The most common reason we give for being unprepared for
retirement is that we have debts and responsibilities that do not permit us to
leave our jobs. These liabilities generally revolve around financial
commitments, but obligations go far beyond monetary debts. Family, friends and
community duties play a role, as well. Oddly, the easiest debt to resolve is
that involving money. Family responsibilities, often overlooked at the initial
planning stages, bind us o our current situations more strongly than escaping
or resolving the financial constraints. In many instances, the money concerns
may not, in fact, be liabilities, but assets.
We have been inoculated with the belief that, in retirement,
we have obligations that are immutable, and that our retirement should be an
extension of our current life. We are told that we need to leave a sizeable
nest egg for our offspring. We have been led to believe that our only assets
from which we can generate income in retirement are our savings and tangible
goods. All of these assumptions are
incorrect. Retirement changes our lives
dramatically, and, with that change, alters our priorities, obligations, needs
and wants. We need to rethink
retirement.
In the late 1970s, I constructed a machining facility for my
new father-in-law in a remote northern community in Saskatchewan, Canada. The building was to be nearly one hundred and
eighty feet long by forty feet wide, with a roof line over twenty-five feet high
– a sizeable structure in a farming village of fewer than four hundred
people. Yet, it was almost miniscule
compared to the building next to it.
That building measured more than two hundred and fifty feet deep by four
hundred feet long. Not only did it reach
five storeys in the air, but it also had a basement, a sub-basement and a
tunnel below the bottom level. It had
been twenty-two years in the making.
While the immensity of this unit may have been extraordinary
in that region, the architect, engineer, contractor and owner of it was even
more extraordinary.
John Chimko had retired at the age of sixty-five, from one
of Canada’s national rail lines. He had decided, years earlier, that he would
build a hotel in his home community. He stuck to that plan for over
twenty-seven years. But why was that so
incredible?
Chimko built the entire structure, by hand, paid out of his
own pocket and from his pension income. The building would never have been
adequate for use as a hotel. John, being
smaller than five feet tall, constructed each of the scores of rooms based on
his requirements, with room dimensions of seven or eight feet by eight or nine
feet. There were no washrooms in any of
the rooms. The building never did
receive full electrical power. Its only
heat source was a large wood furnace, significantly inadequate for the heat
demands of a climate that saw six months of temperatures lower than 0 degrees
Celsius. Aside from that, there never had been a construction permit or
architect’s stamp of approval. Yet, this
tiny man had built a building that was more durable than most contemporary
hotels.
He began by excavating the site down to bedrock. Then he began working upward, recovering rock
and stone, and chiselling each by hand, so that the outer edges were flat. He had poured concrete, using a hoe and a
wheelbarrow, and setting stone after carved stone into place. At the base, in the sub-basement, the walls
were more than four feet thick. They
needed to be: he originally intended to build an eight storey hotel. Day after
day, week upon week, year following year, he laboured seven days a week, from
sunrise to eight p.m. at night – typically, fourteen hours each day. Slowly,
the hotel rose from the ground.
Chimko invested every pension cheque into his project, and,
to supplement that meagre amount, he would buy fruits and vegetables from the
locals cooperative, add a few pennies in price to each item, and sell them to
people in the community. Most neighbour
bought their produce at least once each week from John, although they could
have paid less at the coop.
When I met him, he was in his mid-eighties, but, when I
would start my day working on the machine shop at 7:30 a.m., John already would
have completed nearly two hours of work.
Trudging up the inclined slope of the concrete walls, he would push the
wheelbarrow laden with wet concrete, set a few stones in place, wheel back
down, and begin again.
John Chimko never completed his dream. At 93, he developed pneumonia, and
well-meaning community members decided to place him in a personal care facility
so that he could enjoy his last few years.
He didn’t. For twenty-eight
years, he had been living his dream, but having his pet project taken from him
sapped his will to live. Although he
recovered from his pneumonia, he never recovered from the loss of his source of
happiness, and died a short time later.
For years later, it took nearly three months for the authorities to be
able to demolish the structure, using a wealth of heavy equipment. Dreams do not disappear easily, it seemed.
Chimko’s view of retirement was unconventional at that
time. He saw it not as a time to sit
back and relax, but as a time to do what he had dreamed of doing. Part of the pleasure he derived from life
while still working was to have a dream.
The town did not need a hotel. It
rarely saw tourists. But he wanted one,
even if he had no plans to make a huge income form it. His plans for a commercial venture were not
realistic, but his plans for a fulfilling retirement were. He lived his dream.
Probably, your retirement strategies are more
conventional. But are they what you
really would love to enjoy after your current working career?
When I retired, I had already changed major careers three
times. But my retirement was to be an
opportunity to explore the areas of life that I had been unable to investigate
while working. I wanted to travel. I do that.
I wanted to delve into alternative energy and environmental projects
(more so than in the last five years of my working life). I have done that. I wanted to move to a yurt in the woods. My wife and I did that, and now we build
innovative yurt designs as a moneymaking hobby.
Most of all, I wanted to continue to embrace life. I do that.
But, although I have earned a very good income throughout my career, I
have not even a dollar set aside for “savings.”
I am living life today, instead of hoping to live life tomorrow. My assets are my interests and abilities, and
they have served me well.
So, is it time to re-think your retirement? Let us start with what you believe to be
liabilities. And let us turn as many of
them as possible into assets. Indeed,
money is far from our greatest asset: our greatest asset in retirement is time.
From a practical standpoint, we do need to factor our
financial burdens and needs into any retirement equation. We may have consumer
loans, mortgages, operating liabilities (utilities, insurance, etc.), credit
card debt, education funds for children or grandchildren, property taxes, and
so on. Itemize each of these, but do not look at them and declare, “I have to
pay this much each month when I retire.”
Many of those responsibilities can be either eliminated or mitigated.
One of the interesting aberrations in retirement planning in
Canada, UK, Australia and many western countries is that we can conceivably
earn more when we retire than we did when we worked. In addition, with subsidized housing options,
we may be able to afford better accommodations when we earn less, because of
the affordable housing programs that provide 55 Plus (seniors) apartments at
rates much lower than the general rental market may do. A single senior in Canada, for instance, may
be able to rent a good quality one-bedroom unit for under $600 per month, while
receiving a minimum of $1,150 in income, either from the Old Age Security &
Guaranteed Income Supplement, or Canada Pension Plan, if that person’s own
retirement funds are sufficiently low.
Nonetheless, most homeowners in the western world have
equity in their homes, and own homes that were appropriate for a growing
family, but that now house just a retired couple. Once the home is sold and the equity
invested, myriad ongoing debts disappear.
Home repair, electric, water services and heating bills, property taxes,
mortgage, insurance and other costs associated with home ownership now are
eliminated, while the only cost is the cost of renting an apartment. If a homeowner had been paying a mortgage
prior to retirement, the rent may be very little more than the mortgage had
been, while hundreds of dollars have been trimmed from the budget. At the same time, the equity, invested, may
be drawing a modest income.
Although, when working, extraneous costs such as vehicle
maintenance, parking, fuel, insurance and travel costs related to work were
ongoing, those costs are reduced dramatically upon retirement. Many people, for instance, can obtain lower
insurance rates once they no longer are using their vehicles for travel to
work. At the same time, multi-vehicle
families may be able to eliminate one of their vehicles and contingent costs.
Calculate your transportation obligations while working, as well as anticipated
costs upon retirement.
Clothing costs and general grooming costs also drop upon
retirement. But the most significant
costs are the direct costs of employment: contributions to government
entitlement programs and other source deductions. Employees who participated in
a company-sponsored retirement plan also will see their input costs eliminated.
On average, these cost reductions amount to 12-17% of gross pay. Lastly, when income drops, so does income
tax. Calculate your tax reduction based
on your anticipated retirement taxable income.
These are the simple cost reductions associated with
retirement that often translate into a decreased income requirement of
30-45%. That is contrary to the advice
of many financial planners, who forecast that you will need as much, or more
revenue upon retirement. Their
motivation in offering that prediction may be self serving: having you save
more with them provides them with commissions!
Sometimes, we find that, particularly after the crash of
2008, our home equity has dissolved. In
such instances, we may want to consider renting out part of our home to
tenants, in order to create a revenue stream.
Foreign student programs at universities often seek homes in which the
students can live while studying.
Revenues generally are several hundred dollars per month. Two extra bedrooms? Two students, and a thousand dollars in extra
income. Sometimes, seniors are looking
for a smaller apartment. If you have the
space, or are willing to construct a “granny suite,” ongoing income can be
substantial.
An anomaly of modern life is the incidence of “boomerang
children,” who return home after living apart from their parents. Yet, most of the parents, regardless of how
inconvenient this reversal may be, are reluctant to charge rent. Even more disconcerting is the number of
parents whose grown children have never left home, but who do not contribute financially to the
household. Why? If you have earned the
right to retire, you also have earned the right to expect your children to
input appropriately to expenses.
Ongoing maintenance costs of home ownership may be a
lucrative source of cost cutting and efficiency. Many of us have land line telephones,
Internet, cable or satellite, cellular telephones with data plans, Blackberry
or IPhone packages, and ongoing movie house fees. Within those myriad technology
services, we have several redundancies. Do we need cable and movie access, or
satellite and Internet? Netflix, for example, offers movies over the Internet
which can be channelled directly into our televisions. Instead of Internet access with our IPhones,
why not move to a basic text package, and rely on our home-based Internet? Can
we eliminate our land lines, and bundle our Internet only with our cellular
packages? Can we plan our telephone calls so that we can reduce our peak-time
packages and rely on off-peak calling?
The sources of savings in every part of our daily lives are numerous.
Even with the scores of ways to reduce costs or turn
liabilities into assets, we need to know what it is that we want in our
retirement, so that we are not cutting randomly, nor being inefficient. Like the little engine, you need to know
before you go. Itemize the points in
your saving strategy and your plan to reduce liabilities. Then take time to
reflect on and refine those plans. After
all, this series of articles is about how to retire in a year, not in a day.
