April 28, 2021 | Making It

Yesterday this odd blog veered into the world of vehicle turntables, wall-to-wall marble and unknown pneumatic bathtub babes. So let’s return to earth. Apparently there are still some normal people left, trying to scratch out satisfying lives in a world of extremes.

Like Courtney. “Your blog has helped my husband and I turn our finances around though we’re still working on it. When we first started out he was massively in debt from a failed business and I was just a year out of high school and we were both working minimum wage jobs,” she writes.

It’s taken us many years to pay off most of what was owed but along the way we still struggled with some unfortunate financial situations (being let go several times due to downsizing was our main hardship). With everything said and done, we are just about to pay the final installment for our car loan (I realize now we never should have opted for a car loan but I wasn’t reading your blog back then) and I still have just under $15,000 in OSAP loan debt.

We bring in $5500 net per month and pay $1500  in rent so aside from the student loan we don’t have any other major expenses (finally). Along the way we managed to add a small amount of $21K to our RRSPs (which sadly has only recently been invested in a B&D portfolio) and have save up an equally tiny $25K in cash that we, up until recently, were hoping to use as the beginning of our down payment fund. Obviously that is but a dream to us now with this crazy hell on earth known as the housing market. I’m fairly certain a home will never be in the cards for us.

With all of this in mind, my husband is now 45 and I’m 37. We don’t have kids (but who knows what the next few years holds). At the rate we’re going, how pooched are we? Will we be huddled under a bridge eating cat food in our old age? Or is there still hope for a semi comfortable retirement? How much should we be investing from what we bring in – do we even make enough to help us??

I’m guessing we’re possibly better off than a lowly few but are far worse off than the majority and the future is looking a little bleak so any guidance from our Dog and saviour is greatly appreciated. Give it to us straight…are we pooched??

Nah. Nobody who comes leaves without hope, C. You and hubs have shown diligence in digging your way out of debt, surviving a business disaster and now dealing with a global plague while working low-wage jobs. Sounds like you have lessons for all the whiny, privileged, white-collar, WFH, salaried, pensioned, soft-palmed dilettantes who cluck and moan, brag about their house equity and fill the comment section with endless ennui.

Let’s look at two scenarios. Let’s also be realistic about real estate. Buying some will seriously impact future income. Not buying property may impact your sense of worth and social status. It’s that kind of world now. Life is about choices, and the best ones are made without emotion. I’m thinking you already know that.

First, let’s see what happens if you stay employed, keep expenses down, rent long-term and want to retire in two decades, when your squeeze hits 65. Let’s assume neither of you have a corporate pension. No inheritances. Nor did you lose any Bitcoins in the sofa.

So if you can live on $1,500 a month after rent that leaves $2,500 a month to save and invest. This will be a challenge. Lots of noodles and thrifty shopping. But the end goal will totally be worth it. Saving thirty grand a year will allow filling both TFSAs annually, put enough in two RRSPs to offset most taxes (about $6,000 each), and still land another six grand in a joint non-registered account.

Now, add in the $46,000 you’ve already saved (congratulations on that), and invest the boodle in a B&D portfolio of low-cost ETFs (no bank mutuals) within those accounts. Make monthly contributions and stick to the budget. If you average a 6% annual return – a reasonable expectation – you’ll have a portfolio worth about $493,000 by the time your husband is 55 and you’re 47. Keep at it for another ten years and that egg will swell to $1.3 million.

Now he’s 65 and you’re 57 and this portfolio should throw off an annual (and tax-efficient) income of just over $78,000. Add in CPP and OAS eventually and you two can have cash flow of about $112,000 by maintaining that balanced approach. This would also largely preserve the million bucks.

Okay, so what if you buy real estate?

Consider a $600,000 two-bedroom condo somewhere in the outer GTA, for example. And let’s figure on a 5% down payment to preserve cash and score the best mortgage rate (if you can pass the stress test). So the carrying costs of the unit would be $2,500 for the loan (at 2%) and another eight hundred for monthly fees, insurance and property tax. Total, $3,300.

That would leave $700 a month to invest, all in the two TFSAs. Add in the $16,000 in savings left after the property purchase and invest it as above. In a decade the portfolio will contain $143,000 and in twenty years, about $376,000. Income from that plus the public pensions would hit $56,000 a year. Plus a condo whose value may (or may not) have inflated, depending on location, condition, interest rates, the economy and the market.

Risks in renting: routine increases in tenancy costs. Social shaming. Risks in owning: mortgage rate increases, property tax and condo fee hikes, economic changes, special assessments and repairs plus loss of mobility and potential illiquidity in a down market.

There’s some rough math for you, C. Not so bad, is it? You can retire with an income higher than your current wages – for life. Or you can buy property, if that’s the big goal, and live modestly. This is entirely within your own hands. You can succeed.

Not everyone needs marble to be rich.

Garth Turner April 28th, 2021

Posted In: The Greater Fool

Next: Low Interest Rates Help Only If We Use Them To Get Debt-Free Faster »