Posted by Tim Stobbs on February 11, 2009
Ok, upwards and onwards here. Now some important consideration to my plan is having a paid for house. Right now the plan is to go crazy about 2012 or so and pay off the mortgage in approximately three years. The reason behind the payoff is to allow me flexibility when I’m coming up on the end to retire earlier than 45 if things go well. Also it allows me more options if I can live on a reduced income, I might end up changing my mind and going for semi-retirement earlier than 45.
Now a question from Part I was “am I depending on downsizing my home to retire early?” The answer is no. I do intend to downsize but the money I make from that I’m planning to fund my ecohouse dream. So in the end my plan will get the benefit of lower utility bills and a new place to live, but I’m not planning on any of that in this exercise other than lower maintenance costs. Basically I’m treating it as a nice bonus.
So what happens now with the taxable account? Well the reason this account is still in the plan is I literally won’t have enough contribution room in our RRSP’s or TFSA’s to shelter all the money. So the idea is to keep dividend paying stocks in the taxable account as much as possible to keep the tax liability low, but towards the end I might also have to accept paying some tax in my plan. I’m again combining my wife’s account and mine to make this simple.
Starting at $15,100
Adding $367/month at 5%
In 4 years I will have:$37,891
Then for three years I won’t be adding anything (when I’m killing off the mortgage), then it will grow to:$44,009. Then for the last few years I now have a huge cash flow to save because I don’t have a mortgage.
Starting at $44,009
Adding $1467/month at 5%
In year 14 (I’m 45) I will have:$209,588
So if you add in yesterday’s total of $531,788, you end up with $741,376. Now this number is important. Any guesses on why? Well if you add it to the house value you almost hit a million dollars, but that’s not what I’m getting at. Still stuck?
Ok, I’ll give you a hand take my yearly income estimate of $30,000/year and divide it by the total and express it as a %. The answer is 4.0%, which conveniently is considered the typically safe withdrawal rate of a portfolio in retirement and below my expected 5% rate of return. Basically without any government benefits included yet I just won’t be able to just retire early at 45. Instead I’ll be completely financially independent and that is with a fair number of conservative assumptions like I never get a raise at my job beyond inflation.
So at the end of Part III I’m facing the fact I might be able to retire earlier than I planned. So tomorrow I’ll start looking at CPP and OAS and then on Friday calculate out my possible retirement dates. It’s sad really, I liked “Free at 45″ it has a nice ring to it.