Education And Continuing Education

If you know me or have followed my blog at all, you know that I have invested a lot of time and money towards my education. My investing education that is. My husband and I started our investing career by taking extensive courses on the stock markets as well as real estate investing.

Success can be achieved without a formal education. You can learn to invest through experience. In fact even if you start with a more formal education, you still need experience to succeed. Its a necessary step. I have come across many successful investors that obtain their level of success on experience alone. They would come across and complete one deal. Then they would repeat the process. They would learn new things along the way that they can apply to their investment strategies. Slowly they build a portfolio of investments and are doing quite well.

So why didn't we do it the experience way? Well for one, I lacked the motivation to start and the knowledge to even know it was possible. My education first opened my eyes to the possibilities. I had a preconceive notion that investing in stock and real estate was out of my league. So I never attempted to invest. I concentrated more on getting a job and saving, which I now know wouldn't have gotten me very far. Mostly if you take in consideration the crippling injury my husband would sustain along the way.

Also, the time frame to reach success without formal training is much, much longer then through education. You only learn the lessons when you come across them. You only learn what not to do after you've done it. And if the mistake wasn't too costly, you can keep on going. I have paid a lot for my education, but the truth is that those who have learned by trial and error have paid more then me.

Remember, my education also comes from trial and error; but they come from someone else doing the trial and error and I learn from their experience. I can avoid pitfalls and costly mistake. I also get a vast source of information right from the get go. Experience and action are still required to reach success, but the path as been paved ahead of me making the process that much easier.

A good thing about formal education, is that you can acquire it at any time and at any stage of your investment career. The more experience you have the more habits you will have formed and you may need to change a few of them. Your ego may be your biggest obstacle. However, isn't it comforting to know that it is never too late.

I am of the belief that we are never done learning. The minute you quit learning is also the time you will quit growing. Rules are forever changing and there is always room for improvement. So it is important to dedicate a certain amount to education all throughout your investing career. It is true that a larger portion should be dedicated to education in the beginning when your knowledge is more limited, but as your expertise grow, you should still dedicate to learning.

There will be a time, when you have acquired a good foundation to your investing knowledge that you should start branching out into other topics not as directly related to investing. Such as business, accounting, sales, and so on.

In fact, now that I have taken almost every course available to me on the topic of real estate investing and stock investing; I have started branching out in educating myself in other aspect of my business.

I have started a course on branding and marketing. Now that I have the skills to invest in real estate, I need to concentrate on finding investors and joint venture partners. I need to learn how to find them, how to make them see the value in my investment opportunities. I am really enjoying this course and see tremendous value in it. I am also glad that I didn't try to add in on sooner. It was important to first develop my skills and then grow my brand.

I am also taking a course on sales and negotiation. Some people are natural sales people, like my sister for example. But I lack her skills in that department. Sales and negotiation doesn't have to be a skill you were born with, it can be learned. This courses is a big eye opener for me. I have a very nurturing personality so pushing for a sale is very hard for me. In fact I would have trouble getting to the topic of sale at all. I had a wrong perspective on this. I saw a sale as me winning, when in fact it is to my investors/partners advantage to get involve in the deal. I just also happen to benefit as well. I was of a thinking that if someone was a winner the other was the looser.

I have also added trainer's courses. This class teaches me to train and present. At this time, my speaking engagement are not the main focus of my business, but training always was. I am not teaching investment to the masses at this time. I do however need to educate my realtors on the strategies I am using. I need to educate sellers on the benefit of a VTB (vendor take back). I need my mortgage broker to understand the process of a Lease Option (rent-to-own) and how to do it properly to protect all the parties involved.

I have learned that the way I perceived the information I am presenting can be very different from the way it is received. You want to present the information in such a way that the receiver is always with an open mind. If you trigger a concern, your message is no longer going through. For example, if someone approaches me and says "How would you like to make more money?" my brain screams MLM SCAM and I quit listening. There is a technique and path to follow to get the message through without triggering a gut reaction that way.

My new education is fascinating. It is not investing related per se but it is very valuable to my business. I do have a lot on my plate with these courses and it unfortunately have kept me away from blogging. Think however of all the more information I will have to share with you, so that you too may benefit from my knowledge and help grow your business.

Why Helping With Financing Is A Benefit For The Seller

Have you ever had a property for sale, but there were no buyers? Or you had a buyer with a desirable offer in place but the financing fell through? Or your real estate agent as been recommending you lower your price again and again, so that after paying your realtors fees you are left with very little from the equity of your property?

It can be very disappointing to have been working so hard paying down the mortgage on your property to build up the equity just to see it disappear in the details of the sale. There are different ways to maximize the amount that goes in your pocket from the sale of your house. Today I will be concentrating on assisting with the financing.

For a first time home buyer, they should be able to purchase a property with a deposit of 5%. So for a $300,000 home that would be $15,000. That's not so bad. It gets a little harder to obtain when you think that a big majority of first time buyers first attended college or university. They might have been concentrating on paying down student loans instead of saving for a down payment. 

Not only that, but banks and CMHC have been changing their rules surrounding mortgages, making obtaining a mortgage a little harder and sometimes needing a larger down payment. In fact, CMHC as just increased their rate to insure a home mortgage by about 15%. It might be easier to obtain a mortgage without going through the regulation of a CMHC mortgage. But in order to do so the down payment would now need to be 20%. For that $300,000 house that is now $60,000. On top of paying off student loans.

For commercial mortgages, the necessary down payment is 35%. On a $300,000 purchase price that would be $105,000. Down payments are so high in commercial mortgage that assisting in financing is very common. The most common form of assisting is with a VTB (Vendor Take Back mortgage). There would still be a regular first position mortgage with the traditional lender (Bank). Then the seller would hold a second position mortgage against the equity of the property.

On that $300,000 example, lets assume the bank is holding 65% on a first position mortgage ($195,000) and that the seller is agreeing to holding a VTB for 20% of the property value ($60,000) this would leave the buyer with the responsibility of supplying a down payment of 15% ($45,000). This would make the whole transaction much more feasible for the buyer since he now as to come up with only $45,000 for the down payment instead of $105,000.

Now, lets discuss what is in it for the seller. First, he is getting the property sold when the large deposit of this deal might have scared potential buyers away. However he is not getting the full asking price up front. In fact in this example he would receive $240,000 at closing. But he did not have to lower the price. The remaining $60,000 is still due to him in the form of a mortgage. And not only that but it is secured against the property he just sold. The terms of the mortgage was determined between the buyer and the seller during the negotiation of the sell. 

I have in the past, posted about the types of rates you can expect for holding a second position mortgage. You can review that here. Based on that information, lets assume the seller and buyer in our example agreed to an interest rate of 10% and for a term of 5 years. For simplicity sake lets also assume that they agreed to make the payments interest only. (As a investor buyer, I prefer interest only as it gives me a smaller monthly payment therefore improving my monthly cashflow. As a seller, it gives me more money in the long run.) In this example the seller would be receiving a monthly payment of $500 ($60,000 x 10% which is then divided by 12 months). So after the 5 year term, the seller would have collected $30,000 in payments on top of being paid back for the $60,000 VTB. By offering a VTB, in this example, not only was the seller able to facilitate the sale and get his asking price; he also collected an additional $30,000.

Sometimes, there is not enough available equity to offer a traditional VTB, mostly if there are realtor fees involve. This is where Arm's Length Mortgages could be used instead.

Within your registered account, such as an RRSP; you can hold stock and mutual funds. But did you know you could also hold a mortgage? These are called Arm's Length Mortgages. They can only be used on property you, or a close relative do not own. Hence the term Arm's Length Mortgage. Just like the VTB the terms of the Arm's Length Mortgage would be negotiated between the buyer and RRSP owner. As an RRSP owner you could offer to hold an Arm's Length Mortgage on any properties (not mobile homes) that the buyer is purchasing or is owning. But you could also offer that service on the property you are selling if there was no equity for a VTB of if you are in need of that equity right away.

Here is how this would take place. You sell you property for $300,000. The bank is providing a 1st position mortgage of $195,000. The buyer as a deposit of $45,000. You would have $60,000 of your RRSP moved to a self manage RRSP which would then be transferred to a Trustee (such as Olympia Trust) that would facilitate the mortgage. The trustee would then create the mortgage which is registered against the property and at closing a cheque would be issued and sent to you. At closing you would receive, $195,000 from the bank mortgage, $60,000 from the Arm's Length Mortgage as well as the $45,000 deposit from the buyer. For a total of $300,000. So even though you are helping with financing you will be collecting in cash the full asking price.

Going forward regular payments would be deposited in the trust account (back into your RRSP). At the end of the term, the seller would refinance the property and pay off the Arm's Length Mortgage which would return all the remaining principal and interest due back to your RRSP. Take note, the RRSP money was only ever transferred within the registered account and therefore never created a taxable event. Also the interest made on the mortgage was also within the RRSP and is as such under the same protection had it been made in the stock market. But I think we will all agree that the RRSP secured to the property is much more secure then an RRSP holding stocks or mutual funds at the mercy of a volatile market.

One of the disadvantage of holding an Arm's Length Mortgage is that the additional money made from holding the mortgage ($30,000) is held within the RRSP account and technically should only be used at your retirement. But seeing as this is extra money that you would not have made with a traditional sale; I think the trade off is fair.

Single Family Home vs. Multi-Unit Rental

In my line of work I come across many people who are investing in real estate or people who want to invest in real estate. The majority of the time, new investors want to get a single family home and rent it out. Aggressive ones may concentrate on single family homes with a basement suite. Now it is my belief that getting involve in real estate investing is great, even if it's starting with single family homes.

If your strategy is holding a property for rent, and you start with single family homes, it will take many properties to make a significant difference in your financial situation. It is still possible and some people have succeeded that way. Many will run out of capital and borrowing power before reaching financial independence however.

My personal rules for rental properties is four-plex or larger; the larger the better. So why is that? There is reason to my madness. Let me explain further.

I had received income and expenses on a few properties I had been working on during the same time I had a few accepted offers in place. I was a little tied down with those, so I presented the income and expenses to two other investors to see if some of those properties was of interest to them. There was about twenty different properties varying from four-plex to 50-unit building. We were sitting around the table running numbers on these properties. I watched both of them pick up and immediately discard the larger properties. When I asked why, they explained it was too big, too risky.

They believe this because they are looking at the price tag attached to it. Is there a difference between purchasing twenty-four single family homes, six four-plex or one 24 unit building? The price might be similar (it probably would be more expensive to purchase twenty four single family homes). But it is my opinion that the 24 unit would be safer and easier to purchase.

Why safer? Well each property would have their own set of expenses; property taxes, utilities, insurance. The expenses per unit would probably be lower in the 24 unit building than for each single family homes. The rent from those properties is the income to cover those expenses. It is true that rent might be slightly higher for a single family home then for a unit in an apartment building that will even out a little the income to expense ratio. But let's look at vacancy. Vacancy is part of the rental market, you will be dealing with vacancy. Between tenants you will have to refresh the property and find a new tenant. There may be a quick turn around, but you will need to deal with vacancy. While you have an empty unit, believe it or not, you still have to pay the expenses on the property. So if you have a vacancy on a single family home, 100% of your income is not coming in and you will still have to pay 100% of the expenses. In a 24 unit building; one vacancy represent 4% of the total income. Can you see how a vacancy will not hurt as much? Therefore making the 24 unit building a safer investment.

When you want to purchase a single family home, before lending you the money the bank will require a down payment (20% for a rental house) and they will be looking at your personal financial situation to ensure you are able to cover the expenses and mortgage payment. That makes purchasing twenty four single family homes a little challenging because before long you will no longer qualify with the banks. When it comes to the 24 unit building, the chances of your personal income being able to cover the expenses and mortgage payment are so low that the bank won't even bother looking at your personal income. They will concentrate on the income of the property itself. Also they will be more willing to allow second position mortgage, lowering the percentage of down payment you will have to provide. So really, what really matters is how good the deal is. I'm no longer limited in how many properties I can procure. Or at least not based on my personal income.

Life Or Fiction?

I've been playing the game Cashflow 101 a lot lately. If you are unaware, Cashflow 101 is a game that was created by Robert Kiyosaki to use as a tool for teaching the general public about investing. But can a game really teach how to invest in the real life?

Mr Kiyosaki's game as a few advantages. Firstly as described in the cone of learning, there are a few ways of learning, each with different success. The study shows that we retain less in passive forms of learning such as reading, listening to a lecture, to watching a demonstration as oppose to an active form of learning such as giving a talk, simulation to doing the real thing.

The best way to learn is by doing the real thing. But if we are uneducated, there can be serious risks in trying to learn to invest by trial and error. Which is the next best advantage of the game, it provides a safe environment to simulate deals in investing. That is the reason, Cashflow 101, is used as a training tool.

You start by randomly selecting a "life", you may be a Doctor to a Mechanic. Your income and expenses will vary depending on your job. Although a Doctor as a much higher income, he also as substantial student debts and lives in a more expensive house then the Mechanic. Very much like real life. We tend to live at the extreme of our means. When our income increases, so does our style of living.

From there we fill out a financial statement to match the "life" we picked. Even when they were deeply into debt, Robert and his wife Kim, always employed the use of an accountant to know what there exact financial situation was. When facing difficult financial times, most of us try to ignore the issues and hope things will work out. Robert and Kim chose to look at the problem head on in order to find a solution.

The game start in the inner circle called the rat race. As described by Wikepidia:

A rat race is an endless, self-defeating, or pointless pursuit. It conjures up the image of the futile efforts of a lab rat trying to escape while running around a maze or in a wheel. In an analogy to the modern city, many rats in a single maze expend a lot of effort running around, but ultimately achieve nothing (meaningful) either collectively or individually. This is often used in reference to work. 

We work hard long hours for the goal of a paycheck. We then spend that paycheck to acquirer the things we need or want and then have to do it all over again to maintain that life style. That is an honorable way of living. The only problem is that if something happens and the employment is terminated for whatever the reason, it becomes impossible to maintain our life style. Many of us, following this life style, will never be fully prepared to retire, let alone retire comfortably.

The goal of the game is to escape the rat race by becoming financially independence. To accomplish that, the player needs to accumulate enough passive income to cover their total expenses. Passive income will come in the form of the cashflow of rental properties and/or businesses.

When someone new starts to play cashflow for the first time, they automatically play the game the same way they live their lives. Non-investors concentrate on small deals and only use the cash they have on hand to secure investment. In that manner, they will probably be able to secure a few small investments but they would need to play for a very long time in order to secure enough for their financial independence. In comparison to real life, if following that tactics, the course of our professional life will have ended before accumulating the necessary cashflow. Although, any passive income is good and will offer some financial relief.

The more they play, new players will discover that in order to exit the rat race, they will need to acquirer more capital to purchase the deals or to get comfortable with debt. Very much like investing in real life. Robert Kiyosaki as made using debt very uncomfortable by making the interest rate at 10% a month. That's right, a month! That would be 120% a year. That portion of the game is a little unrealistic, but the purpose of this is to get the players to really confront their fear of debt. The biggest obstacle in being successful investors is our mindset, and fear and doubt will keep our mindset on the wrong side of the quadrant (see this past post to learn more about the different cashflow quadrant).

I have taken many different investment courses now, in both the financial market (stocks) and for real estate investing. Still, I try to play the Cashflow game weekly. You see, seeking financial freedom and embracing debt to reach that goal if very much against the normal way of thinking. I use the Cashflow game as a way to keep my mind sharp in figuring out creative solution to acquire investment deals, as well as keeping my  mindset on the right track.

I strongly recommend you play the game as often as you can. Change the rules around a little to keep the play interesting and challenging. You may want to join a Cashflow Club. They can be found in almost every city around the world.

Networking Etiquette

I have been debating topic for this blog all week. Selecting and dismissing different ideas a few times a day. Until I talked to a fellow real estate investor who is currently attending an advance real estate class. A big part and advantage of taking the class is to network with all the other investors attending. The instructor actually strongly suggest that all attendees network with each other.

I asked how the networking was going, I was interested to know what that particular group concentrated on style of investment and how active they were with investing. Our conversation diverted to networking strategies and she pointed out one encounter in particular that turned her off future prospect to deal with a particular investor.

EUREKA!!!

There! This is what I should post about in my blog (which is always a topic that I could personally have brushed up).

Picture from FreeDigitalPhotos.net

Why Network?

Why should we concentrate on networking at all. In fact, I'm a mother of young children, living in a fairly remote area. In order to attend Networking Event, it requires traveling, planning and often a babysitter. It would be so much easier to simply stay home. If I was only investing in the stock market, networking would be almost useless. But Real Estate Investing, is a team sport. You cannot invest in real estate on your own. In fact even the simplest of  deals include a buyer, a seller, a lawyer, a lender (institutional or private) and most time a realtor.

So in order to facilitate current or future deals, it would be helpful to have an existing form of relationship with buyers, sellers, lawyers, lenders and realtors.

When Am I Networking?

Whenever you are interacting with someone who could hold the position of buyer, seller, lawyer, lender and realtor, you are networking. Every time some one asked you "What have you been up to?", or "What do you do?", include in your answer something about your real estate business. Don't overwhelm everyone you meet with offers or request for money so that you develop a reputation and that people in your surrounding starts trying to avoid you. But if they show interest, by all means, elaborate more. Most of those encounters may not result in a deal but you never know who may end up having a role in your real estate business.

There are also, more organized event with the intention to network with a specific group of people. Such as a Investor Cashflow Club event, or a Canada REIC event, etc. The benefit of these event is that the other attendees are also there to seek out a role in a current or future investment opportunity. The likeliness of finding someone that could benefit your real estate business is now much more likely. You may have to try out a different events/groups to see which one will offer the best value. Does the event include an educational portion? Is that educational portion supporting your business? Let me elaborate on this. I once attended an event that was organized by an investor group that included a presentation. The group's vision was very limited, mostly when compared to my goals. They only entertained renting single family home, evaluated their deals based on the appreciation over cashflow, they turned their nose to more creative arrangement and as investors didn't seek out any protection or tax benefit a corporation could offer. So their loyal attendees where "brain washed" against my particular kind of investment. They could prove useful if I wanted to get rid of a deal I deemed unfit for myself however. Also be careful for tire kickers. Some group may include investor fans more then investors. They are on the sideline and have yet to have the opportunity or the courage to jump on board. Again, some of those people may become first time investor with you, but there is also a high likelihood that they wont.

It's important to understand that I am not suggesting you do not attend such events, but if you do, take your time and money commitment vs. result into account. You may still find it advantageous to you.

Networking Dos and Don'ts!

Don't Be Shy:

You may be shy. And that is completely okay, in fact I do not suggest that you change yourself at all. That being said, if in a crowd, you prefer to stay seated away from the crowd and to keep your eyes on the floor/phone/papers; you might as well have stayed home. You will have end up accomplishing just as much in the way of network. Some people have the self confidence to walk into a crowd wearing an outrageous outfit intended to draw attention. Some can have an outburst declaring they have a deal looking for a buyer/seller/investor. That may not be you; it is not me and it's definitely not my husband. But you need to be able to approach individuals to introduce yourself and spark up a conversation. If you know that you can not accomplish that, then seek out the people in the crowd that you know and join their ongoing conversation or attend an event with someone more outgoing that will be the ice breaker for you.

Have Business Cards, Many Of Them:

You should always have business cards with you, but if you are attending an event with the intention to network bring many business card. Do not use the excuse of not having a business card design. I have sometime people not produce a business card and say I'm still working on my logo. Please! I don't want to invest with your logo, I'm considering to invest with you. If you can not produce a business card to me, I automatically associate you to as a amateur. That may be what you are, and that is fine, but that is NOT what you want me to think about you. Have a business card. Even if all it as on it is your name, phone number and email address. In fact that is all I have on mine. I also do not accept the excuse "They have not arrive yet". If you know you have a network event coming up, order some cards the minute you start thinking about attending. If it was a last minute thing, print some from home. They may not have the same professional look but it's better then nothing. If you think you can't afford them, Google free business cards. Vista print as been know to offer that.

Business Cards Turn Off:

We have being advised to have bright and flashy bird dog cards. A bird dog card should not be your business card. Although you should do something to have an appealing and memorable business card, I don't recommend making it neon coloured. Make sure your card is easy to read. Do not make the font too small, blurry or hard to read against the background. Unconsciously, if reading your business card is "hard maintenance", that is the sentiment I would associate to you. The same if it was rude, unprofessional, or boring.

Be careful of the information provided on your card. If you are in the construction business and are also looking to network for growing your client database for that business, please go ahead and hand out that card. If you give me a dog grooming business card, expect a call about my dog, not my real estate deals. If you need to have more then one kind of business card, so be it. Do not have a multipurpose card with both dog grooming and real estate investing on it.

Email accounts are free. There is no reason why I should receive a business card with an email that includes any of these words: cutie, sexy, hottie, biker. I even once saw one that included huggies, like the diapers.

There are some techniques on handing out a card that will draw more attention, as well as ways of designing a card. I won't get into this much details about those in this particular post. I'll save it for a later date.

Don't Drop/Grab And Go:

In a large setting, during an event with a lot of attendee, I will often come across people running around from person to person saying "Here is my card", "Here is my card", "Here is my card". That doesn't give the time to establish a positive first impression. It is true that to get the most of such a large event you may not want to dedicate an hour per person, but take the time to have a conversation, get a sense of what kind of investor they are. If there is an interest for future deals together, arrange to reconnect to talk or meet again at a later time.

Smile:

Smile! Be approachable, courteous and friendly. I would probably not approach someone who seems to be frowning at me. I would have no interest in dealing with someone who could not be friendly with me, but not only that if they are being rude to others. Also be positive. I have had friends that as soon as we get together they start numerating all the negative things going on in their lives. Or they will point out all the negatives in any situations or people they come across. Those friends would leave me feeling drained and ruined my good mood. As a result, I started avoiding them. If, on the other hand, I come across someone that is positive and uplifting, I tend to seek them out.

Include Those Around You:

When you are in a conversation with someone and someone approaches, re position yourself to include them. Don't keep your back to them but I don't think you should end your conversation mid sentence. When there is a break in the conversation, introduce yourself if you don't know them, if you do know them introduce them to the person you were conversing with. You shouldn't use a large network event to discuss details and try to close a deal in a private conversation. Reschedule a better time to have a meeting.

Have A Story:

If someone approach you in a network situation and ask what you do, do not reply "I'm a real estate investor". Your answer should give an sense of what you try to accomplish. You could say "I've been concentrating on Buy-Rent-Hold and starting to include Rent-To-Own" Or "I've invested in Ontario and looking to expend into Alberta". Someone once handed out a card and answered "Go see my website". For once the delay in explanation and the promise of a presentation screams Multi Level Marketing, not investor. Also, your story and personality needs to give me an incentive to visit that website.

Follow Up:

After the event, follow up with the people you have networked with. Depending on the conversation that took place have the appropriate follow up. Everyone should get an e-mail expressing your pleasure of making their acquaintances or for seeing them again. If they use and investment strategy that matches your expertise; ask for permission to send them details on current or future deals. If you had discussed getting together in a near future you could follow up with a phone call. But when someone who took my card in passing, calls me asking me bunch of questions on my business I can feel a little violated. It can be done, but do be tactful. 

Also do not wait so long after the event that when you do touch base again they have completely forgotten you. Always help them remember you by telling them where you met "Hi Jon, Melanie here. We met last week at the Investor Cashflow supper..."

How do you keep track of that yourself? Well you don't have Pip's amazing memory, keep a database with those details in your network database.

Do Not Turn Other Events Into Your Personal Network Session:

Don't attend any event handing out cards right, left and center. Attend for it's true purpose. As an example, if I host a Tupperware party, don't show up with posters and pamphlet for your own business. But if a conversation with an other of my guest develops into asking more, by all means present your card and offer to discuss further at a later date. Show me some respect. The same goes for bigger events hosted by a group or a business. 

Appearance:

By appearance, I don't mean you have to go out and buy a three piece suit. But do dress professionally, business casual is fine as well. If I showed up in my coverall from my farm life, I am not going to inspire others to view me as a serious investor.

Conclusion

Real estate investing is about relationship. The purpose of networking should be to form and nurture those relationship. Be sure you have something to offer the people you network with as well as making sure they have something to offer you in return. The relationship you create may not be limited to only real estate. Take an interest in the people you meet, form friendships.

Are You Ready??

I wanted to talk about retirement, are you ready? Will we ever be able to comfortably reach that goal?




I also came across an interesting article on Money Sense website. It can be viewed here. I wanted to give my opinion on this. The following is a copy of the article... The red font is my opinion.

10 things they won’t tell you about retirement

The best-kept secrets of life after work.

by Craig Sebastiano 
August 14th, 2008

From the July/August 2008 issue of the magazine.

If you’re like many middle-aged Canadians,you used to think that you would retire at 55. Now you’re hoping for 65. Once you used to smile fondly at the retirement ads that showed laughing grey-haired couples golfing in tropical paradises. Now you have an overwhelming desire to jump out of the sand trap and smack those smug retirees with a nine iron.

We feel your pain. So let us reassure you. Despite what you may think, there is a lot of good news about retirement. We’ve talked to a wide-ranging selection of financial experts (Ahhh, the experts. Did you know I was once invited to become a financial advisor. When I decline and said that I didn't know the first thing about financial I was assured that it was very simple. All I had to do was take a weekend class. Really? That's all this person had to do to tell me how to best handle my finances. Also is this so call financial expert employed by a bank, who would be making money from my RRSP account or are they employed by financial companies also making money from my retirment account. Is there not a conflict of interest there?) and we’ve come away with one conclusion — you’re doing far better than you think you are. Join us as we reveal 10 things that most people don’t know about retirement, but should.

1. You’re not behind at all

The ads make it sound as if 55 is a reasonable retirement age. In fact, for most of us it’s not. The median retirement age in Canada is 62 for men and 61 for women, according to Statistics Canada. Who does retire early? By and large, federal government employees, who ditch work at a median age of 58. You can credit their early departures to generous pensions that are indexed for inflation. But even public-sector employees aren’t hanging up their work clothes at 55.

If you look at the math behind retirement, you can see why most of us stick around the office a bit longer than we might like. For every year early that you retire, you pay three penalties: you lose a year of potential savings, you lose a year of growth for your retirement savings, and you gain one more year of retirement expenses. (oh good! I feel so much better, I'm not behind by not retiring at the age of 55. In fact 55 was never even feasible for me. Well there goes my day dream that kept me on trucking at work.)

Consider a woman who hits 55 in good financial shape, with a paid-off condo and $100,000 in savings. She can count on her savings to produce $4,000 or $5,000 a year in returns, but she’s too young to start collecting Old Age Security or Canada Pension Plan. Unless she resorts to desperate measures, such as selling her condo or burning through her savings, retirement is impractical. (I have to say, this woman did well. If she went to university and graduated at the age of lets say 20 and then entered the work force. Paid off her student loans, purchased and paid off a condo, probably had a few kids and put them through college as well. She was still able to save $100K. Wow. Too bad they suggest that will only be worth 4 to 5K a YEAR.)

But look at what a difference five years can make. If she buckles down and contributes $10,000 a year to her retirement fund during that period, and achieves a 7% annual average return, her savings double to $200,000. That bankroll can generate $8,000 to $10,000 a year in income as long as she lives. At 60, she can also start collecting Canada Pension Plan. If she combines those sources of income with part-time work, a phased-in retirement becomes quite practical. (a 7% annual average return... after the fees of 2.5% (which is average) and I'm assume they are considering inflation (3% a year) and of course a market that as gone straight up with no downfall, she made a return of  over 12% annually. Wait a minute there is no way that was in mutal funds, where is this return coming from then? Savings? Hahahaha... nope)

2. You’ll live longer than you expect

When we’e doing our retirement planning, many of us figure that we’ll live to 80, the average lifespan in Canada. But that average is misleading. It reflects what a newborn baby can expect in the way of lifespan and is dragged down by all the unfortunate people who die relatively young.

If you’ve managed to reach 65 without suffering a terminal illness, you’ll probably live considerably beyond 80. According to StatsCan, a 65-year-old man can expect to live to 83; a 65-year-old woman can look forward to blowing out the candles on her 86th birthday.

And remember — those are averages. Half of retirees live longer, some much longer. Moshe Milevsky, an associate professor of finance at Toronto’s Schulich School of Business at York University, says there is a 41% chance that at least one member of a 65-year-old couple will live to 90. So even if you don’t quit work until 65, there’s a good chance that your retirement could still wind up spanning a quarter or more of your life. (okay, so financial "experts" have been having us save to last until 80... but we will out live it. Chances are at 90 I will also be in a senior home, so higher living cost.)

3. You’ll see more of your partner — a lot more
Sure, you love your spouse, but let’s do a little math here. Chances are, for most of your married life at least one of you has worked outside the home. Subtract sleep, travel time and other away time and you’ve seen your beloved for— at most — six hours a day.

In retirement, that figure can easily double. And continued exposure can cause even happy couples to bicker. Fred and Janet Barnes (not their real names) retired to Dickey Lake, Ont., to renovate a cottage after living in and around Toronto for most of their lives.”His perfectionism drove me a little crazy,” says Janet. “My slapdash methods were hard for Fred to take.” The Barneses eventually figured out ways to divide the work so they wouldn’t get on each other’s nerves.

Other retired couples strike different bargains — maybe the kitchen becomes her territory, while the garage becomes his — but whatever the specifics of the deal may be, the important point is to realize that retirement is not just a financial journey. It’s also an emotional odyssey and you should plan ahead to make the most of it.

Beginning in your 50s, you should start thinking about the activities that will fill your day in retirement. “You’re going to need to stay connected,” says Dr. Randy Swedburg, chair of the applied human sciences department at Concordia University in Montreal. Your many options include going back to school, giving your time to charity, or starting your own business. (So in the name of making the marriage work, we will need to get out of the house and fill our lives with other activities. Sure, that's what I planned to do with my retirement anyways. Not stay cooped up inside) 

4. A part-time job is worth $400,000 in the bank

If your retirement savings are a bit smaller than you had hoped, take heart — a part-time job in retirement can go a long way toward making up for an undersized portfolio.

Let’s say that you can make $20,000 a year from your part-time job. That is about what you could reasonably expect a $400,000 investment portfolio to generate in retirement, says Terry Greene, a fee-only planner with MSC Financial Services Ltd. in North Vancouver. So your part-time job is the financial equal of a $400,000 portfolio. Especially if your part-time job consists of doing work youenjoy, you may find that you never want to fully retire. (Take heart?? First you tell me I don't get to retire at 55, now I don't get to retire at all? And that my $400K investment will only now offer me a return of 5% when before I could grow it at a miraculous 12%? Ya... take heart)

5. Your employer really does love you

The first wave of baby boomers has already hit 60. Millions more will soon hit retirement age. And there are not that many people coming up behind them. “The demographic trends are suggesting that over the next 10 to 15 years, we’re not going to replace the workforce that currently exists,” says Ted Emond, a senior consultant with Hewitt Associates, a human resources consulting firm in Toronto. (WOW! Does anyone else see the bad news here, Babyboomers are just starting to retirer. Millions more will do so soon as well. They will start taking money out of their retirement accounts. Millions of people will be taking the value of there income out of the stock market which controls our mutual funds which is what is in our retirement account in the first place. The stock market moves on buying and selling power. Selling power moves the price down. Some think, myself included, that we will soon be faced with an other market crash.)

The likely result of Canada’s aging society is a potential labor shortage that will make skilled help more and more valuable with each passing year. HSBC Bank Canada, is already attempting to keep older employees in the workforce by letting them work part-time while collecting pensions. Wal-Mart Canada allows its retirees to come back as consultants or to mentor current employees. Count on more employers to do the same as demographics makes skilled employees tougher to find. (So since we have now learned that we don't get to retire at 55, and that we actually don't get to retire at all really. We now found out that it's okay because our boss is going to need us anyways.)

6. Government is more generous than you think

The financial planning industry likes to cast doubt on the future of Canada Pension Plan. In fact, CPP is on solid financial ground after the reforms of a decade ago, according to the federal government’s chief actuary. CPP (or Quebec Pension Plan in the case of Quebecers), combined with Old Age Security, will provide you with an average of $11,500 a year if you’ve worked in Canada your entire life and retire at 65. The maximum you could qualify for is about $16,600 a year. (Ok, let's look at this, we have the millions of babyboomers ketting to collect this right away. How is it funded anyways? By the contribution of the current work force. Is that the same employees our boss is about to run out of?)

Don’t forget, too, that you’re eligible for a Guaranteed Income Supplement if you’re a low-income retiree. “For low-income [earners], government programs are going to provide you with the standard of living you’ve always been used to,” says Malcolm Hamilton, a consulting actuary with Mercer, a benefits consulting firm in Toronto.

7. You may be missing free money

A Sun Life Financial survey found nearly 40% of us have access to savings programs in which our employer kicks in money to supplement what we contribute. But one in five
of us who are eligible for such plans doesn’t participate. As a result, we lose guaranteed returns of 25% or more. (If RRSP contributions, let's say, are matched by our employer it provides if nothing else a protection against the 50% draw downs we have seen in the market. In the last ten years, that as happened twice.)

You should inquire with your human resources department to make sure you’re not missing out. Many publicly traded companies offer employee stock ownership plans with an employer match. If you buy $80 of your company’s stock each month through such a plan, your employer kicks in an additional $20 a month — an instant investment return of 25%. Other companies offer retirement plans in which the company matches your contribution dollar for dollar — a guaranteed return of 100%. In either case, the money is free and you should grab it.

8. You don’t need a million bucks

Financial planners like to say you’ll need 70% of your current income in retirement. To hit that goal, a middle-class couple will need to amass a million dollars or more in savings. But is the 70% figure truly a good estimate of what you need in retirement? (No. You are right, it is not. Not with all the activities I have to do in order to keep some distance away from my husband to save my marriage. And not with the traveling, and life experience I've waiting my whole life to enjoy during my "Golden Years")

Probably not. Brian FitzGerald, co-author of The Pension Puzzle and chief executive officer of Capital G Consulting in Toronto, says
you have many more costs while you’re working than while you’re retired, so your need for cash in retirement is considerably less than the 70% figure suggests. “There’s a bunch of expenses you don’t have to incur in retirement,” he says. For instance, most retirees no longer have to worry about paying off a house, funding their kids’ education, making RRSP contributions or commuting to work. And they pay substantially less in income tax because they’re earning less. (But what about the activities and travel? And have you forgotten I am still working, at least part time.)

So how much of your current income do you really need to maintain your standard of living in retirement? “I’m pretty confident that 50% will do the job for most people,” says Hamilton, the actuary. Of course, if you want to live lavishly and travel constantly, you will need more, but if you’re happy to go on living much as you always have, replacing half of your working income should do the job. (So, according to Hamilton. Now that I am retired and no longer working 8 hours a day, and doing the 1 hour commute; I should be filling this extra time with... what I have always done before? I guess we could spread out the cleaning to take a full day instead of a few hours... Who I am kidding, I hate cleaning I'm not doing any more of that. But if I'm going to be unreasonable, and wish to travel; I better be saving my buns off into my retirement account when I get the chance.)

9. RRSPs aren’t always the answer
Canada has five seasons: winter, spring, summer, fall, and RRSP time. But while we’e annually bombarded with ads telling us to stuff money into our RRSPs, don’ think of those four-letter contraptions as your only option in retirement planning.

RRSPs are not your best strategy if you have high-interest debt, such as a credit card balance. Given the 18% or more you’re probably paying on your credit card debt, you should first devote every available dollar to paying down that costly debt. RRSPs may also not be your best option if you’re a low-income earner, since the tax savings that result from making an RRSP contribution aren’t worth much if you don’t pay much tax to start with. (Hallelujah!! The first retirement advice that does not include RRSP.)

If the federal government goes ahead with its proposal to introduce tax-free savings accounts next year, RRSPs will have an additional competitor for your attention. Ottawa’s proposal, as it now stands, would allow each of us to put up to $5,000 a year into a tax-free savings account, or TFSA. You won’t get any tax deduction
for doing so, but your money will grow tax-free. And you will be able to withdraw the TFSA money without paying any taxes. While the math gets complicated,”I would think people with below-average incomes are better with TFSAs,” says Hamilton, the actuary. (Oh but still a registered account, still in mutual funds. Still at the mercy of the market with high hidden fees.)

10. There’s a world of possibilities 
One option that can instantly multiply your retirement spending power is to leave Canada behind. Mexico, Costa Rica, Malaysia and Panama all enjoy far better weather than we do, and much lower costs of living. “Overall, there is no question you can live here on one-half to one-third what you could in any Canadian city and have a good lifestyle,” says Tom Dawson, 54, who with his wife, Donna, moved to Panama City nearly two years ago from St. Albert, Alta. The 1,800-sq.-ft. condominium they bought overlooks the Pacific Ocean and the Panama Canal, and cost them less than $200,000. Medical care is excellent, locally grown produce is cheap and foreigners who retire to Panama with a pension can qualify for several tempting tax breaks, including an exemption from property taxes (That's right, if you really want to enjoy your retirement leave the country! Leave the children and grand-children, the friends and the relatives. Who needs them anyways. Because this plan does not include the cost of frequent travels or of maintaining a secondary house in your home country.)

I trust you realized that the majority of the red text was in a sarcastic tone. We really need to come up with a font for that. Your current retirement plan may not be enough, but there are other solutions out there other then stocks and mutual funds. You may have to step out of your comfort zone a little bit. But, in the end, we may not have any other choice.

Long Distance Investing

I get a lot of questions about investing in a different province and how I go about obtaining a new rental property without ever seeing it. In fact I received an email about just that this week so I decided to make it the topic of this Q&A.



If you have more questions on this topic or if you would like to submit a new question for future Q&A please e-mail me here. Be sure to put Q&A in the subject line.