2020 Financial Goals – September Update
When it comes to goals, I once read the following:
“Set goals that both excite you and scare you at the same time.”
The reasoning behind that is simple: goals should motivating and somewhat daunting.
In that spirit, here is where we want to be in a few short years to start semi-retirement with:
- Own a $1 million investment portfolio. That portfolio value excludes any future workplace pensions and excludes any condo equity, which brings me to major goal #2;
- Own our condo – kill the mortgage for good.
2020 Goals Update
We got VERY close to goal #1 earlier this year but COVID-19 changed everything. Alas, no big deal. We’ll get there eventually. Our portfolio of Canadian and U.S. stocks is chugging along – dividends are being paid albeit we’ve had a few Canadian cuts: Suncor (SU), H&R REIT (HR.UN) and Inter Pipeline (IPL).
Our ETFs pay boring distributions.
All dividends and ETF distributions are reinvested in our registered accounts so that money makes more money over time. The portfolio is now doing all the heavy lifting after 10+ years of steady contributions.
You can read about our tax efficient and tax-free dividend income journey here.
I’m not really worried about a couple of these companies in our portfolio – especially since Warren Buffett just made a HUGE bet on Suncor. As per recent regulatory filings I read:
Berkshire Hathaway increased its stake in Suncor Energy; as of June 30, 2020, Berkshire holds 19.94 million shares of the bellwether energy stock versus 14.94 million shares at the end of March 2020.
For the record, I don’t own that many shares 🙂 That would be nice…
When it comes to major life goal #2 we’re plugging along. I don’t dare make just debt repayments our only financial priority and I informed you why in this post:
The definitive answer to paying down your mortgage or investing
In ensuring our long-term goals align to what we value, this is what we are striving for in another four months:
- Kill debt more aggressively.
- Maximize contributions to next year’s TFSAs.
- Increase our travel fund.
Latest 2020 Updates
1. Kill debt (a bit) more aggressively.
Since January 2020, we’ve increased our standard mortgage payments by $100 bi-weekly and have kept it there since. I will be renewing our (final) mortgage term in the coming months and I’m leaning on taking a 5-year variable term for it or a 5-year fixed term if I can get that around 2%. The biggest advantage I see with variable right now is if we wanted to pay off the mortgage early and break the mortgage. The penalty to do so would be less expensive with variable. Thoughts???
2. Maximize contributions to next year’s Tax Free Savings Accounts (TFSAs).
I hope already know that the TFSA is far more than a “savings account” by name.
Since Day 1, we’ve used this account as a retirement account and will do so, for the foreseeable future.
With our TFSAs out of contribution room since January 2020, our focus naturally turned to funding 2021 contribution room. We figure the annual contribution limit will remain the same for 2021 – so that’s $6,000 to fund per account, or $12,000 total for us. At the time of this post we’ve saved up just over $9,000 for these contributions. We should be ready to roll for investing as of January 1, 2021.
3. Increase our travel fund. HA!
All work and no fun makes for a boring life! But now we can’t go anywhere?! Thanks a bunch COVID-19….
The view from our villa in Belize, just a few months ago.
Regardless, we’ll save a bit of money when we can travel. We had plans to go back to Belize again in the winter of 2021 but that is not likely to happen unless COVID-19 protocols change drastically and/or we feel far more safe to travel abroad than we do today. We will travel internationally again, someday, eventually, probably and when we’re ready our bank account will be too.
Instead of international travel we’ll make some small side-trips around Ontario or to neighbouring provinces for long weekend getaways or other.
We’ve only made modest progress towards this goal since my spring update – putting aside $2,500 for any future trip but that’s because we’ve been focused on setting aside money for our TFSAs first.
What about RRSP contributions or investments you might ask?
We don’t really save up for RRSP contributions per se. I mean, we do, but they are automatic. At the time of this post, both RRSP accounts (like a 401(k) plan in the U.S.) are out of RRSP contribution room. We’ve had automatic contributions set up to fund these accounts for years so it’s designed into our budget and so ingrained over time that we don’t really see RRSP contributions as financial goals any longer. Assuming we are able to keep our jobs for the coming years prior to semi-retirement, those contributions just happen…
So, pretty good given the circumstances. Needless to say we are very blessed and fortunate.
I look forward to sharing our final update for 2020 in a few months.
In the meantime, I’ll be back again soon with more original content including if travel hacking is really worth it, my latest dividend income update, and much more.
Got questions for me? Fire away!
Mark
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and now investing beyond the 7-figure portfolio to start semi-retirement with. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
Mark, just renewed our mortgage for 5 years fixed @ 1.91%, so sub 2 is available. Take the fixed rate, not worth the risk of going variable if you can get a similar fixed rate
Interesting stuff Martin. What if I want to pay off my mortgage early? Break the mortgage? Thoughts?
I can double up my payments and have 20% prepayment privileges (of the initial advance), so you can knock off the whole mortgage in less than 5 years if you want to. But with rates so low, not sure you want to but you do have enough optionality to do so if desired.
Ya, I’m leaning on 5-year variable only because we intend to pay off debt before 5-year-term should we get any influx of cash. Otherwise, 5-year-fixed is good for any longer term interest rate bump.
The reality is, worrying about 25 basis points or even 50 basis points around 2% interest is not worth losing sleep over! 🙂
Thanks again!
Mark
Enjoy your blog, Mark,
Suggest an open “variable” mortgage. Our credit union allowed us to pay it down by 20% even when the rate was fixed / closed. We were not penalized for paying it off early when it was open.
I doubt interest rates will change much in next few years. Pay it off as quickly as possible. Stay away from the big banks.
Thanks Jim. I am leaning on 5-year open (i.e., can pay off early) or 5-year closed variable (i.e., minimal charges with IRD if paid off early) – maybe open to your point and have it dead in another 3-5 years. With our current lender we have 15/15 prepayment privileges which is pretty good.
If we intend to pay off early, and it should be dead in another 3-5 years, I don’t see much reason for fixed other than any interest “risk”.
Thoughts?
Thanks for following along. Buying any stocks or ETFs lately?
Mark
I agree with paying off the mortgage. It felt so good to make that final payment. I didn’t have to think about a mortgage any more and instantly felt richer and more satisfied with my financial affairs. A few years ago, my sister came into some funds and asked me for suggestions as to what she should consider doing with the funds. One of the ideas was to pay off her mortgage. She did that and now invests what would have been her monthly payment into her RRSP and TFSA. She feels more relaxed about her finances and has never regretted her decision. She brags about being mortgage free to all her friends. It is a big relief.
Ya, I figure everything we make is ours “to keep” (spend, invest, etc.) after the mortgage debt is gone. I’m not aggressively paying it off due to low rates but it is a priority and we’ll keep doing it in the coming years. Far less stress with no debt I suspect!
I agree Jan. Pay off the mortgage so the lender can no longer dictate the terms for payments. I did that using my HELOC, and it was great to be free of mortgage debt and have more control over paying down Heloc debt. Mark, you need to do what’s right for your family, however, your blog seems very focused on your mortgage debt. Personally, I would want to be free of that burden. It makes a big difference to your mental health IMO.
Cheers
That is an idea eh – once the term gets lower – pay off small mortgage balance with HELOC?
Our mortgage is approaching five-figures remaining so I can appreciate how liberating it will feel 🙂
Well if you save up for travel this year you can always use that money for next year… or whenever we can safely travel again. 🙂
This is where it would make more sense again to use the money to pay off the mortgage. When we can travel again you can figure out where to get the money. It just makes no sense to sit with cash and pay interest on a loan.
Great point.
How is your investing coming along?
Mark
That’s what I figure my friend! Hope to have $5K ready to go in a few months. We’ll see. Need my $12K for TFSAs to be ready!
Mark – go for the gusto and pay off the mortgage. I will never forget the day we paid ours off and how much more relaxed we were about all our finances. The mortgage in your life is like going surfing; you’re really there to have fun, but you’ve always got to look over your shoulder for that rogue wave. Fun, but stressful and potentially injurious if you miss seeing the big one coming. Paying off the mortgage guarantees no rogue waves!
And losing a job can happen to anyone at anytime. It used to be “cleaning house” and if you were good and competent, you’d (usually) be okay. Nowadays, not so much. Being “labour expense” is like being the surfboard – necessary, but expendable and easily replaceable!
I’m retired from the rat race (stress-induced panic attacks, anyone!?), living off my dividends and working the family ranch in western canada summers and (hopefully!) travelling the world (and surfing!) in the winters. My wife and I read “the wealthy barber” when we were young enough to change course and it changed our lives. While I invest carefully and self-manage, we really have no money problems and we are very, very, very fortunate in our lives, friends and family.
Keep up the great work on your blog. but pay off the mortgage – to heck with the analytics – you won’t regret it.
Bill
I like the surfing analogy Bill. I like surfing 🙂
I think once we are debt free it will REALLY feel liberating. “The Wealthy Barber” was also my first introduction to investing many years ago. We try and use a blend of saving for our future and having fun today. Life is short.
I appreciate the kind words and hope you continue to follow along the journey.
Mark
You know I like to think outside the box. What if you paid off your mortgage with your HELOC? Crazy idea I know to move debt from low to higher interest rates but hear me out. My HELOC interest rate is currently under 3% so $100 000 cost < $3K per year to service or about $250/month and decreasing with each payment. Many pay more for their internet/tv/phone package. Your condo fee is probably higher than that. The interest is just another bill and your only legal obligation is paying the monthly interest. If you get a five year mortgage at 2% that's amazing but you get locked into the banks payment schedule and as you've noted there will be a penalty to break the mortgage.
Loan payment of $2500 so $30K per year.
Year 1 $100K at 3% interest is $3000 or <$250/month
Year 2 $70K at 4% interest is $2800 or <$233/month
Year 3 $40K at 5% interest is $2000 or <$166/month
Year 4 $10K at 0% interest as you will likely pay off the loan from your investments.
Total interest paid over 3 years around $7800 vs $4200 (2%) You have control and the risk is you pay a few grand more in interest – big whoop.
This gives you total control of how quickly to pay down the HELOC. If HELOC rates are rising doesn't that indicate the economy is likely doing well and so are your investments? Interest rates tend to rise to slow things down and fall to encourage growth and investment. You could tap into your profits at any time and kill/decrease/control debt.
The BOC is indicating that low interest rates are likely to be around for awhile.
If interest rates rise you could always go to the lender and lock into a mortgage.
Around 800 000 deferred mortgage payments and how many of these could have handled interest only payments?
Every responsible homeowner who is good with money should have a HELOC secured by their home. Do it before you retire.
Crazy idea I know but isn't that what your blog is about, looking for ideas?
This is such good advice. Get a HELOC and pay off all your debt and you have one payment left. My interest rate is 2.45% on the line of credit. We have never had a mortgage and always just the HELOC. No car loans, no savings, no travel pot, no emergency fund. Just the HELOC. When we need a car we buy it, or any other expenses that come up, and pay off the line of credit as soon as possible. We live of our dividends only, and will start drawing CPP, and OAS in 5 years. That allows us to draw down the RRIF’s a little more now instead of paying more tax later when our income get’s higher. It’s amazing how quickly the loan balance goes down when you pay everything into it of what’s left in your chequing account at the end of the month. For disciplined people this is the way to go.
I really have no problem with people using some HELOC to invest, some leverage, certainly if you have no debt. I will probably do the same in the coming years.
I hope to start living off our dividends in another 5 years or so and we’ll draw CPP and OAS in another 15-20 years down the road.
Discipline is the key!
Mark
Looking good Mark. Hopefully you and the Missus will enjoy a relaxing retirement where you can basically do what you wish without being too extravagant.
Personally converting my LIRA to a LRIF this month. A bit miffed that I could not transfer some of the principle from the LIRA in to my RRSP as that option is only good till age 65. If I would have done so prior to age 65 then I would have had to start withdrawals as well and I was still working so it would have boosted my gross income too much at the time. LRIF’s are subject to both minimum (above 4% by the way for me) as well as a maximum allowable withdrawal rate. So I can not adjust my withdrawals above the max rate if I wish to do so.
The RRSP will be converted to a RRIF next year, mandatory, and I will see if I will tap it for revenue. You can delay withdrawals until your 72nd year which may be interesting for me if the other monies are there.
CV-19 has changed any number of factors affecting retirement. Among others it has shown how much you really need to live on as you are/were unable to spent on the “extras” such as travel, restaurants, etc.. So less cash burn and therefore less cash requirements to live on
CV-19 also reduced dividend revenue as you mentioned so previous forecasts for dividend revenue offsetting expenses have changed quite a bit. May mean more RRIF withdrawals which of course lowers the expected duration for the RRIF.
May need some fine tuning there.
Take care, enjoy life, stay healthy.
RICARDO
You have a very good plan Ricardo. I haven’t yet realized our portfolio or debt-free goals yet but I think readers like yourself can see from my posts that I’m really started to strategize things with only a few years to go to part-time work.
COVID-19 has definitely shown us we can live on less and should we ever decide to rent vs. own (the condo) I suspect it would open up yet another world of options. That said, having a “home base” we own is important to us and so we’ve delayed any form of semi-retirement until our 50s for that reason.
Life is all about trade-offs for sure, and fine tuning.
Thanks for your insights.
Mark
I need to learn about LIRAs and converting a LIRA to a LRIF. Thanks to Ricardo for telling me I only have until age 65 to move some of it to my RRSP.
Double-check that Beth with your financial institution but that should be the case; should be able to transfer the difference between the minimum and maximum withdrawal from a LIF to your RRSP.
Remember, the biggest difference between a LIF and an RRIF with the withdrawal limit. There are maximum withdrawal limits for LIFs. The goal is to make sure your money will last until the end of your life – unlocking provides flexibility.
All the best,
Mark
That is good to know Mark. I have a plan for my small LIRA. When the time comes I want to draw it down quickly so that it is my only taxable income for a year or two. I want to keep my taxable income low.
I still have a few years of work to go to get the draw down strategy figured out.
Ya, my plan FWIW is to start taking out $$ in LIRA when I start/during semi-retirement – move all $$ by max. withdrawals via LIF to RRSP and spend any LIF $$ leftover. My LIF is small but I will dissolve that account (LIRA to LIF) first. It will simplify my account structure for semi-retirement (less moving parts).
Do you have to have contribution room available in your RRSP to transfer your LIRA to your RRSP? I need my LIRA to be more liquid than the LIF allows.
I have been searching confusing government documents for an hour and I can’t figure it out. I have a head ache and I am giving up and asking you.
Nope. I don’t 🙂
The thing is, LIRAs are locked-in accounts designed not to be touched or money moved around until at least age 50 or more depending on how they are provincially or federally regulated.
https://www.myownadvisor.ca/what-is-a-lira-and-how-should-you-invest-in-it/
BC might be age 50; AB same, Ontario I believe is age 55 for unlocking.
Maturity options and the earliest age you can start getting payments from a locked-in RRSP/LIRA vary from province to province and if covered by federal legislation. Most jurisdictions allow you to convert at the age of 55, but a few allow it at an earlier age. In some cases, there may be the opportunity for you to unlock part of the assets when converting to a maturity option.
When it comes to my plan, something to consider for you??? – you can convert your LIRA to a LIF by withdrawing the maximum allowed, receiving that in cash, transferring the difference into a regular RRSP or RRIF for future withdrawal. This is effectively unlocking some of the funds so you can choose when exactly you take out that taxable income. 🙂
Hi Mark and Beth,
The LIRA/LIF rules are a bit difficult to understand…
Remember that only 50% of your LIRA can be unlocked at 55 in Ontario (different ages in other provinces), and this is only able to be done within 60 days of converting LIRA to LIF.
Also, you cannot move the rest of your LIF to a RSP, except by taking out small annual withdrawals. If your LIRA was a federally governed one (say if you worked for a bank) then the maximum withdrawal is even smaller.
My wife and I planned to try to empty out a $80k LIRA, but ran the numbers and determined it would take about 17 years to do it even with a full extraction when the value gets below a certain low value threshold (40% of YMPE).
So, reducing the number of accounts will take much longer than I thought…
Unfortunately, you need to read the rules and put it all into excel to figure this out…
Great stuff Davis. I am aware of the 50% and I intend to do that. See post here about some details of LIRA.
https://www.myownadvisor.ca/what-is-a-lira-and-how-should-you-invest-in-it/
My LIRA is very small so I intend to unlock it as soon as I can and move the $$/assets out to RRSP. Then, I plan on setting up the rest as a LIF. The sooner I can remove one account from the long-term financial equation the better 🙂
How are you investing or going to wind down your RRSP? Taxable?
Cheers,
Mark
For the first 8 months, our family spent less than half comparing last year, this includes the car loan payment around $1K each month. We could pay it off but the interest rate is only 0.99% so why bother.
We saved big on these items:
– travels and other entertainments. Normally cost between $10K – $20K depending on where we go to
– camps for kids – cost between $5K – $10K for spring, summer and winter breaks
– after school care
– kids extracurricular activities
– take outs and eat outs. Reduced to a minimum due to hygiene in a pandemic
– car insurance/maintenance/gas. We stopped insurance on the gas car and reduced the insurance on the other car.
If we can retire on this kind of expense, then I have already saved more than enough for retirement, LOL. But of course life will eventually be back to normal. But it’s a good way to know the bottom line of how much we need to barely survive.