At the end of the year, we log the actual ending balance (I) in our spreadsheet. This is used as the starting balance for the next year, causing the entire plan to automatically recalculate (L). It also calculates our actual growth (K) and therefore the rate of return of our investments. Using the tool Quicken throughout the year, we have tracked how much money we spent, what we spent it on, and how much money we withdrew from our portfolio to pay for our expenditures. We update our spreadsheet with our actual spending (M) and then compare all our actual data against our estimates.
We would like to be spending an amount equal to or less than our estimated rate. If we find out that we have overspent in the previous year, then we will reduce our discretionary spending (dining, entertainment, vacations) the up-coming year to get back on track. We were very pleased to find that we came in just under our estimates and are on good footing in our plan going forward.
Next we drill down deeper to get a year by year estimate of how each of our accounts will draw down. This will help ensure that we are receiving the expected cash flow from each of our accounts.
In our book Retired at 48, we describe how we proved that in the long term, our total portfolio would last longer and we would pay less income tax over our lifetimes if we collapsed all of our RRSPs immediately and sourced our expenses by taking some money from each of our accounts, rather than spending all the money in the non-registered account first. Each year, we will take out the minimum allowable amount from our RRSPs and the rest from our non-registered. Part of our year-end review involves calculating how much the minimum withdrawal from our RRSPs will be for the next year, and ensuring that we have the cash flow to support these withdrawals at the times that they are made. In a previous article, I discuss what could happen if this cash flow is not available.
Throughout the year, we diligently categorized our spending in Quicken so that we could get totals on our major categories such as entertainment, dining, vacations, condo fees, property tax, etc. Now that the year is done, we can run our various Quicken reports to review our actual spending patterns compared to our budgeted estimates. We also compare our spending for the past year with the trends from previous years to see if there are any significant changes. Based on these reviews, we create new estimates for our mandatory spending items, adjusted for inflation, to determine how much discretionary spending we can afford for the next year.
Finally, we perform a review of our portfolio, which is mostly made up of dividend-bearing stock, to see if any reallocation needs to occur. We calculate the sector distributions of the value of our stock to ensure that the relative percentage of our holdings have not skewed too high in any given sector. We look at the financial results for each stock and read the updated analysis to ensure that no stock has taken a turn for the worse. We also confirm that the dividend payout for the stock is still holding firm, since we are trying to fund our retirement from our stock dividends. Actually these last two steps are on-going activities that we execute regularly throughout the year, since we cannot wait an entire year to find out that a stock has cut its dividend. Throughout this past year, only one of our stocks cut its dividend by a small amount, while many of our stocks have raised their dividends.
At the end of our year-end review, we are happy with where we have ended up over all, and look forward to the next year.