By Charles Fournier on December 15th, 2017
Charles retired in his mid 50s in May 2016 from a career in Canadian banking. He relies exclusively on income from rental properties and a dividend income stream from a portfolio he amassed over several years. A portion of his typically relaxing week is used to share his knowledge with others through his website. Charles is clearly aware he learns from other investors, and therefore, welcomes feedback.
I strongly suspect this question has come to mind for the vast majority of people who have been in the workforce for several years; I count myself as a member of this group.
In May 2016 I retired at the age of 56 after having worked in the Canadian Banking industry my entire career. I started full-time employment in 1980 at the Bank of Montreal (BMO) at the age of 20 and the only interruption was the 2 years I took off to complete my Master of Business Administration.
While this article might resonate with readers who are within striking distance of retirement I am hoping the younger demographic groups will also benefit. I recognize my personal circumstances may not resonate with all readers but hopefully there are a few nuggets of information which may assist you in determining when may be the right time for you to retire.
Before we go any further, please be aware this article does not delve into the financial aspects of what it takes to determine the right time to retire. That will come in a future article. This article focuses on some of the other factors I took into consideration in determining when to retire.
When Did I start Thinking About The Right Time to Retire?
Upon returning home to Montreal after completing my university undergraduate degree in Economics I received an offer for full-time employment with a major Canadian financial institution; the job was in Calgary. This appealed to me since I would be so close to the Rockies which would allow me to ski regularly.
I will admit I was excited. My parents were also excited since they certainly did not want me to move home. Heck, I was 19 and I had not lived at home full-time since I was 16.
If you’re looking for an analogy that depicts my situation with one which occurs within Mother Nature, imagine the mama and papa bird punting their juvenile bird from the nest. “Ya’ll don’t come back now, y’hear?”
My excitement didn’t last long. Within a few days of starting full-time employment I was dreaming of what I could do to lessen the time frame over which I would have to continue working.
Don’t get me wrong. I enjoyed the people I worked with and I learned a lot. I just had a really tough time envisioning myself working 8:30 AM – 5 PM five days/week until I turned 65.
My excitement bubble was further deflated roughly 5 months after I started working when I had to work until after 8:30 PM on New Year’s Eve.
Over the course of time, however, I matured. I focused on doing my best and I was always eager to learn. It certainly was an eye opener to realize that much of what I had learned in university had no practical application to my role at the bank. I quickly came to the realization that attending university was more about making lifelong friends and learning how to learn.
Black Monday, October 19, 1987
After having graduated with my MBA in December 1986 I resumed my banking career in March 1987; I had to take time off for a 2.5 month ski trip to Europe because once I resumed my career the likelihood of getting a vacation of this length was remote.
Shortly after returning to the workforce Black Monday hit. This was my first exposure to market volatility. My girlfriend (now my wife) and I had accumulated some money which we had invested in mutual funds within Registered Retirement Savings Plans. Back in 1987 there was no such thing as online trading platforms so initiating any trades on a timely basis was problematic. In hindsight that was a good thing since we had no easy means of making a sudden irrational investment decision through the use of an online trading platform. I must give credit where credit is due….my wife suggested we pour money into my employer’s stock TD Bank (TD)!
I distinctly remember a couple of senior members from my Commercial Banking Center being seconded to our board room for 3 – 4 days. During this time frame they were trying to accurately determine the value of various equities that were rapidly dropping in value which a client had posted as security for an investment loan. Each day the value of the security fell further and the client had to pony up more security. Fortunately, this client had ample surplus funds otherwise liquidating the security would have likely resulted in the loss of tens of millions of dollars.
What lessons did I learn from this client’s experience?
- If you intend to use leverage for investing purposes, you had better have a lot of “dry powder” in the event your investments “turn south”.
- Market conditions can change suddenly and dramatically.
- Even strong companies can get caught in the “downdraft”.
- Invest in great companies which can weather financial storms.
- Think long-term when it comes to investing in equities. If you look at the S&P500 stock chart going back to the 1950s, you will see that Black Monday is merely a blip on the stock chart.
Fast Forward to 1999
Fortunately, by the time we adopted our daughter from the remote regions of Siberia in 1999 we had paid off the mortgage on our house and had accumulated a mid 6 figure investment portfolio. We were essentially on track to retire in our early 50s.
I had not forgotten my Black Monday lesson and we avoided the dot.com carnage. I have still not forgotten the dot.com euphoria and it is for this reason I have no interest in investing in bitcoin or cannabis stocks.
Although the addition to our family necessitated the need to modify our retirement timeline (in hindsight mid 40s would have probably been too soon), we never stopped investing. In fact, we were fortunate in that our salary increases far outpaced the expenses associated with raising our daughter. This allowed us to supercharge our savings/investments so as to accelerate our retirement dates.
In December 2006 I became increasingly concerned about what I was seeing in the equity markets and I did something with a large component of our investment portfolio that was totally out of character. I liquidated roughly 50% of our holdings and went into cash!
We escaped the Financial Crisis unscathed and actually had a sizable pool of funds to deploy when equities were at depressed levels in 2008 – 2010. In case you’re wondering…no, I have never sat down to determine whether we would be further ahead today had I not made this “knee jerk” decision to liquidate some investments.
Even though it might be prudent to take some money off the table during the current period of market euphoria I like to think that I am far more disciplined today than I was ~11 years ago. I have no intention of liquidating any of our current investments and if the market corrects…so be it.
I like to think that over the last ~11 years I have developed the intestinal fortitude that will prevent me from taking any drastic action in the event our investments experience a significant correction. Essentially, once I began to focus more heavily on the level of dividend income generated from our investments versus the value of our holdings I came to the realization that I was one step closer to being ready to retire.
During the Financial Crisis I was a member of my former employer’s (BNS) Corporate Global Transaction Banking “Financial Institutions” team. Being part of this team opened my eyes as to magnitude of the problems within the financial world.
Lehman and Bear Stearns had sizable overnight deposits with my employer and when “all hell broke loose” those deposits went out the door. We also had a deposit client which was heavily involved in the asset-backed commercial paper market. This client held sizable deposits with us but everything came to a crashing halt in no time flat.
The lesson I learned from the Financial Crisis is that financial engineering can work wonders for a finite period. Eventually, however, the underlying fundamentals of the business are what truly matters. If something sounds and looks too good to be true, it probably is worth avoiding. It is for this very reason that I avoid investing in high yield securities. I would, for example, much rather invest in a company with a reasonable potential for capital gains and a 3% dividend yield than in a company with limited potential for capital gains and a 12% dividend yield.
My other learning experience from this time period was the importance of performing a reasonable level of analysis (not just reading financial statements) before making any investment related decision.
Once I was satisfied that I was reasonably competent at evaluating a company for investment purposes I felt I was another step closer to the right time to retire.
Post Financial Crisis
Having a pool of money to deploy during the Financial Crisis certainly helped accelerate my wife’s/my retirement time line. In addition, we continued to diligently save/invest and we strongly encouraged our daughter to start generating income so she could pay for some of her expenses and start saving for the future; fortunately she was able to parlay her love for horses into several part-time jobs.
Things were humming along just fine from a career and investment standpoint and in 2015 my wife decided to retire at age 52. I, however, continued to wake up at 5:45 AM to catch a 7 AM train to work; my return train usually arrived at 7:15 PM. My thoughts around early retirement, however, became far more frequent.
On the rare occasion where I was not fast asleep on the train by 7:10 AM, I would gaze outside the train windows at the bumper to bumper traffic on the 400 series highways leading into Toronto. My thoughts would frequently turn to wondering what would possess people to commute several hours a day in heavy traffic and occasionally during inclement weather, to a job they tolerated/disliked, and for an income they most likely deemed to be too little. To make matters worse, most people did this day after day, week after week, month after month, and year after year!
What happened to all the dreams these people had when they were young and innocent!?
How I Knew It Was the Right Time to Retire
On November 1, 2013, a new CEO at my former employer took the helm. His appointment had been announced a year in advance and everyone knew that it would be a “new world order” when he officially “took over”.
Sure enough, it didn’t take long for changes to occur. He promoted the people he wanted on his team and dispensed with those who had been loyal to his predecessor. In addition, some positions were combined and multiple changes were made to the reporting structure.
Before we knew it, our Executive VP – Gone, Senior Vice President – Gone, 3 Vice Presidents – Gone. In mid 2015, the culling of employees within my division at the Director level commenced; in all cases they were dispensed with immediately. It was then that I knew the writing was on the wall for me; I was the last to be packaged off.
I don’t know how some of my former counterparts reacted when they were packaged off because I never subsequently spoke with them after they were gone. A couple had been with the bank for 40+ years so I suspect they were pleased with their outcome. A few of my counterparts and superiors, however, were in no position to retire. Given everyone’s different circumstances I strongly suspect all had vastly different experiences with respect to the 7 stages of grief.
Finally, my turn arrived the last week of May 2016. In my case, however, I was financially prepared and I had been praying for a “package”. As a result, I skipped the 7 stages of grief and created my own 8th stage which I dubbed “Mixed Emotions” (aka Joy AND Happiness).
Are You Ready to Retire?
Up to this point I have shared my story. I don’t know if any of this has resonated with you but now I want to turn the attention on you. Are you TRULY ready to retire?
It is all well and good to think “I’m ready. Color me gone!” but sometimes dreams can turn into nightmares if you’re not ready to handle the unexpected “stuff” that may arise.
Here are a few things you may wish to consider when assessing when is the right time to retire; these are in addition to and are not mutually exclusive of the financial aspects of the decision making process.
- Has work essentially been your life? If you stop working how do you intend to fill all that “free time”?
- Is your partner/spouse prepared to start spending a whole lot more time with you and vice versa?
- If you are truly passionate about what you do and truly enjoy your job will you suddenly find you have a huge void in your life if you stop working?
- If your sole/primary circle of friends consists of co-workers what will happen if you stop working yet they continue to work?
- Is your home environment unpleasant and work is a safe haven?
- In my case, work went well into the evenings. Fortunately, I had other interests/diversions otherwise I could have spent far more time on my laptop. Are you, however, in a position where you bring work home and rarely have down time?
- Perhaps your work is all encompassing because you are self-employed/own a company and it is your “baby”. How will you feel if you “step away”?
- Do you have any health issues which should be taken into consideration in your decision making process?
- Do you HAVE to work to maintain your lifestyle?
- Have you suffered from a marital breakdown which has decimated your finances?
- Are you supporting family members/friends who are unable to work and who may require indefinite financial/emotional support?
This is not an all encompassing list of things to ask when trying to determine the right time to retire. I have provided these questions primarily for the purpose of getting you to think about the non-financial aspects related to retirement.
I can assure you that, as with any other aspect of your life, you MUST set Goals and Objectives. In the case of retirement, determining the right time to retire depends very heavily on having your financial house in order. Equally important, however, is to ensure you are retiring TO something versus retiring FROM something.
In order to help with your decision making process I strongly recommend you write down:
- What you want to accomplish during retirement.
- Attach dates to your retirement goals and objectives.
- Map out a game plan on how you want to achieve these goals and objectives.
In my case, when I retired I decided to create my Financial Freedom is a Journey blog. I didn’t have a clue how to create a website but YouTube has been a wonderful resource. My site is very rudimentary but work is in progress to completely revamp the site.
I also decided to engage in 2 hours of rigorous physical activity for no less than 5 days/week. I had several goals two of which was to run 5km under 21 minutes and to lose 10 lbs within 6 months (I had other goals but for the sake of brevity I am capping them at two).
These goals may not sound like much and if my younger self were reading this I would probably chuckle. After having exercised regularly for a little over a year, however, I suspect I could now give my 20 something self a run for the money.
Recently I watched The Barkley Marathons on Netflix and this has captivated my interest. For those who do not subscribe to Netflix you can get a sense of the magnitude of this marathon’s challenges by going here and here. My interest has now been piqued. In addition to being in shape I now need to learn how to read a compass if I have any intention of submitting an application to participate in this race.
I totally understand if a race of this nature has absolutely no appeal to you. That’s fine. What I do want to impart is that retirement can be a wonderful chapter in your life IF you set some challenging goals and objectives and focus on achieving them!