What To Do After Maximizing Your Registered Accounts
|Hint: This is what we're planning|
About a month ago, I posted this article regarding splitting my RRSP contributions with wifey in order to equalize the balances upon early retirement. Well, when April rolled around, we had enough left over money from March that we were able to completely maximize my RRSP contributions.
For the first time ever, all of our registered accounts are maxed. This includes my and wifey's TFSAs and RRSPs and baby girl's RESP. It's a small milestone and it took 4 years in the making, but whew!
So what's next?
Well, we have a few options.
One option is to open unregistered accounts and contribute money there. We'd have to keep track of a few things like the average price of the ETFs we purchased, the price we sell them at, distributions, something called phantom distributions, etc.
Another option is to just save the money in GICs or HISAs.
The option we're going with is to use the extra money to pay down our remaining mortgage balance.
With interest rates going up (three increases in the past 12 months), our current accelerated weekly payment is $393.49. If we continue with this payment schedule with no additional contributions, it will take us another 17 years and 7 months to completely eliminate our mortgage balance. That's pretty good really. Considering the fact that we started with a 30 year amortization and we've had this mortgage for 5 years and 10 months so far.
However, early retirement would be stressful if we still have this mortgage debt on our shoulders. At least, I feel it would be.
As a result, wifey and I are targeting no mortgage when we retire early.
Some people would pull out a chart and say something along the lines of mortgage rates being as low as they are, that it doesn't make sense to put money into the mortgage when stock markets, on average historically, have posted returns greater than mortgage rates.
Yes, they have a point. However, it's hard to predict where the stock market is going to go. I'll be happy to continue contributing money into our registered accounts yearly. However, after that, we're going to get the guaranteed return of our mortgage interest rate (and future increases) by paying down the mortgage.
Yes, investing in a GIC or leaving the money in a HISA are also options, but those options barely cover the rate of inflation. If they even cover the rate of inflation. In our case, our mortgage rate is higher than any rates we can get through a GIC or HISA. We'd also need to pay taxes on the interest earned at our marginal rate. We don't need to do that by paying down the mortgage.
I've done some math and determined that we may be able to put down $30,000 towards the mortgage between April and December 2018. This assumes a full $3,500 each month between May and December (7 months or $24,500) and we can scrap an extra $5,500 through those two "bonus" pay cheques you get if you're paid 26 times in a 12 month period.
If this continues and we're able to consistently contribute an extra $30,000 a year towards our mortgage, we'll be mortgage free faster by 11 years and 3 months. That means we'll be able to finish paying off the mortgage in 6 years and 4 months. Wow!
According to the handy calculator here, we'll also save at least $48,000. This is approximately two years of expenses without the mortgage. Additionally, by paying off the mortgage early, this will give us $5,000 a month to save. Of course, with early retirement, we won't have the extra $5,000 a month for very long, but that would also help us supercharge our savings before we pull the trigger on early retirement.
I'm also ignoring something that will definitely help us pay the mortgage down faster. Annual increases in salary and annual bonuses. As I cannot predict the amounts our salaries will increase or how much of an annual bonus we'll each receive, I'm assuming everything will stay the same for the next few years.
The reverse is also true. I'm assuming no job loss or other issues that would negatively impact this plan. Hopefully, none of that happens.