How my husband and I plan to retire by 50
Because even TreeHuggers have to be financially savvy.
Often I feel baffled by how much money my generation spends. I see it everywhere I go -- young families in their early thirties, just like me and my husband, establishing mind-boggling lifestyles that include new mansions, swanky cars, expensive vacations, designer clothes, and yards full of toys.
While I’m happy that these wonderful folks feel so affluent and financially confident, I struggle to understand it. I don’t think most young people can afford the things they buy; but because the cost of money is dirt cheap and has been for nine years, Canadians take this as a cue to take on record levels of consumer and real estate debt.
This makes me sad because many people seem to think that retirement will take care of itself, or that the Canada Pension Plan will provide them with the income they need in their golden years. Financial independence (as in, living debt-free and not having to work if we don't want to) is a top priority for me and my husband – and I wish it were for many other young people, too.
When I first met my husband, he was 25 years old and told me he planned to retire by 40. Initially I found it amusing, but I’ve grown to respect him for that goal. Almost a decade and several kids later, retirement has been bumped to closer to 50, but we’ve managed to develop a pretty solid financial philosophy that I want to share here. We are tremendously fortunate to have good jobs, but with that comes a responsibility not to squander it on a lifestyle that’s more excessive than we require.
We strive to live on one salary and save the other. Not only does this allow us to put money away in the bank, but it creates security in the worst-case scenario that one of us becomes unemployed. We won’t be totally screwed.
We know what our monthly cash flow is and understand where our money goes. We used to record every single receipt, but now we put most expenses on a rewards credit card (which we pay off fully every month) where purchases can be easily tracked.
My husband has delved into the world of investing and realized that the “big bad market” is nothing to be scared of, especially if you have a diverse portfolio. We know where our investments are and what they’re costing us in fees, and we steer clear of costly mutual funds.
We do not rely on his pension because it might not be there when the time comes. Our approach is to ignore the pension, save as if it didn’t exist, and then enjoy the extra income, should it appear someday.
We have invested in real estate, although it’s only one aspect of our investment portfolio because the market is highly volatile in Ontario right now. A local rental gives us a small yet positive monthly cash flow. Our primary residence, however, is not viewed as an investment or a retirement strategy because, as the old adage goes, you can’t eat a house. As an illiquid asset, it’s entirely reliant on a fluctuating market, which is too unstable to count on as we approach retirement.
We put our TFSAs (tax-free savings accounts) to good work; the American equivalent is a Roth-IRA. It’s astonishing how many Canadians think that a TFSA is a product or an account for saving for their next vacation. In so doing, its power is squandered. Increasingly, it will replace the RRSP (Registered Retirement Savings Plan) as the primary source of retirement income. Maximizing contributions is the first thing we do each year, before considering any fun travel plans or house renovations.
Staying happily married is a key financial strategy for us, as well. We help each other pay down the credit card, top up TFSAs, and put money toward the mortgages. By staying together, there are no alimony payments, no double living expenses. In the words of Ms. Our Next Life, a financial blogger whose writing I enjoy,
“We see our marriage as our most important investment, both as the thing that has allowed us to save like crazy and as the support structure that has allowed us to even consider choosing this alternative life path. Note we say investment (something that needs tending), not asset (something we take for granted).”
We both enjoy spending as much as the next person, but delaying gratification is a central philosophy in our relationship – not to mention my hard-core environmentalist leanings, which help.
The biggest thing is openness and transparency. We share a credit card account, which helps to hold us accountable to each other for purchases.
We drive old cars – a 2002 Acura with 355,000 kilometers (220,000 miles) on it and 2006 Toyota that’s close behind. Both are fully paid off and both run just fine. We lust after newer, sexier cars on a regular basis, but it doesn’t make financial sense – at least, not until that Tesla model 3 finally arrives, at which point the Acura will retire.
We buy second-hand clothes. Almost everything our children wear comes from the thrift store, and most of my clothes, too. My husband buys more things new because he works in a corporate office.
We opted for “less house” than we were eligible for. Sure, the toilets are ancient and the back deck is rotting, but we’ve got plenty of money left in the market to continue making us more money. This feels much safer than having a fancy nest. Almost all our home furnishings are second-hand. (The only exception I can think of right now is one sofa that we bought new six years ago.)
We know exactly what our priorities are and talk about them openly: good food (usually groceries, since we minimize eating out), date nights (hence, a hefty babysitting bill that’s counterbalanced by the fact that most of our friends host gatherings at home – welcome to small town life!), and health (CrossFit membership for me, gym equipment at home for my husband). Travel is important, but it comes in second place to the TFSA and depends on what work needs to be done around the house.
I do not claim to have all the answers, nor would I presume that our approach would work for everyone. People have different priorities and requirements, and live with vastly different financial circumstances. But I do think that Canada and the U.S. face a crisis when it comes to lack of money management skills. Far too many people are afflicted by a fear of investing, a lack of knowledge about how to save and how they are taxed, and a tragic inability to say no to superfluous spending. The more we talk openly about this, the better it will get.