Readers Write - Lessons I’ve Learned 22 Years After Taking Early Retirement -Part 1

In 1994, under the Factor 80 early exit program, I was forced to retire at an early age of 54 due to downsizing in the Ontario Public Service (OPS). This traumatic event had a happy ending for me and culminated in my writing an article for Canadian MoneySaver, "A Common Sense Approach to Financial Independence", which was featured in March 1997 issue, courtesy of former publisher Dale Ennis.

Modesty aside, the article was well received by CMS readers across Canada. Readers were congratulating me and asking for more details how I managed to retire at that early age, with my wife a full-time mother and wife, and one of our sons was a third-year university student and the other was a grade 8 student.

Despite some job offers, including to work as an estate planning specialist with our family investment advisor, I remain fully retired since 1994. My family does not want me to subject myself again to office stress and pressure. They wanted me to enjoy my retirement.

I thought sharing how life has treated me and the lessons I learned after early retirement might also be of interest to CMS readers.

1. I continue to read Canadian MoneySaver magazine, which I have read since it launched in 1981, the year our second son was born. Even if I glean 5% new tips or information, to me it’s worth every penny of its economical subscription rate. Not only do I learn new and useful information from former and present contributing editors to apply to our family’s needs, but I also find it elating to read articles reinforcing what my wife and I have been implementing since we got married in 1969.

I continue to enjoy reading articles by Brenda MacDonald as some of her writings touch family issues and values.

2. I find former contributing editor Carolyn Williams’ statement that “government employees are instant millionaires” in her article Longevity Insurance, May 2006 issue, to be quite true. According to some CMS articles, I may not be considered a millionaire without including the current value of our 1-storey, 2-bedroom, fully detached bungalow primary residence in Toronto, which is now worth not less than $800,000 (purchased for $37,500 in 1973). Nevertheless, given my guaranteed for life defined pension plan (fully indexed to inflation) and the extended health benefits that come with it from the OPS, my wife and I live comfortably with this pension, without touching our registered and non-registered accounts. But this is a very expensive pension plan that only the public sector is able to afford. With the Ontario government having constraints again this time, new retirees scheduled to receive their first pension cheque starting January 1, 2017, allegedly will be expected to pay for many of their extended health benefits effective this date. Fortunately, since I retired in 1994, the grandfather rule means I am not affected by this constraint. When I die, my wife would enjoy 50% of my pension and 100% extended health benefits for life.

3. We considered ourselves lucky since my generous pension from OPS, my wife’s ‘negligible’ pension from OMERS (she stayed home for 17 years to raise our two sons and retired early too), plus our individual CPP and OAS benefits enable us to sustain our daily needs comfortably without touching our investment and registered accounts.

This is possible because we still live within our means, despite travelling a lot since our early retirement. We never keep up with the Joneses. Amongst our few, selected circle of friends, we’ve got the oldest and the smallest house but we’re happy with our “home.”

4. It pays to have an investment account for retirement and old age needs. For estate planning purposes, I hold it jointly with my wife (in the 6-digit figure). Using management by exception technique, I don’t spend much time managing the account. I review the account not more than twice a year, every six months, while reviewing the monthly brokerage statements.

It pays to have a reliable and honest investment advisor and associates who understand our investment needs and work for us to achieve our investment objectives. Whenever I need to make changes to the account, I request for three alternative products from them and their rationale for recommending them. I then make the final product selection after doing some research using free information available online. I use this technique believing they are in a better position than me following the investment momentum, where the interest rate is heading, and other investing factors needed. I just wanted to have more time to enjoy my retirement and address health issues associated with getting old (I will be 77 in April 2017).

So far, in spite of market volatility, all my investments are up. I invest in mutual funds and individual stocks, some of which my investment advisor and her family also invest in. Because of my benevolent pension from the OPS, and because we still live within our means, I can take some risks in my investments.

5. It also pays to have a RRSP/RRIF account for retirement and old age. Because I belonged to a defined benefit pension plan, I could not contribute much to my RRSP when I was working. When I turned 71 in 2011, I converted my Self-Directed RRSP (SDRRSP) into a Self-Directed RRIF (SDRRIF), with a market value of $186,130 as of Dec 31, 2011, with benefit withdrawals commencing January 1, 2012. Again, because of my generous pension from OPS, and for estate planning purposes, I elected for minimum quarterly payments based on my wife’s younger age (minimum mandatory withdrawals but for longer benefit). I also designated my wife as my beneficiary and successor annuitant of the plan. The market value of the plan as of Dec 31, 2016 was $193,686, more than when it started on Dec 31, 2011, and after withdrawing a total amount of $68,878 from January 1, 2012 to December 31, 2016. Effective calendar year 2017, the government reduced the payment rate by approximately 2% starting at age 71 . The rationale was the average retiree is living longer and not all of them want the additional income. To keep the income levels lower to enjoy the benefits longer, my RRIF payments will fund our travels longer. Because my wife does not have a good pension plan at work for staying home to raise our two sons, when I die, any of my unused RRIF benefits would be passed on to her, as successor annuitant, without paying any taxes in the rollover. Because I can afford to take some risks, my plan is invested in Canadian and U.S. mutual funds that pay good monthly dividends with growth potential.

6. It pays to contribute to an unemployed spouse’s RRSP Account. While my wife was raising our two sons and unemployed, I contributed to her RRSP account from my limited contribution room. Although not much, the market value of my wife’s account as of December 30, 2016 was $109,139, invested in stocks and mutual funds. My wife will turn 71 in 2017 and at the end of this year, she’ll be converting her SDRRSP into SDRRIF Account.

Starting January 1, 2018, she’ll be eligible to receive the minimum quarterly payments. Again, although not much, this will be another source of our regular pension income earmarked for our travel funds.

Watch for Part 2 in a future edition of CMS.

Romeo R. Fernandez, A Canadian MoneySaver Reader