Personal Finance Tips

Carole Dobson as told to Duncan Hood
From the May 2006 issue of MoneySense magazine

I used to work full time at a stressful job making a six-figure salary. Then, about 10 years ago, I started planning what I call Carole's Freedom 48 plan. Today, I'm 50, and I only work when I want to, doing things I love to do. I'm living on less, yet I own a 1,700 sq-ft house in a leafy neighborhood in Calgary. I have a three-year-old Chrysler Concorde with leather seats and I managed to travel for three months out of the past year. That included almost a month in Venice - and I flew there business class.

There is no magic involved in how I've chosen to live my life, nor are there any hidden trust funds, wealthy relatives or hardship. To an outsider, it looks like I'm living on air. But once I decided that I'd rather be rich in experiences than in money, I figured, why wait until I'm too old? Instead of one big job where I'm not in control, why not have several smaller sources of income, each one related to something I can enjoy?

Before the switch, I worked for agricultural supply companies in Alberta. It was a lot of fun at first, but the fun was wearing thin. I was raising two teenagers, and my job was high-pressure work, because it was very seasonal. I was responsible for sales of crop inputs - seed, short-line equipment and so on - and about 60% to 80% of my sales would occur in a six- to eight-week period. To make matters worse, I seemed to be spending all of my waking hours involved in a systems project that didn't work. It was initially supposed to last six months, but three years later we were still working on it, and it still didn't work. People began losing their jobs. I was let go in 2000, before Christmas - and right before they handed out the year-end bonuses. I just said, "Fine. I'm outta here."

A few months after being laid off, I landed a job as dean of agriculture at Lakeland College, which is about 300 km north of Calgary. Again, it started off fine, but we were soon faced with very severe budget cuts that had to be implemented overnight. Many jobs were lost and it was a wrenching time for the whole college. Eventually, I thought, what am I doing here? And I left in 2003.

It was then that I decided to launch my Freedom 48 plan. It started when I realized that after decades of diligent saving, my RRSP wasn't going to save me much in taxes. By my mid-forties, I had managed to accumulate several hundred thousand dollars - which was great on one level, but meant that by the time I reached 69 and converted my RRSP to an income fund, I would probably have to withdraw such a large amount each year that I'd be paying as much tax as I was when I was working. Not only that, but my income from those government benefit programs would be clawed back. You've heard about people who don't save enough? Well, I had the opposite problem - I had saved too much.

So I went to my financial planner and said, I want to have enough to retire on, but my lifestyle is not about making as much money as I possibly can. I want to slow things down between the ages of 48 and 65, and I still want to work a bit, but not at a frantic pace. I want to volunteer more, and spend more time with my friends and family. Can I slowly collapse my RRSP in a systematic way so that I can enjoy some of the benefits of all that saving while I'm in my prime? So my planner took a look and found that if I began taking out about $15,000 a year, I'd still have enough to last me until my mid-80s. My challenge was to make another $20,000 or $30,000 a year doing part-time work. So far I've succeeded even better than I expected. I haven't even had to touch my RRSP yet.

I've earned much of my income from the homes I've lived in. Every three to five years, I'll buy the dump of the neighborhood and fix it up, and later, I'll sell it. I've learned how to fix a house so that my cost is minimal and I earn the maximum amount of revenue. Typically, after all the expenses of moving and legal costs, I've been able to clear about $50,000 a house - and all of that profit is tax-free because you don't pay taxes on gains on your principal residence. An extra $50,000 every few years is modest enough, but it costs money to live somewhere, and this way I get it back. I consider the gardening, painting and upgrading that I do to be a part-time job. I actually enjoy doing it.

To help even out the income I get from my house, I take out a line of credit, secured by the house. I do that because even if I systematically withdrew $2,000 a month from the line of credit, the cost of that will be a heck of a lot less than taking that $2,000 from my RRSP. When I sell the house or earn extra income, I pay off the line of credit.

In addition to my savings and my real estate income, I earn a third stream of income from part-time work. When I was first laid off, I reported to the EI office and they suggested that I take an entrepreneurship program offered through a local accounting firm, which taught me how to get going. I started out doing contractual work and French translations of technical documents for agricultural companies - my family is from Quebec and French is my first language - but now I'm zoning in on landscape design and teaching art.

My love of gardening was what convinced me to get my landscape design certificate. Now I help people design yards that will enhance the value of their homes and do well in this temperamental Calgary climate. It's seasonal work, but that was exactly what I was looking for. I also sometimes take on a fun, low-paying job, like working as a tree expert at my favorite gardening centre. I'm paid the princely sum of $10 an hour, but I love it, and I see it as sort of a paid fitness program. I also teach mosaic art at the Alberta College of Art & Design, where they put on a 15-hour program every other month.

The income I'm living on isn't as high as what I was making when I was working, but you come to realize that when you're working long hours and you're stretched for time and feeling stressed out, you're paying a lot of money for things you don't have much time to enjoy anyway. Once you strip away your excess costs, you only need about $30,000 to $40,000 a year to live quite comfortably, even with an expensive teenage boy at home. I'm remarried, but my husband spends much of his time on his grain farm, and doesn't contribute to my living expenses. Now I'm living on less, but my standard of living is not low. The truth is that somewhere between the people who read yesterday's newspapers and eat week-old bread, and those who work flat out for a six-figure salary, there's a middle ground.

I've found that the main thing is to eliminate your major sources of overhead, things like car payments and your mortgage. I'm now in a position where I'm fortunate enough to be able to pay cash for my houses and cars. I save money by cashing in Air Miles to go to the movies, and I put all of my purchases on a CIBC gold credit card for Aeroplan points. I volunteer for several non-profit organizations, such as the local arts society, and when they send me to a conference or other event, I'll piggyback my personal vacation onto the trip. I shop the second-hand markets, I use a flat-rate Internet phone plan, I've done an energy audit on the house and I put in more insulation to lower my heating bills.

The best thing about scaling back is that you learn to value other aspects of your life. You feel wealthier in time, and wealthier in experience. This past year has been one of the best years of my life. I figure I travelled for about 12 weeks out of the last 52. It was a year with a lot of family events, and I could afford the time to go and visit my parents in Ontario for their 50th wedding anniversary. Then I went to visit my siblings in Quebec and Ontario, I went to Mexico with my husband, and we took our children to the Maritimes.

The highlight was almost a month spent at a mosaic school in Venice. It was a once-in-a-lifetime opportunity, culturally, socially and visually. I used my Aeroplan points to get there, and because it was a long trip I splurged and went business class, which was fabulous - there's nothing like sipping wine as you fly across the ocean.

I've heard so many people say I wish I'd done this, or I wish I'd done that. So why wait until you're too old to enjoy it? There's nothing to stop me from working in the future if I want to or need to, but in the meantime, I can do things I love to do. Many people could do the same. Your passion may be fly fishing, or scrapbooking, or volunteering or mosaics, but everybody has something they love to do, and the more time you spend doing it, the happier you'll be. It's just a matter of giving yourself the time.

(Carole Dobson lives in Calgary.)

So you want out of the rat race too?

Does the thought of working until you're 65 give your heart a chill? Here's some tips for stepping off the hamster wheel before your legs seize up:

Money isn't everything

Once the mortgage payments are done and the kids are through school, you may be surprised to find how little you need to live the good life. Many middle-class couples discover that a combined income of $40,000 a year meets their needs nicely. To discover your own goal, tote up all your expenses for a couple of months, then subtract the ones (like mortgage payments and tuition payments) that will disappear once you've quit work. "The standard rule is that you need to save enough to provide 70% of the income you have now, but that's a cookie-cutter rule," says Diana Salomaa, Edmonton co-author of Why Swim With the Sharks? An Unconventional Guide to Early Retirement. "My husband and I are retired on 40% of our pre-retirement income, and that's comfortable for us."

Don't forget government pensions

Most of us assume that our nest egg will have to provide 100% of our retirement income, but that's misleading. Nearly all of us can count on supplementing our income with Canada Pension Plan (CPP) payments. If your net income is less than $100,000, you'll get an additional top up from Old Age Security (OAS) once you hit 65. Together CPP, OAS and other government stipends can provide more than $11,000 a year for those over 65.

It's not all or nothing

If you can turn the things you love to do into sources of income, you'll be able to retire sooner. Do you like golf? Maybe you could work as a part-time golf pro. Are you a handyman at heart? Maybe you could work two mornings a week at Home Depot. "I have a client who's a retired teacher," says Jim Yih, founder of CORE Financial Advisors in Edmonton. "He's now traveling the world teaching engineering skills in developing countries." Other sources of income include consulting jobs or income from a rental property.

Make a plan

"If you don't know what you want, you won't get it," says Vancouver financial planner Diane McCurdy, and truer words have never been spoken. McCurdy, who wrote How Much is Enough?, says you should start by drawing up a wish list of what your ideal retirement would look like. Think about when you want to retire, but also what you want to do. If you want to travel the world, it may mean having to save more or work longer. But if you want to spend your retirement tending to your garden, you may be surprised to discover just how early you can retire.

Cities