10 Rules for Easy Retirement – Avoid at Own Peril

Ready for comfy retirement? Ain’t gonna happen! In just about 3 years I will be eligible for pension by reaching 65 years of age. Yeeeey … how great is that? … NOT. A person works a whole life and looking into quiet retirement should be a good thing, right? Most of the people of my age say that they are tired of work. They mostly hate it and can’t wait to retire. Here is a thing, with me it’s different. I love my job. It is office work and not tiring. I work as a salesperson. Frustrating sometimes, but not tiring. So being tired is not my main motive. It’s age and idea that somebody younger should replace the aging worker and natural cycle in business. I strongly believe that young people are more capable, smarter, faster, more flexible, more open-minded and hungry to prove themselves. We who are in the late years of working life have only one advantage and that is experience on our side. Me hanging on my job until I drop dead would not help somebody younger to enter a workforce.

This article is about retirement but written about youngsters

First of all, this article is written for younger people. I hope they read it. For people like me, above 57 – 60 it is way too late. We are too close to retirement and there are no dramatic changes one could introduce at that age that will vastly improve future retirement experience. It is younger people who I hope will benefit from reading this article. Secondly, if you are a young person, started to read this and decided after paragraph or two that theme is boring please don’t dismiss it too early. Here is a truth to wake you up: Every person is a pensioner in making, truly it’s just a matter of time! That applies to people who live in places where there is such thing as a pension in the first place. There are billions of people who live in countries where pension simply does not exist. When old people have to fend for themselves the best they can. That fact is an elephant in the room. It is big wisdom. Sooner you understand it sooner will you accept it and act upon it. In a proactive manner.

Facts of being young

Being young is truly the greatest thing in the world! A young person feels invincible, indestructible, much smarter than old people, excited to live, full of energy, enthusiastic, ready to explore the world and live it full blast. Careless. The youngster at that age thinks that he/she will simply live forever. Happily of course. At 19 or 27 that is how people feel. I guess that is how it supposed to be. Life energy is present at abundance at that age. Now after I described a young person 40 years later that is a closest I can remember about that age. I also didn’t think about retirement. For 35-year-olds, I thought they are old. For me, 50-year-olds were very old and people over 60 at about the same level as fossils dug out of the earth.

Pension is a wishful thinking

In every Western organized country, pension exists and usually kicks in at age of 65 – 67. Every employed person has a certain amount of money deducted monthly and that money goes straight into the Government controlled pension funds. Also, employers have to pay a pension contribution for every employee. A contribution is usually the same amount as a deduction from an employee’s paycheck. [caption id="attachment_14360" align="aligncenter" width="1000"] Retired couple – photo by Max Harlyking on Unsplash[/caption] In Canada, it is called CPP (Canada Pension Plan). A maximum retiree can get is $1134.17 ( about USD 852.00) regardless of how much money was made during working years. In the USA it is an old-age pension and kicks in at age of 65. The base amount for pension calculation is average of the 35 best year income but capped to about $2366.00.

No easy sailing for retired people

Mind you those are 2 best-case scenarios. Real-life is much different. Here are true-life examples who gets what at different places: Zack P., Stoney Creek, Canada That’s me. 62 years old. I am not retired yet so these numbers are best estimates I can get from the Government site calculator. I am a Canadian citizen. When I retire in a bit less than 3 years I will have 33 years of full employment minus maybe 1 1/2 months when I was looking for a job. I have about 8 years of employment from Europe where I moved from exactly 30 years ago. I don’t know if that will matter at all. It probably means nothing except a fact that I worked 41 years altogether. According to the Government calculator, I will have a pension of $673.00 (USD 506.00) + I should be eligible for $501.00 (USD 376.00) of OAS which stands for Old Age Security add-on. There is one more add-on, supplemental income but is estimated manually and given only to people that can’t make it with a regular pension. That part is a bit vague and cannot be relied upon. Some factors can easily take it out of the picture. For example, I will have to declare investments like RRSP (401k) savings and other income sources. Also, where I will live when retired. To possibly get supplement retiree must live in Canada. Moving out to go to the place where living expenses are lower will easily take out supplemental add-on. So in the best-case scenario, my pension shall be $1134.00 (USD 882.00). Frank K., Bobcaygeon, Canada 72 years old. Canadian citizen. Retired for the last 7 years. Moved to Canada in 1988. Worked in Canada as a travel agent for 24 years. He is getting $330.00 in pension + $570.00 in OAS payments making it about $900.00 (USD 676.00). His wife is sell employed as a travel agent, making good money and therefore Frank can’t get a supplement. His pension is pretty much capped at 900 dollars. Thanks to the wife he is doing OK. They live in a small town in own home where the cost of living is fairly low. Veronica V., Bobcaygeon, Canada 82 years old when she passed away in late 2018. Canadian citizen. Never worked in Canada and was retired in the year 2000. Basic pension + OAS + supplement made a monthly check of about $1100.00. Was traveling to Europe every year to enjoy lower living expenses and stretch her pension money. However, never longer than 6 months during calendar year to keep supplement going. Slavica P., Zagreb, Croatia 87 years old. Croatian citizen. Lives alone. Worked 35 years in the book store and retired before being 60 years old. She is getting HRK 4680.00 of pension money. That is about USD 690.00. She lives in a condo that is paid off. Maintenance and utilities cost about USD 177 per month during summer and $190 over winter months. TV and telephone about USD 35.00. Food about $120. Other living expenses maybe $150. Funny enough she claims that pension check is enough for her. She is not buying anything and doesn’t need anything special. Croatia has universal healthcare and medications are not overly expensive. No car relies on public transportation that is cheap for retired people. Aldeheid K., Manvik, Norway 65 years old. Norwegian citizen. Retired for last 5 years due to medical condition. Lives alone. Moved from Germany to Norway 25 years ago. Norwegian citizen for the last 14 years. Worked in Germany in the school system for 26 years. Worked in Norway for 17 years. Pension is €698.00 from Germany + €994.00 from Norwegian funds totaling to USD 1861.00. Here is where things get ugly. Germany says that pension from Norway is income and taxes everything at about 15% rate. Norwegians also say that pension from Germany is income and tax everything at about 28% tax rate. A classic case of double taxation which is not fair by any rules. Gets by OK because she and late husband built a small bed and breakfast business on the island of Froya, halfway up North on the Norwegian coast. There the ocean is nice and blue but cold as hell. Rich of salmon and other fish so tourists from Germany like to come fishing. There is more. Recently she lost husband after a 2-year fight with cancer. By law, she is entitled to late husband’s pension, at least part of it. You wouldn’t believe how much money she gets, €3.89! Norwegian Government decided that she is doing fine and she doesn’t need his portion of pension. That is neglecting a fact that man was paying into the pension funds for the last 40+ years! So Adelheid is bitter about her pensions. Not only it is double taxed but there is a 10 Euro deduction ($11.00) that she can’t get over with. It is a deduction from everybody’s pension in Germany to support refugees! Those €10.00 drives her nuts. Adelheid is not a German citizen anymore. Never wanted any refugees, can’t vote in Germany anyway and can just watch Angela Merkel single-handedly destroy her birth land. Still, her pension money is used to finance flood of freeloaders. Anyway, this may be a story for another day. Rita P., Berlin, Germany 66 years old. German citizen. Retired for 1 year. She worked in administration for 46 years. Out of solid wages, she was getting during a working year she is getting USD 702.00 now. The apartment she lives in costs about €450.00 + €120.00 for utilities. That is $513.00. Monthly food $189.00 and with rest, she can do whatever she wants. But wait, how much is the rest? Nothing. Zero. She is stretched to the limit. She has to weight every dollar before spending it for food, toiletries or ride on a streetcar. Having a car or vacation is science fiction. It ain’t happening. Also pays damn €10.00 deduction for refugees that get minimum €408.00 monthly + rent + healthcare expenses paid separately by the state. [caption id="attachment_14358" align="aligncenter" width="1000"] Retired people are like this locomotive. Old, rusted, forgotten. Photo by Jacek Dylag from Unsplash[/caption]

Is that enough?

We could go on with many examples of real-life stories. A common theme is what pensions people are receiving is at the low end, far below true needs. We didn’t even mention healthcare costs, like medications, visits to doctors, therapies and what not. Like everything else they vary from country to country and is quite individual. Lucky people have smaller needs and unlucky ones pay too much to maintain health. Human being wears down and when over 65 things get broken at a possible exponential rate. So coming back to youngsters who at their present age simply don’t account any of that as a possible threat.

Have to break the bad news to the young people

Inevitably, one day you will also be old. It is a law of nature and nobody can escape from it. I know, it is like talking about walking on Mars. It is a very, very distant, almost invisible possibility. But it’s there and going nowhere. You have to account for it. Sooner, better.

Government: Winter is coming!

I am the first guy to bash Government. There are a million reasons why. However, as for retirement, one has to admit that they are dispensing ample warnings. They are warning about lack of pension funds in the future. I guess they have enough economists there that can see, by mathematical certainty that pension funds are in big danger to run low or collapse altogether. Inflation, increased number of retired people, rising costs of everything, general mismanagement, Government debts, bloated administration, wars … are just many factors taxing retirement funds to the breaking point. Governments are countering with moving age of retirement to ever later years. In Canada, that was the age of 65 and now it is 67. In Norway, it is 67 for women and 70 for men. It is widely known that people live longer than before drawing pensions for a long time. However, there are plenty of people who are gone before their 70’s, even earlier. With their untimely departure Government is saving a huge amount of money. Those people were contributing for 30-40 years and never lived to get some of that money back. Also, there are Government-sponsored plans like RRSP (Canada) or 401k (USA) to establish tax exempted account dedicated to saving money for retirement. There are even limits how much person can contribute yearly into such plan so Government doesn’t lose tax money. I don’t personally know anyone who contributes maximum to the retirement savings plan.

Conclusion of this rant

As I said in the beginning, this article is a warning for young people. Age of retirement will inevitably arrive. Sooner or later. If your retirement is coming up in 15 – 20 even 30 years there is a great chance that pension won’t be there at all or it will be a symbolic amount. Token of what is supposed to be to sustain living after age of retirement. Nobody knows what will happen. The planet is becoming overcrowded, resources are getting depleted. So counting on some kind of economy miracle ain’t gonna happen. Actually, things for retirees will rather be going down the pooper.

10 rules of comfy retirement

I am not an economist or financial advisor. Instead, I use knowledge of other people, smarter than myself + fair amount of street logic + common sense to reach conclusions. Every article I write I try to give a piece of valuable advice. A solution to the problem. A kick in the butt to push things into the right direction. It is up to the reader to adopt it or dismiss it as nonsense. So here are a few concrete advice that will improve your bottom line in the future:

1. Start your retirement fund … now!

Start saving now. At any age. As soon as you start working. It doesn’t have to be a big amount but regular contributions should become a habit. There are numerous advantages to this simple move. You are deciding about your future. Outside Government plans and (bad) influence and rules. It is your own pension at your own terms. You contribute when you want, how much you want, track investments yourself. Most importantly when times comes to withdraw money and supplement your, most likely low pension, you don’t have to ask anybody’s permission and report to anyone. You simply do it as needed, no rules enforced except your own.

2. Don’t underestimate the freedom

If you start with rule #1 this second one comes as a natural benefit by default. Being in the driver’s seat of your own pension will be a great thing and trust me, you will enjoy it … immensely! Waiting for the Government check to come every 1st in the month is not a pleasant experience. If in need you will get anxiety. Now you depend on some little paper pusher, sitting behind his Government desk who’s is underworked, overpaid and equipped with powers to ruin everybody’s pension day.

3. Choosing an investment vehicle

Don’t just put money into any kind of savings account. It will be just to easy to take it out for new iPhone or car or million other expenses that come along. Open account with low-cost stock brokerage, like Questrade in Canada. At $4.95 per trade buying stocks is quite cheap. In the USA it could be Ameritrade or any other low brokerage like that. All brokerages offer on-line and mobile access so you can keep an eye on your investments at will. If there is a TFSA (Tax-Free Savings Account) in your country that should be your first account of choice and use it to the best advantage. With account like that, you are using after-tax money, but every growth and later withdrawals are free from tax. An account like that will give you a lot of flexibility with investments. They offer a variety of possibilities, like stocks, mutual funds, ETFs, options, and even precious metals.

4. Invest in stocks

As soon as you opened an account and funded it with the initial contribution you are ready to invest. Next step is to buy stocks. Go for long-standing big companies that pay dividends. That should be key criteria. MUST pay dividends. At least 3%, more is better. Buy companies that make something or handle something every person or at least a very large group of people need. Not a Facebook or other social media crap. Food, power, water, utilities, medical institutions, mining comes to mind. For example Coca Cola (ticker KO). Or Johnson & Johnson (JNJ) or Duke Energy (DUK), Pfizer (PFE) and similar. There are many companies like that which people can’t live without. That is a key ingredient of good stocks selection. Even in big crises, those companies will not collapse and consumers will not buy other things but keep buying food, cleaning products, medical products. Again, this is very conservative investing aiming at the long run results.

5. Turn ON autopilot

If Tesla can have one you can have it with stocks as well. Stock selected in the step above shall pay dividends quarterly and some of them monthly. After having stock in such amount that dividends payouts can buy more of the whole shares of the same stock call broker and say that you want to register DRIP on every stock position that is eligible for it. DRIP stands for Direct Reinvestment Income Plan. What it means is that from that point onward you are having your investments on autopilot. You don’t need to do anything but watch broker’s computer purchase for you more of the same stock upon dividends landed in the account! It is all-automatic and at no transactions costs. By virtue of dividend reinvestments compounding effect will cause your positions to raise in volume. Do not buy speculative stocks. Yes Tesla is trending right now, or Boeing is jumping up in value but who knows where they will be in 10 or 20 years. Do you know when to buy those stocks and more importantly when to sell them? No? Me neither. Stick to dividend-paying stocks and you almost can’t go wrong.

6. Use real estate you live in as a forced savings

In Canada, people tend to buy a house or condo and pay it off during working years while things are nice and dandy. [caption id="attachment_14359" align="aligncenter" width="1000"] Moved to smaller condo. Photo by Elien Dumon from Unsplash[/caption] After retiring that asset gets sold with supposedly large gains since real estate is going up all the time, right? Not exactly. Real estate crises come in about 7-year waves. Going up in value and then dropping when things become dicey. However in the long run, like 20-30 years you will come on top. Let’s assume it works out nicely and former homeowners can move to lower-cost rental. That would be one form of forced savings for retirement. You live in your own investment and use it every day. It is not perfect but it is not that bad either.

7. Buy REITs

Did you ever want to be a landlord and collect monthly rental income? Everybody has that idea but few can do it. Why? You must buy a condo or house. Finance it, renovate it, maintain it, find tenants that will pay every month and not trash the place. That is at a bare minimum. I can tell you from own experience of renting out a Florida property that it can be a risky, labor-intensive, nerve-wracking and not that rewarding proposition. What if I told you that you can do it with an absolute minimum of hassle and expenses. Buy REITs. Those are stocks and stand for Rental Investment Trust units. REIT companies own apartment buildings, plazas, business and retails space. I like REITs so much that I believe they deserve a special paragraph for extra explanations. REIT stocks regularly pay over 5% dividends. They are structured in such a way that they must pay out monthly income, per trust unit, to all shareholders. Buy buying a single share of stock you just became a part-owner of buildings, plazas, shopping mall, millions of square feet of office places, medical buildings and similar real estate. Every month trust income payouts land in your account and if DRIP is turned ON more shares of the same goodies are purchased in your name. Your holdings will grow bigger and bigger causing monthly to grow persistently and substantially.

8. Buy gold and silver

There are more than a few articles that you can find here and are written about the benefits of holding gold and silver. Those are investment grade precious metals bars or coins that are held in private hands as investments. All money (currency) in the world is subjected to inflation so it loses value over time. For example, USD lost more than 98.5% of its value in the last 100 years. How that sounds for long term savings and investing? Pretty crappy don’t you think? When the dollar was backed up by gold and silver it was holding a value. Your grandma could walk into any bank and present this banknote: And walk away with silver or gold in the pocket. At those times things were holding value and prices even deflated. These days Governments are trumpeting that inflation is normal and we suck that as a Cool-aid. They are full of it. Never forget that gold and silver represent the ultimate value. Gold or silver bar that was on the bottom of the ocean for the last 500 years is as valuable today and it was then. Actually, it is more valuable because the value of gold and silver goes up in time. Buy physical bars and coins. Hold a small amount of it at home and a great majority of it in the safe storage. Read articles about buying gold HERE and buying silver HERE.

9. Consider retiring earlier

Think what else all this could mean. If you have $500,000 invested in REITs or any stocks that bring 5% dividends per year that means you are getting $25,000 in cash without doing anything. Your investments are now taking care of you! Imagine getting $2083.00 per month in income. I know a bunch of people who would retire on that at any age. And it can go like that forever if you keep principal intact and draw only dividends. This is not a Star Trek science fiction. Whatever is written here is based on real-life facts and is totally doable. By anybody. That’s the key here. Remember, dividend stocks only! I can’t emphasize enough how important it is to invest in dividend-paying stocks only. Any other form of savings represents a fixed amount sitting in the bank and when one day you start to chip away from that amount it will inevitably meltdown to zero. There is nothing to replenish it back. Dividends and compounding effect does that. It is opposite of mortgage or loan were interest compound on the principal amount over time and grows the debt.

10. You cannot lose your pension

This is a very uncomfortable thought but we have to bring it up. It is serious as a heart attack! Working folks contribute into the Government-sponsored pension funds so when they retire they can get Government pension check for next 20-30 years, right? In theory. People are strange creatures. Due to biology that we can’t control, accidents that happen out of the blue people may not last that long as desired. Statistical life expectancy is exactly that, statistics and not a rule that applies to everyone at every place, at all times. What if retiree to develop a serious illness at 60? What if he/she never gets to live to retire? What if tragedy strikes and retiree last only a few years into retirement? As humans, we don’t want to even think about such events but they are entirely possible. Shit happens! I know it first hand, very, very hard way. I lost my wife to cancer at the age of 59. It was the single most devastating experience of my life and I can’t get over it. Never will. So going back to pensions. My point is that many people may never live to see many pension checks in the mail. May not even a single one. Like car insurance. You must pay for car insurance but if there is never accident payments are lost forever. Those deductions from paychecks are not optional. In such event, all money that was to be paid as a pension is lost. Good for Government, bad to be a recipient. Not if you have your own pension fund! In case illness or accident strikes at any time in life, you can simply start drawing from your account as needed. Money can help fight illness or for care expenses. In case of untimely death, that money is not lost. Your family or whoever is in your will inherit it and that is a big piece of mind.

Conclusion

You MUST take care of yourself because you can’t rely on anybody else to do it for you. Again, by design, it should be a Government, but don’t hold your breath. Understandably when young, a person will not give huge importance to this issue. However, in later years person will praise himself for started investing early and getting ready for retirement. Just imagine how would somebody feel if a pension of a meager $700 is supplemented by another $500 or 1000 dollars from own funded account. Suddenly things are not as bleak. And you are doing it yourself, by your own decisions, Government excluded. I put a foot in my own mouth and I am not touching TFSA and RRSP accounts even that I do have expenses as everybody else for this and that. Those investments will be a source of extra income when the pension starts. Especially I am not touching my precious metals account. Recent moves of gold and silver are proving me right. I am deeply convinced that both metals will skyrocket soon. I still won’t touch the stash. It will not go stale. Gold and silver are forever, figuratively and literally.

Do not:

Collect worthless crap for retirement! Sports cards or Matchbox cars are not for retirement savings. Don’t buy mutual funds. An impression is that somebody is actively watching your portfolio because you are paying MER (Management fees). No, they are not doing it all. Just sitting there and collecting fees, regardless of how well or bad your mutual funds are doing. Don’t buy speculative stocks in your retirement fund account. You will be tempted many times but simply don’t.