We completed our first year-end review (found here) at the end of last year, using the various spreadsheet calculators and techniques that I describe in our book Retired At 48 - One Couple's Journey to a Pensionless Retirement. This year, we will repeat those steps but now we have a baseline to compare against.
Retiring at such an early age without the safety net of a defined benefit pension is quite the daunting prospect, since we are almost solely reliant on our own personal savings to fund our retirement. To reduce the chance of running out of money too soon, we created a very conservative retirement plan, selecting an extremely modest rate of return (4%) for our investment growth while using a higher than expected initial estimate for our expenses. The thought was to allow any good stock market years to act as a buffer for the periods of poor performance that will likely occur periodically over the next 40+ years of our plan.
We then examine each of our RRIF accounts, calculating the new annual minimum RRIF withdrawal for 2015. This amount, which grows each year, is determined by the formula (2014 closing balance * (1/90-age of younger spouse)). We confirm that the annual dividends which we generate from the RRIF account are still sufficient to cover the minimum RRIF withdrawal. We do have enough for 2014 and should continue to enough for multiple years still, especially if the dividend payouts continue to increase. At some point, the minimum will become larger than we can cover with our dividends and at that point, we will need to either sell some stock or transfer out stock in-kind to make up the difference.
We also take a look at our asset allocation and sector diversification, to ensure that we are not overloaded in any one sector. We are most heavily invested in the Financial sector (banks and insurance companies), just like many ETFs or Mutual Funds, and the TSX in general. But the value of those shares make up less than 33% of our portfolio, which is still within a reasonable range according to the experts. We examined our exposure in the Energy/Oil & Gas sector, in light of the recent free-fall of oil prices. While we have heard horror stories such as AGF Management cutting their dividend by 70%, luckily none of the energy companies that we invested in have cut their dividends at this point. Even if one or more companies do reduce their dividend payout in the future, it will not severely impact us since we have ensured that no individual dividend makes up a significant proportion of our total dividend income.
Drilling down by category, we notice some more patterns. In 2014 our condo fees increased by over 7%, again higher than the anticipated 2% inflation rate. Looking back at the previous years, the increase was 1.7% in 2012 and less than .05% in 2013, so maybe this was just a catchup year. This is another area that we will need to keep an eye on. In terms of auto related expenses, our fuel consumption and costs decreased significantly in 2013, due to no longer driving to and from work and this trend has continued in 2014. Our auto maintenance costs are slowly creeping up as our car gets older. Eventually we will be hit with a large expense when we need to replace our car.
In terms of money spent on vacation, we actually did not do so badly considering we were away for 7 weeks in France followed by 1 week in Calgary (for a family wedding). Taking part in a home swap and not requiring to pay for accommodations for a large part of our France trip really helped to cut down the costs. We also notice that we spent less on groceries and dining out than usual, so part of our vacation costs offset the usual eating expenses that would have been spent had we been home.
So the financial review after our second full year of retirement shows us in good shape. Steady as she goes and onwards to 2015.