Early Retirement - Imminent. Can I do it?

[nikon_d40]

Hi,

I am 49 and my wife is 47. We have one son age 17. His college choice is UBC in Vancouver, BC. Since we are duel citizen (US and Canada), he only need to pay around $5K in tuition per year (yes, per year). We are also planning on moving back to Canada next year (2013) when he goes to UBC.

I used to love my job. However, our company has merged with its parent company few months ago and now I hated my job. My wife is a stay home mom. That said: we have $310K in 401K (together with Canada RRSP), $265K in company deferred compensations (Rabit Trust), $1.4 MM in savings (taxable, earning next to nothing in interest), $51K in stock trading account yeilding 5% in dividend, $110K in overseas investment, and $13K in my son's college fund. Our current monthly expenses is around $2500, including rent payment of $950.

Once we move back to Canada: Our expenses will increase to $3K per month (including health / dental / drug coverage). Spending $550K on house purchase. This will reduce our Cash portion to around $850K. AA allocation will be 75% stock (5% dividend can be achieved), $10% high yeild bonds, and 15% cash. The first 10 years (to age 59) we will have around $56K in gross income ($26K from rabit trust plus $30K in dividend), or around $48K after tax. I will start pulling out the 401K/RRSP from age 60 to 69 to replace my rabit trust income. Applying SS (and Canada pension) at age 65 (estimated around $12K per year), along with Canada Old Age Security ($6K per year for one / with my wife would be around $12K per year) at age 67. By the time we are 70, the SS/CPP/Canada Old Age will roughly replace the 401k/RRSP income. Therefore, I might not need to dig deep into my original $850K investment position (The $110 overseas investment will be added into my $850K investment position when I hit 65, thus the total investment position will be around $960K at that time).

Do you think our plan would work that I quit my job now? I am a Canadian designated professional accountant. I think I would be able to find some works that can supplement our retirement income. However, if we can afford, I rather not jumping back into the work force.

Your input are greatly appreciated.

[REWahoo]

Have you run your numbers through FIRECalc?

[Meadbh]

Let's see. Looks like you have assets of approximately $2.149 million. Right now you have no money tied up in a house, but you plan to spend $550K on one. That will reduce your investable assets to ~$1.599 million. At your age I would not assume that a SWR is 4%. I would be looking at 2-3%. That means it should be safe to withdraw $32K to $48K yearly. IMHO this is insufficient for a couple (plus #1 son) in Canada, unless you are very frugal.

My suggestions would be:
a. Consider a lower cost housing area. If you move to Vancouver to follow #1 son, you won't get a shack for $550K. New Brunswick would be a better choice!
b. Do you really need to buy a house? Renting would avoid tying up your capital in the housing market......which shows signs of softening.
c. Do a bit of accounting part time.

[nikon_d40]

The calculator shows positive result for all possibilities (to age 90), so that is good to go based on the FIREcal.

[nikon_d40]

Meadbh: The main reason going to Vancouver is because of UBC (ranked 25 in the world). We hope that by the time we are aready to purchase, the housing market will soften at least 5-10%, thus the same house / Condo will cost no more than $500K. We live very frugal as you see our current monthly spending at around $2500 per month including $950 rent. I understand it maybe tight (in terms of no big trip / vacation every year or dine out most of the time). But a part-time accounting job may be on the card.

[pb4uski]

I would consider getting a mortgage on the condo. If your investments yield 5.5% and your mortgage is 3.5% then you could earn a 2% spread and it would add about $8k a year to your cash flow. Of course, there is the risk that if your investments don't earn 5.5% that your spread would be lower or possibly even negative, but if it works out as expected then the $8k of spread would be a nice contribution to your living expenses. OTOH, as is well chronicled on this forum, many people are uncomfortable taking the risk and would prefer to live mortgage free.

[nikon_d40]

pb4uski: Mortgage interest is not deductible in Canada, so the Investment / tax saving by having a mortgage is only 1% point (taking a 5 years mortgage actually cost more than what I get from investment after tax). Furthermore, wife wants to be mortgage free.

[aaronc879]

Assuming you have kept track of expenses for several years and your estimate is accurate then if I were in your position, i'd retire. Worst case senerio would be you have to work part time at some point but it doesn't seem likely. Accounting, at least in the US, is one of the best possible occupations for part time(good pay) work. Good Luck!

[nikon_d40]

aaronc879: I have been tracking my expenses for the past 10 years and pretty comfortable with my numbers there. Especially after my son finished his under-grad degree, we should be able to free up more money as well as we will expect him to find work and contribute to family expenses, if he still live at home. Indeed, working part time / contract work maybe a good idea as you can meet new people and earning some extra money the same time. Thanks.

[obgyn65]

Based on those findings I would say you are good to go.

Quote:

Originally Posted by nikon_d40 The calculator shows positive result for all possibilities (to age 90), so that is good to go based on the FIREcal.

[nun]

As long as you have FBAR and FATCA covered you are in good shape

[nikon_d40]

Nun: We realize the tax reporting issues with IRS when living outside of US. Sometime can be a mess. If needed, there should be some well qualified tax accountants that can help me to make sure they are done right. Thanks.

[Ed_The_Gypsy]

You are dual citizens. If you are dead set on buying a house, buy in Blaine just over the border in Washington. You can buy a really nice place for half (or even less if you are of a mind, say in the county) of what you have in mind. You could drive to the heart of Vancouver in less than an hour, UBC even less. Washington has no income tax. You would be nuts to buy in BC.

This is the first thing I found:
W 99th St, Blaine, WA 98230 - Zillow

[nikon_d40]

Ed: The housing in the US is so attractive. When I first did my research on the housing cost in Vancouver, it almost make me sick. We are not dead set on getting a house right the way. That would be the ideal if we can get some places that is reasonable in price, but we are also open to renting for a year or two.

We have a few reasons for Vancouver. Firstly, Family and friends are in Canada. Secondly, we like asian food, thus making Vancouver more appealing. It would be hard / hassled to try to cross the border to bring in asian groceries or just wanted to eat good asian food in Vancouver (I understand that Blaine also has Asian food, but cannot compare with Vancouver). Thirdly, driving time is one thing, but the time spend at the Custom is another. I don't think our son would like to do that five days a week. Fourthly, The savings in the cost of housing is partially offset by the cost of medical insurance / higher property taxes in the US / future Canada Old Age benefit (We would not otherwise be qualified). Lastly, Vancouver is a metro city and Blaine is just a small town. We are big city person.

Thanks for your suggestion though.

[Milton]

Quote:

Originally Posted by nikon_d40 Meadbh: The main reason going to Vancouver is because of UBC (ranked 25 in the world).

(1) While there are qualitative differences between Canadian universities, they are relatively modest. Your son would obtain a good, but not stellar, education at pretty much any of them, including Mount Allison to use Meadbh's New Brunswick example.

(2) In any case, UBC has student residences that cost between $4,000 and $6,000 per academic year: which is a lot less than the annualized difference of housing in Vancouver and that in many other Canadian cities.

I suspect that the real reason why you plan to live in Vancouver is because it is a beautiful, cosmopolitan city on the Pacific coast. Nothing wrong with that!

[nikon_d40]

Milton: True that both myself and wife wants to settle back in Canada upon retirement. I guess that is the main reason we choose Vancouver, partly due to it natural beauty / warmer weather (Canadian standard) / etc. Definitely, UBC is not Stanford / Yale, but spending upward of $50K per year for under-grad degree seems to be excessive. Still at $5K per year, UBC is still a world class university. With killing few birds the same time - settle back in Canada, quality education with reasonable cost, closer to family and friends, good asian food with cleaner air (as compares to Toronto). Since we only have one son, we would like to stay close together (at least in the same town / city), thus mostly no dorm for him.

Housing cost are not cheap either if attending Stanford / Yale with ever increasing property taxes / State taxes / medical insurance. If we add the $50K per year in tuition together ($200K for 4 years of under-grad), we are back to the same position as we are in Vancouver. As stated in my previous post, we are prepared to rent for awhile.

For us, Under-grad degree is not as important as Post-grad degree. As he wanted to become a MD, we don't mind to spend those dollars for his Post Grad education, instead of under-grad... For us, education from university ranking 1 - 10 (say Standford or Yale) is not much different from university ranking 20-30 (say UBC) for under-graduate level (by comparing how much you have to pay ($50K vs $5K) and educational differences (does Standford / Yale give my son 10 times the education value compares to UBC?)

I know I am bad... I am an accountant....Cost and Benefit here.

[aida2003]

You're in great position considering how much you have saved for your retirement. Since you're thinking to rent first, I'd say you're fine to retire. If to buy a house right away, I'd be more cautious just because I remember American media (which could be right or wrong) reporting of a potential housing bubble in Canada. You don't want to buy at the top and have it underwater a few years later....but you can predict the future? Maybe it's not in the cards for Canada?

[nikon_d40]

aida2003: I do believe that there would be a "crash" in the Canada housing market. However, I don't think it will be to the extend like the US style crash. But who knows... One thing I surely know is that nothing going up forever. Renting does make more sense financially, but if there is a 20% crash in price by next April, I may think about buying.. Thanks.