Robert Paterson's Weblog

An investment strategy for the common man - Boomers real Freedom 65!

How's your pension or savings going? 

All you have heard to date is that you have to save enough to pay for your life as you age. This just is not possible for most people. Many boomers have teen age or school age kids AND elderly infirm parents. Saving enough and then making a killing in the market is an insane idea and it never happens for regular folks. It's impossible to fulfil this idea. Interest rates are at historic lows. The markets are controlled by traders. The underlying economy is a shambles. Traditional pensions are a thing of the past. 

So what to do?

It is to invest to REDUCE  your day to day costs and to INCREASE your ability to make a living. And to invest in the next generation so that they can help you. This is my pension plan in outline. So let's look at the details.

Personal Costs

Avoid being ill. Especially avoid developing a chronic illness. The average man in Canada is disabled by illness by the age of 65 and lives for another 10 years. He depends on his family and the state to suport him. This drives cash costs, a huge burden on your family and on the state. You may not have the cash, the family or the state to look after you anyway. This is also true for the average woman, the cycle start 5 years later.

In the US Fidelity predict that the average US retired family will spend nearly $250,000 on health costs in the last years of life. No one has that kind of savings!

Let's make this real.

My mum has been in a nursing home for 14 years ($40,000 a year) and has had an annual drug bill of $3,000 a year. That's nearly $500,000. My dad's pension fortunately has covered this. Without it I dread to think of what this would have meant to me. I would have become a prisoner to her. The last thing I want is to be a burden to my kids. The state will not be able to pick up the tab when so many boomers are in the their older years either.

So becoming Healthy is rule #1. That is why I have taken charge of my health and why this first step is so important for all of us boomers.

You can read all about how to do this in You Don't Need Medicine to Get Healthy

Reduce your structural living costs.

Energy - Home The #1 exposure that we have is to energy costs. So the size of our house and the way we heat it is key. Next to that is our need to get around. All of this is connected to the price of oil and energy. Already on PEI where I used to live, the average household heating bill is more than $3,000 a year.  In a typical winter with a 2.500 square foot house, we would fill the tanks in October, January , February and March.  At $800 a fill at current prices, that is about the average. We make this payment from our after tax income. 

There are a number of ways around this. First of all, move to a smaller house with a smaller footprint. Less to heat and to maintain. Less to pay in taxes too! For that bill can easily be $3000 a year. Less to insure. 

Then insulate like crazy and install the most efficient system you can. Supplement with wood if you can.

We have done this and we have cut our heating bill to $700 for the whole winter! We now have a hedge against future increases in energy costs too. We spent about $25,000 to get this improvement. Looks like a lot? But now look at the return and compare this to putting $25,000 in the market or on deposit.

That is an annual after tax return of nearly 11%. Government of Canada 5 - 10 year bonds yield 1.4%. And that is after tax. If oil prices go up, my yield goes up. If I want to sell my house, I can make this part of the price. It's a win win win for me and for you.

The key is to see this as an investment not as just a cost.

Energy - Transportation

How much does it cost to own a car? How long will you be able to drive a car?

Each car drives a lot of structural cost. It's not just the gas, but the maintenace, the insurance and the depreciation + parking etc. Estimate that a car will cost you at least $10,000 a year after tax!

So where you live is an important structural question. I live in a small village. All the shops are within a walk or a short bike ride. We only need one car and that a tiny one. If we need more, we rent. If I have to get to Montreal, I often take the express bus that has wifi, and takes an hour and costs the same as the gas for the trip in the car. 

If I need a new car in the future, I will buy a second hand one. That takes 40% of the depreciation off the table.

This has not been a big give up for us. If we really need a second car, we rent.

Finally, one of us may not be able to drive in our late age. By choosing to live in town and in walking distance of shops and life, we prepare for that too. 

You can find much more on how to resuce your costs in my first book - You Don't Need a Job

Time for Cash

As our costs drop, I don't need to struggle to earn more and so I have more time. Time is the most vital part of this new freedom.

I can trade cash for time. Convenience costs. Time is free. 

We do the gardening, not a service. With a small lot, most of the work can be done by hand too. That is good for our bodies and for the pocket book.

I can add wood heat to the mix too.

It gives us time to cook all our meals. This is both good for us and also cuts our food bills dramatically.

Tribe Versus Seniors Home and Child Care 

Will state paid seniors homes exist in 15 years? Will it be possible for working mothers to send their kids to day care?

A seniors home, apart from being a living death, cost today about $35,000 a year. They just wont be around in 15 years except for the rich. You and the state will no longer be able to afford them. On PEI with 12,000 women over 85 at that time, the costs will exceed the current TOTAL for ALL health care today.

With incomes being squeezed for all the young, how will they be able to work and have kids. Child care is also about $30,000 a year for many now. Few will be able to earn that.

So what to plan for?

I see no alternative but to bring back the Tribe. So this again, means choosing your last home with great care.  We are 1 hour from our son and his family and our son in law's mother also lives in the same village aswe do. The two grannies already help each other out a lot. Our son is here most weekends and we took care of his 1 years old for 9 nights that enabled him to get a much needed break. This summer we will have our daughter's kids for 2 weeks too. 

We are laying the foundation for the tribe to come back.

I don't see another way. The only way that the old and the very young can be accomodated in the next 15 years is to come back together. Not an easy thing to do. We are so unused to this way of living. So this is why doing it step by step helps.

If we can get this right we are looking at saving up to $100,000 after tax a year. Or at least reducing the risk of a break down in the family at both ends. I don;t se an alternative - do you?

Bottom Line

There is no way that most Boomers can save and invest enough money to live as we do now over the next 20 years. Nor can we expect the state to be there to help. By 2030, at current rates , the alzheimers costs in the US alone will exceed the budget for Medicaire. 

We will be pushed back on ourselves. But on our own, we are not strong enough. 

So the only alternative that I can see, is to restructure our lives. We have to create new habits of helping each other in the family so that, as we get older, the new normal is to do things with each other. The new normal is to share costs and even space. 

If you don't have kids, then I suggest looking to your closest friends and start to share your lives with them. 

This fall I will write a book about this - You Don't Need a Stockbroker to Retire when I will expand on thse ideas. What do you think so far? 

 

Related articles

Practical steps to get and to stay healthy - You can live like your ancestors

The jobs are still going away - what to do? I offer you a survival manual

Disability - the health story of our time

Are you a boomer? What is your retirement looking like?

Why I now heat with electricity - Rick Long of Aquatech & Hydro Quebec

Power in Quebec costs half of what I used to pay on PEI.

Here is my furnace. It is silent - except for the pump - feeds into cast iron radiators. It has a regular internal thermostat AND an external one. What this means is that the external thermostat regulates the effort. So when in the fall it is not that cold, it does not put all the capacity of the heater on. But when in February it is minus 30C, it goes full tilt.

It also only heats on demand, so there is no big tank of water being heated all the time.

With cast iron radiators, there is a also a big lag effect. Once the rads are up to temp, the furnace can switch off and the latent heat remains for hours. Also with cast iron, we can get by on relatively low temperatures. 95 - 105F. With base boards you have to go much higher.

Many thanks to Rick Long of Aquatech - THE plumber of plumbers - for putting us onto this idea. 

Seeing the future in the context of history #energy

Many people tell me that you cannot see the future. But I think you can see the patterns of history and have a good feel for the probability of the future.

In this chaotic time, having a sense of the probabilities will give you an edge.

Tristan Fischer, my super clever nephew, is writing a new blog that wrestles with these patterns. In his youth, he was the boy wonder for renewables st Shell. Now ancient in his early 30's, he is CEO of a very interesting energy start up. More here.

Here is a typical piece on Shale Gas and why it is a Ponzi Scheme. 

Enjoy it here

O’LEARY – A new biomass heating unit at Community Hospital will save the provincial government $100,000 annually on heating costs, and it didn’t cost the government a penny to have it installed.

Wood4Heating purchased and installed the high-tech boiler from Austrian manufacturer Binder and purchases the wood chips from Arsenault’s Sawmill.

The company maintains ownership of the boiler and charges the provincial government for the heat it supplies to the hospital.

The O’Leary boiler is the first of five the provincial government is having installed across P.E.I. Wood4Heating will start installing similar boiler systems at Bluefield and Three Oaks high schools this summer to have them ready for operation by the fall.

Another company will provide units for M.E. Callaghan and Hernewood schools.

“We’re saving $100,000 a year just in our heating expenses and hot water expenses at this facility,” said O’Leary-Inverness MLA and Tourism Minister Robert Henderson. “ It makes us look much more viable and sustainable into the long term.”

This is surely the way to go - this is how we started with wind

 

What will it cost to heat your home in 5 years?

It cost me $800 to fill the oil tank this week - this is the third fill this season - the average PEI home uses 3,000 litres or over $3,000 a season right now.

This chart shows the cost of gas since 1920 - in effect the costs since we started using oil as the core of our system.

It does not include 2011 when prices went right back up to the highs of 2008.

What does this tell us about what we will face in the next 5 or 10 years?

I think that we need to start to all talk about what our dependence on oil and electricity from away means. For PEI spends $200 million a year on heating oil. A double means that we are sending $400 million off the Island each year at a time when about half of Islanders will be living on a meagre pension.

I don't have a magic plan - other than we have to become ebergy self sufficient. I have not a clue of how we might pull this off - but surely we have to start to talk about this?

 

Solar - The power is in the Coop not the panel

We Went Solar, You Can Too! from Brian Canavan on Vimeo.

 It's all about the network - the result - you have control over a part of your life that you gave away.

The end of ideology - the awakening

 

Nature is speaking through us - ideology has prevented us from being in touch with out nature and with nature. 

As Paul shows us - the reaction to ideology is emerging itself naturally. OWS is another part of this deep feeling. 

The really smart thermostat - Nest - Tony Fadell

From iPod to Thermostat - I think this will really make a difference They will cost $249 when they ship on November 14, 2011 and you`ll probably want one if you`re into all things iPhone, iPad and iPod. Tech Crunch calls Tony Fadell the Godfather of the iPod an iPhone. When he left Apple to pursue his own life, Fadell couldn`t stop his urge to create something cool and useful. Fadell`s research said that billions of homes have thermostats that are ugly and non-functional. Ugly is the ultimate sin in the world of Mac-olytes. But functionality is even more important. Nest The Learning Thermostat will learn when to turn up and turn down the heat after a few weeks of user adjustment of the temperature wheel. If you forget to turn down the heat and leave home, it turns itself down after two hours of nobody home. Fadell says it will save up to 10% of energy costs. When you dial back the heat or cooling, the Nest shows a green leaf for green energy.

The Plenitude Economy

Much of this is already emerging - especially the DIY Economy and Sharing.

 

When I'm 64? The Squeeze - The "Impossible Bills" to pay as we get older

We are entering a new age in all sorts of ways. One of the new things that we don't talk about much is what it will mean when most people are over the age of 60.

Our world has been designed and constructed around a normal of most people being young. That is most people being able to absorb higher costs. Over the next 30 years, we will face the opposite. As each year passes, more and more of us will not be able to pay more. We old folks will not have the money. We will have less and less and no where to go to get more. And there will be more and more of us.

We have not talked much about what the world will be like when most of us are old and poor. We have to. And we have to now.

The first boomers are 65 this year. PEI is very exposed. We will have one of the most age skewed populations in Canada. So what does this mean for you and for me?

Do you have a generous pension? I don't. Most don't. If you have one, do you really think it is secure? We can see right now in places like Greece where pensions are being cut. We have seen here that corporate pensions are not safe - Nortel. If you get a Government Pension today - how safe will it be when most other people have nothing?

How much money will you have per year for the next 30 years? At my best possible calculation for me it is in the poverty bracket. What about you? How much a month will you have over the next 30 years? Scary isn't it!

So we are entering a time when the basic assumption that next year there can and will be more money is off the table. But how the system works is based on the idea that there will be more money next year. So with the old assumptions, we are on track for a squeeze and then a collision.

How will I pay my property taxes, my heating bills, look after my health and have enough to eat. How will you? This is how I see these things:

Property taxes - They are 10% of my gross income right now. They are among the largest bills I have to pay. Unlike any other bill, if I don't pay them, I can be evicted from my home. This is the one bill that can make you and I homeless. 

Cities themselves know how damaging these taxes are but have no other source of income. They are systemically starved by the higher levels of government.

In 10 years time, the majority of home owners will be pensioners. Their only asset will be their home. Can we still have a system that taxes people who will have so little cash in a way that drives them onto the street? What then?

I have not a clue what to do here -I do see this as being an "Impossible Bill" to pay. It would not be hard to see my property tax double in 10 years. It would be impossible for me to pay. It would be impossible for any senior to pay.

There has to be a new way to support our cities and not destroy our society. Time now to start talking about this.

Health Costs - As we get older our health costs go up. It is not unusual to spend $500 a month on drugs now if you have had a heart attack. At least 30% of adult Islanders will have type 2 diabetes. If you get this, you will have massive health risks and costs. About 40% of us will get cancer. The list goes on.

When most of us were young, we did not pay attention to this. Hey the system would pay. But in 4 years time, the PEI health budget will exceed our total tax revenues. The health care system will not be able to pay. Nor will you.

We cannot continue as if we did not live in a new time with new rules.

What happens when we are really old? -Worse, when we get to a certain stage, we cannot look after ourselves on our own. The current normal is that we go to a "home". Well my mum is in such a place. It costs about $40,000 a year after tax to keep her there. Fortunately she has a great pension from my late father. But few of us will have that. And even for her, with the world going as it is - is her pension a sure thing? What if she lives another 20 years? Will her pension be there? If it is not, how will I cope? I can't imagine how I would cope.

Many of us will be faced with this. The new sandwich generation of 70 year old people looking after 95 year old parents.

There will be 8,000 85 plus year old widows on PEI in 15 years time. That is a cost to PEI of $320,000,000 or half the current health budget. Stuffing us all in Manors just cannot work when there are so many of us. AND when PEI's ability to raise taxes and revenues will be so limited.

It gets worse. When we get put in an institution, our health collapses and the costs of keeping us ticking over go up exponentially. It is when we have no place in the world. So if we institutionalize the elderly, our normal now, their health care costs shoot through the roof. 

We do know though that if the elderly can stay in their home, that this does wonders for their health.

No organization knows more about this than Canada's Veterans Affairs. What VAC have found is that the longer people stay in their home the lower the costs as they remain healthy. so VAC have a program of support, meals , cleaning, yard work etc that helps the frail stay in their home. This is much less expensive and better for all. It also offers a lot of work.

So here we go in a circle. This will have to be the way. For I cannot as a 70 year old look after my paralyzed mother. I will need help if she has to come and live with me. But if paying property taxes means that I have no home..... see what I mean. 

Health Costs - The Hope - There is a way forward on health costs though. I am acting on this way ahead for myself. The chronic diseases that we all think of as normal - heart disease, cancer, arthritis, type 2 diabetes, dementia, Alzheimer's etc are not normal but are a product of our diet and how we live. In a year I have transformed my health and my aging process by eating and living differently. Aged 61, I have the health and the activity ability of a man in his healthy early 50's. I should be able to stay this way until I die.

We can PREVENT these diseases and we can age well.

My regular readers know all about this and if you are new to this - then dig into my site. 

If we do not explore this opportunity, I don't see how we can make it through the next 30 years.

Food the Hope - What such a new way of thinking will do as a consequence is drive out a new food system. Eating right will all depend on access to real food that cannot be raised in an industrial way. Instead of a few big farms, we will need thousands of small operations. Instead osfus buying most of our food in a  processed form from the supermarket, it will mean most of us buying food from local people.

This is a huge work and economic opportunity. It is a huge health opportunity too.

Energy Costs - Oil is like Property Taxes - Heating oil is up 25% this year over last. The heating bill is one of the non negotiables. Heating with oil costs Islanders about $200 million a year. That is the equivalent of a 1/4 of the total PEI tax revenue. So this is the largest family bill we pay. The average is I think about $2,500 a home.

We have no negotiating power with winter!

Helping out a few people each heating season will not work when more than 50% of Islanders will not be able to afford to heat their home. 

We have to find a structural new way. It will have to involve reducing the demand - up to 40% can be saved with better insulation etc - and by changing how we heat so we are not exposed to the global oil price. For surely in the next 30 years, where do we see oil prices going? We have to have an energy strategy that is designed to reduce demand and to cut us off from the rosk of oil prices. No easy thing but there is a lot of thought already.

Food The Risk - Nearly all the food we eat comes from away. Nearly all the food we eat depends on oil too. On oil to farm and on oil to transport. We are so exposed. Look at what has happened to poorer nations, food is all but outside the budget of a family. We have to reduce our exposure to oil and our food. This can only be done, if we grow food in a new way.

Such a way of growing food and such a shift in diet - away from annual row crops that need oil and that contribute to the health crisis - to pasture based animals and permaculture veggies will offer a huge boost to employment. It is a win win win.

My regular readers know that much work has been done to see what such a system would be like and I will not go further here.

So here then is the bottom line for all of us.

IT IS NOT BUSINESS AS USUAL. In 10 years time most of us will be over 50 and many will be close to 70. We will be on very limited and insecure budgets. Our tax system, our approach to health, our approach to food and our approach to energy has to change.

Time is so short. We have to get a lot of the new design done and in action in the next 5 years if we have any hope of making it through the next 30.

Time to start the conversation. Time to help each other and time to help our governments do the right thing.