Case Study: How Not To Retire on $3.57 Million

Case Study: How Not To Retire on $3.57 Million

After approximately 5,392 weeks of slacking, I’m back with another fantastic financial facelift from the ol’ Globe and Mail. You might remember the last one of these we did, over at Don’t Quit Your Day Job, where I made fun of two people with an obvious spending problem who wondered if they could afford to retire.

But that couple, which were worth a mere $2.1 million, have been upstaged. This week’s financial facelift features a couple who are literally swimming in cash, but naturally they worry about being about to meet their spending goals. So they wrote into a newspaper to help, and we’ve got all the lurid details.

Let’s do this thang.

As a partner in a large and successful firm, Elliott has earned good money throughout his working life. Now he’s preparing to leave his career behind and retire next fall. His wife, Eva, is no longer working.

Elliott is 59, Eva, 55. They have two grown children.

Their biggest fear, Elliott writes in an e-mail, is that the stock market will fall soon after Elliott quits working “and we run out of money.” 

You’ll soon understand that as far as biggest fears go, Elliott’s fear of running out of cash is realistically up there with other great fears like “being struck by lightning” and “suffocating while trying to get super close to passing out while having a incredibly intense orgasm.”

They’d like to leave their cottage to their children and pay any estate tax that would be due on it. Their annual spending goal is $120,000 after tax.

THERE IT IS. GOD I LOVE ME SOME SPENDING GOALS. HOOK THAT SHIT TO MY VEINS, YO.

First, Mr. Calvert looks at their RRSPs, the foundation of their retirement income. They have a combined total of $1.56-million in RRSP accounts.

$1.56 million? But that’s not even close to eight figures. How will Elliott and Eva ever hope to survive? Will Tuesdays be dumpster diving day? Maybe!

Don’t worry, they have more than their RRSPs to draw from.

If they each withdrew $35,000 from their RRIFs, that plus the investment income from their non-registered portfolio would give them taxable income of about $50,000 each, the planner says.

I’m skipping a bit here, but what this really means is they can withdraw $35,000 each from their RRSPs annually, and $15,000 each from non-registered accounts so large they can afford $15,000/year withdrawals. We’re up to a mere $100,000 in total household income. Oh the humanity!

That’s until they both begin taking Canada Pension Plan and Old Age Security benefits at age 65,” he adds.

Another source of income? And from both of them? More than $1 million in RRSPs, substantial other assets, and CPP/OAS payments? God, these people are so screwed.

By the way, just how well are these people doing, anyway?

Assets: Stock portfolio $780,245; investments in holding companies $281,115; his TFSA $75,675; her TFSA $75,790; his RRSP $965,285; her RRSP $593,515; residence $550,000; cottage lot $350,000. Total: $3.67-million

“We are firmly in the 1%. How can we ever possibly afford to retire?!?!?!?!?!?!”

$3.67 million invested in dividend stocks paying a mere 3% yield comes to $110,000 each year in annual income, btw. No, I’m sorry. That’s a bad plan. They should write into a newspaper instead.

Liabilities: Home equity line of credit $100,000

I, uh, have questions. Why does this debt even exist?

If investing for dividends is the easy solution, then cutting down some of their overspending is solution 1a. Check out some of this stuff.

vehicle insurance $220; fuel $500; maintenance $375;

and then, a few items down:

 car loan $1,500

Yes, kids. That’s more than $2,500 per month these people are spending on their cars. How does one have a car new enough to need a massive loan payment but also need to spend $375/month on maintenance?

grocery store $1,200

For two people. Or maybe four, because they have two grown kids that are likely still shacking up in mom and dad’s basement.

vacation, travel $1,500

$18,000 per year in travel. I’m beginning to run out of snark and it’s just devolving to full-blown rage.

dining, drinks, entertainment $1,475

For those of you keeping track at home, that’s $2,675 each month for two people to eat. That’s $29.72 per meal, or about $90 per day. I’m going to venture out and say that if they tried, ol’ Elliott and Eva could bring that down just a smidge.

life insurance $550

How do two people with a net worth of $3.57 million need life insurance? That planner sold them a hefty life insurance plan, didn’t he?

Let’s wrap this sucker up

I loved every minute of this one. Whether it was the outlandish “spending goal”, the multiple streams of income, or the close to $4 million net worth, it was perfect in every way. I’m glad these people continue to write into newspapers for our ongoing mocking purposes.

A 7-Step Plan to Pay Back Debt? Sure, Why Not

A 7-Step Plan to Pay Back Debt? Sure, Why Not

Approximately six times a week some PR person pitches me a guest post opportunity with some so-called expert who can share their pearls of wisdom with you folks here.

I wish I was exaggerating this for comedic effect, but I’m not. Just imagine how many pitches non-terrible bloggers get.

Most of these are hot garbage, of course. Instead of building up a following from the ground up (which is hard, dammit), they seek to speed up the process by hiring a public relations firm. This firm then does the dirty work of promoting, and hopefully the author makes a few extra bucks after paying for their services.

(Interesting aside fact: many of these authors don’t even care about making any money. They just want to add “best-selling author” to their resumes, a fact they’ll proudly display even after the book only sells 14 copies.)

I’ve never said yes to any of these pitches because none of them ever sound very interesting. I’d love to get new and unique voices here on the FU machine. Those people are not showing up in my inbox represented by a PR firm.

Instead I get stuff like this, which will now be presented for mocking purposes. Take it away, PR firm.

Seriously, this is the stuff I get 

Today’s topic is from something called MILLENNIAL MONEY MAKEOVER, a book about paying off debt and whatnot. The author, some guy, (he’s had enough free promotion) has a seven step method to paying down debt.

Seven steps? Shouldn’t it just be one step? Step 1: pay off your debt. Easy.

Uh, no. Let’s go through each step to bask in the magnificence of this pitch.

Step 1. Acknowledge your credit card debt

I know people live in denial, but this is silly. You “acknowledge” credit card debt exists every time you open up your statement and pay that ol’ minimum balance. Is it really a step if it takes less than a second?

Step 2. List your credit card debts in ascending order

Oh no. Guys. Is he going to recommend the debt snowball method?

Once you have all of your credit cards laid out in the correct order, the credit card with the smallest balance on your list is what you are going to attack and eliminate first. Write down the balance and post it in a prominent place. Look at it repeatedly. That number is your first target.

OH GODDAMMIT NO. NO. WON’T SOMEBODY THINK OF THE CHILDREN.

Balances mean nothing. Tackle the highest interest rates first. Say you owe the following and can dedicate $10,000 in payments:

  • Car loan (0.9%): $5,000
  • Student loan (3.9%): $7,500
  • Credit card (18.9%): $10,000

By tackling the credit card last you’re paying like $2,500 in extra interest versus paying it off first.

I understand psychology is important when paying off debt but you know what’s importanter? Math.

Using words that actually exist isn’t that important either.

Step 3. Create a flash budget

The fuck is this? A flash budget? Sounds flashy.

[S]tart building what I like to call a flash budget. Begin by analyzing your monthly income and expenses, and list out all sources of income. Once that is complete, create another list for your expenses, both fixed and variable. Subtract your expenses from income, and the difference is your margin to attack credit card debt.

Oh, so a flash budget is just a regular budget? Nice. Glad we cleared that up.

Step 4. Snowball your success

Now he’s just rubbing it in my face, repeating his wrong advice from step 2. I haven’t even met this guy and I already hate him.

By paying off your smallest balances first, you create momentum. This leads to higher confidence to tackle the larger balances in your debt portfolio. Conventional wisdom will tell you otherwise.

Conventional wisdom will tell you otherwise because it’s right.

But as you know, personal finance is about much more than numbers. Although this approach makes the most economic sense, paying off debt quickly doesn’t happen in a vacuum. 

You know what bugs me the most about this advice? It assumes everyone who’s in debt is a complete moron who has to use psychological tricks to make sure they pay it off. Smart, educated people get in debt. They aren’t dumb. Give them a little credit.

Step 5. Pay with cash

AKA don’t pile on more debt. Good.

Step 6. Celebrate your wins

The jist of this step it to reward yourself with “going to the movies, out for dinner, or to a concert” each time you pay off one of your debts. Where exactly does this end, anyway? Are you going to reward yourself with a new pair of shoes when you pay back the $20 you owe your buddy? Take yourself out for dinner when you finally take care of that parking ticket?

Step 7. Share your success

Ah debt, the thing we accumulate in private and then brag about repaying. The only thing worse than listening to your friend who’s all about debt repayment is listening to your friend who’s all about keto now. DO YOU KNOW WHAT CARBS ARE DOING TO YOUR BODY? Shut up dude, nachos are delicious.

So to review, our seven-step process for paying off debt has, what, one step dedicated to paying off debt. And even then, that step discounts the correct way of doing it. What a great list. I’m glad I received it.

The best part

So I went and looked up the book behind all this on Amazon and I swear to God this happened.

What a perfect way to end this crappy article.

Don’t Sell Everything. It’ll Make You Poorer

Don’t Sell Everything. It’ll Make You Poorer

Oh my God, guys. This is great. Not the best ever, but it’s up there. Top five for sure.

I’ve gone on record saying that I think index returns will stink over the next five or ten years. Note that I said this before the big Trump-inspired stock market rally, proving that even though I am smarter than 14 mere mortals, it’s still really hard to predict short-term stock market trends.

Basically, the thought process goes like this. When looking at things like the CAPE ratio (that’s an average of price-to-earnings ratios for the whole stock market over the last 10 years) and current ratios like price-to-earnings and price-to-book value, the stock market is overvalued. It was expensive back in August and it’s even more expensive now.

That doesn’t mean I’ve sold everything and gone to cash. I have only sold one stock since I wrote that article. That stock was Directcash Payments, and I only got rid of it because it agreed to be acquired by a competitor at a big premium. I sold at a nice gain and then cycled that cash into a new investment in Artis REIT.

I also sold half of my Cloud Peak investment when it spiked the day after Trump was elected. Probably should have sold it all in hindsight, but oh well.

And that’s it. Those are the only moves I’ve made with my stock portfolio since writing that bearish article.

I just checked my stock market accounts and I’m about 90% invested. That’s about average for me; I like to have a little cash on hand to take advantage of buying opportunities.

I continue to hold even though I’m still bearish for a number of reasons. Damn near everything I own pays me a dividend now, yields much higher than anything Tangerine or EQ Bank can give me. I believe the stocks I own are undervalued. And I have no other investing opportunities, especially for retirement accounts.

Besides, we all know betting on crashes is dumb, right?

Right?

Apparently not

(Hat tip to friend of the blog Kapitalust for pointing this all out to me)

Let me introduce you to a former blogger called the Dividend Hustler. Mr. Hustler, like a lot of his peers, was a dividend-growth investor looking to retire early on dividends. He had about $850k invested in a portfolio producing about $30,000 per year in passive income. Not bad.

Then, one day back in September, the Hustle Man decided he was going to liquidate all of his holdings. Sell everything, just like that. The reason? Well, let’s just say it’s not exactly iron-clad.

I rarely sell and just got this crazy feeling and my gut instinct is telling me it’s gonna finally come soon.  The presidential election in a month and a half will give us crazy buying opportunities along with all the macro events happening around the world.  Christmas and New years gives us buying opportunities as well as people rebalance and take some gains and tax loss harvesting.

A “crazy feeling” and “gut instinct” is all this guy had going for him. He had no actual evidence. It was nothing better than shrugging and betting on red.

The amazing part is the comments that post garnered. Most are actually pretty supportive. Have a lookie-loo.

Mr Hustler did end up being right about one thing. The election did generate a lot of volatility. It was just in the opposite direction as he expected. That’s what happens when you invest based on hunches.

Never sell everything

It’s easy to laugh at the guy with the benefit of hindsight. And in his defense, he’s not the only guy who made such a mistake.

Poor Kurt’s kids. Looks like you jerks are going to community college. Just kidding. Daddy would never do that to you. They don’t even have safe spaces there!

Stock markets are really hard to predict on a day-to-day basis. They could soar or crash or go sideways. Often, we don’t even know why markets do what they do. Ever hear the business news talk about “profit taking” when stocks go down? That’s code for “yeah, even we have no idea.”

¯\_(ツ)_/¯

The good news for us is stock markets aren’t that hard to predict over decades. They go up. And investors get paid dividends even when they’re not going up.

Why bet against that trend? Cause that’s exactly what you’re doing when you sell everything.

Let’s wrap it up

Mr. Dividend Hustler was apparently so embarrassed by his sell everything move that he deleted his entire blog. Kapitalust only found out the goods after using internet archives. Hustler knows he messed up.

Don’t make the same mistake. It’s fine to not add any capital to the stock market at this point. Do what I’m doing and focus more on paying down your mortgage or invest it in other stuff. Preferred shares or bonds should hold up pretty well.

Timing the market is a suckers game. It’s that simple.

Let’s Answer Some Financial Questions From Reddit

Let’s Answer Some Financial Questions From Reddit

Ah, Reddit. The place where we go to see pictures of cute kitties, stupid memes that have already been posted 84 times, and scantily-clad pictures of OP’s mom. It was also primarily responsible for electing Donald Trump, so thanks a lot, jerks.

We’ve already made fun of Reddit at least once before, back when I lamented the lack of decent questions on the personal finance subreddits. Nice work, everyone, using it as your own personal Google.

And then there are people who respond, for no reason but to gain imaginary internet points. Some of Canada’s PF bloggers are active on Reddit and use it to increase their brand. I get that. I’ve even seen a few of them do it effectively. I don’t get why personal finance enthusiasts would spend time answering questions for nothing. Those are actual skills. Leverage them into getting paid, yo.

Anyhoo, because I am a giant hypocrite, allow me to answer some of Reddit’s best questions. Did I say best? Sorry, that was a typo. These questions are terrible.

Uh, Nelson?

(exasperated sigh) God I hate you.

Why are you so mean to people just starting their finance journey?

It’s not that. Really. I just want people to use their own grey matter once in a while. Or figure out the search function. Trust me, your question has been asked before.

I see

Also, Financial Uproar got suggested as a blog to read in one of those threads, and some asshole downvoted it. So, yeah. BURN THAT PLACE TO THE GROUND.

Half off house

half-off-house

(Literally laughs ass off)

Okay, there’s gotta be more to this. Let’s open it up and see what aconfusednoob gives us for details.

aconfusednoob

First of all, Mr. Noob isn’t very good at math. At best, he’s buying the house for 55.5% of its value. At worst he’s paying nearly 63% of the house’s value. But whatever, this is a minor detail. Let’s go straight into the craziness of this plan.

First of all, these two sets of people need to hammer a lot of details out. Who gets the rent from the college kids? How will they decide how much rent the parents pay after a decade? Who decides what repairs need to be done? Who covers expenses like insurance and taxes? Hell, we don’t even know where the place is. There are way more questions than answers.

If I was this guy, I’d buy the place without any written agreement in place. Then I’d boot the parents out like they were slobbering drunks at closing time. Take that, assholes.

Joint accounts

joint-accounts

People. How many times do we have to go over this?

Bank accounts do not matter. At all.

Even if you pay a small fee, who cares? A few bucks a month isn’t keeping you down. It’s keeping nobody down. Just pick a bank account and be done with life.

And while you’re at it, don’t chase savings account promotions. Having money sitting in the bank is silly. Invest that ish, yo.

Do the kids still say ish and yo?

They never did.

NO TIME FOR YOU, ITALICS MAN.

Please validate my choices

YES. These ones are my favorite.

criticize-portfolio

We’re going to need to check the details on this one. It’s sitting at zero upvotes, so here’s hoping for some crazy junk in there.

portfolio

YESSSSSSSSSSSS. Guys, OP fucking delivered. There’s so much here I don’t even know where to begin.

Half of this crap really doesn’t matter. You have two RBC credit cards? A decent credit rating? Oh boy. SOMEBODY GET THE FAINTING COUCH, NELLY’S GONNA PASS OUT.

He’s also buying company shares that pay a dividend of 20%? I’d be impressed if it was true. It’s not.

Also, what’s up with a guy making $150k not contributing a nickel to an RRSP? I’m seeing too much of this. TFSAs are all fine and dandy, but high income earners who aren’t taking advantage of RRSPs are basically lighting money on fire..

Finally.  A bizarre question on cheques

endorse

I don’t even know what to say. Why don’t you just take a picture of it using your smartphone like a regular person?

Investing small amounts

investing-1000

First of all, if you only wanted 10% of your portfolio in VAB (Vanguard’s bond fund), why would you invest in it first? That doesn’t make any sense.

About two years ago I talked about how index investors are making the whole practice way the hell too complicated. This is exactly what I’m talking about. $1,000 isn’t a inconsequential amount of money. I would gladly take it if you didn’t want it. But if you’re looking to build a million dollar portfolio one day, then it’s peanuts. Just get it invested in equities and ask questions later.

And while you’re at it, consider some more alternative options if you only have $1,000 to invest.

Should I pay my debt?

10k-lottery

Three question marks, guys. OP is serious.

I’m glad you asked, OP. Listen closely, because this is going to get complicated. First, you’re going to need to get yourself one of those offshore shell corporations. I’d choose Panama, but it’s really up to you. Then you invest the cash in inverse volatility futures, generating an income stream by selling puts. Then you need to invest that income in structured exchange notes, preferably ones that trade on the Nikkei exchange.

Or you could just pay down the damn credit card debt. Either or.

Leaving the country

leave-the-country

These people actually exist? YESSSSSSSSSSSS. Don’t move to Canada though. We don’t want you.

I like how OP just sort of throws it out there at the end that moving to a brand new country with only $1,000 might be a bit of an overreaction.

Last one.

Going nowhere fast

going-nowhere

Ah, the humblebrag. Sure, I’m worth more than 98% of other 27-year olds, but I’m struggling too guys!

I run into this with readers and other bloggers every now and again, and I’m always reminded about the value of patience. Becoming wealthy isn’t supposed to happen overnight. It’s supposed to be a gradual process. It’s supposed to be hard, dammit. If it isn’t, you won’t value it. Look at lottery winners if you don’t believe me.

This person has too many goals that cost too much money. I know your parents told you to reach for the stars or some other such nonsense. But the real world isn’t like that. We only have a finite amount of resources. Focus on one goal at a time, preferably one that isn’t graduate school.

Remember That Fidelity Study That Said Dead Investors Did The Best?

Remember That Fidelity Study That Said Dead Investors Did The Best?

About two years ago, seemingly every financial news outlet picked up on a study done by Fidelity Investments. This study claimed the company had looked over the accounts of thousands of individual investors, and they found a theme. The people who didn’t touch their portfolios did the best.

Fidelity threw a whole new twist on some tried and true advice, however. They pointed out that people really couldn’t resist the temptation of touching their investments. The only people who didn’t bother were dead. Thus, dead people had the best investment returns. The second best were basically dead, at least to Fidelity. They were the people who forgot they had an account.

This begged a few questions. How did dead people have portfolios that grew for long periods of time? Wouldn’t control of these accounts eventually turn over to people more, uh, alive? And how did Fidelity figure out these people were dead? I like to imagine the phone call.

“Hello, this is Brenda from Fidelity. I’m looking for Bob Johnson.”

“This is Bob. How can I help you?”

“Just checking in to see that you’re not dead, Bob. Talk to you again in a decade.”

So why am I bringing up this study again a year later?

Funny story

Allow me to quote from the New York Times.

Here’s how to get better returns in your retirement account: Pay as little attention to it as possible.

That was the conclusion of a study by the investment giant Fidelity, according to a 2014 article on Business Insider. The article relayed the transcript of a Bloomberg program in which the well-known money manager Jim O’Shaughnessy said that people who had forgotten that they had accounts outperformed everyone else.

Fidelity, which has received inquiries about the study ever since, without knowing why, told me this week that it had never produced such a study.

Oh man that’s great. Somebody made the whole thing up.

Here at Financial Uproar, I spent a lot of time trying to debunk various financial myths. You don’t need a six month emergency fund, since $1,000 is more of the optimal amount. RRSPs don’t have to just be used when you retire. And retiring early won’t make all of your non-sexual dreams come true. I hope after coming here a few times you’ll have at least a bit of skepticism surrounding “rules of thumb” and other such things.

But at the same time, the whole buy and hold investing idea is a good one. There’s a lot of value in finding a few good ETFs and sticking with them, especially for rookie investors. So I don’t want to disparage the message, because it’s a good one.

Seriously though, I’d still like to know what happened. If anyone knows more details, hit me up.

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