# My Diary - Freedom 55?



## crr243 (Nov 2, 2015)

I like this diary idea, so I figured I'd start my own for my wife and I. We were just married in July. We had consolidated a bunch of our account after our engagement the year before, but now I'm taking a look at the whole picture.

*Husband*
Age: 31
Gross Income: $100,000 + bonus
DCPP: Employer pays an additional 8% of base salary ($8000). I contribute 2% ($2000). That's about $830/month to my work plan.
Take-Home: Approx. $6200 /month, excluding tax refund at the end of the year.

*Wife*
Age: 26
Gross Income: $65,000
Take Home: Approx. $3600 /month
She contracts through a staffing agency, so no employer pension. 

*Total Net Family Income:* $9,800 /month

*Assets*
Townhouse: $350,000 (based on recent sales data in the complex)
Cash/Savings: $27,277
RRSP: $80,500
DCPP: $41,000
TFSA: $40,000
*Total Assets:* $538,777

*Liabilities*
Mortgage: $224,881
Credit Cards: $0
*Total Liabilities:* $224,881

*Net Worth:* $313,896

*Expenses* (monthly)
Mortgage: $2534.00
Property Taxes: $181.20
Condo Fees: $297
Property Insurance: $25
Auto Insurance: $120
Gas: $150
Cell phone: $40
Internet: $50
Groceries: $500
*Total:* $3900.00

*Monthly Investments*
TFSA 1 (wife): $300 /month
TFSA 2 (husband): $417 /month (about $5000/year, but it's invested ad-hoc and not off the top)
RRSP 1 (wife): $300 /month
RRSP 2 (husband): $800/month

Total: $1,800 /month
Including work DCPP: $2630 /month

Disposable income after investments and taxes, excluding tax return: $9,800 - $3900 - 1800 = $4100

Some other factors for expenses:

1. We like to take an international vacation once a year. We budget about $800/month for that.
2. We visit her parents for Christmas every other year. Plane tickets are around $2500 when we do ($100/month over 2 years).
3. We probably eat out a bit too much. $60/week is pretty normal. Another $260/month there.
4. Other entertainment factors (movies, dance classes, concerts) probably add up to $200/month
5. We've been putting in about $2000/year in upgrades to our home the last couple years. $165/month
6. Car maintenance has probably been about $1000/year for the last couple of years (some unfortunate expenses, such as timing belt, came up). $85/month 

Factor all that in and expenses are at $5510/month. Our disposable income is about $2490/month.

My takeaway from writing all of this is:
1. I didn't realized we had that much disposable income.
2. I should start pumping more into my TFSA to max out my contribution room. We have about $49000 in available room right now.
3. My RRSPs are pretty much maxed. After this tax year, I'll have around $5,000 in available room. I should consider boosting my contributions to max that out.
4. My wife's RRSP has, I believe, around $15,000 in available room. I should start eating away at that a bit.

We have some goals (and risks!) for the near and long term:
1. I'm looking to make a career move to get us closer to family. Because of where we are and where we're looking, we'll see upwards of a 25% hit to our net income when that happens. 
2. We're planning on starting a family once #1 happens.
3. My wife wants to go back to school sometime in the next 5-10 years. We'll have to plan for that income hit and the additional expenses for her schooling.
4. I'd like to be self-sustainable by 55. I'm sure I'll end up working until much later, though.

If we can sustain our current rate of investment, we should have a pretty good nest egg by the time I turn 55. However, the goals/risks may well hamper that.

I am in the process of consolidating our finances a bit better and opening a Spousal RRSP to even out or investment pools.


----------



## Ponderling (Mar 1, 2013)

well your are off to good start. No kids yet, so there will be added costs in the future when they come along....

If you are serious about early retirement, then look at the performance of your investments.
Often you have to start small with mutual funds. Don't necessarily stay there forever.

You don't seem to have a ton of too bad spending habits, but expenses easily grow over time if you are not careful.

If you are planning a move and know you won't be pulling in the same funds, why not try living on that less now and see how it feels for a few months?

Living a comfortable life, moving to where there are less funds for fun unless you are both really bought into it is not an easy foundation to build a long lasting marriage on.


----------



## james4beach (Nov 15, 2012)

Looks like a really strong position right now. 314 K net worth for the two of you. This will go very well as long as you keep a good handle on your spending and cost of living.

I recommend starting some detailed tracking of your spending. The point of that exercise is to track actual total $ spent so you can monitor it over time, and catch it if it starts running away from you. This happened to me recently (monthly spending shot way up) and I caught it, and have been able to bring it back down. Without tracking, you'll never know; the feedback loop is essential.


----------



## humble_pie (Jun 7, 2009)

congratulations to the newlyweds & congratulations also on this financial profile. It looks well-organized & healthy, it sounds optimistic. I'm left thinking that you will indeed have your nest egg ready by age 55.

a couple of small thoughts. Yes, you could max both TFSAs, even if it's only to park emergency savings $$ in them. No telling how long these plans will be around, but hopefully they will be grandfathered or partly grandfathered if any government seriously reduces or eliminates them.

also, is it possible that your anticipated move will produce savings that don't appear instantly on the balance sheet. ie salaries would be cut but location closer to the family could mean less travel expenses, more hands-on help with the children.

would the cost of housing be less, for example, in the family location.

still, wife tied up with children/working part time or not working/going back to school across a 10-year period of time means a huge adjustment to the family financial profile. You know the drill. One car, less dining out, home vegetable garden, camping holidays with children. You'll succeed at it.

raising a glass to a glowing family future.


----------



## crr243 (Nov 2, 2015)

Thanks fort the feedback, comments, and suggestions. I'll address a few of them.

My investments are in index funds. When I first started building my RRSP about 5 years ago (I only finished school in 2009), I had placed everything in a balanced mutual fund. A few years ago I did quite a bit of research and statistical analysis and opted to change my approach. I'm now focused entirely on index funds.

I'm presently following a typical "Couch Potato" type portfolio in our personal investments, with everything in TD s-series funds. My goal split is 25% in Canadian bonds, 25% in the Canadian index fund (TSX tracker), 25% in the US index fund (S&P/500 tracker) and 25% in international (MSCI EAFE tracker). It's due for a balance, which I'll take care of once we've opened the Spousal RRSP. With the strength of equities in 2013 and 2014, I had a solid 12-13% annual performance in my portfolio. My 4 year performance is about 11% annualized.

My DCPP follows the same principle as our personal investments, but uses BLK funds (Bond Index, US Equity Index, EAFE Equity Index, and S&P/TSX Composite Index) because of what's available through that plan. I've been with the company for almost 4 years. The 3-year annualized performance is at 11.8%. This year has been a bit more rocky, but is still sitting at 6.3% ytd.

We'll certainly see some struggles with a change in location and the introduction of kids to the mix. 


I fully expect to forego (or at least significantly reduce) the $10,000 vacation budget for a couple of years once we have children, so that will help offset some of the costs. As noted, we're also moving closer to family.
We'll be closer to one family, but a further from the other. Our biennial holiday flight costs aren't likely to be reduced as a result.
We may be able to save a bit on childcare costs by being closer to family, as suggested.

I've done some benchmarking on potential changes to our financial situation with a move. For reference, we're in Alberta and looking at Nova Scotia. Yup, tax nightmare. 


Income taxes are higher. My projected 20 - 25% reduction in net income accounts for that.
Housing prices are lower. _However_, we're currently in townhouse. While it's plenty big to start a family (3 bedrooms, 2.5 baths, 1500 sq ft), it has no yard and we'll be looking for an upgrade by toddler time. With a city move, we'd be upgrading to a larger forever home. The mortgage would likely end up changing a little, likely increasing by 20%. This isn't a huge deal, though. The current pace on the mortgage, which was amortized at 30 years at 2.99% when I bought 4 years ago, has us paying it off in just over 9 years. If we can keep payments the same, a 20% boost to the mortgage should only add a couple of years at today's interest rates. This, of course, could change if interest rates move away from their historic lows. 
All other taxes are higher. 10% provincial tax, 2-3 times the property tax.
Other expenses are higher. Internet costs more, fuel is higher, produce is generally higher, etc. 

Such a move is, certainly, a costly proposition. While the money in Alberta is fantastic, the lifestyle and work environment are slowly killing us. I'm an engineer, but in a stable position not in oil and gas. However, my wife's job prospects are almost exclusively with oil and gas, and the competition and negativity in the sector over the last 3 years has really started grating on her. In summary, we don't really want to raise our children here, so we're hunting elsewhere.


----------



## humble_pie (Jun 7, 2009)

^^

those post-move forecasts re higher taxes, less income, need for larger house with yard are indeed daunting.

they say that maritimers are expert at making do with a bit less, though. I don't exactly know how this is possible in the maritimes per se, but there are always plenty of household cost-savings tips, also car cost-savints tips, in the cmf Frugality section.

one thing that occurs to me, in addition to growing vegetables & an apple tree in that future back yard you'll have. It's an idea akin to planting your own seed bed. What about increasing your savings _significantly_ at present, while you are both in high salary zones, not yet supporting or raising kids, plus you're living in reasonable cost circumstances?

the idea would be to use those extra savings now to create a larger investment pool for your wife. This would generate future income in its own right, while she transitions during the 10-year period you are planning.

if now is the time when extra savings are most easily come by in alberta, then perhaps even delaying your eventual plan to move back east by a few months might make sense.


----------



## My Own Advisor (Sep 24, 2012)

Strong start to securing your financial future!

A few quick observations, some things you already realize:

1. If you can max out your TFSAs and RRSPs, for both of you in the coming years, you'll be in _very good_ financial shape in your 50s. Consider using your TFSAs and RRSPs as retirement accounts. Keep some cash in HISA as your emergency fund. 
2. You seem to have a good handle on where your money goes. Saving, then investing, is important but don't forget the fun stuff in life. Take those trips!
3. I think passive indexing is a great, lazy way to invest. You might want to consider investing in individual dividend stocks at some point for cash flow, although that has more risk.

Congrats newlyweds and best wishes for your health and happiness


----------



## Feruk (Aug 15, 2012)

I think you'll see a lot more of a net loss on income than 20-25%. If I assume your bonus is $30K/year, and your gross take home is $130K, you'll see a 4.6% increase in provincial tax, and a 15% increase in HST. You're roughly projecting that the same job pays only 5% more in Alberta than Nova Scotia. Just looking at median family income on Statscan, it would appear the difference is closer to 30%... I think it's reasonable to expect 40% net income loss, not 20-25%.


----------



## crr243 (Nov 2, 2015)

Feruk said:


> I think you'll see a lot more of a net loss on income than 20-25%. If I assume your bonus is $30K/year, and your gross take home is $130K, you'll see a 4.6% increase in provincial tax, and a 15% increase in HST. You're roughly projecting that the same job pays only 5% more in Alberta than Nova Scotia. Just looking at median family income on Statscan, it would appear the difference is closer to 30%... I think it's reasonable to expect 40% net income loss, not 20-25%.


My current salary is just under 100k with a target bonus of 10%, so gross is just shy of 110k. I also receive 8% of base into a DCPP, so effective gross is about 118k.

I recently received, and subsequently declined as it wasn't quite what I was looking for and there was no relocation assistance offered, an offer in Nova Scotia for a comparable position. The offer was for 75k + 10% target bonus + 6% DCPP, so gross at 87k. The gross difference to the effective salary is 24.88%. 

I have a spreadsheet that punches tax numbers for Nova Scotia and Alberta. When keeping RRSP contributions at a constant 14k annually (i.e. 4500 invested by employer, 9500 invested by me for the Nova Scotia offering with 6% of base into a DCPP), which is just below the 18% threshold of the Nova Scotia offering, net income after RRSP tax breaks drops by 27.87%.

I have reason to believe I can source a job with a slightly better salary; I am in the middle of the recruitment process for two other companies. An increase of just $5000 to the total compensation package drops the net loss to 24.17%.

This, of course, ignores the provincial sales tax. Note also that it would be a 10% addition to the sales tax, not 15%. We still pay GST in Alberta.


----------



## humble_pie (Jun 7, 2009)

crr243 said:


> My current salary ...



what about the loss to the household income of the wife's salary, though. That was a long stretch of time, too.


----------



## crr243 (Nov 2, 2015)

We're not expecting much of a decline to her base salary. She's currently employed in a position and salary well below her skill set as a result of the economic downturn in Alberta.


----------



## humble_pie (Jun 7, 2009)

child-bearing interval? going back to school full-time?


----------



## crr243 (Nov 2, 2015)

That'll certainly change things, but it will have a similar impact no matter where we live. Of course, it'll be a larger percentage of household salary impact if my salary is lower, but the dollar value impact won't change.


----------



## humble_pie (Jun 7, 2009)

a certain degree of stubborn resistance is always welcome, so i'm not giving up. each:

i still say build up the lady's investment account. That private income will be so-o-o-o helpful if you need special things for the kids or she goes back to school or ... or ... or ...


----------



## crr243 (Nov 2, 2015)

I agree completely and appreciate the feedback and devil's advocacy.

I've played devil's advocate a lot in this process of considering a move. I have a hard time accepting the change in finances, but look forward to a change in scenery.


----------



## peterk (May 16, 2010)

I would move from Alberta to Halifax in a heartbeat if I could manage only a 20% net paycut.  Best of luck to you.


----------



## Feruk (Aug 15, 2012)

crr243 said:


> My current salary is just under 100k with a target bonus of 10%, so gross is just shy of 110k. I also receive 8% of base into a DCPP, so effective gross is about 118k.
> 
> I recently received, and subsequently declined as it wasn't quite what I was looking for and there was no relocation assistance offered, an offer in Nova Scotia for a comparable position. The offer was for 75k + 10% target bonus + 6% DCPP, so gross at 87k. The gross difference to the effective salary is 24.88%.
> 
> ...


Good point on GST in Alberta... Forgot HST includes that (never lived in a pinko province until the last Alberta election). Having said that, the effect of the PST is huge and can't be ignored. Because it's such a big difference, excluding it totally negates your analysis.

Also, why are you assuming the same RRSP contribution number on a 25% decline of base salary? This seems optimistic.

On those two items alone, you're over 30% different, if not substantially more. I think the cross-country move is an emotion driven decision and you're not correctly taking the risk that you're way too optimistic into account.


----------



## RBull (Jan 20, 2013)

Great looking breakdown of your finances and goals. With your plan and commitment you're well on the way to FI in your 50's.

Given the reasons you've provided for wanting to move East it seems like a great decision. As a former westerner who has lived on the East Coast for 3.5 decades now I haven't regretted the change of scenery and pace for a second. We really need and appreciate smart, young ambitious people like you here. 

Good luck with your job search and let me know if you have any questions whatsoever.


----------



## Sampson (Apr 3, 2009)

After the TFSAs are filled, also consider putting extra monies into and RESP for your wife...It should only take you 2 years to fill the TFSAs, then put 'excess' savings into the RESP.


----------



## crr243 (Nov 2, 2015)

My wife and I have set up an appointment next week to set up a TD Mutual Fund Spousal RSP with TD, and will promptly convert it to an e-series account.

My RRSP contribution room for the year sits at $16,372. I have thus far put in $4,915, leaving a balance of $11,457. I don't know my wife's off-hand.

Once the spousal RRSP is opened, I intend to divert the full $11,457 from our savings and checking accounts (now totaling approximately $28,000) into the RRSP. This will reduce our immediate access funds to $16,500, but the benefits will be two-fold:

1. It will better prop up my wife's net worth and retirement savings.
2. It will be necessary to drop my 2015 taxable income below $90,000. Avoiding 36% tax on $16,372 will net a $5,893.92 boost to my return.* 


* I predict a decrease in income next year, so there's a bit of an investment debate here. I have two options as I see it:

1. Invest in RRSPs now and save 36% on the $11,457. 
2. Assume that I'll have a new job in Halifax. Put the money into my wife's TFSA and wait until March, 2016 to boost the Spousal RRSP. The reasoning:

If my income in Halifax has a marginal tax of 38.67% (likely if I start in early 2016), that's an additional $305 in the 2016 tax year's return. However, if my Halifax income is higher than expected, or it takes me longer to find a job (i.e. higher income at the outset as a result of my current inflated salary) and my 2016 year-end residence is in Nova Scotia, I'll jump into a 43.5% marginal tax bracket. The difference over investing while in Alberta now jumps to $859 assuming my taxable income before RRSP contributions is $104,547, but I have to wait until 2017 to realize it. 

I don't know if this has a high possibility, though; if we move, chance are high I will have moving cost deductions that will drop my taxable income. I'm also then missing out on the opportunity to invest $5,893.92 for one year. At a modest 6% one year return, that would yield about $350. At 8% it's $470.

Summarized. (a) Pump the RRSP now, invest the $5,900 after the tax return, and earn $350-$500 over the next year; or (b) wait a year and see an additional return of $305-$860 though, given moving costs and a drop in salary, probably the lower end.

I think I've talked myself into adding into the Spousal RRSP immediately.


----------



## crr243 (Nov 2, 2015)

Update to my tracker, with more accuracy:

*Assets*
Townhouse: $350,000
Cash/Savings: $31,561.54
RRSP: $80,368.24 
DCPP: $41,420.69 
TFSA: $41,643.60 
_Total Assets_: $544,994.07

*Liabilities*
Mortgage: $223,960.87
Credit Cards: $786.42
_Total Liabilities_: $224.747.29

*Net Worth*: $320,246.78

Overall investment mix:
TDB900 (Canadian equity) - 23.1%
TDB902 (US Equity) - 27%
TDB909 (Canadian Bond) - 24.9%
TDB911 (Int'l Equity) - 25%

This month:
- Transferred my RRSP from TD to a SDRSP at TDDI
- Opened a TDDI TFSA for my wife
- Opened a TD e-series Spousal RRSP, with myself as contributor and my wife as beneficiary 
- My wife and I are now POA on each others' investment accounts
- We are now successor holders of each others' TFSA and beneficiaries of the RRSPs

Upcoming goals:
- Complete the transfer of my wife's TFSA from TD to TDDI
- Put the remainder of my year's contribution room ($11,457) into the Spousal RRSP, balancing to 25% for each fund while I'm at it.

We continue to put $300 a month into my wife's RRSP and her TFSA. 
My RRSP will see no contributions for the next couple of years as I divert all of my contributions to the Spousal RRSP and to our TFSAs. I currently have $85,000 more in investments (RRSP/TFSA) than my wife. With my contribution room this year and next (~$20,000 total because of the Pension Adjustment) being diverted to the Spousal, we'll start moving considerably closer to parity.


----------



## crr243 (Nov 2, 2015)

Thinking out loud...

My wife and I have roughly $33,500 between our checking and unregistered HISA. The HISA gives a measly 0.55%.

As noted, I plan on moving $11,457 to the Spousal RRSP. That leaves $22,000 of accessible funds in our accounts.
We have a TD all-inclusive checking account, so I maintain a $5,000 balance to waive fees. I typically add a bit of a buffer, so I have about $15,000 in funds to play with.

For obvious reasons, I'd like to build and maintain a fairly accessible rainy day fund. $15,000 is just under 2 months of after-tax income and roughly 3.5 months of fixed expenses. In an emergency, I could also halve our mortgage contributions, which would extend a rainy day fund even further. 

However, the money is almost as readily accessible in a HISA within a TFSA as it is in an unregistered HISA. I'm thinking it would make sense for me to maintain our rainy day fund of ~$15,000 in a HISA inside a TFSA. As the rainy day fund (HISA) increases, move the money over to investments (currently index funds) within the TFSA. At such a point when the TFSA contribution room is used up, the rainy day fund will trickle out to unregistered accounts.

This will be quite a bit more tax efficient than having $15,000 sitting in unregistered, lower interest savings accounts. In the case of an emergency in the short term (i.e. until the TFSA contribution room is maxed), we'll merely sacrifice a bit of contribution room until the next tax year.

Does this make sense?

Unfortunately, TDB8150 is only 0.75%, so I may have to look elsewhere to store this money inside a TFSA until I'm ready to transfer it over and invest it. That might end up a bit of a headache, though.


----------

