I tracked spending for 2 years and found we spent about 36k/year, not including mortgage payments. If one's house is paid off, I think one can quite easily live on that, assuming one is reasonably frugal. If not (on either), it would be tight.
My partner and I happily live off less than $40k/year now and we go on 2 trips a year on average. It isn't hard, you need to decide if you'd rather have the fancy car, all the cable channels, and a latte every morning or a couple trips a year and the freedom to choose to work instead of needing to work.
Thought $1M would be enough for quite a while in my 20s, but pretty sure it's not anymore.
Either you're going to have kids in your 30s and expenses will rise above 40k significantly, or remain a bachelor and want to start living an 80k lifestyle by the time you're 40 and beyond.
Of course it's hard to predicts just how much money you'll have in the future. Focusing on cash-flow and savings rate is nice and makes you feel accomplished, but decades-long net worth is really what matters. You could make way above average money, go through bad investments and divorce, and end up with not much in your 40s. Or you could be a layabout, buy a $200k house in vancouver when you're 20 with a borrowed downpayment and end up with $2M+ in your 40s.
People have travelled the world on less. The slower you travel the cheaper it is per day. I like to enjoy finer things in life that many seem to think are unaffordable yet they are in debt while I bank most of my income. $40k per year is very doable if you are savvy
Originally Posted by CalgaryPotato
If you want to live in a major suburb of cookie cutter houses, drive 2 vehicles that keep up with the jones and put a class of adult children through post secondary education and extra curricular activities then no. $40k will never be enough.
It depends on their situation. If a young couple never wants kids and works diligently for a period of time while living frugally they could definitely achieve the 1 mill. Now the fact that they don't want nor will they have kids will free up a lot in their life budget. 1 mill at conservative 4% is 40k in dividends (pretty achievable) not to mention the ability to shelter 100k of the portfolio in TFSAs which the divs they will not pay tax on. This also doesn't mean a complete stoppage from work. I would pick up programming and try to get some freelance deals to get some small income.
The only thing that would eat into the income is the place to live. Now if its 1 mill + small condo then you are set. I'd gather that this lifestyle would mean extensive travelling and would require knowledge on good travel deals.
I would spend 12k to go on a half year cruise each year and not worry about anything else and then have the rest for the remaining to live for the rest of the year.
Last edited by redsgomarching; 2017-04-20 at 04:57 PM.
Beware that 4% extraction from a portfolio is not conservative and is considered barely sustainable, if we're talking 4% of the original value (40k) plus inflation adjustment, on a constant withdrawal schedule (i.e. 4% SWR).
Originally Posted by redsgomarching
Dividends are a different matter, as they are not constant withdrawals but will vary over time.
You are right maybe between 3-4% and the dividend timing would definitely be something to be wary of.
Originally Posted by james4beach
Most good businesses increase dividends faster than inflation...try that with most other investment options. With 1 mill buy argo's 6 pack & you won't be worrying about inflation.
Not too many people start out with $1Mil. As mentioned, live within your means, save, invest and increase your saving\investments as one earns more. We certainly didn't have $1Mil even when we were 55, but at that age we were earning good money, owned our home, no debts, and were therefore able to really increase our annual contributions considerably. Then we began investing for Income not the size of the investment or whether we were meeting or beating any index or market. I think that's the key, at least it was for us, how much income will one's investment generate and is it a growing income. What happen for us is as our income grew, so did our capital and now we do have over $1Mil invested and a growing income which exceeds our annual expenses.
I've been thinking about this recently. Say you have $1 Million in a very well diversified portfolio - equities: us, cad, developed, emerging you got it. Then you have bonds, preferred shares and REITs. At the end finish with some gold bullion. You get the point. Total market value - $1M.
If you decide to retire at this point and live off of it what do you do exactly? Do you restructure it and go heavy on Canadian dividend stocks (aiming for 4% income) or you keep it as is and start selling little by little?
If you chose case 1) then it looks like diversification goes out the window but it's simple and you enjoy low taxes on Canadian dividends
If you chose case 2) then it feels like it's harder to "generate" the income due to multiple transactions/commissions every month or two
What is your approach?
P.S. I realize that the above is somewhat oversimplified ...