Okay, it's not really a 9 year plan since we've essentially been working on it since we got married 17 years ago, but at this point I'm hoping we'll achieve it in 9 years. My goal is to have enough of a nest egg to live off the interest, and after running some numbers a week or so ago, I think we can do it in 9 years.

Some history first (btw, hubby is 3.5 years older, just so I don't have to put in both ages).

I got married at 19 and had four kids when I was between 22 and 28. The first few years I worked low paying jobs and then stayed home with the kids. In our first few years we had a bit of credit card debt but then quickly nixed that habit. Hubby had a small car loan when we met. When our first child was born we had to take a loan so we could upgrade to more than a 2 seater. Once that was paid off, we kept putting the car payment into savings so we could pay cash for the next vehicle which was a minivan after baby #3. When that van was 10 years old, we paid cash for a new one.

Almost all of our savings are in RRSPs which we've managed to max out most years (for non-Canadians, the maximum contribution to an RRSP is 18% of your previous year's "earned income").

We moved around a lot with hubby's work in our early years so we were not willing to buy a house until 1998. At that point we chose a house that we could affort to pay off in 15 years. The bank formulas told us we could afford to spend more, but just because we could "handle" the payment, didn't mean we wanted to pay that much in interest. When we actually bought the house and set up the payment, we decided to go with biweekly payments based on half of the calculated monthly payment. It was a little more than we had planned, but we ended up paying the equivalent of 13 monthly payments each year and we didn't notice the extra after the first couple of months. That decreased our payout schedule from 15 years to 13 years.

About two years after we bought our house, hubby got a nice raise. We decided since we were not used to seeing that money, we would increase our mortage payment. That took us down to about 11.5 years total. During my years at home with the kids, I worked on my degree part time. A year and a half ago, I started working. We've been saving most of my income, but our expenses have increased for things like gas, clothing, food etc. The first $10K of this savings went as a lump sum payment to the mortgage bringing our payout down to 10.5 years. Currently, our only debt is the remaining mortgage of just under $18K. Our current scheule has that paid off in Dec. 08, but I expect we should have the $5K that will be left when it comes up for renewal at the 10 year point in June 2008.

Once our mortgage is paid off, we'll continue to max out our RRSP's and help the kids with post-secondary education. If we average an 8% return between now and then, I've calculated that we'll have the nest egg I expect us to need to generate enough interest to cover our living expenses in about 9 years. At that point I'll be 46.

I've read all of David Bach's books (had initially said Dave Ramsey but that was wrong) in the past few years, and dozens of others throughout my adult life. I discovered that we instictively had done much of what David Bach suggests. We followed the Your Money or Your Life thing for a year and a half but hubby found it too restrictive. He didn't want to sacrifice so much today, because you never know what tomorrow may bring. The compromise was essentially maxing out our RRSP's (a decent savings level) and spending what was left.

There is no real secret, we've just always spent less than we made, and made slow but steady progress.

That sounds awesome, but as a relatively new-to-Canada Canadian (born in Canada but lived in the States almost all my life until moving back here 5 years ago), I'm wondering about the mechanics of it:

1. Wouldn't you have to pay a penalty if you withdraw your RRSPs before retirement age?

2. Presumably in 9 years you'll move the money currently in your RRSPs into something else, and that "something else" will have to be pretty secure (ie., money market or bonds) so you don't risk losing the principal that you've built up. That means it'll earn less interest. So will you still be able to live off the interest if it's only, say, 4 or 5 percent? Or even less if interest rates go down?

After living most of my life in the States, I'm very impressed with the RRSP system...it's far better than the U.S. IRA plans, which have ridiculously low limits to contributions. Plus if you contribute the maximum to your RRSP you get a pretty hefty tax deduction, a definite help here in Québec where we pay the highest taxes in North America (I'm in the 52 percent bracket, so I don't even get to keep half what I make!). It never would have occurred to me to use RRSP money for an "early retirement" strategy where you can live off the interest of your investments, I just assumed it wouldn't be allowable!

There is no penalty for early withdrawal of RRSP funds, you just pay income tax on it since you receive a deduction when you put it in. Money can stay in RRSP's until the year you turn 69, so I won't need to move it anywhere right away. I'll just take out what I need to live on each year, and the rest will continue to compound tax free in the meantime.

For post retirement, I've estimated a 6% return since I'm assuming I'll move into things that are a little less risky. However, I can't afford to go too conservative with it or I won't keep up with inflation. As the time gets closer, obviously I'll have to reevaluate my assumptions.

That's the reality of most of the real financial fitness books. It's not new stuff, just something we've collectively forgotten in our modern culture. My grandfather never paid a car payment, paid minimal mortgage payments, and saved a considerable sum when you consider that he worked in a sawmill, and wouldn't use stock since he was a 'Great Depression' kid.

The principals have been around forever, we've just forgotten them.

You're doing incredibly! Nice work!

I've really been happy with the fact that our mortgage is our only debt. However, we don't really have an emergency fund since any money that we accumulate tends to be used for savings before deadlines. For example, I had saved about $10,000 but then we decided to start RESPs (education savings) for each of the four kids. For the first $2000 per child invested each year, the Canadian government will contribute 20%. I really wanted that $400 each so I used $8000 of the savings.

Then we wanted to put as much as possible into RRSP's before the Feb 28th deadline since it decreases our taxes. We used $10K we had saved and then took a loan for some more. We've paid off the loan already, but it's just left us wilth no ready cash.

This past week I had orthodontic appointments for two of my kids and we're looking at about $8500, about $2000 of which will likely be covered by my health insurance plan. Since I don't have anything currently saved for this sort of thing, I spent about an hour at the bank applying for a HELOC which I can get at prime.

Just when you think everything is going smoothly, something comes along to add a wrinkle. It's manageable, just a bit frustrating.

Well, things are starting to smooth out again. I did get the HELOC set up, but I might get away without having to use it. The bulk of the orhodontist cost will be spread over a two year period so we should have the money as the payments come up. If nothing else unexpected comes up we should be able to get caught up and set aside something for an emergency fund.

You should be able to claim those dental expenses under medical on the lower income earner's tax return. However, you need to spend 3% of your income before the deduction kicks in.

Well, 2007 was okay but we could be doing better. We splurged on a few things (like our trip to Disney) that it felt like it was the right time for, even though it meant less money to savings. Our investment returns were crap so hopefully 2008 will be better for that. On the plus side, we paid off over $10K on our mortgage principal and have just over $10K left.

With the vacation and almost $5K for laser eye surgery we did not max out our RRSP's this year. We did for hubby since he is in a higher tax bracket. For 2008 we will be able to max out for both of us, including my carryforward, and we will be making automatic contribution from each paycheque so we won't have to think about it.

So, 2008 goals:
1) My RRSP contributions of $15,000
2) Hubby contributions of $16,000
3) Home buyers repayment $3,000
4) Education funds contribution of $6,000
5) Pay off mortgage of $10, 692

The mortgage will be paid off in December just by making our regular payments. I'd like to pay it off in June when it comes up for renewal but it's not the end of the world if it doesn't happen.

Well, its official, our mortgage is paid off. I've even got the discharge papers back already. I ended up taking $3500 out of my HELOC and adding it to the $3000 I had saved to make a lump sum payment of the last $6500 of the mortgage. The HELOC rate was lower than the mortgage rate. As of today, the HELOC is paid off so we are completely debt free! Wohoo!

The $440 biweekly payments will now go into savings for some maintenance that we should do on the house.

Yay, Kate!

That's a big milestone!