It’s never too early to start thinking about retirement. The sooner you think about what you want your retirement to look like, the faster you can implement a practical plan to get you there.
I don't know exactly what I want to do when I retire, but I do know that I want to stop working a full-time traditional job before I'm 65. Ideally, my days would be filled doing things that I love, including reading, volunteering, spending time outdoors, and creating memories with loved ones. If I have children, I want to make sure that I'll be able to pick them up, watch their games, and afford annual family vacations. Although I expect that sudden life events will occur from now until then, I find it exciting that I can start designing a plan now to get me there.
At 27 years old, this is my current strategy to achieve an early retirement.
Since my daily banking is with Tangerine, I opened a RRSP account (Tangerine calls them a "RSP") and a TFSA account with them as well. I was a complete beginner when I started investing, and I loved how convenient it was to setup.
Due in part to convenience, I still have maintained both accounts. I currently invest my RRSP funds in Tangerine's "Balanced Growth" portfolio, and I use the funds in my TFSA to invest in Tangerine's "Equity Growth" portfolio.
Although the MER fee for index investing is on the higher side, I don’t feel that I’m losing too much money given that I don’t have a substantial amount in either account (i.e. ~$50,000).
I’ve also stopped regularly contributing to my Tangerine RRSP, since I have an employer contribution RRSP plan. As soon as I finish paying my student loans, I will reevaluate my contributions. Right now, my personal RRSP is not a priority.
TFSA (Similar to the Roth IRA for Americans)
Once I pay off my student debt (expected due date: September 2018), my priority will be to max out my TFSA. If I can, I will be throwing approximately 25% of my net income into that account.
Once this is achieved, I will most likely transfer my funds to a robo-advisor, simply to convert to ETFs and lower my fees. I haven’t done enough research on specific portfolios at each robo-advisor, but I will be inclined to select an aggressive portfolio that disproportionately consists of US equities.
My main reason for using a robo-advisor is simply that I want to continue contributing smaller and more frequent sums of money, without worrying about re-balancing. Wealthsimple's "Growth" Portfolio apparently ranges from 75-90% equity, depending on the individual's risk tolerance. They provide an 80% equity example portfolio here. Some of the funds are what Canadian Couch Potato (CCP) recommends, but I dislike that Wealthsimple invests in Vanguard US Total Market ETF (VUS) (CDA-Hedged), and I personally prefer to invest in an S&P 500 Market Index ETF *unhedged. I'll have to dig around some more.
My goal is to max out my TFSA every year. If I don't find a portfolio I love, I will replicate my strategy outlined below for my RRSP.
RRSP (Similar to the 401k for Americans)
After I have a decent amount in my TFSA, I will resume regular contributions to my personal RRSP, which will remain at Tangerine. I will have to watch my contributions, given that I also have an employer group RRSP plan.
Once my personal RRSP account hits $50,000, I will transfer the funds over to an online discount brokerage. I'm leaning towards using Questrade, given the excellent reviews.
Then, I will simply adopt the CCP strategy. I’m not aiming to re-invent the wheel.
After poking around all the recommended funds, I've selected the following ETFs and have determined this percentage breakdown:
Vanguard Canadian Aggregate Bond (VAB) – 10%
Vanguard FTSE Canadian All Cap (VCN) – 20%
iShares Core S&P US Total Market (XUU) – 50%
iShares Core MSCI EAFE IMI (XEF) – 10%
iShares Core MSCI Emerging Markets IMI (XEC) – 10%
I may play around with the percentages, but my emphasis will always be on tracking the S&P 500 Index. Depending, I may substitute iShares Core S&P US Total Market (XUU) with Vanguard's S&P 500 Index ETF (VFV) - this is not a recommended fund on CCP.
After I move my RRSP funds to Questrade, I'll stop making monthly contributions. Instead, I will contribute 2 - 3 lump sums throughout the year, and mostly when my portfolio needs re-balancing. This way I can kill 2 tofus with 1 stone, and minimize my overall expenses.
My girlfriend and I have discussed moving to a more inexpensive city when we’re ready to purchase property, the main contenders being Windsor or Ottawa. Given our incomes, we would be comfortable with spending about $500,000. However, I don’t plan on including the value of the property into my calculations, since we will obviously need to live somewhere when we retire. On the plus, if we purchase a house in Windsor for less than $500,000, and mind you the price of the average house sold this year was $247,000, we could easily become mortgage-free in a decade. Not to mention we would be a stone's throw away from Detroit - one of my favourite American cities!
If we do relocate to a more affordable city, like Windsor, my pipe dream would be to own an income property. My immigrant grandparents managed to purchase a few rental properties (mixed-use commercial and residential) in Toronto, and it’s been a wonderful second source of income for them (at least around $3,000+/month). Although it may not be the easiest or quickest way to make money, I still see real value in owning property. This won't happen if I remain in Toronto.
In short, my ultimate goal is to diversify my income as much as possible. I’m relatively confident that if I consistently save 20-25% of my income, maintain a frugal lifestyle, and be open to relocating, I’ll be able to achieve early financial independence while maintaining a comfortable lifestyle. I don't need to have an obscenely high salary, I just need to be smart with my money. This means investing as early and aggressively as possible, and letting compound interest work its magic.
At one point, I did also consider investing in individual dividend stocks, but ultimately I want to keep my investments simple and explore other sources of income. I also feel confident remaining an index investor. I mean, if Warren Buffet has been a life-long supporter of tracking the index, why shouldn't I?
At 27, I’m excited to see what the future holds. Thanks for reading and I’ll be sure to share my progress every so often!