I thought I was doing well ... ?

[ineedadvice]

First off, hi all. I am from Vancouver, Canada, and have thought I was doing well. I am no longer sure.

I am 41, married with 3 kids (13, 10, 7). I have been running a small business which is starting to fail (won't be around in a year) and I find myself taking a job. In short:

My RRSP - 100K
Wife's RRSP - 60K
Company equity - 80K
Savings outside RRSP - 30K
Savings elsewhere - 50K
Home value - 620K (no mortgage)
Total - roughly 940K
Kids' education fund - 50K (not each - combined)

I have been exceedingly anxious this past month, punched all my numbers in, and feel I need an income of $3300 after taxes each month to meet costs.

I want to retire ... :S How far am I away from it? Would appreciate any and all comments.

 

[REWahoo]

I want to retire ... :S How far am I away from it? Would appreciate any and all comments.

Have you run your numbers through FIRECalc? That's the best way I know to help answer your question.

 

[FIREd]

Hello ineedadvice,

The main problem I see when I look at your balance sheet is that you are somewhat house rich and cash poor. Right now your home equity is producing no income. In order to retire you will have to put that money to work. Would you consider downsizing or moving to a cheaper part of the country?

In order to produce a gross income of $3,300 per month, you will need at least $1M invested in addition to the paid for home. So you are going to need to transfer some home equity to investments. But even then, it looks like you are a little short. For a 41 year old you are doing well, but you might need to work a few more years.

 

[FUEGO]

So you have basically $240,000 saved/invested. Maybe add $80,000 more if you can keep some of the business equity/salvage value. I wouldn't count the home value in determining your savings/investments that you will live off of (unless you plan to sell your house or "live off the equity" by getting a loan against it).

In short, you are very far away from retirement unless you can manage to save a big proportion of a huge salary. You need $40,000 after taxes per year to live on, and that is 12% to 17% of the investable assets you currently own.

I'm also a little surprised that you can live off of $40,000 per year (long term) and have a $620,000 house. Don't taxes, insurance, and maintenance/upkeep/repairs add up on the house? I'm not calling you a liar, just making sure your expense estimate is correct for the long term.

 

[haha]

I am 41, married with 3 kids (13, 10, 7). I have been running a small business which is starting to fail (won't be around in a year) and I find myself taking a job. In short:

My RRSP - 100K
Wife's RRSP - 60K
Company equity - 80K

In what sense does abusiness that "won't be around in a year" have $80,000 equity? Is this salvage value? Or so you have to depend on a dumb buyer showing up?

You need a job and a good one.

Ha

 

[ineedadvice]

Thanks all -- yes the taxes, insurance, maintenance / upkeep are a little more than I expected. That said, we live in an expensive part of the country; starter houses start at $500K. We were fortunate to get in early, made some wise decisions, and have seen a nice appreciation.

As for the $80K - let's say sales are drying up, but the business has no debts. Income is just slowing down to a place where it will not be enough to support my family next year.

The house does generate some income, roughly $600 a month. In the short term, I don't see this changing, but there is upside. Downsizing is definitely a possibility / probability after the kids move on ... 15 years or so I guess.

Appreciate the thoughts, welcome more. Freedom 55?

 

[FUEGO]

Appreciate the thoughts, welcome more. Freedom 55?

Sure! 14 years to save and invest. It's just a matter of plugging your data into a calculator to estimate what you'll need to save to reach your goal.

 

[Milton]

You might find this free on-line calculator useful: How Much is Enough. There are both Canadian and American versions available.

The Globe and Mail runs a weekly anonymous 'Financial Facelift' feature that might be of interest to you. If you'd like to participate, the contact email is andrewallentuck@mts.net.

I ... have thought I was doing well. I am no longer sure.... I have been exceedingly anxious this past month

What changed?

P.S. I have to agree with Ha: by the sounds of it, $80,000 might be an optimistic estimate for the resale value of your small business. On the other hand, perhaps $80,000 is too low. Rather than guessing, I hope that you have, or will, retain an accountant to provide professional advice ... you don't want to shortchange yourself, or blow a possible sale because you are asking an unrealistic amount.