Category Archives: Finances

Rent vs Own – Our experiences after 10 months

In our previous post, we discussed our decision to rent instead of buying after downsizing our family home of over 22 years.  As we head towards the New Year, we did a quick summary of how we have fared financially after living in a rental townhouse for about 10 months.P1070553

We figured that the we are saving about $1,400 per month in living expenses in our rental home as compared to living in our previous owned home.  This can be broken down as follows:

  • property tax, water & sewer utility $420
  • heating and electricity $100
  • home insurance $180
  • vehicle depreciation & fuel of less driving $50
  • house maintenance & amortized appliance costs $500
  • lawn and landscape maintenance $75
  • parking at work $75

From the proceeds of our house sale, we calculated that we just need to achieve a 1.4%  after tax return (at our marginal tax rate) to pay for our net rent expense.  At this time, this net rental expense is far less than the dividend incomes we are earning from our investments.

We cannot determine if the overall rent vs own strategy will work in our favour in the long term yet.  The capital gain of Vancouver real estate versus the capital gain of our investments will require a longer time horizon to determine which is a better investment strategy.

So far, we are happy with our chosen investment vehicle, and are enjoying the lifestyle of urban and maintenance-free living.

P.S.  There are many opinions on this topic out there.  Here’s one we read this morning …. http://onemoredime.com/2015/11/18/real-estate-versus-stock-market/.  He does a good job comparing the two.

 

 

 

 

 

Housing Decisions

One of the big decisions when contemplating retirement is deciding where to live after retirement.  There are many options: 1) stay in the present home, 2) downsize and buy a smaller house/townhouse/condo, or 3) rent a house/townhouse/condo. With 2 of the 3 options above, one can also choose to move to a different city, or to a different area within the same city.

There is an article in today’s Vancouver Sun that talks about the rising demand for high-end seniors housing among Chinese-Canadians and Chinese-Americans, which is breaking the stereotype that Asian seniors want to live with their children. Traditionally, “multiple generations living under the same roof is supposed to be ultimate symbol of the Confucianist ideal of filial piety”, but nowadays, they prefer to live, eat, and shop close to one another instead.  Those who stay together in one house is doing it because of cost and shared resources.  Development companies are now building more upscale senior homes and marketing them as lifestyle experiences.

Our family have never considered to live together under one roof. Our son, like us when we graduated from university, wanted to experience living in a different city (he is actually experiencing living in a different country).  Our daughter also wanted freedom away from her parents.  For us, we like the idea of renting a strata home so that we don’t have maintenance issues.  We also calculated that it is more cost effective to rent than to own based on the high real estate prices of Vancouver.  There are lot less taxes, utilities and expenses with renting, and we feel that we can do better investing in financial assets than sitting on a large equity on a house. Renting also allow us the flexibility to try living in another area of Vancouver, or store our belongings to travel for a year or two.  So, renting turned out to be our decision for now.

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Long Term Thinking

My wife asked me last night whether I was worried about our retirement plans after the big downturn in the stock market for the past couple of weeks.  The TSX just dropped 5% over the past 5 days and our investment portfolio is hurting.  I reminded her that market volatility is nothing new – just think back to 2008-2009 when the market was down more than 40% at one time.  We must think of the long term.

The following chart is one of my favorite running stats on the stock market:SPX Time Frames

On any given trading day, there is a 54% chance that the market will go up, and 46% will go down.  Over a period of 1 year, the probability is 74%/26%.  Over 10 years, it goes to 94%/6%.

I think the stats for Canada is even more impressive.  I think the probability of negative returns over 10 years is zero.

So, there is nothing to worry about.  Just keep enjoying our Next Chapter journeys.

 

Financial Independence

Uzbekistani Soms
Uzbekistani Soms

Another issue to consider when contemplating retirement is whether you have enough money to fund the many years of no pay cheque.  We have read many financial articles in the Globe & Mail and financial blogs to understand how to do a rough financial plan.  It really helped though that my wife and I are good savers and investors, and we have made our savings grow over time through investing in real estate and financial assets such as stocks and bonds.  And we are also very fortunate to work in companies that have defined-benefit pension plans.  We have always maximized our RRSP contributions right at the start, so even though we may not have worked 35 years for the same company with the defined-benefit pension plan, our RRSP’s have the equivalent annuity amount to give us a combined 70% of our best 5-years of annual income as our pension income (what most people refer to as maximum pension).   So, when we have achieved this, do we want to keep working any longer?  We have a healthy networth that we think we have enough, but is it really enough?  How much is enough? That is the question that it is difficult to answer.  We hope that over this next 12 months, we can confidently say we have enough, and pull the trigger to submit our retirement notices to our employers.