Lessons I’ve Learned 22 Years After Taking Early Retirement-Part 2

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). I thought sharing how life has treated me and the lessons I learned after early retirement might be of interest to CMS readers. Lessons 1 through 6 were published in the March/April 2017 edition of CMS.

7. It pays to maximize annual contributions to TFSA (Tax Free Savings Account) for emergency withdrawal without paying taxes. Many financial gurus said that this is one of the best registered investment accounts available and some claim even better than RRSP. This may be true when you compare withdrawing funds from each plan. While there is no tax deduction when you make the contribution, there is also no tax owing when you withdraw the funds from a TFSA, whereas any withdrawals from a RRSP is subject to steep withholding taxes. I have a TFSA designating my wife as my beneficiary (for estate planning), so with my wife (designating me as her beneficiary), and our two sons, designating their spouses as beneficiaries.

My wife and I contribute to the maximum allowed every year since 2009. We always contribute during the first week of January each year so that the money will start growing early. Since the inception of the program in 2009, we don’t contribute new funds so that we’ll have more funds for travels. We both contribute in-kind transferring shares of stocks and mutual funds from our joint investment account. In a way, we are building up this account as our ‘mini’ individual investment account.

Because we can afford to take some risks, our TFSA accounts are invested in stocks and mutual funds. So far, both accounts are up, higher than our original contributions. Like our joint investment account, because of my good pension from OPS, RRIF payments and our government pensions (CPP and OAS), we have not touched our TFSA since 2009. We are reserving this plan for emergencies or for our children’s and granchildren’s inheritances.

8. It always pays to live within your means. We live within our means so that we would have more cash for emergency and travels. We shop for groceries after reviewing what’s on sale from various grocery stores, including Costco, Wal Mart, No Frills, and other specialty stores. We also look for $1 or 50% reduced produce fruits and vegetables, which make the bulk of our diet, resulting in considerable savings. Because I grew up in a farm in my native country (The Philippines), my wife and I know which reduced produce are still worth buying, like fresh pineapple, which still have their food nutrients.

We do the same thing for non-grocery items. Because we buy many items in bulk and store them in our basement and garage, we get considerable savings, made possible because we have the time for this kind of shopping.

While I recognize my article is already long, I thought this topic would, however, reinforce earlier CMS articles written on this topic: “It pays to recycle, restore and extend the use of expensive consumer items,” and would be of interest to CMS readers. This would also show that I practise what I profess: “Frugality and minimizing lavish spending on consumer items are the foundation of accumulating wealth.”

9. Because we continue to live within our means, my wife and I don’t need any formal budget planning. While I review our monthly brokerage statements to monitor the performance of our registered and non-registered accounts, she monitors our cash flow by reconciling our monthly bank statements and paying our bills regularly. Because we travel a lot, almost all our bills are paid through pre-authorized payment arrangements, saving on envelopes and stamps, and eliminating our payments being lost or delayed in the mail.

10. The informal educational trust funds which was a portfolio of mutual funds we set up in-trust for our two sons paid handsome dividends for their educational planning and provided them with an introduction to investing.

Our first son completed his computer science program at the University of Toronto without touching his educational trust fund because of his scholarship grants and internship program.

Our second son completed his Mechanical Engineering Program at the University of Waterloo without touching his plan because of the salaries he derived from his cooperative programs.

When each son reached 18, my wife and I turned over the ownership of the plan under their names. While not much, their educational trust fund gave them a good headstart in investing which I encourage them to continue venturing on to supplement their employment income in building their assets. We also raised them instilling that frugality and minimizing lavish spending on consumer items are the foundation of accumulating wealth. As David Chilton said, “Wealth depends more on savings than on income.”

11. I subscribe to the statement that “Knowledge is empowerment.” Immediately after retirement, I took the certificate correspondence course on Financial Planning, out of personal interest and for family use. After I successfully completed all the prescribed examinations prescribed by the The Canadian Institute of Financial Planning in subjects pertaining to the practice of Financial Planning, I got my certificate on January 1, 1997. Given my personal interest in personal financial planning, with relevant articles published in CMS, and with the training acquired from my aforementioned Financial Planning course, I was able:

To hone my skills in preparing individual income tax returns, sharing the knowledge with my wife and two sons. My older son prepared the terminal return of his wife’s uncle while visiting the widowed aunt in California.

To draft the following documents, considered the foundation of any estate planning, for me, my wife and our two sons: Last Will & Testament, Continuing Power of Attorney for Property, and Continuing Power of Attorney for Personal Care, which could stand the scrutiny of Ontario courts.

My Estate Plan: (1) What my wife and our two sons have to do when I become incapacitated due to accidents or illness, and (2) What my wife and our two sons have to do and what they should know in the event of my death.

My wife’s Estate Plan: (1) What our two sons need to do when my wife is incapacitated due to accident or illness after I am gone, (2) What our two sons have to do and what they should know in the event both me and my wife had a fatal accident travelling together, and (3) What our two sons have to do and what they should know when their mother dies of natural causes after I am gone.

Estate Information Kit for myself and my wife: What important documents are kept (e.g. birth certificate, marriage certificate, SIN card, Ontario Health card, Canadian Citizenship Certificate, OAS card, CPP and OAS files, Wills, Continuing Power of Attorney for Property and for Personal Care, Pension Plans with OPS and OMERS, Group Health Insurance Benefits, Accident Plans, Out-of-the Province/Country Emergency Medical Plan, Joint investment account, RRSP/RRIF account, TFSA, bank accounts, income tax returns, important records kept in safety deposit box), and where they are kept.

Estate Plan Information Documents of myself and my wife: Personal Basic Information, Description of immediate family members, estate plan documents and location, professional advisors, family doctor and other health care providers, tax accountant, etc.

Estate Planning Techniques my wife and our two sons may consider implementing upon my death.

Watch for Part 3, the final part in this series, in a future edition of CMS.

Romeo R. Fernandez, A Canadian MoneySaver Reader