How To Retire At 30
Posted November 6, 2007 12:00 pm.
This article is more than 5 years old.
Derek Foster looks just like anyone in his 30s, and he’s probably a lot like you. But there’s one big difference in his life that’s more than likely not in yours. Despite his young age, Foster no longer needs to go to work. He’s officially retired.
No, he’s not a trust fund baby and he’s not on welfare. And he didn’t invent a website that he sold for a billion dollars to Google. Instead, Foster comes by his wealth honestly – he earned his very early retirement using some basic strategy he claims you can employ, too. Although employment is the last thing you’ll need when you’re finished.
So what’s his secret? “Basically, I invested in stocks that pay a dividend, so the companies send you money every three months and I had enough of them … that I equaled the amount I needed to live on. So I stopped working.”
But he’s no Donald Trump. Foster’s strategy is based on a modest lifestyle that doesn’t put an emphasis on fancy cars and big houses. He’s living a solid middle class existence with his wife and kids – except it’s devoid of rush hours, deadlines and bullying bosses.
And you don’t have to spend a lot to make it happen. He claims you can reach your dream with just $50. He used just a little more than that. “I started with $200 a month,” he reveals. “And just continued to invest regularly and over time that accumulated and I was able to retire.”
But what about people who don’t know – or care – about the stock market? “I think investing has been made to be more complicated than it really is. You should be focusing on products that you use everyday.” Products like toothpaste, bank services, and natural gas. Only buy shares that are recession proof and give you monthly dividends. Then you can sit back and watch your money grow until you have enough to act like a de facto paycheque.
So what does he do with his spare time? Write books. Foster has two best sellers out, allowing the rich to get richer. His first is appropriately titled “The Lazy Investor” and his latest, “Stop Working”. He purports to tell you how he did it and how you can, too.
Here’s an excerpt from his latest tome. To find out more about it, click here.
“Stop Working Excerpt”
Here are a few steps you can follow to estimate how much passive investment income you will need to reach financial freedom:
1. Take your current income and subtract all your “working related” expenses.
Once you are relying on investment income, a lot of our working expenses will simply “disappear.” Here are some possible expenses that “vanish” once you stop working for a living: CPP, EI, union dues, professional dues, commuting costs, child care, dry cleaning, business clothing costs, parking, coffee break expenses.
In addition, once you are relying on passive dividend income, you no longer have to save for retirement. Therefore, your pension plan or RRSP costs also “disappear.”
2. Adjust your income needs to account for the fact that your income taxes will decrease as you earn Canadian dividend income instead of employment income.
Since passive dividend income from Canadian companies receive favourable tax treatment, your income tax bill should decrease substantially. An interesting fact I found in the “The Little Tax Fact Book” provided by Ed Arbuckle from Personal Wealth Strategies ( http://www.finplans.net/) is that if all your income comes from eligible Canadian dividends, you can earn up to $46,345 without paying a cent in federal income tax! This figure applies to Ontario taxpayers in 2006, but the basic idea is that these dividends attract very little tax. This means that the amount of dividend income you need to sustain your desired lifestyle will be much lower than your current working income.
Remember: By NOT working for money, but having money work for you, your income tax bill will go down (along with all your work-related expenses)!
It’s also important to remember that this tax benefit only applies to dividends earned outside an RRSP.
After you’ve done these calculations you will have an amount that you need to earn in dividend income to achieve financial freedom while maintaining your current lifestyle. If it is difficult to do the tax calculations, you can seek assistance from an accountant of financial planner.
From personal experience, I figured I needed about half the amount of dividend to match working income – but this might vary somewhat for you.
In many cases, you might only need half your current working income to be earned as passive income to enjoy the same standard of living!
If you want to increase your standard of living, figure out how much more it will cost you and add that extra amount to the total you calculated above. Once you’ve calculated how much you need, simply:
Keep investing until the amount of dividends generated from your portfolio equals the amount you calculated you need (from above).
Once you’ve reached your goal, you should be protected from gradually rising costs over time because the excellent companies you have invested in gradually increase their dividends along with inflation. You are now financially free to do whatever you want while your bills still get paid – automatically.
Reprinted with permission from Foster Underhill Press
