Book review: Quit Like a Millionaire by Shen and Leung, in Canadian numbers

Kristy Shen grew up in China in a family living on 44 cents a day. At 31, she and her husband Bryce Leung stopped working with about a million dollars invested. Their 2019 book Quit Like a Millionaire explains how two engineers in Canada did it. Kristy moved to Canada as a child, and chose engineering partly because she did the math on what each degree would earn.

The book is a how-to for financial independence, meaning having enough invested that you no longer need a job's paycheque. It is for people in their twenties, thirties and forties who are willing to save a big share of their income, and for anyone who wants to know what early retirement looks like when it's done by Canadians, with Canadian accounts.

What the plan looks like

Passiv's review of the book boils it down to three steps: earn as much as you reasonably can, save as much as you can, and invest the difference in a spread of low-cost index funds. Three ideas inside that plan are worth explaining properly.

Start with the income. Shen compared the cost of a degree with what it pays before choosing engineering, even though she wanted to be a writer. The lesson is to treat education like any big purchase.

Renting over buying. The couple chose to build a portfolio instead of buying a home, which their families didn't love. They argue emotion should stay out of it and that you should check the arithmetic. Canooq's rent versus buy calculator does exactly that for your own city, and you can run it with your own rent, price, down payment and mortgage rate.

Protecting the first years of retirement. If the market falls soon after you retire, you may have to sell investments at low prices to pay your bills, and a portfolio may struggle to recover from that. The authors' answer is what they call the Cash Cushion and the Yield Shield. The general idea behind any such cushion is simple: keep enough in cash or low-risk holdings that you aren't forced to sell stocks in a bad year.

How long does it take, in Canadian dollars?

The classic rule of thumb is the 4% rule: you can withdraw about 4% of your portfolio in the first year of retirement, then adjust for inflation. So spending of $30,000 needs about $750,000 ($30,000 divided by 0.04).

Here is an example, using Canooq's arithmetic rather than the book's. Say you take home $60,000 and spend $30,000, saving the other half. If your investments grow 5% a year after inflation and you start from zero, you reach $750,000 in about 17 years. Spend $25,000 instead, and the target falls to $625,000 while your savings rise to $35,000 a year, so you get there in about 13 years. In this example, spending moves the date more than income does, because it lowers the target and raises your savings at the same time.

The FIRE calculator does the same thing with your own savings, income and spending, and tells you the earliest age you could retire.

What changes when the plan is Canadian

The book's tax claim, as Passiv describes it, is that the authors pay no tax legally by putting the right investments in the right account types. In Canada that means using accounts with tax advantages. Money taken out of a TFSA is tax-free, and money taken from an RRSP is taxed as income, so which account you draw from, and when, changes your bill. The TFSA vs non-registered account guide compares them, and Lean, Barista, Coast and Fat FIRE shows how much each version of early retirement needs.

Two Canadian details are worth adding. CPP is built from the years you contribute, so stopping work at 31 means a smaller CPP cheque than someone who works until 65. That is an inference from how CPP works, not a claim from the book. And the authors travel widely. Where you live for tax purposes depends on your ties to Canada, such as a home, a spouse or dependants, according to the Canada Revenue Agency, not on where you are on a given day.

Would your path look like theirs?

It is strongest as a story with numbers. Appendix B shows the couple's finances dollar by dollar, which is more than most memoirs offer, and the humour keeps a topic about math moving.

The caution is that their path was a particular one: two engineers' incomes and no children. The authors asked parents in the FIRE community to share their experiences, but the plan is easiest with a high income and low costs. And a retirement that starts at 31 may last 60 years, which is a much longer test than the 30-year retirements the 4% rule was built around.

If cutting spending that hard worries you, Happy Go Money is the gentler read, aimed at enjoying life now.

Anyone curious how this looks in a real Canadian paycheque can read The Money Diaries: Maya, 30, accountant.

Quit Like a Millionaire: No Gimmicks, Luck, or Trust Fund Required

by Kristy Shen and Bryce Leung

Tarcher, 2019.

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