Happy New Year, everyone! We’re back, and we have a fantastic (and long-awaited) episode to share with you today. Back in September, we ran a contest for one of our lucky listeners to win a free retirement projection from Cashflows & Portfolios.
Julia was randomly selected as our winner, and today we’re finally interviewing her and discussing her retirement plans with Mark Seed (of My Own Advisor and Cashflows & Portfolios)!
If you’re interested in tips and ideas for to plan your retirement withdrawals, this episode’s got you covered. We hope you enjoy the case study (we promise—it’s NOT full of boring numbers)!
By the way: Cashflows & Portfolios encourage you to sign up for their free newsletter—this way, you will be notified when any new free retirement case studies or other personal finance content are posted (including portfolio drawdown solutions). You’ll also get exclusive content only made available to Cashflows & Portfolios subscribers (including book giveaways and more)!
Click to view transcript
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Money Mechanic
Welcome to Explore FI Canada, where we investigate the financial independence topics important to you. Join us as we learn how to optimize our lives, save money and invest for our future. We’ll go coast to coast interviewing experts and chatting with Canadians about their inspirational FI journeys.
Chrissy
PolicyMe is Canada’s easiest way to buy life insurance. In about 15 minutes, you’ll receive a free no obligation quote, and an instant decision. Plus, most people won’t require a medical exam. Visit exploreficanada.ca/policyme to get your quote today.
Money Mechanic
Wow. 2022. Let’s see what this year brings there, Chrissy?
Chrissy
Yes, it’s an exciting new year. We’re happy to be back. And this is a special show that we’ve been waiting a while to do.
Money Mechanic
Yes, absolutely. Congratulations. Many of the listeners will remember we had a little contest for the new service that’s offered, Cashflows & Portfolios to one of our lucky listeners. And the lucky winner is joining us tonight. Alongside of the man, the legend, Mark from Cashflows & Portfolios. Joe’s here somewhere he’s just not on camera, I’m sure but they’re both with us tonight. It actually feels like a round table. We’re starting this year off awesome. We’re getting to hear about that projection that our winner got. Chrissy What do you think? Where do we start with all this?
Chrissy
Yeah, I’m excited. Well, let’s say hi, let’s give Mark a chance to say hi, then we’ll dive in with our winner.
Mark
Sure. Hi. And thanks for having me back. It’s always a pleasure to talk to you too. And I’m always impressed how much time and also dedication you put into this podcast, I must say I don’t know where you find the time or the hours. But you’re both super passionate about it. And I’m an avid listener as much as I can.
Chrissy
Well, thank you. That passion for the topic is definitely what keeps us going and and our awesome listeners, including the winner of our contest. She was one of our listeners. And we’re happy to have her on the show today. So Julia, welcome to the show.
Julia
Thanks so much. I’m so honored to be here. I’ve been a longtime listener. So definitely having a little bit of a fangirl moment and really grateful to have the opportunity to work with someone like Mark.
Money Mechanic
Yeah, well, this show really is about talking to Canadians all across the country from all parts of their FI journey and just sort of working together and trying to find the solutions and the resources and help each other, you know, on our path, because we’re all slightly different places and want to get to the get to the finish line. I guess we don’t really talk about the finish line anymore, Chrissy, because we’re not about FIRE, per se. But anyway, the contest was for a retirement cash flow projection. Mark, do you want to sum up really, really quickly without going to great detail what that product is? We’ve talked a lot about it on the show before we promised we weren’t gonna get super salesy today, but you can just sort of summarize it, and then we’ll sort of talk to Julia about her, her experience with it.
Mark
Yeah, totally. And I appreciate the you know, the the non-salesy stuff because it it’s not what we’re trying to do. Obviously, we’re trying to grow a small business to some degree, but we’re really trying to provide some nice services that typically aren’t available to a lot of people to be honest. So we’re offering some services, Cashflows & Portfolios, that essentially allow Canadians to do what I would say some financial projections per se, on, where could their drawdown order potentially be? What are the tax implications where they had to set drawdown order? What order of their accounts are they even consider drawing down whether that’s RRSP first, taxable first, TFSA, when to take CPP, and OAS based on their inputs and suggestions to us. And essentially what we do it’s a it’s a two-way street, and that we work with clients, like Julia, and many others, where are we say, what are your assumptions, and we’ll run those assumptions will run those values in the software, and it will basically deliver a report or a set of reports based on those inputs. And that’s essentially you’re looking at Cashflows & Portfolios, which is basically financial projection for DIY investors who do not necessarily need a full on financial plan, estate planning, debt management plan and other things. And we feel that there’s a service there, and we’re happy to offer it.
Money Mechanic
Yeah, I’ve been thinking about that for my future drawdown planning as well as is it’s just like that second set of eyes, right, we’ve talked about it on the show before as we all got a little bit of, you know, blind spots and bias because I think my plan is gonna work. I totally think it’s gonna work right. And I’m definitely before I execute or, you know, start using it. It’ll be you know, fee-for-service advisor that I can sit down with, or perhaps a service like yours that’s perhaps cheaper, but you know, will give me some, some relative information that I’ve been missing out on. Right. So, Julia, it’s all about you here today, though, right? We’ve, that’s Mark is just now as he’s just sitting on the bench, we’ll wait we’ll call him back into the game later on. We want to hear what your experience was like and a little bit about who you are and what your journey to FI is kind of looking like, at this moment, whatever you’d like to share with us
Julia
Alrighty. Okay, so I’m 33 years old. I live in the high cost of living city of Vancouver with my partner and our two month old.
Money Mechanic
Congrats.
Chrissy
Newborn.
Mark
Yes, congrats again.
Julia
Yeah. So, growing up, both my partner and I, we grew up with an immigrant family. So the values of frugality and savings are always ingrained in us. But we didn’t actually discover FIRE and the awesome community until a friend of ours introduced us to Millennial Revolution’s book, Quit Like a Millionaire. And from there, we just went down a whole FI rabbit hole. So currently, we’re about about just over 60% of the way to FI.
Chrissy
Incredible at your age, and you didn’t discover FIRE till quite recently, because that book isn’t very old, around when our podcast started.
Julia
That’s right. That’s about the same time I found your podcast. So everything just fell into place. So about three and I think two and a half years ago.
Chrissy
Excellent. Okay, so can you tell us what kind of investor you are? Are you a DIY investor? And what do you generally invest in?
Julia
Yeah, so I think we’ve been mostly DIY, and most of our portfolio consists of broad market index ETFs are very popular in the FI community. We also have a bit of company stock options from my partner’s work. My partner also does little satellite investments. So with individual stocks and a bit of crypto, and just recently, we dabbled into, we diversify a little bit into real estate investing type lending. So actually, fun fact, we learned about that through one of your FI Garage episodes, Money Mechanic. So hopefully, you were able to get your referral bonus before they had to change things up.
Money Mechanic
Yay, FI Garage isn’t just about drinking beer, there’s information.
Chrissy
Right, actually help people? Well, that’s fantastic. You are well on your way on your journey. So I’m curious, it seems like you had all your financial foundation lined up, everything was going well. So when you won this projection, what were you expecting out of it? And was it different from what you expected? I would love to hear more about that.
Julia
Yeah, no, I think Mark summed it up pretty well on his intro, and also on his website. So for us, it was mainly reassurance touching on what Money Mechanic mentioned earlier, we had our own set of modeling and calculations, but it’s always like, ah, is this actually gonna work? Are we even in the right ballpark? So having working with Mark gave us that reassurance. There are also a few action items on our list that we’ve been putting off, because we weren’t entirely sure about our financial situation. One of them was, for example, life insurance, we wanted to make sure that we weren’t over insuring ourselves. So knowing our five date gives us an opportunity to like work out how much coverage we actually need, that after we reach five repeat to really be able to self insure. And then with Mark’s service, he was actually able to stress test our portfolio with this 20 years worst return continuously. So having that peace of mind that we won’t fall prey to the sequence of returns risks gave us a lot of peace of mind.
Chrissy
I would like to ask Mark a question about his experience doing these financial projections. Do you find that it’s different planning to for a FIRE person rather than a traditional retiree? And are there significant things that we should be looking out for if we’re aiming for early retirement?
Mark
I think that’s a great question. Because one of the things that we’re seeing in our service and our site is still fairly young, it’s only you know, a few months old, what have you, but there are some demographic differences, to be honest. So in Julia and her family’s case, we noticed there are more alternative investments, for example, and she spoke to those right, so the crypto piece and the private lending piece. And I remember one of the conversations that Julia and I have, because we have a level where you can have a consult with us and just talk through your numbers and just basically have a coffee, talk of sorts of about what your reports entail. And just pick our brains because we’re DIY investors as well. I remember talking to Julie about, you know, what, what would be your expected returns on said private lending, and she gave a number and I’m like, Well, I said that could happen, but it could also not happen. And so what I find a little bit from the demographics, I think, is that there are some alternative investments with some younger investors, which I think is really cool. But they’re also potentially, and you know, I’d love to hear Julia’s comments on this. Maybe some, you know, inflated expectations about what those returns could be. And I think we’ve been very blessed over the last 10 years, not so much the 2000s but the last 10 years, I’ve been on a tailwind of a bull market run. And I suspect my hunch is things will change. I don’t know when I wish I could tell you I wish we could all tell each other but I think they will change a little bit. And then for the obviously for the some of the older clients that we have maybe approaching their early retirement date in their 50s for them or even at the traditional age of retirement, say, you know, early 60s or what have you, more conservative investing more tried and true in terms of a mix of bonds, in some cases, not quite matching their age, but maybe, you know, a balanced 60/40 approach. And they’ve done very well. But they’ve had years of compounding power in their in their RRSP. And now they’re taking advantage of their TFSA, like Julia and her family are doing too. So I find it really interesting to see the depth and the spread of alternative investments, maybe for some younger generation, folks. But still the tried and true more conservative but proven path for maybe the 50 and 60 set. And we’re seeing the whole gamut, to be honest,
Money Mechanic
Yes, one of the things that I was interested in looking at the projections that you had, because, like anything, we need to make a whole bunch of assumptions that are going to go over a long period of time. That’s really hard to do. Julia, how did you think about those assumptions? Because that’s kind of the beginning step, as you got onboarded here, you had to provide some information you had to kind of, you know, did you have the discussion about the assumptions? Or were they just things that you thought were appropriate for your expectations moving forward? And I’m talking about your return rate, potential inflation rate, perhaps other income, that you’re going to have streams of income? How did you face that and add it in for the information for Mark?
Julia
Right. So I think because we have the advantage of a longer investment horizon. So our return rate was at 7%, which is what most of the FIRE community uses, in a way I’d say that’s actually conservative seeing what the rates are, the returns have been like, and because it’s such a long investment horizon, that’s something we’re comfortable with. For some of the alternative investments where there could be more variation, we went with more like a more conservative approach.
Money Mechanic
Yeah, I noticed that you had in there, well, we can put in an inflation number there, which is we don’t want to go off on that side road right now. Because who knows what that looks like in the next year or two. But I found it interesting when we look at this sort of really extrapolated data set, and then take in and I’m totally with you, I hope six or 7% going forward for the next 40 years is our average rate of return. Right. But I think it’s interesting that you ran a few different scenarios. But the assumptions stayed the same. Would you have liked to see a scenario where you could change your assumptions and maybe flesh that out a little bit, Julia?
Julia
Yeah, it’s always fun to play with all the different numbers. And I guess, potential worst case. But, of course, there’s only so much capacity and so many things that Mark can do. I’m really grateful for the three scenarios that he did, he was able to run for us. I think that’s probably the most representative of our situation right now. Things are always changing, for example, interest rates, because we do have some leverages investing in there as well. And we still have mortgage and different liabilities. So the best thing for us was probably to take these projections with a grain of salt. And if we ever need to revisit them, say next year when things do change around, I think that’s probably the best path moving forward.
Mark
Yeah, I would echo that. I mean, you can look at any given week and the numbers will change. And I think what’s important is these reports to Julia’s point and any other client that we work with, it does give you a line of sight on on some guardrails, if you will, in terms of what you’re working with. And I think that’s the, that’s the true benefit of doing this stuff. Again, it’s not a full fledged financial plan by any stretch, and nor is it any advice whatsoever. But I think the beauty of the work that any of these type of reports, whether it’s this service, or you know, any other DIY kind of services, or you know, the more maybe more thorough reports that fee only planners can run for you is you do get to see where your guardrails are a little bit. And I think, you know, kudos to Julia and her family because they have a better understanding they had their assumptions in mind, but now you see it more or less validated in a formal report. And there’s nothing to say that, you know, you can’t update those numbers in another six months or a year and rerun it again. Or if you want to wait two years, that’s okay too. But it gives you flexibility and guardrails to work with which I think is hugely important in any long term plan, because so much can change in a week, let alone a month, let alone a year.
Julia
I just wanted to add that in the three different scenarios that we did run our drawdown projections were more or less similar. So that in itself is able to help us figure out how we want to rebalance our portfolio for example, taking into account risks and investment horizons to because now we know which account for would be drawing from first.
Chrissy
Yeah, I thought it was interesting how what changed the most was your final estate value, depending on the scenario you ran and whichever scenario it was you ended up with a ton of money at the end, which is just a very surprising but also comforting outcome to see that. And I wanted to go back, Mark, to what you’re talking about with the plan and how you provide guardrails. I was wondering, when you do these projections? Could a client take that and then just run with it and plan their withdrawals around that? Or is it something that you would caution against? Is it something that they should really revisit more often than just you know, it’s not a one time thing? You should really be looking at it more regularly?
Mark
Yeah, I think there’s two things there, Chrissy. One is it is just a report, and it’s a report in time, or a set of reports in time. So things will change, the market will change the asset values of what Julia and her family have will change on a week to week, month to month basis. So I think it’s important to use the reports as a bit of a tool in your toolbox in terms of what the potential is to draw down and in what order based on those asset values. And then the second part of that is, yes, I would based on the first piece, I would anticipate that people do revisit a little bit of their plan six months, probably once a year is is fine, in my opinion. But we do have some clients that are very close to retirement or ePHI. And, you know, they want their numbers run this winter, and they want to do it again, maybe in the in the summertime. And that’s okay, because they know that things will change, they may have a life change, if you will, where they’re selling a rental property, they’re downsizing, they’re kicking the kids out of the house, and they’re you know, traveling a little bit more, or what have you, you know, in a hopefully I better post COVID planet. So there’s these life changes that come in, and they know they’re coming. And the numbers don’t necessarily accommodate that now, but they’re making some assumptions and guesses. So I think it is important to revisit that and certainly you don’t need these types of reports to plan ahead and think about that. But there is some power and seeing basically the spreadsheets tell you what the tax consequences may be year over year at this point in time. And Julia and her family can speak to that more as a client than then kind of I can, but I do use the software myself. And I think it’s hugely valuable. But yeah, there is that piece where you need to revisit your plan, irrespective if you have a report or not. So it’s always the process of planning and replanting, that’s important.
Chrissy
I know Money Mechanic wanted to say something, but I’ll just quickly ask: if someone wanted to rerun the reports… you already have all their info… is it a whole new… do they have to pay for the whole thing all over again? Or is there a bit of a discount?
Mark
There’s absolutely a discount. Yeah, so we’re offering a fairly deep significant discount to any client that has started with us, largely because we want to offer this service and we want to be able to, to help people in this capacity. And we don’t feel that charging full fare all the time, every time is a good way to run a business to be honest. So we do offer a very significant discount to any returning client and there’s no timetable. They can do it once a year or six months hence or even wait two years. And that’s okay with us.
Money Mechanic
Thank you. Just don’t wait ten years because Mark will definitely be retired by then.
Mark
Maybe retired by then. But
Money Mechanic
This will be the hobby forever.
Mark
It could be it could be you don’t you don’t know. But it’s it’s it’s fun. It’s fun to work with people like Julia, who and you know, talk about this stuff. Because the drawdown puzzle is complex. And there’s only so far you can go with free tools. And there’s only so far you can go with calculators and other things. And so buy yourself some time. Why not?
Money Mechanic
Yeah, and by yourself in the echo chamber, right? So we keep saying reports over and over again. And it’s really visual thing, which is hard to present for the listeners out there. But Julia, if you could just share with us what product you actually got, and what sort of impact you got from it and just kind of describe what it looks like that you got.
Julia
Yeah, so we got a very comprehensive professional-looking report with very nice graphics and tables. It showed us our current state, what our state would look like when we were 100 years old. And then it also showed in really pretty colorful bar graphs, what our drop down production would look like, year after year. So in any given year, we’d know exactly which account we’d be withdrawing from.
Chrissy
Yeah, I really like those graphs, I found they made it really clear about where your money’s coming from. And it explains it in a way that numbers can’t do alone.
Julia
Right. And the table was very helpful to us because when we were doing our own modeling, it was tricky to put in the liabilities, like how you factor your mortgage and, and the tax deductibility portion of that as well. So the table was really clearly showed, like all the info and outflows and what year how much you would be putting in to your mortgage principal, etc.
Money Mechanic
Yeah, that was one of the things that struck me when I looked at a sample report here was the level of detail that actually breaks out in like when we’re describing the tables, the tables were actually broken down for you and your partner where it had your your income, you know, your your projected expenses, and then it showed the different accounts that you had ongoing whether it was your TFSA you’re not registered or your RSP, and it broke it down into a page by page time frame, some of it was combined, which was helpful, I think. And then some of it was individual. So you could kind of look and I saw in there at some point, there was some, some income splitting between the spouse, which is something I have no clue how to do. And it’s probably something I should look into down the road, depending on who’s working and what what our earning levels are with my partner. I think things like that I looked at it went, Yeah, these are some things that I wouldn’t have even thought about digging into.
Mark
Yeah, I think that’s the benefit of the report. It can be quite comprehensive, depending on the number of accounts you have, and pensions, and you know, don’t want to get too weedy in terms of all the accounts that that some folks may have. But the beauty of the report is it will break it down.
Money Mechanic
Yeah, for sure. Now, the more important question here is really, how did it make you feel? How did you feel after you got there support? What kind of discussions did you have with your partner did it? You know, what was the psychological benefit of all this? If there was one?
Julia
Absolutely, that’s definitely just peace of mind. Like our calculations actually aren’t that far off? Well, of course, um, Mark was able to fill in a lot more details on how that would work. Surprisingly, just, if we were just to run our numbers based on the 4% guideline, it’s pretty close to the FI date that Mark came up with, however, like, what happens after that it was like a blur to us. And we didn’t really have a lot of experience with CPP and OAS. So all those details were filled in. So it just gave us more peace of mind reassurance, and a plan moving forward. For example, now we can move forward with our life insurance policy, and how to rebalance our portfolios.
Money Mechanic
Do you think your path to FI will change now, knowing that, you know you’ve got a newborn? And, you know, of course, this is all hypothetical anyway, because we know it could change next week, next month, next year. But having these projections for you, do you think you might go? Well, let’s get a little faster? Or let’s slow down a little bit and take our time. Did any of that occur to you?
Julia
Yeah, absolutely. Maybe the ladder, let’s let’s slow down a little bit, because Mark did help us to do a Coast FI scenario. And when we’re thinking about it, it’s a lot less scary. That way, we’d still have our work benefit package. And if we wanted to negotiate more time, like we wanted some extra income we could, and then yeah, just a lot more flexibility to or just don’t taking, you know, the a different path to FIRE. But as the kid is still young, and she still wants to hang out with us, this is probably a good time to do so. So after seeing the projections, we yeah, we definitely gravitated a little bit more towards the coast FIRE path. But that’s still in the works. Right now. We’re still talking about what we want to do,
Money Mechanic
Are you and your partner, you and your partner flipping a coin to see who’s gonna follow Chrissy and be the stay-at-home parent?
Julia
We haven’t talked about that yet. But we are splitting the parental leave right now. So we’ll see how that goes.
Chrissy
Nice. Nice that you can do that. So I want to just point out to our listeners that the three scenarios that Julia had asked Mark to model for them were one was for a target retirement date. And then the other one was the Coast FI with part-time work. And then the third one was the earliest possible retirement date. So you’re it’s interesting that that didn’t attract to you. You were attracted to Coast FI. Can you tell us more about that? Why was it that Coast FI attracted you more than the soonest possible date?
Julia
Yeah, I think the Coast FI is just offered us a good balance, I suppose that you have that reassurance and the flexibility. And it’s just a lot less scary pulling the trigger all of a sudden, and at the same time, we’d still have, like, you know, the first five years to hang out with our kids more?
Chrissy
And would you say that, that both you and your partner? Do you enjoy your jobs? I think a lot of people who want to get there as early as possible, there are some different circumstances that might make them feel that way.
Julia
That’s a really good question. Yeah, so we like our jobs. But I think what we were finding more and more these days is that like, we like our jobs, but we also like a lot of other things. And it was hard, it’s really hard to find a work life balance. So that’s where one of our main motivators for FI and like just to help us really prioritize what’s important to us. And right now it’s I think it’s time.
Money Mechanic
I think it’s always time Well, it matters more and more as you get older and older, but you know what’d be… this is running through my head here sitting listening to the discussion. And in the back of my mind, I’m going you know, all these people that have, you know, worked hard to get into a career that like their jobs, why not to have some sort of like job share situation in the future where instead of the traditional five days a week, 40 hours which is in a lot of careers is like the minimum that’s people are working much more than that. Why about having like the three day week, the four day week, the whatever splitting it up with other people that are equally qualified to do your job, but to have that time balance and maybe you know, once you’ve designed this FI lifestyle where you’ve optimized and you’re a little more frugal and like Chrissy your Eat Sleep Breathe FI profiles of how much it costs to live an FI lifestyle. It’s like, if more people that are the same as you could live that way, you could both continue working for longer and have that time. I don’t know, I’m just spitballing here would be, it’d be fantastic.
Chrissy
Well, you know who’s good at, teachers are really good at that. A lot of teachers job share, right? It’s two or three days a week and they split it up and it works really well. They do it for years, a lot of teacher partners, they can do that together. And I think it’s fantastic. My sister herself, she doesn’t job shadow with someone, but she’s a teacher librarian. And she’s able to work three days a week and it’s just right for her. You know, it gives her that just enough work life balance, and she loves it. She could do that forever. She loves it that much.
Money Mechanic
Yeah, I think we all want that kind of productivity. You want to go and do that. It keeps up some social interaction. And if you’re not super busy in your free time, then it just gives you that little added little bonus. Right. So let’s cut right here for a quick break from this show sponsor. We’ll be right back to finish off our discussion with Julia and Mark shortly.
Chrissy
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Chrissy
Hi, listeners, we are back, we are still talking to Julia and Mark and of course Money Mechanic is still here. And we are talking about Julia’s retirement projection that she received from Cashflows & Portfolios. And we are going to go back into the projection a bit. But we’re going to focus a bit more on the CPP and OAS that Mark and Julia had mentioned, as Julia said, she wasn’t sure what they were going to do with that.
Money Mechanic
Shhh, shhh! Nobody talks about that in the FIRE community!
Chrissy
I know it’s this hot potato right? Everyone in the FIRE community or FI community, we we treat it as a bonus and something that we kind of ignore because we don’t really trust it. Or some people think it’s not going to be there. And some people say it is and so I think a lot of us just set it to the side and just say we, if we get it, we get it; if we don’t, we don’t. And so maybe I don’t know Mark or Julia, one of you wants to talk about that. And what you think about CPP and OAS
Money Mechanic
What can I add in there just before I’ll give you guys a second to think Chrissy one of the things that occurs to me. And because I have looked into this because I’ve been working for long enough that CPP will be a factor for me is that it’s really hard to model out. Right you can go into the account you can generate with Canada, your federal account help me out here…
Mark
My CRA and Service Canada.
Money Mechanic
Service Canada, Service Canada, Thank you Mark. Service Canada account. And you can look at your what’s your projected CPP is but it’s it’s not super easy to figure it all out. And then OAS gets means tested. So it’s one of those things is really hard to build into some projections. So now you’ve had enough time to think about it. You too, can jump in.
Mark
Yeah, I’m going to give a quick plug to a long time blogger John Robertson from Holy Potato. He’s actually built a very cool, simplistic, easy to use CPP calculator and I would encourage folks, we should put it in your show notes for sure. Yeah, where it’s free. And it’s super simple. And the beauty of it is all the ratios are kind of built in, like most people know, largely what they’ve made over the last 10 to 15 years. It’s really surprising when you ask somebody like, you know, ask them to do CPP calculations are like oh my gosh, their head starts spinning like the exorcist or something but, but then you give them the calculator and you ask them to fill in, you know, year by year what you made and they kind of ballpark No, and that’s really all you need to do in this calculator. So I would encourage folks to check John’s site out. It’s great. He’s not blogging too much, but he has a great book out for years Value of Simple and I think it’s a nice handy guide for any Canadian. That being said, they aren’t easy calculations. There’s a lot of math behind the scenes, but the calculator makes it easy but you’re right Money Mechanic and that even having some CPP so if you are going to FI early in your late 30s or early 40s like Julia or family might there have been probably some years where you’ve made good contributions or maximum contributions into those contribution years. And they add up they make some difference so it’s not insignificant amount of money even for someone you know, trying to retire or Coast FI if you will in their 40s Right. There is a bit of money there and you need to think about it because it can be bond like and it’s inflation. protected just like All yeses. So I’m guilty of saying it’s all gravy, your CPP and OAS. But the reality is, is it is an income stream and you need to think about it. I would be curious to see what Julia thinks just because she had the the math in her reports.
Chrissy
Yet. I’d also like to know if she was surprised. Were you surprised by how much it could change your plan?
Julia
Oh, absolutely. So I think like a lot of other people in the FIRE community, we just took CPP and OAS as a bonus, so that was never in our original models. But, of course, it’s important to have in there because that would totally change what your withdrawal strategy would be
Chrissy
So, was it significant enough that you’re like, oh, this really can make a difference?
Julia
Absolutely. We didn’t actually look too much into CPP and OAS. So we weren’t really sure how how it would work. Like how that, you know, you’d get a CPP boost if you take it at 70. And those kinds of details we just sort of glossed over because we’re like, Yeah, anything extra would be bonus. Right? That’s just thinking conservatively, but that would actually change your withdrawal plan by quite a bit.
Money Mechanic
I think one of the big changes that this makes when you factor it in appropriately, is that when you’re going to use your TFSA, because I noticed in those projections that you actually started drawing down your TFSA earlier than I had originally planned to. But because you’re able to delay your CPP, and OAS you’re going to get a higher, you basically get a bigger annuity at the end of you’re going to get a higher monthly return from that. So that that changes things, you know, big time on the drawdown planning. Did that change what your thoughts were Julia as far as the order of account drawdown?
Julia
Absolutely, I think like you, I also thought it’d be advantageous to keep the TFSA until the end. But through Mark’s reports, as you can see, we actually drew it down much earlier than I thought we would.
Chrissy
That’s interesting. So Mark, would you say that your software helps to guide that decision, then? Because to me, when I think about it on my own, my head just wants to explode! Because there are so many possible iterations, right? I guess I’d like to know behind the scenes, does the software make it very clear? Or are there a lot of assumptions you still need to plug in and preferences that you need to enter?
Mark
Yeah, no, it’s more the latter. There’s so many permutations and combinations of this stuff we we tried to do is we generally ask clients, you know, do you want us to look at CPP at 60, 65, and 70. There’s actually lots of literature out there to say that, that CPP at 65 is actually not a great zone. It’s not a really a sweet spot, per se. And I think there’s been a few actually recent blog posts about that, to be honest. But that being said, we do we do based on client’s needs, if that’s one of their scenario, or other factors, we do say, you know, maybe we can run some math at 60 and see if that’s something you’d be interested in. Knowing that you do leave, you know, quite a bit of money on the on the table by taking it early. And you know, you’re obviously not hedging longevity risk either by and so we know that CPP at 70, you get quite an income boost after age 65 By taking CPP at 70. It’s 42%. It’s that that’s not a trivial amount of money. And it’s inflation protected, and so on and so forth. So, you know, you can run the range if you wanted, you know, 60, 61, 62 or 68. But we generally look at three big buckets age 60, 65, and 70. To keep it simple, but to be honest, it depends on the clients, you know, if they’re already 66, then should I take CPP next year? Okay, let’s run the numbers. And that’s okay.
Chrissy
And with that each of those count as a scenario that you’re running, or do you do that within each scenario?
Mark
I’ll say it depends. You know, we were fortunate to work with with Julia very closely and her family about some scenarios and we were happy to basically just showcase what we could do and talk to her about anything because we knew that to make these FIRE like decisions, you know, you want some permutations and some variables. Generally speaking, we have a membership if you will, we generally run two scenarios. But really, if you want the extra one and you want to play with some numbers now that you see what what things are shaking down, to be honest, we tend to run maybe some more, some more reports than we should because we want to help people but generally it’s two reports and then at most will probably run is about three
Money Mechanic
Chrissy. You know you want to talk about your favorites. You know, you want to talk about leverage!
Chrissy
Oh, oh, I know. Yeah. Well, this is something that Mark thought that we should talk about and I agree, but I was afraid that we’re going to go down that rabbit hole and never come out.
Money Mechanic
Well okay, that’s why we’re leaving this to the tail end of the show here. But before you and I get into it, we’ve talked way too much about it. Can we ask Julia what her thoughts are on leverage and and what she’s using a why she’s doing it and then we can get into how it got built in.
Julia
Alrighty. So I actually we heard about the Smith Manoeuvre, way before we even got our place, but we actually didn’t realize how advantageous it could be until listening to your podcast episode with our Robinson Smith actually. And the missing piece of the puzzle for us was that readvancable mortgage. So being able to leverage our home equity without incurring extra monthly cash flow. So it also helps that, like, we just recently got our readvanceable mortgage setup. So it really helps that our home assessment value has increased quite significantly, and interest rates are so low right now. So it seemed, it seems to us like it’s a no brainer. But I do understand that there are some risks involved. But for us, we are comfortable with that.
Money Mechanic
Yeah, that’s awesome. And you’ve got the timeframe. And as long as you’re you’ve got a long term plan for it and you understand everything, then, you know, we have to be very careful. Chrissy I think we may have been too pro leverage and be it’s becoming very popular out there. And everybody needs to understand that, you know, you have martial arts waving his finger at you because he’s a staunch, he’s against leverage of all sources turned a bit into little fun debate here at the end of the show. So Chrissy, you go ahead, and then we’ll, we’ll keep Mark on mute.
Chrissy
Well, I agree with Julia, for us as well, it was a no brainer, right? I felt, I felt like I couldn’t sleep at night, when knowing the equity in our house was just sitting there doing which in my mind, nothing, it felt like it’s just sitting there. And it was a lot of equity. We live in the Vancouver area. And you know, your house goes up in value and does nothing for you, you can’t eat your house. So I was so relieved to find some way to use that and use it to our advantage. And so I can see that side of it. For me. I’m very math-oriented. But I can also understand someone like Mark who is who sleeps better at night knowing their mortgages paid off their home is theirs free and clear. And so I would like to hear your take on it for our audience and for their sake, just so they can hear the other side of it and what someone else might think.
Money Mechanic
Yeah, one thing I’m curious about, too, is that how you either built this into the planning, or whether it’s adaptive in there already, because this scenario, especially if Julie’s using the Smith Manoeuvre, or whether she’s using some straight leverage, it does change how long you’re holding that debt for, and what you’re going to do with it long term. So go ahead, Mark, we’ll let you have the floor.
Mark
Yeah, well, no, I mean, just on that subject, we do ask folks like Julia and her family, you know, what is the game plan for the home equity line of credit, because it does factor into, you know, other things, right? If you’re constantly borrowing against the house, then you never intend necessarily to sell the house or pay off the house. But you’re funneling that money, or any money you make from your job into your TFSA and RRSP. And then it just gets complicated in terms of Well, now you have this asset, and you’ve been investing, and now you have these leveraged accounts, and you’ve been investing in those. And you’re building up this wealth, potentially, which is, which is great. But do you have any intention to pay it back? Are you selling your house? So, you know, these things all factor into kind of a long term? I’ll say broader plan. But we just asked those general questions, because to help make the math work, and be more accurate for people at this point in time, we want to ask Julian, her family and other people, what is the game plan? And it’s not because we want to know, we want you to, we want you to know that, you know, right. And it’s just to make the reports more accurate. I think when it comes to leverage, I think my thesis on this is this, I think if you are comfortable with an investing approach that has some borrowing tied to it, and you can use that money wisely. And you know, the risks and it’s kind of eyes wide open kind of thing. I say it’s okay, I think where we may run into trouble is for some people, they may not see the downside of leveraged investing, they may have an unfortunate health issue in their family or the ability to maintain their human capital, if you will. And it has nothing to do with keeping the roof over your head has everything to do with your ability to earn an income. And so life happens, unfortunately. And I think people need to hedge against that. And they just need to be thinking about some of those risks. So that’s where you just need to be going in I think a little bit more eyes wide open terms of what leveraged investing is or isn’t. But if you do want to do some and you understand the risks, and you’re willing to accept the risks, given how low rates are, it’s probably not a bad way, given this past year. What are we up 20%? And what are interest rates? One point nothing. So, you know, you would have made some money, but 2022, 2023, future years, you know, all bets are off kind of thing.
Chrissy
So Julia, can you speak to that? What is your plan? Have you thought about the long term consequences of what would happen whether it’s good or bad? If the market takes a downturn? How are you going to handle this leverage that you’ve got?
Julia
Yeah, so we did run like in our own calculations, we ran a few different scenarios that it seems like we could handle quite a few rate hikes, and this is just through paying off our monthly mortgage because it could be readvanced and we can cover the interest without any issues. And because we have such a long investment horizon, we’re not too worried about the sequence of returns. In the long term, though, I think what we want to avoid really is taking out a reverse mortgage. So this seems like a much better option. So I think we were thinking of probably leaving it open indefinitely and letting that money grow. But yeah, life changes, and maybe we want to upgrade to a new home, we just want to make sure that we’d be able to cover the HELOC amount if we were to sell our home. And I think right now we’re on the right track.
Chrissy
Excellent. And so Mark, I have a question for you, a practical question. If we send hordes of listeners to you, and many of our listeners are into using leverage, you mentioned in Julia’s plan that you had to do a bit of creative calculating in order to integrate the Smith Manoeuvre into her plan. Is that doable? If a lot of clients are interested in doing that?
Mark
Yeah, it’s very doable. The it’s basically just an extra column. And it’s an extra really, if you think about a spreadsheet, it’s really just an extra column of data that we need to put in. The complexity comes in is this just for a couple years? Is this for five years as a for 10 years? And we any answer is fine for us, to be honest, right? We’re just supporting people in their own assumptions and their inputs. The challenge becomes is when you ask them these questions and say, Well, you know, do you want to take CPP at 70? Or 65? What would you like to run? They’re like, I don’t know, are you going to pay off your mortgage? I don’t know. So it becomes challenging sometimes to run, you know, when you talk about the TFSA, you know, you can speak to Julia her family? And it’s like, well, what’s your plan? What do you feel like? Well, we’re gonna max it out. Done. That’s easy. So that becomes an input. RRSP, we’re gonna keep contributing. Great. That’s another input. So there’s some very easy answers sometimes. And there’s some more complex answers. And I think, part of the beauty actually of the process, it’s, it’s not just a bit of reports, it’s about the process of actually stepping back and thinking about where you’re going. And I think that’s the reflective thing that I think we all enjoy, as DIY investors, we like to challenge each other on leverage, or dividends, or capital gains, or crypto or whatever. And there’s nothing wrong with that. But I think, ultimately, your plan is the best plan, and you need to take some time to figure that out. And whatever that is, stick to it.
Julia
Yeah, and I think another trickier aspect with the Smith Manoeuvre is when we actually come to withdraw, how would we deal with the tax deductions, because a portion of that interest is no longer tax deductible when we do start withdrawing? So that’s probably something that we’d need to work with an accountant to sort out.
Money Mechanic
Yeah, I totally agree with that, that’s one thing that’s really hard for any of us to project is, you know, future tax consequences, especially when they’re coming out of leveraged accounts. And, you know, at a certain point, maybe your income has dropped to the lower threshold so that, you know, that changes how much you can, the interest you can or the value of the interest you can deduct, or the returns you’re going to get is there’s definitely a lot of complicated nuance when you get into that. And as we’ve spoke to earlier in the show, I think that’s why this is like Mark You just mentioned which I think was one of the great parts of this episode actually is it’s it’s the process of going through it yourself and your partner and understanding where what direction you’re going in, and then revisit this and Chrissy and you and I have talked about it before is like, you know, it’s never too early to come up with a plan. But especially if you’ve got like a hard stop, it’s like, Okay, I’m gonna leave my job, we’re going to be FIRE, you know, five years out two years out, you know, make sure you’ve got something, some soft concrete to work with there. That’s pretty, pretty solid to move forward with. Because there is a lot of changes and tax consequences, probably one of the biggest concerns is going to be really hard. We don’t even know what our future tax rates are going to be.
Chrissy
There’s something that I would like to bring up about this whole process that I was enlightened by I, I thought it was simply, Julia would give you the numbers, you make her projection. But I was really impressed that you also mentioned that you talked about the what next, you know, you went into a bit of the psychology and I would say that’s a little bit of planning even though you say you’re not planners, you don’t give advice, but I think that aspect is pretty important to be able to have that psychological side of it addressed as well.
Mark
I appreciate you saying that. I mean, Julia can answer this way better from her perspective than I ever could but I think the DIY investors like to talk to other DIY investors. I think that’s ultimately where it lands right. So I never met Julia before this opportunity with us and now you know, I know a little bit about her and she knows a little bit about me and it was basically like a virtual coffee talk of sorts about DIY investing and we have different goals and different principles, but ultimately her plans probably going to work quite well for her and hopefully my plan works quite well for me. And same goes with Money Mechanic, Chrissy so it is about I think, having just an opportunity to chat with like-minded people and you don’t have to do that with with us but it’s something In terms of like a tier membership of sorts, where if you want an hour to talk to myself or pick Joe’s brain or anything that’s part of our, our service. And that’s part of our model is that we enjoy working and interacting with like-minded people. And our site is actually part of the reason why we started it up.
Money Mechanic
I think that’s a bit of a value add that I hear about it a lot now that a lot of brands are creating discourse, right, you creating a bit of a community that parallels the product, so that it’s about the people that are interested and talking to each other and sharing their own, you know, experience knowledge, direction, education, things like that. It’s it’s definitely becoming much more popular. I was just listening to a podcast today. They were saying how that’s part of their business is to create this community, this discourse, this place where people can share the information because it is it’s it’s a value add for for the clientele, the customers for sure.
Chrissy
So I have a question for Julia. Pretend that Mark’s not here, pretend he’s not listening. I want to know…
Money Mechanic
We can cut him off. Let’s kick him off the call.
Chrissy
I think I know her answer. But I want to know, how did you feel about Mark’s… how he handled FIRE and FI because I find that a lot of planners, advisors, people in the financial community are very anti-FI. And I know that Mark is very friendly to our community. And I just want to see like, did you get that vibe from him? Where he was like, Yeah, cool. Go for it. Because I think a lot of people get warned out of doing or pursuing FI, because there are so many naysayers even experienced CFPs who know the numbers, they should know it works. But they are just so fearful that we’re making mistake. How did you feel about this whole process as you discussed it with Mark?
Julia
Yeah, no, I found Mark to be very supportive through it all, like there was, it was non-judgmental and are just really grateful for that extra one-hour coaching session he offered on top of the projection service. So we went from everywhere from like, you know, talking about the numbers to life insurance, to investment strategies. So it really was like having our own advisor
Chrissy
Yeah, and I think that’s important having that guide that is walking alongside you and not trying to resist at every stop saying, Are you sure you want to do this? This is not a good idea. You know, even though he has his reservations about, say leverage. And I know that you know, he himself is not going to retire early. But and yet he can still be supportive. And I think that’s important. When you’re on this journey, you’re doing something quite different, not to have someone second-guessing you the whole way.
Mark
If I can jump in quickly, I think that’s again, the beauty of the DIY community, right? I mean, I’ve developed my plan 15, 20 years, or whatever I’ve been at it, and maybe more blogging last 12, I guess, it’s hard to believe, but I respect the fact that, you know, when I was starting my blog, or thinking about my own investment plan, people would say it’s, it’s, it’s flawed, or you don’t understand the risks and so on. And sure, I made some mistakes I think we all have in our financial journeys, but I tried to look back and I think, Okay, well, we’re all DIY investors, right. And we’re trying to do the right thing for the right reasons. And it doesn’t mean we don’t need help once in a while, where we don’t need to talk to somebody once in a while. I think is part of the mindset around that in terms of trying to do it yourself. It’s okay to be curious. It’s okay to make mistakes. It’s okay to ask questions. It’s okay to test and learn a little bit. Right. And I think there’s a bit of a bias sometimes for some, and I would say the more professional community because they’re very, you know, you can get rooted in terms of a certain track and way of thinking, and I don’t necessarily see that in the DIY investor community, which I think is a good thing.
Julia
Mm hmm. I definitely appreciate it Mark’s honesty when we when I was asking him for advice on the Smith Manoeuvre and leveraged investing. And he was just like, No, you talk to Money Mechanic and Chrissy about that. So I appreciate the honesty.
Money Mechanic
Well, it’s nice to be part of this community because we do pass off to each other. And we know, we know our limitations. I think that’s really important as a DIY investor and Chrissy as you and I as content creators, as you know, our limitations, you know, speak to what we’re good at. But there’s so much out there, there’s so much to learn that and it’s just great to be able to reach out to people across this community and share it and even people that are just our listeners, we get some fantastic email questions. And Mark, you’re so good at replying on your blog. Like he gets some really good questions from your readers too. And it’s just like, you know, I’m like, Oh, wow, I’ve got a I’ve got to go learn about that now. It’s fantastic.
Mark
Yeah, it’s it’s amazing what people send me on My Own Advisor, whether it’s, you know, it’s not just their case studies, but they’re asking about certain products or different launches and stuff and they’re really a lot of them are just tapped into what’s going on in the financial industry at large and it just blows my mind about how engaged some people are. And you’re absolutely right. Money Mechanic. You know, there’s limitations. There’s only so many hours in a given day or week that you can spend looking and reading and stuff and, you know, it’s okay not to know the answers right? It’s okay to say you need to go to a CFP. You need to go to a chartered accountant. I really think you should talk to your your lawyer, these folks have been trained and have the subject matter expertise to help people out. But in some cases, you can you can go it alone. And there’s no harm in that. In some cases.
Chrissy
Well, I know Money Mechanic’s gotta run. So…
Money Mechanic
It’s curling night!
Chrissy
It is it’s curling night, we don’t want to make you late for that. So I want to make sure that Julia and Mark each have a chance to say anything that we may have missed or didn’t cover.
Money Mechanic
For sure. Julia, why don’t you go first?
Julia
Yeah, I think everything was covered very comprehensively. This episode, it’s been a lot of fun. And once again, I just want to say thank you for the amazing content, I’ve learned a lot and just, again, super grateful for the opportunity to work with Mark and Joe.
Chrissy
Well, we’re happy we could make it happen.
Mark
Yeah, I don’t really have much to add. It’s it’s always a pleasure to talk about this stuff and still blogging at my own advisor and still doing, you know, this this new service and, and trying to help people out if and when they want to, you know, ask for the service at cash flows and portfolios. So thanks to Money Mechanic and Chrissy and I wish Julia and her family all the best on the FI journey. I’m sure we’re gonna hear more so
Money Mechanic
Yeah, Chrissy, we should throw it out there that anybody that’s listening, any of our listeners want to get a little more detailed questions, throw it in the comments for the show, and we’ll make sure we sort of share emails with Julia and Mark and follow up on this so that, you know, we can help each other figure out this complicated task of the drawdown strategy.
Chrissy
And also, if you are interested in getting a projection from Cashflows & Portfolios, I believe Mark still is offering a discount to our listeners. You just have to mention Explore FI Canada. I don’t remember how much the discount is. Is it? Is it 10% or 15%? Or something?
Money Mechanic
It’s not nothing!
Mark
No, it’s not nothing. I think we’re I think we’re at 15%. To clarify.
Chrissy
Okay, that’s, that’s a generous offer. Thank you. So I hope that other people can take advantage of your service. It sounds like, as I said, in the previous episode, where we talked to you, I think it’s really filling this niche for DIY investors who are really set on doing it themselves. And I think it’s great that you’re able to give them sort of just a second look at their numbers.
Money Mechanic
Yeah, it’s gonna be it’s gonna be definitely helpful for for me in the future when I bug Mark for my numbers. So, Julia, thank you so much for joining us on the show. Mark. Always a pleasure to have you, Chrissy. Awesome. I can’t wait to head into our next episode.
Chrissy
Exactly. Thank you for listening!
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Our show was edited and mixed by Max Desmarais at Fix Audio with episode transcripts provided by Otter.ai.
Episode links
- Cashflows & Portfolios
- My Own Advisor
- Quit Like a Millionaire
- How Much Does it Cost to Live the FIRE Life? interview series on Eat Sleep Breathe FI
- CPP calculator from John Robertson on Holy Potato
- The Value of Simple
- Previous EFIC episodes that were mentioned:
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