How much do you know about financial independence?

Posted by: Vikb

Posted by: LoamtoHome

tou.to and Gear Energy are close to 10% divy right now.  Great returns in the O & G.

Although I enjoy it when my quarterly dividends hit my brokerage account [only ~3 more weeks!] I don't hunt for high dividend yields in particular. I'm a boring total return index fund investor. It's a snooze-fest, but it's a dead simple and effective strategy over the long haul.

I just do it with my "fun" money.  Most of the $ is in boring MF's.

Posted by: [email protected]

Bottom line I don't worry too much about 1% more or less on the little cash I hold. In the big picture it's insignificant.

I think once you have >90% optimized your finances, that last 10% there is a rapidly diminishing return on time invested and you need to weigh against the value simplicity has to you. Everyone will have slightly different thresholds but for me I'm OK with some leakage in exchange for minimizing the time I spend on managing my finances.

Exactly ^^ IME the main thing is that you did SOMETHING and you have or will have $ when you need it cuz alot of people out there do not

PSA (TSX ETF) is another decent option for cash you don't want to take any risk on. Similar to others the AUM are just cash deposits at big Canadian banks where Purpose has negotiated higher HISA rates than you get at retail due to scale. As long as you are moving decent chunks of money in/out the $6.95/tx fees don't matter too much.

Posted by: grambo

PSA (TSX ETF) is another decent option for cash you don't want to take any risk on. Similar to others the AUM are just cash deposits at big Canadian banks where Purpose has negotiated higher HISA rates than you get at retail due to scale. As long as you are moving decent chunks of money in/out the $6.95/tx fees don't matter too much.

Nice rate (4.59% today), that's for sure, but my $9.95 fee to buy ETFs that aren't on the "free to trade ETFs" list kills any ETF for my cash. Not worth it, compared to my 4.10% today with my HISA BMT104 that I've already made 4 no charge transactions with since November.

I do like the diversification from PSA though - 4 banks instead of 1.

Top 10 Investments (October 31, 2022)

National Bank Cash Account 40.0%

Scotiabank Cash Account 28.2%

CIBC High Interest Savings Account 20.0%

Bank of Montreal Cash Account 11.8%

Just musing really, but I've got a lot of money tied up in my (Strata) property and not enough investment/pension/RRSP to fund me for 30+ years of retirement.

So what are the hive minds thoughts on options for releasing capital from real estate?

1. Downsize (in same locality)
2. Move to a cheaper location (similar sized property)
3. Line of credit on existing property
4. Reverse mortgage (?)
5. Sell and lease-back
6. Sell and rent instead (different property)
7. Van life
8. Anything else more imaginative?

I'm married but no kids or other relatives I need to leave a chunk of money to, so I will (eventually) have to release some (preferably all) the equity before I/the wife depart... 

(I'll be honest and don't know what practical difference there is between using a line of credit or a reverse mortgage...)

Hit me with your ideas, no matter how wacky...

You can goggle this stuff

so a line of credit is just when you borrow money based on your ability to pay it back or using your mortgage as collateral, and in theory you gotta pay it all back + interest, you might borrow $$$$$ without any collateral cuz  I have multiple lenders who really want to lend me money no questions asked

a reverse mortgage you are getting money out of  the value of your mortgage which you will never pay back

I think people have moved from the big city some where cheaper to free up some $$$ tied up in the RE which then drove up the price and its no longer all that cheap

What:

0: Pay off any high interest debts and establish emergency fund based on your risk tolerance

1: Max out your contributions to your TFSA

2: Contribute to your RRSP (remember that $25,000 can be used for a down payment through the first time home buyer's plan if you have not owned a house in the last 4 or 5 years)

3: Pay off your mortgage and low interest debt

4: Invest in non-registered funds

Why:

0: High interest debt is a huge drag on your money, and you'll be much happier without it. An emergency fund is a fairly personal decision, if you are risk averse or work in a boom/bust industry then a substantial emergency fund can help you sleep at night. If you have a very stable career and are comfortable with 'springy debt' as described in the Australia section you probably don't need much.

1: The TFSA is a pretty amazing investment vehicle, particularly if you're young. You contribute after tax dollars and never pay tax again on the money, regardless of how much it grows. You have the option of withdrawing money and preserving the contribution room in the following year, but withdrawals should be avoided unless there's a really good reason for it (people often invest their mortgage downpayment in their TFSA, which may be appropriate if you're planning on buying 'in a few years').

2: RRSP are a reasonable tax deferred investment vehicle, you don't pay tax (or are refunded taxes if you contribute after tax dollars) on the contributions, but do pay tax when the money is withdrawn. You will pay taxes on the withdrawn money as income, rather than potentially more favourable capital gains and dividend tax rates. In general, the fact that your RRSP can grow for years tax free should balance the potential tax consequences. If you are discovering MMM after working for a few years, you will probably find that you have fairly vast contribution room in your RRSP (it grows at 18% of your salary/yr).

3: Low interest in this context means 'close to or less than the expected return on your investments'. Less debt is pretty great. You may decide to invest in non-registered (taxable) accounts rather than paying off your mortgage at this phase, either way is fine and it will depend primarily on your risk tolerance and what your best guesses are on what your interest rate will be.

4: Shovel money into your taxable accounts. Remember that eligible Canadian dividends are taxed at a preferential rate (as are dividends from VCN or similar index funds), but that this is not true of international dividends.

Possible Variations:

- If your income in retirement is likely to be higher than your working income, you should avoid investing in your RRSP. This is possible if you have a lot of money in your RRSP, a relatively low income and are approaching 71, when you you will be required to start withdrawing a percentage of your RRSP. You can probably avoid this by retiring earlier and drawing down your RRSP in a controlled manner prior to control your taxes.

- If your income is very high, and you expect it to be lower in retirement (eg. you started saving late in life but have a high salary) then it might be optimal to be contributing to your RRSP before your TFSA.

- RRSP income is considered as 'income' for tax purposes, as is your Canadian Pension Plan (CPP). In a perfect world you'll be able to keep your income below ~ $71,000/yr after you reach 65 years so that you can receive the Old Age Supplement. It's hard to know whether this program will change if you're currently relatively young, but if you're in your 50s then it's worth looking at your taxes pretty carefully to try and make sure you're not inadvertently limiting your wealth by having a suboptimal withdrawal strategy.

- Mortgage choices are pretty personal, and depend a great deal on where you live. Between the TFSA and First Time Home Buyer Plan you should be well on your way to a downpayment if you don't own a house. If a purchase is imminent (6 months or a year?) then you should be invested in something very safe (eg. GICs) or in cash.

From MMM investment order:

https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1351813/#msg1351813

The point being, don’t neglect your RSP and TFSA on account of being heavily mortgaged.  You’d be surprised what dropping your taxable income can do (through RSP contribution)

My mortgage is finished and I'm debt free. Got a reasonable RRSP as well as a defined benefit pension to look forward to...my retirement horizon is 8-18 months from now (depending on whether my RRSP can recover from the recent drop, plus getting on top of inflation).

My financial planner seems to think I'll be ok and is steering me towards using a line of credit to fund my "final years" (which I'm hoping is a good 30+ years away!)

Just wondering what the pros and cons of a LOC compared to other solutions...

off the top of my head a line of credit is just borrowing money which you will have to pay interest on

Interest rates have gone up a bunch in the last year which is fucking up people who got Variable rate mortgages and in some cases almost doubling their mortgage payments

which means you would pay mo money than a year ago but he may have a magic formula

what are you gona do with the money you borrow, so when and  will you ever pay it back ?

Posted by: XXX_er

What are you gona do with the money you borrow ?

Potentially living expenses...the gap between my defined benefit pension + CPP and what I need for day-to-day living expenses plus some travelling once my RRSP runs out.

I'm expecting my RRSP to plug this gap for about 7-10 years but I will have to live very frugally after that if I don't release at least some equity out of the house (and besides which, I don't want to leave a big chunk of real estate to an obscure distant relative or the government when both me and the OH drop dead)

Im assuming with a LOC, I'll just pay interest on whatever cash I've pulled out and capital will be paid out from sale of house (my estate). Not sure whether that's entirely true, hence asking here - I don't entirely trust my bank who suggested this.

So time frame for this is likely 10+ years - hopefully, inflation will be under control by then and Pootin won't have started a nuclear war...

Posted by: SixZeroSixOne

- I don't entirely trust my bank who suggested this.

Why ever not?

https://en.m.wikipedia.org/wiki/Reverse_mortgage

I can’t say I like the idea of being debt free, and then going back into debt to fund living expenses.  That’s what side-hustles are for.    Use your skills, teach, find a fun part time job….

There are lots of well documented ways to house hack to reduce living expenses, but it really depends on what you would accept as a solution. Living in a van or RV long-term isn't something everyone is willing to do. If you are it can be a nice idea. Moving someplace low cost is great if you are happy living there. You can find lots of geographical arbitrage options if you are keen to live outside Canada for part or all of the year. If you are happy with roommates or renting out your living space on AirBnb you can come up with a bunch of living options that are low cost/no cost/make you money. Moving from owning a paid of house/condo to renting [especially in a coop] can unleash all sorts of capital.

A few ideas from friends I know:

1. A friend moved from BC to NB and bought a 40acre rural property with a house on it that was foreclosed by the bank. He paid ~$35K cash. The house needs a lot of work so he's tackling that himself one project at a time. Most of the land is forested and he's harvesting trees for lumber and heating fuel.
2. A friend who is quite wealthy got into a coop townhouse with very cheap rent and let's his wealth compound in the stock market.
3. I know a person bought a property with a couple larger buildings on it in a popular tourist area. They turn the buildings into 4 suites. Lived in one and rented the other 3 out as a business that made them money. Did that for a number of years and then sold the property/business for a nice profit.
4. A friend had an acreage and put an RV on it. Moved into RV and rented out the main house.
5. A friend moved to Mexico full-time for the lower cost of living.
6. I know a person who had a house in a tourist area. They rented it out and when it was rented they took their RV and went camping. When it wasn't rented they lived in the house.
7. I have friends that built a tiny house on wheels. They then rented a house outside town with a large lot and put the tiny house next to the main house. They sub-let out the main house to cover the rent.
8. I was just talking to someone in Comox that planned to retire shortly, sell their home and move to the Philippines for the low cost of living.
9. I have two friends that are living in slide in campers on their trucks and travelling around Canada/USA/Mexico doing fun stuff living super cheap.
10. I know quite a few people that didn't change their living arrangements, but took a hard look at how they were spending their money and reduced their cost of living significantly without changing how much they enjoyed their life. That meant needing less income to live and fewer investments to retire.
11. I know lots of people that retired and then took on easy PT jobs that made them money and got them something they wanted [ie. season's pass at resort, discounts at bike shop, discount at grocery store/hardware storem etc..]
12. A friend takes in high school kids from other countries and gets paid $1K+/month to provide a room, food and a bit of parental supervision.

The idea of using a home equity LOC can work. I'd prefer that to a reverse mortgage. If it was me I'd consider moving someplace with lower home prices and selling what you have. If you are living in Vancouver there should be quite a few options of places to live that would allow you to access a decent chunk of equity. Maybe all of it if renting is an option. You can then invest the equity and it can grow until you need it.

A couple more thoughts about using a LOC that occurred to me. Your bank can terminate your LOC depending on your financial situation like home values dropping in which case you may suddenly not have access to those funds and have to pay off the outstanding money owed. Not highly likely, but if it happens it will come right when you are least able to handle it. You can take money out of your home [LOC or mortgage], invest it and then deduct the cost of borrowing vs. the capital gains/dividends/interest on your investments. That would make borrowing less onerous, but there needs to be a direct paper trail between the borrowed money and the invested funds. See the Smith Maneuver as an example --> https://wowa.ca/smith-maneuver-canada

Posted by: SixZeroSixOne

Posted by: XXX_er

What are you gona do with the money you borrow ?

Potentially living expenses...the gap between my defined benefit pension + CPP and what I need for day-to-day living expenses plus some travelling once my RRSP runs out.

I'm expecting my RRSP to plug this gap for about 7-10 years but I will have to live very frugally after that if I don't release at least some equity out of the house (and besides which, I don't want to leave a big chunk of real estate to an obscure distant relative or the government when both me and the OH drop dead)

Im assuming with a LOC, I'll just pay interest on whatever cash I've pulled out and capital will be paid out from sale of house (my estate). Not sure whether that's entirely true, hence asking here - I don't entirely trust my bank who suggested this.

So time frame for this is likely 10+ years - hopefully, inflation will be under control by then and Pootin won't have started a nuclear war...

A part-time job on your own small biz could be a good way to generate that extra income. Besides the $$$$, keeping working is actually a key factor in maintaining your health as it gives you a reason to get out of the house on a regular basis and it helps keep your mind active. You could even look into using your skills for some sort of non-profit work as there are health benefits in giving back to your community as well. A couple other things to consider involve your home. Putting in a suite could generate enough extra income to fill the money gap while another option is to sell and buy something smaller. When you buy, as you're still working now you could take on an small mortgage and then use all the funds to top up your savings/investment accounts. Evening if you're just putting that money into a simple GIC for the short term, a few hundred K will give you some decent returns over the next few year and would be a safe(r) place to park your money till things get better economy wise. A last option is maybe a reverse mortgage, although you may be too young to qualify. There are a bunch of options to take advantage of and it's worth spending some time to explore all of them to see what would work best for you.