Objectives

The Modest Millionaires 2025 Plan

Our 2025 plan is a 10 year plan in order to achieve our financial independence. There are two important parts to this plan:

  • Maintain low and predictable spending.
  • Increase our investments in order to achieve a total invested amount allowing us to cover our expenses with a 4% withdrawal rate.

To view a short summary of our progress in terms of investments and spending compared to our goals, click here.

Spending

We have rigorously tracked our spending these last two years in order to determined the level of expenses we would like to maintain. Obviously, we try to spend as little as we can but we realize that it is essential for us to have a precise idea of how much we spend in order to plan to have sufficient savings to cover our expenses.

According to our historic spending as well as our future projects, we plan to spend an average of $45 000(CAD) annually (or US$34,870).  

In more details, we are aiming for around $40 000 of costs of living and added between $5 000 and $10 000 to be allocated to travel or renovations annually.

The investments

We have decided to use the 4% safe withdrawal rate in order to determine how much our total investments need to be worth in order to have a growth allowing us to cover our cost of living for the rest of our lives.

This rule originates from an article informally entitled the Trinity Study, that was published in 1998 in the American Association of Individual Investors Journal by three finance professors at the Trinity University. The authors of the study, used different composition of a retirement portfolio and different withdrawal rates, based on market data of 1925 to 1995, in order to determine the probability that assets remain in the portfolio after 30 years, despite a constant withdrawal rate over that period whether the market does well or poorly. In brief, the 4% rule comes from one of the scenarios that showed there was very little risk of running out of investments from a portfolio composed of stocks and bonds.

Lots of people have used the parameters of the Trinity study in order to examine the 4% safe withdrawal rate and I hope to write a more detailed article on this subject in the future. In short, we have chosen this rule for our 2025 plan in order to determine the total investments we want to have before leaving our jobs.

We have determined that we will spend $45 000 but considering that we want to give ourselves a margin in case we have unforeseen circumstances, we have added $5 000 for a total spending of $50 000(CAD) annually (or US$38,745). Our investment would therefore need to be $1 250 000(CAD) (which we will round up to about $1 000 000 in USD), which is 25 times our total predicted annual spending.

To reach that amount, we will invest around $45 000 annually through the following investment vehicles:

  • TFSAs
  • RRSPs
  • Employer’s retirement plan
  • Rental real estate

We do not include the value of our house in our investment assets because we plan to have it paid off completely before quitting our jobs and plan to continue living in it when we retire. Therefore, the cost of our mortgage is also not included in our spending.

Projections:

In order to simplify our projections, we have used a savings calculator allowing to enter the actual value of our investments, the amount we plan on investing on a weekly basis ($45 000 divided by 52 weeks which is around $863 per week) and the predicted annual growth rate (we chose to use 7%).

Our projections are based on our starting point of January 2015 when we have a rounded total of $240 000 invested, in order of largest proportion, in Mr Mod’s employer’s pension plan, Ms Mod’s employer’s pension plan, the asset we own in our income property and in our RRSPs and TFSAs.

YearTotal Investment Value ($)Annual Investment ($)Interest Earned on an Annual Basis ($)
2015240 00045 00018 970
2016303 96945 00023 605
2017446 14945 00028 576
2018525 05545 00033 907
2019609 67845 00039 624
2020700 43445 00045 756
2021797 76545 00052 332
2022902 14945 00059 384
20231 014 09645 00066 948
20241 134 15445 00075 059
20251 262 912

Update February 2017:

We have decided to take some money out of our TFSAs in order to fully pay off our remaining mortgage! Click here to find out how we accomplished paying off a mortgage of a little over $150 000 in 4 years. I will soon write a detailed article on why we decided to do this. 

Our total investment is therefore around $100 000 lower than what we had initially planned but our house is now fully paid. I am hopeful that we will be able to catch up on this gap by investing a bit more money every year over the next 8 years if we keep in mind that the projections provided above do not account for any increase of salary allowing us to invest more in the next years.

You can find all our progress updates here

2 thoughts on “The Modest Millionaires 2025 Plan

  1. Great Post! I have a question about paying the mortgage down. Can you pls clarify if you paid off your condo mortgage or your house mortgage? Also, were you paying down your mortgage every year and still saving this $45,000 per year? Or were you only paying down the mortgage that year, and not investing much (or anything) into savings/investments? Is the $45,000 all the discretionary money that you had available to pay down debt or invest? Thanks!!

    1. Thanks Dale! We paid off our house mortgage, our rental still has a mortgage. This post is a bit high-level in terms of details. I’d say the 45,000$ is more of an average we were aiming for what we would be putting into our pensions and investment accounts. It is definitely not linear as in our overall plan. Looking back some years we invested less (especially the year we took out of our investments to pay off our mortgage) and other years, like this year is looking up, we should invest more.

      We were also paying down the mortgage with additional payments in 2013 to 2017 so those years we did not hit our 45,000$ in pension/tfsa/rrsp’s. If you check out our 2018 spending review we included our gross household income for that year which gives a bit of a better idea, but from 2014 it was just under 150,000$ to 180,000$ in 2018. Some of that amount goes to taxes&payroll deductions, some more goes to crucial renos to our 1960’s house which we keep seperate from our cost of living spending, some to our kids education savings which we keep private too, then our cost of living (has been between 45,000 to 55,000$ during those years) then the rest is what goes to our pensions/TFSA’s/RRSPs.

      I hope this clarifies the timeline a bit! Thanks for stopping by :).

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