Well I think it is finally time for me to walk you all through my plan to take money out of our investing accounts. After building them up for years, reversing the flow is going to feel very odd but at the same time I do have to get used to it.
Now in passing I mentioned that I’m using a mixed approach to funding our lifestyle with our investments. We aren’t going to depending on just part-time work, government benefits, dividends or capital gains but rather all of them. I want a diverse flows of money coming in to provide some buffer in the event the stock or bond markets tank in a given year or if a given company stops paying their dividend. The other somewhat complicating factor to this is the amounts we take out from each of those accounts will vary through time as I have previously discussed.
Overall our annual goal is to have $30,000/year for spending. Of that I expect my wife’s work will cover $7200/year of the target. Then our current TFSA and taxable portfolio is producing around $9100/year in dividends. Both of those I expect to be stable inputs for the next five years which gives us $16,300/year in total or 54% of our spending target.
Next up is the Canada Child Benefit (CCP), which for the first 24 months or so won’t be a big deal since that money will be invested in the the family RESP account (as per what happens right now). Our target is to hit around $80,000 in the RESP and so far it is currently at $68,000, so that 24 month estimate might even be shorter than that. For the first 20 months or so after I leave my job that won’t be a big deal since the amount will be just around our RESP investing amount, but after our first full year of low income our CCP will increase dramatically the following July. Combined with GST/PST rebate it will jump to around $12,000/year. Yes THAT high, so after finishing topping up the RESP account that money will flow into the general income for the household and another 40% of our spending target for a few years when the kids are around.
So for you keeping score you might realize that between the CCP, the dividends and my wife’s work that accounts for $28,300/year of our target or 94.3%. Yet that period of time won’t last that long as our oldest son will hit 17 and that income will drop off, but that does give us a nice two or three year window for the investments to keep growing which should help us bridge to my wife being able to quit (when she is ready).
Now anything not funded from the above will be taken out of capital gains from our RRSP accounts. And due to the basic tax deduction, if I don’t use it for work in a given year or even if we don’t need the money, we still plan to take the money out. Why? Because it will end up being a tax free withdrawal from our RRSP and if we don’t need the money it will just get flipped over to the TFSA account if there is room. The amount we need to take from here will shift up and down depending on the other items above.
Then finally on top of all of this is our slush fund which is money put aside for vacations, home renos and car replacement. We plan to start with $20,000 in that account and then any work I end up doing will fill it back up. In the event the slush fund starts getting too big we may just make a lump sum contribution to our TFSA accounts and boost our dividend payout. Yet somehow I don’t think that will happen, but who knows what I end up doing to earn money.
So in summary that $30,000 spending target comes from:
- Dividend income $9,100
- Wife’s job $7,200
- CCP benefit varies from $0 to $12,000
- RRSPs varies from $1,700 to $13,700
And the above doesn’t include vacations, house renos or car replacement which I will fund via my work and our $20,000 slush fund. Then of course all of the above doesn’t include the $12,000 I’m putting aside to pay for the first six months so I can have a completely guilt free detox period after leaving work. And long term as the CCP payments increase we will let the investments grow to replace my wife’s income and allow us to bridge into full retirement (if we want to). Oh and we will adjust our spending to our actual inflation rather than the CPI (as long as it doesn’t exceed my 4.5% withdrawal from our investments overall target). And we still have that $15,000 emergency fund beyond all of the above.
To help you visualize all of this here is my projected investment net worth for the next few years based on 4.5% real return on investments (click to make bigger). That little dip early on is me taking out the $12,000 detox money all at once.