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.
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!)
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:
- No more irrigation contract for spring, summer and early fall.
- No more snow removal services to pay for in the winter.
- Annual generator maintenance? Gone.
- We cancelled our home phone (even though it only cost us $5 per month).
- Our home security monitoring system was not a need (a want), so we cancelled that contract too.
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.
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.
Have a great weekend and we’ll see you on the site in the comments section and on Twitter @myownadvisor.
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!
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.
- 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.
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:
- If you contribute and invest using your RRSP (and not the TFSA), don’t spend that refund!
- If you decide to follow the TFSA route, don’t spend money from your TFSA!
- Whatever route you decide (TFSA first or RRSP first), just do it and don’t spend it!
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.”
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.
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