Sept 2009 Net Worth Update (+2.78%) – Pension Buy Back Edition
Welcome to the Million Dollar Journey Sept 2009 Net Worth Update – The Pension Buy Back Edition.
As I’ve mentioned in passing before, my wife has a defined benefit pension plan that she contributes to through her work with the government. As she was on maternity leave last year, her work recently gave her the opportunity to “buy back” her pension. Buying back her pension allows her to retire “on schedule” instead of delaying it a year due to her leave. Since it’s pretty typical for us to have cash on hand, we decided to pay lump sum instead of pay roll deduction (+interest) which you may notice in the balance sheet below.
The markets continue to march higher which is pushing my portfolio to higher highs. Good in a way, but it may be a false sense of security. Some are predicting a “W” shaped recovery which could mean the testing of March lows. Other economists are saying that this is a “V” shaped recovery with more upward energy left. I don’t know where markets are going, but I do know that I’m not buying many equities at this level as most securities are expensive.
Assets: $$465,900.00 (+1.87%)
- Cash: $4,500 (+0.00%)
- Savings: $13,500.00 (+3.85%)
- Registered/Retirement Investment Account: $72,200.00 (+4.64%)
- Pension: $27,500.00 (+21.41%)
- Non-Registered Investment Account: $17,200.00 (+1.18%)
- Smith Manoeuvre Investment Account: $50,000.00 (+2.67%)
- Principal Residence: $275,000 (+0.00%) (purchase price)
- Vehicles: $6,000 (2 vehicles) (-20.00%)
Liabilities: $86,900.00 (-1.92%)
- Tax Liability: $3,000 (-0.00%)
- Principal Residence Mortgage (readvanceable): $30,700.00 (-5.54%)
- HELOC balance: $53,200 (+0.19%)
Total Net Worth: ~$379,000.00(+2.78%)
- Started 2009 with Net Worth: $309,950.00
- Year to Date Gain/Loss: +22.28%
Some quick notes and explanations to net worth questions I get often:
The $4,500 cash are held in chequing accounts to meet the minimum balance so that we pay no fees (accounting for regular bill payments). Yes, we do hold no fee accounts also, but I find value in having an account with a full service bank as the relationship with a banker can prove useful.
Our savings accounts are held with PC Financial and ING Direct. We usually hold a fair bit of cash in case “something” comes up. The “something” can be anything that requires cash such as an investment opportunity that requires quick cash or maybe an emergency car/home repair. We also need cash to cover any future tax liabilities.
Our real estate holdings consist of a primary residence plus a rental property. The value of the principal residence remains valued at the purchase price despite significant appreciation in the real estate market that we’re in. I will most likely be adjusting the value of the home come the new year.
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There’s been significant real estate appreciation in your part of the country? Please tell us where! Maybe I should invest!
I’m impressed that your property has gone up in the biggest financial meltdown in our lifetimes.
Pretty cool looking at a real world budget example, I am a finance student in my third 3rd year as you know, so I am constantly looking at corporation’s balance sheets in my corporate finance course. =D
If you continue to see your investments going high it’s an indication it’s going to drop – or at least for the most part everyone has experience this.
I would agree with you on your desire to always have cash on hand in case something comes up. While many people have heard of the 3-6 months living expenses rule for setting aside money as an emergency fund it is also great that you mentioned that having liquid funds available to invest if something great comes up is not something to discount. Keep it up!
Hey Stan, as you mentioned, we decided to pay lump sum because 1. they were charging interest if we were to pay in installments, and 2. because we had cash on hand. Which province do you work for?
FT, I’m intrigued as to why you are paying a lump sum on the service buyback. I believe government employers (at least the federal ones) allow you to buy back your pension over an amount of time equivalent to twice your leave (i.e., two years for a one-year mat leave) without any fees or interest. Even though we could afford to pay off our parental leaves right away, we decided to spread them over two years, since it’s essentially a free instalment plan. Maybe your wife’s employer doesn’t offer the same advantage.
thanks for the clarification. One question though related to tax. As of today you have some RRSP invsetments. Do you consider the entire RRSP investment amount towards your net or the after tax net amount (since you are not yet benefiting form the RRSP) of the investment. Like you may have $1000 in your RRSP today but if you withdrew the investment today you’ll only get back (1000-marginal tax). Isn’t this amount your real net worth?
aerosmith, my tax liability is from the sale of a rental property earlier this year.
just wondering what the tax liability is and how do you calculate it? Thanks for the update.
That’s too funny Ben :)
Congrats again FT! You’re on track for a 29% net worth increase this year.