I wrote The 7 Phases of Retirement in 2013 and encouraged readers to submit their plans. You need a road map to find your way to early retirement because you probably won’t get there by accident. Today’s post is from Tawcan who blogs at Tawcan.com. He is in his early 30’s, happily married for 5 years so far, father of a 2.5 year old energetic toddler and a brand new 2 month old baby, he lives in beautiful Vancouver Canada, and writes about his quest for a joyful life and financial independence. Tawcan’s focus is on the balance between achieving financial independence and enjoying the journey untill he and his family gets there. This is because life happens while you are busy planning your future, so it is important to be present in every single moment of our lives.
Tawcan’s 7 Phases of Retirement
Early retirement is a popular phrase nowadays. More and more people are breaking out from the typical norm of going to school, get good grades, graduate, find a good job, work hard, and retire at 65 or later. Do you really want to wait till you’re 65 years old before you can enjoy the fruits of your labor? Life is too short to be working full time for over 40 years and having to constantly listen to “the boss man.” Isn’t it much better if you can call your own shots and control your own schedule?
This is why early retirement is a big goal for me and my wife. To us, early retirement does not mean sitting on the beach drinking piña colada all day long. Rather, early retirement simply means that we can quit our jobs without having to worry about money. We can decide our own schedules and have the freedom and options to decide what we want to do. Early retirement does not mean that we’ll never work again. Rather than working because we need the money, we’re working because we’re enjoying it and because we are fulfilling our life purpose.
According to our early retirement spreadsheet calculator, we should be able to reach early retirement in about 10 years. Since this is just an estimate and a lot of assumptions were used, we are not too fixated on an exact retirement date. The important thing for us is to focus on the different phases of retirement and get ourselves ready for this eventuality.
Phase 1 – The financial epiphany
The first phase of retirement is having the financial epiphany. Without an epiphany you will just continue the norm and work until you’re 65. My wife (I’ll refer to her as Mrs. T from now on) and I had our financial epiphany in 2011 after reading Secret of Millionaire Mind Set and attending the Millionaire Mind Intensive seminar together. Although both Mrs. T and I were raised in frugal families, we didn’t have the knowledge to wrap everything up. We also had a lot of negative thoughts and conditioning about money that were holding us back. Reading the book and attending the seminar helped the both of us to start talking about money openly and to make sure that we were on the same page about money and household finances.
Having a financial epiphany has helped opening our eyes on the world of early retirement and how that will open many different doors for us.
Phase 2 – Pay yourself first & Live below your means
Having an epiphany is great because it opened our eyes to different possibilities. The second step toward early retirement is to pay yourself first & live below your means.
The idea is simple. When you get a pay check, automatically deduct a certain percentage and put that aside for savings and investing. The rest then goes into your checking account for monthly expenses. Because you’re saving first rather than saving after all the expenses, your savings will grow by a known amount each month.
The next secret is to live below your means. Even though you have $1,500 going into your checking account after paying yourself first, it doesn’t mean you should spend it all. If you only spend $500, that’s another $1,000 you can put aside for saving or investing.
Lucky for us, we’re both pretty frugal because we were raised that way. We have kept our lifestyle relatively modest. We don’t care what others think about us, so we have no need to impress others with expensive things such as cars, houses, brand name clothes, jewelry etc. You’ll find both of us and our kids sporting used clothes and used items on a regular basis.
Phase 3 – Generate passive income streams
While putting money aside each month is great, if you stash the money under your mattress (in the fridge if you’re 50 Cent) or just in the bank in a “high” savings account, your money will never grow to much more than what you put in. You must invest the money and generate multiple passive income streams.
For us, our main passive income stream is dividend income. We have earned over $10,000 in 2015 for doing absolutely nothing thanks to owning dividend paying stocks and index ETFs. In 2016 we are aiming to generate $13,000 in dividend income. This is why each month I provide a dividend update on my blog to track our progress. It’s nice to know that we’re earning money even when we’re changing Baby T2.0’s diapers in the middle of night. J
Another passive income stream that we have is the two cookbooks that we’ve published. It has taken a significant amount of time to get this started but after attending some book fairs, it looks like our cookbooks are finally gaining some attention.
Since the housing market in Vancouver Canada is absolutely nuts right now (houses worth over $1 million are being knocked down to build new houses), we have not looked into rental properties as a possible passive income stream. We can potentially investigate this possibility in the future by looking at rental properties in other Canadian cities, or even purchasing farm lands and renting them out.
My little blog is not getting as much traffic as Joe’s. I started the blog to share my journey and my thoughts. I never thought about making money through my blog but if that does happen one day, that’d certainly be welcomed.
Phase 4 – Self Improvements & Pursue your passions/interests
By now we’ve built multiple passive income streams and these sources are slowly generating more and more passive income for us. Life is good. Now it’s time to shift focus on self-improvements. We as humans are meant to continue learning new knowledge as we age. I’m a true believer that if we’re not busy learning, we’re just busy dying. It’s a great idea to take self-improvement courses or read self-improvement books to learn how to be at peace with yourself or how you could be happy without the need of external stimulus.
It’s also important to pursue your passions and interests. For example, I like to take pictures in my free time. So, it’d be a great time to learn a bit more about photography. Perhaps this hobby of mine could lead to a steady part time job in early retirement. Having a few hobbies in post-retirement is great because they will keep us busy. I believe it’s especially important to be mentally and physically engaged in post-retirement. Sitting on the couch and watching TV all day is not in my post-retirement to-do list, I hope it’s not on yours either.
A strange phenomenon that some couples get themselves into in post-retirement is that they get annoyed with each other very easily. The main cause of this phenomenon is due to the couples doing things together all the time. Their have become even more dependent on each other than before. What they failed to realize is that marriage is an inter-dependent relationship, not a dependent relationship. This is yet another reason why it’s even more important to pursue your own hobbies and interests in post-retirement.
Phase 5 – Retirement Trial Run
Having a trial run to see what retirement might be like is a great idea. I recently took a 2 week parental leave to spend more time with Mrs. T and our two kids, a 2.5 year old and a 1 month old. It was great being able to decide my own schedule during these 2 weeks. I also got to do a lot of things that were not possible during a typical workweek. For example, I cut the lawn on a Tuesday, went Costco shopping when the store was pretty much empty, and went swimming multiple times during the week at non-busy hours. This trial run not only gave me a small taste of what early retirement could be like, it also strengthened my desire to be financially independent earlier. Instead of retiring in 10 years or so, wouldn’t it be great to accelerate our timeline and retire in 6 years before I turn 40?
Having a retirement trial run has allowed Mrs. T and I to become laser focused on our early retirement goals. It also helped us to determine what’s more important in our lives. It is certainly not climbing the corporate ladder and earn more income. What’s more important in our lives is having freedom and more options in life and to spend more time together as a family.
Phase 6 – Financial Independence
When our passive income covers or exceeds our expenses, we’ve reached financial independence. As mentioned, this is the magical milestone we are working hard to achieve in about 10 years. Right now our monthly dividend income covers about 40% of our core expenses, like groceries, insurance, utilities, internet & phone, and household items.
The advantage of dividend income is that through organic dividend growth, our dividend income should continue to increase without needing to invest more money. This means our dividend income will be able to keep up with inflation.
Having passive income covering all core expenses is great but we need some buffers, for example money for vacation and other onetime purchases. We think having about $3,500 dividend income per month will provide sufficient buffers for us to be completely financially independent.
Phase 7 – Your life, your choice
Do we continue to work? That choice is entirely up to us. We are only working because we want to rather than needing the income to pay our bills. Imagine never being stressed about work? How cool would that be?
We can also decide to quit work and travel around the world. Both Mrs. T and I love to travel. One of our goals is to visit all 7 continents. I also would love to visit more countries than my age one of these days (21 countries for me so far, need more work!). Wouldn’t it be great to be able to live in a country for an extended period of time and immerse ourselves in the local culture? Our kids would be able to learn so much more than they could ever learn from reading books alone.
Ultimately, it’s about having control of our lives. It’s about having choices. I always smile whenever I think about phase 7. 🙂
While we can probably achieve financial independence if we sell our house and all of our belongings, this is not what we want right now. We’d rather have a home base that we can come back to after months of traveling. That’s why we’re working hard to establish our passive income streams so we can reach phase 7 of retirement in the near future.
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