# Investing when Retiring at 43 - need 4% with low/no risk?



## Lightlines (Aug 21, 2011)

Hi everyone! I recently posted in the "retirement forum" under the "retire at 43" thread, and got some excellent advice. It seems that I can retire and generate an income that I can live from, assuming a 4% return.

What I wanted to ask was what is the best way to generate a *low risk* 4% return? 

Here are a few background points:

1. I HATE risk. If it was up to me I would put everything in a safety deposit box (or under my mattress, except that is too risky in case of fire). I happen to love GICs. (Someone suggested laddered GICs but I know at today's rates that won't give me my 4%.) I know what I will get. I sleep at night. I live my life. Having said that, I need a monthly income stream, vs. a 1ce a year lump. Although I suppose I could work around that. Also I have a fair bit of money and I know only $100K is protected in each bank.

2. I do not like financial advisors (had a very bad experience) so would be looking for a simple DIY suggestion.

3. I read somewhere that a blue chip dividend paying stock portfolio would be a way to go...but that seems too risky to me, and also see point 4, below. 

4. I don't want to have to care about or watch the markets in any way shape or form. I hate the financial section of the papers. I hate worrying about my portfolio going up and down every day. I am happy to generate the 4% that the other forum told me I need, and not one penny more, in exchange for not having any/much risk. My consumerism days are well behind me. 

5. It is very possible that I might end up living in Europe, so I will have exposure to exchange rate fluctuations up and down. Any suggestions on dealing with that would also be appreciated (not sure it would be a permanent move, so wouldn't want to convert my assets into Euros). Also I will lose Canadian tax benefits if I become a non-resident, like the dividend tax credit and using up my extensive capital losses. But I do know that there is no withholding on interest income.

6. I am open to investment products that an insurance company might have but I know I have to be careful about those in case the insurance company goes bankrupt. And anyways I don't really know much about what they offer (don't want an annuity at this point though)

Thank you all so very much for any suggestions that you might have!


----------



## CanadianCapitalist (Mar 31, 2009)

A 4% withdrawal rate for a 43-year old retiree is not sustainable IMO. Odds are very high that you will run out of capital eventually. The usual 4% thumb of rule was advocated for an investor retiring at a traditional age (65 years). 

I don't think your expectations are realistic. Long-Term bonds are yielding 3% nominal. If you go short expecting interest rates to eventually rise, you take on reinvestment risk. If you buy stocks expecting higher returns, you run the risk that you'll be eating into capital in times of market crisis.


----------



## MoneyGal (Apr 24, 2009)

The "4% withdrawal rate" has achieved folklore status (as in, it's just quoted without any reference to first principles at this point). 

It's really important to revisit the assumptions Bengen was using when he formulated the original study, first published in 1994. 

Bengen used historical (Ibbotson Associates) equity and bond returns to search for the highest allowable spending rate that would sustain a portfolio for 30 years of retirement, using a 50/50 equity/bond mix.

The question I'd be asking with respect to planning a withdrawal rate in this circumstance is whether *any* of those variables are relevant in this case: 

- equity and bond returns - what do they look like compared to how they looked almost 20 years ago?

- if the investor (in this case) is unwilling to take on any equity risk, what is the highest possible withdrawal rate based on bond yields alone? (It won't be 4%)

- if the investor (in this case) is planning for a retirement planning horizon of more than 30 years, how does that depress the maximum withdrawal rate? (A 43-year-old Canadian woman - uh, that's me - has a survival probability over the next 30 years in excess of 80%). 

And as a final point: note that Bengen suggested the 4% rate was applicable for the FIRST year of withdrawals only. Quoting right from the paper: 

_After the first year, the withdrawal rate is no longer used for computing the amount withdrawn; that will be computed instead from last year's withdrawal, plus an inflation factor._


----------



## gibor365 (Apr 1, 2011)

CanadianCapitalist said:


> I don't think your expectations are realistic. Long-Term bonds are yielding 3% nominal. If you go short expecting interest rates to eventually rise, you take on reinvestment risk. If you buy stocks expecting higher returns, you run the risk that you'll be eating into capital in times of market crisis.


All depends how much money he has right now. If he has lets say 700K and invest in high yield dividend aristocrats like AT&T who has 6% dividends, than only from dividends he will have 42K per year.. it's not a huge amount, but certanly he can live decent live...


----------



## blin10 (Jun 27, 2011)

I also wonder about #5, so if you're living somewhere else and have a portfolio in canadian bank with canadian companies, how do you do taxes if you're not in canada? fax over signatures to your accountant ?


----------



## gibor365 (Apr 1, 2011)

blin10 said:


> I also wonder about #5, so if you're living somewhere else and have a portfolio in canadian bank with canadian companies, how do you do taxes if you're not in canada? fax over signatures to your accountant ?


All depends if his tax country will move to country he will be living in. There is a big application form (forgot the number) where you answer on questions like: if you still have canadian credit card, if you have real estate in canada, if you have account and for what purpose and so on....
Depends on your answers CRA will decide if your Tax country still will be Canada or not. If Canada - he will need to do taxes in both Canada (probably online) and in new country.


----------



## Lightlines (Aug 21, 2011)

Ummm wow. Ok thanks. None of this is making much sense to me, sorry. Maybe I should ask the folks on the other forum whether or not I can use a rate of return that is lower than 4% and still have enough money to live on.

Thanks again!


----------



## blin10 (Jun 27, 2011)

gibor said:


> All depends if his tax country will move to country he will be living in. There is a big application form (forgot the number) where you answer on questions like: if you still have canadian credit card, if you have real estate in canada, if you have account and for what purpose and so on....
> Depends on your answers CRA will decide if your Tax country still will be Canada or not. If Canada - he will need to do taxes in both Canada (probably online) and in new country.


ic so it's really not a big deal and you don't need to sell everything and wire money away to the new country?


----------



## gibor365 (Apr 1, 2011)

blin10 said:


> ic so it's really not a big deal and you don't need to sell everything and wire money away to the new country?


It's not a big deal, but a lot of bureaucracy... lest say there are 30 questions (like I mentioned below). If you answers 'yes' less than 5 -> your Tax country most likely will switch to a new country. Sure, there are different exceptions etc.
But I'm pretty sure that if you don't leave your wife and other dependands in Canada and don't have real estate, have only credit cards and RRSP/CASH account -> you won't have problems to change you tax country


----------



## Four Pillars (Apr 5, 2009)

Well, that was a big waste of time.

What I find funny is that the OP refuses to take any kind of equity risk at all and yet she is ok with retiring at a young age, which in my mind is fairly risky in itself (even more so since she will likely lose to inflation because of her anti-equity bias).

Whatever.


----------



## peterk (May 16, 2010)

My opinion is that you absolutely need to have a good portion of money in stocks if you want to maintain your buying power. I know you say that you *HATE* risk. But you must understand that inflation is a HUGE risk. If you keep just living off your GIC interest you will _NEVER _ have any more money for spending, year after year. 80000/year now is great. Just realize that when you're 90 things will cost 3-5 times (mayber higher) more than they do now. So that 80000 will be more like 20000.

Indeed a large portfolio of dividend stocks should be the way to go. Since you confess no interest in keeping up with financial news you will not fall victim to bull and bear markets that us active investors often do. 

It can almost be promised that if you invest prudently in the stock market that you will watch your dividends grow decade after decade. Every year you will have more spending money than the last. If however you invest in GICs, your money will be "safe" but you are _guaranteed_ to lose buying power, year after year, for 50 years. 
Just something to think about when you consider the full definition of risk.


----------



## steve41 (Apr 18, 2009)

Based on those numbers you gave (buying the $300K condo and I halved your CPP expectation)

A die-broke at 95 aftertax lifestyle of $50K requires a 3.5% investment return, a $45K ATI requires 2.9%, and a $40K lifestyle requires a 2.1% rate of return. Unlax. (Or not)


----------



## blin10 (Jun 27, 2011)

gibor said:


> It's not a big deal, but a lot of bureaucracy... lest say there are 30 questions (like I mentioned below). If you answers 'yes' less than 5 -> your Tax country most likely will switch to a new country. Sure, there are different exceptions etc.
> But I'm pretty sure that if you don't leave your wife and other dependands in Canada and don't have real estate, have only credit cards and RRSP/CASH account -> you won't have problems to change you tax country


but even if you do change tax country you can still keep your canadian porfolio in canada just pay a little bit more in tax on it ?


----------



## gibor365 (Apr 1, 2011)

blin10 said:


> but even if you do change tax country you can still keep your canadian porfolio in canada just pay a little bit more in tax on it ?


As far as i understand, you have to pay taxes in your new country and just declare it as foreign income.

If your Tax country stays Canada, you will be paying taxes in both countries, just you suppose to get exempt from what you already paid in Canada. imho this option is more complicated.


----------



## slacker (Mar 8, 2010)

You do not have enough money, to take zero risk to retire this young.

Either earn more money, or decide to take on more risk, or retire later.

EDIT: Alternatively, die sooner, or live poorer.


----------



## Eder (Feb 16, 2011)

Lightlines said:


> Ummm wow. Ok thanks. None of this is making much sense to me, sorry. Maybe I should ask the folks on the other forum whether or not I can use a rate of return that is lower than 4% and still have enough money to live on.
> 
> Thanks again!


I retired at 53 on the basis of spending no more than 3% of my portfolio after inflation....so this year I need to generate about 6% return after tax to allow for inflation, so like 8% haha...anyone hiring???


----------



## blin10 (Jun 27, 2011)

gibor said:


> As far as i understand, you have to pay taxes in your new country and just declare it as foreign income.
> 
> If your Tax country stays Canada, you will be paying taxes in both countries, just you suppose to get exempt from what you already paid in Canada. imho this option is more complicated.


basically if you switch to new country you can leave your portfolio in canada in a canadian bank, but all the taxes you pay under new countries law? did I understand that right?


----------



## gibor365 (Apr 1, 2011)

blin10 said:


> basically if you switch to new country you can leave your portfolio in canada in a canadian bank, but all the taxes you pay under new countries law? did I understand that right?


Yes, I cannot guarantee, but I think you are right. Last year we were thinking to relocate to California (was choice : relocate or take package), I did a lot of research , also called CRA. They told that we can have RRSP/RESP in Canadian bank even if we change Tax country.

I'm not sure, but also think that in this case you will be paying withholding taz on dividends if you have it under non-registered account (in case of moving to US), and if you're moving to Europe, most likely you will pay withholding tax for any account.

P.S depends where in Europe OP wants to move, if to some cheap countries like Romania, Bulgaria etc - maybe it will be OK


----------



## blin10 (Jun 27, 2011)

gibor said:


> Yes, I cannot guarantee, but I think you are right. Last year we were thinking to relocate to California (was choice : relocate or take package), I did a lot of research , also called CRA. They told that we can have RRSP/RESP in Canadian bank even if we change Tax country.
> 
> I'm not sure, but also think that in this case you will be paying withholding taz on dividends if you have it under non-registered account (in case of moving to US), and if you're moving to Europe, most likely you will pay withholding tax for any account.
> 
> P.S depends where in Europe OP wants to move, if to some cheap countries like Romania, Bulgaria etc - maybe it will be OK


gotchya thanks for info


----------



## Lightlines (Aug 21, 2011)

Hello again everyone!

I guess I can't expect people posting on an "investing" board to have much patience with someone like me who doesn't remotely enjoying "investing" (which, btw, to me is a code word for "gambling" and since my ex husband that just cost me a fortune to get rid of was one of those I like to stay far far away from that). So if you all tell me I have to be in the markets...ok...but how do I do that given my other parameters, particularly not having to watch, understand, care about the markets? Buy an annuity? Are there equity products which protect ones capital somehow (maybe with insurance companies)? Other options? I truly don't know, so would be grateful for all suggestions. This is a very genuine question...looking for tangible suggestions. And the reality is, I am simply not going to become an investment person. Or learn how to drive a standard car...or be able to life 100lbs. I know my limitations!!! 

Here is some info for those of you thinking of leaving Canada. 

First of all, Canada has a tax treaty with most European countries. This means that if you become a non resident of Canada and a resident of a European country, you pay taxes in the European country on your worldwide income, and at the same time get a tax credit for any taxes you might have paid in Canada as a result of withholding done by the Canadian government at source.

So...when you decide to become a non resident, all of your property is treated as if you disposed it, and any gains are taxed. Then the diposition value is set as your new cost base for purposes of future withholding/taxation (this makes owning equities as a non resident a pain, because you can't use up capital losses against them, nor can you use the exemption). Going forward, the Canadian government also does automatic withholding on some sources of "income" in Canada (so that they get their taxes). So dividends, employment income, pensions, the sale of your home if it is done after you leave etc. all have withholding on them. However (interesting loophole) there is no withholding on interest income. Don't ask me why they left that one out. 

In order to be considered a non-resident, you have to break all material ties with Canada. In my case I have done that already. Sold my house (divorce). Sold my car (why bother, I am not there anyways, as I am travelling around the world right now). Sold most of my furniture (made some people without a lot of money very happy...it was a win win). Put the rest in an 5x10 locker. Have no family (ex took the family pet). The only thing that is left is to switch over all of my bank accounts to non resident status. I will finish up here in Spain later in the fall, then hopefully have an idea of where I would like to live (maybe even Canada but I doubt it in the short to medium term) and then tie up loose ends and establish a formal date for leaving the country. And frankly if for some reason the Canadians want me to pay taxes in Canada for awhile I don't care as I will have a tax treaty and offset what I pay in Canada against what I would have to pay whereever I might land in Europe, where the rates will be higher anyways.

I hope this info is somewhat useful...and also I am very much looking forward to any suggestions which you might like to share for my investing!

Have a great day everyone!


----------



## Lightlines (Aug 21, 2011)

PS Should have mentioned...no withholding done on anything in registered accounts...


----------



## MoneyGal (Apr 24, 2009)

If you don't want to take any equity risk, but you want the kinds of returns that equity markets produce (over guaranteed income sources), you can shift that risk over to an insurance company - who will take the equity risk on your behalf. 

If you don't want to take any equity risk, you are going to have to live on guaranteed returns, or take other kinds of risk (namely shortfall risk, i.e., running out of money before you run out of life).


----------



## Homerhomer (Oct 18, 2010)

You may want to check out segregated funds.


----------



## gibor365 (Apr 1, 2011)

Lightlines said:


> PS Should have mentioned...no withholding done on anything in registered accounts...


Not quite. If you hold in registered account , ADR that trades in NYSE, US LP stocks... - you will pay withholding tax.


----------



## Lightlines (Aug 21, 2011)

Hi Gibor, I think that is US withholding, not Canadian withholding, correct?


----------



## Cal (Jun 17, 2009)

After reading a few of your posts, I wonder how risky you feel the markets are. There are a few dividend paying stocks that don't really fluctuate that much (low beta) in price, but in your situation, it appears that you only need worry about the dividend getting cut. Perhaps some perpetual preferred shares would be best for you.

Not all stocks are as risky as you think. In alot of instances it is the stock trader themself who is the most dangerous.


----------



## Lightlines (Aug 21, 2011)

Hi Cal

I lost $300K in the markets a few years ago because of an advisor who, well, obviously didn't advise me all that well. And because I was stupid enough to think that anyone would care as much about my hard earned money as I did. So to me, anything that costs me $300K in after tax dollars is VERY risky! 

PS My grandparents felt the same way and steered clear of it their entire lives (the market); they did ok. Maybe it is a genetic aversion? However I hear that Donald Trump and some other high profile people also think the markets are a scam. And somewhere I read that for the longest time Warren Buffet (I think) also only ever held GICs (maybe I have that wrong?). 

PPS Thank you for your suggestion - I am going to read about perpetual preferred shares as I have never heard of those before. Also I am going to read about this "low beta" concept too.


----------



## blin10 (Jun 27, 2011)

great info, thanks... I wonder what if you have dual citizenship with canada and other country, how would that work ?



Lightlines said:


> Hello again everyone!
> 
> I guess I can't expect people posting on an "investing" board to have much patience with someone like me who doesn't remotely enjoying "investing" (which, btw, to me is a code word for "gambling" and since my ex husband that just cost me a fortune to get rid of was one of those I like to stay far far away from that). So if you all tell me I have to be in the markets...ok...but how do I do that given my other parameters, particularly not having to watch, understand, care about the markets? Buy an annuity? Are there equity products which protect ones capital somehow (maybe with insurance companies)? Other options? I truly don't know, so would be grateful for all suggestions. This is a very genuine question...looking for tangible suggestions. And the reality is, I am simply not going to become an investment person. Or learn how to drive a standard car...or be able to life 100lbs. I know my limitations!!!
> 
> ...


----------



## gibor365 (Apr 1, 2011)

Lightlines said:


> Hi Gibor, I think that is US withholding, not Canadian withholding, correct?


Yeah, sure. But opposite should be also true. I'm not sure , but think that if US guy hold in CASH account canadian stock, withholding tax will be deducted


----------



## HaroldCrump (Jun 10, 2009)

Lightlines said:


> However I hear that Donald Trump and some other high profile people also think the markets are a scam. And somewhere I read that for the longest time Warren Buffet (I think) also only ever held GICs (maybe I have that wrong?).


I don't believe that is true.
Warren Buffet has invested in every imaginable kind of security - from common equity to preferred to bonds to convertible debentures, but I've never heard him buying GICs.
You may be thinking of US treasury notes or bonds, but not GICs.
Regarding D. Trump, IMHO, _he's_ the scam, not the markets


----------



## Lightlines (Aug 21, 2011)

gibor said:


> Yeah, sure. But opposite should be also true. I'm not sure , but think that if US guy hold in CASH account canadian stock, withholding tax will be deducted


My point was solely on what the Canadian govt would do...the US government is a whole other animal. They withold irrespective.


Re: living abroad and dual citizenship - all that gets you is the ability to emigrate to that country more easily; it has nothing to do with tax. In other words, if someone holds dual Canadian and EU citizenship, they can live in any EU country without having to go through much (any really) red tape. But if you don't, you have to get permission to live there. For example to live in Canada that means getting permanent resident status or some sort of visa. To live in the EU, you also need to get visas, but so far my research has shown me that they would all be happy to welcome me because of my $2.1M. This is because they assume I won't be applying for welfare over there or become a burden to them in some other way. Of course if I don't get my retirement projections right, along with my investment plan, I may become quite the burden.


----------



## blin10 (Jun 27, 2011)

Lightlines said:


> My point was solely on what the Canadian govt would do...the US government is a whole other animal. They withold irrespective.
> 
> 
> Re: living abroad and dual citizenship - all that gets you is the ability to emigrate to that country more easily; it has nothing to do with tax. In other words, if someone holds dual Canadian and EU citizenship, they can live in any EU country without having to go through much (any really) red tape. But if you don't, you have to get permission to live there. For example to live in Canada that means getting permanent resident status or some sort of visa. To live in the EU, you also need to get visas, but so far my research has shown me that they would all be happy to welcome me because of my $2.1M. This is because they assume I won't be applying for welfare over there or become a burden to them in some other way. Of course if I don't get my retirement projections right, along with my investment plan, I may become quite the burden.


on a 2.1mill you can just load up big canadian companies with 5% dividends and get $105k a year forever.... and forget looking at the market, that's what I would do :>


----------



## Lightlines (Aug 21, 2011)

I would check out Warren's personal holdings for most of his career, not his corporate ones; I am pretty sure I read that he is risk averse and that he stuck everything into Tbills or some such for the longest time (sorry shouldn't have said GICs). And also he lives in a modest house and drives a modest car from what I read somewhere along the way. An all around conservative guy. 

Notwithstanding your view on Donald, since he has more money than I do (I am taking an educated guess here) and still doesn't like the markets although presumably he could take on more risk than I could before having to eat dog food on his beachfront property...I think there is a message there somewhere for me. If rich people like him and Warren don't think much of the markets for their personal portfolios, why should I? My mother always said to me when I was a teenager "Just because everyone else jumps off the cliff that doesn't mean you have to". Now if only I had stayed single...my only act of following the crowd and bowing to social convention...then I wouldn't even be having this discussion right now!


----------



## funinagg (Jun 10, 2010)

gibor said:


> Yes, I cannot guarantee, but I think you are right. Last year we were thinking to relocate to California (was choice : relocate or take package), I did a lot of research , also called CRA. They told that we can have RRSP/RESP in Canadian bank even if we change Tax country.
> 
> I'm not sure, but also think that in this case you will be paying withholding taz on dividends if you have it under non-registered account (in case of moving to US), and if you're moving to Europe, most likely you will pay withholding tax for any account.
> 
> P.S depends where in Europe OP wants to move, if to some cheap countries like Romania, Bulgaria etc - maybe it will be OK


as far as i know registered plans are unaffected by becoming a non-resident for tax purposes. but one can not add any new money into them if one is not a resident for tax purposes in that year.

CAD 2.1 million are enough to retire in quite a few countries. so there are some choices to be made.


----------



## NorthernRaven (Aug 4, 2010)

Actually, according to this, aside from his holdings of his own Berkshire Hathaway, Warren Buffet has a $1.8 billion personal portfolio of about 10 established, dividend paying stocks. Supposedly it recently produced an annual $42 million. That's something like 2.3%, which seems low, but who knows the details. In any case, he doesn't seem like the kind of guy who's outspending that sort of income!


----------



## HaroldCrump (Jun 10, 2009)

> Notwithstanding your view on Donald, since he has more money than I do (I am taking an educated guess here) and still doesn't like the markets although presumably he could take on more risk than I could before having to eat dog food on his beachfront property


Trump does not dislike markets - he likes one market (RE) vs. another (equity).
If he disliked markets, he would have bought GICs.

Regarding Buffet, I'd say Buffet stuffing his mattress with cash and GICs is an urban myth.
He might have some, but that's not his core holding.

Overall my point is, don't get taken in by such sweeping statements supposedly made by some rich celebrities taken out of context.
It's a clear case of "do as I do not as I say".
Don't make your life changing decisions based on such vague generalizations, esp. coming from media crazy, power hungry people like Trump.


----------



## Four Pillars (Apr 5, 2009)

She might be thinking of Suze Orman, who plays it pretty safe.

http://www.marketwatch.com/story/outing-suze-ormans-investment-portfolio


----------



## gibor365 (Apr 1, 2011)

funinagg said:


> CAD 2.1 million are enough to retire in quite a few countries. so there are some choices to be made.


IMHO 2.1M is enough to retire in every country in the world


----------



## sensfan15 (Jul 13, 2011)

Four Pillars said:


> She might be thinking of Suze Orman, who plays it pretty safe.
> 
> http://www.marketwatch.com/story/outing-suze-ormans-investment-portfolio


If I was in Suze Orman's position, I would invest the same way. She doesn't even need to invest in the markets to live a VERY comfortable lifestyle. But most people aren't her and need to take on a little more risk with their money to meet their financial goals. My 2 cents.


----------



## leoc2 (Dec 28, 2010)

Four Pillars said:


> She might be thinking of Suze Orman, who plays it pretty safe.
> 
> http://www.marketwatch.com/story/outing-suze-ormans-investment-portfolio



Pillars that is dated 2007. Is she still the same today?


----------



## Four Pillars (Apr 5, 2009)

I have no idea if she still has the same portfolio. 

If Orman bought all stocks and lost 90% of her portfolio, she would still be fine (assuming a reasonable standard of living).

Bottom line is that if you have a huge portfolio and don't really need it most of it - it doesn't matter what you invest in. Which is why we probably shouldn't model our portfolios on people who have too much money.


----------



## Karen (Jul 24, 2010)

Lightlines, as I mentioned in my reply to your original post on the other board, I share your aversion to financial risk and have all my money in GICs (significantly less than yours, by the way). I live very comfortably, but there are a couple of important differences in our situations. First, I am a lot older than you are, so my money won't have to last for so long; secondly, I have fairly good pension income so my GIC income is just for extras and to help out family members from time to time; thirdly, I started investing in GICs at a time when interest rates were considerably higher - some of it in the 13-14% range - and a good portion of my GICs are still invested at between 4.5 and 5%. So even though those rates will soon be coming to an end, the higher rates enabled me to increase my base capital quite quickly, which you won't be able to do these days.

I know from your original post that you worked at a high-pressure job and are really enjoying the lack of stress in your life since you left that job. But couldn't you consider finding a part-time, low pressure job to supplement your interest income? It seems to me to be the only way you can avoid the risk of outliving your funds without risking your capital, and you might find that you enjoy the new experience of working without the stress and pressure you've been used to.


----------



## MoneyGal (Apr 24, 2009)

This is the difference between retiring with "pensionized" income and without. No matter your age, if you have enough longevity- and inflation-insured income, you can either take or not take equity market risk - it's your choice. 

With no pensionized income, there are lots of potential inefficiencies in retirement income planning. 

Should I withdraw 4%, or 6%, or another number? Must I limit my withdrawals to last year's earnings? 

How much time am I going to spend watching the markets (or NOT watching the markets - and worrying?) 

What if I die tomorrow (a low probability)? What if I die at age 95? (Another low probability). 

Should I plan to age 100 "to be safe" - but doesn't that mean I'm potentially underspending by a large fraction while I wait for a low-probability event that is unlikely to materialize?


----------



## KaeJS (Sep 28, 2010)

LightLines,

Why would you not just go back to a high pressure job for 2 years and be done with it?

If you can live off the money you make and manage to save $50,000 over 2 years, you will be better off. You can now invest that $50,000 into some 5% dividend paying Canadian stocks which would yield another $2,500/year (and will continue to grow) plus capital appreciation.

Not only that, but you are cutting down your number of nest egg withdrawing years by 2 years, which would allow you to lower the % rate that you need to achieve on an annual basis to live comfortably, the way you want to live.

Personally, (and I'm not trying to be rude) but with 2.1M on hand, I think you're absolutely full of insanity to not put any of it into dividend payers. If you invested $300k in a Canadian Bank at todays prices, you could easily get 4% in dividends, which is $12,000/year (obviously no inflation priced in).

But.. you'd still have 1.8M left....


----------



## balk (Dec 6, 2010)

gibor said:


> All depends how much money he has right now. If he has lets say 700K and invest in high yield dividend aristocrats like AT&T who has 6% dividends, than only from dividends he will have 42K per year.. it's not a huge amount, but certanly he can live decent live...


This is an unfair and unrealistic post to make. She said that she didn't want equity risk and you provided her with one company that pays high dividends. Even if she were to go for equities, show me how you make a solid, diversified portfolio that pays 6%.


----------



## gibor365 (Apr 1, 2011)

balk said:


> This is an unfair and unrealistic post to make. She said that she didn't want equity risk and you provided her with one company that pays high dividends. Even if she were to go for equities, show me how you make a solid, diversified portfolio that pays 6%.


Just off my head, solid dividend stocks:
DUK, EPD, MO, RAI, T, VZ, BCE, ABT - average yield will be about 5.5% ...those guys consistently increasing dividends. And 700K = only 1/3 of OP's cash available.


----------



## OhGreatGuru (May 24, 2009)

Lightlines said:


> ...
> 
> What I wanted to ask was what is the best way to generate a *low risk* 4% return?
> 
> ...


If it were not for your 5th point, I would suggest the following.

1. Put 25% in laddered GICs, shopping around for whoever has the best rates when renewing;
2. Open an account with PH&N with the remainder, and put 25% each in PH&N Bond Fund; RBC Series D Monthly Income Fund; and PH&N Monthly Income Fund. These funds can be set up to pay their monthly distributions out in cash to your bank account instead of automatic reinvesting.

The Monthly Income funds hold about 50% of their assets in those blue chip stocks you seem to be worried about. But the funds are constructed to continue delivering regular monthly distributrions in spite of short term market fluctuations.

The fly in the ointment is leaving the country. This may have many implications for whether you can continue to hold Canadian investments.


----------



## Cal (Jun 17, 2009)

Out of curiosity, how much was the intial investment that lost the 300K? and what % of the porfolio was it.

Looking at these numbers might help to reassess.

I mean a 300K loss on a 2.5M portfolio, sucks, but it represents about a 13% decline, or a 300K loss on a 400K initial investment in a risky asset, is a smaller portion of the portfolio. I am just trying to get some perspective on the loss.

Having said that, I agree, nobody watches your $ as close as you will. But you have stated that you don't want to watch your money, and have no interest. You can't have it both ways.

Perhaps this forum will grow on you.


----------



## balk (Dec 6, 2010)

gibor said:


> Just off my head, solid dividend stocks:
> DUK, EPD, MO, RAI, T, VZ, BCE, ABT - average yield will be about 5.5% ...those guys consistently increasing dividends. And 700K = only 1/3 of OP's cash available.


Gibor, would you say that the selection of stocks you provided would make up a diversified portfolio? You might as well add in some NLY and AGNC to really boost the yield. 

The point I was trying to make is that most solid companies do not pay 6% and you will most likely need to have a much lower average yield in order to get a solid, diversified portfolio.


----------



## sensfan15 (Jul 13, 2011)

A dividend portfolio with a yield between 3.5%-4.5% is much more reasonable if your buying conservative solid blue-chips. A total dividend portfolio yield over 5% will most likely have some stocks which are a bit more risky. There are some exceptions though. BCE is one off the top of my head.


----------



## gibor365 (Apr 1, 2011)

balk said:


> Gibor, would you say that the selection of stocks you provided would make up a diversified portfolio?


Yes


----------



## Argonaut (Dec 7, 2010)

Not really diversified at all. No sense in having two tobaccos and three telecoms in a small portfolio.


----------



## andrewf (Mar 1, 2010)

Investing for 'yield' is generally going to land you with a smaller portfolio. There are very few free lunches out there, so just invest in a truly diversified portfolio and withdraw what you need for income (taking dividends out and selling as needed).


----------



## MoneyGal (Apr 24, 2009)

Except she's said she is unwilling to accept any market risk. If we were licensed financial advisors, we wouldn't be able to put her in any of the proposed portfolios, because she's adamant about her risk profile.


----------



## gibor365 (Apr 1, 2011)

MoneyGal said:


> Except she's said she is unwilling to accept any market risk. If we were licensed financial advisors, we wouldn't be able to put her in any of the proposed portfolios, because she's adamant about her risk profile.


Even if you leave everything in cash, you will have inflation risk. Just think if inflation will be 7-8%


----------



## MoneyGal (Apr 24, 2009)

Understood completely. But she defined "risk" in her first post in this thread as "market risk." 

The role of a financial advisor, in this context, would be to explore with her the various kinds of risk to which she is exposed and then (ideally) create a plan designed to protect against all of those risks while capturing the benefits of available products - and balanced against her specific preferences (i.e., no legacy motivation = choose instruments that produce income at the expense of legacy). 

My post was just pointing out that it doesn't matter if you can come up with a portfolio allocation which has a high probability of producing the desired income if the client (if you are a financial advisor) doesn't fit the risk profile. She would have to sign off on a risk profile which includes equities and this involves some degree of risk for the advisor. 

To be perfectly frank I'm somewhat amazed that a person could "retire" at the age of 40-ish with $2M in assets and NO comfort with financial markets and seemingly very little familiarity with capital markets.


----------



## gibor365 (Apr 1, 2011)

MoneyGal said:


> To be perfectly frank I'm somewhat amazed that a person could "retire" at the age of 40-ish with $2M in assets and NO comfort with financial markets and seemingly very little familiarity with capital markets.


Maybe she won a lottery 

I just gave AT&T as an example, because I believe that their (and any other dividend aristocrats stocks with 5 starts S&P rating) dividend are pretty secure.


----------



## steve41 (Apr 18, 2009)

gibor said:


> Maybe she won a lottery


 Or a nice fat divorce settlement.


----------



## MoneyGal (Apr 24, 2009)

From the other thread by the OP:

_*2 years ago I was downsized from my job as a very senior executive*. I despised my job so was glad to walk out of the door with a package. *I divorced my husband (cost me a fortune)* and now here I am completely on my own in this big world at 43 and no kids (and luckily not having to pay alimony) facing a very big decision_.


----------



## Cal (Jun 17, 2009)

So as for OP's limitiations on her fear of risk, and no interest in investments.

Her options would be to work a little, perhaps contract work? Or limit the cost of her lifestyle?

Invest in GIC's, face the tax burden (vs dividends), enjoy the safety of her investments, and live with barely beating inflation?


----------



## Lightlines (Aug 21, 2011)

The more I read what you all have to say, the more I conclude that unless there is something an insurance company can do for me, I am stuck doing some contract work or getting back on the bandwagon (groan) to generate income for my living expenses since there doesn't seem to be a reasonable solution for someone that actually DOESN'T want to lurk on the investing boards. (Not that I am sure you guys aren't nice people...but...as you can see from my lack of posts, I just spent the last 2 days lounging by the pool reading some good books in the Spanish sun...that appeals to me more than reading about the capital markets or thinking about money, even my own). 

Oh well. But it bears repeating...better for me to have found this out now so thank you everyone for taking the time to post.

And btw...never got a cent from a man, nor from family nor won a lottery (come to think of it I don't think I have ever won a thing in my life); in fact both just cost me $$ and aggro, and, as it would seem, scuttled my life plan to retire at 40.

Have a nice sunny Canadian day!


----------



## DanFo (Apr 9, 2011)

Enjoy the sunshine Light, With your intial assests I myself could live quite comfortably until age 90 without making a single investment or any interest(and paying no income taxes until the RRSP withdrawls start) Have fun in retirement!!


----------



## marina628 (Dec 14, 2010)

Most think they want to retire and laze around all day but when you get the opportunity to do it after a while you will probably want to work part time.My friend is nearly 70 years old ,met him Many years ago.He had sold everything he had and bought a house in Antigua , after 6 months he was sick of retiring and started writing books on how to gamble play baccarat etc .He then bought a place in Mexico and instead of hiring a gardener he became the gardener for a few expat families.We went to visit him a couple weeks ago at his house he rents in Toronto in the summer months and he showed off some of his wood working he is doing and giving away to his friend ,he has more money than he will ever need but he needs to be active.He was making a joke about in San Francisco he took a normal bike while his 41 year old son and younger wife had to get the electric pedal assist bikes.My husband retired at 42 and after 4 months he drove me crazy and himself too so went back to work 1-2 days a week again .


----------



## Lightlines (Aug 21, 2011)

Hi Dan...well if you are interested, if you go into the Retirement forum you will see my post there. Steve did a plan for me...and it seems doable to me too...but the folks on this forum are saying...nope. Now mind you this is with $4k/month, after tax, and then inflation adjusted until I die. Can I live off $4k a month? You bet. Am in sunny Spain right now driving a BMW, have a house with a pool, gardener and cleaning lady. And a rental piano that they had to bring in from Granada. And doing it all for less than that. And am very happy. Haven't bought any diamonds lately, but I have all that stuff already, and frankly, it just gives me rashes anyways. 

And Marina, I hear you. But I am not that type of person. I haven't worked in 2 years and am shocked at where the time has gone. I have been travelling the world. Taking interesting courses places where I am going to be hanging out for a bit longer (I start flamenco lessons in a few weeks). I have so many interests (the majority of which cost nothing) that every week my to do list grows. I worry that I will die before I get to it all. But I agree with what you say; the majority of my friends who cashed out ended up not knowing what to do with themselves. I guess I am somewhat unique that way, but I see it as a good thing!


----------



## DanFo (Apr 9, 2011)

I've read the other thread already. Just remember most people on this forum are investors or seeking knowledge about it and they're investment suggestions are more than likely in good faith and meant to ensure you more security. If your happy where you're at and constantly learning and enhancing yourself you will have no issues down the road finding work if indeed you may need it. Learning new languages and experiencing other cultures is a wonderful thing and I think you will be alright as long you continue to live within your "budget" .


----------



## Belguy (May 24, 2010)

60 per cent of my portfolio is allocated to equities and, even with the risk that this entails, I am only expecting maybe a three to five per cent annualized return and would be thrilled if I could maintain my historical seven per cent annualized return. I don't know what that says for someone who wants a four per cent annualized return with no risk!!


----------



## MoneyGal (Apr 24, 2009)

LL: I didn't read the plan that Steve41 did, and I don't doubt that you can live off $4k per month. 

However, I suspect the plan shows that if you can get a particular return, you will be fine until age 95 - the question is *how* to get that return, year over year, with no risk, for the next 50 years. 

Getting a plan that demonstrates that you will have "enough" money to live until you are 95 as long as you get a 4% return EVERY YEAR is not the difficult part. The difficult part is getting the 4% return with no equity risk. 

(Also, that plan assumes a 2% inflation rate. What if inflation moves up past 2%?)


----------



## sensfan15 (Jul 13, 2011)

@Lightlines

"Stuck" doing contract work or getting back on the bandwagon? You have a massive networth. I won't come close to having as much money as you do in my entire lifetime.

No offense and I don't know your lifestory, but to me it sounds like you have been privileged. Your in Spain and you drive a BMW, have a gardener and a cleaning lady.

The word "stuck" irks me in this situation considering ppl are starving all around the world and would jump at the opportunity to be able to get a job or education nevermind even getting a meal.


----------



## HaroldCrump (Jun 10, 2009)

MoneyGal said:


> (Also, that plan assumes a 2% inflation rate. What if inflation moves up past 2%?)


Good point about the assumption of RoR and inflation.
I'd simply like to add that don't assume the government's reported rate of inflation (2%) is _your_ rate of inflation.
Depending on _what_ you buy and what % of your monthly expenses are highly inflationary items like food, energy, etc. that 2% can mislead you significantly.
It may be a generalization, however, for most retired folks, food and energy are perhaps the largest component of monthly expenses.

It is important to measure your own personalized rate of inflation and use that in the model.
It is always safer to err on the side of higher inflation than lower.


----------



## KaeJS (Sep 28, 2010)

sensfan15 said:


> @Lightlines
> 
> "Stuck" doing contract work or getting back on the bandwagon? You have a massive networth. I won't come close to having as much money as you do in my entire lifetime.
> 
> ...


Was thinking the same thing...

I would have to save $100,000 per year for the next 21 years to be in your shoes, and I only make $33,000 gross. Hell, and I'd be flying off the handle if I got a $5,000 raise.


----------



## marina628 (Dec 14, 2010)

I AM SO happy I have no desire to retire


----------



## Argonaut (Dec 7, 2010)

MoneyGal said:


> To be perfectly frank I'm somewhat amazed that a person could "retire" at the age of 40-ish with $2M in assets and NO comfort with financial markets and seemingly very little familiarity with capital markets.


Agree completely, this is the best point in the thread.

Also agree with sensfan and KaeJS. I will have to either get significant raises, or continue on my unsustainable 10-20% per annum investing return to reach my goal of $1M by the time I am 40, or some combination of both. It would then take me about 10 years to reach $2M with no additional income. This is with a headstart on pretty much everyone I know my age.

Forgive me for having no sympathy at all for OP's "plight", though I am a skeptic in general and find it hard to believe in the first place. She got lucky somewhere along the line.


----------



## marina628 (Dec 14, 2010)

I really do not find it difficult to believe a 40ish can have 2 million or so in cash.In my business I come across many people who are self made ,work from home in Internet biz.At my last conference a guy I know a few years showed me his house he is building now , it has a lagoon in the back yard never mind a swimming pool.I know a 22 year old from London Ontario who earns over $300,000 a year from commission junction type sales .He was the person who told me Acne stuff one of the best earners on the web , he actually our ranked one popular brand in search engines and they bought his site because it would cost them more to try to knock him out.
But come to think of it all these guys i know are not laying in the sun


----------



## Karen (Jul 24, 2010)

MoneyGal said:


> From the other thread by the OP:
> 
> _*2 years ago I was downsized from my job as a very senior executive*. I despised my job so was glad to walk out of the door with a package. *I divorced my husband (cost me a fortune)* and now here I am completely on my own in this big world at 43 and no kids (and luckily not having to pay alimony) facing a very big decision_.


MoneyGal reminded us of the OPs first post where she explained her circumstances; it seems obvious that, as a "very senior executive," her severance package was pretty substantial. Why would anyone suggest that (1) she's not telling the truth, or (2) she's looking for sympathy? I didn't get the impression that she's not perfectly credible nor do I feel that she is asking for sympathy - she's looking for advice, which is hardly the same thing. She's had a bad experience with investing in the past and has decided to stay away from investments in the future since she thinks that, if she handles it well, she should have enough money to last her lifetime. Note that she has no children, so she's not concerned about leaving a legacy.


----------



## financialnoob (Feb 26, 2011)

I know interest rates and inflation don't go hand in hand, but there is a loose relationship there, and isn't it reasonable to assume that if inflation rises, her returns on GICs would also rise a bit to compensate? 

According to Steve's incredible software, it had her at age 95 with close to $1M left based on 3.25% return. That doesn't factor in any inflation but seems to leave plenty of wiggle room. She's also planning on purchasing a home, and that home value should rise with inflation so she could sell that as inflation "insurance" later on in life.

I'm not saying this is the optimal situation, just that it seems quite possible.


----------



## MoneyGal (Apr 24, 2009)

Noob: Yes, of course. However, imagine this situation: 

You invest in 5-year GICs to get the highest yield possible (I think the OP referenced 5-year GICs somewhere in one of her threads). Inflation is running about 2%, and the GICs are returning 5% so your yield above inflation has a safe margin. 

Now imagine that during your 5-year term, the inflation rate rises - possibly even to 5% or 8% or even higher. You need to wait out your 5-year term to get the guaranteed yield, but now you are dragging inflation, and you get your principal back, but it is now worth less. You can still invest in the new GICs to get your required yield, but 1. you now have less money in real terms, and 2. during the time you waited for your existing GIC to mature, you were losing money (in real terms) because your rate of return was not keeping up with inflation. 

This is what is known generically as "reinvestment risk" (link to the Wikipedia page): "The risk resulting from the fact that interest or dividends earned from an investment may not be able to be reinvested in such a way that they earn the same rate of return as the invested funds that generated them."

This is why people typically recommend "GIC ladders" - that is, a series of GICs investment for different terms, so you don't have all your GICs maturing at the same time. You are protected (somewhat) from reinvestment risk, but at the cost of current yield. 

There are many risks in investing. If the OP keeps her spending low relative to her wealth, she will be fine no matter how long she lives. However, if I recall all her posts correctly, she keeps referencing the "maximum" yield and the "maximum" withdrawal rate she can expect from the portfolio. It is very easy for me to say that I could live off a portfolio of $2M *in the current conditions* (and, like the OP, I am a 43-year-old woman). But conditions change, and an all-in strategy - all in cash, all in bonds, all in GICs - presents a particular kind of risk, i.e., concentration risk. This is the "all your eggs in one basket" risk. You MIGHT do very well, and you might do fine if the underlying conditions don't change much and your needs don't change. 

But the essence of protecting against risk is to contemplate "what might change" - and "how can I protect myself if and when things change?"

There are also some generic risks, like longevity risk, that people will experience no matter what markets do or not do. 

As for whether the OP is "telling the truth" or not - that isn't what I intended to communicate. I'm just at a loss to think of a senior executive position that paid her out a separation bonus in excess of $2M and that required virtually NO knowledge of capital markets. Every high-paying position I can think of - and maybe I just have a limited imagination - involves at least some basic knowledge of how markets work.


----------



## steve41 (Apr 18, 2009)

OK LL. Here is your plan looked at from a different perspective. Based on a 3.25% RoR and 2% inflation, your die-broke at 95 after tax income comes in at a hair over $48K. Here is that same plan, but instead of a constant 3.25% RoR, the rate vector is varied randomly over each year, and solved. The resulting ATI is captured each time and this is repeated 100 times. Here are the ATI stats for the montecarlo run for your plan.
your plan montecarloed


----------



## Lightlines (Aug 21, 2011)

steve41 said:


> OK LL. Here is your plan looked at from a different perspective. Based on a 3.25% RoR and 2% inflation, your die-broke at 95 after tax income comes in at a hair over $48K. Here is that same plan, but instead of a constant 3.25% RoR, the rate vector is varied randomly over each year, and solved. The resulting ATI is captured each time and this is repeated 100 times. Here are the ATI stats for the montecarlo run for your plan.
> your plan montecarloed


Hi Steve

Thanks Steve...so just to confirm, if I spend $40K after tax a year I am most likely ok? (I am still assuming that I can maintain my 1.25% spread over inflation via my investment portfolio - it would be interesting to see if there was a chart somewhere, say at Stats Can, that compared 5 year GIC rates, obviously in a laddered portfolio, with CPI or some other relevant inflation indicator for older people).

Thanks so much for taking the time to run another analysis on this!


----------



## Sampson (Apr 3, 2009)

To me the issue is all about risk, and your response to this.

No doubt there is a reasonable chance you can retire and never work again, BUT, what happens if there is a real return of 0-1% over the next 5 years (somewhat reasonable given the plight of the World economic situation).

It means you might run out of money.

If you run out of money, do you (i) want to work a little longer now? (ii) or in 30 years when money reserves start to dip low?

It is about safety net. Even if steve41's analysis is spot on, and you expect a $4k monthly income from your assets, how much of your lifestyle does that cover? If you have $3500/mo. in expenses, that's not much of a safety margin. If the same analysis shows you could generate $7k/mo. then I'd be confident that despite inflation risks, sequence of returns risks, inadequate insurance risk etc could be covered.

Personally I would make sure I had about double the monthly amount I needed before packing it 100% in.


----------



## steve41 (Apr 18, 2009)

Lightlines said:


> Thanks so much for taking the time to run another analysis on this!


 BTW..... I think that study took 3 or four clicks/keystrokes and a few minutes to run. The message I hope that gets out is that these plans are dead simple to source and run. The monte carlo takes a much longer time to execute. A single die-broke run is 2 seconds, so the 100 iteration MC run has to crank thru the recursion math roughly 100 seconds or so.


----------



## steve41 (Apr 18, 2009)

Sampson said:


> To me the issue is all about risk, and your response to this.
> 
> No doubt there is a reasonable chance you can retire and never work again, BUT, what happens if there is a real return of 0-1% over the next 5 years (somewhat reasonable given the plight of the World economic situation).
> 
> ...


OK.... I plunked in 0% rate for the next 5 years, 3.25% thereafter. The ATI comes in at $43K. Big whoop.


----------



## Four Pillars (Apr 5, 2009)

I think a point that the OP should understand is that there are no certainties when it comes to retirement planning.

This is not intended to be any kind of criticsm, but you seem to be looking for a magic withdrawal amount or magic plan that will ensure that you won't run out of money and don't have to think about finances ever again. This is understandable, but it's not realistic.

Steve's plans for example are pretty good financial models and worth looking at. However, they are just financial models with long term assumption inputs that might not be accurate. 

Same concept with the idea of investing in equities and using the "4% rule". 

All these plans have success probabilities associated with them that are less than 100%.

I honestly don't know why you don't want to be "thinking about money" at all. We all do things we don't like to do - that's just the way life is. It's your money, it's your livelyhood - you have deal with it at least some of the time.

My suggestion is to see if you can get a free financial analysis from the G&M - http://www.theglobeandmail.com/globe-investor/personal-finance/financial-facelift/

That might be interesting.


----------



## NorthernRaven (Aug 4, 2010)

One can get an idea of possibilities from historical rates like inflation, but given the long period you are preparing for, there are always going to be unique conditions along the way, even if things even out on average. If you were spending on an assumption of, say, $40,000 in income, you might get a run of inflation or low rates that would reduce your purchasing power for a time. There was nothing that warned people in the early 70s that inflation was going to spike over 12%, or mortgage rates would approach 20%. 

If you are going to be in Europe (or elsewhere), don't forget currency issues. Imagine your counterpart in the early 70s retiring to the US. Rubbing their magic lamp, they get a magical 30-year, $2 million inflation-protected Canadian GIC, returning a guaranteed 2% above inflation (if only). With the dollar at par back then, that $40,000 Canadian would be $40,000 in $US as well. However, as our dollar declines over the years, the purchasing power of their $C income is at times much less, down to 65-70% when the loonie is at its worst. That's a fairly extreme case, but if you decide to spend long periods resident elsewhere, you may want to look into having some portion in equivalent investments in the appropriate currency, to offset some of the differing currency and inflation conditions you'll be experiencing.

Finally, those 3.25-3.50% 5 year GIC rates are from a fairly small group of institutions, mainly Manitoba credit unions - if you toss those out the top 5-year rates seem to be around 2.75%. While I've got a chunk of cash at one myself, I might be just a touch hesitant about putting the entirety of such a large, vital nest-egg in a single provincially-backed system, even if the chances of anything bad happening are extremely low. More importantly, there's no guarantee that there will always be such a significant premium at the top of the GIC market in years to come.


----------



## Larry6417 (Jan 27, 2010)

As usual, MG makes a great point. I haven't followed this thread closely, but I was also struck by how financially naive the OP was. A 4% return with NO risk? She also didn't differentiate (at least initially) between the amount she need pre vs. post tax. She claimed she could live comfortably on $3K per month, but seemed to forget (or not know) that interest receives no special treatment under Canadian tax law i.e. $3K after-tax is ~ $5K pre-tax. Therefore, the withdrawal rate she needs to maintain her lifestyle is higher than she thinks. 

I'm also sceptical that she will be able to live on $3K per month after tax (certainly not before tax). She talks about purchasing a $300K home. What about transfer taxes, legal expenses etc.? She also talks about moving "north" in a few years. She also wants to maintain ties to Canada. How much will it cost to fly to Canada even occasionally? Add in the cost of doing tax returns in more than 1 country (CRA will likely consider her a Canadian resident if she maintains significant ties to Canada). In addition to all the usual risks she takes (inflation risk, sequence of returns risk, longevity risk), let's add another: currency risk. If she means a country like Norway (by "north"), then she'll find her CDN dollars relatively lower value.

I don't believe that the OP is lying. It's possible for a senior executive to have little knowledge of capital markets. Just look at Kevin O' Leary.


----------



## Sampson (Apr 3, 2009)

steve41 said:


> OK.... I plunked in 0% rate for the next 5 years, 3.25% thereafter. The ATI comes in at $43K. Big whoop.


Steve,

My criticism has nothing to do with your model. My point as FP and others mention is only that 50 years is some time to predict all these metrics, not only the returns, inflation, and taxes, but as you often mention the beer money is what it is all about.

Can anyone say what their own spending will be like over a 50 year period? Ask a 50 year old how much they expected their living expenses to be 50 years before.

Is the OP willing to live off $1500/month if something dramatic/unforeseeable happened? Maybe the OP will have moved some money offshore and that country's government freezes all accounts. These types of events have happened in the past, and I would argue are impossible to predict.

I think it is important to use models like you have created as part of a plan, but that plan better be robust enough to hedge unforseeable events. When the OP is 70, will she still command the same contract income as she does now? I don't know that, but she should ask herself those questions.


----------



## steve41 (Apr 18, 2009)

Absolutely. Planning is a fluid process. As unforseen cash requirements (and windfalls) crop up over time, you forecast as best you can given your changed situation. I would like to see cash flow planning such as I have posted become as common an exercise for individuals as balancing their checkbook or at least preparing their annual T1. Don't count on the industry for this type of analysis, BTW... I see it as DIY.

Oh.... the 'stash your savings under the matress die-broke number' for OP is just a shade over $30.6K


----------



## Plugging Along (Jan 3, 2011)

Sampson said:


> To me the issue is all about risk, and your response to this.
> 
> 
> If you run out of money, do you (i) want to work a little longer now? (ii) or in 30 years when money reserves start to dip low?


There is another option, prior to her running out of money, she can adjust her lifestyle as her money is changing. It wouldn't need to be done yearly, maybe every few years. It sounds like the OP is fairly flexible in the type of lifestyle that she will live, and would be willing to make adjustments, as she herself is quite fluid right now. She has already said that if she had to, she would take on contracts if needed. 

I'm not sure why there is all the criticism from so many here (not you specifically). It sounds like the OP has worked really hard earned a lot money, and investing and financial markets have not been a concern for her. There’s nothing wrong with that. This is just something that she is just not interested in. I have been like that, where I felt I could get a better return of my time in having a financial advisor to help me manage vs. spending the time I would it would take me to be comfortable.

Sure, she’s taking in a lot of risks by retiring early, and it may seem frustrating that she doesn’t want to much to do with finance. Perhaps, she find an fee only advisor that she can trust to help her with this. 
not


----------



## financialnoob (Feb 26, 2011)

Excellent post MG. I hadn't thought of things that way. Part of saving and investing is to provide flexibility and options, but this would reduce both. And who knows what the future holds for OAS/CPP?

I think the GIC ladder could still be the backbone of the strategy, and adding that property and perhaps some ETFs might be enough? It's sort of a different question than I'm used to seeing on here, as there's lots of threads about maximizing or optimizing returns, whereas the OP here isn't as concerned about that.


----------

