Net Worth Update: 2021 Year-End Review
Last year we reached the million-dollar net worth milestone. The goal itself wasn’t life changing, by any means, but it was something we had been striving to hit for nearly a decade – and it felt pretty damn good!
The truth is we have changed our lives for the better over the last two years. I quit my day job at the end of 2019 to focus on blogging, freelance writing, and my fee-only financial planning practice.
My wife and I run a successful business that has wildly exceeded our expectations. Once we reached the $1M net worth mark we made two new goals. One, to try and reach $2M by the end of 2025. And, two, to adopt a Coast FIRE mentality where we no longer save aggressively for retirement. Instead, we’ll intentionally work less and spend more to increase our overall life satisfaction. (And, yes, we can achieve both!).
We’ll still max out our TFSAs each year, along with the kids’ RESPs. But no more RRSP contributions. On the corporate side of our ledger, we’ll try to limit our earnings so that we can pay ourselves just enough to meet our lifestyle needs. No more contributions towards our corporate investments.
The Coast FIRE approach means we can let our investments grow without actively contributing to them anymore. We’re not ‘retired’. We enjoy what we do. We just don’t need to work as hard or save as aggressively as we have been over the past 10 years. That means more time spent with our family, more time for active leisure, and more time for (and money spent on) travel.
We have been in a fortunate position throughout the pandemic. We work from home. We have a lot of interest in our fee-only financial planning service. I have two steady and reliable freelance writing clients. And, thanks to the loyal readers of this blog, we do receive a decent amount of revenue each month.
The lack of travel and ability to do much of anything over the past 2 years meant accepting more clients and freelance assignments than I probably wanted to. It’s hard to say no when you have nothing better to do.
We’re hoping once we get to the other side of this Omicron wave that we can resume our plans to travel. That will force us to work less, and earn less revenue. The downside is we won’t be able to save as much, which will take some getting used to after 10+ years of trying to maximize our savings rate.
To give you some perspective, this year we contributed $70,000 to our corporate investments. That’s money earned over and above what we needed to pay ourselves and our business expenses. On the personal side of the ledger, we saved $55,000 and put that towards my TFSA, my wife’s TFSA, and our kids’ RESPs.
The stock market was on fire once again in 2021. The S&P 500 was up 29%, the TSX was up 21%, and my global equity holding (Vanguard’s VEQT) was up 22% for the year.
Our savings contributions and stock market performance contributed to another fantastic year in terms of net worth growth. Here’s how our net worth looks at the end of 2021:
Net worth update: 2021 year-end review
| 2021 | 2020 | 2019 | % Change | |||
|---|---|---|---|---|---|---|
| Assets | ||||||
| Chequing account | $5,000 | $5,000 | $1,500 | — | ||
| Savings account | $65,000 | $65,000 | $35,000 | — | ||
| Defined benefit pension | — | — | $224,054 | — | ||
| Corporate investment account | $207,003 | $109,281 | — | 89.42% | ||
| RRSP | $294,664 | $246,391 | $208,614 | 19.59% | ||
| LIRA | $198,365 | $162,218 | — | 22.28% | ||
| TFSA | $160,942 | $88,882 | $49,239 | 81.07% | ||
| RESP | $84,148 | $64,428 | $52,754 | 30.61% | ||
| Principal Residence | $459,000 | $459,000 | $459,000 | — | ||
| Total assets | $1,474,122 | $1,200,200 | $1,030,161 | 22.82% | ||
| — | ||||||
| Debt | ||||||
| Mortgage | $172,161 | $187,059 | $201,665 | -7.96% | ||
| Total debt | $172,161 | $187,059 | $201,665 | -7.96% | ||
| — | ||||||
| Net worth | $1,301,961 | $1,013,141 | $828,496 | 28.51% |
Now let’s answer a few questions about the way I calculate our net worth:
Credit Cards, Banking, and Investments
We funnel all of our purchases onto a few different rewards credit cards to earn points on our everyday spending.
Our go-to card is the Scotia Momentum Visa Infinite Card, which we use for non-Costco groceries and gas. I’m also using the HSBC World Elite MasterCard, which came with an incredible 100,000 point welcome bonus. Finally, we look for the best credit card sign-up bonuses and time our large annual spending (car and house insurance) around these offers.
Our joint chequing account is held at TD, along with our mortgage and kids’ RESPs. My wife has her own chequing and savings accounts at Tangerine. Our high interest savings account is held at EQ Bank, which pays 1.25% interest.
My RRSP and TFSA are held at the zero-commission trading platform Wealthsimple Trade. My LIRA is held at TD Direct, and the corporate investment account is held at Questrade. My wife’s investments are held at Wealthsimple. You know all of this from my post about how I invest my own money.
RRSP / LIRA / RESP
The right way to calculate net worth is to use the same formula consistently over time to help track and achieve your financial goals.
My preferred method is to list the current value of my RRSP, LIRA, and RESP plans rather than discounting their future value to account for taxes and distributions.
I consider a net worth statement to be a snapshot of your current financial picture, so when it comes time to draw from my RRSP/LIRA and distribute the RESP to my kids, my net worth will decrease accordingly.
Principal Residence
We bought our home in 2011 for $424,000 and developed our basement a few years later, increasing its value to ~$450,000. The next year I bumped up the market value by 2% (which is still less than its city-assessed value), but the local real estate market has since flattened – with nothing selling in our price range – and so I’ve left the value at $459,000 for the past three years.
Final thoughts and a look to 2022
Again, I want to acknowledge the immense privilege of being able to work from home and prosper in the middle of a pandemic when so many people have lost so much. My wife and I are incredibly grateful for everything we have.
While I was excited to see our net worth grow by nearly $300,000 this year, I recognize that we cannot expect investments to continue to climb at 20%+ each year. We do need to temper expectations for future returns, which is why I only use a 6% nominal rate of return for future investment return projections.
That said, thanks to this year’s impressive performance we would only need our net worth to grow by about 12% per year for the next four years to reach our $2M milestone. That should be achievable, even as we dial back work and savings with our Coast FIRE approach.
I’ve already shared our financial goals for 2022. Aside from that, we just hope we can put the worst of the pandemic behind us next year and move on with our lives.
How did your finances fare in 2021? Let me know in the comments below.
Hi Robb,
I have a question regarding your assumed 6% nominal return for future investment returns. I understand the logic to apply that assumption for the next few years. However for the long-term (next 50 years), is there any reason not to assume equities will deliver the same return (~10%) that they have for the last 100 years?
Thanks!
David
Hi David, I agree that long-term returns have been higher. We’re now in an unusual position of having a nearly uninterrupted bull market since March 2009. Something has to give, and I think a reasonable approach is to lower our expectations for future returns. That assumption may be true for the next 10-20 years, depending on what the market actually does over that time.
FP Canada issues guidelines for planners to use for investment returns and they revise the long-term investment return projections annually. That number has been decreasing every year for some time. I think it would be prudent to follow their lead.
Congratulations Robb. A great lesson on tracking assets. Thanks for sharing it. I stayed away from VEQT because it will likely never beat the greatest economy in the world the S&P. The Intl component of VEQT, in my opinion, is far too high and the Intl market does not drive the world economy. Good Luck with it but I think the better choice is mostly USA with a measure in Canada in registered accounts no more than 25-50%. Im still trying to get to that after being 100% Canada for over a decade. Im now about 25% USA in my reg accounts. I have a long way to go. But in non reg accounts im almost 100% Canada and we live off the high dividends and its tax credit. We can do that and pay almost no taxes at all until we have to pull from RRIF at age 72. I have 7 years to go and I am electing to take some capital gains now which makes us taxable but still modestly paying about $12,000 taxes on income of $160,000 split between my wife and I. That will change in 2022 as we elected to go ahead and take CPP in 2022 at age 65. If markets do average, the after tax on it invested until age 70 and up to age 82 will just do fine keeping up with those who delay CPP to age 70. We at least will have an estate from early CPP by time we reach age 70 that CPP delayers will have nothing. We will earn income from it, that the CPP delayers will not have. The math is favourable to not delay if one can save the after tax proceeds and invest it in conservative canadian dividend producing equity such as financials, utilities or a dividend etf. Do I actually invest the after tax CPP. Well I do not have to. I see it this way, its less equity from my non reg account I have to draw from so thats just the sane as investing the after tax CPP.
Keep up the good work on your asset build. We dont know how old you are to have $1 million invessted capital but if you are say 40, you are doing great.
Thanks for sharing your networth! I calculate mine this afternoon. I have also just kept my house price stable at the price i bought it at. I also decided to exclude my emergency fund. Makes for a simple networth statement composed of brokerage accounts and house. Here’s to achieving our goals this year!
Hi Christina, thanks for your comment. That does sound like a sensible approach. Congrats on achieving your goals this year, and best of luck in 2022!
Is any consideration given to including pension income in the Net Worth calculation?
Hi Jerry, I’d recommend doing a present value calculation (the present value of a future income stream). You can find a calculator online where you input your annual pension income and then input the number of years you’d expect to receive that income (to your life expectancy age). The answer will give you the present value of that pension, which you could use to calculate your net worth.
Value of pension (I found this info on another finance blog when I was researching the value of my pensions)
“For every $100 per month of pension income, you have an asset worth $18,000.”
If you have a pension that pays you $3,000 per month, that pension is worth $540,000. If you get $800 per month from CPP, then that is worth $144,000. $500 per month from OAS is the equivalent of $90,000.
While this is a very simplistic approach it helps people to understand the value of pensions, government benefits and other streams of income.”
Hi Robb,
That was great! Congrats on your first million and on designing your path to your second!
May I ask a couple questions?
1) what dollar amount do u figure u need to hit net worth wise (or otherwise), in order to say you’ve achieved your Coast FIRE vision? How did you determine that figure?
2) if my house was about $375k when purchased in 2004, but my neighbour’s less-developed house, with one less bathroom and bedroom, sold for $1.158m last Feb, what figure should I put down for my home in my net worth calculation?
Hi Frank, thanks for the kind words!
1. I don’t necessarily use a specific dollar amount, but I think a good rule is if you’ve maxed out your unused RRSP and TFSA room (x2 for couples) and you’re wondering what to do next, then you’re probably in a good enough position to consider Coast FIRE. For us, we saved at a very high rate to catch up on my unused RRSP room, and then my wife’s and my TFSA room. Now that we’ve caught up, we are limited by the annual TFSA amount (we no longer earn RRSP room because we pay ourselves dividends from our business). So the question we asked ourselves is, do we need to continue to aggressively save in a non-registered (taxable) account? The answer was no, we’d prefer to spend a bit more on travel and also reduce the amount we work, which will reduce our income.
2. As for what amount to use for your home value, I’d say you could reasonably use the value on your property tax assessment. It’s not realistic to use purchase price when the home is 17 years old and the market has been that strong. Here in Lethbridge our market is not very strong, historically, but I’m still using a figure that’s in the ballpark of our assessed value.
Well done Robb and congrats!
When you refer to the successful business that you and your wife run, are you referring to the freelancing, blogging, and financial planning? Or do you have another business on top of those?
Hi Brian, thanks! Yes, I was referring to the financial planning, freelancing, blogging business.
We’re not running an MLM or anything on top of that 😉
Well then I’ve got an opportunity you can’t afford to miss
Myself and my husband are in a very similar place as you in terms of numbers. ALSO just entered Coast FI..instead of stopping or slowing down our contributions to investments however, I find myself more intent than ever to ramp them up. In our case we want to reach FI asap, not drag out the last few years…unfortunately now it has become s bit of an obsession….
Hi Ann, thanks for sharing. I agree that saving can be an obsession. I have firsthand experience reviewing other people’s finances and see how some can’t turn off the savings taps and turn on the spending taps, even well into retirement when they’re sitting on millions. It makes me think about smoothing out our consumption over our lifetime so we don’t just end up with a big pile at the end (the Scrooge McDuck retirement and estate plan).
Congrats on this year’s performance Robb! And on how well your business is going. I like to read about your Coast FIRE approach with focus on family and lifestyle. Let’s hope we can all move on with our lives in 2022!
Hi Denis, many thanks for the kind words. Yes, we’re ready to move on!
Super Robb, I wish I knew you a few years back. I really enjoy reading your blog. I’m on the right path in my retirement thanks to your fee for service consultation. Now if life could start again with travel I’d be much more satisfied. Barb
Hi Barb, thank you for the kind words. It means a lot. Yes, please let 2022 be the year of travel again…
Hi Robb,
Congrats on your year.
A question – would you consider only withdrawing from your RRSP’s for your 2022 ‘income’ and keep the corporate earnings to be issued as dividends in the future once your RRSP’s are used up?
Cheers,
D
Hi D, many thanks!
Interesting idea. Right now my wife and I pay ourselves non-eligible dividends, which are taxed at a much lower rate than other income (like from RRSP withdrawals).
But your suggestion is the idea when I’m no longer earning money inside the corp – withdraw from my RRSP first while leaving the corporate investments to grow, then take them out as dividends later in retirement.
Well done, great year. We also had a strong year with net worth increasing by seven figures, employment income hit seven figures for the first time, portfolio return of 13.5% xirr, several properties had nice appreciation due to this insane real estate market. Added our 2022 TFSA and RESP contributions by 8:30 this morning.
Looking forward to 2022!
Hi Chris, well done on the income – impressive!
You beat me to the TFSA by an hour or so 🙂
I had no idea that Lethbridge home values have been flat for the past 3 years. I didn’t think the was an area in Canada at all that could say that.
Hi Luke, according to CREA the average price in Lethbridge rose by 11.9% in November (year-over-year), but the average price went from $296k to $332k – less than half of the national average price.
I still don’t see much selling in our price range (~$450k).
Earlier in the year there was a chart showing the price increases across the country and Lethbridge was the second lowest (ahead of St. John’s!) – I included the chart in this article: https://boomerandecho.com/weekend-reading-home-ownership-sucks-edition/
Congrats on a great year Robb, and in particular, on you and your wife’s decision to follow the Coast FIRE path.
We’re in the RE phase, and with no new money going into the portfolio and drawing down our RRSPs and LIF, our net worth increased by just over $60,000. Our retirement projection predicted a decrease in net worth, so I can’t grumble. The projected decrease in net worth is, in part, a consequence of shifting some funds from our RRSPs into our TFSAs, and handing over some of the withdrawal to the federal and provincial governments; ie tax.
All the best for 2023.
Oh yea, also have a great 2022 – I’m always thinking ahead.
How were you able to transfer all of your pension into a LIRA?
Hi Rob. Are all ETFs automatically rebalanced? If so, how frequently and by whom? Is this a characteristic of ETFs?
You were recommended to me by Larry Bates, author of “Beat The Bank”, and I have not been disappointed. In fact, you are now the only financial advisor that I listen to. You have unbiased, sensible, educational advise. Just the person we were looking for.
Gill
Hi Gill, thanks for the kind words! I really appreciate it.
In general, yes, ETFs are automatically rebalanced to reflect the index they track. To be clear I’m referring to passive ETFs, not actively managed ETFs that have a fund manager making investment decisions (ex. ARK’s Cathie Wood).
Asset allocation ETFs, like Vanguard’s VBAL, are automatically rebalanced to maintain their original target asset mix (the percentage of Canadian, US, and international stocks and bonds).
Hi Robb,
I have enjoyed reading your newsletters for a few years now.
Question about your corporate investments…what is the plan to move that money to personal use during retirement years? Or is there another plan? How are you dealing with the taxes?
Thanks,
Randy C.
Hi Randy, thanks for the kind words. My wife and I would continue to pay ourselves dividends from the corporation until the money is gone. This could take place over several years or even decades, depending on how much money has accumulated and how much we draw each year.
Here’s a really good article on things to consider: https://www.moneysense.ca/save/retirement/how-to-draw-money-out-of-your-corporation-in-retirement/
Thanks Robb. It is my understanding that if a company uses working capital in their investment account, any gains are taxed at a much lower rate than if they are using non-working capital in the investment account. Can you provide any inside regarding this?
Thanks, Randy