While many Canadians may not be putting aside a certain amount of their own after-tax cash for their retirement on a regular monthly basis, many are. And if this is you, you may want to consider making your money work more than once.
I’m talking about the Cash Flow Diversion accelerator for use with The Smith Manoeuvre. And it is extremely powerful – it can mean the difference in your net worth in the range of hundreds of thousands of dollars. That’s a big improvement in your retirement comfort.
Good for You!
Let’s start with an assumption that you are putting $500 per month into an investment that earns 8% growth. After 25 years this will be valued at, pre-tax, around $475,500. Not bad. If you also have a $300,000 mortgage at 5% that is going to take 25 years to pay off, we can project with confidence that 25 years from today when that house is paid off you will have a portfolio value of $475,500 due to your current investment program.
That being said, there is more you could be doing with your mortgage and that $500 per month. A whole lot more…
Better for You!
Let’s simply start with implementing The Smith Manoeuvre on your mortgage. In 25 years, at current mortgage rates (at time of writing) and an assumed 40% tax rate, you will be in a position to have a clear title house and a portfolio value of $321,500. Tack on the $475,500 from your current investment program and we’re looking at a total net portfolio value of $797,000. That’s more like it! $797,000 is much better than $475,500 which is your current plan. But it can be even better…
Best for You!
If you were then to implement the Cash Flow Diversion accelerator to your Smith Manoeuvre program, you could enjoy some serious retirement comfort. By simply first applying that $500 (that you were putting away each month anyways) as a prepayment against the mortgage, and then, and only then, getting back at it for investment as The Smith Manoeuvre enables, your wealth increases significantly. In fact, your net position will increase from $797,000 to $886,400.
So, if we compare your current plan, which nets you an investment portfolio of $475,500 in 25 years, to the The Smith Manoeuvre ™️ with Cash Flow Diversion, we can see we’ve engineered an increase in your net worth to $886,400 – an improvement of almost $411,000. All without any increase in cash from you. You had a mortgage and were putting away $500 a month from cash before you read this article, and you had a mortgage and were putting away $500 a month from cash after you read this article and made a change. This $411,000 improvement comes simply from the way you structure your existing finances. That’s it, that’s all.
