Just gonna spill it

[freedom46ca]

Hello all!! I've been reading the post here for about a year now. My hubby and I are hoping to retire next year at 46.

Here is our situation:


FA Managed accounts:
$1 325 000.00 - holding company assets managed by FA
$306 000.00 - RRSP
$80 000.00 - RRSP
$52 000.00 - TFSA

$500 000.00 Holding company cash (not sure what to do with this yet)
$65 000.00 savings account

Home $500 000.00
Winter home (AZ) $325 000.00

Zero debt

We plan to spend somewhere around $80 000.00 pre tax. FA has assumed a 5.58% return rate.

All the financial calculators say we can do it. and boy am I ready!!

Any thoughts would be appreciated.

[2B]

Welcome and congratulations.

I don't want to rain on your parade but I'm immediately concerned with the FA assuming a 5.58% return. Other than being real specific, I'm curious if that is a pre- or post-inflation return. I'm also confused with your account designations especially "holding company." It would help if it everything was clearly identified as Roth, IRA/401k or after-tax.

Have you run your numbers on FireCalc? I put in $2.3 MM and the $80,000 has a 30 yr-100% success. The 95% was at $91,000. I only used the defaults with no SS or pensions. For a extended retirement, you are essentially just barely there unless I'm missing something.

How solid is your budget? Do you include buying replacement vehicles and doing home repairs? Health insurance? Paying the FA? If the projections don't work out, are you happy cutting expenses? Selling one or both homes?

[pb4uski]

What do you mean by "holding company" assets and cash? Are these stuck in a holding company that you own? or something different?

[Meadbh]

Congratulations! Your situation is not too unlike mine.

Some of 2B's questions may be due to the fact that he is looking at this from a US viewpoint and of course you are in Canada. If you need health insurance, it would be supplementary.

RE: holding companies, I wonder what motivated you to establish one? Is your Arizona property owned by the holding company?

http://www.theglobeandmail.com/globe...rticle1186635/

TaxTips.ca - Holding company for investments

As you are probably aware, the taxes on holding company investments are not as favourable as those on active corporations. I have a professional corporation and am wondering whether to turn it into a holding company at some point. Your insights would be helpful to me.

I hope you are getting a good deal on your FA's fees. Fee only advisors are hard to find. The next best alternative is wealth management through one of the chartered banks, where your funds should get you a relatively low rate by Canadian standards.

An important question is your expenses. If you haven't done so already, now is the time to go over them with a fine toothcomb. What are you really spending? What can you cut out? $80,000 might strain your investment portfolio over a long retirement. A lot of your assets are in non-income producing real estate. Are you prepared to downsize to one home if necessary?

[freedom46ca]

Our holding company was created to get the cash out of the operating company and protect it from any possible creditors or lawsuits. We will then draw money out of the holdco as dividends once we no longer have an income. The holding company then gets a tax break on the dividends paid out to the shareholders.

Last year the holdco made $100 000.00 with the investments. This will then be paid out to us as shareholders.

Our Arizona property is not owned by the holdco.

We will get CPP when we are 60. Approximately $550.00 each in todays dollars. OAS if it is still around of $450.0 each in todays dollars.

Our FA is with one of Canada's major banks wealth management advisor. His fee is .7%. I am rethinking this but I don't have the time right now to manage our funds or do much reading. I've been reading posts here and trying to absorb as much as possible so I hope to not have to pay him long term.

I ran the number through firecalc and it came up with 99%

[Ed_The_Gypsy]

You've got the money. It is not clear that you know what to do with it. Soul-searching is in order.

[Meadbh]

Other than your TFSA and your savings account (total of $117,000) all your finances will be subject to tax as you withdraw them. Have you considered methods of reducing and smoothing that tax? For example, your RRSP, if left alone till age 71, could easily be 7 figures. With RMDs, you would probably be subject to OAS clawback, as well as being vaulted into a high tax bracket. It's worth exploring early drawdown on your RRSP once you have no other income. Check out Darryl Diamond's book on The Retirement Blueprint.

[freedom46ca]

I will be seeing my FA next week to discuss the RRSP's and a plan for drawing money and reducing taxes.

We also had one of our adult college age low income kids added to the preferred shares of the holdco so we can draw dividends through her for a few years with little tax.

Between this forum, my FA, accountant, and lawyer I hope we will find all the most tax effective ways to retire. I'm learning.

I keep hearing about Vanguard. Anyone have thoughts on investing with them?

[Meadbh]

Vanguard just recently came to Canada and I think their offerings are not quite as cost effective or as comprehensive as in the US. Nevertheless, worth checking out.

Are you familiar with the Financial Webring Forum? You will find lots of detailed discussion there on all these topics from a Canadian perspective and there are many experts.