Why it’s never too soon to run some retirement numbers
Inspired by various articles on this subject in recent months, I believe it’s never too soon to run your retirement numbers. This post will tell you why.
Dream early, dream big – you only have one life to live
Daydreaming is great. This includes what may lie ahead after any full-time work.
Maybe you have aspirations to try a new hobby.
Maybe there’s a passion you’ve never had the time to pursue.
Don’t put off any big adventure or plans because you’re waiting to “get around to it”. Those days may never come.
I’m trying to eat more of my own cooking on that principle as I get older. Better now than never…
I daydream we’ll eventually have $30,000 per year to spend from two key investment accounts (non-registered and TFSA) for semi-retirement. That’s just one of our financial goals. How did I arrive at that number? Some math of course.
Will we get there? I certainly hope so but I know we wouldn’t be as far along this journey if we didn’t dream a little bit.
Check out this page for a variety of calculators to help you do the math too.
Manage your money, nobody else will
Ain’t that the truth? OK, sure, there are some absolutely great fee-for-service financial advisors out there but let’s talk about the rest of the world: nobody really wants you to save your money. I mean, seriously, Black Friday? If that’s not one of the biggest marketing and spend-your-money-bonanzas going…
I learned a long time ago to try to adhere to these financial tenants as much as possible because nobody cares more about our financial well-being that us:
- Always spend less than I earn.
- Save early, save often.
- Keep my money management fees low for as long as possible.
- Be wary of any financial product and the financial industry at large.
- Read the fine print on contracts.
- Disaster-proof my life to the extent possible.
- Always pay down debt.
- Diversify my investments.
- Delay consumption.
I’m not perfect at these things all the time but I am getting better with time and more experience on my side. The more you adhere to your financial values the better off your retirement numbers will probably be.
Focus on cash flow, not net worth
I would argue net worth, while a good metric for overall financial health – does not provide as much value as focusing on cash flow.
While increasing net worth is great, I’m personally focused on increasing our cash flow over time. This way, regardless of the assets we own (e.g., a paid off Ottawa condo eventually), we’ll have options in terms of living off the income derived from some or a good portion of our portfolio.
Identify, monitor, and manage your risks
No two people are the same. They call it personal finance because the personal in finance is so unique. This means you, and only you, can truly understand your tolerance for investment risk. You absolutely need to balance some risks and rewards when it comes to investing.
For example, I intend to hold stocks well into retirement.
In fact, I intend to hold mostly stocks throughout retirement for one of these key reasons.
Your financial success, regardless if you invest in real estate, stocks, private equity or other ventures will be your ability to identify, monitor, and manage your risks.
Retirement planning comes in all shapes and sizes. There is no right or wrong really.
While many day-to-day costs should eventually disappear when you approach retirement (e.g., saving for retirement; killing your mortgage and all other debt, etc.) others might arise (like higher healthcare costs and increased travel expenses).
In evaluating the life you want to lead today and the life you are working towards, I think it’s never too soon to run some retirement numbers.
When it comes to our financial plan, we’re focused on an income plan whereby most of our income derived from our portfolio will exceed major expenses. That excludes income from government benefits such as Canada Pension Plan and Old Age Security for the record.
By examining what we need from this “bottom-up” approach while we are more conservative than most, I believe we’ll be successful. At the end of the day, the only investing goals that matter are ours. I’ve been running various retirement numbers for 10 years now. I don’t intend to stop.
What’s your take on running some retirement numbers? Wait until pre-retirement or do it now and often?
Hello Mark and Hello all 🙂
Finally i bought “Beat the Bank” by Larry Bates , what an amazing book i simply couldn’t let go i almost finished it only for the warning on my ipad battery that’s low 🙂
a lot of wisdom in what he wrote and funny at times makes the reading more enjoyable .
Great to hear Gus. So, curious, what lessons learned are you going to apply to your own portfolio? Lower cost funds? Individual dividend paying stocks? Use of a robo-advisor?
Mark , my portfolio is already 100% low cost ccp 40/60 ( 5% in TD e-series with slightly higher fees).
to be honest I’m gonna keep doing the same just adding more and drip into existing funds it’s just that i might add couple of Canadian stock in a tfsa that i will open in the new year,
yeah i wanna keep it as simple and boring as possible and ride the waves while i’m enjoying a glass of wine on the weekend and a trip to mexico in winter 🙂
Life is to short and no one knows the future , i know this is a late reply to Shredder , but we were in the same situation 4 years ago when my wife had a breast cancer and it was tragic at first but me and the kids stayed strong and supported her and that i believe got her through the chemo surgery and radiation after that , so yeah you have to stay positive and strong and among all for me pray 🙂
Back to the book I’m on Chapter 12 “Investment selection ” and I can’t wait to finish it today after i help with decorating our Christmas tree , you see Family comes first and everything else is last .
Cheers to all
hope you’re enjoying the rest of your weekend.
Gus, TD efunds are great. No reason to switch if that is working for you. Those are some good low-cost products that are far better than 90% of else out there.
Boring is best when it comes to investing – this I assume you already know beyond anything Larry Bates had in his book, although he mentions that as well.
Life can be short and you have to take each day of health and wellness as a blessing.
Enjoy the tree decorations with family 🙂
Hey Gus, its always great to find a book that keeps you so interested. Good to read it confirms what you’re doing is right.
Great attitude with your wife and family.
absolutely right about the book , it’s so funny how my interest changed from reading nothing but history books and watching documentaries ( WW2 specially ) to reading about investing .
The Family always comes first this is where i get my energy and purpose in life i guess 🙂
You have your priorities right (family) that’s for sure 🙂
You’ll soon be answering all the questions here Gus.
History isn’t my thing for reading but investing, personal development, biographies, running training/physiology and crime fiction sure is.
Have a good one.
The more margin you use the lower the interest rates. On 500K you will get a very good rate. On a million – the rate gets even better. You can negotiate the rate – with a phone call to your discount broker. Prime plus .25 is easy to get :). But ask for Prime!
May. Have you looked into the interest rates for using $500K Margin? (they are better than LOC rates). And when used properly lowers the risk of a Call! (over a bank calling in the LOC). Interest is a write off anyway (when investments are in a non reg act – and you borrowed to invest). Great to see you ask the question – As most investors are too scared to use Margin. In my experience – in making – money – its easier when you can leverage other’s money and other people 🙂
I didn’t. I always thought margin rate is high. It’s news to me margin rate can be better than LOC rates. Thanks for the information, I will make a call to ask for margin rate.
I love the idea of “running the numbers” as early as possible, mostly because people tend to be overly pessimistic about retirement and way over estimate the amount they need.
Running the numbers usually opens up a bunch of opportunities to take mini-retirements, take time off with small kids, switch careers, start a business etc. etc.
Once people see that their basic retirement goals aren’t that difficult to achieve, it starts to free them to think about bigger picture/lifestyle goals instead.
That’s exactly how I feel Owen – doing it early and often allows folks to break goals down into their component parts – see what is possible. I suspect not many people think this way (at least the majority do not).
Also, May, if you think the extra cash flow should do anything other than pay down the HELOC itself (or at least make an RRSP/TFSA contribution), such as “a vacation” (this made me shudder), you should probably not be managing your own investments but would be better served by consulting a fee for service financial planner.
I got your point. Believe me, I am pretty prudent.
I don’t have any mortgage right now and no borrowing on the heloc either. I have all my registered accounts contribution done at the beginning of each year too. That’s actually why I am entertaining with this idea. I figure if things go bad, it will be just like I have a mortgage again.
That’s a good place to be. It’s tempting to juice returns with leverage, but if you are mortgage free, you’ve likely done enough right so far, or are “far enough along” that leverage could be inadviseable owing to limited time frame in which to make up for market downturns. I too am in that enviable position of being debt free and will concentrate on asset accumulation until I get to my magic number.
Well done David. Being debt-free is huge, it gives you options when it comes to work and your time. When you no longer have to pay someone else first, you can focus on asset accumulation and you and/or your family.
Being debt free (no mortgage) allows those who are debt free – to consider what May is thinking. Not everyone is in such a position. May and David (being debt free) are able to consider such a move – with less risk involved. People with debt may not want to add more debt (as they may not be able to weather it).
May, borrowing to invest is not a great idea. The sort of investments that will exceed your HELOC rate (and I have never hear of prime minus on a HELOC, but hey, go for it) will possibly be hit by rising rates, so your borrowing cost goes up and the value of the asset you purchased goes down. No thanks. Can it work? Yep, I have done so as a one-off. Can it bite you badly if you assume it is a permanent strategy that will never go off the rails? Yep.
You are right. I checked again and looks like I must look at variable rate and misread it as heloc rate. Too bad.
I am looking at investing on dividend growth stocks. As dividend pay less tax and interest will have more tax returned, the dividend rate can be lower than interest rate.
Yeah, I figure worst case I will lose the money I borrowed. And this is unnecessary risks to take. That’s why the idea entertaining but no implementation yet.
So sorry to hear it Shredder, best wishes to you both.
Regarding to net assets, did anybody here entertain with the idea of borrowing to invest? I understand that is the way to get more cash flow from more net assets. Taxtips has a very nice calculator here, and I am quite tempted.
With my current heloc interest rate, let’s say if I borrow 0.5 million, and get 3.5% dividend, I can increase my cash flow by more than 5K each year. That’s enough for a vacation. Of course interest rate will go up, but looks like I will still be safe even it goes up for 2%.
Also, I saw there are heloc offers out there for prime minus more than 1%, although not by major banks. If I switch the heloc, more safety there too.
Of course it’s always risky to borrow to invest, that’s why I was entertaining with this idea for a while but not do it yet.
What do you guys think about it?
I’ve thought of it. But only briefly.
Others on here beat me to the question on the rate below prime and in rising rate environment, and the likelihood of a decent return.
Borrowing always put me outside my comfort zone that we worked hard to achieve and I ask myself – do we really need to do that? I could be invested more aggressively but the same question returns. ie my thinking = take only the risk I “need” or am prepared to live with worst case scenario. Your situation having employment income, accumulating assets, and net numbers on what might work, and risk appetite seems different.
However, if I wanted to borrow I would be much more inclined if we had a true correction/bear mkt. when your risk is much lower with lower prices, and better upside.
No doubt some have made it work. Maybe you’ll hear from more of them, but possibly not from those where it didn’t.
I have asked myself the same question: do we really need to do that? The answer is really a NO.
Yes, if I really want to do it one day, it will be when market is very low and nobody is buying. I do doubt my courage though if I will be brave to buy when nobody is buying. LOL. Right now I still have bunch of cash to invest and before I invested all the cash on hand, I will not consider borrow to invest.
One successful example is MillionDollarJourney. He actually started it before the 2008/2009 crash, and managed to survive it with a positive results. He maintained a portfolio of 3.7% and $6,950 yield. So the asset itself is less than $200K. Considering capital gain, the money he borrowed might be around $100K only.
I guess even I eventually tried something, I will not borrow too much, maybe $100K or $200K. I can also borrow it in fixed terms to lower the borrowing cost.
That makes sense May. Investing your cash on hand has a much better chance of giving you a decent return at least over time. Ditto on some cash. LOL, my RY bid missed by 1 cent yesterday.
MDJ was younger and earlier in the game. Would it have worked if interest rates stayed high rather than dropping through the floor? Would he consider starting leveraged investing now? I don’t know but I doubt it.
I know MDJ. He had a good job and low(er) cost of living, plus a very successful forum to sell (CMF) and blog to run. So, all the income streams firing and all the positive reasons for leveraged investing. I think you always have to look at people’s situations in isolation. No two leveraged investing moves are the same 🙂 He has done well for himself.
I agree everyones situation is unique and I don’t know MDJ beyond reading his blog a few times a year. No doubt he is successful.
My point was it’s not as difficult to be successful leveraging in an ultra low interest rate environment and with a long term rocketing stock market. Now, probably not so much.
I have run a HELOC for investment purposes for several years and have done well – so far.
One thing to remember is if you are pulling 5% dividends and paying 3.5% in interest you will only have 1.5% dividend gain which is taxable, lets say at 33%. So your $1,500 now becomes $1,000 to spend – out of $5K in dividends.
Also, in my case, the dividends are automatically garnished by the HELOC when they are paid to 1) pay the interest charges and 2) lower the HELOC principal. This is OK with me as, in principle, when I do sell some stocks I will make a capital gain on the increased value of the stock.. The thing is that stock values can vary significantly. My HELOC investment portfolio has been up $5K and down as much as $14K. Can you live with variations like that? If you need the money at the low point then you are in deep do do as usually the HELOC will automatically take the cash in the account. If it is below the HELOC principal then you are left with a debt to pay off.
As long as the dividends pay off the HELOC interest and some of the principal every month then I am willing to wait trusting that time is on my side – which can be several years.
One way to look at is: having a mortgage but no rush to pay it off, instead using the extra money to invest. Then it doesn’t look that scary any more. For my case, this is still not a very comfortable thing though as I want to retire in 4 years and I certainly planned to retire mortgage free.
I get what you’re saying. Retiring debt free was a must for me.
Re scary I think it’s easier to view it that way in the previous utlra low interest rate environment and where markets were rising well. Now?? Paying off the debt is a guaranteed return.
Best wishes for your 4 yr goal May!
That’s our goal as well. I do not wish to “retire” / semi-retire and go to part-time work unless we are debt-free. That seems only smart.
I did some leveraged investing back when I was working. Now I’m thinking more along the lines of Mr Buffet’s line that “it’s insane to risk what you have for something you don’t need”. If I was in my 30’s with the job I had I might consider it. Not now, or even in this kind of economic climate. I see too many risks and not enough rewards.
My biggest concern May is it is best to do this in a stable, very-low rate environment or ideally, a falling interest rate environment. Our BoC has been clear that rates are going up. At least one if not two rate hikes are coming in 2019. That’s strike #1.
In addition, global growth will be slowing in the years to come. Demographic shifts. Signs are everywhere. That means while dividends might continue and should flow, capital growth will not. So, eventually, with less company cash flows dividend increases might increase over time but not as much nor as fast as they have in the last 10 years post-financial crisis. That’s strike #2.
Third, leveraged investing is a hit on your cash flow depending upon how much debt you are servicing because instead of paying yourself and not worrying about paying others – you are paying others’ first as the payee.
I dunno. I think the best time to do leveraged investing was a few years ago. I would personally be nervous doing it now. That’s just very conservative me and where we are at 🙂
Interest rates are still historically low.
Fair. They are.
Shredder: Stay positive and its important that she (once the original shock dissipates) only allows good thoughts. The mind is very powerful and can help heal the body. Be strong for her – as that will help her with this challenge. Laughter, Meditation and cutting out sugars (they feed cancer) will help! I came to realize a short time ago that Time was more important than money and that family time was the most very important time that we had. Strong thoughts and prayers being sent your way!
I’ve always erred on the side of an abundance of caution. As mentioned by shredder (and I’m very sorry to hear that shredder), one can have a plan but it behooves one to have contingencies for the frequent “unexpecteds” as well as keeping in mind the infrequent ones. That’s not to say that a plan can’t all go to hell in a hand basket in the event of a devastating loss. So ya, run some numbers but remember it can be just a WAG for the most part.
I think contingencies in life are very important but you can never plan for everything let along some things. Totally agree. My heart goes out to shredder.
Shredder that’s got to be tough. Best wishes to you both.
Yah Mark, well stated on the tenants.
For sure run the retirement numbers and be careful doing it. 100% right on the bottom up approach using expenses to determine income needs, and concentrating on overall cash flow more than net worth.
Ya, I know it’s my bias….re: cash flow vs. net worth but it’s working for us and the way I see it, regardless of what my home might be worth I have to live somewhere. While including my house and other assets (e.g., cars) as part of net worth is correct – I can’t live off the net worth of my house; I don’t want to live in my car.
I can however live off the income that my portfolio generates, my pension will generate, etc. Just my $0.02 and I know you know where I am coming from. 🙂
You bet I agree and know where you’re coming from. I should have thought more like that in my 20’s, 30’s and even in my 40’s rather than focus on assets.
Cars, other assets, nah. House – ok to consider as an asset to exchange for costs of potential older age care otherwise it’s just a place to live vs selling and using capital to pay rent.
My bias is I always consider overall “cash flow” rather than just income from portfolio. That’s because in our situation one of us had a DB pension since day 1 of retirement, money from our assets comes from a variety of sources/forms- RRSP income/capital, HISA, dividends, and some is reinvested in other accts., and we will at some point have govt pension benefits, all less taxes.
The remainder equals “cash flow” to run household and live our lives.
I never really thought like this myself until I started some dividend investing in 2009. I really had little idea how the income generated by my portfolio could be so powerful. It was a real eye-opener for me.
Since those days….geez….10-years back in my mid-30s now, I’ve been focused on increasing our cash flow and ensuring in the years to come, the income generated by our assets provides a lifestyle that is sustainable to lead.
With a DB pension, DC pension + existing portfolio – I feel our biggest barrier now is debt. As long as we can max out TFSAs + RRSPs and kill debt over the next 5 or so years, I know we’ll be fine.
Great that you saw that. It can be a very good path. For me it’s beneficial as a mindset and as a “floor” since total return is king, when you’re planning to utililize capital.
Yes, you’ve got all the building blocks in place. I agree debt is the focus and trying to keep up the savings that you can.
Yes, slowly putting the pieces of the puzzle together. Gotta remind myself to enjoy today. Life is short 🙂
I might be wrong but I suspect the blog can be a great thing to focus the mind. It could also be a distraction from just living and enjoying all that you have, regardless of where you end up. Yes, life is short. It doesn’t seem long ago I was your age.
Yes, the blog is a HUGE distraction (positive one) from the work headaches. Everything else in my life is great.
Great to read. Positive is good.
G/L to your redblacks!
So sorry to hear about your Fiancee Shredder. Hoping & praying for the best possible outcome.
Love your “financial tenants” Mark…must pass these on to my kids. Totally agree with running your retirement numbers early. I’ve passed on my spreadsheet calculations to my kids (all married now) to get them thinking about planning ahead.
Thanks for another good read Mark!
My thoughts are with shredder….
Please do pass them on Paul and get them to subscribe. Also, depending upon their ages (?), you should have them read this post and this free eBook. It’s outstanding.
All the best Paul.
Thoughts and prayers are with you Shredder. I too have learned never to take health for granted. Best of wishes for your fiancée!
Don’t put off any big adventure….so true.
3 months ago my fiancee & I were climbing cliffs in Quebec because Via Ferrata in Italy was always…”next summer”
Since 10 days ago, she’s in hospital diagnosed with Stage 4 abdominal cancer. Dr said…we can treat it…didn’t say…we can cure you.
Saving for retirement seems like such a lost cause. And she’s a Financial Planner
Sorry….just a very heavy heart at the moment
My goodness shredder….my thoughts are with you.