Is Freedom 55 Even a Thing and How Every Year You Snooze You Loose!

Work or retire as a concept of a difficult decision time for working or retirement as a cross roads and road sign with arrows showing a fork in the road representing the concept of direction when facing a challenging life choice.

My renovations continue (I have a few on the go right now) and I will not lie it can be extremely frustrating at times. Progress often seems slower than I’d like and getting all my trades to work together efficiently is always a challenge.

And then we move on to the paperwork – my nemesis.  This is my weak spot, the thing I dislike doing the most and am absolutely no good at.  Finding systems to track expenses and file receipts is definitely something we are still working through.  Especially with the large volume of transactions involved in running a business, a rental portfolio and managing large scale renovations – it often seems like an unending pile of papers to track.

This is the not so glamorous side of large scale renovations.  You often see all the shiny before and after photos, and it is super awesome when you’re finally able to complete something.  But there are definitely lots of small details that require care and attention along the way to ensure success.

I meet people all the time who are looking to quit their jobs and pursue things they enjoy doing, whether it be a hobby or another business venture or simply just time and the freedom to spend with family and loved ones.  I totally understand how it feels to run the corporate treadmill, and so desperately wanting to hop off.  They want to use real estate as an investment vehicle to help get them there.

In essence I look at this as an early retirement of sorts for many of them – perhaps a chance to pursue something else full time with the backing of real estate to ensure security for their family.

Retirement is something that is becoming harder to conceptualize for many people.  The number of people who have corporate pension plans is becoming far and few between and saving is becoming more and more difficult with the increased cost of living.

A recent Global New Article was titled “Over half of Canadians are $200 or less away from not being able to pay bills” – pretty unsettling for many and leaves the idea of ‘Freedom 55’ or any sort of retirement as something unachievable.

It sounds grim, but this is where the longevity of investing really comes in. Starting early, and even setting aside $200 a month and religiously investing it over time makes a huge difference. Using a vehicle like real estate which gives you high returns, also makes a huge difference.

I used to be a Financial Advisor offering people Mutual Funds as a primary vehicle for investing and building a nest egg for your retirement before I made the switch to real estate in 2008.  I used to talk to my clients about this sort of stuff all the time so here it is in more detail…

Let’s crunch the numbers:

Let’s say you set aside $25K and invest in something that will generate 10% return on investment, compounded annually and you continue to invest $200 a month extra for 10 years.  This will result in balance of 105K after 10 years.

So now let’s do the same thing for 20 years and 40 years.  After 20 years, you have accumulated $312 K and after 40 years this jumps to a whopping $2.25 Million.

It comes down to a few things.  Finding a good investment vehicle (like real estate) which gives you double digit returns and setting aside a sum of money consistently every month over a long period of time.  As you can see, someone who starts investing at age 25 is going to have time on their side, and within 40 years (or even sooner) they will be in a financial position where retirement is very much possible.

The time here is the most critical factor.  Let me show you what happens to the numbers when I make a small change.

Let’s say you only have 20 more years to invest so you decide to double your initial investment to $50,000 and double your monthly contribution to $400.  The total return after 20 years is still $625K but only about a third of what you saw above after 40 years.  If you got confused with the math, don’t worry,  the concept is more important.

So it is never too late to start, and a combination of consistently investing a sum (even a small one) every month and letting time do the rest will get you one step further towards your ‘freedom 55’ or the retirement that you envisioned.  And truly and honestly, the earlier you start the better.  It is never too early (or too late) to start thinking about financial freedom!

So until next time, happy Canadian Real Estate Investing.

Jose Jafferji, REIA