| It’s
in the headlines: the newspapers, the magazines, on books, radio, and television,
the Internet. It’s on our T-shirts! It’s this idea of a number, the magic
number. Formulas get calculated, and then adjusted, a little to the left,
a little to the right. No one agrees. |
|
How much money do I need to retire?
Will I have enough? Do I have enough? Will
I make it?
Don’t laugh, but our friend Margaret says
it reminds her of the little train, “I think I can, I think I can, I think
I can, all the way up the hill.” Obviously it’s a struggle, this number,
and apparently only a few people can help us.
Her friend Paul is visiting and he’s going
on about how lucky Margaret is to have started investing for dividends
at an early age so she doesn’t have to worry about The Number. You’ll recall
that Margaret invests in companies that pay dividends and increase those
dividends consistently over time. She lives off these dividends and enjoys
annual income increases of 10% to 25% a year. She knows she’s got it made!
“Flattery will get you nowhere,” Margaret
retorts. “I was well into my 50s when an article I read confirmed what
my money manager had insisted on. I thought it was too late to start. It
wasn’t.”
The companies making up Margaret’s portfolio
have predictably paid out an annual percentage of their revenues to their
shareholders. Moreover, they’ve raised those dividends such that in as
short a time as 5 years, an initial investment earning 3% now earns 6%
based on the original cost.
What does this have to do with The Number?
“It’s easy,” Margaret sips her coffee.
“And the hardest part doesn’t even have to do with investing. It has to
do with how much you spend. Do you know how much cash flows out of your
pockets every day, every week and every year?”
Paul’s a little sheepish. “Well, I have
an idea, sort of. Utilities include hydro, the phone, and cable. There’s
gas for the car, insurance, clothes and food. That’s about it.”
Margaret’s eyes turn sharp, and ever so
not baby blue. “You have to do better than that,” she’s quick. “To the
penny, every cent of it.
“Look, getting to the magic number of how
much you need to retire starts with how much you need and want to spend.
It’s probably even more important during retirement to track expenses so
that you’re able to at least match your income, or start looking at a job
at McDonalds.” She stifles a giggle. “Imagine you Paul, getting up
at 2 in the morning to run your paper route. You did that when you were
10!”
Paul takes Margaret’s jab lightly. She
likes to have fun yet when it comes to money, she’s a no-nonsense person.
“Here, let me show you,” Margaret opens
a drawer and pulls out a spreadsheet. “Here, on the left column running
down is a list of the things on which I spend my money. The top row running
left to right are calendar days. Every day, when as little as a penny is
spent, I note it in the appropriate box.
“You can get real fancy with this, putting
it into Excel, or any personal accounting software, but I like to see the
numbers right there in front of my nose. I get a sense, a solid feel for
where my money’s going.”
She’s on a roll again, “See here, at the
bottom of every day, I add up the dollars spent on coffee, food, rent,
whatever, and get a running total of daily expenses. It’s addictive. I
record every single cent. I am so proud of it.” She is indeed beaming.
Paul can’t help but shake his head. His friend is either taking things
a little too far, or else she’s really latched onto something.
“And this isn’t just for people like you
and I. It’s for anyone, with or without money. Even the richest people
hire others to keep track their dollars!”
After several months, Margaret had collected
quite a bit of data on her spending habits. She gave this to her money
manager, who in turn made decisions regarding specific investments in Margaret’s
account
“She did a superb job,” Margaret said,
referring to her money manager, “balancing short and long-term, safe and
growing dividends. An elegant job.”
Paul is quiet. “But you didn’t answer the
question completely, Margaret. “How exactly did you calculate what you
needed on which to retire?”
“For that answer,” she replies slyly, “you’ll
have to come back next month, ok?”
If you’d like a sample copy of Margaret’s
spreadsheet, send us an e-mail or call Pina Tria at 514-394-3771 and mention
Margaret’s spreadsheet from The Montrealer and we’ll be happy to
forward it to you.
The Adena Franz Group has over 16
years’ experience of successful portfolio management and is with the independent
firm
MacDougall, MacDougall and MacTier
Inc.
1010 de la Gauchetière West, Suite
2000
Montreal, Qc H3B 4J1
Phone: 514-394-3771
Email: ptria@3macs.com
The information contained
in this article is for general information purposes only. It does not account
for specific investment objectives or the financial situation of any person
reading it. Opinions expressed are those of the author and do not necessarily
represent the opinions of MacDougall, MacDougall & MacTier Inc. Investors
should seek professional advice regarding the appropriateness of investing
in any securities discussed or recommended here and should recognize that
statements regarding future prospects may not be realized. |
