Wednesday, January 30, 2013

Dividend Increase is Like Getting a Pay Raise

As we describe in our book "Retired at 48 - One Couple's Journey to a Pensionless Retirement", our main strategy for generating post-retirement income is to try to live off the dividends from our stock holdings.  One of our blue chip dividend stocks has just raised its dividend payout value by 15%.  We bought this stock specifically because of its long history of raising its dividend.  Receiving a dividend increase is like getting a salary increase during the working years.

We hold many different dividend-paying stocks and limit the total value that we hold in any one stock, in order to diversify and minimize risk.  Therefore the impact of this raise is diluted, but still every extra dollar is appreciated.  By the same token, our exposure will be equally limited if any of our stocks decide to lower their dividends.  Thus far, we have not experienced any significant lowering of dividends from any of our stocks.

Travel Tip - Cheap Passport Photos

Before we retired, time was money and so we would make purchases at the most convenient locations, as opposed to bargain hunting.  When we had to renew our passports, we usually went to the Blacks Photography store across the street from us, which charged about $20 + tax for a set of passport photos.

Now that time is plentiful but money is limited, we are more incented to shop around for a better price.  The bulk discount store Costco offers passport photos for $6.99 + tax, but we don't shop there since we live in a condo with no room to store items in bulk.  Through a bit of research, we found several small photographers in downtown Chinatown, around the Spadina and Dundas area, that took passport photos at very good prices.

We went to Da Yang Photo and received our passport photos, in colour, at a cost of $6.99 cash including tax per set of 2 photos.  It look less than 10 minutes to process both of us.  We brought our photos to Service Canada and renewed our passports with no issues.  In total, we saved over $30 for the two sets of passport photos.  This was definitely worth the trip to Chinatown.

Da Yang Photo
303 Spadina Ave, Unit 202

Saturday, January 19, 2013

Managing Our Own RRIF Payments

In my book Retired at 48 - One Couple's Journey to a Pensionless Retirement, I discuss our strategy for funding our early retirement, using our RRIF, TFSA and non-registered savings as potential sources of income.  The book describes the rules for a RRIF including the formula for calculating the mandated minimum withdrawal per year, and the options for frequency and timing of payment.

Upon retiring last year, I collapsed my RRSP and created a RRIF, from which I will receive monthly payments throughout the year. We will use this money to help fund our retirement expenses.  Receiving income payments monthly gives us the most flexibility and provides a steady cash flow for monthly expenses.  Any excess cash that is not spent within the month can be transferred to a high interest savings account, to save up for major expenses such as vacations, or the TFSA contribution for the following year.

I did the calculation for estimating what the monthly amount would be and took measures to ensure that I would always have enough cash in my RRIF to cover it.  This led me to wonder what would happen to people who did not understand these calculations and did not have enough cash in their RRIF to cover their withdrawal. I spoke at length to a customer service agent from Scotia iTRADE, my online discount brokerage, to verify my understanding of the consequences.  This is what I found happens, at least for iTRADE, but I would assume other brokerage firms have similar policies.

There is no statement sent out at the beginning of the year to indicate what your withdrawal payments would amount to.  If you want to find out or confirm this amount, you need to phone and ask. It is your responsibility to ensure that you have enough cash to cover the amount withdrawn. If you do not, you will go into default for a predetermined amount of time, a grace period of probably a few days, to allow you to cover the shortfall.  If you do not provide enough cash at this point, then the brokerage firm is authorized to arbitrarily sell one or more assets until enough cash is generated.
The assets would be sold in the following order of preference.
  1. Money Market Funds
  2. Stocks
  3. Bonds
You would not be notified or consulted on which assets are sold. This could result in the liquidation of a holding that you preferred to keep and your portfolio might be adversely affected.  It is obviously better to never fall into this situation and to maintain control of your own investments.

I wonder how many people actually know about or understand all this?  Perhaps this is why so many people simply hand their money over to a wealth management firm and let them deal with these matters.  Based on my conversation with the agent, it sounded like going into default in the RRIF happens more often than it should.  There should be more education and awareness about this.

Friday, January 18, 2013

Later Life Learning Interest Courses

In our continued quest to find more ways to entertain ourselves after retirement, we were delighted to come across Later Life Learning.  This is a non-profit educational program for retirees, that is affiliated with University of Toronto's Innis College.  Each year, there are two sessions of lectures, held in autumn (September-November) and winter (January-March). Each session offers three different series of topics, each comprising of 10 weeks of lectures.  The topics usually include some focus on music, film, theatre or other arts.  The cost of enrolling for a session is $50.

Past topics have included American Movies and the Politics of Idealism, Baroque Art, St. Petersburg - Portrait of a City, Film Noir, One Hundred Years of Jazz, Galileo's Legacy, The Realm of Dance, Ten Classical Pieces That Changed Music.  The classes are so popular that there is usually a wait list for the overflow of demand.  

We are currently enrolled in the 2013 winter session which runs from January 11 through March 22 with classes once a week, lasting 1 hour and 45 minutes.  The three series choices were:
  • Myths and Legends in Opera - Mondays 10am-11:45am
  • Frontiers of Medicine - Fridays 10am-11:45am
  • Plays that Shook the World - Fridays 1pm-2:45pm
Since we have always loved live theatre, we picked the last topic which covers the history of plays.  Each week, we explore a different era, starting from the Greeks and Romans,  moving through Medieval Drama, the Golden Age when Shakespeare and Marlow reigned, continuing on until we reach modern and post-modern drama, including surrealism, and finally contemporary plays.  It is such a joy to be able to learn for the pure fun of it, without worries about tests or assignments.

The lectures for our play series are given by Dr. Philippa Sheppard, who teaches English Literature at U of T and has a PhD in English Renaissance Drama from the University of Oxford.  We first encountered Dr. Sheppard when we attended a talk she gave at the Toronto Reference Library about Macbeth.  It is obvious that this instructor is an expert in her field, and each week we are inundated with fascinating information, images and even video clips.

The first week concentrated on Greek plays, which dealt with religion, human values and stresses and featured interaction with Gods and external forces.  We learned that the actors were untrained citizen volunteers and risked being stoned to death for an unfavourable performance!  Roman plays were less serious and became the forefront for comedies and musicals, often including acrobatics, juggling, Gladiatorial events, singing and dancing.

We discussed three plays in detail and then watched film clips of performances or movie adaptations of them. The first two were Greek tragedies while the third was a Roman comedy. As prophesized, Oedipus Rex (of the Oedipus complex fame) tragically and unwittingly killed his father and married his mother, while Medea killed her two children in a rage to spite her cheating husband who was leaving her for a younger woman.  The modern play A Funny Thing Happened on the Way to the Forum is directly based on the form, stock characters and plotlines of classic Roman comedies.  A wily slave plots to be freed from servitude, causing mayhem along the way.  Not too much seems to have changed in human nature in all these years!

There was a long period of the Dark Ages after the fall of the Roman Empire, so the following week, we jumped all the way to 1300AD to discuss Medieval plays.  Christianity was now in full force and so the plays were all religious in nature.  Mystery Cycle plays acted out stories from the bible, such as Adam and Eve or Noah's Ark.  They were performed in traveling pageant wagons that moved from station to station throughout a town. Morality plays portrayed the interactions between humanity, symbolized by the generic "everyman", and allegorical personifications of Vices and Virtues. These lessons in morality seem to be a likely precursor to latter stories like Aesop's Fables.

Once again, the video clips were the best part of the lecture, since watching them really clarified the points being discussed.  We viewed short excerpts from mystery play performances of Noah's Ark and The Second Shepherds' Play.  Humour was added to the story of Noah by portraying him as a henpecked husband whose wife did not want to leave her friends to go on the ark.  The latter play was about three shepherds who confront a fourth after he steals one of their sheep. The thief and his wife try to disguise the sheep as a baby but their ruse is detected.  Later, the three shepherds witness the birth of Baby Jesus, made all the more profound when compared to the "fake baby".

In the morality play Everyman, the titled character is told by Death that he is to die and must tally his good and evil deeds in life.  Everyman seeks a companion to accompany him to his afterlife.  He comes to learn that Goods (worldly possessions), Beauty, Strength, Discretion and Five Wits (senses) have no true value and abandon him.  Only Good Deeds will "accompany him beyond the grave", but Good Deeds needs to be nurtured during life to have the power to make the journey at death.  It all becomes really clear if you watch the Lego version of this story on YouTube.

We have already learned so much after only two weeks of classes and cannot wait to attend the rest of them.  The town hall auditorium in Innis College is a 45 minute brisk walk from our home, so we exercise our bodies and our brains all in one afternoon.

Thursday, January 17, 2013

Free Events at the Toronto Public Libraries

In order to keep the post-retirement entertainment budget under control, we always look for low-cost or free events that are fun.  We've learned that the Toronto Public Libraries offer a wide range of lectures, author talks and book readings, interest courses on a variety of topics, exhibits and other events that are interesting and even educational, but best of all, free!  They even offer free passes to Toronto museum and historical sites.  Using your library card, a pass can be checked out once a week, but you cannot pick the same location for at least 3 months.

The Toronto Reference Library's TD Gallery holds rotating exhibitions featuring books, documents, drawings, paintings, sculpture and other artifacts from the library's collections.  A previous exhibit, titled "Royal Fanfare", dealt with ceremonies such as birthdays, funerals, coronations and royal visits, related to associated with monarchies through history and across different European countries.

The current exhibit "The Adventures of Sherlock Holmes"displays artifacts related to the iconic detective and his creator, Sir Arthur Conan Doyle.

Follow my Toronto Culture blog at to find out about more events.

Making TFSA Contributions After Retirement

We have found the Tax Free Savings Account (TFSA) to be an excellent savings device, since any growth or income you earn within that account is tax-free, even upon withdrawal. This is in contrast to the RRSP which is just a tax deferral mechanism. Once you convert the RRSP into a Registered Retirement Income Fund (RRIF) and start taking income payments, that money is taxed at the full employment income rate.

Having tax-free money to spend will help to reduce our total taxable income in the later years, when we will be forced to take a larger and larger payments from our RRIF.  This year, for the first time since its inception, the TFSA limit has been raised from $5000 to $5500.

Even though we are now retired, we will still try to max out our TFSA contribution every year and have considered various options for accumulating the money to do so. Our current thought is to take the minimum payment that we are obligated to withdraw from our RRIFs each year and use that money for the TFSA contribution.  In effect, we are moving funds from the RRIF, which is taxed on withdrawal to the TFSA which will be tax-free.  If it turns out that we need some of this money to spend during the year, then we can still withdraw from the TFSA tax-free, and will try to recontribute that amount in a future year.  Note that we cannot recontribute in the same year or we will trigger a penalty.

We looked into transferring stock in-kind from our non-registered account as a way to make our TFSA contribution.  We discounted this option because of the potential capital gains that it might trigger, which would drive up our taxable income.  Since we are forced by law to take a minimum RRIF payment anyways, this is taxable income that is unavoidable.

How Not Having A Company Pension Became A Blessing in Disguise

I worked for the same large, multinational corporation for over 26 years, starting right out of school and remained there until the day I retired.  When I first joined the company back in 1986, I was enrolled in a defined benefit  pension plan, but had no idea what that meant. A few years later, the company changed policies and offered to convert its existing employees to a defined contribution plan. Again, I had no idea what that meant, but listened to the HR representatives as they convinced us how much better and safer it would be for us to switch over.

Back in those days when I still believed that my company had its employees best interest at heart, as opposed to its own bottom line, I voluntarily gave up the chance of a company pension that would pay me money from the day I retired until the day I died.  Instead, I retired with the meager sum that accumulated in my defined contribution, which was basically a locked in RRSP. It was not even close to being enough to live on.  For many years I was very bitter at what I considered to be my naivete in being "tricked out of the security of a pension in my retirement years".  But now that I am actually retired at the early age of 48, it turns out that it was actually a hidden blessing in disguise.

What I have come to realize is that I never would have been able to retire at such a young age if I had a company pension.  First of all, I would have been tied down by the terms of the pension and would have felt obliged to keep working until I had fully vested my retirement benefits.  This would have taken me at least until age 54.  More importantly, knowing right up front that I had to rely mostly on my own savings to fund my retirement years, motivated me to open an RRSP and start saving early. In the beginning of my career, when I had a mortgage and other financial obligations, I would still contribute enough to my RRSP annually to eliminate any income tax obligations. Although the amounts were minor, the effects of compound interest over the years helped the savings grow.  As I became debt free, I would contribute more and more, until I could max out my RRSP contribution room.

These days, due to cost cutting measures, few private corporations still offer a defined benefit plan. Many of those that do, have significantly cut the payout ratios of the plans they support, and most plans are not indexed for inflation.  Had I remained in the defined benefit pension plan offered by my company, I would not have received enough income upon retirement to sustain a comfortable lifestyle without supplementing with my own savings.  But I may not have realized this until it was too late, and would not have been as motivated to take control of my own retirement plans. More likely, I would have been lulled into a false sense of security, thinking that my company pension plus the government pension and CPP would suffice to live on.

When I met my husband, who also did not have a company pension, and realized that he shared my dream of retiring early, we pooled our resources to continue saving for this goal. Eventually, we taught ourselves how to calculate and predict how much we wanted to spend in our retirement years, how much money we needed to save to fund this, and how long that money would last. These are all lessons that we discuss in our book Retired at 48 - One Couple's Journey to a Pensionless Retirement.

I wish that there had been more training in our school days to teach us about budgeting, saving, financial and retirement planning.  Everything we know has been self-taught.  It makes me worry for the youth of today, for most of whom, the company pension will be a thing of the past.  Will they be prepared to support themselves by the time they want to retire?  Will the government pension plans like Old Age Security and Canada Pension Plan still be around to supplement?

Grateful is probably too strong a sentiment, but I am no longer bitter about being "talked out of" staying with my company pension plan. In retrospect, this actually paved the way to my early retirement at age 48, and I am loving every second of it.

Retired At 48 - 8 Months Later

My husband Rich and I both retired on the same day–May 11, 2012. We were each age 48 at the time. We had planned, saved, and prepared for over the 13 years in order to retire early. Finally the day arrived.

Rich loves to needle me by saying that I am “a year” older than him, since I was born in 1963 while he was born in 1964. In reality we are less than 5 months apart, but I figured if I am to be labelled as being a year older, then he owed me an extra year of work before he could retire. I lost that battle but won the war, because, all kidding aside, retirement would not be nearly as much fun without him to share my adventures with.

For the first time in over 26 years, we had an entire summer off and did not need to be stuck inside an office on beautiful sunny days. The days have slipped by like a whirlwind and it is already 8 months later. We find ourselves even busier than when we were working. The more time available to us, the more we pack into a day. Maybe this will pass, as we are still finding it hard to believe that our days of leisure are not numbered and so we don’t know how to slow down yet. But more likely, this is just our nature and how we like to enjoy life.

We’ve gone on 3 vacations since retiring including a trip to British Columbia and Seattle, a 3-week road trip around North-West Ontario and U.S.A and a Christmas jaunt to New York City to see the amazing holiday displays. We’ve been able to enjoy the many festivals and cultural events that Toronto has to offer. I blog about our travel, cultural and dining exploits regularly.

A major consideration in scheduling our retirement date was to be able to spend more time with our aging parents.  Our timing was impeccable, as we were available to help one set of parents downsize and move to a retirement home–a labour-intensive and emotionally draining event for all involved.

I have also been able devote more time to writing, which has always been an interest of mine. Spurred on by the numerous friends and family who have inquired how we were able to retire at such a young age, Rich and I set out to write about it.  The result is our book “Retired at 48 – One Couple’s Journey to a Pensionless Retirement“.  It will be available in paper format from Iguana Books and other online bookstores by the end of January and in eBook format by early February.  Watch this blog for more details.