Stop Working Too: YOU Still Can!

Personally, I preferred his earlier books, Stop Working: Heres How You Can! and The Lazy Investor. but its been several years since I read them and there are a number of interesting tidbits in this one. I found that Stop Working Too was geared a little more towards people nearing the typical retirement age. Since thats not me (Im still in my 20s and plan on retiring in my early 30s) many of the retirement income strategies in this book wont help me.

First things first, Foster recommends paying off debt. Hardly a surprise. Once that debt is paid off, you need significantly less income to have the same amount of disposable income available. When paying off debts, heres the order Foster recommends doing it in: credit card debt, personal/consumer leans, your mortgage. I agree. It only makes sense to pay off the debt with the highest interest rate first.

Next up is a discussion about the 4 pieces of the retirement pie:

1. Work related pension plans (this wont apply to me)
2. Government pension plans: Canadian Pension Plan, Old Age Security & Guaranteed Income Supplement (another piece that wont apply to me)
3. Home equity, assuming you downsize (probably wont be me)
4. Personal savings, including Registered Retirement Savings Plans, Tax-Free Savings Accounts and other savings (looks like this will be my entire pie!)

His essential steps for planning you retirement boil down to paying off your debts, figuring out how much you will need to live on, figuring out how much income you will have in retirement (from pensions & investments), and seeing if you will be ok (hopefully, but if not, coming up with a plan to bridge the gap). Anyone with a brain should be able to figure these steps out on their own. But I suppose it needs to be laid out in black and white since many people probably dont think to do it until theyre getting close to retirement.

Moving along to the investment strategies. Ive skipped a whole bunch of stuff in the book, since it doesnt really apply to my situation, but rather to someone who is nearing the typical retirement age and hasnt done much (or any!) saving along the way. The investing strategies are the entire reason I took the book out of the library: I remember being impressed with his strategies when I read his other books, and wanted to refresh my memory now that Im in a position to start investing. Anyways

Avoid management fees to maximize your returns. Obvious enough, but how? Theres a couple of different ways, each of which would benefit a different type of investor.

• If you are just starting out and have a small amount to contribute each month, Foster recommends index funds. Index funds are similar to mutual fund, but have lower management fees. They are designed to track the stock market: when the stock market goes up, they go up by the same amount and when the stock market goes down, they go down by the same amount. Index funds can usually be set up through your bank without paying any fees.
• If you have a significant portfolio already, and contribute to it once a year or less, then Foster recommends Exchange Traded Funds (ETFs). These are similar to index funds, but are bought through a brokerage and have even lower management fees than index funds. Your strategy would be to open a discount brokerage account, then purchase a couple of funds.

For both scenarios, Foster recommends deciding what percentage of your portfolio you want in each of the funds you purchase. Each year some funds will do better than others, so each year you would adjust how much you have in each of your funds to bring them back into proportion.

Another strategy for investing, and avoiding fees, is to directly purchase shares in a dividend-paying company, and then enrolling in that companys dividend reinvestment plan (DRIP) and stock purchase plan (SPP). At www.globefund.com you can search for dividend funds to find out what the top companies they invest in are. Once you have a number of top companies, check to see if they have DRIPs. To invest this way, you would need to purchase at least one share of the company directly (through a discount brokerage account) then fill out the forms to enrol in the DRIP and the SPP.

Foster discusses a number of different investment strategies such as strip bonds, RRSP mortgages and preferred shared. He talks about different ways you can use your RRSP and TSFA to your advantage. I wont go into detail here, youll just have to read the book to find out more.

Foster presents 3 different scenarios based on where you are along your investing/retirement path (just starting out, on your way and almost there). The take home messages are to pay off your debt(s), maximize employer-matched contributions, and to own your home (mortgage free). The sooner you intend to use your investments, whether to purchase a home or to retire on, the more secure they should be.

Fosters books, along with some more info,  are available through his website stopworking.ca