Financially, it is never enough

Last week I was talking to an Insurance Agent about possibly changing my term insurance carrier, to see if I could get a lower rate, and (as usual) the conversation was not just about Term Insurance for guys over 50 (that was the topic I wanted to talk about), unfortunately the topic of retirement planning and insurance coverage to protect my family came up (no, I didn’t bring it up, you can guess who might be the protagonist in that part of the conversation).

Financial Despair

At the Signpost Up Ahead, you see you are entering… The Financial Despair Zone

I pointed out that I have a pension plan (a very good and generous plan) so my family was going to be OK, in terms of retirement planning, or were they? The agent I was speaking with pointed out that the Life Insurance that went with my pension wasn’t really that much and if I died, my wife would only get a fraction of the money in my pension.

This statement is entirely correct, but it still annoyed me because after I hung up the phone I realized when you are talking to anyone selling financial services, you never are safe in terms of retirement or insurance coverage (yes, I will plead guilty on this, but I am not selling anything).

Let me give you a few scenarios I have been a part of over the past couple of years when talking to various financial service folks about various topics:

  • If I talk about Life Insurance, and bring up that I prefer Term Insurance, inevitably the agent I speak with espouses the importance of “Whole Life” insurance as it will protect me in my “Golden Years”.
  • Credit Card companies used to call me incessantly asking if I wanted to increase my Credit Limit, because you never know when something might go wrong and I needed some extra help.
  • If I am negotiating a new Mortgage Term, the topic of Mortgage Insurance will inevitably come up, because it is important to protect my family in case something terrible happens.
  • When I call to talk about disability insurance, suddenly the topic of Catastrophic Illness insurance comes up.
  • And on, and on, and on….

My family is never really safe is it? I can never rest easy that I have enough insurance coverage, financial leverage or low enough debt load, is it? I realize that all of the cases I mention are sales folk simply trying to either up sell new services to me, or to make sure they have a bigger commission, but this does explain why I have such trepidation when I have to meet with anyone about my financial situation. I know I will be barraged with worst case scenarios, and how badly prepared I am for my retirement.

 

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Smaug and Wealth Protection

One of my favorite Tolkien character is Smaug the Dragon from the Hobbit. “Smaug the Tremendous” (as he is named in the book), lived in the Lonely Mountain (after he evicted some annoying Dwarves), and amassed a tremendous hoard of gold and spoils from his plundering and epic destruction of Dale and other places (also from those greedy evicted Dwarves as well). His wealth protection skills were hard to argue with.

A conversation with Smaug as drawn by Tolkien

A Conversation with Smaug, as drawn Originally by JRR Tolkien

Smaug is a typical dragon, he amassed a vast wealth but really didn’t plan for his future and how he might enjoy  it in his later years. Smaug lived for today, because he believed himself indestructible. If you read the book (the Hobbit) you know he did actually plan for his future, in that he armored his belly (in the book Dragons have notoriously softer bellies) with gold and diamonds from his hoard, making him almost indestructible (that really isn’t mentioned in the movie, or it is written a little differently).

Smaug had riches beyond the imagination of the greediest Orc, Dwarf, Elf or Halfling (or Hedge Fund Manager)  in Middle Earth, but in the end because he did not have a strong financial plan, he never really got to enjoy the fruits of his labors (or plundering, if you wish to think of it that way).

Forbes estimated Smaug was worth about $62 Billion at the time of his demise (read the Forbes Fictional 15 for more details), you would have thought someone with that much wealth would have a retirement plan or at least a “Plan B” if something went wrong, but, unfortunately he did not, so his Wealth then ended up being the center of an ugly disagreement between many different folk (read the book, or watch the movies if you need more explanations).

Did Smaug Succeed ?

All this is to say, that no matter how good “Smaug the Stupendous” was at amassing his fortune, he only got to sleep on it, and look at it, he never really got to enjoy it (especially in his non-existent older years). Even in Fantasy Fiction it is important to plan for your future, and hopefully your retirement. The least you should do is write a Will (which I believe Smaug forgot to do as well), to ensure no wars break out over your wealth.

 

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Retirement Do’s and Don’ts

For some of  my readers, retirement is an abstract concept that is so far away, you have no idea what you might do or what it actually means, but for those (like me) who are much closer to it, it is brutally, hand-wringingly real, so here is a simple list of retirement do’s and don’ts to try to achieve.

I have spent a great deal of time thinking and reading about retirement and the closer I get to my “retirement age” (whatever that age is) the clearer the image in my head of what retirement might be, becomes.

Retirement Do’s

Much Younger Me

I think this advice is much older me, wishing someone had told younger me (in this picture) something similar

I can give you a few simple Do’s to help you with your retirement planning:

  • Do have enough money to retire on. If you don’t have enough money to retire, you aren’t retired, you are destitute. It’s the easiest (and most trite) advice any financial professional can give you, but remember the sooner you start saving, the easier it is.
  • Do make it clear to your kids that it is your retirement, so you are not paying for their happiness. You have spent enough time doing that, now it is your time. Too many children boomerang back into their parents lives (and wallets). Make your children aspire to only return home to visit. Better still ask your children to help pay for your retirement, or if you don’t have enough money, think about moving in with them?

Retirement Don’ts

If we have a list of Do’s we must have some Don’ts

  • Don’t die, if you retire and die the first year of your retirement, won’t you feel silly? Seriously, take care of your health now so you can enjoy all this money you are hoarding. My Father worked very hard, and when he finally retired he only had a few years before he was wheel chair bound. Be healthy and that you can start doing right now.
  • Don’t assume you will take up new and exciting hobbies or things to do when you retire, maybe you should start doing them now. If your lifestyle is sedentary, don’t assume that when you retire you are going to be active and social. If you plan on making a change in physical activity, see your Doctor first (don’t just start trying to run a marathon).
  • Don’t carry debt into your retirement.  Aim to retire with no debt.

Retirement can be a wonderful time, but you must start preparing for it now, financially but also in terms of your lifestyle.

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This Week’s Magic Number is 85

The Blunt Bean Counter, Michael James and a few other Financial Blogging types have been discussing what the Magic Number is for retirement, and I would like to add something new, that magic number is 85. In the case of the other Financial Bloggodocio out there, they are trying to find the amount of money you need to retire (held in your RRSP, TFSA and other savings vehicles), for folks with pensions like me, there are many funny magic numbers that arise.

Pension Equation magic number is 85

Doesn’t look that magical does it? But the magic number is 85!

A major magic number is 85, which if reached is when my pension will no longer be “discounted” (if I chose to retire). This number 85 is simply:

Age of Pension Owner + Years of Service 

After cobbling together quick formula for me, that magical number arrives in about 5 years (or so), which is not that far away (remembering that does not give me the maximum pension, I would need to work 35 years to get to that). When this magical number transpires, will I retire? Not likely, more likely I’ll keep working, because I have another more important formula that I will be watching (and luckily it is a simple Boolean comparison):

Net Income Retired >= Net Income Working

When that is TRUE, I will be putting in for my “Get Me Out of Here” package. Looks like a simple comparison however it is not as simple as you might think.

Net Income Working is very simple, just look at my pay cheque and maybe include the costs of commuting (and a few other extras) to come up with that number.

Net Income Retired is a much trickier number to conjure up in a spreadsheet. When I retire I stop paying for a boot load of things including:

  • Pension payments, I no longer have to pay   (which is increasing quickly thanks to new rules for the Public Service Pension)
  • Employment Insurance Premiums (I never have got dime one from this system)
  • Canada Pension Payments (I will get something from here, luckily, as will we all, but will it start changing soon too?)
  • Union Dues (no comment)
  • Group Medical (ends up being a wash, since I have to pay for a medical plan when I retire, and now the government seems to be targeting those benefits in the latest budget)
  • Lower Income Taxes

The last one is the really important point that is very interesting. I can effectively “Income Balance” my pension income between my wife and myself, and it is simply a tax form change. This Income Sharing, should mean at least 1 (hopefully more) tax bracket drop for us, which may make retiring earlier more tasty for me.

Being a Mathematician (of sorts) I love “Magic Numbers” and as a Programmer, I really love Boolean Equations for decision points (True or False are your only choices). You’d be surprised how many of your favorite Financial Bloggers are mathematicians or programmers. In this case the Magic Number is 85 (for this calculation at least).

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By the Time You Have a Colonoscopy It’s Too Late

Last week I joined the ranks of the soon to be viewed as old (if not already old) by having my first Colonoscopy (or endoscopy if you wish), and what struck me was the fact that most of the other patients at the clinic were older than I was (except for one young lad who was having specific issues).

Colonoscopy

Seriously, this is not the time to be thinking about your retirement.

The idea that hit me just as I was passing out from the sedation was:

“If you haven’t thought about your retirement by the time you have your first colonoscopy, you are in very big trouble”.

This is not to belittle or make light of having a colonoscopy, but if you are having this procedure you are most likely in your early 50’s or late 40’s and if retirement savings haven’t crossed your mind by that time in your life you are either going to work until you die, or not retire (which is the same thing I suppose).

I really do have some strange ideas at the oddest moments, don’t I? Might have been the sedation talking, I suppose.

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