How much do you know about financial independence?

Posted by: heckler

I'm starting to think this is not the best method.    2020 I filled 'er up January while in Italy, 30 km from ground zero.  This year, well...  I guess oil is up, that's good if you ride your bike to work.

I don't spend any time worrying about when to invest. You'll win some and lose some no matter what date you pick. If I have money that doesn't have a specific job to do in the short term I'll invest it. 

Biking places is a great idea most of the time. I did use the high gas prices as a reason my GF should ride with me from the house to the trails in Cumberland [~15kms each way]. We cut back on our meat consumption when grocery prices went up the last while. So you can usually find a positive spin on stuff like this.

Ultimately this is a long term game and in the big picture it doesn't really matter at what time you invest. Time in the market beats timing the market.

But yeah, it sucks to see your contribution go up in smoke within a month. However we've had quite a few good years. Any dollar invested in globally diversified index funds when this thread started would have doubled by now.

Regarding inflation, so far we've been able to adapt pretty well. Ironically driving has actually become cheaper for us since we don't really drive that much so gas is not a huge expense and ICBC has been lowering their rates significantly (even retrospectively). I renewed last month and even got a 10% discount for driving less than 5000 km/year.

I find it really helps to remember that if you bought 100 shares of a great company in your TFSA at the start of Jan you'll still have those 100 shares even if the market drops for a while and the paper value of those shares is less. As long as you feel confident that the company is a good one that will generate long-term value then your invest will grow over the long run.

If you are making regular contributions to your portfolio you can also frame the situation as stocks are on sale when there is a drop in the market and then when there is a rally you can tell yourself that your shares are worth more. So either way there is some good news.

As Niels points out what really matters is your personal inflation rate not some general metric like CPI. The longer I've been flexing my personal finance muscles the more easily it is for me to reduce my cost of living over time. Especially when I feel the need to be a bit defensive. My lowest lifestyle spend is pretty darn low. I don't want to operate there all the time, but it's nice to know I have that card in my hand to play if I need to.

Lol, my problem is I have no contribution space to put more in, missing out on the sale.    Pretty sure I blew over my RSP limit last year, so I’m being cautious now.  

Good problem to have, I suppose.  Time to open a non-reg account.

Posted by: heckler

Good problem to have, I suppose.  Time to open a non-reg account.

My first reaction was time for a NR account , but you ended on that note. Don't miss the sale! ;-)

Posted by: heckler

Lol, my problem is I have no contribution space to put more in, missing out on the sale.    Pretty sure I blew over my RSP limit last year, so I’m being cautious now.  

Good problem to have, I suppose.  Time to open a non-reg account.

Definitely open a non-reg account if you have the bandwidth to invest more.

Also be careful maxing out your RSP. Depending on your current marginal tax rate and your investment horizon, you may end up painting yourself in a corner where you'll have to withdraw at a higher marginal rate once you retire.

In some scenarios a non-reg account can actually be more tax-efficient than an RSP. A combination is usually optimal. Spreadsheets and tax calculators are your friend.

I see a lot of people in the FIRE community worry about paying extra taxes, say with the RRSP, and while I get that tax optimization is a useful tool it can be taken too far. If your RRSP explodes in value due to higher than expected returns you might end up paying more taxes than planned, but in the end that's because you did so well and it's not really a bad thing. 

I'd also note that even if your marginal tax rates at contribution and withdrawal are the same your RRSP then is equivalent to a TFSA in terms of performance/benefits so you will likely have a very wide band of potential future withdrawal options where you'll still be ahead with a RRSP.

Posted by: Vikb

I see a lot of people in the FIRE community worry about paying extra taxes, say with the RRSP, and while I get that tax optimization is a useful tool it can be taken too far. If your RRSP explodes in value due to higher than expected returns you might end up paying more taxes than planned, but in the end that's because you did so well and it's not really a bad thing. 

I'd also note that even if your marginal tax rates at contribution and withdrawal are the same your RRSP then is equivalent to a TFSA in terms of performance/benefits so you will likely have a very wide band of potential future withdrawal options where you'll still be ahead with a RRSP.

I agree with all of that. I'm not concerned about paying more taxes in case of higher than expected returns, like you said that's not a bad thing. I'm just interested in optimizing how long I can make my hard-earned money last. My aim is to scale back work significantly at some point rather sooner than later and if I can do that a year earlier by spending a couple rainy Sunday afternoons playing with a spreadsheet, I'll take it. I'm a numbers geek though, YMMV ;-)

Posted by: [email protected]

I agree with all of that. I'm not concerned about paying more taxes in case of higher than expected returns, like you said that's not a bad thing. I'm just interested in optimizing how long I can make my hard-earned money last. My aim is to scale back work significantly at some point rather sooner than later and if I can do that a year earlier by spending a couple rainy Sunday afternoons playing with a spreadsheet, I'll take it. I'm a numbers geek though, YMMV ;-)

For sure. No argument with that in theory, but I see lots of people worry about stuff like their RRSP getting too big a ways down the road and paying more taxes vs. something with a more immediate return/impact. For example holding US stocks in USD on US exchanges in your RRSP like VTI instead of VUN. The tax treaty savings on dividends and lower MERs combine for an impressively improved return at no real cost/risk/difference other than taking 30mins to make the change. The later can actually save years off your retirement accumulation process, but it's exceedingly rarely that I chat with anyone who even wants to talk about that, but I can get pretty much anyone who invests regularly to wax on about paying too much taxes with a large RRSP when it's a largely theoretical risk that only happens when you get really lucky with your returns.

Niels you may already be thinking about this topic, but if your goal is to downshift/retire as early as possible look into variable withdrawal rates. Instead of the standard 4% WR Rule you can use something like 3%-6% WR rates depending on portfolio performance. In most cases you end up getting to spend the same $$ or more, but didn't have to save as much as the static 4% Rule version of yourself. 

Since spending isn't fixed from year to year and most people's natural reaction to their portfolio taking a hit would be to cut back the variable WR rate plan can work really well.

Beware the bank guy who sells you too many RRSP becuz he/she has a quota to fill as opposed to actulay  looking after your best interest, I quit buying them when i stopped working

Posted by: Vikb

Niels you may already be thinking about this topic, but if your goal is to downshift/retire as early as possible look into variable withdrawal rates. Instead of the standard 4% WR Rule you can use something like 3%-6% WR rates depending on portfolio performance. In most cases you end up getting to spend the same $$ or more, but didn't have to save as much as the static 4% Rule version of yourself.

Since spending isn't fixed from year to year and most people's natural reaction to their portfolio taking a hit would be to cut back the variable WR rate plan can work really well.

Yes that's a sensible strategy. Also we don't have kids and don't need to leave anything behind so the idea of never running out of money is not a hard requirement.

I imagine starting with conservative withdrawals, supplementing with additional income from casual 'fun-work' and adapting to the market while we are still relatively young and flexible. As we get older we can be increasingly more aggressive and slowly start drawing down the principal since ultimately we don't need to preserve it. There are also CPP and OAS as safety nets.

Bottom line, not too worried about running out of money, now we just need to stay healthy to enjoy all that future free time. There's a lot one can do to increase the odds but unfortunately it's not all within our control.

Posted by: XXX_er

Beware the bank guy who sells you too many RRSP becuz he/she has a quota to fill as opposed to actulay  looking after your best interest, I quit buying them when i stopped working

"Financial advisors" at banks are basically salespeople. As I understand it, strangely enough, financial advisors in Canada do not have fiduciary duty (duty to act in the best interest of their clients).

So best to cut them out completely or use one that is independent and fee-based.

And all the banks are selling the same 250 or so products,  but many people have trusted bankers and bought too many RRSP, you get a guy making 100K every year for 30 yrs and he just keeps maxing the RRSP