It’s been two years since we’ve checked in on my freedom 45 goals. I’m happy to report that we’re still on track and financial independence is only six-and-a-half years away!
Financial freedom to me doesn’t necessarily mean retirement – more like the ability for me pursue other opportunities without the constraints of full-time employment.
The fact is my employment wages have stagnated for many years and so without additional revenue sources I wouldn’t have been able to save almost one-quarter of a million dollars before age 39.
Our net worth should reach $750,000 by the end of this year, and hit the one million mark by the end of 2020. From there I’ll have four years to achieve my goal of financial freedom 45.
On Target For Freedom 45
What will our finances look like by the end of 2024?
For starters I’ll have cash savings of about $55,000 on hand to cover approximately one year of expenses in today’s dollars. I’ll have twice that amount set aside in our business account. The cash savings will act as a cushion, giving me the freedom to leave my day job and work for myself if so desired.
Together my wife’s and my RRSP will have $350,000 invested – nearly double what they hold today. Our TFSAs will hold approximately $235,000 with the assumption that we can contribute $25,000 per year for the next six years (at which time we’ll have caught up on our considerable unused contribution room).
We’ll have managed to sock away $110,000 in our kids’ RESP account. Our children will be 15 and 12 by then and we’ll have to dial down the risk inside this portfolio and start preparing for withdrawals in a few years.
A big portion of retirement savings comes from my defined benefit pension plan, which should be valued at about $342,000 by the end of 2024. This is the assumed commuted value of the pension if I were to leave the plan by that date.
Our principal residence should be worth roughly $527,000. This pricing assumption takes today’s market value of our home and increases it by two percent a year.
Finally, that big anchor, also known as our mortgage, will be fully paid off by the end of 2024, leaving us completely debt-free going into 2025.
Financial Freedom Crossover Point
So why do I consider this the financial freedom crossover point?
A paid-off home reduces our annual expenses down closer to $42,000 per year – an amount easily covered by withdrawals from our small business. We typically withdraw $4,000 per month from our business via dividend sprinkling to my wife.
We could get by on those withdrawals alone if I stopped working full-time, however I’m keenly aware that doesn’t leave much room in the budget to continue hitting our savings goals.
That means taking out another $1,000 per month from the business – for a total of $60,000 annually – to ensure we can still max out our TFSA and RESP contributions.
Now I can’t just conjure an extra $12,000 per year out of thin air. I’d need to increase revenues to support our new withdrawal strategy. But I’m confident that I could make that work through extra freelance assignments and financial planning – especially when you consider the extra 40 hours a week I’ll free up by leaving my day job.
Our safety net is that we’ll have one year’s worth of expenses in our personal chequing account, plus another two year’s worth of expenses stashed in the business account. A nice cushion in case things go awry.
Besides, even if I didn’t save another dime after age 45, the power of compounding would grow our RRSPs to $745,000 and our TFSAs to $455,000 by age 55. Not to mention my $342,000 employer pension, plus CPP and OAS. Plenty of resources to last us a lifetime.
I’ve carefully tracked our net worth for years and also projected out what our finances will look like many years from now as we continue along this trajectory.
It’s exciting to see that financial freedom 45 is not just a pipe dream; it’s well within reach.
At the same time I know it’ll take a lot more work to see this vision through. Six years is a long time and even the best-laid plans can go sideways without warning.
Even though I’m still fuzzy on what exactly financial freedom will look like at 45 I’m almost single-mindedly focused on making sure I reach that milestone so that when I get there I can decide what I want to do and how I want to spend my time.
That, to me, is freedom.