Rambling thoughts from Canada

[couch]

Let me start this off by saying I *thought* I was doing really well until I read some of the posts on this forum. Between the posters with 5-10x my savings and firecalc I have had to revise my thoughts.

DW and I are both 41. Kids age 7 and 10.
Investments:

• Unregistered(inside corporation): 180k
• RRSP: 391k
• TFSA: 64k
• RESP: 30k

Assets:

• House: 650k(40k mortgage)
• Business: 0-300k

Pension:

• Depending on how much we make in retirement we can count on some amount of OAS and CPP. I just looked it up and I think it comes to about $33k at age 65 but I could be totally off.

Being from Canada I don't have to worry about health except for dental and prescriptions. Maybe not even that depending on which party gets elected.

Side note, if I was able to FIRE by the time my kids start University then the government will pay for all or part of their tuition depending on my income.

I don't really know how much I need for retirement. I had it all calculated out that I needed about $55k but then I setup Mint and it appears I am spending more than I thought.

I own my own business, so savings are sporadic and things can get a little complicated because I am allowed to keep about $1 million inside the business(and pay less taxes; its like a RRSP) before I get penalized. Last year I saved $100k, the year before that only $25k. This year I think it will be closer to the $100k, but it's hard to say for sure.

We are using a financial planner(fiduciary is the law in Canada) and I am not clear on their fee's. My portfolio is mostly individual bluechip stocks, with a smattering of small cap and foreign ETF. As I understand it, We only get charged when we buy and sell... and we only ever buy.

I have two different thoughts on how to proceed. 1. It seems like if I stopped saving for retirement now, in 10 years I should have enough. So I could stop saving and start living a little. 2. I could keep saving for another few years and retire that much earlier. 3. I could do a bit of both.

Right now I am working about 70 hours a week while still spending a lot of time with my family. I think I will burn out at some point. So a 4. option might be to cut back on the work but then my business will end up declining in value. I am a contractor with about a dozen contracts, so if I am turning down work or firing clients, it can bite me later on.

If I was to retire at 51, what would I do with myself anyway? It seems like semi-retirement might be the way to go, but finding a happy balance there would be tough.

So my outstanding questions(I guess mostly to myself) are:

1. How much do I need to retire? I am hoping mint will tell me.
2. When should I retire? This is a different question from when can I afford to retire.
3. Should I consider semi-retirement and to what degree?

 

[Sunset]

Welcome.
Ask your financial planner what he/she gets paid and how. You should know. (along with the MER for your ETF's) and possible fees charged by the bank/brokerage that holds them.
You never see a bill as they take the money before you get it, but it is spelled out in all the documents somewhere.

I do think you are doing well, especially at the nearly paid off house (mortgages are not deductible in Canada).

It's great that you are starting to track spending, it can be a real eye opener and sometimes what you see is good in some areas.

I think you might want want to think only in today dollars, for example in 2018 the max CPP is 13,610.04 / yr how does that compare to your spending today ? Keeping everything in today's dollars allows you to compare things, and everything will just be a larger number in X years.

 

[DrRoy]

To RE around 50 I think you would want perhaps 33X your spending, so if that is $60K/yr then about $1.8M.

 

[couch]

Welcome.
Ask your financial planner what he/she gets paid and how. You should know. (along with the MER for your ETF's) and possible fees charged by the bank/brokerage that holds them.
You never see a bill as they take the money before you get it, but it is spelled out in all the documents somewhere.

I have a meeting booked for Friday. I am asking about the fee's and also asking about converting to all ETFs and asking his thoughts on using bank preferred's as part of a income portion.

I think you might want want to think only in today dollars, for example in 2018 the max CPP is 13,610.04 / yr how does that compare to your spending today ? Keeping everything in today's dollars allows you to compare things, and everything will just be a larger number in X years.

I think the number I gave was in todays dollars. It includes both my CPP and OAS and my DW's CPP and OAS. Neither of us will be able to max out our CPP.

 

[couch]

To RE around 50 I think you would want perhaps 33X your spending, so if that is $60K/yr then about $1.8M.

The thought process gets a little confusing to me when my government pension starts at age 65 and accounts for half of the $60K/yr. I need that money for maybe the first 15 years, but not necessarily after.

 

[Alan]

The thought process gets a little confusing to me when my government pension starts at age 65 and accounts for half of the $60K/yr. I need that money for maybe the first 15 years, but not necessarily after.

With Firecalc and other financial calculators you can input all that info on future income streams to come up with a target sum to retire on. For the first x years the withdrawal sums will be much higher, until the new income streams come online.

 

[Meadbh]

I would like to know about the policy that will pay for your children’s education if you are retired. I was not aware of that.

 

[Sunset]

I have a meeting booked for Friday. I am asking about the fee's and also asking about converting to all ETFs and asking his thoughts on using bank preferred's as part of a income portion.

While preferreds do pay a higher div, they don't appreciate in value. I personally have some preferreds, but only a small amount.

Here is the issue, preferred A pays 6% (sounds great). The common stock of A pays only 2% . However the common stock appreciates like the avg stock market, so if the common stock market appreciates 4% or more per year, the common stock will "win".
History shows since 1975 the market has appreciated ~9%
Observations: Average Stock Market Return Since 19xx

Since you are considering ETF's , as long as you pick very broad ones, many people find their FA is really doing nothing to earn the fees, and self manage their investments.

You might want to visit the https://www.bogleheads.org/ site for lots of in depth investment advice. They largely subscribe to the etf simple route.

I think the number I gave was in todays dollars. It includes both my CPP and OAS and my DW's CPP and OAS. Neither of us will be able to max out our CPP.

That makes sense, wasn't sure if you were thinking only yourself.

 

[kcowan]

You might want to visit the https://www.bogleheads.org/ site for lots of in depth investment advice. They largely subscribe to the etf simple route.

Being a Canadian, you will want to visit the Financial Wisdom Forum which is BogleHeads for Canucks.

 

[kcowan]

I have a meeting booked for Friday. I am asking about the fee's and also asking about converting to all ETFs and asking his thoughts on using bank preferred's as part of a income portion...

Be aware that there are so many ETFs now that selection is difficult compared to blue chip stocks.

For Canadians, there is a resource called Pref Blog in which James Hymas shares his opinions on new issues in Canada. He also runs a fund of prefs which has a 10 year return of 10% compounded. He charges 1% to manage it.

 

[couch]

I would like to know about the policy that will pay for your children’s education if you are retired. I was not aware of that.

It depends on the province you are in. Here is an article I found that describes a lot of the programs.

A guide to free tuition with OSAP and CSG - MoneySense

I am in Ontario, so at least here its based on the parents income. Not based on assets. And not on RESP savings.

 

[couch]

While preferreds do pay a higher div, they don't appreciate in value. I personally have some preferreds, but only a small amount.

I am thinking that it would be better than bonds for the income side of my portfolio. I wouldn't use it to replace equities. What do you think about using them like that?

 

[kcowan]

Yes both prefs and convertibles count as fixed income. The rate reset callable prefs are not as fixed as they used to be. My best recent deal was a 6.25% convertible for New Flyer. At 5 year maturity, I had the option to convert to common at $10 and common had risen to $55! So 5 years of fixed return and then a reward. Not many of those around.

 

[couch]

Yes both prefs and convertibles count as fixed income. The rate reset callable prefs are not as fixed as they used to be. My best recent deal was a 6.25% convertible for New Flyer. At 5 year maturity, I had the option to convert to common at $10 and common had risen to $55! So 5 years of fixed return and then a reward. Not many of those around.

Individually, I understand all of those words. But I don't understand what they mean when strung together. I am not as familiar with how prefs work as I should be.

 

[kcowan]

In short, prefs used to be fixed for the duration. Then they introduced callable before the term. Then they introduced rate reset. So now you can't count on the returns like you could on bonds. Pref blog trades them and makes equity gains like stocks.

 

[rodi]

First - welcome to the forum.
Second - great job on starting the process to come up with a retirement plan.

Keep tracking your money/spending.

Get a handle on the fees/expenses of your investments.

Try to develop a plan that can withstand down markets, inflation, and good stuff too.

As for the options you laid out... I'd look for a compromise. Scale back work a little to avoid burn out, continue to sock away till your nest egg increases, continue to refine your plan.

I found that focusing on spending was a huge help. As I found little things to cut out of our spending (which were minor and didn't impact our quality of life) I could out more towards saving... That grew the nest egg quicker and reduced the minimum size of the nest egg, because I was now spending less.

Good luck and welcome

 

[Koogie]

Welcome.

I'm also a small business owner based in Ontario and about the same age.
DW and I semi-retired about 2.5 years ago, after getting lots of good advice on this and other forums. So, it is definitely possible !

I second Mr. Cowans recommendation of the Financial Wisdom Forum. Especially if you have questions about investing through your CCPC or other taxation matters. A lot of experts there, with hands on knowledge.

You can also check out two other forums. highinterestsavings.ca focuses on HISAs and GICs. canadianmoneyforum.com focuses more on general investing and personal finance.

I would definitely post more information about your "advisor" and what it is they are doing for you and how they are being remunerated. As you probably know, there are some really good advisors. There are MANY more terrible ones. With the state of returns these days, a bad one and their drain on your finances can make all the difference between success and failure.

Bonne chance.

 

[Meadbh]

It depends on the province you are in. Here is an article I found that describes a lot of the programs.

A guide to free tuition with OSAP and CSG - MoneySense

I am in Ontario, so at least here its based on the parents income. Not based on assets. And not on RESP savings.

Cool! It does seem to be very province-specific. Let’s hope it’s still around when your kids are old enough to benefit.

 

[couch]

I would definitely post more information about your "advisor" and what it is they are doing for you and how they are being remunerated. As you probably know, there are some really good advisors. There are MANY more terrible ones. With the state of returns these days, a bad one and their drain on your finances can make all the difference between success and failure.

To be honest, the biggest thing my financial advisor is providing for me is what I call marriage insurance. When the market takes a big hit and we "lose" a ton of money, I can point at the advisor and say it was all his fault. If I am responsible then my wife can point at me.

After that he is providing us advice on which bluechip stocks to buy and what other investments to buy. He is from Edward Jones and so I am pretty sure he just follows their BUY/HOLD/SELL recommendations.(We have only ever sold once, and it was because I morally objected to something one of the companies did, otherwise we hold everything.) He tries to make sure that our equities are as diverse as possible; I think I would have made some mistakes on that without him(for instance I would have been over exposed on the small cap ETF).

Lastly, he is taking care of the paperwork. We end up with a couple money market, two TFSAs, two RRSPs, one spousal RRSP, one corporate CDN and one corporate USD accounts. He is providing a couple term life and one whole life insurance policies. And he is taking care of re-investing the dividends.

I should have a better idea by the end of the week how much all of this is costing me, but he isn't providing ZERO value.....

 

[target2019]

I should have a better idea by the end of the week how much all of this is costing me, but he isn't providing ZERO value.....

Many on this forum have very low fees, built into the ETF or mutual fund, for example. My expense ratio is .176%, which can be considered high, compared to others in the forum. So, if we have similar AA and performance, additional fees you pay means he provides zero value.

Because the adviser is selling you a complex solution, it it inherently more difficult for you or I to understand.

When you buy individual stocks through a broker, it is more challenging to track. Your advisor, IMO, should be able to pick a time period, click a button, and give you all the fees (trading, advisor, internal, etc.). Time will tell, right?

When markets move sideways and down, it occurs to some that advisor gets his/her cut even when failing. That is how my F-I-L used to put it.

 

[Koogie]

To be honest, the biggest thing my financial advisor is providing for me is what I call marriage insurance. When the market takes a big hit and we "lose" a ton of money, I can point at the advisor and say it was all his fault. If I am responsible then my wife can point at me.

After that he is providing us advice on which bluechip stocks to buy and what other investments to buy. He is from Edward Jones and so I am pretty sure he just follows their BUY/HOLD/SELL recommendations.(We have only ever sold once, and it was because I morally objected to something one of the companies did, otherwise we hold everything.) He tries to make sure that our equities are as diverse as possible; I think I would have made some mistakes on that without him(for instance I would have been over exposed on the small cap ETF).

Lastly, he is taking care of the paperwork. We end up with a couple money market, two TFSAs, two RRSPs, one spousal RRSP, one corporate CDN and one corporate USD accounts. He is providing a couple term life and one whole life insurance policies. And he is taking care of re-investing the dividends.

I should have a better idea by the end of the week how much all of this is costing me, but he isn't providing ZERO value.....

Lol... I hear you on the marriage insurance. This week I had to inform DW that due to market turmoil, on paper we were down a figure equivalent to her salary ! She understands luckily. Mind you, I did notice there was no marmalade on my toast this morning...

You will find on this forum, and the others that have been mentioned, that most people take a DIY approach to their finances and don't use advisors (makes sense.. these forums self select for people interested in that).
I used a Fee Only planner at one point to get me going. The fee structure was up front and it was money well spent.

I will say as well that Edward Jones doesn't have the greatest reputation in Canada. Your particular broker might be a swell guy though.. who's to say. However, Jones will be making quite a bit of money off your portfolio.
Let me repeat that. Quite a bit of money.

Only you can decide if you have the interest and acumen to DIY. Or, like I did, take a hybrid approach with someone to hold your hand. Don't be afraid of the complexity. I have the exact same number of accounts to take care of as you do. Between me and my CA, it gets done every year. It isn't hard work, just unfamiliar at the beginning. Hell, I can do it and I ate dry toast for breakfast...

Anyway, finances are only one part of retiring early. If you are getting reasonable return for value and are happy with the broker, stay happy.
It'll take a little longer to get there but you'll still get there.

And it is great once you do...

 

[Nemo2]

She understands luckily. Mind you, I did notice there was no marmalade on my toast this morning...

Problem(s) easily avoided with prudent pre-purchase use of the phrase "So,
whaddya think?"

 

[couch]

I have the exact same number of accounts to take care of as you do. Between me and my CA, it gets done every year.

How do you keep track of your income and losses. In particular from things like dividends? It seems like there must be a lot of stuff that needs to be provided to the accountant. Obviously this only applies to the unregistered investments.

How many hours a year do you figure you spend on this?

 

[Koogie]

Problem(s) easily avoided with prudent pre-purchase use of the phrase "So,
whaddya think?"

I would have said "Mea culpa" but she doesn't speak Esperanto....

 

[Nemo2]

but she doesn't speak Esperanto....

Does anybody?