Commandment 4: Pursue Financial Independence

Imagine going to work, pursuing opportunities and choosing your life direction based on what you want to do — not what you have to do. Imagine living a life where all of your needs and wants are met without having to work (unless you want to of course). In finance, we call this “financial independence” — known more commonly by the majority of people as “retirement”. Sounds good doesn’t it? If I asked you what age you associate with a situation like that, I’m guessing you’d say anywhere in the range of 55 to 65.

In reality, financial independence can actually happen at any age depending on the circumstance. In some circumstances, impossibly so. But by accumulating “productive assets” it’s possible for these assets to generate enough each year to provide those things you need and want.

For example, if you had $1,000,000 and earned 5% in interest per year, you’d earn $50,000 a year — a livable wage for a lot of people — without ever touching the principal. In essence, this vehicle earning you 5%, whatever it may be, is a productive asset. It’s producing money even while you sleep. Through the power of investing, accumulating these types of assets may be much easier than you anticipate.

But how much will I actually need to be able to achieve this independence? Sometimes generic amounts and rules of thumb are thrown around ... $1,000,000.. some multiple of your highest years income ... I’m sure everyone has heard something different. 

The truth about retirement is there is no simple answer concerning how much money you need to have In order to retire, or what age to retire. Yes, 65 is an understandable target as it corresponds to the age when things like CPP (Canada Pension Plan) and OAS (Old Age Security) kick in, but you’re allowed to either advance or delay those benefits depending on your needs. 

Your needed retirement income will be unique to you, your current situation and future situation. Some variables we can account for is: debt (mortgage, loans, etc.), expenses (bills, daily living, lifestyle, etc.), your expected CPP and OAS income, among others. Depending on what you want your retirement to look like (simple, vacations, checking off the bucket list, spoiling grandkids or family, etc.), your retirement income will vary and be different than others. 

The best way to arrive at an accurate dollar figure for what you’ll need in retirement and how much you’ll need to save to get there, is to have a comprehensive financial projection in place. The reason we use the word “comprehensive” is because it really isn’t so simple. If you invest $X00/Month, how much can we expect to have at the desired date? How will inflation — the general increases in prices of goods over time — impact our projections and plans? How do our tax rates play into this? What tax rate might apply to us later in the future? Will we be debt free? Will we want to sell our house? What will be our income sources in retirement? Part time employment? Rental income? Investments? CPP/OAS? How will all of these things affect one another?

At Haven we take an in depth look into each of our clients retirement goals and plans. This allows us to put together a financial plan that fits their needs and goals. The advantages of having a financial plan are extensive, but in the end we help ensure you have what you need, in the most tax efficient options. We really believe that everyone should keep as much of their own money as possible, less taxes, less fees. 

If you have any questions about financial independence, investing in general or learning about how Haven can help you, please send us a message and we’ll get back at our next convenience.

Derek Condon 
Financial Advisor 

Josh Olfert