Weekend Reading – Living off $1 M, pro athletes living in vans, RRSP contributions and more #moneystuff
Welcome to my latest Weekend Reading edition where I share some of my favourite articles from the week that was across the personal finance and investing blogosphere.
These were my articles from the past week:
Here are some great reasons why you should consider pensionizing part of your nest egg at some point. Not a requirement – just things to consider! Read the article and enter to win a FREE copy of Pensionize Your Nest Egg from the author!
I posted some great low-cost ETFs to invest in the U.S. market. By investing in these ETFs, and staying lazy with these investments (i.e., don’t trade), I suspect doing so could add tens of thousands of more dollars in your pocket over time.
Enjoy the rest of these articles and see you here next week!
Need some guidance or help regarding how to get wealthy eventually? Me too! This is why I wrote this post – how to mind your investing behaviours. I’m working on a bunch of these investing behaviours and the results are starting to show. Check out that post sooner than later – enter soon to win a FREE copy of The Behavior Gap by noted author Carl Richards.
Mr. Money Mustache wrote about living off $1 million invested, forever, spending about $40,000 per year. Aside from some longevity risks, major inflation risks, and changing taxation laws/taxation implications, I would largely agree with him this is “enough money” for most folks to retire on including those in Canada.
Why?
Assuming modest spending and expenses – I’ll use his words:
- “If you retire with $800,000 in investments, you will probably make it through your whole life without running out of money (a 5% withdrawal rate)
- If you start with a $1 million nest egg (a 4% withdrawal rate), you will very likely never run out of money
- If you start with a $1.33 million chunk (a 3% withdrawal rate), it is overwhelmingly certain that you’ll have a growing surplus for life.”
That $40K per year supplemented by Canada Pension Plan (CPP) and Old Age Security (OAS) in your 60s should provide most couples with at least $50,000-$60,000 per year without any workplace pension plan, for multiple decades on end.
Want to learn from folks who have successfully been there and done that for retirement?
Here is an early retiree who Beat the Index.
From the world of tech, this is how open source software has taken over the world.
Million dollar athletes who lived in a van? It happened. Yikes!
Like Eat, Sleep, Breathe FI – I too embrace some elements of the “Mustachian” lifestyle. We strive to increase our happiness and well-being on this planet by reducing our environmental footprint, optimizing our time, and more. Here is post about embracing this approach but also avoiding any hardcore “Mustachianism”.
Save, Invest, Prosper!
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My friend Robb over at Boomer & Echo provided advice on RRSP contributions – make them! Then you can figure out the products that fit with your financial plan.
This is how Half Banked organizes her finances now that she’s married. We’re similar – we have joint chequing and joint savings accounts. I think this only makes sense because we have shared goals and priorities together. We also keep some small savings separate, albeit only a few hundred bucks each, to spend as we wish.
Dividend Earner listed some high yielding Canadian stocks.
GenY Money wondering if buying back her pension was worth it. Personally, unless you are planning to stay with your employer long-term, i.e., for at least another 10+ years, I would say no. Might as well take the cash you have and pay down debt or invest it in your TFSA or RRSP.
In the coming weeks, readers have asked me about my dividend income journey, where I started from; how much my portfolio was worth and so on so I will try and address those questions and more.
I’ve also got some posts planned about how to cut the crap (!) when investing and considerations for how to invest in a Locked-In Retirement Account. Stay tuned!
Mark
Just came across your blog through Tawcan. I noticed you had a background in chemistry and worked in the lab and thought that was interesting because I do too. Now going through your site I see other similarities like you used to live in Toronto and drive a Mazda and it’s getting a little weird. I wish you all the best.
Ha. Funny stuff T. All the best and thanks for being a fan of the site 🙂
Thanks for the mention Mark! Hope you had a good weekend. It went by too quickly for me (again) haha.
I hear ya. All the best!
First off….wth is up with all the ads…esp in-comment ads?! No thanks. Fully understand Capitalizing your creation, but it definitely disrupts the flow of dialogue.
re: “I would largely agree with him [$40,000/yr] is “enough money” for most folks…”
You would think so. However, coming fresh out of a government work-place scandal, some folk find it difficult to budget $300,000/yr.
Who knew being rich (and pseudo-powerful) was such a struggle.
https://www.cbc.ca/news/canada/british-columbia/alarm-over-b-c-legislature-spending-was-sounded-more-than-a-decade-ago-1.4989003
re: “…elements of the “Mustachian” lifestyle. We strive to increase our happiness and well-being on this planet by reducing our environmental footprint, optimizing our time, and more.”
Sounds pretty much like Buddhism to me. 😉 Nothing new under the sun but modern re-packaging helps introduce olde timey ideas to new generations, be it good fiscal/investment behaviour or simply good human behaviour.
re: “Million dollar athletes who lived in a van?”
Question begs…how does a 300-pound person fit into a Nissan Versa?!
Ya, ignore the ads as you wish!
I had a good chuckle with your Buddhism comment 🙂 You could say most things in life are just re-packaging supporting by more marketing over time…including the same top-10 messages in different 80,000 personal finance and investing books? I always loved that comment.
Hey, have you ever seen the interior of those Versas? Nice little and surprisingly big car!
All the best and hope your training is going well.
Mark
Looking for input…I’ve got an RRSP and a LIRRSP and looking at maybe RIFfing one of them once the farm income stops. I’ve researched a bit and I can’t see a case to RIF one over the other. Is there anyone out there that can make a case to go with one over the other?
I personally would be tempted to RIF or LIF a smaller portfolio first if there were two of them, and let the larger one grow tax-deferred as long as possible. I haven’t worked through all the scenarios yet but I have about $40K in a LIRA now.
https://www.myownadvisor.ca/what-is-a-locked-in-retirement-account-lira-here-is-my-update/
My plan is to LIF that at age 55 (I recall the earliest I can in Ontario) and draw it down with minimum withdrawals over the coming decades.
I hope I provided some context but I might have missed any direct question – sorry! Let me know 🙂
The only real reason I’m considering a conversion is to make the necessary drawdown to ensure I use up the lower tax bracket. I could just make a direct withdrawal from the equity RRSP to do the same thing but then I run into partial withdrawal fees. I figured if I RIF something, and take the minimums, I can do it without fees or withholding. I’d probably just re-invest within a non-reg account as I don’t need the money. I was researching to see if there are any kind of pitfalls over going with one or the other. I couldn’t really see anything. The LIRRSP is a bit larger thus generates more income but there isn’t that huge of a difference between them. I’d still have the GIC RRSP as well.
Lloyd, I don’t claim to be an expert but I think you’re right- no difference. I converted my LIRA over to LIF last year and take min payments. I knew I would always be taking out at least that amount- no fees although I have none on RRSP either, no withholding tax (unless requested). I was told you can convert a portion of either of those accounts to establish a smaller capital amount for the stated % withdrawals and add to it later if desired. I did all of my LIRA since its not a large balance.
Ten years after we retired, I am happy to confirm that a million or so is enough to fund retirement unless you are very rash with spending.
We are hardly touching the capital, OAS, CPP as well as dividends and interest go a long way towards covering our needs. Our big concern is that we have to convert to RSPs to RIFs next year and that will result in significant withdrawals being mandated.
Yes, it would Richard but you already know that. Thanks for your comment.
It’s great to hear that from a retiree because I suspect some savers feel they need millions to retire well – but unless your spending is into >$5,000 net or more per month every month, you probably don’t need more than $1 M with CPP + OAS to retire well around age 60 or age 65. The math says so!
https://www.myownadvisor.ca/retirement/
From that page:
“Let’s assume you have a paid off home when you retire. Let’s also assume you have $1 million saved in various investment accounts by age 60. Add in government benefits in your 60s like Canada Pension Plan (CPP) and Old Age Security (OAS), which should amount to an average of about $1,000 per month per person then:
$1 million invested in a diversified portfolio at age 60 could easily last 30-40 years withdrawing about $40,000-$50,000 per year (pre-tax) from your portfolio. If you have $1 million saved/invested by age 60 (and no debt) then I think you have very little to worry about unless you’re a big spender.”
I agree $1M is a decent amount saved for retirement and along with typical govt benefits for long term Canadians could represent “enough’ money, with the caveats of taxes, inflation, longevity, debt etc. However please allow me to make a number of points and take a bit of a contrarian view. I would argue people are better served by looking at current spending and especially at retirement spending plans and needs for a cash flow income number and plan rather than an “enough” asset number and SWR. Admittedly all of this requires some crystal balling.
$1M USD isn’t the same as $1M CDN, where our dollar is historically worth a fair bit less on average. And I’m not sure our cost of living is less than the US.
These SWR models are modeled based on historical US data (not Canadian) and I’m not convinced make a lot of sense for retirement planning and especially in actual practice. Computing long term withdrawal amounts based on the starting balance and then applying a set withdrawal percentage plus an inflation factor, that does not consider actual market returns and potentially radical changing balances doesn’t seem to make sense to me. You might not meet your spending needs overall in extended bad markets or you might die a very wealthy person having vastly underspent by sticking to that percentage. There is also some evidence to indicate investment returns both FI and equity will likely be lower in future years. It is not “safe” or practical enough for me.
I noted in the linked thread to the plan Owen Winkelmolen produced there was 1M in assets and used a constant 50K after tax income goal that jumped way up at age 80 to 70K+ when they are less likely to need or appreciate it, even utilizing GIS but they died with over 2M in assets, more than double what they started with. This might work for some but the plan outcome seems a rather modest lifestyle until late age with a huge safety cushion or massive inheritance. On the other hand there were many good points to consider made by you Mark and by Owen in the article.
People might be better served to consider to consider a VPW strategy vs both these approaches but only if they have some flexibility with discretionary spending or a strong mix of guaranteed safer income vs market assets, and assuming they wish to utilize some or all capital. Ex. VPW would use similiar %’s of withdrawals as a starting point (4-5%) even for an earlier retiree to age 99, but they adjust (rise) based on each year end balance. If you had a big year or two your balance would be higher and your suggested “draw” also higher, from both the bigger balance and the rising withdrawal percentage. In a very bad year with say a 50% drop a person would ideally need to adjust their draw considerably with the lower balance, or recognize if they didn’t it would lower future withdrawals over time. But that wouldn’t necessarily be catastrophic since the strategy is dynamic.
And the usual disclaimer YMMV.
Nothing wrong with any contrarian view…
Ya, $1M USD isn’t the same as $1M CDN but just thinking, general terms, most Canadians would be served very well to have that in the bank when they retire. Not possible for many given a range of factors but generally speaking, that’s a good chunk of change to start any age 60 or 65 with for the next 20-30 years.
I’m not huge fan of linear SWR but life isn’t linear. Instead, as you know, I really like the VPW method.
https://www.myownadvisor.ca/the-benefits-of-variable-percentage-withdrawals-vpw/
I also believe equity returns will be lower in the future based on massive demographic shifts underway. It will be interesting to see how markets and economies evolve in the coming decades.
I agree completely. Hope my tirade wasn’t too over the top!
Will be interested in seeing some more real world plans for people. The one above was particularly unique it seemed. More examples are helpful for ideas and strategies for everybody to look critically at their own plans to verify their own or course correct if needed.
Have a great day.
Nah, never 🙂
It may be worthwhile to note that having a “spending” of $40k may not be the same as a “withdrawing” of $40k. Depending upon the source, one may have to withdraw substantially more than $40k to have $40k to spend.
Very fair. I was thinking a similar thing when he was writing about the income in his post….hence my little caveats about taxation.
That said, if many Canadians could ever get to $800K, let alone $1 M, let alone still $1.3# M as MMM put in his post – they would be sitting very, very well all things considered assuming no debt in retirement.