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- In a Crisis, Cash Flow Is King - March 27, 2020
- Return of the Bear Market: Are You Ready? - March 16, 2020
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..
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:
- Annual gross Income, taxed in Quebec: 109,000
- Annual bonus (gross): 14,700
- Annual employer RRSP matching: 9,200
- 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
- Base RRSP Contributions: 1400
- Extra RRSP Contributions: 1600
NET WORTH: 609,600
- Cash: 2,900
- Condo: 325,000
- Registered – LIRA: 22,400
- Registered – RRSP: 246,600
- Registered – TFSA (Cash): 56,300
- Unregistered Investments – 5,800
- 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:
- Annual gross Income taxed in Ontario: 132,000
- Annual bonus (gross): 24,700
- Annual employer RRSP matching: 11,800
- 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
- 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
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,
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?
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.
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…
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