# What does retirement really cost?



## Belguy

An interesting article from the Globe and Mail:

http://www.theglobeandmail.com/glob...t-does-retirement-really-cost/article2206697/

and:

http://www.theglobeandmail.com/glob...oom/article2346516/singlepage/#articlecontent


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## Four Pillars

Belguy - aren't you retired? Instead of just posting links with cryptic doomsday messages, why don't you tell us your experience with retirement costs?

Have they gone up, down? Are they where you expected them to be? Do you wish you would have saved more/less?


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## uptoolate

Thanks again for the post Belguy. I usually find most of the stuff in the Globe but never hurts to see what others have found. I absolutely loved the Q&A response in the second article. 

_Q: Will people with financial advisers be better off financially in retirement than people who don’t?

A: Yes, but not for the reason that you read. Studies have been done by people who want you to jump to the conclusion that having an adviser is important if you want to be rich. I think the proper conclusion is the reverse of that. If you’re an adviser, what you want to find are rich people. If you become rich, you’ll have a hard time not having an adviser. In mathematical terms, this is called confusing correlation with causality. _

This is beautiful! This guys is definitely an actuary! Oh to be in line for some of those Golden Crumbs!


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## hboy43

Hi:

It depends on the size of your sailboat.

hboy43


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## kcowan

Four Pillars said:


> Belguy - aren't you retired? Instead of just posting links with cryptic doomsday messages, why don't you tell us your experience with retirement costs?
> 
> Have they gone up, down? Are they where you expected them to be? Do you wish you would have saved more/less?


We retired in 2002 and made a serious financial plan in 2003. The main things we focused on were controlling costs. Eliminated duplicate accounts wherever possible. One Visa with a partner card and one Mastercard with the other partner on the card. Reduction in ongoing costs like telecom, insurance. We had already passed the dotcom meltdown and so we were well-positioned for 2008.

We are ahead of our financial plan. We have adjusted our portfolio expectations downward but fortunately our costs have been less that planned as well. It is amazing how many seniors' discounts there are if you just ask. Big savings in LD and cell phones. Also entertainment.

The biggest surprise has been that buying a place in PV and spending 6 months has resulted in 23% reduction in our annual budget and that includes an annual trip to Europe in September and annual health insurance for international travel. So our financial plan now has some additional room for error! We can live forever!


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## marina628

LOL @ we can live forever.It is amazing how much we can save just by closing a few bank accounts we do not need.Hanging out at this forum has made me wiser for sure.I am paying down a 3.49% mortgage instead of maxing the credit line and buying up the markets ,just makes me sick to read the interest I paid last year.


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## Belguy

I have been retired for many years now and have been living off my CPP and OAS and non-registered savings. I have not tapped into my RRSP because I don't spend much and live very frugally. I don't spend money on 'stuff' because this place already has enough clutter in it which I have trouble getting rid of. I just buy the groceries, pay the utility bills and the taxes and pretty much live cheaply and simply. However, I did finally break down last year and signed up for high-speed internet although the dialup was adequate for my needs. I drive an old car and don't travel. I guess that some would call me a bit of a hermit but my needs are small as are my expenses. I pay off my bills every month and have no debt and never pay interest on anything. I live in a house owned by my Mom and she is in a nursing home. I have never had the need for a big house, a new car, a boat, or travels to far off lands. It suits me but it's not for everyone.

Live simply so that others can simply live.


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## kcowan

Belguy said:


> ILive simply so that others can simply live.


It appears that you can also live forever. In fact, in 3 years, you will be getting more money from your RRIF to invest in a $45k TFSA. Have you looked to getting title to the house to avoid capital gains from your free rental? Has your Mom got a TFSA?


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## humble_pie

in the distance Alice caught sight of the Mad Hatter approaching, with a teapot in his hands.








oh, no, you don't, said Alice. She picked up the Dormouse & gave him an affectionate pat.

thank you, dear child, you are my only friend, cried the Dormouse.

Alice put the furry creature back inside the front pocket of her rose-pink hoodie.

i'm so sorry, Dormouse, we never knew you were so lonely, she whispered. Don't you worry, i'll come to see you every couple of weeks & i'll take you out for a ride in the country on my bicycle.

and i'll get some other ladies to volunteer, Alice added. Marina's a very kind-hearted girl, she might visit you now & then to take you out in one of her fancy cars.

girls ! cried the Dormouse, shivering with delight. I never had any girlfriends in my whole life !

plus with all the time & money you have on your hands, you should stop watching TV & think about getting into Marina's line of business instead, said Alice.


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## Financial Cents

Once again, you sound like you have your act together Belguy.

I wish my parents did!

When would you consider winding down the RRSP? 

My parents are also retired, in a similar position to yours, living off CPP but they also have a pension. They will both collect OAS soon and did not do any financial planning to convert registered savings into non-registered savings. Not considering an "RRSP meltdown" strategy since they still have sizeable LOC. 

This where they are not like you: "I pay off my bills every month and have no debt and never pay interest on anything. I live in a house owned by my Mom and she is in a nursing home. I have never had the need for a big house, a new car, a boat, or travels to far off lands."

Thoughts?


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## Square Root

What does Retirement Really Cost? Actually retirement doesn't cost anything, it's all those living expenses that cause trouble. I view life as a balancing act. In retirement the trick is being able to spend as much as you want without running out of money. As MG has often said annuities can help reduce longevity risk. The other approach is just to spend less than your portfolio and other sources generate. This gives rise to the "I can live forever" statements. As someone who has been retired for over 5 years and who over the course of retirement wants to spend as much as possible without running out of money, or shortchanging my heir, life is a little more complicated. Still, we are having a great time and doubt we will ever run out.


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## GeniusBoy27

I gave in, and bought the Guide to Retiring Wealthy that Money Sense put out. It's entirely dependent on how spend thrift you want to be. For a super deluxe retirement, they estimated $1.75 million. For a no-frills retirement, nothing. For middle class, between $250K-$750K. I found that absolutely fascinating. More fascinating for me, was that depending on your income, you need less than the traditional 70% to retire. For high income earners, they only require 34% of their pre-retirement income. Thank goodness, I don't have to build a larger nest egg!


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## Daniel A.

I'll go have a read on that book, between my wife and I we will have worked through a total of 1.9 million to reach 86 in pension money.

I don't see where anyone could look at half a million as being enough even at a rate of 30,000.00 a year in withdrawals one would run out of money early.


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## Square Root

it still surprises me to hear the question " how much do I need" Most people who ask this question don't know what they spend their money on currently. Once you know this you can decide how much you need or want to spend in retirement. Once you have decided on this you can look at your sources of retirement income such as pension or CPP to assess how much of a nestegg is required at say a 4% withdrawal rate. Easy peasy- start with a spending budget.


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## kcowan

Square Root said:


> Easy peasy- start with a spening budget.


Yes that is the key first component of a financial plan. I keep harping that without a plan, you are trying to drive using the rear view mirror.


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## steve41

Daniel A. said:


> I'll go have a read on that book, between my wife and I we will have worked through a total of 1.9 million to reach 86 in pension money.
> 
> I don't see where anyone could look at half a million as being enough even at a rate of 30,000.00 a year in withdrawals one would run out of money early.


A single 60 year-old retiree with full CPP&OAS can acheive a $30K lifestyle assuming a 4.15% rate of return to age 95. Not entirely out of reach, surely. A sixty five year-old with his $500K split evenly (RSP/nonreg earning 4%) can make it to age 90 on a $40K after tax income.


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## Financial Cents

Steve41,

That's $40 K in today's dollars, correct?

$500,000 to generate $40 K after tax seems low, but maybe you're including CPP + OAS; I trust your math.


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## jet powder

If one retires in Beaverly Hills retirement will be expensive compared to retireing in Mexico. If you hang around people that spend, spend, spend it often puts your cost of living up.


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## steve41

Financial Cents said:


> Steve41,
> 
> That's $40 K in today's dollars, correct?
> 
> $500,000 to generate $40 K after tax seems low, but maybe you're including CPP + OAS; I trust your math.


 Yes, in today's dollars, assuming 2% inflation, CPP+OAS and BC taxrates.


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## kcowan

Article today claiming that retirement can cost much less than 70% of your working budget. That has been our experience since wintering in Mexico.
Are you saving too much for retirement?
Here is their summary graph:








I would add travel and international health insurance to the right side. Also the costs of snowbirding. But it is still way less than the left side.


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## kcowan

Many people claim that seniors spend less when they get older. Now there is some proof from Europe that this is the case:









You can see that only the Netherlands retirees stop saving and continuously draw down aganst their savings. All the other countries kick up the savings rate as they get older. The source report is shown in the graph.

What we commonly assume is that we will draw down 4% of our savings upon retirement. European experience suggests that thsi is very cautious.


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## MoneyGal

I do not disagree with these charts but I do want to note that the examples are stylized: the first graph (for example) assumes the spender has "child costs" and mortgage costs (for example) which will abruptly end "at retirement."


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## Russ

> the first graph (for example) assumes the spender has "child costs" and mortgage costs (for example) which will abruptly end "at retirement."


I think a critical determinant of post-retirement income requirements is how your spending behaves as mortgage and child costs decline in the 10 years leading up to the typical retirement age.

Some increase their cost of living, others increase their savings rate. I believe that many people maintain their frugal life style and increase their savings rate as their child and mortgage costs decline. By the time they retire they may already be very satisfied consuming 70% of the pre-retirement income, and have been doing so for several years. If so, they certainly need somewhat less than 70% of pre-retirement income to maintain their life style - possibly 50% - after factoring in reduced income taxes.


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## HaroldCrump

These are probably just averages for the population.
And like an average, it may not represent even 1 single real individual.

We are seeing more and more of these costs such as mortgages being carried into retirement.
Moving forward, with many youngsters becoming career students, we might see near retired parents still paying for their kids' 4th masters degree in medieval metaphysics.
Or retired grandparents footing the education bill for the grandkids because the parents (already crushed under a $600K mortgage) can't afford it.

And I simply _love_ how taxes are supposed to magically disappear as soon as you "retire".
I wish I could snap my fingers and make taxes disappear just like that.

If anyone believes governments the world over will allow retirees with substantial savings to keep all their money without paying any taxes, I need some of what you are smoking.
With stagnant wages, high unemployment, and essentially 0% real GDP growth, where do you think the future tax revenues are going to come from?


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## Sampson

HaroldCrump said:


> And I simply _love_ how taxes are supposed to magically disappear as soon as you "retire".
> I wish I could snap my fingers and make taxes disappear just like that.


You've been doing it wrong, you have to click you heels.


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## avrex

kcowan said:


> Article today claiming that retirement can cost much less than 70% of your working budget. That has been our experience since wintering in Mexico.
> Are you saving too much for retirement?.


The Morneau Shepell research papers, that this article is based on, are great. I really enjoy reading them.

I agree that the 70% amount is too much for most people.
In fact, people need to stop thinking about this in percentage terms.

The retirement equation is quite complicated. 
Throwing out the percentage-of-income rule-of-thumb is a good start. 
Individuals should start by *concentrating more on the actual amount of dollars that they will need *in retirement.


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## Daniel A.

I think for most folks considering retirement rather than looking at % the best measure is talk to co-workers who have retired, find out what their experience has been.
In all the years I worked and watched many retire very few ever complained about money most were very quick to say they could have retired sooner and wish they had.

One person I know spends four months in Cabo, for him and his wife the cost is 1900.00 per month total and they live well.
I have half my net working income retired with CPP & OAS to look forward to down the road.
Combined with an RRSP as backup money I live well.

Know what your expenses are and where the money goes.


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## Plugging Along

^ The problem with trying to figure out what you ACTUALLY need requires a lot more thought than most people are willing to put into it. Many people barely can figure out how much they currently spend, little less than 5, 10, 15 years down the line, so in this case a 70% rule, though a huge generality, may not be a bad idea.


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## marina628

I think the answer will be different for every one of us .For my sister in law it went horribly wrong as all their plans were based on two incomes and her husband working until he was 65.She stopped working at age 50 ,they bought their retirement home in another province and at age of 56 her husband dropped dead of massive heart attack.That was about 5 years ago and the retirement they planned and the one she is living because of underfunding is completely different.I set myself 5 year goals as I am winding down the debt phase of our life and entering the catching up of saving phase.


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## kcowan

Daniel A. said:


> Know what your expenses are and where the money goes.


I hate to admit it, but the detailed budget we put together when we retired illustrated many areas needing attention. So we took those steps and immediately reduced our budget.


Plugging Along said:


> ^ The problem with trying to figure out what you ACTUALLY need requires a lot more thought than most people are willing to put into it. Many people barely can figure out how much they currently spend, little less than 5, 10, 15 years down the line, so in this case a 70% rule, though a huge generality, may not be a bad idea.


That is what the article is aimed at. The strawman will not work for anyone, but it serves to illustrate savings areas. But as far as taxes go, I have been favourably impressed with how lightly I get off now compared to when I worked. True that mortgage and child support was already gone for us. But then we were also saving like made for the last 10 years of work.

I think the main thrust of such articles is to not listen to the "financial advisors" who are paid to get you to invest. No one is being paid to get to to save.


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## MoneyGal

kcowan said:


> I think the main thrust of such articles is to not listen to the "financial advisors" who are paid to get you to invest. No one is being paid to get to to save.


A thousand times this. 

I don't think it is realistic for someone in their 30s or 40s (for example) to accurately estimate what their spending needs will be in retirement. But if you save, and live below your means generally, you will be FINE. It's just that no one makes any money putting that message out there, so you almost never really hear it (except in places like this). 

My own philosophy is to spend in areas that are important to me (food, travel, coffee, clothes, personal grooming, house decor stuff), and scrimp mercilessly in areas that are not (cars, cruises, whatever).


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## Four Pillars

marina628 said:


> I think the answer will be different for every one of us .For my sister in law it went horribly wrong as all their plans were based on two incomes and her husband working until he was 65.She stopped working at age 50 ,they bought their retirement home in another province and at age of 56 her husband dropped dead of massive heart attack.That was about 5 years ago and the retirement they planned and the one she is living because of underfunding is completely different.I set myself 5 year goals as I am winding down the debt phase of our life and entering the catching up of saving phase.


That's unfortunate for your sister in law.

I'd venture that this is an example of not having enough life insurance.


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## MoneyGal

I was actually going to say that. If your plans in life depend on a future stream of income from employment, better insure that stream of income.


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## steve41

kcowan said:


> I think the main thrust of such articles is to not listen to the "financial advisors" who are paid to get you to invest. No one is being paid to get you to save.


I will take it a step further.... I think the financial industry prefers you to be confused and scared..... 'you can never save too much.'.... 'Don't deplete your savings too aggressively.'
I recall many years ago when I was first trying to flog RRIFmetic. I had impressed a senior office manager of a major brokerage, and he was so enthused that he took it to show the president. He was severely reprimanded..... "We don't want our clients seeing this stuff, we want to keep them off balance." Granted this was about 15 years ago, and things are a bit more enlightened now, but read the current 'financial blueprint' articles that abound.... they don't show a written/numeric plan, it is just a lot of disjointed facts and information, with no detailed layout.... not even a link to an actual cash flow or spreadsheeted result.


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## kcowan

A friend of mine got cancer when he was 61. While in palliative care, he was advised to take early retirement with 100% joint survivorship. So his wife gets a reduced DB pension for life instead of just a $25k company policy payout. While he was not thinking of this, it came about by his friends looking after his interests.


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## Eclectic12

steve41 said:


> I will take it a step further.... I think the financial industry prefers you to be confused and scared..... 'you can never save too much.'....


That reminds me of when I first plugged in some numbers to an online retirement calculator. The result that came back was a "you should panic". It claimed that on a $22K salary, the "barely retirement comfortable" number needed to be saved was $8 million.

Funny that none of my relatives were complaining yet they didn't have anywhere this amount.


Cheers


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## 44545

Eclectic12 said:


> That reminds me of when I first plugged in some numbers to an online retirement calculator. The result that came back was a "you should panic". It claimed that on a $22K salary, the "barely retirement comfortable" number needed to be saved was $8 million.
> 
> Funny that none of my relatives were complaining yet they didn't have anywhere this amount.
> 
> 
> Cheers


For giggles, let's run those numbers.

$8,000,000 divided by $22,000 equals 363. 
As in "363.64 years until your money runs out." (assuming no investment returns whatsoever on the initial $8M)

Perhaps the creators of that tool were hoping to filter out anyone who couldn't do basic arithmetic, leaving the truly clueless to contract them for "financial advice."

LOL ($800,000 produces a more plausible 36.36 years until the money runs out, not factoring any returns on the $800k)


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## steve41

Think about it...... the rules/laws of compound interest are fixed, the taxation algorithm, while complex, is reasonably fixed, ditto CPP&OAS&GIS, albeit the latter are subject to inflation. Why then, when you subject your numbers (gross salary, salary inflation, retirement age, amount currently saved (reg/nonreg/txfree) along with market and inflation rate assumptions...... why, depending on the calculator or program you choose, get such a wide diversity of answers? After all if you compute simple PV, FV, annuity problems on a variety of different desk calculators, or submit your tax info to several different tax programs, don't you get the same results?


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## Square Root

many good posts here. it all starts with a retirement budget. I first did ours about 5 years before actual retirement. I t was based on many years of actual spending data. Agree that most people don't have this data so revert to a rule of thumb which is certainly less than ideal. i still remember a very smart guy(he was vice chair of a major bank) ask me how much do you think you need invested to retire. He had asked this question because he was retiring. if he didn't know the answer already, there wouldn't be much hope for the average guy.


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## loggedout

In a world where everything is changing so fast, it's so difficult to anticipate costs for retirement when you are so far away from it. How can one reasonably say how much is enough to save when you still have at least a quarter century to go before thinking of retirement? Maybe when you're closer to it, you can have a reasonable estimate but by then, you won't have enough time to make up the difference if you're short. I don't know what things will be like 5 years from now, let alone 25. IMO, the level of uncertainty present in the analysis of how much you need to save is so high, that it's an impossible question to answer, and you're better off saving as much as you can.

Being that I am very pessimistic about the future, and I don't think we can use models of the era of plenty to estimate on.


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## kcowan

"you're better off saving as much as you can"
That is a good clonclusion in any financial environent. Any plan will be incorrect because the assumptions will be wrong. But it is a god exercise for evaluating alternate scenarios. Our financial plan indicated that we should not purchase a snowbird property until we were actually snowbirds for 4 months. That made it worth the effort. It also highlighted that we were spending too much maintaining communications and credit options. So we cut back and rationalized.

We could have made these decisions without a plan, but the plan made it easier. Plus it does illustrate the effects of certain decisions over 30 years. That is truly sobering!


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## Four Pillars

kcowan said:


> "you're better off saving as much as you can"
> That is a good clonclusion in any financial environent.


Is it?

It's tough to argue that an increased safety blanket is wrong, but if your goal in life is to have a reasonably smooth consumption pattern (ie lifestyle doesn't go up or down in retirement) and want to have as good a lifestyle as you can afford, then saving too much will be detrimental to that goal.


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## Nemo2

Daniel A. said:


> One person I know spends four months in Cabo, for him and his wife the cost is 1900.00 per month total and they live well.


When you say 'total', does that include rent/airfare?


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## Daniel A.

total includes rent, airfare is separate. Expect to pay between 800.00 - 1200.00 per month for a long term rental condo furnished.


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## Nemo2

Daniel A. said:


> total includes rent, airfare is separate. Expect to pay between 800.00 - 1200.00 per month for a long term rental condo furnished.


Thanks. That sounds reasonable, i.e. "cheap"; (presume it also doesn't include medical insurance, nor car rental?) It's been about 15 years since I spent a few months on the Baja.....camped on the beach just south of Mulegé, and, as I recall, food wasn't that inexpensive then, and I can't imagine it's become any less costly lately.

(I'm not challenging the figures, it's simply that I've found that "people" tend to underplay their _actual_ costs when they're telling others about the deals they got.)


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## kcowan

Nemo2 said:


> (I'm not challenging the figures, it's simply that I've found that "people" tend to underplay their _actual_ costs when they're telling others about the deals they got.)


Many retired ex-pats in PV live on $25k including rental. This is not on the beach and not eating out at the fancy ex-pat restaurants.


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## marina628

My sister in law got about $360,000 including life insurance and the house paid off but she needs $49,000 a year to live the way she wants.Unfortunately when her husband was 32 he had a heart attack and the insurance company would not touch him ,all she had was $50,000 in life insurance .
I am lucky I can work remotely so we get to travel about 2 months of the year and I can still run the biz via my laptop.I have another 8 years before I can spend significant time away so hoping in that time to be able to boost my savings to where they need to be.Currently I will run out of money in 2044 according to Steve's program .


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## hystat

do these "retirement calculators" ever factor in spending of home equity? I am 47 with a $400K+ house and no mortgage.
I have no children. My wife and I could mortgage it at age 75, no? Would we get a mortgage at 75? we could sell and rent.
I suspect the house will be worth $600 or $700K by then. 
Seems to me it would be a good cushion in case we live longer than we plan to...haha


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## steve41

hystat said:


> do these "retirement calculators" ever factor in spending of home equity? I am 47 with a $400K+ house and no mortgage.
> I have no children. My wife and I could mortgage it at age 75, no? Would we get a mortgage at 75? we could sell and rent.
> I suspect the house will be worth $600 or $700K by then.
> Seems to me it would be a good cushion in case we live longer than we plan to...haha


 RRIFmetic eats that stuff for lunch.... downsizing, selling outright/renting, or reverse mortgaging.


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## kcowan

Nemo2 said:


> (presume it also doesn't include medical insurance, nor car rental?)


Universal medicare is $300/year in Mexico. You have to be a fulltime resident. Includes drugs.


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## Nemo2

kcowan said:


> Universal medicare is $300/year in Mexico. You have to be a fulltime resident.


Part time residents, I presume, would take out insurance in their country/countries of origin?


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## kcowan

Unfortunately all home country travel insurance is not renewable and notoriously bad at paying for big items. So you need an international policy that stays with you even after you might develop conditions. We use Aetna and it is very expensive. But overall we save big time by escaping the expensive home country for 6 months (35% cheaper).


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## Belguy

According to a report on NBC Nightly News, a good target figure for saving for retirement would be 8 times your annual salary at retirement.

Unfortunately, one in four Americans are dipping into their retirement funds ahead of time to pay their ongoing bills and expenses and will therefore never reach that target.


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## My Own Advisor

I suspect a portfolio of about $1 M in today's dollars, not including RE/home assets, assuming no debt and ignoring any CPP or OAS payments should do it.


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## slacker

I did some amateur excel projections recently, and I learn that the computation of how much to save is STRONGLY dependent on how late you retire. This is not caused by the fact that you have one more year of savings, and one more year of investment growth. 

The primary contributor for needing to save less as you grow older, is simply that you are one year closer to death, and you have one less year to spend in retirement.

In fact, as retirement age approaches age of death, the amount required to be saved approaches zero.

I guess it's not much of a revelation to anyone... but it blew my mind !!!


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## Daniel A.

There are probably 15% of people that would work right till the end if they could.

Yes someone wanting to go till 70 won't need to plan for as long but other than family history and some do make it well into their nineties what can a person do.
There are so many considerations that each person has to make.


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## slacker

The only general solution is pension or annuity, at least for the basics required for food and shelter.


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## Jungle

Tracking your spending (properly, not estimate) will give you a good idea how much it will cost to retire. 

For us, we live efficiently, when I compare our spending to others. 

When I subtract "work related costs", such as transit, I found that we have spent under $18,000 annualized, over the last couple of years. This is pretending we are debt free (no mortgage interest).

When I asked if we would increase our happiness by spending more money, the answer was no. Our spending does include vacations and such. 

Load up a TFSA with CDN divs, RSP (US divs), and non-reg (with CDN div stocks), we could then claim about $2500 in low income tax credits, keeping claimed total income well under $27K. And the divs would be the ones that increase 5-15% year, protecting from inflation. 

We can both pull $10K each tax free from the RSP (US DIVS), TFSA no tax, non-reg divs would actually get a tax credit (due to low income) and still receive HST cheques.


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## avrex

@Jungle, I love your tax-efficient plan.

As a couple, it appears that you are successfully frugal. One more question. Have you calculated at 'what age' you will be financially independent? (i.e. retire)


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## brad

Jungle said:


> Tracking your spending (properly, not estimate) will give you a good idea how much it will cost to retire.


More precisely, it will give you a good idea how much it will cost to retire if you were to retire today. There are many unknowns about your expenses in the future, not just inflation but price increases in individual areas such as electricity, gasoline, food, etc., that may far outpace the rate of inflation itself even if they are included in that calculation. For example, if you heat your home with electricity, you would be particularly vulnerable to price increases in electricity. If gasoline prices rise out of sight (say $15 or more per liter) when you hit retirement age, it'll not only affect how much you need for travel but also will affect food prices since food has to travel too. 

I think it was MoneyGal in her book on pensionizing the nest egg who said that planning for your retirement is like trying to plan for a dinner party when you don't know how many guests are coming or when they'll arrive.


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## Jungle

avrex said:


> @Jungle, I love your tax-efficient plan.
> 
> As a couple, it appears that you are successfully frugal. One more question. Have you calculated at 'what age' you will be financially independent? (i.e. retire)


Don't have exact, but I think 40 could be the number, if not mid- late 30's? We still have a fair amount of mortgage debt, rental and investment loans. 

We are expecting our first child, so I know this c_ould_ change. But with the income level we need, in maybe 3-5 years, we could stop our contributions, sell the rental and use it with extra cash flow to pay debt aggressively.


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## Sampson

Congrats on the expecting kid Jungle. You'll pay-off your mortgage in your mid-30's? or be able to retire?


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## Jungle

brad said:


> More precisely, it will give you a good idea how much it will cost to retire if you were to retire today. There are many unknowns about your expenses in the future, not just inflation but price increases in individual areas such as electricity, gasoline, food, etc., that may far outpace the rate of inflation itself even if they are included in that calculation. For example, if you heat your home with electricity, you would be particularly vulnerable to price increases in electricity. If gasoline prices rise out of sight (say $15 or more per liter) when you hit retirement age, it'll not only affect how much you need for travel but also will affect food prices since food has to travel too.
> 
> I think it was MoneyGal in her book on pensionizing the nest egg who said that planning for your retirement is like trying to plan for a dinner party when you don't know how many guests are coming or when they'll arrive.


When I factor out our spending in 10 years, I take the number today and use 3% in a compound interest calculator. This gives a good idea what to expect. 
Yes there is a risk gas will increase 20% year, like it did from 09-12, food could go 10%, etc. 

An idea to off set this risk by having a larger amount of income then what you spend and to also have your income increase beyond typical 3% inflation. 

I read moneygal's book and cannot disagree with the well rounded advice given. (1/3 annuity) But form my understanding, the annuity is probably safer, but not liquid and you cannot pass the capital, if you die. 

A basket of dividend paying stocks could have you doubling your income every 8-14 years, I'm not sure annuity does that.


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## Jungle

Sampson said:


> Congrats on the expecting kid Jungle. You'll pay-off your mortgage in your mid-30's? or be able to retire?


Hopefully the mortgage would be paid off mid-late 30's. This year we are going to max our TFSA to take advantage of that account.

If the gov keeps the rules the same, this is an amazing account to load up on. You can withdraw high income but for tax reporting, you are low income.


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## Guigz

brad said:


> More precisely, it will give you a good idea how much it will cost to retire if you were to retire today. There are many unknowns about your expenses in the future, not just inflation but price increases in individual areas such as electricity, gasoline, food, etc., that may far outpace the rate of inflation itself even if they are included in that calculation. For example, if you heat your home with electricity, you would be particularly vulnerable to price increases in electricity. If gasoline prices rise out of sight (say $15 or more per liter) when you hit retirement age, it'll not only affect how much you need for travel but also will affect food prices since food has to travel too.
> 
> I think it was MoneyGal in her book on pensionizing the nest egg who said that planning for your retirement is like trying to plan for a dinner party when you don't know how many guests are coming or when they'll arrive.


A little flexibility goes a long way.

I know that learning to digest inorganic matter might be outside of the realm of what is possible, but for things like electricity and gas, there are alternatives if one is willing to be a little flexible and perhaps willing to transition outside of their comfort zone.

"OMG wear a sweater in the house?! Are you cray cray??"


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## Jon_Snow

Wow, Jungle - 18k yearly living expenses? That's amazing.

My wife and I figure that 30k is as low as we want to go in terms of yearly expenses.... its what we live on now, and its a pretty great life - lots of dinners out, good wine, Mexico every year - but we want the ability to ramp things up a bit in retirement if we so choose - given our innate frugal ways, we would have a hard time spending 50k to 60k. So yeah, for us a million dollar portfolio is what we should be shooting for. If we sold our Vancouver condo, we are actually very close to this number... I run through the numbers a couple of times a month, and I still don't quite believe it.


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## Daniel A.

OK some thoughts.

I've been retired for three years now.

Currently in Mexico till March I find that if your willing and able get to know the local people it is a great place.
I was lucky to have a good DB pension just needed too put the years in which I did.
Retired at 56 and have no problem living on the pension but I am flexible.

Remember that I still have CPP & OAS in the future plus some RRSP's that I currently use.

It is hard for someone in their thirties or forties to plan but the big thing is knowing where the money today goes.
As long as you track expenses its a great start.

Keep in mind that when you hit your 50's many things can change health wise.
The fact that stats say people live longer is not really anymore meaningful.
With my DB pension I'm sure things will be fine as I am having a good time and plan on continuing.

Working for someone else really does suck today I only look at what I want.


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## marina628

My husband and I did this exercise yesterday , if we go down to one house and one car and allow ourselves a trip down east plus one down south we can live on $38,000 a year and that would be comfortable for the two of us and assuming about $1200 a month for taxes and utilities on our current home.In 7 years our plan is to spend 3 months in Newfoundland and 3-4 months in Florida with balance spent in Ontario.Kids will be 18 and 28 then.


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## My Own Advisor

@Daniel A. - sounds pretty good. The more I read about retirees in their 50s like yourself, the more and more I want to be retired. I'm really starting to dislike this working for a living thing....

@marina628 - sounds about right. I figure with no mortgage debt, just utilities, taxes, etc, to pay, I figure my wife and I will need about $40,000 per year (in today's dollars) to live comfortably in retirement. 

-Property taxes, utilities, cable TV, cell phones = $1K per month
-car gas, car maintenance x2, car insurance x2, home maintenance, other house supplies = $1K per month
-food, clothing and entertainment = $1K per month.

Even a few K left over every year.

The sooner my mortgage is done, the sooner I get to my dividend income goal, the better


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## brad

Are these "yearly living expenses" before tax or after tax? Presumably if you figure what you need to live on, you have to add 30 percent or whatever you figure your tax rate will be on top of that to determine the amount you need each year. And of course that's uncertain too, since we don't know what future tax rates will be.


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## skiwest

my number is 1.0mil to retire jan 2014 ( ages 53 & 49) though will have enough money outside of that for 2014. so ~ plus $70k
based on two people , no debt , no inclusion of house value in calc
both people almost have 100% CPP which is included in calc , OAS is not included
also includes small pension income which has present value of 200K
So real number is ~1.3mil
Expenses used for calc 60K though bottom up number is 56K and low estimate is 40K , so can proabably live on ~50K
Will over shoot number by 100k so have a 10% buffer on number
Assumes 5% return with 2% inflation, both living to 103/99, expenses to drop by 10% at age 80


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## Jon_Snow

Daniel A. said:


> I've been retired for three years now.
> 
> Currently in Mexico till March I find that if your willing and able get to know the local people it is a great place.
> I was lucky to have a good DB pension just needed too put the years in which I did.


Ugh, every time you mention you are in Mexico I am reminded that our San Jose del Cabo condo sits empty, while I am slaving away in "Raincouver"...:upset:


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## avrex

Great job on your retirement savings @skiwest.



skiwest said:


> So real number is ~1.3mil. Expenses used for calc 60K though bottom up number is 56K and low estimate is 40K , so can proabably live on ~50K


Quick question/clarification. I'm confused which of these expense figures you used for your calculation.
Are you saying that your 1.3 mil will last until death using the 60K expenses figure?


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## Daniel A.

Jon_Snow said:


> Ugh, every time you mention you are in Mexico I am reminded that our San Jose del Cabo condo sits empty, while I am slaving away in "Raincouver"...:upset:


Yes I am renting in San Jose del Cabo across the road from the Hola Grand Faro . Nice condo backs on the golf course a bit cool this week three days of 17 C but it is turning now.


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## fraser

We did our retirement planning purely on after tax income. You have to to very aware of your current spend habits and what you anticipate to change once retired. We tend to be conservative and build in money for travel. We came in under budget in year one, and right on the money in 2012. But that included selling a house, becoming homeless, and travelling extensively but economically for the last four months of this past year. And probably the first two or three months of this year.

Selling the house was an eye opener in terms of how much it really costs on a monthly basis. And we have come to the conclusion that we no longer need a large house. it may suit us better from a financial and lifestyle perspective to become renters instead of owners. For us, retirement was about making some changes about how we invest, how and where we live, and how often we travel. Everything was, and still is on the table so to speak, even after two years. Change can be healthy.

I am not a believer in the percent of income replacement theory. It seems like a marketing pitch to me. All that matters is what you can realize in after tax income, and what your projected after tax spend, adjusted for inflation and lifestyle changes, is. Everything is variable.


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## Daniel A.

Well put fraser !!

Some people look at being mortgage free but the cost of maintaining are very high.
Property taxes, insurance, maintenance, renovations.

I was always in a high tax bracket working and couldn't understand how people managed on less than half my income till I retired and saw that I'm paying almost nothing in taxes.
Taxes on 100,000.00 a year compared to 40,000.00 not to mention all the other deductions that I no longer pay.


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## skiwest

avrex said:


> Great job on your retirement savings @skiwest.
> 
> 
> Quick question/clarification. I'm confused which of these expense figures you used for your calculation.
> Are you saying that your 1.3 mil will last until death using the 60K expenses figure?


I used the 60k for expenses. I copied over those expenses and relooked at everything and worked it down to $40k, though not sure I would want to push it that low. Just did it as an exercise to what bottom would be. That could be lowest but won't be average as things wouold come up from time to time.


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## fraser

I suspect that one cost/benefit that is overlooked by many people as they approach retirement is the cost.-hidden and otherwise, associated with their investments. We punted our banks financial advisor/retirement advisor. The advice was fairly elementary, the fees (hidden and otherwise) were high, and the comparative results were poor. This change has resulted in less cost and better comparative returns. Not to mention far better advice from many perspectives. We have more after tax dollars in our retirement monies now that we have reduced the service fees and eliminated the 'opportunity cost' of dealing with an extremely mediocre financial advisor.


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## pwm

I quit working in 2005 at age 55. My annual expenses average about $35k. My after tax income from pensions, and investments is about $80k per year. I don't know what to do with the surplus money so I keep buying more income producing securities. When you've lived a frugal lifestyle for 40 years it's hard to change. The much lower taxes and deductions mean you will need less than you think.


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## Jon_Snow

Pwm, I am quite frugal, but if I had a 40k surplus between my expenses and my income, I'd bloody well be able to treat myself to a few nice things.... I am a frugal person with expensive tastes.


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## longinvest

Lately, I read "The Real Retirement" by Vettese & Morneau (got the Kindle version). In it, they draw a fairly good picture of retirement income and taxation, taking into account our Canadian safety net. They show that you need far less than the trumpeted 70% of pre-retirement income to maintain the same level of after-tax spending.

Projecting my current spending/savings, I'll have too much money, too. The problem is that I want to achieve financial independence as soon as possible (without living like a miser); I see it as a form of insurance against the unknown future. (Will I lose my job? Will I get bored and want to retire early or pick a less remunerative job? etc.)


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## Daniel A.

Really good discussion here folks.


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## My Own Advisor

@pwm, I'd love to be done at 55. That's 16 more years for me. 9 more years to pay off the mortgage, another 7 to invest after that.

Within 16 years, would like to have $30 K in dividend income - that's the goal. 

I figure with DB plan and wife's DC plan, + the dividend income above, we're good.

CPP and OAS, not relying on it really. Haven't talked about RRSP. Could be used to bridge the gap between 55-60 and early CPP.

Given you've been there, doing that - thoughts about that plan?


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## pwm

It looks to me like you will be able to achieve your goals _My Own Advisor._ With 2 pensions and 2 CPPs you will be in excellent shape. 

My opinion: It's quite simple. If you always have money problems during your working life and there's never enough left over every month, then you will have the same problems in retirement. Conversely, if during your working career you never worry about paying bills and have money left over every month, then that trend will continue into retirement. It's more about lifestyle choices and living within your means than it is about saving a specific amount. Some people are always broke no matter how much they make. Other get by quite well with very little.


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## longinvest

@pwm: May I ask you if you did plan to have extra money (just in case), or you simply didn't realize that you would not need as much as you planned, or something else? If you were able to go back, would you change your saving & spending?


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## pwm

_longinvest:_ Why do I have more money than I need? That's a good question that I often ask myself. Here's how it happened: 

1). I didn't like my job in IT tech support at Great-West Life and was determined to get out as early as possible. (On call 24 X 7 X 365, working every week-end, couldn't take proper holidays, doing the job of 4 people, no respect whatsoever from management), so I saved every dime I could so as to be able to quit at 55 with a pension. They had a stock purchase plan at GWO which I signed up for as soon as it was introduced which was the best financial move I ever made. The stock tripled over the years, and I ended up with just under 20k shares which are now worth about $500k and pay about $25k per year in dividends.

2). I inherited about $300k in 2010 when my mother died. There was twice that amount but I gave half of it to my son and daughter.

If I had a do-over, I wouldn't have done anything differently. I'm a saver, and that's all I can say. It's just how I roll.


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## longinvest

pwm: Thanks for taking the time to answer. All I can say is that I admire what you did: you set your goal of retiring early and saved accordingly without counting on luck.


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## pwm

_longinvest_ Thanks for the compliment, but in reality there was a lot of good luck involved. The GWO stock could have tanked and the company with it. Look what happened to former Nortel employees. And the inheritance wasn't the result of any of my doings. As I stated in another thread, I am grateful for my good fortune. On the other hand I knew many people at work who didn't join the stock plan because they didn't trust the stock market or thought they could do better themselves without it, so I suppose I can claim some credit.


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## donald

Pwm-You must have been nervous in the crisis(08)?Did you take advantage with the 300k in 2010?

GWO-didnt it get hammered.....Only reason i ask is because you delt with one of the worst periods basically right after you retiring,had to have tested you mentally.


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## uptoolate

Great work PWM. Am hoping to hang them up soon myself but a little more uncertainty as I don't have the benefit of a pension. You may have mentioned it somewhere before but have you since diversified away from the GWO stock (if I may ask)? That seems like a big chunk of change to have on one pony. Even if that pony has done very well.


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## pwm

I managed my mother's account and it was fully invested in equities so the contents of her account were simply transfered to mine. Sold some things to give to my children and I've made some adjustments since then. No estate came into existence; no lawyer's fees, no probate fees. The benefits of a joint account and being an only child.

As for GWO, it was around $30 in the summer of 2008, and it went to $11.35 in March 2009. I watched the value of my shares go from around $600k to $220k in 6 months. What I did was quit checking my investment account, tuned out the investment news, and continued to collect my dividends. The way I looked at it was, if someone else is stupid enough to sell GWO at those prices, that was their problem and not mine. I didn't sell any securities during the crash, and started buying again in January 2009. I was 2 months too early. There was a false rally in January but I was close. Now GWO is back above $25 and my value is approaching $500k again. 

I must say, it was rather disconcerting to watch your net worth go down by over $500k in 6 months.


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## donald

Wow....600k to 220k(I know every one in hindsight knows it's temporary but it deal with it in real time)alot of people would/did lose their heads.

It's one thing to ''think'' how your going to handle that and another to handle that.

Kudos!Your wife must have been sweating also(did she fully know what was happening?)....Your battle tested!


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## pwm

Yes, I know I'm overweight GWO stock at 25% of my total investments. I'll sell some when it gets close to $30 again. My unrealized cap gain is currently over $300k so that will hurt. 

As for my wife, she pays no attention to financial matters and has no knowledge of our investments. She's not interested and she trusts me to take care of our money.


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## My Own Advisor

@pwm, I think she's in good hands regarding your investment knowledge.

Thanks for answering my questions in the thread. As long as we stay diversified with stocks and broad market ETFs across various accounts, we should be good. And, killing the mortgage in 9 years. That's a big goal.

How many stocks do you own at this time? I know you've got some GWO and admittedly stated you are overweight there, but how is the rest of the portfolio shake down?

US stocks in RRSP still?
REITs?
Any bonds?

I apologize if you have answered these questions before, can't recall. Cheers!


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## pwm

I hold a mixed bag of common shares, preferred shares, ETFs and mutual funds. In the past year I've reduced my mutual funds by selling those with high MERs that have not beat their best fit index. I'm only buying ETFs from this point on. REITS via XRE and ZRE, non-CDN via VEE, VEF and VFV. My RRSPs are in TD Monthly Income. It's one of the mutual funds I continue to own; 5 star balanced fund with an MER of 1.48%. Some mutual funds earn their keep and are worth holding.


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## kcowan

@pwm
Did you transfer cash to your kids or are you trying to transfer investing knowledge?

I do the cash thing but sometimes I feel guilty about it. Keith

(PS Buffett transferred $10k in Berkshire stock and recommended they let him manage it. They all sold.)


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## My Own Advisor

@pwm,

Great work. 

I used to hold mutual funds, never again. I saw the light a few years ago.

Now, if I hold ETFs, they are the lowest-cost kind with, for the most part, the broadest exposure. An example, I own VTI and VWO. 

I hold some REITs like you, some of them directly. They are great in my TFSA with monthly income.

Everything else is CDN and U.S. stocks; over 30 in all. Many of them are DRIPping now and that will continue for the next 15 years until I want the income to pay for retirement.

Sounds like your portfolio is diverse. You're call about buying ETFs from now on is a good one I think.


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## pwm

I gave cash to my two children from my mother's estate and I've encouraged both my daughter who is 36, and my son who is 38, to be money wise. My son paid off his mortgage before he was 35. Beat me by 2 years. My daughter and her husband will be mortgage free in about 3 more years. 

I had no qualms giving them large sums of money because they have proven to be responsible money managers and they deserve to be rewarded for being successful hard working adults who have made me proud.


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## My Own Advisor

Wow, awesome. You should be proud.


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