Some days I honest feel like I just did my last net worth and then I’m doing it again, instead of the actually two months between them. I assume then my life isn’t too boring, any way on to the numbers.
Wife’s RRSP $12,100
Wife’s Investment Account $12,200
Wife’s TFSA $6,900
My Investment Account $6,000
High Interest Savings Account $6,400
Therefore my net worth now stands at $322,800 for the end of Feb 2010. That is an increase of $18,300 or 6.0% from my last update. Of that my investment net worth was $104,000 which was an increase of $5,300 or 5.3%. Mortgage is down by $8,800 or 20% of my goal for 2010.
So a few general notes about all of this. First off I did adjust the house value up slightly to reflect local market conditions. Given the potential spike that could occur from the new mortgage rules during my next update at the end of April I might have to just freeze my house value till that passes. I’ll decide during my next update what to do.
In the mean time the equity markets didn’t move all that much so my investment net worth remained fairly stable with a slight increase.
The obvious mover in this update is the drop off in the mortgage as it is my goal to reduce that to $78,000 by year end. I should explain a quirk of how I’m paid for my school board work. Since school isn’t on in the summer I don’t work and also don’t get paid. So you won’t’ see much of a drop over the summer on the mortgage. In addition I’ve decided to put my last two cheques into my RRSP to balance off some of my tax bill. So overall you will see a sharp reduction at the start of the year and then it will slow down for the second half.
(Click for a larger image)
Are you all confused yet? My wife had mentioned she was a bit unsure where the hell this series was going so I thought a time line might help sort things out.
- Age 34 – Mortgage paid off, shift payoff money and mortgage payment over to savings.
- Age 39 – Complete semi-retirement savings. Now $18,000/year will come from investments to cover the basics like food, property tax, insurance the bills (power, natural gas, water, phone). I quit my day job and do something else. Between my wife and I we need to make only $9,000/year to cover the rest of our typical expenses.
- Age 39 to 60 – Continue to work part time and assume I spend any extra money that we earn in excess of $9000/year. The reality is we don’t have to do that. If we find we are regularly making much more than that and not spending it we could then put the money back in the retirement pool and shift over to full retirement earlier than 60.
- Age 60 – File for CPP and move into full retirement.
Today we are going to focus a bit on two parts of that time line: 39 to 60 and then 60+. Now the first section of 39 to 60 will be hard to predict since I’ve tried to build things to be as flexible as possible. I might end up working full time for a year on a project and then stop working for three afterward. Or I might just work part-time for that entire period. The point is the ability to do just about anything as long was we are making a bit of income.
Regardless of how we do it it should help rise up our CPP payments since I won’t have this string of $0 income years that have typically dragged down my benefit. To play it safe I’m going to assume that we only get about $6000/year by taking CPP at 60 for both of us (my typical full retirement calculation).
So then at age 60 I’ll still have that $18,000 a year from investments, plus $6000 from CPP for a total of $24,000/year. Which leaves me a little short from 60 to 65 (I’ve typically assume spending around $27,000/year). So I can eat into my principle for a bit, which won’t be bad only about $15,000 in total. At age 65 we both can get $6000 each from OAS for a total of $12,000/yaer, but I’m playing it safe and assuming we only get half of that or $6000/year for both of us. So at 65 we should have an income of right around $30,000 a year in full retirement.
All in all it’s a workable plan. Yet there is one little interesting fact in all of this. I could just keep working from 39 until 42 and have the money build up to produce about $27,000 a year in investment income. Then I’m not required to work at all from 42 onwards. To be honest it’s not a bad idea. I’m just not sure what I’m going to do.
I think it will heavily depend on how I feel about my job when I turn 39. I might want to keep working or just reduce my hours to three days a week. Or I might be sick of it and ready to move onwards. The point is that last year or two of work just prior to retirement are your big compounding years, if you can hang on at all or don’t tap into that money it makes a huge difference to your final portfolio value. So choose carefully, the results will carry forward for a long time.
Alright in the interest of time I’m going to make a simplifying assumption here. I’m going to assume that I don’t have much of a problem pulling money out of taxable and tax sheltered accounts once I semi-retire (ie: I can pull enough from my non-locked in/taxable accounts to hold off until I can need to pull money out of my locked accounts). So that way I can just pile all the money into one number as I sort out how much will I have at 39. Please note that all my calculations are in present dollars, so all investment returns have been reduced by 1.5% to adjust for inflation. I’m aware that official inflation is higher than that over a longer time frame, but my personal inflation rate is usually less than that.
Another thing I’m going to do is adjust my start time slightly forward to this summer. Why? Because the final mortgage payment will occur about the middle of summer. So it makes everything then occur on a nice neat yearly basis. So as of Jan 1, 2010 I had about $100,000 in investments/savings. Adjusting for my pension contributions and RRSP contributions till July 1, I will add in $5000. Then to simulate growth on that I’ll add another $2500. So my starting value of investments is $107, 500.
I will grow that forward at 5% for two years at $1250/month in contributions, which puts me at around $150,000. I went with 5% since I’m not changing my investments during this time. At which point the mortgage is paid off. So now rolling all that money over that I used to put on the mortgage means I can save in total $3965/month. This doesn’t include my school board income. Yet my school board term doesn’t expire until late that fall, so with that in mind I’ll just adjust my starting point up by $6000.
So growing $156,000 at 4% for five years at $3965/month I end up with $453,000. I reduced this to 4% to cover off a significant shift over to fixed income in the portfolio that will occur during this time. Now that value of $453,000 is actually highly significant. Since I’m only taking out $18,000/year in this scenario, that would mean I can take that every year from my stash of money and never drawn down the principle as long as my returns stay at 4% + my personal inflation adjustment. Nice eh?
Tomorrow I’ll try to wrap this scenario up as I link up the semi-retirement phase to full blown retirement when I turn 60. Please let me know if you have any questions. I’ll try to include answers in the post tomorrow or the comments on this one.