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Financial Freedom 45 Update: Still On Target

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.

I’m fortunate that I’ve been able to use my online endeavours to create multiple income streams and fast track my financial goals over the last eight years.

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.

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.

Final thoughts

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.

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19 Comments

  1. Rick on May 21, 2018 at 5:55 am

    How do you contribute $25,000 per year to the TFSA?

    • Echo on May 21, 2018 at 8:44 am

      Hi Rick, the story goes that I maxed out my TFSA for the first three years (2009-2011) and then withdrew the money to top-up the down payment on our house. Other financial priorities took precedence over TFSA contributions for the next five years or so, leaving both my wife and I with a ton of unused TFSA contribution room.

      I’ve calculated that, starting next year, we can contribute $25k to our TFSAs ($12.5k each) for five years before we catch up on all the past unused contribution room.

      Clear as mud?

  2. The Curious Frugal on May 21, 2018 at 7:11 am

    That’s so exciting Rob! Six years is really not very long and it will fly by with young kids. I can tell you’re enjoying the journey too so that’s great.

    • Echo on May 21, 2018 at 10:38 am

      Thanks! Definitely enjoying the journey right now and even opening up the wallet a bit more to take advantage of some travel opportunities that we didn’t have when the kids were smaller. It’s a balance, for sure. You’re right, six years will fly by quickly.

  3. Camille on May 21, 2018 at 7:59 am

    It was my understanding that the annual TFSA contribution is $5500, which would allow you and your wife to cumulatively contribute $11,000 per year. How are you able to contribute $25,000 per year to your TFSAs?

    • Echo on May 21, 2018 at 10:40 am

      Hi Camille, see my comment above to Rick. Long story short: Lots of unused contribution room between the two of us means we can aggressively “catch-up” over the next five years.

  4. Carl on May 21, 2018 at 8:05 am

    Looking good! I think you’ll be able to do it sooner than you think. I was aiming for Freedom 44 and I pulled the cord at 43. I’m on my 3rd month and loving it!

    • Echo on May 21, 2018 at 10:41 am

      @Carl – congrats! Freedom 43 sounds amazing!

  5. Frito on May 21, 2018 at 9:42 am

    I have to piece of advice for you that may help you look at things slightly differently. Based on the numbers you are shooting for and the fact you will have a decent defined pension as well as CPP and OAP, I suggest you both concentrate on getting your TFSAs funded ahead of RRSPs. Yes you won’t get a tax break today, but the argument that you get the break at a higher income and withdraw at a lower one likely won’t be your case. Having access to funds with no tax consequences will be very important once all the pensions add up. Once you’re in retirement (or in financial independence) you need to manage your withdrawals to minimize taxes. We’ve been brainwashed into thinking RRSPs are the only retirement savings vehicle but in my opinion TFSA is better, especially since investment opportunities are the same as this available in RRSPs and all sheltered. The TFSA is one of the best things the government has given us in years but people really don’t see the real value of them. I wish I had 20 years of contribution access before I retired instead of just 2!

    • Echo on May 21, 2018 at 10:44 am

      Hi Frito, thanks for your comment. This is sort of a moot point now as I’ve managed to max-out my RRSP contribution room and will only create about $3600/year going forward. I’ll still max that out each year but the bulk of our savings will get ploughed into our TFSAs.

      I’ve got a rough outline of a plan that will see us tap into our RRSPs early and likely drain them completely before CPP and OAS kick-in (delaying those til age 70).

      • Frito on May 21, 2018 at 11:42 am

        That is our plan too although not totally drain the RRSPs but get them down to a smaller balance for RRIF minimum withdrawal. Currently 58 so have some time to get it done 🙂

  6. Matt on May 21, 2018 at 9:53 am

    Hate to point it out, but you won’t have achieved financial freedom, because you will be still working…you are just looking at escaping the 9-5 salary, but you won’t be able to live off your investments at that age…sorry for the cold dose of reality.

    • Echo on May 21, 2018 at 10:36 am

      Hey Matt, don’t you know that bloggers can make up their own definition of financial freedom? It’s in the blogger’s handbook. Just be glad I’m not calling myself retired.

      • Matt on May 26, 2018 at 7:05 pm

        Roger that!

  7. SD on May 21, 2018 at 11:30 am

    “dividend sprinkling to my wife”
    What kind of taxes will she be paying on this income this year onwards?

    Thanks

  8. Andy on May 22, 2018 at 9:45 am

    Congrats! Super inspiring Robb! Look forward to watching your continued journey. When your children are grown and presumably out of the house do you intend on liquidizing the net worth tied up in your home by downsizing?

  9. Tawcan on May 22, 2018 at 1:09 pm

    Congrats Robb, it’s nice to see another Canadian on track of their FI goal. Slow and steady wins the game.

  10. Owen @ PlanEasy.ca on May 24, 2018 at 6:43 am

    So exciting! I love a good FIRE journey.

    You’re definitely right that getting rid of the mortgage is a “crossover point”.

    We got rid of our mortgage a few years ago and now we run pretty lean. Our core budget is about $28,000 per year for a family of four and with variable spending our full budget is about $38,000 per year. This will increase slightly as our kids get older so we’ll probably end up close to your $42,000 per year.

  11. Rob on May 25, 2018 at 4:10 pm

    Will you be able to withdraw any CPP? You can’t start that til age 60 and I don’t know if you’ll have any contributions between age 45-60 to count towards your CPP. Will you take it early or late?

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