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Want to take control of your financial destiny? Andrew Hallam, who is well on his way to early retirement, has boiled down his technique to nine steps, paraphrased below.



Learn how one Canadian made it happen in his mid-40s



1) Pay off credit-card debt If you carry a balance on your card, pay off every penny before you even think of investing. Otherwise, you'll be paying a punitive interest rate of, say, 20 per cent, for the privilege of earning far less than that on stocks or bonds.

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2) Establish a six-month contingency fund

People get laid off, unexpected bills pop up. Setting cash aside for emergencies is just common sense. Keep the money in a high-interest savings account with no penalty for withdrawals.

3) Pay yourself first

Once you've taken care of steps #1 and #2, set aside a chunk of your money to invest every month.

4) Start investing as early as possible If you sock away just $100 a month starting at the age of 20, you'll end up with $366,902 when you're 65, assuming a 7-per-cent annual return. If you wait until you're 40 and quadruple your contribution to $400 a month, you'll have just $324,847.

5) Invest in index funds

Fees can do serious damage to your returns over time. Keep them to a minimum by buying low-cost index funds that offer diversification without the expense of active management.

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6) Find an unbiased adviser

If you aren't comfortable managing your own investments, find an adviser who charges by the hour and doesn't sell investment products. You're more likely to get unbiased advice.

7) Put market drops in perspective

If you're still in your investing and saving years, then market selloffs are your friend because you can acquire additional shares at lower prices.

8) Remember asset allocation Generally, the fixed-income portion of a portfolio should equal the investor's age. For example, a 40-year-old should have about 40 per cent of his or her money in fixed-income investments such as government bonds and GICs, and 60 per cent in stocks. As the investor gets older, the fixed-income portion should increase.



How much do you need to retire?

The conventional wisdom is that people need about 70 per cent of their pre-retirement income to be comfortable after retiring. But actuary Malcolm Hamilton says the true number is closer to 50 per cent.

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The investment industry has a vested interest in telling people they need a high retirement income because the more people save, the more money the industry makes. But what their estimates conveniently play down is that in retirement, people's expenses are dramatically lower.

Many retirees have paid off their homes and no longer have to support their children. And because retirees don't go to work, they don't spend as much on transportation, lunches or clothing. What's more, they have time to shop around for deals.

"Most Canadians seem to be retiring with about 50-per-cent income replacement and most of them seem quite satisfied with their financial circumstances after they retire," Mr. Hamilton says.

Still, some seniors live in poverty, and there is a good chance future retirees will face even greater challenges than those today. Corporate pensions are likely to be less generous, if they're offered at all, and investment returns probably won't match the outsized gains of the 1980s and 1990s.

But people who have not had bad breaks and have done some preparation can look forward to income from a variety of sources. These include RRSPs, tax-free savings accounts, other personal savings, employer-sponsored pension plans and government programs such as the CPP and OAP.

Thanks to government programs, people with very little savings can get by, he says. "All that stuff about [eating]cat food, not having enough money to feed, clothe and shelter yourself - all nonsense."

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