2022 Financial Goals – September Update
Welcome to my latest update about our 2022 financial goals, this is my update for September.
2022 Financial Goals
For any non-subscribers (yet!) to my site, here is a screenshot from our actual written financial plan from a few years ago below:
For this month’s update, I figured I’d unpack each bullet above and highlight where we are. I’ll share how we’re doing with our 2022 financial goals at the end of this post.
1. Maintain spending inline with the estimates in my/our financial independence plan.
Well, we have a few international vacations coming up (most of them booked and already paid for) so largely true!
2. Consider a reduction in retirement spending.
Nope. Not gonna do it!
It’s been almost a year since my last financial independence update, so I will be updating that post in a few months.
Our target, Year 1 spend in semi-retirement is about $75,000 or so.
So, to meet that spending need, either about $6,000 per month will need to come from our investment portfolio and/or we’ll still need to work, part-time. We’re planning for the latter in a few short years.
3. Create an emergency fund with a goal of ~ $45,000 or so (prior to semi-retirement).
We’ll start tackling that more next year, in 2023, beyond any corporation assets.
Until then, we’ll keep our emergency fund intact and remain pretty much 100% invested.
Besides, everyone has a different comfort-level about how much cash they should really keep.
4. Pay off the mortgage in the next few years.
Work in progress, people.
We are essentially 2 years out from clearing our mortgage. Steady as it goes…
5. Save for infrequent expenses using various cash buckets.
We’ll consider that in the coming years. Right now, we feel we’re in a good financial spot.
6. Maximize RRSP contributions (each year).
Absolutely.
Both our RRSP accounts are fully maxed out of contribution room and we hope to invest inside our RRSP, for just two more years, in 2023 and 2024. That’s it.
7. Maximize TFSA contributions (each year).
Absolutely once again.
Each TFSA account we own is maxed out of contribution room. In fact, we’re close to having money ready to roll for January 1, 2023. I would think with inflation running hotter, you should expect new annual TFSA contribution room to be $6,500 per adult, as of 2023. Remember you heard that here, first 🙂
2023 and 2024 are likely the final years for us to invest inside this account. That’s because we’ll begin our portfolio drawdown plan in a few years – leaving TFSAs to compound away “until the end”.
Read on about portfolio drawdown considerations in this valuable post below:
8. Generate investment returns that are aligned/within some historical results.
Not quite.
In fact, I believe future returns might be a bit lower than historical – and our financial independence plan banks on that. Anything above our forecasted returns below is a bonus!
For our financial future, we are hoping for returns in the range of 5.5%-6% from an all-equity portfolio + cash wedge earning 1-2%.
We are also forecasting inflation to be 3% sustained for the next 30-40 years (after the current bout of inflation is tamed a bit more into 2023 and 2024).
I like being a bit conservative for money management – your mileage may vary.
I’ve run countless projections for myself to be sure of this and I can help you run the math too.
I run a very Helpful Site called Cashflows & Portfolios that can help answer retirement income planning and cashflow management questions.
Subscribe for free and hit me up for a low-cost service offering!
9. Keep investment fees low over time.
Heck ya.
Why would I want to make other people including a financial advisor wealthy?
I’ve been a low-cost investor for the better part of 15 years now and I intend to keep it that way. You should consider the same! Nobody cares more about your money than you do.
10. Ensure our portfolio is well diversified.
That’s the plan.
I coined the term “hybrid investor” on my site back in 2012 and probably somewhere even before that.
That ensures I invest in a manner that works for us: solving for both income and growth needs in semi-retirement. That approach can work for you too.
11. Ensure our asset allocation is inline with our risk tolerance.
Yes, to a point.
As I enter semi-retirement, part-time work, I figure keeping ~ 1-years’ worth of cash is a good hedge against any all-equity portfolio. As I consider full retirement many years down the line, maybe more fixed income might be needed. Then again, CPP and OAS is inflation-protected fixed income and two good sources at that. I will tell you what I consider and why when I get there! 🙂
12. Consider a switch to an investment portfolio that is easier to manage.
Nope.
I like my hybrid approach to investing.
I like getting income for doing nothing, rising income at that.
I like the upside I’ve earned from some of my growth ETFs too, although this year has been tough!
So, no, despite what one financial advisor in particular cautioned me on years ago, I’m not going to change my investment portfolio. Don’t fix what it’s broken.
2022 Financial Goals – September Update Summary
Based on defining and sticking to our plan, part-time work possibilities are right around the corner. We’re not there yet, but getting there…
Our financial goals are largely met for the year….
- Max out contributions to our Tax Free Savings Accounts (TFSAs) this year. (Done!)
- Max out contributions to our Registered Retirement Savings Plans (RRSPs) this year (Done!)
- Continue to pay off our mortgage. (Work in progress!)
- Initiate a larger emergency fund to start semi-retirement with. (Work in progress via corporation assets.)
….and it’s just September.
We’ve been very fortunate to realize most of our financial goals, already in 2022. So, this fall, we’ll spend some money, have some fun, and see where the next few months takes us.
Thanks for reading.
Source: The Behavior Gap
Further Reading:
Should you take a salary or a dividend from your corporation? What’s the difference?
A cash wedge is one very smart way to manage market volatility Don’t just take my word for it:
The Psychology of Money says this about keeping some cash while focused on investing:
“We do it because cash is the oxygen of independence, and – more importantly – we never want to be forced to sell the stocks we own.”
Love it.
Mark
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. 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.
Awesome discussion, thanks to all of you for the sanity check. Yes, we are always trying to minimize taxes and fees wherever possible! Happily, we are frugal where it counts (small rented apartment, no car, no lavish tastes, no kids) and in pretty decent shape financially and physically, so the goal is to wind things down efficiently, enjoy ourselves without having to eat catfood at age 90 if we make it that far, but not be the richest folks in the graveyard 🙂
Np Meghan. Really no right or wrong when it comes to RRSP/RRIF drawdown.
I think it boils down to three simple things:
1. Taking your money out, to meet your spending needs and be tax efficient in doing so. So, slow, systematic withdrawals seem to make sense over time to smooth out taxes.
2. Taking RRSP lump sums can help you be strategic in your 50s and 60s, with considering other taxable income sources, as to avoid having any tax spiked in any given year.
3. If not already done so, consider turning RRSP into RRIF at age 65 for pension credits and income splitting opportunities.
I fully believe for many Canadians that now have a TFSA into mix, and will get CPP and OAS income, and maybe other income streams in retirement, just waiting until age 71 to turn RRSP into a RRIF is a big mistake 🙂
I appreciate your readership – I hope you share the site with others too!
Cheers,
Mark
Thanks for the answers. To better explain my particular intention: Once I retire, I’ll have very little income as I’ll be holding off on claiming CPP/OAS. For income, I’d do a one-time (per year) RRSP withdrawal of, say, 60K. I’d immediately move 6K to the TFSA to max out the contribution for that year, then live on the remaining 54K and whatever income I get from non-registered investments. And once I convert the remaining RRSP to RIF, I’ll still try to move $ into the TFSA. Sound about right?
I guess, net-net, I’ll always keep moving something into TFSA each year, as my non-registered funds exceed my RRSP anyway, and I’m not keen on the thought of being taxed on my RRSP funds in any way (whether via RRSP withdrawal or via RRIF).
It makes total sense to me. My comment was only geared towards ensuring you are minimizing fees. I see Mark doesn’t intend to use a RIF in the early period of removing funds from his RRSP. I looked into the fees with my broker after I made my earlier post, and while I’m sure the deregistration fee (a fee incurred for a withdrawal from my RRSP) used to be around $200 it seems they’ve reduced it to $50. Still, $50 on a $6,000 withdrawal is 0.83% and if there’s a way for me to reduce that I will.
Meghan, I’m sure you know this, but when you do your $60,000 withdrawal from your RSP you will only net $42,000 as your institution will withhold 30% for taxes. After your TFSA contribution that leaves you with $36,000, or $3,000 per month. In the absence of other income you would likely receive a sizable refund of the $18,000 withheld. Using the Intuit tax calculator for 2021 and using Ontario as residence, tax on $60,000 is estimated at $10,211 – so an approximate refund of $7,800 – again without knowing anything else other than $60,000 of RSP withdrawal for income (results will vary by province).
Great insights, mind you, withholding is not a final tax bill, just an interim measure that the government gets their money back sooner than later!
Whether you get taxed now (RRSP withholding, reconciles come tax time) or taxes later, you will be taxed. RRSP is and has always been a tax-deferred account. It’s just a tool to ensure the government gets their money back. That’s all.
re: “The withholding tax amounts deducted from your withdrawals are only estimates of what you will owe in taxes. The amounts withheld will show on your tax return as taxes already remitted, just like an income tax instalment. The withdrawal amount will be included in your taxable income. Your total taxable income will determine the total taxes payable. This may result in more or less taxes being payable.”
https://www.taxtips.ca/rrsp/withholding-tax-deducted-from-rrif-and-rrsp-withdrawals.htm
Now the only real question is, can you stomach any small/partial deregistration fee based on earlier comments. Some brokerages charge more than others. If you’re making a $60k RRSP withdrawal, and not shutting down the account, spending $50 or $25 per year while not great/ideal is hardly worth worrying about IMO. That’s just me of course!
Any clients I deal with on this site or via Cashflows & Portfolios, are more concerned with tax optimization than $25 here and there.
Anyhow, by slowly winding down RRSP (tax-deferred assets) and making them tax-free (TFSA), I think that’s smart. 🙂
Mark
I meant to add, yes, once you have moved a good portion of RRSP assets to TFSA, use RRSP to slowly wind down, then I think in your mid-60s/age 65 it makes sense to turn RRSP to RRIF for income splitting, age credits, etc. 🙂
Not a must, everyone is different, but current RRSP to RRIF rules seem to make that switch favourable around age 65 before you must convert in the year you turn age 71, for RRIF income during the first year you turn age 72.
Personally would keep plowing money in to the TFSA. It can be a fall back just as well as a cash wedge.
Mine currently generates approx >$1.2K per month and increasing every year as I contribute as well as re-invest the divs (I don’t drip). Having an extra $1K available every month can carry you pretty far unless something really major crops up.
All for maxing the RRSP as well as I mentioned in CAP.
My RIF continues to grow (at least for now) but eventually you get to the tipping point where the mandated (not 4%) withdrawals will exceed the capability of the divs to replenish the outgoing amounts. Hopefully by that time I will have built up the non-registered account to carry on.
RICARDO
Great stuff. Our TFSAs are now generating > $10k per year, tax-free. Likely more over time since I won’t touch them for 20-30 years.
“All for maxing the RRSP as well as I mentioned in CAP.”
Very smart. I see it as a form of tax arbitrage since I contributed to my/our RRSPs in the highest income years and I/we intend to take the $$ out in my lower income years.
Congrats on the RRIF 🙂
I see non-reg. assets are being tax efficient depending on what you own and your income level.
Smart work, Ricardo!
Mark
Ricardo, are you saying that you are continuing to contribute to your TFSA even after retirement? This is what I plan to do, and pertains to the question I’d asked below in my previous comment. Seems to make sense to me to withdraw an extra 6K per year per person from RRSPs to move to TFSA where the income will never be taxed again.
Yes Meghan. I continue to maximize TFSA contributions each year so far.
Monies that come out of the mandated withdrawals from my RIF/LIF are sufficient to cover my life expenses as well as continue to fund the TFSA. So far there is even a bit left over so I have contributed to a non-registered portfolio that will hopefully grow to cover any future diminishing withdrawals from the RIF/LIF accounts. Even though I view that account as a fall back or “cash wedge” that is fully invested it has grown by approx 25%, subject to market variations, since the beginning of the year and pays me an extra $225 average per month which is of course taxable.
Withdrawing money from your RRSP prior to conversion to a RIF will definitely attract the income tax due as well as increasing your annual income and may also attract banking fees depending on the institution. Depending on your present gross/net income you may want to verify the income tax bracket you are in and hopefully not get boasted up a level if you withdraw from your RRSP while still working.
Regards
RICARDO
Ricardo, outstanding:
“Monies that come out of the mandated withdrawals from my RIF/LIF are sufficient to cover my life expenses as well as continue to fund the TFSA. So far there is even a bit left over so I have contributed to a non-registered portfolio that will hopefully grow to cover any future diminishing withdrawals from the RIF/LIF accounts.”
Taking tax-deferred money and moving it over to TFSA, where you can, maxing out TFSA while still meeting your spending needs is excellent planning.
Mark
Hi Mark,
Wouldn’t it make sense to withdraw a little extra each year from the RRSP during early retirement to move it over to the TFSA, when it can continue to grow and not be subject to tax?
I was planning on this approach myself, and would welcome your take.
Keep in mind, for most brokers / account holders you will get charged a “deregistration fee” for each RSP withdrawal – such fees typically are in the $200 – $300 range per withdrawal. These fees do not (typically) apply to RIF withdrawals – so sure, you can “move” your retirement account savings to your TFSA – the withdrawal will be treated as income for that tax year – but just make sure you have a cost effective plan for removing the funds from your retirements savings account (e.g. – plan to move some of your RSP funds into a RIF prior to these planned withdrawals).
Hey Meghan,
I’m personally tempted to do a few, i.e., once per year, strategic RRSP withdrawals in my 50s. I will not turn my RRSP into a RRIF in my 50s. The reason being, I can be strategic to figure out tax-wise how much I can take out, pay my withholding taxes, etc. and move any funds to your point from RRSP to TFSA (ideal?) or to non-reg. (second best). 🙂
Once I’m in my 60s, and likely by age 65, I will convert remaining RRSP assets into a RRIF for income-splitting benefits.
By slowing deregistering the RRSP, even if $6k or $6.5k to TFSA, that smooth-out taxes over time over a 20-30 year period amongst other income streams. That’s my plan anyhow.
Thoughts?
Mark