Reader Case: Living Big in the City

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Wanderer

The Wanderer retired from his engineering job at a major Silicon Valley semiconductor company at the age of 33. He now travels the world, seeking out knowledge from other wealthy people, so that he can teach people how to become Financially Independent themselves.
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It’s Friday, so you know what that means: Time for another Reader Case!

Today’s reader case is from a reader case alumni: MontrealDilemma. Way back when, MD’s employer asked him to move to Toronto, and was wondering what to do with his condo: Sell it or rent it? We mathed-shit-up and realized that after costs, the rent he’d be getting would have sucked compared to investing, so we advised MD to pull the ripcord and sell that sucka! Well, a year and a half later, here’s what he’s been up to..

Hi Firecracker,

Last we spoke, I asked you to do a case study and help me “math shit up” to decide whether to sell or rent my condo in Montreal. I ultimately decided to sell, and in moving to Toronto, opted to rent rather than buy. It was a pretty big decision to leave my cherished life in a wonderful city and move to the epicentre of Canadian corporate drones. Yet here we are, over a year later, and thought it might make for an interesting read to do an updated case study. Plus I would love your perspective on a few questions: I’ll open my kimono if you open your brain. 🙂

THAT WAS THEN….

On November 1 2016, this is what my financial picture looked like when I listed – but  had not yet sold – my condo:

CASH FLOW

INCOME

  • Annual gross Income, taxed in Quebec: 109,000
  • Annual bonus (gross): 14,700
  • Annual employer RRSP matching: 9,200

EXPENSES (MONTHLY)

  • Mortgage principal: 172
  • Mortgage interest: 142
  • Mortgage prepayment: 408
  • Condo fees: 254
  • Property taxes: 187
  • School taxes: 42
  • Insurance: 36
  • Hydro: 60
  • Internet: 50
  • Metro: 80
  • Private Disability Policy with “own occupation” rider: 54
  • Groceries: 400
  • Discretionary: 650
  • Car Sharing: 100
  • Subscriptions/gifts: 100

SAVINGS (MONTHLY)

  • Base RRSP Contributions: 1400
  • Extra RRSP Contributions: 1600

NET WORTH: 609,600

ASSETS

  • Cash: 2,900
  • Condo: 325,000
  • Registered – LIRA: 22,400
  • Registered – RRSP: 246,600
  • Registered – TFSA (Cash): 56,300
  • Unregistered Investments – 5,800

LIABILITIES

  • Mortgage: 49,400

The residual between my take home and expenses/savings was used to max my prepayment privileges for my mortgage and as “fun money”. At this point I still had RRSP contribution room.

AND THIS IS NOW…

I sold my condo in April of 2017 to a circus performer. I shit you not: I could scrub my tighty-whities on his lithe body and killer abs. While I thought it was funny to mention that he could not install a trapeze in the unit, he did not laugh. Oops! My realtor thought it was funny.

A year later, this is what my financial situation looks like as of April 1, 2018:

CASH FLOW

INCOME

  • Annual gross Income taxed in Ontario: 132,000
  • Annual bonus (gross): 24,700
  • Annual employer RRSP matching: 11,800

EXPENSES (MONTHLY)

  • Rent: 1900
  • Insurance: 33
  • Hydro: 40
  • Internet: 73
  • TTC: 146
  • Private Disability Policy with “own occupation” rider: 87
  • Groceries: 400
  • Discretionary: 700
  • Car Sharing: 100
  • Subscriptions/gifts: 100

SAVINGS (MONTHLY)

  • Base RRSP Contributions: 1900
  • Non-registered Investment Contributions: 2400

NET WORTH: 768,500

  • Cash – Emergency Fund: 30,000
  • Cash – Unregistered: 3,200
  • Cash – Registered: 1,900 
  • Registered – LIRA: 21,500
  • Registered – RRSP: 330,000
  • Registered – TFSA: 68,400
  • Unregistered Investments – 313,500

LIABILITIES

  • None

Similar to when I lived in Quebec, the difference between my take home and my expenses/savings is “fun money” to finance travel and reasonable indulgences.

A few things to note:

  • I am 38 years old.
  • Yes – my rent is ridiculous. It’s a metaphor for Toronto in general.
  • Without RRSP contribution room, I immediately hired a professional to manage my investments. I interviewed three advisors (including the “Bearded One”) before landing on my current investment manager.
    • PS – the “Bearded One”: rational and direct, he kind of reminds me of a Vulcan with facial hair. Don’t play poker with him, or buy his used car: you’ll lose both your shirt and your panties.
  • My portfolio is tilted towards a more aggressive balanced portfolio with a 70/30 split between equities and fixed income: all index hugging ETFs from Vanguard and iShares with low MERs.

So here are my questions:

  • Based on the singles-equivalent of your nomadic lifestyle with Wanderer, when do you feel I would be FI? My Advisor has done all of projections and Monte Carlo simulations with conservative assumptions based on my current lifestyle, but would love your POV on what geographic arbitrage can do to my retirement horizon.
  • If I wanted to quit my life tomorrow, is there anywhere on the globe I could live as singleton and not exhaust my nest egg?
  • I am not obsessed with micro-optimizations – is there anything big that I am missing? Other than the fact that I ran full steam into the Toronto market, for better or for worse?
  • I’ll take any observations or feedback you may have, but seriously, no pot-shots at what I am paying for rent.

All my best,

FormerMontrealDilemma

Well first of all, I gotta say you’ve done really well for yourself in just a year and a half. You’ve increased your net worth by $160k, you’ve increased your pay, you’re mortgage free and the world’s your oyster.

But looking at your rent made my heart ache. $1900 a month. Yeowtch. That takes me back to my house hunting days when we first moved to Toronto. You went with one of those floor-to-ceiling-glass-granite-counter-top units in the financial district, didn’t you? Or maybe on the lakeshore?

Anyway, that’s definitely one of the things I don’t miss about Toronto. Paying sky-rents only to have my ass frozen half the year. But at least you didn’t buy the thing. Your landlord’s probably leaking money like crazy.

ANYHOO, on to your first question: Where are you in regards to your FI journey? Well to answer that questions, lets…MATH SHIT UP! Man, that never gets old.

Looking at your expenses, there’s nothing too crazy that jumps out at me. $700 a month for discretionary seems a bit on the high side, but what’s the point of living downtown if you don’t eat out once in a while? And also, TTC passes are $146 now? When the fuck did that happen? Stupid TTC…

One thing I did notice is the insurance. You’re paying over $100 a month in insurance, but for what? You’re not a home owner, you take the TTC everywhere, so what’s going on here? And private disability insurance? As I’ve written about before, if you’re going to become FI you don’t need disability insurance to replace your work income. Your portfolio does it for you.

But regardless, it’s not too crazy and you can always fix that by dropping your policy later, so whatever. In total, your monthly expenses are $3579 a month, or $42,948 a year. That gives you a target portfolio size of $42,948 x 25 = $1,073,700.

Now that sounds like a lot. But don’t forget, now that you’ve sold your condo and that amount can be counted towards your retirement portfolio instead of getting locked away as useless home equity, you are starting with $768,500! Also, between your RRSP contributions, your non-registered savings, and your employer’s RRSP matching, your savings ($1900 + $2400) x 12 + $11,800 = $63,400 a year! I’m going to exclude the bonus since that fluctuates.

So how long will it take for you to hit your FI target?

Year Balance Savings ROI Total
1 $768,500.00 $63,400.00 $46,110.00 $878,010.00
2 $878,010.00 $63,400.00 $52,680.60 $994,090.60
3 $994,090.60 $63,400.00 $59,645.44 $1,117,136.04

Turns out, not that long at all. 3 years. And again, not including any bonus money.

But again, this is assuming you’re staying in Toronto. When people write in with sky-high living expenses, they often get discouraged because their cost of living means saving up for their retirement would require an impossibly big portfolio. And I always remind them: Just because you WORK in one city doesn’t mean you have to RETIRE there (looking at you, California readers!)

So if we were to just drop your rent to, say, $1000 a month which you could get back in a city like Montreal, and dropping those weird insurance premiums you’re paying (since you don’t need them after retirement), your living expenses would become $2579 a month, or $30,948 a year, requiring a portfolio of $773,700. So you’re pretty much there NOW.

Want to come retire in Spain, Mexico, Eastern Europe or SE Asia with us? 🙂

So there you have it. At your current savings rate, you’re done between 0 and 3 years, depending on where you choose to retire. Pretty awesome, I’ve gotta say!

One thing I would advise is that if you haven’t started yet, you might want to consider building up your Yield Shield in your portfolio. Whatever you choose, you’re pretty close to your FI date so you might want to start looking into that now. Check out our Yield Shield series for more details.

And we’re done! What do you guys think? Is he as in good shape as I think he is, or did I miss something? Sound off in the comments below!

Update from FormerMontrealDilemna…

Hi Firecracker,
 
Thanks for the great blog post. I had a feeling the 1900 per month would cause you to choke: I choke every time I see that line item flow out of my bank account. You were partially correct: I am in a glass-ish new condo with granite countertops on a high floor with a killer view, but it’s not downtown. I am in midtown and the equivalent rental would cost significantly more than the one I am living in. With the changes from the feds and the province pushing more buyers into the lower end of the housing market, inventory for condos has shrunk, prices have escalated and the rental market has become even more insane. I couldn’t believe I actually needed to get a realtor to make an offer to rent a property: that’s ludicrous. So FUCK YEAH: I will join you in retirement in a lower cost country. I have no love of Toronto once I done working.
 
One thing I would like to throw out there for discussion is my disability policy for 87/month. I am 100% aligned that when I retire, my portfolio self-insures me against loss of income, because my employment income is already replaced by my portfolio. The plan is to cancel the policy when I am fully and finally FI. Until that point, my single biggest asset next to my portfolio is my income potential. While I have a good benefits package at work, there is a lot of fine print that people don’t read which is why I have a separate policy to “top up” my benefits in the event of disability and loss of income.
 
The biggest shocker is that when I hit the point of 24 months of long-term disability, even if I am no longer able to do my “own occupation”, which is specialized and well-paid, but I can do “any occupation” no matter if it makes minimum wage (like burger flipper, short order cook, etc..), my employer benefits immediately cease and my income effectively drop to whatever menial wage I earn in whatever shit job I can do. And being that I have seen many highly disabled people kick-ass by busting theirs at a job, I promise you my benefits would stop cold. So I got a separate policy with a fairly expensive “own occupation” rider. Now if I become disabled my at my “own occupation” and my benefits cease because I am qualified to shovel shit, my private policy kicks in pays me a sufficient stipend to make up the difference of lost income. My intention in getting this policy was to mitigate the risk of lost income because I have a fairly well paying job.
 
The structure to my employer’s disability benefits is actually EXTREMELY COMMON to limit continued employer liability. I would suggest that anyone with high paying jobs whose only disability coverage runs through their benefit plan at work take a REALLY CLOSE LOOK at the fine print in their policy: the last thing you want if you become disabled in a high income career is a surprise that your income replacement benefits have a 24 month shelf life because you can still brew coffee.
 
You’re right about the rent – curious if readers have any commentary about my take on disability benefits.


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31 thoughts on “Reader Case: Living Big in the City”

  1. I like these follow-up case studies FireCracker. It’s neat to see how everyone’s doing.

    This one was very instructive because it shows off just how good a move it was to sell his condo and move. Made a big difference!

    Cheers!

  2. Makes me want to submit my numbers as well.. I am a little lazy to math my own shit up.
    The fact is a lot of people (me) are unwilling to give up their jobs and take the dive because they’re afraid. “What if that’s not enough”, I need a higher number. Once you reach that number, you loop back, and repeat to achieve a higher number…

    speaking of housing, we have a RV problems in our area — middle class have to live in RVs now.

  3. Makes me miss montreal! Rent was so cheap when I lived there. Though I know my standards were lower for living conditions back then too. Lol. Sounds like MontrealDilemma is doing great!

    1. I need to live in Montreal for a bit one of these days to see what all the hype is about. Summer only, though. I’m not going back to that frozen wasteland shit.

  4. I wish $1900 got you a place downtown as nice as you’re describing. That’s the current price for the tip of the subway in a decent looking place nowadays and it’s still increasing!

  5. Even though $1900 is crazy for rent, I think it’s safe to assume that the rationale for the move to Toronto included that large raise! So for the short term, paying about an extra $12k to receive many more 10’s of $k seems like a good trade.

    Congrats FMD!

  6. Congrats to MD for being so close to financial freedom. Just goes to show what a strong salary and low living expenses can do for you.

    It sounds like the buyer of that condo was one sad clown.

    Sincerely,
    ARB–Angry Retail Banker

  7. $400/month groceries for only one person? Where are you shopping! Grab a flyer app, find a discount grocery store, and save an easy $100-$200 / month (I live in Waterloo, so Toronto prices may be higher, but not *that* much higher)

    $700 for misc + using anything not budgeted for savings as “fun money”… how much unaccounted for expenditure does one need? I would suggest tracking this area for a month or two so you at least know what you’re really spending it on.

  8. Hi all,

    This is an example of one selling one’s property and the financial situation of the individual looks rosier than the previous status one year ago.

    As mentioned by FC, there are room for improvement in term of the current rent, unemployment insurance and other minor expense. The individual can choose to retire immediately if he/she tweaks a bit on his/her expense. Retirement does not mean doing nothing and I believe that the individual can generate some form of income for doing the things which he/she enjoys embarking on. Life is that simple and marvellous with many options at his/her disposal.

    Enjoy!

    WTK

  9. Disability insurance comment: people usually get disabled, not killed, and the expenses are chronic and can be horrendous. So yes, I recommend disability insurance. $77/month is nothing compared to $169K/year.

    Good for MD for reading the fine print. Of course your employer doesn’t want to shell out for you for more than 2 years. That’s why you self-fund the good stuff.

    I do know that FIRE’d people cancel their disability insurance. I haven’t looked into this myself yet.

  10. If his employer’s disability plan covers for max two years, he should be able to cancel his own personal disability insurance two years before he quits. If that date can be locked down.

  11. About the “own profession” rider: it’s expensive, but my mother in law had one and had to use it for 20 years because of a chronic nervous system disease. I think it’s worth it.

    If you have a work-supplied insurance, your private one can be taken with a long exclusion period. For example, it could wait for a one year disability before payouts start. The difference in premium is enormous between 3 and 6 months in my experience.

  12. Based on the information provided, I would also keep the Disability insurance until I no longer work. He can afford it so why not?
    Great job at 38 on the assets! I was going to comment on the groceries and misc expenses but this guy seems to have his shit together (even reading the small print on the group insurance) so he already knows he can cut back if needed.
    If he hasn’t started, he should seriously think about what he wants to do once retired, it’s coming fast!

  13. I feel like you guys might be overstating the rent affordability in Montreal. As someone who’s been apartment and house shopping for the last half year, my experience definitely is not that $1,000 will get you a nice one near the downtown core. An acceptably clean one-bedroom near a metro which will get you downtown? Yes, that’s possible, and you can find Bohemian specials for less. If I were worth over $700k in my late 30s, I’d be shooting a bit higher than that.

    My current apartment in St Henri is a 640 sq ft one-bedroom on the Lachine Canal which I’ve been living in since it was built 6 years ago. Indoor parking, great view, concrete building – it’s nice, but not out of this world (counters are laminated particle board), not fully downtown, and it’s small. Girlfriend and I pay $1,255. Looking for a two-bedroom, we didn’t find anything too interesting, even in the suburbs, for under $1,500.

    We’re now on the verge of buying a house with >20k sq ft of property in the suburbs and plan on having 3 cars. Come at us.

    1. Just a random guess, but it sounds like you are living near Quai des Éclusiers. Before I bought and sold the condo in Montreal before moving to Montreal, I lived in St Henri at the Imperial lofts… AND LOVED IT! I was paying 1250 a month for rent in 2012 for 500 square feet and was happy. My place in Toronto is 600 square feet and no parking for 1900, so it sounds like you are still getting decent value for your rent, especially if you are right on the canal. I loved that neighbourhood when I was cutting my teeth: I hope you do too. 🙂

      FMD

      1. You’re very close! We’re at the Berges du Canal, which is a few hundred meters up the canal, next door to the St Ambroise brewery. The Quai would be a good bit more expensive than where we are, even though we arguably have the better view of the canal and of the city than all but the most expensive of the Quai condos.

        I’ve enjoyed my six years here, and it’s definitely still considerably more affordable than Toronto. It’s just that some people seem to have the impression that $1,000/month will get you a roomy, granite-countered apartment in the heart of downtown Montreal, and that just isn’t the case, as your experience at the Imperial Lofts confirms. Even so, I agree that Montreal is still a great place for those of us who haven’t worked our way up to a big-money job yet.

        Congrats on your success!

  14. Come to Krakow in Poland. Rent a 1 bedroom downtown, with 200 bars and restaurants next to you for 800$, and enjoy a 1.5$ beer. You can retire now…

    I love the follow up on the case studies!

    1. How about $600 a month in Taipai, very active vibrant city. Our family have a house in the south, even cheaper, and it comes with a cook.. (grandma).

      The Taiwanese love all types of people, yes even Americans. They call them, Meh Gwa Ren…

      (Beautiful People)

  15. Latest problem in Toronto’s “hot” rental market is the phenomena of “shadow renting”.

    What happens is a person rents a unit from a landlord, holds it for a month or two, and the lists the unit on kijiji or the like, and re-rents it to someone else for a higher price. The situation then continues, with the landlord being unaware that someone else is living in the unit, than is on the lease, the new renter being unaware that the person they are renting from, does not actually own the unit, and a “middle man” renter/pretend landlord, taking a cut of the rent.

    This is very illegal, but happening a lot recently. It is almost that you now have to actually check the property records of the proposed rental, to make sure the person you are renting from, actually owns it.

    Any lease taken on by one of these shadow renters is of course not legal, as the person who rented you the apartment is not the landlord, does not own it, and has no right to lease it to you.

  16. someone needs to clarify what ” Private Disability Policy with “own occupation” rider: 54″ means to me, im currently actually on a Long Term Disability Plan, and my two year mark is coming up, which means they will assess if I am able to be continued on their plan, after Dec 2018, it is a little scary because I have a lot of chronic conditions resulting from the accidents and traumas I incurred and was triggered in my job, but I do need to know what alternative I can have, I though the original comment was that the person was able to GENERATE an alternative income from his assets, but it sounds like he isn’t? that he is just paying into a private disability insurance plan on his own? comments? what kind of policy is it? good stuff policy? or just plain one? what is the name of the company ? any tips on my situation? could i and should i get on one now?

  17. I am curious to see what he decides to do since he could do anything between now and whenever… I don’t notice any big plans for life after work. Or are you just enjoying the journey for now?

    Also, did I miss something… wasn’t he paying less to own the condo than the $1900/mon rent? The case sounds vaguely familiar but I can’t remember the deets.

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