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Saturday, October 25, 2014

Finding a New Normal

Posted by Dave on June 3, 2014

Dave is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.

I spent the entire weekend outside, cutting and connecting wood in an attempt to make our backyard look like a place where somebody lives, rather than an unused barren patio with a small wheat field growing between the stones. This project is something that both my wife and I have talked about doing for the entire 5 years that we’ve lived in our house, and (hopefully) over the next week or two will be able to complete. There is some added pressure that we don’t have to deal with when doing most of our half-finished indoor projects – the neighbours can see the progress we’re making and we’re kind of the dirty kids with a ripped up yard until we get sod laid down and everything cleaned up.

With our mortgage paid off, our “sprint” to complete that project is now over. Financially, we’re waiting for our paycheques that come this Thursday to settle all outstanding debts we have and to begin replenishing our personal savings that we kind of wiped out to cover the last amounts owing to our mortgage company. After that happens, we have to sort out what our new “normal” will be for the coming decade.

My wife and have split our bills based on our respective incomes. She pays for Internet, hydro, gas, property tax, and food and I pay for everything else – house, car, life insurance, gas for the car and up until now, our mortgage. My wife is also in charge of saving a good portion of her income for our annual “large” expenses – vacations, home improvements, and a car in the past to name a few.

We will now be in a new race – to save the approximate half-million dollars or so that we’ll need to live off of for the (hopefully) 50 years that we’ll live after we retire, and do so as quickly as possible. Before May 23rd, 2014 (forever known as $40 Steak Day in our house), our intention was to minimize the amount of interest we were paying our mortgage lender. Now, we’re psyching ourselves up for the next 10 years ahead of us – more 40 hour work-weeks, higher earnings with our new investment income, and more opportunities to learn.

I’m looking forward to the next few years, I have a lot to learn about investing and look forward to this unique opportunity to try not to screw up our finances too much. The good thing about our financial plan is that if anything significant goes wrong, we will hopefully be able to work an extra year or so to fix my mistake, and still be able to retire relatively early.

Comments

8 Responses to “Finding a New Normal”
  1. jon_snow says:

    I am as frugal as they come, but no way would I feel comfortable that 500k is enough to fund 50 years of retirement. I’m planning on having 1.3M when I retire this year at 42, and probably around 1.7M when my wife joins me in ER. Probably closer to 2M if she carries out her threat to work another 10 years.

    500k gives you very little margin for investing mishaps – and you will have to take some risks to squeeze enough income from that amount. Dave, would it not be worth it to work a little longer, save more (it sounds like you will be able to save at a good clip without a mortgage) so you can get the most of your early retirement? The stress of running out of money is probably not much fun. I guess you could always go back to work – but I would imagine that after tasting a work-free existence, that would be a major downer.

  2. Dave says:

    @ Jon_Snow – It will give me very little room for investing mishaps, and our “end number” will probably change significantly over the next decade of saving.

    I’ve based the number mainly on 4% withdrawal and our normal annual spending today, so if there are any changes in either the overall economy or in our own “economy” then we’ll have to change it.

    We are somewhat buffered, with Canadian healthcare from something overly catastrophic taking place, but investment concerns will probably be where some buffer is necessary.

    I guess we’ll see how the next decade go and re-assess on the way.

    Thanks for your question!

  3. Tom says:

    ….”more 40 hour work weeks….”? That’s a long week for you? Hope your health never deviates from your straight line accounting because it will. Good luck.

  4. Tara says:

    500K sounds too low to me as well – my partner is already retired and I plan to retire in 3 years when we hit 1.3 million, with 2 properties which are already paid off.
    I was always worried about my health possibly getting derailed, so I saved while I was paying off my house, as Tom mentioned.

  5. Jacq says:

    Agreed with the others that $500k is very low (having said that I think Jacob at ERE bailed at around $200-$250k and didn’t include housing obviously but you have to inflate his number too for 2 people and about 15 years). Not sure what your annual savings rate is now, but it’s entirely possible to be saving more than you think you might, so it might work out in a decade with raises, pension etc. If I were ever going to recommend one thing to people though, it would be to begin investing before you have big sums going into a market without having experience with what can happen – ie. invest before paying off the mortgage. Your by far biggest risk is sequence of returns with that small of a pot.

    Your other big risk is that your work experience to date is with government. If you did want to pick up a good short-term contract down the road to replenish the pot, most private/public company managers I know (including me) won’t look twice at a government-work-only resume in finance. Doesn’t matter if you’re a CGA or not, it’s a completely different ball game.

    It fascinates me that people that don’t have children often attribute their ability to ER to not having kids and the massive savings resulting from that, where some people have them and can save at what looks like 2-3 times the rate of a dual income, no child family. Speaks to the compounded value of career choice I guess.

  6. Plain Jane says:

    We are a 1 income 2 children household. We are both 45 years old and have a networth (including mortgage free house) of $1.7 million. On top of that, my husband will be receiving about $3k in pensions when he retires at 55. We are currently earning $4k in investment dividends which is partly generated by borrowed money. About 20% of our investment is funded by a line of credit on our house. We decided to take equity out of our house as soon as our mortgage was paid off and starting investing wisely in blue chips. It has paid off for us in that we watched our BC house value appreciate as well as our investments value and monthly dividends.

    We were very frugal when we had our mortgage which was paid off 10 years ago. We doubled our biweekly payments and always going with the lowest interest rate (we never believed in paying more for 3 or 5 year terms).

    To us, our children didn’t hold us back. My husband makes average $80k a year. I think we are smart in investing and making good decisions when markets decline i.e. not panicking and selling but instead buying more.

    But now that we are comfortable with our finances, we are starting to relax and enjoy our lives a lot more. My husband’s job is not the least stressful so he doesn’t mind hanging onto it for 10 more years to get bigger pension cheques. We are planning our vacations and even bought a brand new car! Life is good :) You just have to plan earlier on and save hard.

  7. Tina says:

    Hi Dave,
    Congrats on paying off your mortgage. I think what you’re doing is great. I think if you’ve gone so far as to run the numbers like you have and you are satisfied with your projections who are we to say what’s too much/ not enough/ too long. Unless, of course, you sell insurance. Well then, you never get to stop worrying about the what-ifs and worst- cases….
    My husband and I paid off our 30 year mortgage in 8 years by throwing everything extra at it ( the question of whether to invest those extra payments never occurred to us as we were completely ignorant of investing strategies at the time.) It just made sense to us. Ill admit too we were kinda expecting a big certificate with a gold star declaring ” Thus endeth the mortgage” that we could hang on the wall too. My biggest worry was that we’d start spending the difference on stupid upgrades ( new furniture, vacations) but aside from replacing some broken appliances we’ve socked it all away. I’m wondering how others have celebrated the mortgage payoff day?

  8. Mark says:

    Congrats on paying off your mortgage and it’s interesting to hear others perspective on how much is enough to retire on – a hot topic on my mind.
    I’m set to pay off my mortgage in a few weeks and pretty excited about it and quite proud that I’ve managed to do it at 40 years old on a $500k house on a single self-employed artists income (my wife homeschools our kids and hasn’t worked since we bought our first house 13 years ago) all the while traveling frequently on exotic trips. We have a good dent in our retirement savings already too so the race is on to build up our savings to a level we are comfortable retiring on, just have to figure out what that magic number is for us.
    I think we’ll celebrate with a simple ceremony – walking around our property to soak it all in and burn some symbolic piece of paper over a backyard campfire with a glass of wine!

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