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Discussion Starter · #1 · (Edited)
This is the grand plan (for now)... A few hours of reading on this forum has helped it congeal! I don't think I'm going to do the real estate thing anymore (unless there's a major correction and it becomes too attractive to avoid - like equities did in early 2009!)

Few points to start: We're two professionals, pushing forty (actually my wife is a few years younger than me). Our rough gross household income in 2011: $440,000. Three kids and a live-in nanny. $550k home. $230 left to pay it off. Two cars: one new (the obligatory 8-seater) worth ~$35000, one old (probably needs replacing soon ~2years) worth ~$3000. $60k in equities split between two maxed TFSAs and one RRSP (not maxed). One of us also has a defined benefit government pension that is currently worth ~$350,000 or, deferred, non-indexed, ~$3000/month at the age of 65. Currently we are not saving other than debt reduction going forward into the near future.

The Grand Plan:

Goal: To achieve after-tax passive Cashflow from investments of 10K / month by the year 2029.

Short-term: continue paying down debt at a rate of ~$10K/month until all debt is gone. Then amass six months gross pay (in an emergency fund) in a GIC ladder. We expect the debt to be gone in two years (hopefully less)... Then, due to the wonders of incorporation, expect the emergency fund to be capitalized within another year.

At that point, it will be 2015 and we'll be ready to start the retirement fund.

A conservative estimate of saving ability (retained in the corp) is ~$10K / month (possibly twice that on a busy month). The intention is to have a portion of this in fixed income and a portion in a basket of ten strong dividend paying securities. Hopefully I pick securities that will be around into 2029 and that I can repeatedly sell calls and puts on. (I'm already in RY, BNS, ENB, FTS, REI-UN, SC, and MFC... Considering POT, TRP, CNR, TCK.B, CNQ, ABX, SU, IMO, ???). I also intend to keep a smaller portion set aside for play money (riskier equities, short-term trades). The fixed income portion will vary. I'm thinking 25% of total savings in the first five years, 50% in the middle five, and 75% in the final five. Will probably use GICs for this... Unless I can figure out a cheap way to put together my own bond ladder with government bonds and corporate bonds mixed together?!?

The mechanics of the equity positions will probably vary also... but I have a vague notion that I'll be able to sell cash-secured puts on the desired securities, at a strike price that is attractive, that when exercised leads to a purchase of ~10K worth of the underlying security... Then repeat monthly. Which stock is chosen in any given month will depend on which seems most attractive that month, and which has the most attractive put valuations... I might wait a few months and put more funds into one play...

Might buy fixed income early in the year, or later... Lots of variables that haven't been worked out. This is the part that I might just get someone else to do for me??! Depending on how much time is consumed by it... will at least seek out some additional council...

How does that sound?
Any suggestions?
Anyone have ten better stocks to suggest?
Should I add some international equities?
Should I do the etf couch potato thing instead?
 

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Need to see what is already in savings (reg,txfree,nonreg) as well as spousal breakdown. (Salary breakdown as well) Unless I didn't read carefully enough.
 

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Is the $10k/month of income in 2029 in today's dollars?

Offhand, I don't know how you are going to have time to manage individual stocks plus the options trading.

I would suggest starting with a couch potato and then just add the extra-curricular activities later on if time permits.

You might also want to look at Steve's numbers as well as consider a fee-only financial advisor to look at your situation.

If anything, I would be more concerned about saving too much, rather than not enough.
 

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Discussion Starter · #4 ·
I'm starting to think "saving too much" could be a real concern (like my wife has been trying to tell me!) but intergenerational wealth is also important for us... So tax efficient means of passing things on is an important consideration to get right as well.

Ideally we'll be able to create the equivalent of 10K in future buying power... But that might be too much to ask?? And... given that today's 10K will likely be more than enough to live on, even then (am I wrong in thinking this?)... its a good round figure to aim for... we'll be pushing hard for that, as fast as possible, and then slowing it down and letting it accrue further on its own... (That's, hopefully, when you'll find us somewhere in the third world teaching young docs and treating obscure diseases...)
 

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Discussion Starter · #6 ·
I really appreciate you taking the time to do that for me... Unfortunately those calculations are next to useless... It says nothing about Cashflow... Which is my primary goal. And it doesn't reflect the reality of our financial position... I.e. as soon as we incorporate, our personal income won't be anything like the figures we currently make... And the corp will be able to amass funds much much more quickly than we will (significantly smaller tax rate).

Wish there was an easy way to figure out these things... Future Cashflow from equity and bond positions, growth of retained earnings, etc... It looks like my projections will remain speculation until its officially history.

I'll try to keep you updated on how things go...

Thanks again. And happy holidays!
 

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Discussion Starter · #8 ·
Steve,
Yes I did, thank you. (The message above was meant for you... It sounds harsher than I meant it to... I really do thank you for your time... It's just not that helpful.)
 

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Steve,
Yes I did, thank you. (The message above was meant for you... It sounds harsher than I meant it to... I really do thank you for your time... It's just not that helpful.)
I've looked at some of Steve's plans - I would have thought they were exactly what you were looking for?

Maybe you are not looking for what I thought you were looking for.
 

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Discussion Starter · #10 · (Edited)
FP,

It's not helpful because its not at all representative of how our finances will look. My paper "income" will probably be closer to $60k for most, if not all, of the 15years... Because that's what i'll be paying myself out of my corporation (enough to support our lifestyle - whatever we figure out we need)... The corp will own all of our investments.

It is reassuring to see that there's going to be a lot of money available (but I knew that already).

I do have to admit though that it is definitely quite thorough and was put together really quickly for all the information it contains... Quite impressive!

I'm just a little picky. Wish there was an easy way to calculate things the way I see them playing out...
 

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DM: you can get the kind of analysis you are looking for, but not for free. There are lots of financial planning, investment management and accounting firms - some of them really excellent - that specialize in doing this kind of analysis for professionals (medical, dental, etc.)
 

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I would have thought that $136,000 income (after tax) in today's dollars would have sufficed going the POT (plain old taxpayer) route. (retiring at 60) 136K is a lot of caviar and champagne, IMHO.
 

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Discussion Starter · #13 ·
Yes... Quite impressive. And very reassuring. Thank you. (this means it almost doesn't matter how terribly I mess up the equities portion if our portfolio... As long as we put enough into the fixed income to keep pace with this baseline analysis... So, admittedly, not "useless"...)
 

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I used a 4% rate of growth (nominal) and 2% inflation. Since I am not an 'investophile', I am not aware how conservative (or not) this makes the plan. Also, I taxed the nonreg as all interest, without an equity or dividend component.
 

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FP,

It's not helpful because its not at all representative of how our finances will look. My paper "income" will probably be closer to $60k for most, if not all, of the 15years... Because that's what i'll be paying myself out of my corporation (enough to support our lifestyle - whatever we figure out we need)... The corp will own all of our investments.

It is reassuring to see that there's going to be a lot of money available (but I knew that already).

I do have to admit though that it is definitely quite thorough and was put together really quickly for all the information it contains... Quite impressive!

I'm just a little picky. Wish there was an easy way to calculate things the way I see them playing out...
The problem with this kind of forecasting is that you don't know how things will play out.

What is exact amount you will be saving each year?
What rate of return will the various investments get?
What will inflation be?

It seems like you don't think Steve's analysis is very useful because (I'm guessing) it probably doesn't account for the corporation. However, I think that you are likely over-estimating the tax benefits of the corporation.

Given the uncertainties I've listed, Steve's analysis is more than good enough, even if it doesn't fit your situation exactly and has a lot of assumptions built in.
 

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Discussion Starter · #16 ·
FP, That makes my point for me. Am I underestimating or overestimating the tax benefits of the corporation? This analysis ignores it.

But I agree that it is "good enough"! (and quite possibly the best I'll find! ... Any other guesstimating will probably have to be done manually.)

Steve... I think 4% (return) and 2% (inflation) are reasonably conservative figures... More useful than the pie-in-the-sky 8% default on most calculators!
 

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Leaving the validity of the analysis aside (people have discussed this in the past),

it seems that all you need to do is run two corresponding analyses at the same time, one for your personal finances (given tax-optimized income) and one for the corp.

You can use Steve's analysis to see how much will be saved in your personal accounts, and how much withdrawn from the corp. This is not unlike the analyses he does for couples, only one of the partners is your corp.
 

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Discussion Starter · #19 · (Edited)
FP,
Good article... Here's the thing though... Of course the corporation has to pay tax on investment gains. It's unfortunate that its not at the corporate tax rate, but that's not where you get your tax benefit from... (and remember that most of the funds i'll be saving will be over and above the RRSP Max anyway)... What does occur though, is the corporation essentially becomes another non-registered account, but one that you get to deposit a large portion of the money that would have been going to the crown. And later on, you get to choose when and how the money comes out or gets passed down to your kids...
 

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FP,
Good article... Here's the thing though... Of course the corporation has to pay tax on investment gains. It's unfortunate that its not at the corporate tax rate, but that's not where you get your tax benefit from... (and remember that most of the funds i'll be saving will be over and above the RRSP Max anyway)... What does occur though, is the corporation essentially becomes another non-registered account, but one that you get to deposit a large portion of the money that would have been going to the crown. And later on, you get to choose when and how the money comes out or gets passed down to your kids...
Exactly. The beauty of the Corporation is that it is a separate legal entity with its own tax deductions. Retained earnings can be sheltered from personal tax until you are in need of them (and are in a low tax bracket). And unlike an RRSP, there are no mandatory minimum withdrawals. So in retirement, you will not be forced to take out more money than you need and end up in a higher tax bracket. The Corp does not protect you against liability, but after retirement you can convert it to a holding company.
 
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