I’ve written a little bit about my investment strategy and my goals to replace employment income with dividends over time. I wanted to further elaborate my retirement plan and explain how I hope to retire early and live comfortably.
When I retire, I will have 3 main sources of income. A defined benefit plan, RRSP and TFSA. Let’s take a look at each of these income streams:
- Defined Benefit Pension – When I started my current job, I began contributing to a defined benefit pension plan. My contributions are set at 11.5% of my salary, and my employer matches the contributions. This will obviously be our main source of retirement income, however if I retire early I will miss out on the full value of this pension
- RRSP – Before I started my new job, I didn’t have the luxury of a defined benefit pension so I contributed to my RRSP. While I don’t plan on contributing much more to my RRSP in the future, I have already built up about $40,000 worth of dividend growth stocks, REIT’s, and Income Trusts. Since I contributed to this account early in my 20’s, the portfolio value should continue to grow over time.
- TFSA – I also have dividend paying equities in my TFSA. I plan on maxing out my contributions annually, and re-investing the dividends whenever appropriate (I don’t use a DRIP).
So here’s the plan, assuming I retire early at age 55:
- RRSP portfolio is worth $365,000 and paying $23,000 in dividends annually (assuming 5% dividend growth annually and re-invested when cash equals $3,000)
- TFSA portfolio is worth $540,000 and paying $31,000 in dividends annually (assuming 5% dividend growth annually and re-invested when cash equals $3,000)
- Defined Benefit Pension would pay me a bridge benefit of $13,440 ($1120/month) from age 55-64, and then the full pension would kick in at age 65. Based on 25 years of service, my annual pension would be $62,400 ($5200/month).
We couldn’t survive on $1120/month, so we would meltdown the RRSP over the next 10 years. I’ve estimated our withdrawals at $44,000 per year. With the RRSP income and the bridge benefit, would be living on about $40,000 per year after taxes.
While that doesn’t sound like a lot, we wouldn’t have a mortgage or any other debts, and the kids would have moved out by then. Besides, we haven’t even talked about using our Tax Free Savings Account in retirement yet. This should add another income stream and safety net.
At the standard retirement age of 65, we begin to collect the full pension at $5200/month. At this time, our TFSA has grown to over $1.2M and is producing $90,000 in dividends annually. Sounds comfortable to me…
Now I’m making a lot of assumptions here, but who isn’t when they’re talking about 25 years down the road? Whether I retire at 45, 55 or 65, I still like to have a plan for the future and know that we are on the right track towards our financial freedom.
With house prices slumping in much of the country, upgrading and adding to the living space are an alternative to buying new.
However, television programs have shown plenty of DIY disasters and unsuspecting homeowners who pay out their life savings to under-skilled contractors who do shoddy work or even abandon the project in the middle of the job.
Related: Do Home Renovations Really Pay Off?
If a home renovation is something you plan to do, here are some tips to ensure a quality job:
- Try to get referrals from friends and co-workers. If you don’t know anyone who’s had work done, comb through the yellow pages, advertisements and on-line for names. Call several companies. (On a couple of projects I had, some companies didn’t even return my call.)
- Once you have a feel for them after speaking to them on the phone, choose three to five people to interview and give you an estimate.
- Make sure to discuss everything you want to accomplish together with the budget you have for the project. A good contractor will offer suggestions and alternatives to keep you within budget. (Add an extra 10% for cost over-runs.)
- Most reputable companies will do the job with no money up front. Beware of people who want huge money before they start. You don’t know if they will go broke part way through the job, or take the money and run. If it’s a large project they may ask for payment as each area is completed.
- Check the contractors’ backgrounds and references before signing any agreements.
- Don’t make a lot of changes after the original estimate. That said, if you really hate what was done, make sure it’s changed right away before additional work is completed. Don’t feel you can learn to live with it. Just be aware that the cost of redoing and replacing will add to your estimate. (When my living room was painted, the colour was hideous over a larger area and the room had to be repainted.)
- Keep pets out of the “construction zone” for their own safety and also the workers’. Also, you don’t want to find pet hair embedded in your newly varnished wood floor after it has dried and it becomes a permanent part of your décor.
- Equally important, make sure you keep out of the way. They don’t need you hanging over their shoulder making comments or suggestions. After your daily inspection, if there’s a problem, speak to the contractor.
- It’s a nice gesture to provide some refreshments to the workers – coffee or bottled water for example. Also indicate which bathroom they can use. I was told that some homeowners don’t allow bathroom use, which seems unreasonable to me. (Although I was dismayed to see that my new basement toilet was “christened” by the plumber who installed it and my first chore was to clean it.)
- After the work is done to your satisfaction and payment has been made, enjoy your new living space. Maybe you can have a party to show it off.
Do you have any home renovation tips or horror stories to share?
I’ve recently discovered Great Canadian Rebates, which is a one-stop source that was made for Canadians to save money shopping online. The website offers cash back rebates and online coupons to hundreds of merchants who ship to Canada.
Great Canadian Rebates
I have to admit, I wasn’t too crazy about online shopping in the past. I like going into a brick and mortar store to really know what I am purchasing, as well as to ask questions about the product. Plus the shipping and handling charges can be outrageous, especially when coming from another country.
However, getting started with Great Canadian Rebates is easy. You simply sign in and select a store from the list of merchants. Next you will see a merchant profile that describes the cash back rebate percentage they are offering you, as well as any deals and coupons they are currently featuring. From there you follow the link to continue shopping, and you will be taken directly to the merchants’ website.
- Sign up for Great Canadian Rebates here – (link)
Great Canadian Rebates acts as a portal to these merchants and receives a commission when you make a purchase, which a portion of it is passed on to you. Great Canadian Rebates will send out payments every two months via PayPal or cheque.
Your balance needs to be greater than $3 to be paid through PayPal, and over $20 to be paid out by cheque.
I have personally used Great Canadian Rebates to purchase new blinds for our house, and most recently a new laptop. I received my first cheque of $39.78 earlier this year.
I am a big proponent of maximizing my rewards when spending money, so this is a good way to double-dip by using my credit card AND receiving a cash rebate back from the purchase.
Some examples of merchants and their cash rebates are:
- Quick Tax: 10% rebate
- Avon Canada: 6% rebate
- Sears Canada: 2% rebate
- Toys R Us Canada: 2% rebate
- Expedia.ca: 2% rebate
- Dell Canada: 1.5% rebate
- MBNA Smart Cash MasterCard: $60 rebate
- American Express Gold Rewards Card: $60 rebate
Check out Great Canadian Rebates and save money shopping online. All new sign-ups will receive a $2 credit just to get you started. You can sign-up as a referral under Boomer and Echo by clicking the link below:
To sign up for Great Canadian Rebates click here