# Retirement Calculations – Part II

So welcome to day two of this math crazy set of posts.  Today we are looking at my savings plan for age restricted accounts, RRSP and TFSA.  I’m assuming a few key points here.  First my rate of return will be on average 6.5% (I’m picking a lower number because I’m expecting lower returns for a while) with a deduction of 1.5% for inflation (which should be fine for my lifestyle).  So real return will be 5% compounded monthly.  This might not be correct over the short haul, but I’m using the same number for all the calculations to even things out.

Also I’m basing all my values on my end of year net worth in 2008 to do this in years rather than months (with a few minor adjustments to account for recent fund transfers).  I’ll be using this calculator again.

One final assumption.  I’m assuming that all my pay raises for the next 14 years are only inflation matched.  So anything beyond that amount I can spend as I want and not change these numbers.

So in order to track a few different pools of money I’m going to have to run a few different accounts all at once.

Age Restricted

First off there is the age restricted money which includes my pension (can’t use it until I’m 50) and my LIRA (I can’t use that one until I’m 55).  To simplify things a little bit I’m rolling these into one pool.  I won’t be adding to the LIRA so over the long haul it won’t matter much compared to my pension plan.

Starting at \$8800 (LIRA) + \$850 (Pension) = \$9650
In 14 years I will have:\$271,464

Now I can’t use this for another five years so I’m going to just assume no new cash and let it grow for another five years.  So by then it will be worth: \$348,385 by the time I’m 50.

RRSP

Again I’m going to merge my wife’s RRSP and mine to create a single pool.  Yes to do this right I should keep them seperate but that’s a bit too much effort at this point.  Also note the amount added to these accounts looks small because my pension is eating up so much of my RRSP contribution room each year.

Starting at \$18800 (Tim’s) + \$8800(Wife’s) = \$27,600
In 14 years I will have:\$104,018

TFSA

Now here is where timing is a little more critical.  I’m going to be maxing these out until for four years, then I’m going to stop for a few years while I pay off the mortgage.  Then I’ll come back to these and max them out again.  Again I’m merging accounts to keep things simple.

Starting at \$0
In 4 years I will have:\$44,161

Then for three years I won’t be adding anything (when I’m killing off the mortgage), then it will grow to:\$51,291.  Then for the last few years I max it out again.

Starting at \$51, 291
In year 14 (I’m 45) I will have:\$156,306

Ok, so I’m up to \$531,000+ by the time I turn 45, that’s a nice looking number.  I should note that I haven’t done anything with the taxable accounts yet.  I’ll get to that tomorrow and discuss some other issues like paying off the mortgage.

## 11 thoughts on “Retirement Calculations – Part II”

1. what are you investing in with your TFSA? I’ve been filling mine up with Canadian Banking stocks that pay dividends, but a lot of my friends are just going with the safe 3.5% from PC financial.

2. MM says:

I’m curious why you are maxing out the TFSAs for four years, then focusing on the mortgage, and then back to maxing the TFSAs – why did you decide on this strategy as opposed to dividing the money and making contributions to the TFSAs and attacking the mortgage at the same time?

3. Derek says:

What about the extra room in the TFSA that builds up during the three year you don’t add? You would have an extra \$30000 in contribution room available.

4. I hate to drop in with bad news but there is a real possibility that if you subscribe to the buy and hold thesis, at this point in time, the RRSP numbers may be a lot lower than projected.

We may be just starting this bear market, a correction of a longer-term bull market (~81 years) that began back at the end of the 1929 crash (1932). It may even have started earlier but that is somewhat academic.

We may be entering, either a much deeper bear than we have seen to date, one with a very long recovrey time, or a messy sideways affair, one that may also go for many years.

See the 1929 – 1932 and 1968 – 1982 time periods for examples. This one has the potential to be worse than either of these examples. In fact…it must be somewhat worse.

Next milestone to watch for…a break below Nov. lows for all indexes in US and Canada. When this occurs is uncertain. Still way too much bullishness out there.

CM

No offense Canadian Money, but you close off your comment with this phrase:

Maybe you mean:

“Wish I had a better forecast”

Implying you are delivering the news is rather presumptuous. Don’t you think?

6. Dave says:

The TFSA is nice, but I would be more inclined to pay down the mortgage now when rates are low because depending on what you read many economists are expecting inflation to start kicking in over the next year or so and then rates will start going up again. I even read, now this is a few months ago, one guy saying that he expects rates to be 7 – 10% in a 3 to 4 year time frame.

I know its all a crap shoot because no one knows where we are going, but I figure I will take advantage as much as possible to pay off my mortgage while my variable rate is low. My TFSA can wait.

Of course I am one of those people adverse to debt, so this strategy makes me sleep better at might.

Zeromoney,

Actually the TFSA this year isn’t getting much for ‘new’ money. Mostly I’m moving over previous investments that produce distribution income.

The longer picture is to keep fixed income and distribution income in this account (and the RRSP) first and then fill it up with dividend paying stocks if I have room.

MM,

Timing is somewhat important. This low is a good buying window for some investments. So I’m focusing on that for the short haul. Then then I switch to paying down the mortgage to remove that completely before I turn 40. Why? Flexibility in the long term. If the plan goes better than expected I can pull the plug before 45. Hence the back and forth.

Derek,

I was wondering who would get around to noticing that first. The hole there is on purpose. You see the actual numbers for paying down the mortgage is actually closer to 3.5 years instead of three, so to balance off the difference I’m leaving the TFSA balance lower than it should be. It’s a bit overkill, but I’m being more conservative with my calculation this time.

CM,

Bad or good. I’m guessing anyway so I’m fairly flexible with these numbers as placeholders. This is a high level simulation and I’m ok with that.

Dave,

Really it’s not a bad idea, but I’m more interested in picking up some longer term assets at depressed prices now. In the mean time I’m still paying off the mortgage at a good pace and if rates go up in the in term I can always lock in and then kill the beast later.

Tim

8. I did mean news, in the sense that I was just passing on my forecast.

Actually I do have a crystal ball of sorts. Sometimes things are quite clear. Other days I wait for the clouds to clear. I won’t go into detail.

My forecasts predict that all US and Canadian indexes will break significantly below their November lows before this bear is over.

I’m really trying to help out here and I’m not trying to give you a hard time. I hate to see younger people being taken in by the Buy and Hold sales machine.

Be a skeptic…that’s healthy. Your a smart cookie, don’t be fooled by those who only know part of the story. The buy and hold thesis has a fatal flaw.

The BH thesis can only be supported with market historical data that starts about 1956. Or, by using carefully selected data sets. Try applying it from 1929 on-ward or from 1968 onward. I’m not making this up.

BH only holds water if one ignores the data prior to about 1956. This circumstance is a little like a climate scientist who predicts global warming impacts but ignores select portions of historical data because they don’t support the mathematical model.

Have you ever looked into what is behind the B&H thesis? It would make a good blog post.

9. Bob Smith says:

You are assuming a 4.5 percent return and there is no guarantee on return.