It's Never Too Late

Three years ago, I realized that wifey and I were destined to work 9 to 5 until the age of 65 unless changes were made to how we were saving for retirement.

You see, it's not like we weren't saving for retirement. However, we weren't saving enough. I'd imagine our savings rate at the time to being somewhere between 5 to 10% a year. Putting a few thousand into our RRSP and TFSA each year and calling it a job well done kind of thing.

Sure, with CPP and OAS, the few thousand we were saving each year would afford us a comfortable retirement. But did we really want to work until we were 65? Would we be healthy enough to travel the world like we planned? Or would medical conditions cause one or both of us to stay at home during our golden years?

Fortunately, three years ago, I discovered the concept of early retirement. Before this, I always assumed early retirement was 60 (my mom retired at 60) or 55 (remember the Freedom 55 commercials?). I didn't think you could retire in your early 50s, or 40s, or even in your 30s!

However, it can be done with the right mindset and planning. While it was a little late to retire in our 30s (not without a significant increase in yearly salary), it would be possible to retire in our 40s with a little planning and getting to work on that plan. Fortunately, a lot of the work was already done in the form of tracking our spending. It was now time to cut our costs.

In 2013, our monthly spending was just shy of $4,600 a month. With unplanned expenses outside of our planned expenses, we were spending around $62,000 a year. Factoring in all the money we brought in, that left us with a savings total of $6,700 that year or a savings rate of 9.7%.

We didn't start the journey until April 2014 with a net worth of $195,000. However, despite the late start into the year, we finished 2014 with a savings rate of 24.6% (despite a trip to the US as well)!

This was a result of many little changes we made. Wifey actually got a higher paying job in November 2013, so the extra income was a factor. However, mostly the increase in the savings rate was attributed to a decrease in our monthly spending. We cut a lot of things. Mainly cable and our insurance costs. We rode our bikes more in the summer and drove our car a lot less.

After three years of living on less, our net worth as of April 2017 is almost $462,000!

Granted, some of this increase is attributed to housing and paying down the mortgage. However, our house will likely sell for more than the $534,000 that I'm estimating it being worth. Though, a better measure of our progress is in our cash and investment portfolio.

In April 2014, we only had $44,000 in cash and investments.

By April 2017, our total jumped almost $183,000 to $227,000!

A lot of this difference has been achieved by increasing our savings rate to 42% in 2015 (~$40,000) and 49% in 2016 (~$53,000)! This was mainly accomplished by a full year of keeping our expenses at the minimum (in 2015) and wifey picking up a(nother) new job (in 2016).

However, another main factor has been index investing. Frankly, before the change in April 2014, we had our money in High Interest Savings Accounts (HISA) earning roughly 1.5% in interest. In 2014, our rate of return on our investments was 4.52%. In 2015, it was 3.16%. In 2016, it was 6.43%. While not impressive on it's own, this brings us to the other important factor in this increase...

Compounding interest.

Compounding 1.5% for three years is a huge difference over compounding 4.52%, 3.16%, and 6.43% (14.8% increase over three years compared to 4.6%, basically almost 3 times as much!). Of course, the interest rates have dropped to between 0.8% and 1.7% depending on where the money is parked.

Putting all three together, the increased savings rate, the index investing, and the compounding interest, we've managed to increase our cash and investments by $183,000 in 3 years. That's $61,000 each year.

Though, to be fair, wifey is currently on mat leave. So some of the extra money she's earning will need to go to the tax man next April and that may have inflated our cash balance a bit. However, even factoring in the fact that $7,000 will be going to the tax man, that's still $176,000!

If you factor in the RESP for baby girl, that's still $169,000... But that money will be needed in our retirement... to help pay for baby girl's education. Which is the reason I'm counting it in our portfolio.

With or without the RESP, the numbers are mind blowing... Absolutely mind blowing.

I'm 35 now and started this journey when I was 32. 

I wish wifey and I started this earlier. However, it's never too late to start.

After showing wifey the numbers, she's more convinced we did the right thing 3 years ago.