Adjusting to a Rising Net Worth

When you start saving towards an early retirement, you understand that your net worth will steady increase, but I don’t think many of us consider what that changes in your life.

The first most obvious change becomes the ability to self insure on more minor things.  You don’t buy the extended warranty because if something stops working you can just buy a new one.  Then later on when you have even more saved you can raise your home insurance deductible since you can handle even larger costs.

While those did cross my mind, I didn’t realize another insurance adjustment you can make down the road is having less life insurance.  After all life insurance is about replacing lost income and when you have a large amount of money saved you really don’t need to replace as much income.  So right now I’m in the process of reducing our life insurance coverage by half.  We previously had $500,000 each for coverage, but that is becoming obviously overkill with the steady increase in our investment net worth.

Yet the most profound change of a growing net worth I have noticed is the ability of increased choice.  Money ceases to be a major barrier to your decision making process, the question of ‘can I afford this’ isn’t relevant to many discussions.  Instead your questions turn to: do I want this?  Will this be a good value for my money? If there another choice I would prefer to do instead?

More money also allows for more opportunities in your life.  For example, a real estate deal comes up that is attractive, if you have enough money to invest you can potentially take on something that otherwise would be out of reach.

There is also a dark side to having more choice, your ability to put up with bullshit and crappy situations goes down hill since you know you can walk away from many more of them.  For example, for most people walking away from your job after a crappy week isn’t a valid option, since you have bills and a mortgage to pay and usually not enough savings for a long period of not working.  Yet when you have several years of living expenses saved up, the situation changes and you can walk away.  Then I find I have to take a break from the situation and determine if the issue is temporary and if I can cope with it.  Or if the situation is more permanent in nature how to get around it or determine a threshold at which I won’t put up with it anymore.  I once spent six months in a really crappy job situation and it was too long as I was become someone I didn’t like.  So now I have a much shorter fuse.

Overall I find having more choice just causes me to think more about my options.  So while that can be a good thing, it can also result in over thinking about some situations.  So what do you enjoy most about your increasing net worth?  Or what is the worst part of it?

Currently Befuddled

I’m currently about halfway through a 6-month temporary contract / learning opportunity with the company I have worked for over the last 10 years. So far, I have gotten to the point that I know enough to confuse myself on an almost daily basis. My end goal is to be 60% as competent as the people who were given the task of answering my questions, or at least understand what they’re talking about most of the time.

This will be the fourth position I have taken within my company over the decade worked there. After a period of time where I’ve learned the job fairly well, I’ve just continuously looked for different opportunities in the company. After this job, I’ve basically done every staff-level job that someone with accounting experience would be able to do within the company. I enjoy learning new things, and I would like to think I have benefited the company I work for by cross-training throughout the fairly large organization.

At the same time I have been learning a new job, I have been reading a lot of books on investing and what I should be looking for in potential stocks. Sometime in the next few months, my retirement plan is going to move from paying down my mortgage, to investing heavily for retirement, something that I’d like to be prepared for. I figure if I’m the least bit organized I will at least be throwing money around based on semi-educated reasoning, which will let me go to bed at night thinking it’s a little less on the gambling side and a little more on the investing side.

You could say that I am currently in a state of information overload, whether it’s investing material that is important to my retirement investing health, or my work life where I am constantly learning about a fairly complex accounting system used by my company, I am learning more and more every day. The befuddlement I feel is something I enjoy, because at some point something will click and I will hopefully be better for it.

I hope to achieve some passable level of talent at both my job and investing over the next few months, so that I won’t have wasted my own or my company’s time in learning. It’s one thing at work, where I have at least added some new acquaintances and a greater understanding in how a different part of my company works, but if I haven’t picked up enough strategy for investing, my whole retirement plan might crumble – not the end of the world, but definitely not ideal.

At what point would you say you turned into a “seasoned” investor? Do you think you’re on the way, or are you in a constant state of second-guessing?

RRSP Over Contribution

I finished a draft run on my taxes from last year for both my wife and I and realized I have a small problem.  I did much better on contributing to our RRSPs than I thought I did.

On the plus side I should be getting back over $4000 in a refund.  On the down side I believe I have burned through all my backlog of RRSP contribution room and then some.  At first I thought I was fine and then I realized if I claimed all the contribution in the first 60 days of this year on my 2013 taxes I would end up over contributing by just under $200 than my limit.

Now I have two potential solutions to this RRSP over contribution issue:

  1. Don’t claim $200 of RRSP contribution in 2013 and carry it for use in 2014 or
  2. Do nothing and realize I can over contribute by $2000 in an RRSP for a given year.

I had forgotten option #2 existed until I was reviewing some tax websites, so I tempted to just do nothing and take the refund.  After all it will balance out next year anyway.

In the longer term I now have to look at potentially doing something, but I’m not 100% sure I can.  I’m out of back contribution room in my RRSP, but my wife has about $20,000.  Yet she earns so little she doesn’t pay any income tax.  So I’m looking into if she contributes lets say $10,000 to her RRSP that would drive her income to zero and then does that trigger the transfer of her basic income deduction to me?  Thus giving us a tax savings at my marginal rate.  That is all in theory, I need to confirm we could do it.

Yet that plan would have a downside of introducing a zero income year on my wife’s CPP calculation.  Which would be fine if that occurs during a year when she could claim a child rearing provision to her CPP calculation, but otherwise may lower her CPP benefits in the long run. Ah choices in life.

So have you run into any odd situations with your income taxes this year?  If so, please share what it was and how you dealt with it.