Werner C. Duever

Financial Security Advisor
Investment Representative
Freedom 55 Financial

The road to financial freedom

Over the years people have often asked me, “is it really possible to achieve financial freedom by age 55?”

I try to help people realize that, in some way, they’re enjoying some level of freedom right now. They may really enjoy their career or have enough savings to take an annual holiday without having to go into debt. True financial freedom comes from living the life you want to live without worrying about running out of money.

A few years ago I bumped into a former high school friend (let’s call her Janet) who shared her financial success story with me. Janet, who was about to retire, had a big grin on her face. "Werner,” she said, “when I first started my career, my advisor told me to maximize my contributions to my RRSPs and I did.”

At first it was tough for Janet to set aside her maximum contribution amount. But it got easier as she learned to live without the money she was saving. "My savings have skyrocketed,” she said, “and I’m in a position to retire and do the volunteer work I love to do on a full-time basis. Taking my financial security advisor’s advice was one of the best decisions I ever made."

After our brief encounter I realized Janet was almost 55. So there you have it – freedom at 55 really is possible!

I decided to do my own analysis to see how much Janet may have been able to save from 1985 to 2014. To contribute her maximum annual RRSP limit at such a young age, Janet may have had to live with her parents, share an apartment with a friend, get a second job or make some other sacrifices.

Assuming she started at age 25, with a six per cent annual return she would have built her wealth to just over $1 million by age 54. If she and her advisor sat down regularly and took advantage of opportunities in the marketplace, perhaps she received an eight per cent annual return on her investment portfolio. With an assumed average annual growth of eight per cent, she would have accumulated over $1.4 million.

Now, let’s assume she reinvested her income tax savings* from her RRSP contributions and earned eight per cent interest. After combining her regular maximum contributions and her tax refunds, she would have close to $2 million by age 55.

I see why she had such a big grin on her face when we chatted about her retirement plans!

And what if she started to maximize on her TFSA contributions as well? People assume you stop saving when you retire – but I suggest continuing to save. After all, there’s no age limit for contributing to a TFSA.

What is financial freedom?

When we’re young, our parents provide for us. When we get older and leave the nest, we quickly understand the need to work so we can afford food, shelter and fun. Suddenly, we’re not as free as we used to be – working for a living can be tough! But there’s still a level of freedom people enjoy when they’re not reliant on their parents.

What I’m talking about is a different kind of freedom – financial freedom to do the things we really enjoy. Many people don't like their jobs. Those that do are in a good place, but they’re still working to pay for their everyday needs. True financial freedom comes with having an income stream, or better yet, multiple income streams that you can control without having to go to work each day.

Pensions can help us achieve financial freedom, but you can’t cash out in the case of an emergency. Being dependent on only a couple of income streams can be a problem if one of them suddenly disappears. My personal goal is to accumulate as many different streams of income as possible, so that if I lose one or two of them I’ll still be able to enjoy my life.

Can you retire at an early age?

In his book How to be Rich, John P. Getty talks about how he decided to retire at age 27 because he thought he’d earned enough from his oil wells to last his lifetime. But he got bored after a few years and decided to return to work. His father suggested he might have a more meaningful life by continuing to grow his oil company and creating employment opportunities for others.

In other words, making the decision to retire involves more than simply evaluating your financial situation.

Do the wealthy really live longer?

Having financial freedom can be good for your health. Not having to worry about money can take a lot of stress out of your life.

In her article Do rich people live longer? for U.S. News Money, author Kimberly Palmer notes that “those looking for a magic elixir to keep them healthy and happy need look no further than their bank account. Wealth and, more broadly, socioeconomic status, play a powerful role in determining how long we live.”**

Are you interested in financial freedom? Would you like to have the ability to retire at age 55 like my friend Janet? Let me help you get there by putting a financial security plan in place. Contact me at werner.duever@f55f.com for a private consultation at no charge.

* Assuming a 30 per cent tax bracket.

** Kimberly Palmer, Do rich people live longer? U.S. News Money, Feb. 14, 2012, http://money.usnews.com/money/personal-finance/articles/2012/02/14/do-rich-people-live-longer.