http://www.theglobeandmail.com/servlet/story/RTGAM.20050212.wxstmain12/BNStory/SpecialEvents2
The 'youngest retiree'
tells how to punch out of the workplace
From
Saturday's Globe and Mail
With his fraying sweatshirt
and jeans, Derek Foster doesn't exactly give off an aura of money. He drives a
Chevy Cavalier, shops at Wal-Mart and eschews restaurants in favour of
home-cooked meals with his wife and kids. He doesn't even own a registered
retirement savings plan, which would horrify most financial planners.
"RRSPs
never made sense for me because my income was never high enough," he says.
Yet, a month shy of his
35th birthday, the former telemarketer and Radio Shack salesman has done what
most hard-working Canadians spend decades trying to achieve: He has punched out
of the working world.
"There will be no financial reason for me to ever get a job
again," says Mr. Foster, who has used his free time to self-publish a book,
called Stop Working, Here's How You Can!, (http://www.stopworking.ca)
that details how he escaped the rat race long before osteoporosis set in.
Retiring early used to mean
taking a package at 55 or 60 after years of subservience to brutal bosses and
soul-destroying commutes. Buy the right mutual funds and top
up your RRSP and you could be playing
But Mr. Foster's new book
and others like it -- including Dianne Nahirny's Stop
Working, Start Living (http://www.smartmakeovers.com)
and Alan Dickson's Free Parking and Advance to Go (http://www.freemoneypress.com)
-- challenge the notion that financial freedom is obtainable only after decades
of grinding sacrifice.
"People are told to
work really hard, contribute to your RRSPs, save
$2-million. What are you going to do with $2-million when you're 80 years
old?" Mr. Foster asks.
Maybe you've decided
retiring early could work for you, too. The only question is how to pay for
food, clothing, shelter, heat, power, water, a car, telephone and university
tuition for your kids.
It's not as hard as you
think, Mr. Foster says. First, you have to build a nest egg -- a few hundred
thousand dollars ought to suffice -- and make certain lifestyle choices, such
as living in a small town where real estate is relatively inexpensive. It's
also important to structure your finances to minimize taxes and maximize your
eligibility for government assistance.
Experts agree it can be
done.
"If you've got a
certain amount of capital or if you are prepared to live at a reasonably low
income you can make the Canadian system work for you," said Malcolm
Hamilton, a principal at Mercer Human Resource Consulting.
In his book, Mr. Foster
shows how. Canada's self-proclaimed "youngest retiree" lives in a
$179,000 four-bedroom bungalow in Wasaga Beach, Ont.,
a resort community on the shores of Georgian Bay.
His family gets by on about
$30,000 a year, drawn from several sources: dividends from a six-figure
investment portfolio of blue-chip stocks and income trusts; rental income from
a condominium in
One reason his family can
live on such a low income is that he pays minimal income tax and his dividend
and trust income is taxed favourably. Because he doesn't work, he pays no
premiums for the Canada Pension Plan or Employment Insurance. Nor does he have
to pay for dry cleaning, cafeteria lunches and other work-related expenses.
He hasn't had to forage for
roots and berries -- yet. "You're not leading a Spartan existence on
$30,000 a year," he says, adding he can't put a price on the time he is
able to spend raising his two sons, aged 2 and 4.
Kissing the land of
cubicles goodbye wouldn't have been possible, however, if Mr. Foster hadn't
made some astute financial moves early on. As a university student in
He never earned a huge
salary. His worst-paying job was as a telemarketer in
When he started investing,
he bought mutual funds, which earned heady returns in the early 1990s. But he
gradually shifted focus to individual stocks, honing his skills by studying
gurus like Peter Lynch and Warren Buffett and
learning valuable lessons along the way. While living in
"That was stupid. I
should have just held on to it forever. It would have been worth about eight
times as much now," he says.
Around the same time, he reaped
big profits on stocks such as Pepsico Inc. and Tootsie Roll Industries Inc. As his investment portfolio
grew, so did his appetite for risk.
In his most daring move, he
put his entire portfolio into Philip Morris shares after the cigarette maker
(now part of Altria Group Inc.) suffered a legal
setback that depressed the stock price. Confident of a rebound, he borrowed on
margin -- a strategy he doesn't recommend for everyone -- to maximize his
exposure. It worked: By the time he sold, the stock was up 33 per cent.
Buying good stocks at
distressed prices -- a strategy Mr. Buffett espouses
-- continues to pay off for Mr. Foster, who focuses on easy-to-understand
companies with a history of rising profits and dividends.
Last fall, he scooped up
shares of Colgate-Palmolive Co. after the toothpaste maker's stock was hammered
by a profit warning. The shares are up more than 25 per cent from their October
low.
Having learned his lesson
with Starbucks, he has no plans to sell Colgate-Palmolive. The same goes for
other blue-chip holdings in his portfolio, which includes Rothmans Inc., Royal
Bank of Canada, Corby Distilleries Ltd., Manulife
Financial Corp., George Weston Ltd., Pembina Pipeline
Income Fund, Canadian Oil Sands Trust and a dozen or so others.
"I've learned that
once you find something good, just hold on to it," he says.
Mr. Foster was talking
about stocks, but he might just as well have been referring to retirement. As
the dividend cheques roll in, his goal now is to tick off his list of
"things to do before I die," which include learning to play a musical
instrument, growing a garden and doing a night of stand-up comedy.
He might even buy an RV and
take his family across
Derek Foster
Age: 34
Job description: Retired
First job: Newspaper carrier
Most depressing job: Telemarketer. "It was the
absolute worst job I've ever had, but it paid the bills, barely."
Hobbies: Writing his book, raising his two
children, travelling, scuba diving.
Investing philosophy: "The surest way to invest and,
hence, the quickest road to financial independence, is to buy high-quality,
recession-proof companies that raise their dividends consistently over
time."
Inspirations: Warren Buffett,
Peter Lynch
Goals: Learn a musical instrument, do
stand-up comedy.
Portfolio: Less than $500,000.