Am I on track to reach my goal?
I have been reading lot of blogs (Canadian Couch Potato, MoneyGeek, MoneySense, CFM, Michael James on Money, Million Dollar Journey, My Own Advisor and etc.) lately. After reading these blogs, I have decided to set a goal that is save one million dollar by the age of 40. I have only 9 years to reach my goal.
Am I on track to reach my goal? – My gross income is around $120-125k (depends on bonus) a year and I try to save as much as possible. I did not buy a house as there is not enough job security in Canada. My monthly moving average expenses is around $1,700 though I am trying to reduce it to $1,500. My present net worth is $190K. Here is the breakdown of my asset allocation. I have started to invest in index funds and ETFs since last year.
Bond, GIC & Cash - 51% (Mostly in savings a/c 1.9%-2.05% interest and $17k ZAG in TFSA)
Equity - 40% (TD900, TDB902 & TDB911 in RSP)
REIT - 9% (ZRE in TFSA)
Total - 100%
Your valuable suggestion would be highly appreciated.
Last edited by scorpion_ca; 2014-11-21 at 05:17 PM.
To meet this goal, by simple math, you're going to need to generate on average 90k of savings per year.... 1,000,000 - 190,000 = 810,000 / 9 yrs = 90,000.
You'll have to calculate how much of your net salary over the next 9 years that you can invest, and what the return will be on that investment. Frankly, I can't think of any legal means that might allow you to reach that goal. Maybe you should be aiming at a 15 to 20 year goal instead.
Perhaps I'm too conservative with my investments, and someone else here may suggest some more aggressive investments with that kind of return.
Just running some hypothetical numbers thorough Excel's Payment function (PMT)
Result PMT = -63,958
So at 5% rate of return, you would need to save $64,000 per year to have $1M in 9 years. Have you considered your risk tolerance in selecting an asset allocation that is 50% cash and fixed income? Depending on how much of that is cash even the 5% rate of return I used may be high.
If you go to the General Personal Finance forum on this site there is a thread called Online Calculators where you will find investment calculators that can help you determine future value for various savings rates and rates of return.
$90k savings is not possible unless I get huge raise that I don't foresee. I will be able to save around $55-65K per year; however, it will depend on my job.
I am conservative with my investments like you. I should have started to invest earlier but my knowledge was up to savings account and GIC. I have started to read financial books, news and blogs and trying to improve my knowledge.
I am investing more in equities nowadays. My plan asset allocation is 70%/30%. I did not want to invest everything in equities at once.
Originally Posted by GreatLaker
The average $90K per year that I mentioned includes the compounded interest on investments as well as new contributions. One thing that you have to figure-in is the taxes on the interest paid on those investments. The combination of RRSP and TFSA yearly contribution limits is less than half of the 64K/year as quoted by GreatLaker, so you can't shelter it all. It's not so simple a formula as compounded interest when you take into account that not all the interest earned is yours to keep. I don't know how much RRSP/TFSA unused contribution room you have, and if you even want to consider an RRSP to reduce the tax burden. I guess it depends on how fast you want to burn though the $1M, because you'll pay taxes on the money when you withdraw it from the RRSP.
Maybe if you're good at using Excel, you can modify a compounded interest spreadsheet to subtract the estimated taxes to be paid on each year's interest; then you'll have an idea of the amount you need to contribute each year, and the rate of return needed to achieve the 1M in 9 yrs.
I have maxed out my RSP & TFSA and I will be able to max out next year too. I also use DRIP. My contribution to the registered accounts is around $26k per year. My plan is to save $1M and use that fund in my retirement. I will try to create an excel file and find out the yearly savings/investing amount.
Originally Posted by Userkare
Last edited by scorpion_ca; 2014-11-21 at 08:14 PM.
OK..... a quick RRIFmetic run says that.... at a $20,000 yearly expense level your rotten kids will inherit $2M at your age 95. If you adjust your lifestyle to $27,000, you will (just) die broke at 95.
No matter what, you will have to stick to the domestic beer.
still single and does not have any plan for kid..... drink occasionally (less than $100 a year)
Originally Posted by steve41
OK..... imported beer then. Then again.... single-no kids.... you might be able to embark on a serious alcohol addiction.