Can you retire when you have $500,000 invested?
How about $750,000?
What about $1 million?
Geez, that’s nuts.
The Retire by 40 post recalled this article about a Canadian couple struggling to make ends meet, with a net worth of $4 million. From the article, the struggle was related to the “present monthly expenditures of $4,274 on wine, restaurants, clothing and grooming, travel and their golf club” (membership). That’s a huge a burn rate on those items alone but to each their own.
As the saying goes, the more you want, the more you spend. This is not a financial myth, it’s a matter of fact for many people today. Most people seem to spend up to their income level (and sometimes much more). Cheap credit undoubtedly fuels that. Lack of financial literacy is another. It’s a foreign concept to some people to pay off items in full once their credit card statement comes in. Does this mean most people have no willpower or have no brain? Of course not. Many people simply underestimate or do not understand their spending habits. Without knowing your spending habits and expenses unfortunately I can’t tell you when you can retire. I can tell you when we can.
When we reach our Crossover Point.
Our personal Crossover Point is where our investment income matches or is ideally > expenses with some small cash buffer.
**Updated spring 2020!**
Here are some examples of what we believe dividend and distribution income from our non-registered and TFSA accounts in particular (along with dividend increases every year) should cover in today’s dollars:
|Basic Expenses||Per Month||Per Year|
|Food/groceries – including the odd take-out night||$600||$7,200|
|Condo utilities (heat, hydro, water) + telcos (internet, TV, other)||$500||$6,000|
|Condo property taxes – City of Ottawa||$500||$6,000|
|Condo fees (building insurance, maintenance)||$600||$7,200|
|X1 auto expenses (gas, maintenance, insurance)||$250||$3,000|
|Healthcare (various, including insurance)||$250||$3,000|
We’re not near our final Crossover Point yet but we are one-third of the way there at the time of this post.
Once the income from our invested capital comes close to matching our monthly expenses, I believe we’ll have enough money to change our working habits.
We’ll consider working part-time after our Crossover Point is reached.
I encourage you to figure out your Crossover Point – when your investment income will cover most of your daily expenses.
The biggest benefit I gain from dividend investing is seeing our money at work every month so we don’t have to (work) someday. We’ve created a spreadsheet that outlines the dividend income we’re earning today showing how our income is rising every month (thanks to mainly reinvested dividends); income that will eventually cover our expenses. Because we focus on the income stream we need (rather than what the market does or does not do in any given day or week or month), we have confidence in our financial plan.
I only hope you find the same level of confidence for your plan.
What’s your Crossover Point? Do you know when you can leave the workforce behind?