Weekend Reading – Moving to a condo, should I invest in my RRSP, did I save enough for $70,000 per year, and more #moneystuff

Weekend Reading – Moving to a condo, should I invest in my RRSP, did I save enough for $70,000 per year, 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.

Well, our move to the condo is complete and our former house below has now closed.

Home June 8, 2019

It’s been a frantic week or so for yours truly but I’m happy to say as of yesterday my wife and I are starting to settle back into condo life. (It’s been ~12 years since we last lived in a condo.)  Even though we’ve only been here for a week, it feels like home already…

Our 2-bed, 2-bath unit is just under 1,200 sq. feet.  We also have just shy of 300 sq. feet of terrace space to enjoy (once our railing is fully installed). Plenty of space for two people really.

(Our view beyond our monstera plant!)

Condo June 23, 2019

As part of this move we sold one of our cars – this one in fact that I bought just two years ago.  With it, one less vehicle to insure, maintain, and put expensive gas into.  We also cancelled a few maintenance services associated with our former home:

Tallying up those costs, that’s close to $6,000 per year or $500 month spent on simple home maintenance and services – pretty much spot with our condo fees without the extra headaches.  There are also major capital replacement costs that go with home ownership (replacing a furnace; HRV; hot water tank; other, every 15-20 years) that condo owners like us don’t need to worry about.  Those costs are in the thousands of dollars. Money we can deploy to other things.

Beyond reduced expenses, we’re now walking to get our groceries; enjoying entertainment and dining experiences very close to our new home – leaving the existing lone car in the underground garage.

It’s a lifestyle that is not for everyone but I suspect it will suit us just fine long-term as we plan for semi-retirement in the coming years.

Giveaways!

Thanks to all entrants as part of this giveaway – Stock Investing for Canadians. Congrats to Jean-Yves who won the book – it should be in your mailbox by now!

I also had author and savvy investor Henry Mah back on my site recently – with more giveaways for you – from his book Your Ever Growing Income. 

Here is the link to our most recent discussion about all-in-one ETFs, juicy dividend income and more.  Make sure you enter the giveaway!

Have a great weekend and we’ll see you on the site in the comments section and on Twitter @myownadvisor.

Mark

Planswell (no affiliation) suggests you keep an emergency fund.  I agree, at least a small one to cover you for multiple weeks.  I’m not convinced you need 3-6 months in cash in the bank at all times.  There are opportunity costs in doing that.  We keep this amount in the bank for what it’s worth.  What about you?

Million Dollar Journey continued his impressive accent to financial freedom.  He’s now earning a whopping $50,000 per year in dividend income from his portfolio!

I hope to post my next dividend income update in another couple of weeks – we’re very close to earning $19,000 per year from just three accounts (x2 TFSAs) and my non-registered account.  I’ve got some catching up to do to Mr. Frugal Trader!

Reader email of the week (content adapted for post):

Thanks for all the help on your site Mark!

I didn’t realize you answered my stock investing question as part of your dividend income update in May – you’re now earning over $18,000 per year?  WOW.

On the subject of TFSA vs. RRSP, I’ve actually almost maxed out my TFSA contributions.  I have $4,000 of room left to go – this year.  Since I’ve decided to buy investments in ~ $5,000 increments, I have to wait until 2020 so I have enough room/money to buy two more stocks.

I don’t make a lot of money, under $40,000.  But, I’m fortunate to be able to save a lot of money because I live with my parents and I don’t buy much.  Do you think I should still contribute to an RRSP after my TFSA is maxed?

Thanks so much once again!

Thanks for your other question.

When it comes to the TFSA and RRSP debate, I think it’s very important to remember these accounts are essentially mirror-images of each other.

Simply put:

  • TFSA – pay tax, then deposit money. Money and assets can grow and be withdrawn tax-free.
  • RRSP – don’t pay tax (yet), deposit money. Money and assets can grow tax-deferred but assets are taxed when withdrawn.

This makes managing the RRSP-generated tax refund the linchpin in any TFSA vs. RRSP debate.

As part of that post I wrote:

Based on my personal investment plan, I feel the TFSA ultimately trumps the RRSP as a retirement vehicle even though I contribute to both every year.   All the money in the TFSA is mine to keep, grow and manage with no tax consequences.  The RRSP refund is great but it’s actually temporary; you need to give it back at some point.  This makes reinvesting the RRSP refund year after year absolutely critical in my opinion to optimize wealth building – to take major advantage of an essentially long-term but not permanent government loan.

That said about this loan I firmly believe using the RRSP will work out very well for the majority of Canadians, hopefully myself included!  Contributing to the RRSP makes the most sense when your marginal tax rate at the time of contribution is greater than your marginal tax rate at the time of withdrawal. 

Back to you…if you’re earning $40,000 per year, now, I would suspect you would want that much income, if not more for your retirement years.  This means you might be in a higher tax bracket in retirement than now.  Although it’s very difficult to predict the future, I would argue until you can max out your TFSA contributions, every year, consistently, given your current income-level, any RRSP contributions now are not going to provide a beneficial tax advantage in retirement.

If and when your TFSA is always maxed out, AND, as your income-level grows over time then it might start making sense to contribute to the RSRP as yet another retirement account.  That will make more sense when your income-level is probably over $50,000 per year or definitely $75,000 per year and more.

My advice for anyone saving and investing for their financial future debating the RRSP or TFSA should consider following my three simple rules:

  1. If you contribute and invest using your RRSP (and not the TFSA), don’t spend that refund!
  2. If you decide to follow the TFSA route, don’t spend money from your TFSA!
  3. Whatever route you decide (TFSA first or RRSP first), just do it and don’t spend it!

Other articles

The folks from MoneySense answered a question about an investor being on track to retire at age 65, to spend $70,000 per year.  Their predictions and assumptions concluded the following:

“The model shows that you only need to save about $830,000 by age 65, which is $500,000 less than our non-scientific method results, and a lot less than $2 million dollars. It also shows that you only have to contribute $10,000 per year to your RRSP. You don’t have to contribute the $20,000 per year you are contributing now.”

Here is another post from my site determining how much you need to retire at age 52, if you wanted to!

There are a number of retirement essays on my site on this Retirement page.   I’ve done the math for you:

“$1 million invested in a diversified portfolio at age 60 could easily last 30-40 years by withdrawing about $40,000-$50,000 per year (pre-tax) from your portfolio.”  That’s a BIG savings and investing goal I know but I think it’s a portfolio value to aspire to!

Dale Roberts hinted you can have a passive portfolio beyond ETFs.  The bottom line that can summarize most investing lessons:  “While asset allocation is obviously important, nothing is more important than investor behaviour.”

Anemic savings rates for retirement around the world are creating escalating fears about retirees outliving their savings.  While savings shortfalls can vary greatly by country and gender, this report suggested men…“in the United States are expected to outlive their savings by about eight years while women in Japan will live nearly 20 years past their savings account. Despite these vast differences, the average retiree in Australia, Canada, Japan, the Netherlands, the United Kingdom, or the US will not be able to last through retirement on savings alone.”  The retirement crisis is coming. Save. Your. Money.

To help you save, invest and keep more money in your pocket for retirement – take advantage of these deals thanks to my partnerships:

Get FREE ETF research advice – take advantage of this free trial for some of the best stock and ETF research available in Canada.

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Not ready to invest alone yet?  ModernAdvisor can definitely help – my partnership gets you $50,000 managed FREE for a year.

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Use my Bank of Montreal promo code MYOCASH, so I can provide you with up to hundreds of dollars cash back when you invest with them.

BMO InvestorLine - January 2019

Mark

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, we're inching closer to our ultimate goal - owning a 7-figure investment portfolio for semi-retirement. We're almost there! Subscribe and join the journey. Learn how I'm getting there and how you can get there too!

20 Responses to "Weekend Reading – Moving to a condo, should I invest in my RRSP, did I save enough for $70,000 per year, and more #moneystuff"

  1. Nice view from your condo & hope the move went well!
    Comment: “I don’t make a lot of money, under $40,000. But, I’m fortunate to be able to save a lot of money because I live with my parents and I don’t buy much. Do you think I should still contribute to an RRSP after my TFSA is maxed?”
    With less than $40k one could also DRIP or invest in a non-reg accounts, because it’s unlikely you pay and tax on the dividends earned. So your choices are wide open and its great that you are investing!

    Reply
    1. Ya, some growing pains in a new building and some things they (builder) need to fix but overall good. We like the unit a lot.

      Yes, non-registered investing is an option but I would max out TFSA at that income every chance I get. No need to pay taxes (non-registered) before registered accounts for most investors.

      Good to hear from you cannew and let me know if you need anything for your upcoming podcast!
      Mark

      Reply
  2. Nice work Mark. Good to see you that you will be saving almost $6k in annual expenses after the move. Money better allocated on acquiring assets. Have a great weekend and let’s plan to meetup soon.

    R2R

    Reply
  3. Congratulations on the move to a Condo. I missed the reasons why, but I am sure you thought it out. Do give us a progress report on the pros and cons of condo living compared to where you were, a year later.

    Reply
  4. Thanks Mark. Congrats on the move, and I appreciate seeing that fixed costs breakdown. I am torn on wanting to move away from the house and all of the hassle and costs. We have a few years to figure this out.

    But one day our accidental investment has to go 🙂

    Reply
  5. Congratulations on the move. Now your investment will grow even faster with all those savings. It’s also very nice to be able to walk to whereever you need. No hassle on the house maintenance means more time to focus on investment and this blog? Could we expect more posts from you?

    Reply
    1. Thanks May!

      Probably not too much more time on the blog actually. I hope to continue posting a few times per week but that takes time and effort! Also, I don’t want to feel like folks are getting spammed by me. 🙂

      For sure, house maintenance costs will go down and my health should improve because I can walk anywhere I want in the city within about 30 minutes, including work. That should be good…

      How is your portfolio coming along? Market all-time highs now! Not ideal for buyers like us though.
      Mark

      Reply
      1. Spam us with your posts, please. LOL.

        Walking definitely will be great for you. Forced exercise. I was biking a lot when I was young but not even walking that much nowadays. It’s really not a healthy lifestyle to driving everywhere without walking/biking.

        Regarding to my portfolio, didn’t buy much this year although I should. Right now I am sitting on 60/40 where I would like to lower FI. Sometimes I think as I am not retiring tomorrow I think I don’t need to rush. Sometimes I think I should force myself to buy no matter where the market is. I forced myself to buy when my FI/Cash was at very high level two years and did not regret it.

        Reply
        1. “It’s really not a healthy lifestyle to driving everywhere without walking/biking.”

          Fully agree and I needed to make this change in part to change my lifestyle. I simply wasn’t getting the exercise or the mental stimulation I needed after long days at work. It should be far better now.

          Ya, it’s tough to DIY invest sometimes. The noise, company news, interest rate drama has a way of helping us make bad decisions.

          I’ll eventually write a post stating I really don’t care what the market does, I simply try and stay invested and buy more stock when things tank. It’s easier said than done but that’s my approach.

          All the best!
          Mark

          Reply
        2. I’m a dividend investor and aways just bought more shares each quarter. There is no point in waiting for the right price. Start collecting dividends and accelerate the compounding. I recently retired and live off dividends, don’t have any FI.

          Reply
          1. I largely feel the same. If you wait for the perfect or even a better price…the market might leave you in the dust. Thanks for your comment DivInvestor. Cheers.

  6. Great view from your condo! Your house looks so meticulously maintained-beautiful lawn. Congrats on the successful move.
    Nice to be able to live walking distance to a lot of things.

    Reply
    1. We worked hard to keep our house in good shape before we sold it to a nice couple who moved from Hamilton to Ottawa.

      So far, so good being able to walk to everything in Ottawa!

      Cheers,
      Mark

      Reply
  7. Mark
    Congrats on the move, keep pounding cash into the RRSP, you can offset the taxes on it by getting a re advanceable mortgage on your condo and invest to use the interest deduction to offset your RRSP tax in retirement(please do not complain about leverage everybody does it by getting a mortgage lol). As for the noise of the media I suggest you read Range by David Epstein & Super Forecasting by Philip Tetlock & Dan Gardner. Those two books have totally changed the way I approach knowledge collection and analysis and you will be able use your skills in a way more productive manner.
    Cheers Mike

    Reply
    1. Definitely an option Mike re: advancement mortgage.

      Interesting books Mike. I might take you up on one or both of those for some summer reading.

      Cheers back,
      Mark

      Reply

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