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Hi! It has been a while since the last post. For any who are curious, the reason behind this is that I am dipping my toes back into fiction writing, which took up all of my creative bandwidth these past few months.

Listening to a ChooseFI podcast earlier (Stages and Checkpoints of FI), it occurred to me that it would be fun to find out how close or not I am to CoastFI. The ChooseFI Milestones of FI episode was the inspiration behind this post. For a new and updated Milestones of FI ladder, I would probably slip in CoastFI in there, somewhere between Milestone 3 ($100,000 net worth) and Milestone 5 (Half-FIRE, 12.5x annual spend)

CoastFI

CoastFI has been making the rounds as a popular FI goal these days. The idea is that you have invested enough money that, if you do not save another dollar from this day forward and just leave the money invested to grow, by the time you reach retirement age, you will have enough money to retire on comfortably.

As with all projections, this is based on some assumptions.

1. You know what your spending and lifestyle will be in retirement.
2. You make certain assumptions about the market’s annual returns. 
3. You make certain assumptions about inflation.

Fair enough. We need to make the same types of assumptions about our FI number too.

Here’s a handy CoastFI calculator I used to see how far I was from CoastFI.

My assumptions:

1. $50,000 per year annual spending, either as half of a couple or as an individual.
   
   Rationale: 2020 was a throw-away year for spending – I spent $15,000 less than in 2019, likely entirely due to the lack of travel and social dining out. For the past two years before COVID, my spending ranged between $35,000-$40,000 a year, which included a luxurious frequency travel (which, due to vacation parameters of residency, were short-term in nature and therefore the more expensive type of travel – and I think back fondly on every trip 😀). There was also a three-month period in there where I was doing a long-term elective in Toronto, staying in AirBnBs, while still paying rent back at my home base. Ouch. At least I used a lot of those AirBnB costs to rack up airline points and go on a sweet business class trip.
   
   Currently, my costs are as half of a couple living in a one-bedroom apartment in downtown Toronto during COVID. Because Toronto has generally been in lockdown for most of the year, there has not been much spending.
   
   
2. Annual returns of 9% based on historical averages for the developed market This does not account for the fact that I hold a significant amount in developing markets and REITs as well. But I will run with this for now.
   
   
3. Annual inflation rate of 3% based on average annual inflation rate CPI data from 1914 to 2021.

The Power of Investing Early and Contributing Regularly

My TFSA is currently about $25,000 more than the limit for someone my age (current limit in 2021 being $75,500).

Magic!

Or, sort of magic. The power of compounding and investing early really shows here.

I started contributing small sums in September 2015, first year of residency. Still had a line of credit (LoC) I was mostly focused on paying down, but I remembered that time in the market is what counts. So, I stuck in $750 over the two paycheques of that September. And then $500 that October. I think the lowest contribution I ever made was $200, but still, I put that money in there. You get the idea.

Things continued at that pace until spring 2017, when the TFSA contribution rate increased to its new level (I think this was around the time I paid off the LoC and started directing all my savings to the TFSA).

Starting early, in combination with the market returns over that period, led to me now have more money in the TFSA than one is allowed to contribute. As this money sits in the TFSA and grows over time, the amount of space in the TFSA will also “expand” to follow.

Remember, every dollar withdrawn from the TFSA is yours (not subject to any further taxation), and has no impact on reportable income level. The room or space left behind by your TFSA withdrawal one year becomes available to you the next year (so, if you withdrew $3,000 in 2019, you would have been able to contribute $5,500 + $3,000 in 2020). It is in your best interest to have as large a TFSA as possible (which means “growing” it as early as you can, though investment returns). 

Leveraging

TFSA and RRSP contributions got me to half of my CoastFI number.

The rest of it came from leveraging to pursue a smaller form of lifecycle investing (and only leveraging a part of the total LoC available).

Here is where the math has to balance out with your risk tolerance.

I did not have the risk tolerance to empty out my line of credit to engage fully in lifecycle investing, even though I know the math will most likely work out. The idea of having to service such a large debt during an upcoming transitional period (some people apparently might not get paid in the first month to three months of staff life, depending on where your paperwork game is at) was not something I was keen on.

That being said, leveraging is a powerful tool and worth pondering.

Caveats

Caveat #1: Market

The problem with these “I did it, so you can too!” posts is that some aspects are not reproducible. For instance, my investments have been in a bull market since inception of investing (barring a surprisingly brief dip when COVID19 first hit). There is no guarantee that the market type I’ve been in is the market type another person will have.

However, over the longer timeframe of twenty years of investing or more, the market does generally go up.

Caveat #2: Leverage

I do not actually “own” all of the money I have currently invested. While it is true that I have a CoastFI amount invested at present, as mentioned before, about half of that is leveraged. It is most likely true that I will be able to pay that down within a couple years (barring the purchase of a house), but the fact remains that it is currently not all “mine” in the way the funds in my TFSA and RRSP are truly mine.

Caveat #3: Lifestyle

This CoastFI calculation is based on the idea of retiring into my current lifestyle, plus a little bit. So, a bit better than a resident physician lifestyle. That may or may not reflect the lifestyle I ultimately end up in – TBD. There are also other costs I have not factored in, such as potential for children and their associated costs.

Replicable Parts

Start Early(ish)

Depending on when you read this post, you might be in different stages of your medical training (including after completion). The best time to start investing is “early”. For me, that was early in residency. For a friend’s brother, that was in undergrad (where he invested his student loans). For another friend, it was once she had reached staffhood and was starting to pull in a lot more income, paid off all her debts, and was wondering what to do next.

Start early-ish. Essentially, start now.

Regular Contributions

I contributed regularly to investments since starting the TFSA. Earlier on, it was smaller amounts, a couple hundred here, five hundred there. I just liked getting into the habit and seeing the number grow.

Though I never set up automatic deposits, that works really well for some people who would prefer to automate their savings. You just need to place a reminder to check your accounts regularly to ensure money does not sit idly in the account – after all, putting the money into the TFSA/RRSP does not mean it is invested. You need to purchase an ETF or stock with the money in the TFSA/RRSP to get the money working for you.

If you have Questrade, they have made it even easier to invest by covering the cost for Passiv for Questrade account holders. Passiv allows me to set my own target portfolio (I have ETFs and REITs in there, but you could easily add individual stocks or mutual funds if you wanted). If I have new cash sitting in the account, waiting to be put to work, Passiv will send me an email. Also, Passiv gives you one-click buying options to funnel your money towards getting to your target portfolio so you do not have to keep track yourself using spreadsheets. (Unfortunately, you cannot set a limit on the purchase price in Passiv with the one-click buying – it only goes with market price).

Leverage

In retrospect, I wish I had considered leveraging earlier. As soon as I had paid down my LoC would have been a good time, as I prefer to keep the match simple for accounting purposes. But one does not need to wait until the LoC is paid down to start leveraging, as long as you can (a) keep track of what money went where and (b) have the risk tolerance to leverage even while carrying debt.

Residency is a good time to leverage, in my opinion – you have disability insurance and a guaranteed, steady paycheque – even a pandemic did not affect that, unlike the incomes of some full-fledged physicians.

If you have the risk tolerance, the math does favour leveraging even in medical school (or undergrad, like my friend’s intrepid younger brother). Personally, that is beyond my own risk tolerance, so I do not regret starting to leverage during residency. But it is worth considering if that is within your risk tolerance window.

So that is how I came to discover that I will be leaving my medical training days with a CoastFI amount of money invested! On a separate note, it is exciting to be transitioning to staffhood. I will be relocating with Mr. Sparks to an entirely new province, where I did no portion of my medical training (and I have trained in three different provinces between medical school, residency, and subspecialty), and have no pre-existing roots. Exciting times!

On to the next phase of the adventure!

-Dr. FIREfly