Author Topic: Case Study - ER for the ThriftyCanadian?  (Read 3150 times)

thriftyc

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Case Study - ER for the ThriftyCanadian?
« on: July 03, 2014, 08:20:28 PM »
Hi all,

Wondering if I could get some feedback regarding my early retirement dreams - and how far off I am.
I am a happy Canadian - so Stachians with Canadian financial wizardry knowledge please chime in.

Details:

Age 40
Wife 41
Kids 3 - ages, 7,9, and 12

Income: $80,000 -35% tax rate
              $2400/year child tax credit

No Debt of any kind.

Assets: $900,000 total
House Value =                                  $300,000
Locked in RRSP (can't touch til 55) = $250,000 (low cost Can/US index funds)
Reg RRSP =                                       $260,000 (low cost Can/US index funds)
Reg stock/mutual fund account =       $90,000 (low cost Can/US index funds)
(RRSP is a tax shelter, tax is paid upon withdrawal. When you contribute to an RRSP, it reduces your taxable income by the amount you contribute for the year)  RRSP = Registered Retirement Savings Plan

Vehicles:
Dodge Grand Caravan 2008 (paid off 90,000) miles
Toyota Corolla 2009 (paid off) 100,000 miles
(open to going down to one vehicle at ER)

Current expenses = $3021/month
Heat $100, Hydro/Water $150,  property taxes $250,  Home Maintenance $200, Car Maintenance $200, food 1000, gas 300, clothes $100, kids activities $150 karate, $100 swimming, cell $60 internet $40, home phone $22, Cable $42, Netflix $7, Restaurants $100, Kids College savings $200, Home/Auto Insurance $200.

Any insight into how far off I am to ER would be great.

Cheers

 



« Last Edit: July 05, 2014, 11:55:00 AM by thriftycanadian »

Jennifer in Ottawa

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Re: Case Study - ER for the ThriftyCanadian?
« Reply #1 on: July 03, 2014, 08:53:19 PM »
Unfortunately you haven't provided sufficient detail.  Read the guidelines for how to present a case study, tidy up your case, and we'll be able to chime in/critique/face-punch and give you some pointers as to what you should look at and how long till FIRE.

gimp

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Re: Case Study - ER for the ThriftyCanadian?
« Reply #2 on: July 03, 2014, 08:58:45 PM »
Seems decent. Not too much information, but it seems decent. It looks like your money-making net worth is around 600k, and at your current expense rate you'd need around 900k to comfortable retire.

As for the rest, you haven't given us much to go on. Where does that $3k go? You've broken out, like, $164 of it. Is the rest non-negotiable? Do you know what the rest are? :)

For your locked in assets - I assume an RRSP is a retirement fund - how does it work? In what is it invested? Low-cost index funds, surely? If not, can you make it happen?

How much tax do you pay off of $80k income? What's your delta between income less taxes, and expenses? What are you doing with said delta?

Are you saving for kids' educations? If so, how much?

People will complain that your cars are too new. Reasonable complaint, if you want to get there faster. At the very least, you expect to be driving them for another 10 years, right? No new cars on the horizon, yes?

And, small potatoes: Can you get rid of home phone? Send the number to google voice / abandon it altogether? How important is cable to you; can you just netflix instead? Yeah, those are minor, because those are the only details we got!

gimp

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Re: Case Study - ER for the ThriftyCanadian?
« Reply #3 on: July 03, 2014, 10:34:23 PM »
Food's high. I dunno, maybe it's just canada, but I bet you can do a lot better than 200/person.

It looks like you're saving around 16k/year. Not bad. It seems that with a decently growing stock market, you should be done in under ten years - just as your last kid leaves the nest. You can be more aggressive, of course. But ten years would give you a large amount of breathing room - you'd most likely pass above 25x yearly expenses, _and_ as your kids go off on their own, you won't be paying their expenses anymore, sharply reducing yours. I guess that's a further question - beyond 200/month for education (is that enough?), what do you think you'll be spending on the kids? Will their needs increase?

Goldielocks

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Re: Case Study - ER for the ThriftyCanadian?
« Reply #4 on: July 04, 2014, 12:14:17 AM »
Hi all,

Okay, you have only 350k investment to pull from now, if you move it into 4% swr portfolio that gives you only 14k income... Your income tax bracket will be low, so just quit job one year and don't start drawing until the next tax year.

Your locked in can be rolled into a locked in brokerage.  You can't touch it but you can invest it differently... Unless it is with you current employer..  But when you quit you can move it into another locked in type acct.  Its like a 401k to a locked in IRA to the us readers...

You seem to be missing insurance for cars, house, life,; medical bills add up for glasses, braces asthma meds and denist copay's. My monthly insurance is likely 4000 per yr all in, your will be less for the better priced  house.

We buy a lot of non mmm food with 800 per month for 4 and younger is 12 and eats a ton!- this 800 is for all the food and household items, and gives about 50 left over for gifts, Walmart stuff,  including things like house linens and such.  Our locale likely has more $ cost for food.than just about everywhere except north and nfld.

Our kids run at 160 per month each for all activities, summer camp, birthday gifts parties,, allowance is 40 per week of this, and  clothes.. They even have personal hygiene, school supplies, ski tickets, etc. in this.  This is non MMM, but at least controlled as I could spend a lot on this,  it is my weakness.

Clothes seem high.  Do you buy at thift store?  Only ask relatives for clothes as gifts?  Clothes should be very low but shoes are hard to not spend on in Canada with the import duties.

I would say that you have reported expenses without the once a year costs for some things.  Let's say you are really at 3500 per month.  You need to get your savings up and your spend way down.  If you are serious, look at a lifestyle of part time work, rent a 3 bdrm co-op townhouse --here their cost is  400 per month lower than average rate, and may be only 700per month where you are, includes maint. and sell one car and reduce food by making your bread, yogurt, pizza, eating more beans and lentils more often, oatmeal for breakfast, etc.  650 for food is possible if you refuse to buy food in boxes or pouches or jars, no labels or chips or colas. Limit fresh fruit and veggy in winter to the economical ones, and buy frozen to keep cost down and nutrition up.

So, we have
Just added 12k to income for house sale and 300k at swr and dropped expenses by maybe 400 per month, net of rent, maybe more if utilities are less too.

  Think millionaire mind here, co opliving is living with other frugal or low income types with kids. It will keep costs down as no one will ask for a $350 year end overnight camp for grade 6 graduation party!

Keep at least part time work, even low pay near home, as your kids costs will continue to fluctuate and you may need to ramp income up quickly.   In Canada, it is best to split income with your wife, so maybe botyh keep working 15hr per week, to bring in 15k with almost no tax?  Assuming around 12-15 per hr hr..  You could do that.

Now income is 12k + 14k + 15k =41k per year, expense at 3100 per month or 37.2k per yr.

Gerard

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Re: Case Study - ER for the ThriftyCanadian?
« Reply #5 on: July 05, 2014, 08:42:23 AM »
You're in pretty good shape. I think the big need is to get your spending down in retirement, even if you make only smaller changes now. If retirement lets you optimize your food buying/growing/cooking, lose at least one car, stop commuting, maybe replace some kid expenses with time (volunteer with sports groups?), get more of your fun and health from biking or walking, and learn to do the basic house maintenance yourself, you could easily get your expenses down into the $2300/mo range, perhaps with a better and healthier quality of life.

That would seem to call for $690K in assets at a 4% SWR, but remember, you have extra loot coming in as you age. So you really need savings to generate a maximum of $27.6K annually until 55 (when your locked in RSP becomes available), $17.6K until 60 (when you can get CPP), maybe $9K until 67 (when you get OAS), and virtually nothing after that! So 440K in your unlocked assets fund will more than carry you after 55, and you'll need another 10K a year to make up the difference between retirement date and age 55. (Actually a little more because of taxes, but as a couple you'd pay very little on $27K a year.)

Assuming your actual monthly income (after taxes, CPP, and EI) is around $4500 (because 35% is your marginal rate, not your effective rate, right?), you have about $18K a year to sock into savings, plus a $5K tax refund if you're maxing out your RRSP contributions, and about $14K in growth of your existing non-locked investments. $37K a year added to your existing $350K.

You can retire in three to four years.

(Mustachians, jump in and tell me where I'm wrong.)


thriftyc

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Re: Case Study - ER for the ThriftyCanadian?
« Reply #6 on: July 05, 2014, 11:52:24 AM »
Gerald,

Yes, marginal. $4500 take home is spot on.

Thanks for being comprehensive. Your post got me thinking about government benefits here in Canada for "lower income" families.

I just realized if our income falls to 27k or so - I think some child related benefits kick in? Perhaps significantly because we will be classed as a "lower income" family. I believe Derek Foster used this as a tool to fuel his ER.

(Note, I since edited the above numbers, we currently receive a child tax credit - plus I forgot auto/home insurance. Its a wash though as they are both the same)
« Last Edit: July 05, 2014, 12:04:14 PM by thriftycanadian »

Gerard

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Re: Case Study - ER for the ThriftyCanadian?
« Reply #7 on: July 06, 2014, 07:57:07 AM »
I'm afraid I don't know the answer to your question about low-income benefits.

But I did realize that I was conservative in calculating your net income in retirement, in two ways:

1. Because your income before 55 would/could include $10K of drawdown of (non-RRSP?) savings, which is obviously not taxed, your family income for tax purposes could actually be as low as $17.6K, where you'd would pay no taxes at all (and might qualify for more low income benefits). In fact, you'd probably prefer to draw some of the $10K from the RRSP account, as you'd have the tax headroom.

2. In figuring out how much you could get from your locked-in RRSP from age 55 onward, I forgot that it would grow between now and age 55. If that investment grows to $400K from $250K, then it'll pay you an extra $6K a year, which is a nice safety margin.