost forgot : I am a Canadian living in Canada, although I have worked both sides of the border and routinely travel back and forth for work.
But my finances are all Canada based, and many of my investments are Canadian stock and bonds.
Therefore, not included in my financial numbers above but relevant nevertheless is a small CPP pension, which I can start receiving after 65.

And therein lies some of my challenges, which is why I sought out this forum.
Everything that I read (books, blogs, etc.) seem to be focused on regular retirement age of 65. These books define "early" retirement as 62
All the calculations and projections are based on that.

I am looking for truly early retirement insight and hope I have found the right forum.

Thanks all for read thus far, and looking forward to hearing everyone's thoughts.
If anyone wants to know more before answering, please feel free to ask.
__________________

__________________
FinancialIndependence is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-29-2013, 11:56 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,411
I suggest that you use Quicken Lifetime Planner (included in Quicken Deluxe and higher) and see what it has to say. It covers a lot of bases. Firecalc is also good, but I'm not sure how well it applies to Canada since the historical information it uses is based on US investment performance.
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 07-29-2013, 12:39 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2006
Posts: 11,017
Greetings from BC! Sounds like you have a good foundation. I did not see anything in your post about your spouse. Is (s)he working? If a SAHM, will she be bringing in income in the future?

A quick calculation shows that the rate of return on your investments is ~4.1%. How much tax are you paying on that investment income? It's quite a stretch to get to $4000 per month. How do you propose to do that by 2015?

FI (financial independence) really means not having to work at all if you don't want to. The old wisdom, following the Bengen study, was that the SWR (safe withdrawal rate) was 4%. Recent and anticipated future market behaviour (and more modest returns in Canada) all suggest that 2-3% is a better bet for a sustainable portfolio, especially for someone who will be living off it for many decades. At a SWR if 2%, you would need a portfolio of $2.4m. At a SWR of 3%, you would need a portfolio of $1.6m.

It's great that you know what your family's current expenses are. What about anticipated future expenses (braces, higher level tuition, vehicles, new roof, etc)? When will your mortgage be paid off? You mentioned getting out of high fee mutual funds. Good for you. This is the single biggest drag on portfolios in Canada.

This is a great forum with lots of wisdom and humour. That said, a Canadian financial context will not be found here. You can find the Canadian perspective over on the Financial Webring Forum and on the Canadian Money Forum. Two excellent Canadian authors to review are Moshe Milevsky and Jim Otar. Both have done extensive work on portfolio sustainability.

Welcome to the forum!
__________________
Meadbh is offline   Reply With Quote
Old 07-29-2013, 01:01 PM   #4
Confused about dryer sheets
 
Join Date: Jul 2013
Location: Toronto
Posts: 4
Quote:
Originally Posted by Meadbh View Post
I did not see anything in your post about your spouse. Is (s)he working? If a SAHM, will she be bringing in income in the future?
My wife is a SAHM.
We jointly made the choice for the sake of simplicity.
She will probably go back into the workforce once the oldest is 12 (4 years from now). Probably initially part-time.
I am not accounting for any income boost at that time since the timing and the amount is uncertain.

As well, I wouldn't feel right about her going back to work while I early retire or switch to part-time work.
Thus, the plan is for us as a family to have income replacement so that neither of us is compelled to work full time.
She is very active in the community in general, volunteering, charity, etc.

Quote:
A quick calculation shows that the rate of return on your investments is ~4.1%
That would be the yield. The returns are higher because the capital gains have never been withdrawn from the investment accounts.
Also, only about $350K is invested.
About $125K is held in cash in a bank account.

Quote:
How much tax are you paying on that investment income?
Very little at this time.
Most of it is either RRSP or TFSA (for our US cousins - that's 401(k) and Roth IRA I believe, roughly).
I do have a non reg. account, but try and keep taxes low by holding non dividend paying companies inside it and not trading much.

Quote:
It's quite a stretch to get to $4000 per month. How do you propose to do that by 2015?
Yes, I realize I won't get to $4K a month of income in 2 years (unless I win a lottery).
My plan is to get to a point where I can switch to a part-time job or a less demanding job.
If I can get to between $2K to $2.5K a month in passive income, I can theoretically switch to a job that pays half of my current one.

Quote:
At a SWR if 2%, you would need a portfolio of $2.4m. At a SWR of 3%, you would need a portfolio of $1.6m.
My plan is to live off of portfolio yield, and not withdraw capital at all.
My current yield is between 4.0% and 4.5% (as you have estimated above, give or take).
Therefore, I'd need about $1.5M more or less to generate about $5K a month before taxes (say $4K a month after taxes).
Assuming a portfolio yield of 4.5%.

I can also generate extra cash using options (covered calls, diagonal call spread, naked puts, etc.) once I have more time on my hands and can monitor the markets better.

Quote:
What about anticipated future expenses (braces, higher level tuition, vehicles, new roof, etc)? When will your mortgage be paid off?
Excellent question. Thanks for digging deeper.
Some of it is accounted for separately and some of it is Pay-Go.

Kids education is being planned through an RESP.
I finally managed to catch up on all pending contributions this year.
So it's maxed out now and caught up on the govt. grants this March.
For large unplanned expenses such as new vehicle, roof, etc., that is what the $125K in cash is for.
Some things will have to be pay-go, part of the $4K a month expenses.
That is the way it is today.

Quote:
That said, a Canadian financial context will not be found here. You can find the Canadian perspective over on the Financial Webring Forum and on the Canadian Money Forum. Two excellent Canadian authors to review are Moshe Milevsky and Jim Otar. Both have done extensive work on portfolio sustainability.
Thanks for the suggestions.
I'll check out those forums as well as the 2 books.
Really appreciated.

General question - is there a section in this forum where early retired members have posted their stories? like how they achieved it, their ideas, tips, experience, etc?
I will be searching through the threads, but just wondering if there is anything handy.
__________________
FinancialIndependence is offline   Reply With Quote
Old 07-29-2013, 02:22 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 5,326
You could probably make more in total income by developing some kind of side business and putting your investments more on auto-pilot. I suspect the differential between more passive investments and your self managed investment returns would be much less than the income a profitable side business could generate.

Your wife could work on the business part time, and that could be your full time or part time next career move once you left your corporate job. I don't know about the tax laws in Canada, but in the U.S. there are many great deductions for small businesses plus more retirement plan options, often with much higher maximum contribution limits, than people here can get with most salaried positions.

Another plus with a small business is that if you get tired of it you can usually sell it for at least a few years income, but if you leave a job unless you have stock options you don't have any equity built up. If you can center a side business around a hobby, then it won't seem like work.

For other success stories, I suggest you read the The Millionaire Next Door and follow up books by Thomas Stanley.

If your wife can work even part time now, you could save 100% of that income. Jobs with pensions while you are working full time are also great for retiring early, especially if they let you collect benefits before 65.
__________________
daylatedollarshort is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 03:35 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.