- How Does the Zero-Interest Rate Environment Affect You? - September 21, 2020
- Find Out the Commuted Value of Your Pension - September 14, 2020
- Reader Case: Rent or Buy in Spain - September 7, 2020
Lately FIRECracker’s developed the bad habit of scrolling through our old travel photos (and by “old”, I mean from like 3 months ago). “Hey, cut it out!” I’d say whenever I caught her doing it. “You’re just going to make yourself feel bad.” And then she would look up at me, her lip quivering and a single tear rolling down her cheek. “I want my smokey chicken.”
Well, it looks like we’re not the only one feeling this way.
Hello FIRECracker and Wanderer,
Greetings from here in lockdown Vancouver.
Everyone says it’s so nice here, but when you’re stuck inside and paying rent it’s just expensive. And it’s demoralizing because you look outside and it’s so nice out there.
I’ve been meaning to use the time at home to Marie Kondo my apartment, but instead I’ve been floating around the internet and have discovered FIRE and this is my light now. FIRE and tennis. I miss playing tennis so much. Fortunately, they kind of go together because Wanderer kind of sounds like Federer.
Here’s my situation… I’m hoping I might be able to be FIRE’d in 7.5 years, or possibly 12.5 years at most.
Gross income: 105,000 CAD
Rent: 1,800 … downtown Vancouver rent is ridiculous, but after 10 years in this building I feel like I’m getting a good deal now on the rent…?? I move around town on foot, bike, transit or the occasional car share.
Monthly spending (non-rent): 1,000 … I mostly eat and drink at home, spending $ on re-stringing my racquets and tennis balls. Have drastically cut-down my UNIQLO shopping.
Debt: none …. I have several credit cards I use to get points, but I pay them off each month, no balance. Have recently discovered that I can pay my rent with a credit card.
Fixed assets: none
Savings/Investments: 250,000 CAD … it’s been mostly stupid mutual funds for the past 10 years and sitting in cash (super lame, I realize) as I missed out on the bull market.
My plan is to put:
1. 100k in an all-in-one ETF like VGRO, or XGRO (for the auto PACC)
2. 100k in dividend growth stocks (I found some well written blogs on the subject like My Own Advisor)
3. 25k in some home run stocks like energy (this is in March/April 2020, so in 5 years…). The home run thing sounds like a bad idea when I write it out, but it would be about 10% of my savings… ¯\_(ツ)_/¯
4. 25k in cash emergency fund
Pension: I have a targeted plan/DB plan from work. The last statement said:
Stop work at 50, start collecting at 55 = $20,000 / year
Stop work at 55, start collecting at 55 = $25,000 / year
Stop work at 50, start collecting at 65 = $36,000 / year
Monthly savings goal: $3,000
I’m not a massive spender (I’m trying to get your book from the library, 42nd in the request line), and my plan would be to initially travel for a few years. Then perhaps work part-time either teaching English (which I did in the past and enjoyed, but was concerned it wasn’t a real job… but it would be fun to do part-time, maybe teaching online as a part-time side gig = $5-$10,000/per year)
Ideally, I’d like to be a snowbird, spending each winter in a warm country (near a tennis court) and summers in Vancouver (it’s nice here in the summer and my parents are getting older). Then eventually settle down somewhere, maybe Penang or Hua Hin (my two favourite places so far in SE Asia). I currently get to travel internationally for my job, but when I’m not on the road then I’m stuck in a cubicle. During the quarantine I’m actually really loving working from home (it’s not the office!), but the trade-off is that I can’t travel nor play tennis…
Thank you for any advice and guidance you can offer. I’ve read a lot of FIRE websites and yours was the one that made me laugh out loud with your tone and humour. Most read post on CBC News too, nice!
Lastly, I’m old for FIRE, my chronological age is 42. But I’m thinking of re-framing my age as 32 (everywhere except on my passport) because it’s more how I feel and more how I probably act… Also, it makes me feel like I can still be FIRE’d (hopefully by the fake age of 40). About 33% of the time I’m still ID’d at the liquor store when I pick up my rum, so I feel I could maybe fake it and get away with it. And a bonus would be that CPP+OAS would arrive 10 (fake) years earlier.
Sorry for the looong email. I would be very grateful for your reply and any suggestions. I’m terrible at math.
OK so first of all, on your investment plan, I just have this to say: No, no, a thousand times no. The following emoji ¯\_(ツ)_/¯ should never appear in someone’s investment strategy. Read our Investment Workshop as a starting point, and go from there in designing your portfolio.
Where Do We Stand?
OK so let’s get down to brass tacks and MATH SHIT UP. Here are the inputs to ClippedWings’ finances. He only gave me his gross income, but knowing he lives in B.C., and assuming he maxes out his RRSP every year, his net income would be $84,159.
|Income||$105,000 gross, $84,159 net|
|Spending||$1800 (rent) + $1000 (other) = $2800 per month, $33,600 per year|
What really stuck out at me reading this is that despite the fact that he’s living in Vancouver and complaining about the “ridiculous” downtown rent of $1800 per month, his financial situation is actually pretty strong. In fact, at this spending rate, his savings would be $84,159 – $33,600 = $50,599, or a whopping 60%.
This stands in direct contrast to all the news coverage out there that says everyone in Vancouver is drowning in debt, like this one:
The key word there, apparently, is debt. Everyone that has debt (i.e. mortgage debt) in Vancouver is drowning in it. But our reader doesn’t have any debt. Because he never bought a house. Instead, he rents, and even though the rent is relatively expensive, he’s doing just fine because he never fell for the siren song of real estate.
Well done, ClippedWings. Well done.
So given his spending of $33,600 per year, that would put his FI target to be $33,600 x 25 = $840,000.
And given his current investable assets of $250,000 (assuming she reads the workshop and invests is properly in low-cost index funds), how long will it take for him to FIRE?
Just 8 years! That would mean he would be fift…ahem…I mean FORTY, if we go by how old he FEELS rather than his chronological age.
That ain’t bad!
But Wait! What About The Pension!
Now, normally I’m all for going with the age you feel rather than the age you are, but the one time I’d go with your chronological age is when you’re filling out forms for your pension eligibility.
By the time he hits his FIRE target, his chronological age will be 50, which makes him eligible to begin collecting his pension 5 years later. This will have a massively positive effect on his retirement numbers, because it will start adding an ADDITIONAL $20k of income per year!
Without the pension, his FIRECalc results look like this:
95% success rate over 30 years, with an average ending portfolio balance of $1,573,890.
But if we add in $20,000 of inflation adjusted income starting 5 years after his retirement? It looks like this.
Yowza. That looks like guaranteed success to me. That is a 100% success rate over 30 years, with an average ending portfolio value of $2,734,568. There are few sure things in the world, but that is as close to a sure thing as I’ve ever seen.
And we haven’t even taken into account the fact that he plans on spending part of his retirement in SE Asia, or the fact that he may take on a part time job teaching English. Either of those things just makes him already phenomenal retirement even better!
See You in Penang!
So ClippedWings, despite the fact that you lived in a city with ridiculously high housing costs, and that you’re self-professed “terrible at math,” your instinct to avoid buying into the insanely overpriced housing market and rent instead has positioned you to have the retirement of your dreams. You did it!
Just promise me one thing: When you make it to retirement and book that flight to Penang, let us know so we can meet up over a delicious bowl of Penang beef noodle soup.
Oh, man. Look how good that looks…I wish I was in Penang right…goddammit! I just made myself feel bad again.
Can we f**king start travelling yet?!?
Fun news: Guess what? The FIRE movement now has its own theme song! A reader, WeWantGuac, dropped this beat in our inbox and the only reasonable response was to convince Clover to choreograph a Tiktok dance with me. Check it:
To listen to the whole FIRE song, click here.
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