Wednesday, November 23, 2016

Pathway to Retirement

     All individuals and couples all have one thing in common when it comes to retirement. We all have to have enough money to live off as people will be unable to work most jobs past a certain age. 

     This income in retirement can come from a pension, capital gains, interest, or cash flow. Some people think their only way to retirement is too win the lottery.  These lottery players think investing in stock market is gambling or that you need a lot of money to invest in the market. 

      I know of a lot of people play various lotteries every week.  These lotteries include scratch tickets, even splits, and the major lottery games. In Canada, one of the lottery games is 6-49.  The odds of winning are 1 in 14.3 million (1 / (49C6).  For those not familiar with math, 49C6 represents "49 Combination 6".  This game consists of 49 numbers in which 6 balls are randomly chosen by a machine. A bonus number is also drawn. If the number on these 6 balls are the same as the 6 numbers picked by the lottery player winner, then he or she wins the jackpot.  The lottery player can also win other ways, but the money will be a lot less.  The scratch tickets winning amounts are a lot less.  So if you add the amount of money paid to play various lottery games, it can add up. Personally, I think a person is better off playing bingo instead of playing these lottery games. If the bingo game has 400 players, then your chance of winning is 1 in 400.

       The pension can come in various forms. They can be small government pension for old age, a small government pension or a defined benefit pension.  The defined benefit pension is not an option for most people, as usually only government or crown corporation employees have this setup. Defined benefit pension a liability for the employer for as long as the pension receiver is alive.  So most companies have down away with them, and made the worker responsible for his or her own retirement by using a registered contributions plan.

      The downside of a contributions plan to a worker, is the money put in is not guaranteed to be there when you go to take it out.  These plans are called RRSP (Canada), 401k (US), super annotation (Australia) etc. are capital gain types of setups.  So as the value of these plans go up or down, corresponds to the same change in an investor's net worth at that given time. So an investor will have to withdraw money out of this account therefore reducing the balance.

   An individual could invest in investments that pay them either every month, quarter, semi-annual or annual. This pay is called cash flow. So the investment is paying a cash flow in the form of a dividend, interest, premium, distribution, or rent.  The goal of this is to have enough income coming in from your investments to exceed your expenses, which means the investor will be financially free.  Even if the investor is not financial free, the income from the investments will help cushion the blow in cash of a lay off at a job.

    Which is best?  The two best options are pensions and/or cash flow investments in my opinion.  In Canada, an individual can invest in non-registered accounts  or tax-free savings accounts.  These individuals can invest in other cash flow investments such as real estate or oil and gas.

     Most people in Canada have heard about Derek Foster.  Derek Foster let the rat race at age 34 by investing in dividend paying stocks, income trusts and REITS.  Derek used leverage of few times to aid is investing.  To find out more about Derek, feel free to check out his website

    In summary, an individual who thinking the best chance of retirement is, for lack of better word, is gambling with their life. The odds of winning is so high that an individual should only play the lottery once and awhile for entertainment purposes.

I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.

1 comment:

  1. Nice read. We've been investing in dividend paying stocks for a couple of years now. It is certainly nice to actually see the dividends come in. We are finally starting to see the compounding effect take place now that our monthly dividend income stream has grown a bit. Seeing the progress only motivates us to grow our portfolio more so that our dividend income stream can grow.

    And then there are the dividend raises! Once a year for many of our stocks, the company will sometimes raise their dividends and in turn our forward dividends grows without us having to put any more money in.

    We love dividend stocks investing (or cash flow investing)! Thanks for sharing. AFFJ