Home Pwnership

For those of you who aren't gamers, 'Pwnership' is intentional.

First, before reading any further, please read this brief article from the Financial Post.

Then, read this part again:

Of the 24.5 million returns filed, 18 million Canadians reported total income of $50,000 or less. That’s not a typo. In other words, ignoring individuals who don’t file returns such as children, nearly 75% of tax-filing Canadians earned under $50,000 in total income in 2009.


Add another 5 million Canadians who reported total income of between $50,000 and $100,000 and you conclude that about 95% of individuals have income below $100,000 annually.

Let that settle for a minute and you will start to see why current consumer behavior and real estate prices in Canada should be so concerning.

Let's take the $50,000 total annual income level as a benchmark and run some quick math.

Total Federal and Provincial income tax payable is in the region of $9,000 for an Albertan (though, this ranges from $6,725 in Nunavut to $10,654 in Nova Scotia -- if anyone wants to pay a low rate of income tax, live and work in a territory...).

That leaves us with about $41,000 of net income left to play with.

Now, before going any further with things like cost of living and such, let's recall a previous post I made, where I talked about the kind of money one needs to set aside to even consider retirement at age 55.

I'm going to make an assumption here that the same, above-average, $41,000 net annual income Canadian is going to want to retire and do at least a few of those things the big banks' television commercials show the withered and decrepit engaging in.

This person, therefore, contributes his or her maximum RRSP amount each year, which is 18%, or $9,000.

This generates a tax return of $2,900, which is more than half of that person's annual TFSA contribution room, and we will assume they will top that off with an additional $2,100, to equal the current $5,000 maximum.

We are now left with $41,000 - $9,000 - $2,100 = $29,900 in remaining coin, and we have generated a fairly sizable retirement lump sum of $817,000 after 30 years of employment (calculated in the same way as the previous post).  We will certainly be a little bit above my $2,000 per month comfort level, as discussed previously, and even more so if the person works a bit longer.

Now, let's go onto the fun of living costs.

Rent or buy, this person is going to be looking at negative cash flow of at least $1,000 a month, assuming they plan to live alone.  $29,900 - $12,000 = $17,900.  We will assume utilities and taxes to be included here, to save on some math, though this is highly forgiving.

He or she will need to eat, so let's call that $300/month (average is in the range of 10% of gross, so we are undershooting this): $17,900 - $3,600 = $14,300.

We also need a car, because this example takes place in Alberta, and for a pretty basic 2011 Corolla and fuel, insurance, etc., this will come out to about $310/month = $3,720 + $2,000 in annual fuel (24,000km @ 7.5L/100km @ $1.10/L) + $250 in maintenance + $1400 in insurance, totalling $7,370.  No consideration for depreciation right now.

Average transportation cost is in the range of 12-14% of gross, so we are in range here.

Even so, $14,300 - $7,370 = $6,930.

We haven't done anything at this point besides pay for somewhere to live, food, something to get us around, and ensure the possibility of a dignified retirement, and we have less than 7 grand left for the entire year.

A smartphone with a decent data plan is going to run around $1,200 a year, and high speed internet about half of that.

Now we are down to $6,930 - $1,200 - $600 = $5,130.

At this rate, it should seem clear why banks need to offer cash back mortgages in this country to keep business going.

Even at a level of income greater than 75% of all Canadians, it would take that person over three and a half years just to save up the 5% minimum down payment for the average $366,000 Canadian home, much less 20% (assuming they plan to both own a home and retire, and not one or the other as the case certainly is right now).

And that's with no budgeted provision for hookers and blow on the weekends, yearly winter pilgrimages to climates with sun and cheap booze, or the daily $5 latte at Starbucks.

Granted, you can make the argument that perhaps my retirement outlay is too high, or that dual incomes change the picture, but my response would be that I have been extremely conservative on the cost of living side of the equation as it is.

Children, furniture, clothing, healthcare, recreation, education, gifts, tobacco & alcohol.


Those all cost more than zero, and I'm certain that whatever amount you pull out of the retirement amount would quickly disappear into the above.

All I'm trying to illustrate is that since the majority of new $450,000 Calgary subdivisions are not filled with houses full of people singing Kumbaya with the lights turned off and their single Toyota Corolla tucked away in the garage, we certainly aren't going to gallop into the sunset together with our chariots full of gold (well, I will...).