Revisiting our financial freedom assumptions
Every now and then I get a few emails from readers wondering how much is enough and how to fund retirement? Today’s article will revisit some older perspectives I have on this and share my latest assumptions to these questions.
Financial freedom assumptions – how much is enough?
Only you can answer that question for yourself and your family.
We figure “enough” money covers our basic necessities with some extras – like travel and entertainment. Here is a quick rundown of what we need to cover in our future with some buffer designed-in:
|Key expenses||Monthly||Annually||Semi-retirement comments ~ end of 2024????|
|Mortgage||$2,240||$26,880||We anticipate the mortgage “dead” before the end of 2024.|
|Groceries/food||$800||$9,600||Although can vary month-to-month!|
|Home maintenance/expenses||$700||$8,400||Represents 1% home value per year, increasing by inflation.|
|Home property taxes||$500||$6,000||Ottawa is not cheap, increasing by inflation or more.|
|Home utilities + internet/TV/cell phones, subscriptions, etc.||$400||$4,800|
|Transportation – x1 car (gas, maintenance, licensing)||$150||$1,800||May or may not own a car long-term!|
|Insurance, including term life||$250||$3,000||Term life ends in 2030, will self-insure after that without life insurance.|
|Totals with Mortgage||$5,140||$61,680|
|Totals without Mortgage||$2,900||$34,800||As you can see, once the debt is gone, we’ll be in a much better place for financial independence!|
Add in other spending/miscellaneous spending to the tune of $1,000 per month and that’s our budget.
Give or take, about $4,000-$4,500 after tax spending per month**
Financial freedom assumptions
**These are estimates only. We don’t track our personal expenses very closely after we pay ourselves first every month. We pay ourselves first (via TFSAs, then RRSPs, then non-registered after that if there is any money leftover).
Could we be saving more? Yes. Do we really want to? No, otherwise we’d be doing this already.
We need to live our lives today after all but your mileage may vary.
This brings me to this: personal finance is very personal.
Funding your retirement will be different than mine.
How to fund retirement?
To fund our needs and desires in our financial future I’ve done some math on this and we’ll rely on the following to fulfill our plan:
- A paid off home. We wish to avoid entering retirement or semi-retirement with any debt. Servicing debt reduces your financial flexibility because you are forced to pay other people first. At the time of this post we hope to have a paid off home in another 5-7 years.
- A $1 million dollar investment portfolio. This includes all registered and non-registered investments between us. We figure RRSP assets in particular need to be north of $500,000 to draw down eventually. TFSA and non-registered assets would make up the remainder of the personal portfolio, basically Canadian dividend paying stocks. This portfolio target should provide at least $30,000 per year in after-tax income. We hope to achieve this milestone within the next 10 years – doing so with a modest savings rate, keeping our investment costs as low as possible, and using a combination of dividend paying stocks for passive income and indexed Exchange Traded Funds (ETFs) for long-term growth within the portfolio.
- Modest workplace pensions. This means we keep jobs with our current employer for the coming 5-10 years as our debt is killed off. Nothing is a given though. We’re optimistic if we continue working with our current employer, at least into 2024, we’ll both have some small pensions to draw from for the rest of our lives.
- Government programs. Based on Service Canada information the average Canada Pension Plan (CPP) payment is just over $600 per month for new beneficiaries at age 65. We’ll also have Old Age Security (OAS) income as well. We are however not relying on CPP or OAS for an early retirement. These payments will be considered icing on the cake as we get older.
- Part-time income. I can’t sit still for long so I expect to have some form of work for the rest of my life. What that is I don’t know. It could be this blog long-term if it grows. It could be running my own financial planning business (after I obtain some professional designations). It could be some other small business venture. It could be part-time, seasonal work. It could be all of these things or different things. Time will tell. I’ll figure it out.
These are our high-level assumptions for the financial future. We have work to do to meet our goals and desires but we’ve made great progress to date. No doubt our plans and needs will continue to evolve over time but this is our updated perspective. I’ll keep you posted.
What reality check have you done on your financial plan? Are you in retirement? How did your plan match reality?