Hey guys/gals,
Recently discovered this forum - been lurking and getting some good info. As it seems to be the norm, and I'd like some feedback my plan, I'll lay out my situation. We live in Canada, btw.
I am currently 32 years old and am planning to retire within the next 3 years. I am married to a teacher, 34, and we have no kids by choice (although we do have 4 dogs). We are basically debt free, with the exception of our mortgage. The only other debt is our personal car, which is leased.
My work situation is that I am the president of a small engineering firm with a few employees. We've been in business for 5 years. The money is good but the hours suck. I sit at a computer all day running CAD and booking vacation time is next to impossible. I even got high-speed internet installed at my cottage so I can go there and still meet the needs of my clients.
I average about $160,000 year in the company of late, although times have not always been so good. We barely survived the bubble implosion, and the company operated at a loss for a few years. My salary out of the company is approximately $75,000, but and is set so that I can maximize my RRSP while keeping my personal taxes as low as possible.
The company is legally incorporated and gives me several advantages, such as controlling my personal income, income spitting with my wife, writing off a company car, writing off a home office, etc. Oh her side, my wife is a teacher and makes approximately $60,000/year from her job.
In terms of real-estate, we own a house and a cottage. Our mortgage for both is approximately $215,000. The house was recently assessed at $311,000, and the cottage I figure is worth about $75,000.
With regards to savings, my wife and I have both been maxing out our RRSPs for the last 8 years or so. Between the two of us, we have about $165,000 in investments in RRSPs, and are adding to it at a rate of approximately $20,000/year. So far, we are seeing close to 9% ROI.
Not sure how familiar you guys are with RRSPs, I gather they are similar to 401k's. Basically, the gov't allows you to stash 18% of your gross salary, or $15,000, which ever is less, into your RRSP. Money put into your RRSP is deducted from your taxable income, and grows tax free within, but money taken out is considered income and taxed as such.
I have only recently started investing through the company, and have about $50,000 invested so far. I'm averaging (so far) about $10,000 a month in investments via the company.
I've been scratching my head on how to retire for the last few years, but couldn't figure out how to get $30,000 - $40,000/year, indexed to inflation, in income for the next 40 years. I toyed with the idea of buying rental property, but it would take 5 or 6 years for me just to make my downpayment back, and I would need 3 or 4 properties to generate sufficient income.
Then I came across this book called "Stop Working", by some guy who makes the somewhat dubious claim to be Canada's youngest retiree at age 34. The premise of the book is to identify stable companies that have been paying a yearly dividend for 10 or more years and have been increasing their dividends on a regular basis. You try to snap them up when the stock price goes down, and then you simply hold on. Your income comes not from slowly chipping away at your nest egg, but from receiving divident payments.
To boot, dividends are taxed very favorably in Canada. You can make about $30,000 year in dividend payments and pay next to no income tax. Anyhow, through the company, I have been purchasing shares of dividend paying companies and income trusts. I am trying to diversify as much as possible, but my company portfolio is basically energy (oil, natural gas, electricity), commercial real-estate, and financials (banks). So far, I am getting about a 8.5% dividend yield. Personally, we're are invested only into mutual funds.
So, the plan is this. Over the next 2 to 3 years, slowly convert my personal holdings from mutual funds to dividend paying companies and grow that portfolio to about $200,000. In the company, continue investing as I have been doing and grow that portfolio to $250,000 - $300,000. Aim in both portfolios to achieve a dividend yield of 8%, which would generate a total of $40,000/year in dividend payments.
By doing more than half of the investments through the company, I can continue to control our salaries and ensure that we both get the same amount so as to minimize out taxes. Plus, my personal marginal rate is already 50% so for me take that amout of money out would be extremely painful. Meanwhile, being a small business, the company enjoy a rate of only 22% on profit.
Once the income is established, we sell the house. While the value has gone up by $100,000 in the last 4 years, I am going to assume that its going to stay flat and that we'll sell it for $311, 000. Pay off the mortgage (which covers both the house and the cottage), and move to the cottage. This will leave us with just under $100,000 in cash, plus we are now living mortgage free.
We'll either take the $100,000 and further invest into dividend-yielding shares, or put it into some safe yielding 5%. After 3 or 4 years, or whenever we get tired of living at the cottage, sell it. We should then have approximately $200,000 in cash, and go buy our final retirement home, somewhere deep in the woods with no neighbours.
Emotionally, we both can't wait. I've been lucky to make my money early in life, and I've had a taste of the supposed "good life". I got the sports car, the home theatre room, the big screen tv, the granite counters, the marble floors, the gadgets and toys. I'm thankful that I've had that, because now I know that its not what makes me happy. I've been able to cross that off the list, rather than always wondering "if I'd only bought the bigger house, then I would of been really happy".
We've also had a taste of the "simple life" with the cottage, making firewood, collecting maple sap and making maple syrup, fishing for your dinner. And I've tasted enough of that to know this is where I am truly happy. Yes, we'll still have some of the modern trappings of life - internet, satellite TV, but my time will be my own and will no longer be for sale.
Recently discovered this forum - been lurking and getting some good info. As it seems to be the norm, and I'd like some feedback my plan, I'll lay out my situation. We live in Canada, btw.
I am currently 32 years old and am planning to retire within the next 3 years. I am married to a teacher, 34, and we have no kids by choice (although we do have 4 dogs). We are basically debt free, with the exception of our mortgage. The only other debt is our personal car, which is leased.
My work situation is that I am the president of a small engineering firm with a few employees. We've been in business for 5 years. The money is good but the hours suck. I sit at a computer all day running CAD and booking vacation time is next to impossible. I even got high-speed internet installed at my cottage so I can go there and still meet the needs of my clients.
I average about $160,000 year in the company of late, although times have not always been so good. We barely survived the bubble implosion, and the company operated at a loss for a few years. My salary out of the company is approximately $75,000, but and is set so that I can maximize my RRSP while keeping my personal taxes as low as possible.
The company is legally incorporated and gives me several advantages, such as controlling my personal income, income spitting with my wife, writing off a company car, writing off a home office, etc. Oh her side, my wife is a teacher and makes approximately $60,000/year from her job.
In terms of real-estate, we own a house and a cottage. Our mortgage for both is approximately $215,000. The house was recently assessed at $311,000, and the cottage I figure is worth about $75,000.
With regards to savings, my wife and I have both been maxing out our RRSPs for the last 8 years or so. Between the two of us, we have about $165,000 in investments in RRSPs, and are adding to it at a rate of approximately $20,000/year. So far, we are seeing close to 9% ROI.
Not sure how familiar you guys are with RRSPs, I gather they are similar to 401k's. Basically, the gov't allows you to stash 18% of your gross salary, or $15,000, which ever is less, into your RRSP. Money put into your RRSP is deducted from your taxable income, and grows tax free within, but money taken out is considered income and taxed as such.
I have only recently started investing through the company, and have about $50,000 invested so far. I'm averaging (so far) about $10,000 a month in investments via the company.
I've been scratching my head on how to retire for the last few years, but couldn't figure out how to get $30,000 - $40,000/year, indexed to inflation, in income for the next 40 years. I toyed with the idea of buying rental property, but it would take 5 or 6 years for me just to make my downpayment back, and I would need 3 or 4 properties to generate sufficient income.
Then I came across this book called "Stop Working", by some guy who makes the somewhat dubious claim to be Canada's youngest retiree at age 34. The premise of the book is to identify stable companies that have been paying a yearly dividend for 10 or more years and have been increasing their dividends on a regular basis. You try to snap them up when the stock price goes down, and then you simply hold on. Your income comes not from slowly chipping away at your nest egg, but from receiving divident payments.
To boot, dividends are taxed very favorably in Canada. You can make about $30,000 year in dividend payments and pay next to no income tax. Anyhow, through the company, I have been purchasing shares of dividend paying companies and income trusts. I am trying to diversify as much as possible, but my company portfolio is basically energy (oil, natural gas, electricity), commercial real-estate, and financials (banks). So far, I am getting about a 8.5% dividend yield. Personally, we're are invested only into mutual funds.
So, the plan is this. Over the next 2 to 3 years, slowly convert my personal holdings from mutual funds to dividend paying companies and grow that portfolio to about $200,000. In the company, continue investing as I have been doing and grow that portfolio to $250,000 - $300,000. Aim in both portfolios to achieve a dividend yield of 8%, which would generate a total of $40,000/year in dividend payments.
By doing more than half of the investments through the company, I can continue to control our salaries and ensure that we both get the same amount so as to minimize out taxes. Plus, my personal marginal rate is already 50% so for me take that amout of money out would be extremely painful. Meanwhile, being a small business, the company enjoy a rate of only 22% on profit.
Once the income is established, we sell the house. While the value has gone up by $100,000 in the last 4 years, I am going to assume that its going to stay flat and that we'll sell it for $311, 000. Pay off the mortgage (which covers both the house and the cottage), and move to the cottage. This will leave us with just under $100,000 in cash, plus we are now living mortgage free.
We'll either take the $100,000 and further invest into dividend-yielding shares, or put it into some safe yielding 5%. After 3 or 4 years, or whenever we get tired of living at the cottage, sell it. We should then have approximately $200,000 in cash, and go buy our final retirement home, somewhere deep in the woods with no neighbours.
Emotionally, we both can't wait. I've been lucky to make my money early in life, and I've had a taste of the supposed "good life". I got the sports car, the home theatre room, the big screen tv, the granite counters, the marble floors, the gadgets and toys. I'm thankful that I've had that, because now I know that its not what makes me happy. I've been able to cross that off the list, rather than always wondering "if I'd only bought the bigger house, then I would of been really happy".
We've also had a taste of the "simple life" with the cottage, making firewood, collecting maple sap and making maple syrup, fishing for your dinner. And I've tasted enough of that to know this is where I am truly happy. Yes, we'll still have some of the modern trappings of life - internet, satellite TV, but my time will be my own and will no longer be for sale.