How I retired at 34, by a middle-class husband and dad
He wears fraying sweatshirts and jeans, drives a Chevy Cavalier, shops at Wal-Mart and sends his two kids to day care. Canadian Derek Foster appears to be a typical middle-class guy. At least he does not spread an aura of money.
He and his family live off US$28,000 a year and don't even have a pension fund.
At 34, the former Radio Shack salesman and telemarketer has done what most people dream of until they are 65: he left the working world, claiming to be Canada's youngest retiree.
'There will be no financial reason for me to ever get a job again,' he says. Mr Foster's claim, his eloquence and charm earned him invitations to most major TV shows.
Canada's self-proclaimed 'youngest retiree' spends most of his time promoting his self-published book Stop Working, Here's How You Can! which details how Mr Foster escaped the rat race.
'People are told to contribute to retirement savings plans, save $2 million. What are you going to do with $2 million when you're 80?' he asks.
He insists it is not as hard as most people might think to escape the regular working life. 'It takes a little bit of planning,' he says. 'Essentially you have to choose the right stocks.'
Mr Foster's recipe looks pretty simple: you have to build a nest egg, choose a simple lifestyle, structure your finances to minimise taxes and optimise your eligibility for government assistance.
He draws his income from several sources: dividends from a US$320,000 investment portfolio of blue-chip stocks and income trusts; his wife's part-time job at a ski hill; rent from a condo in Ottawa; and the Canada child tax benefit, geared to low-income families.
His monthly state benefit cheque totals US$380. He can live on such a low income partly because he pays minimal income tax and because his dividend and trust income is taxed favourably. He also lives in a simple US$144,000 four-bedroom bungalow in Wasaga Beach, Ontario, a resort community on the shores of Georgian Bay.
'We are not living a spartan existence,' he says. 'We have satellite TV, high-speed internet. We buy a new car every three years and we vacation every year.'
Before Mr Foster started investing he set aside US$200 a month as a student in Ottawa. He never earned a big salary. As a telemarketer in Vancouver he was paid US$5 an hour. As an English teacher in South Korea, where he met his wife, his annual salary was US$20,000. After earning heady returns with mutual funds in the early 1990s, he shifted focus to individual stocks.
'I just focus on companies with everyday products,' he says. During his time in Vancouver he noticed a coffee chain called Starbucks, studied the annual report and bought the stock. In weeks it soared 30 per cent. Then he sold. 'That was stupid, I should have just held on to it forever,' he says.
Mr Foster also bought Philip Morris after a legal setback depressed its stock price. When he sold, the stock was up 33 per cent.
Last autumn he bought Colgate-Palmolive after the toothpaste-maker was hammered by a profit warning. 'This stock paid uninterrupted dividends for many years,' he says, 'and it increased its dividend for 40 straight years.'
Mr Foster owns Johnson & Johnson because 'it constantly raises dividends, faster than the rate of inflation'. His other blue-chips include Rothmans, Royal Bank of Canada and Canadian Oil Sands Trust.
