# Retiring at 43 - HELP!



## Lightlines

Hello everyone!

I am in a bit of an unusual situation and it is hard to find decent info from others in the same boat, so I was hoping that someone here might have some sage advice!

2 years ago I was downsized from my job as a very senior executive. I despised my job so was glad to walk out of the door with a package. I divorced my husband (cost me a fortune) and now here I am completely on my own in this big world at 43 and no kids (and luckily not having to pay alimony) facing a very big decision.

I have LOVED my time of not working these last 2 years. I have so many interests and hobbies that I worry even at my age that I will run out of life before I run through my bucket list. My days always fly by, and I am never bored. 

I do NOT want to have to work again. Ever. Even the thought of having to put on a suit and walk into an office and deal with all the crap in the corporate world gives me a headache. 

Here is my question. I have $2.1 million left, of which $400K is in RRSPs, $15K is in TFSAs and the rest is in bank accounts earning between 1.75 and 2.2% in interest. I need about $55K before tax per year (Canadian) to live, and I also have to buy some sort of home with that money, I am thinking of something around $300K. I have sold EVERYTHING so the $2.1M is all I have in the world (and one storage locker with a few things in it). I HATE investing. I HATE investment advisors. I HATE risk. I just want to live my little life in peace and quiet and see where the river of life takes me. I know I have to invest my money in something with slightly better yields, but I need to make a decision about formally leaving Canada before I go ahead and do so. 

So tell me honestly. Do you think I can do it financially or am I deluded? I have tried various calculators and they seem to indicate that I can scrape by...but...50+ years to live off that money seems so long...it's a bit scary. 

Any advice at all, any things that I should consider from a financial perspective would be greatly appreciated...especially also thoughts on how I could invest my money so that I am going to be able to meet my needs.

Thanks so much in advance, I really appreciate any advice that you are prepared to share.

Lightlines (PS not expecting any inheritances either)


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## DanFo

I'd say you'd be alright as long as your disciplined on how much your spending each year.

The time in retirement seems long however and although you do not want to " have to work" you may be able to eventually find "work" in something different that you would actually enjoy, you definately seem to have the means and the time to find something that would suit your passions and you won't have the stress of relying on a job to get by.

If your thinking of formally leaving Canada, there are many countries where you could live quite nicely for less than 50K CAD a year.


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## OhGreatGuru

Lightlines said:


> ...
> 
> 2 years ago I was downsized from my job as a very senior executive. I despised my job so was glad to walk out of the door with a package. I divorced my husband (cost me a fortune) and now here I am completely on my own in this big world at 43 and no kids (and luckily not having to pay alimony) facing a very big decision.
> 
> I have LOVED my time of not working these last 2 years. I have so many interests and hobbies that I worry even at my age that I will run out of life before I run through my bucket list. My days always fly by, and I am never bored.
> 
> I do NOT want to have to work again. Ever. Even the thought of having to put on a suit and walk into an office and deal with all the crap in the corporate world gives me a headache.
> 
> ... I HATE investing. I HATE investment advisors. I HATE risk. I just want to live my little life in peace and quiet and see where the river of life takes me. I know I have to invest my money in something with slightly better yields, but I need to make a decision about formally leaving Canada before I go ahead and do so.


1. Sounds like your job and marital situation created a lot of stress, and you still haven't recovered from it.

2. You don't necessarily have to go back to the corporate world. With income from your investments you can afford to look for a lower-paying less stressful job to supplement that income, if you don't think it is beneath you.

3. You need to do some self-education about investing. Zero risk tolerance and zero knowledge will really limit your income prospects when interest rates are at historic lows. You don't need to become an expert; you don't need to put yourself at the mercy of an advisor (and educationg yourself a bit would help you avoid that fate). But you need to know enough about readily available products that you can make an informed choice about things within your comfort zone.


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## Karen

I understand completely your attitude towards risk and investing, because I'm the same. I don't have nearly as much money as you do, but then I'm a lot older (68) and have fairly good pension income as well, so I'm not at all worried about outliving my money. But I'm puzzled as to why you're earning such low rates at the bank. With the amount of cash that you have, you could invest a lot of it in 5-year GICs, which, with the bonus most banks give on such large sums, should give you a higher rate than that. Of course you wouldn't want to tie all of it up for that long, but whatever you won't be needing for five years or more should be earning you more than 1.7 to 2.2 percent. I deal with Scotiabank and, while it's true that the rates are lower every time I renew a GIC. I still got 3.15 the last time I renewed one (in late July), which is better than 2.2.


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## Jon_Snow

To the OP, you are not alone in your desire for an extreme early retirement - I am shooting for it as well... To do it by 43 ( I'm 39) would be a best case scenario for me... Would need some help from Mr. Market to pull it off. 

There are just too many things to do and see in the world that 4 weeks of vacation can't even begin to scratch the surface of it all.

And most definitely check out early-retirement.org!


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## steve41

I am nothing, if not predictable....

I-am-43

Ran you out to 95 and decreased your ATI to 80% after age 75. Result.... a 36K after tax lifestyle (29K after 75) This is based on 2% inflation, 4% nominal rate of return, living in BC and full CPP/OAS. House... $300K.

(I could live on $3K per month, but maybe not everyone could.)


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## Jon_Snow

Inheritances, and whether or not to include them in retirement calculations is also tricky.


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## financialnoob

Which other countries were you considering moving to? Would that change your cost of living projections and housing costs?


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## Cal

A quick read through, 2.0 million invested to get a 4% return would net you 80K....factoring in taxes, you would still be above your 55K requirement.....probably enough to spend $1000 a month for a condo mortgage payment or something on top of the 55K to enjoy life.

I do hope the next Chapter in your life works out to be more enjoyable.

I would recommend, as you have no interest in investing, to go see a couple of fee only investors, ie, you pay them when you meet them, and get a few opinions on where to invest your money to provide you with income.

The only reason I would recommend seeing a couple of advisors to discuss how to achieve yoru proper investment structure to provide you with the required income for life, is that it seems that you really want to not have to work again, so it would be worth the time to search out a few opinions.

There are alot of DIY invstors on here, so I really can't recommend anyone.

All the best.


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## steve41

I am not sure where the $80K comes from, but a die-broke at 95 projection using 4% nominal, 2% inflation will deliver you a constant (in today's $) after tax level of beer and groceries of $34 K. This assumes you buy your $300K condo. (this is a domestic not an imported beer budget, IMHO)


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## Lightlines

Hello again everyone!

(I just tried posting and I think it disappeared...I apologize in advance if somehow 2 posts of mine end up here.)

I wanted to thank you all for your kindness in taking the time to respond and share very valuable suggestions with me, and particularly also in crunching the numbers for me!!! I will try my best to pay it on!

You have given me excellent tips and things to consider, but most importantly, you have given me the confidence that yes, it is possible and I am not delusional. Accordingly, here is my action plan:

1. Decide where I want to live (might influence my living costs....but right now I am looking at Europe so I suspect it will be about the same as Canada)...right now I am in Spain where I have rented a lovely house with pool very inexpensively until the end of the year....after that I will try some of the more northern countries....

2. Seek out a fee only investment specialist who can advise me on how to invest my money to get a 4% return in a low risk way (even if I live in Europe I will want to leave my money in Canada...I just don't trust the Euro, maybe because it is all alien to me, whereas I do "get" Canada's economy. And anyways I suspect at some point I will end up back home)

3. Buy a home (or rent...have to inform myself about the real estate market once I decide where I want to live...in Europe it seems to be more common to rent, and also quite inexpensive compared with Canada's rental rates)

4. Get my stuff out of storage (10x5 foot locker....did lots of purging)

5. Invest the remaining money (PS - Karen I have had my $ in savings accounts rather than GICs because I wasn't sure what I was going to do, so didn't want to lock it up, plus had to keep everything very liquid until the dust settled on my divorce but you make good points)

6. LIVE! (and yes, $3K/month is plenty for me...I don't each much, I don't drink, either domestic or imported beer, and I don't smoke, and best of all my hobbies so far have been very inexpensive or even free - no golf or skiing for me and got the boating out of my system back when I had lots of money to throw around!).

Thank you all again you have been great! (and now I am off to check out the early retirement website!)

PS Jon Snow...life is too short to live it through a vacation once a year. I have seen this now that I have been away from the corporate world for 2 years. What a sham this whole working for a living thing is, and all to support corporate profits by brainwashing us into running like hamsters in our little wheels and continually buying "stuff" (most of which I threw out or donated once I sold my overstuffed and ridiculously oversized place - I took a 3000 sq ft penthouse down to a 5x10 storage locker, and I will purge even that if I decide to move to Europe). Best of luck to you in being able to make the break!


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## Homerhomer

You can buy a decent condo in Arizona ( or few other states) for $30k or a house for a little bit more, and do without winter. 

I am just saying this planet is pretty big and if you are open to moving out of Canada you may get more options (there are tax implications though, medicare and such as well).

Best of luck.


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## Simon_oa

I've been trying to work on this case quickly but im out of time !
Have a look and try to fix the ''Public version" so we can get good numbers !

https://spreadsheets.google.com/spr...c0yXddE1kdF9rRXM3aktQR2xVXzBNZXNILVE&hl=en_US

Have a look !


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## kcowan

We have some friends from Monteray CA who lived in Antequera and bought a home there. It is 40 km from Malaga and very nice. And inexpensive.

You can establish a GIC ladder that would serve your financial needs very well yet earn you substantially more than a savings account. Going north will make the winter more difficult but you are young and robust so maybe do it before you get older. There are some real deals on resales in Portugal and Spain owing the the general funk of the European economy. So that would be a good place to settle if you ike it.


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## Charlie

Hey Steve:

working through your spreadsheet (love it, by the way) and had a couple of questions....

Why do non registered start at $485K. Wouldn't it be $2.1m less home ($300) less RRSP ($400) -- or $1.4m?? Similarly, why is max capital $914K instead of $1.8m. Am I missing something? (i suppose max cpp should be adjusted down too -- but that's really just fine tuning).

To the OP -- good luck. Sounds great what you're doing. Consider taking the occasional contract job to keep in the loop and fund the 'extras.' Watch your capital and you should be OK.


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## steve41

Charlie said:


> Hey Steve:
> 
> working through your spreadsheet (love it, by the way) and had a couple of questions....
> 
> Why do non registered start at $485K. Wouldn't it be $2.1m less home ($300) less RRSP ($400) -- or $1.4m?? Similarly, why is max capital $914K instead of $1.8m. Am I missing something? (i suppose max cpp should be adjusted down too -- but that's really just fine tuning).
> 
> To the OP -- good luck. Sounds great what you're doing. Consider taking the occasional contract job to keep in the loop and fund the 'extras.' Watch your capital and you should be OK.


 What a doofus! 1.2M is not the same as 2.1M.... (who knew?) The good news is that our heroine can now afford the imported beer. The bad news is that no one (except for Charlie) spotted the error. Here is the correct plan... I am 43's new plan

Thanks Charlie.


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## financialnoob

Well in that case, the OP may just have to do nothing more than a GIC ladder. Considering how much capital she still has left at 95, she should be able to retire comfortably even without a 4% return. Probably still worth sitting down with a financial planner to double-check things.


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## Cal

steve41 said:


> I am not sure where the $80K comes from, but a die-broke at 95 projection using 4% nominal, 2% inflation will deliver you a constant (in today's $) after tax level of beer and groceries of $34 K. This assumes you buy your $300K condo. (this is a domestic not an imported beer budget, IMHO)


Sorry if I confused you Steve, I was commenting on the initial posters comments, not your work up.

And yes, I was referring complete capital preservation, not a die broke projection, to show how much they would have even with the slightest of a projection.


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## steve41

No, I screwed up the original numbers the OP stated. I corrected the data... if she purchases the condo, the die-broke projection comes in at 57K after tax. I think the effect of tax and inflation is where the discrepency comes from.


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## Lightlines

Hi everyone!

Again, many thanks! Simon - fyi I tried to get into your spreadsheet (everything looked ok to me except for the age, thank you for putting it together...I am going to compare it with the other one to see if the 2 come roughly to the same answers) and then I set it aside and didn't realize that there had been more posts since! 

Steve - I have looked at the revised "I am 43" plan and the data all looks correct to me with the exception of my age. I have to admit I looked at the graphs and couldn't make head nor tails of them. But now I see that the numbers are further into the document, and the only thing I noticed is that I actually turn 44 at the end of this year so the year would be 1967 not 1968.

Further to Financialnoob's comment, do you think that if I adjusted down to a 5 year GIC rate of say 3.25% (which would definitely be my preferred investment vehicle, although I will post a question about that in the Investment forum and see what the low risk options are for generating a 4% return) that I would then eat up that remaining money (which is ok with me as I am on my own)?

Also if I live in Europe I am not sure that I will get CPP or OAS...I will have to check this out in more detail. And since I stopped working at 41 I definitely won't get full CPP since I will only have been in the plan for 20 years (but 18 of them at the max rate). The good news is that in order to offset all of that I have a non-indexed pension of $500/month that starts when I am 62. I forgot about that bit, just found it today when I was going through all of my files from my former employer! 

So again, I thank you all so very much! I will probably go really conservative and not spend more than say $48,000 a year just in case. And either way, I feel like I have won the lottery and all of the awfulness of the last years has paid off with something good!!!!!!

Thank you all again so very much!!!


PS HomerHomer and KCowan, I am going to float around Europe and hopefully someplace will grab me enough that I will be willing to settle there. But the US is also an option, and the nice thing about the US is that they speak English (my lack of Spanish skills is not without its challenges here in Spain!). The key will be finding somewhere where I can meet a few people to hang out with from time to time because although it is beautiful here, it gets a bit quiet.


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## Guigz

steve41 said:


> No, I screwed up the original numbers the OP stated. I corrected the data... if she purchases the condo, the die-broke projection comes in at 57K after tax. I think the effect of tax and inflation is where the discrepency comes from.


Sorry to hijack, but I have a question for steve41.

I was looking at the revised numbers that you posted for Retiring at 43 and I noticed that at the end, on the last line, Income is 1.something million dollars. I understand that this is the house given to the estate.

Is there a way to include the value of the estate in the projection (i.e., if the person sells the house) to know how much more beer and groceries can be purchased in that scenario?


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## Kalergie

My parents live in Gran Canaria. They both are retired except that my Dad still works as a consultant from time to time. Flight connections are very good to any European hub and health care is also European standard. You can get around with any European language due to tourism; French, German, English, any Scandinavian language etc. 

The weather is perfect! Whether it is Christmas Eve, Easter, or Mid-August. You always have the perfect condition. People are friendly. My parents got to know and befriended with a lot of similar minded people who just can't stand the rat-race mentality in the big cities anymore. Sure, you got to bring the dosh but you sorted that one out just fine. 

My parents live in a nice gated community around a 36 hole golf course. Renting is very good and with luck you'll get a detached 2 BR house with a pool and gardening and pool service for around 1200-1500Euro/month. A smaller home for even cheaper. I could live there like in heaven for around 2500Euro/month. 

Let us know where you end up.


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## the-royal-mail

I like the OP! My kinda gal! Seems to really "get it", esp with this comment:

"What a sham this whole working for a living thing is, and all to support corporate profits by brainwashing us into running like hamsters in our little wheels and continually buying "stuff" (most of which I threw out or donated ..."

Yes! Exactly! The OP is very lucky to have amassed such a fortune though and be able to retire at such a young age. While she is totally right about the hamster wheel thing, the best most of us can hope to do is save as much of our money as possible while we have a good income. Too much money is going out the door on expensive houses, cars and electronic junk like cell phones and ipads these days. I don't get into that stuff because actually, no one cares and all you end up with is an empty bank account. And most of it ends up as e-waste anyway.

OP: call me. 

LOL


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## Lightlines

Hello again! Ok I am back yet again from my recent post of last night....this is because I have taken a bit of a beating from the folks in the Investing forum here. 

It looks like I cannot possibly make a risk-free go of it for 4%, or a 2% increase over inflation. I know I am asking for a lot here, but is it possible to see what the numbers would look like if I dropped to a 5-year GIC rate at say 3.25%? I just don't get why the folks over in "Investing" don't get that someone would not like to be sitting in the stock markets. But they have sent me a loud and clear message that I am delusional. Ok, I get it. I would rather hear that now, than down the road when I am eating dogfood so I am thankful to them for their very straight talk.

Also Guigz has a good point. What if I sold my house, at say 85? Because at that point I'll be ready for an apartment, or hopefully even dead (sorry that sounds awful, but at least being dead is free). 

Kalergie - Gran Canaria sounds like something I should check out! I have heard great things about it, but haven't made it there yet. Tbh I landed here in Andalusia because a friend of a friend knew someone who knew someone who had a house etc....and so here I am. Clearly I need to be where the expats are, not that the locals aren't very nice but it is clear that I will always be the Canadian woman in the house on the hill and never fit in. 

The Royal Mail - it is nice to find that others share my point of view. Life is short and when you lie on your deathbed, you will not reflect upon the stuff you have accumulated, but rather the experiences which you have had. It is a lesson I had the misfortune to learn very early in life, and it is one that I have tried to learn well. Hard to have too many experiences with 5 weeks of vacation that one can't take anyways, at least without a BB glued to ones hip, and 15-18 hour workdays 6 days a week. 

Thanks again everyone and have a great day!


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## MoneyGal

Lightlines said:


> I just don't get why the folks over in "Investing" don't get that someone would not like to be sitting in the stock markets.


No one is saying that you "must" invest in stock markets. The message is that you are extremely unlikely to hit your personal goals without taking at least some stock market risk. 

If you want to withdraw 4% (which is what you said right in the title of the post), there is a very low probability that you will be able to sustain that rate of withdrawal over your expected lifetime. 

(By the way, you have mentioned a couple of times that you are planning out to "about age 85." I assume you are saying this based on the life expectancy for a Canadian woman. Note that this is just an average figure - fully 50% of women will live beyond the average life expectancy. The average life expectancy also changes as you age.)


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## steve41

Guigz said:


> Sorry to hijack, but I have a question for steve41.
> 
> I was looking at the revised numbers that you posted for Retiring at 43 and I noticed that at the end, on the last line, Income is 1.something million dollars. I understand that this is the house given to the estate.
> 
> Is there a way to include the value of the estate in the projection (i.e., if the person sells the house) to know how much more beer and groceries can be purchased in that scenario?


 The last two pages include the house value (death benefit). The 'net to estate' figure represents what the estate would see after tax should the subject die at any point along the way.

You could also, downsize the house or sell it completely at a selected point in time and drop the proceeds into capital if you chose to model that eventuality.


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## Sampson

MoneyGal said:


> Note that this is just an average figure - fully 50% of women will live beyond the average


Must be early in the morning MG, but are you referring to mean, or median. I'm guessing that life expectancy distributions are not a normal, symmetrical distribution and mean and median aren't the same.


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## steve41

OK LL, here is the plan projected out at 3.25%... I am 43 at 3.25% ATI comes in at $48K. 

$4000 a month, own your home.... still doable, IMHO.


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## Homerhomer

Lightlines said:


> Also Guigz has a good point. What if I sold my house, at say 85? Because at that point I'll be ready for an apartment, or hopefully even dead (sorry that sounds awful, but at least being dead is free).
> 
> !


What if you never bought a house in the first place? 

Buying a real estate makes financial sense in depressed markets, and doesn't in places where the prices are high, once you settle on your location of choice see what will work best for you, one way of determining it is using the number of years you would have to pay the rent versus cost of owning a property, just google it to see the calculations.


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## MoneyGal

Sampson said:


> Must be early in the morning MG, but are you referring to mean, or median. I'm guessing that life expectancy distributions are not a normal, symmetrical distribution and mean and median aren't the same.


It's the arithmetic mean. As an interesting aside, the distribution of life expectancy is about as variable as the stock market (although actuaries don't talk about life expectancy in this way)


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## CanadianCapitalist

Lightlines said:


> But they have sent me a loud and clear message that I am delusional. Ok, I get it. I would rather hear that now, than down the road when I am eating dogfood so I am thankful to them for their very straight talk.


Let's look at your requirements. You are in your early 40s, you want to live off your portfolio for the rest of your life. You are looking at a portfolio lasting 50 years, which is practically forever. You also don't want to take any stock market risk.

So, the question boils down to this: how much can I safely withdraw from a bond portfolio and still have it last 50 years? Long-term nominal bonds are yielding 3% today. If you have $1 million and you buy these bonds, you will earn $30K per year. However, your income is in nominal dollars and when the bonds mature, you'll get back your $1 million in future dollars. At a 2% inflation rate, that's just half your initial capital in today's dollars. Meanwhile, you've taken on inflation risk and a spurt of inflation will whittle down both your income stream and your capital. 

You can avoid inflation risk by investing in real return bonds. But you'll earn just 0.8% at today's rates. But you'll still have reinvestment risk when the time comes to roll over the bonds.

If you absolutely want no stock market risk and you want your portfolio to last forever, you can buy RRBs and earn 0.8% from your portfolio. Assuming you can also spend a bit of capital and some government benefits will start to kick in in later years, you probably could go up to 1%. 

I'm not trying to beat you up. That's just the reality of investment returns today.


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## Lightlines

Hi MoneyGal - can you please clarify something for me? What I meant to say i my post on the Investment forum was that I need to generate a 4% return on my portfolio every year, which is the number that I took from the 2nd version of Steve's spreadsheet. Actually what I REALLY needed (one poster pointed this out to me) was 2% on top of inflation, which is the assumption that Steve used in his spreadsheet. I am not sure where the 4% spending rate comes from. Am I misunderstanding you? Or Steve's spreadsheet? Getting confused again.... 

As for life expectancy, no I need to plan to 95, that's what Steve did in the plan too. All I said was that around 85 I would probably sell any house that I owned because I imagine I wouldn't be able to handle it at that point. And that if I was lucky I would be dead and not have to worry about all this money bs and then my charities could be happy. Or at least throw a small coffee party!  

If you could clarify that would be great!


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## MoneyGal

Or she can give all, or some, over to an insurance company and get 5% non-indexed for life (as I just mentioned briefly in the other thread). 

I don't think anyone is wielding a club here. There is some very straightforward arithmetic at work. No one is trying to sell her anything, even a point of view.


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## MoneyGal

Lightlines said:


> Hi MoneyGal - can you please clarify something for me? What I meant to say i my post on the Investment forum was that I need to generate a 4% return on my portfolio every year, which is the number that I took from the 2nd version of Steve's spreadsheet. Actually what I REALLY needed (one poster pointed this out to me) was 2% on top of inflation, which is the assumption that Steve used in his spreadsheet. I am not sure where the 4% spending rate comes from. Am I misunderstanding you? Or Steve's spreadsheet? Getting confused again....


Sorry, I added to the confusion. 

There is a lot of discussion about the "safe withdrawal rate" from a portfolio in retirement. The so-called "4% rule" is very frequently quoted as the maximum rate that someone can withdraw from a portfolio in retirement. That's what I was responding to. 

This is a separate matter from a 4% real return.


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## Lightlines

Thanks MoneyGal for clarifying, and also your suggestion re: an insurance company, I had a sneaking suspicion I had to take a closer look at those, except then of course I have insolvency risk.

So just out of curiousity is one able to tell from the plan that Steve did for me whether or not I am keeping within the 4% rule? (or even less, because a poster on the Investing Forum implied that it should be less because I am younger). 

Thanks!


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## CanadianCapitalist

MoneyGal said:


> Or she can give all, or some, over to an insurance company and get 5% non-indexed for life (as I just mentioned briefly in the other thread).


Yes, agreed. An annuity is another possibility.

MG, you are the expert on this one. Can one purchase an annuity at any age? Even someone much younger than 65?


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## Four Pillars

Lightlines said:


> Thanks MoneyGal for clarifying, and also your suggestion re: an insurance company, I had a sneaking suspicion I had to take a closer look at those, except then of course I have insolvency risk.
> 
> So just out of curiousity is one able to tell from the plan that Steve did for me whether or not I am keeping within the 4% rule? (or even less, because a poster on the Investing Forum implied that it should be less because I am younger).
> 
> Thanks!


From the "Retirement Projection" (page 4), it looks like the first year withdrawal is $55,519 which is about 3% of of $1.8 million.

This increases to $56,263 for the second year, which is an increase of 1.3%. According to the "4% rule", the annual withdrawal should increase by the amount of inflation each year (2%), so this is a bit more conservative.

Perhaps Steve can elaborate, since it's his projection.

Here's my simplified explanation of the 4% rule:

http://www.moneysmartsblog.com/4-percent-withdrawal-rule-for-retirement/

and another relevant article "Why retirees need equity in their portfolios":

http://www.moneysmartsblog.com/why-retirees-need-equity-in-their-portfolios/


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## steve41

Lightlines said:


> Thanks MoneyGal for clarifying, and also your suggestion re: an insurance company, I had a sneaking suspicion I had to take a closer look at those, except then of course I have insolvency risk.
> 
> So just out of curiousity is one able to tell from the plan that Steve did for me whether or not I am keeping within the 4% rule? (or even less, because a poster on the Investing Forum implied that it should be less because I am younger).
> 
> Thanks!


 If you examine the last page ('net pretax cash flow' and 'pretax capital') you will get a sense of the changing withdrawal rate over time. Needless to say, it is not 4%.... it changes quite a bit, sometimes higher, sometimes lower. Beware 'rules of thumb'!


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## MoneyGal

I was speaking very generically of variable annuities. I really don't like talking about product allocation in such a compressed format (I mean, my time is very compressed). 

I think you can buy a variable annuity at age 43. (I know more about the maximum purchase age than the minimum ages.) 

The OP needs an actual investment plan. 100% of funds into an annuity of ANY kind is not a balanced plan.


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## Sampson

CanadianCapitalist said:


> Yes, agreed. An annuity is another possibility.
> 
> MG, you are the expert on this one. Can one purchase an annuity at any age? Even someone much younger than 65?


I'm very curious about this also. Hopefully I an be in a similar situation as the OP, and that has been a burning question.

If I understand these products correctly, the chance of an insurer 'losing' or performing poorly with these products is subject to sequence of returns risk, so just like in 08/09 when Manulife got hammered, the longer the insurer needs to cover an individual, the more likely they will encounter such an event.

So either the cost of getting an annuity when young is ridiculously high, or they don't offer them at all. Still eager to know if they provide them to younger folks.


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## MoneyGal

Sampson. I have a book you should read. 

Variable annuities and "plain" life annuities are quite different in concept and execution. 

The cost of annuity income is higher when you are younger because the expected payout is longer and your risk of death is (much) lower. 

This is a separate matter from how the insurer covers their own equity exposure risk. If you investigate further how the various products are constructed, you will see how they spread risk across the various pools.


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## MoneyGal

You can start to take income from the Manulife GIF Select product at age 55.


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## steve41

More on withdrawal rates....

Let's say we had a plan in which you just ran out of capital on your 95th birthday.... the 'die-broke-at-95' scenario. Guess what the safe withdrawal rate would be at age 94? You guessed it, 100% not 4%.

At 43 it is 3%
at 53 it is 3.6%
at 63 it is 4.3%
at 73 it is 5.7%
at 83 it isw 8.8%


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## Four Pillars

steve41 said:


> More on withdrawal rates....
> 
> Let's say we had a plan in which you just ran out of capital on your 95th birthday.... the 'die-broke-at-95' scenario. Guess what the safe withdrawal rate would be at age 94? You guessed it, 100% not 4%.
> 
> At 43 it is 3%
> at 53 it is 3.6%
> at 63 it is 4.3%
> at 73 it is 5.7%
> at 83 it isw 8.8%


Not sure what you are getting at. The 4% rule does not mean taking out 4% of the value of the portfolio each year. The withdrawal percentage is supposed to increase over time.


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## Lightlines

Four Pillars said:


> Not sure what you are getting at. The 4% rule does not mean taking out 4% of the value of the portfolio each year. The withdrawal percentage is supposed to increase over time.


Four Pillars - without my having read the article on this yet....does that mean my withdrawal rate is probably ok? I wonder though, given that I am younger. I bet none of the Finance PhDs have modelled things like this for people like me. Which is why frankly my whole situation is making me a bit nervous...seems like no one really knows.... 

Thanks for your thoughts!


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## MoneyGal

The finance PhDs spend their days modelling these scenarios. How's your calculus? This article is exactly on-topic. 

http://www.ifid.ca/pdf_workingpapers/Spending_Retirement_Vulcan_14MAR2010.pdf


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## steve41

Four Pillars said:


> Not sure what you are getting at. The 4% rule does not mean taking out 4% of the value of the portfolio each year. The withdrawal percentage is supposed to increase over time.


Yes. That was my point.


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## steve41

MoneyGal said:


> The finance PhDs spend their days modelling these scenarios. How's your calculus? This article is exactly on-topic.
> 
> http://www.ifid.ca/pdf_workingpapers/Spending_Retirement_Vulcan_14MAR2010.pdf


 Once more.... not one instance of the word 'TAX' in that pdf. Same for CPP and OAS.


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## MoneyGal

1. It isn't a Canadian paper. There are references to "social security" understood generically to mean government-based entitlements. 

2. Is it now your mission to follow my posts around this board and point out that some of them don't talk about tax? I'm well aware of that, and I am well aware of your "WTF" opinion about those posts. Can we leave it at that, or do you plan to continue?


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## Four Pillars

Lightlines said:


> Four Pillars - without my having read the article on this yet....does that mean my withdrawal rate is probably ok? I wonder though, given that I am younger. I bet none of the Finance PhDs have modelled things like this for people like me. Which is why frankly my whole situation is making me a bit nervous...seems like no one really knows....
> 
> Thanks for your thoughts!


No, it doesn't. I'm referring to a separate topic.


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## steve41

MoneyGal said:


> Is it now your mission to follow my posts around this board and point out that some of them don't talk about tax? I'm well aware of that, and I am well aware of your "WTF" opinion about those posts. Can we leave it at that, or do you plan to continue?


The original post was addressed to a very specific concern.... was the OP going to have problems seeing herself out to a ripe old age.

She identified her nest egg (which was comprised of tax deferred, taxable and taxfree capital) and I proceeded to try and answer her question.

I happen to believe that tax is a hugely important part of the retirement planning exercise, and when you posted a critique a few days back which states that current retirement planning software is woefully inadequate, and then on examining the paper you posted I found they didn't acknowledge income tax, I took exception.

Sorry if I offended you.


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## MoneyGal

Steve. I'm not offended. 

The criticism in the newsletter I posted was not directed at you, or your software. I didn't write it. 

The critique was directed at the generic issue of financial software programs that assume a deterministic rate of return, and then suggest that if a client's plan identifies a shortfall, that a higher rate of return simply be slotted in and voila! no more shortfall. 

This has nothing to do with tax issues. Milevsky and his co-author were not arguing that tax is unimportant in retirement income planning. Milevsky has written extensively on tax issues in retirement income planning. No one, not him, and not me, is arguing that tax is not an important determinant in the real-world (AND theoretical) expressions of retirement income plans. 

I would argue that the use of deterministic rates of return in financial planning software programs is a much more serious oversight than the lack of tax considerations on academic papers on retirement income planning - but I've never even opened your program and have no comment on it.


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## Sampson

MoneyGal said:


> I have a book you should read.


I'm well aware of your book  - just conceptualizing at this point. I have a few years yet, but will look to buy your book for those 'above' me retiring now.

Unless Manulife comes out with a product for people in their 30's


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## OhGreatGuru

Lightlines said:


> ...
> 
> Also if I live in Europe I am not sure that I will get CPP or OAS...I will have to check this out in more detail. And since I stopped working at 41 I definitely won't get full CPP since I will only have been in the plan for 20 years (but 18 of them at the max rate).
> ...


CPP is payable anywhere in the world. But as you note, you will be well below max due to your 20 year contribution period.

OAS is also payable anywhere in the world. But your benefit will be pro-rated if you live less than 40 years in Canada between the ages of 18 and 65. This might possibly be increased if you take up residence in a country that has a social security agreement with Canada. http://www.servicecanada.gc.ca/eng/isp/pub/oas/oas.shtml


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## MoneyGal

Sampson said:


> Unless Manulife comes out with a product for people in their 30's


Let's put a pin in this post and revisit it.


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## Four Pillars

MoneyGal said:


> Let's put a pin in this post and revisit it.


If they do come out with a product, you can be sure the fees will be sky high.


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## MoneyGal

Based on them absorbing the longevity risk. 

There are no free lunches. If you want someone to guarantee you income for as long as you live, you either have to accept low yields (i.e., RRBs) associated with low risk, or pay the cost (via fees) for them to absorb the risk. 

House insurance costs are also "sky high." Insurance is expensive.


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## Four Pillars

MoneyGal said:


> Based on them absorbing the longevity risk.
> 
> There are no free lunches. If you want someone to guarantee you income for as long as you live, you either have to accept low yields (i.e., RRBs) associated with low risk, or pay the cost (via fees) for them to absorb the risk.
> 
> House insurance costs are also "sky high." Insurance is expensive.


You know the costs are not just for longevity risk. You've said yourself that current guaranteed withdrawal products are expensive because of the insurance aspect as well as the high investment management fee.

If they can create a product that has low investment management fees, then it will be a good product. 

Given the current state of financial affairs in Canada (most products sold thru advisors), I'm not sure that Manulife or any other company has much incentive to offer such a product.


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## MoneyGal

Maybe you noticed I wrote that post at 4:40 a.m. I considered writing a longer post, but I was on my way to the gym. 

The costs associated with the longevity insurance on these kinds of products are distinct from the costs associated with the investment management portion. 

Milevsky has been the most vocal proponent of offering two new financial products: 

1. "Ruin-contingent life annuities" which only come into effect if and when your portfolio runs out of money. That is, you would ONLY purchase insurance which covers you in the event of portfolio ruin - you don't purchase insurance for the period during which you still have portfolio assets. 

2. Longevity-insured products offered with low-cost, passive investment alternatives. 

I'm not disagreeing with you - the reality is that you can only buy these forms of longevity-insured products in a couple of forms right now: 

- lowest cost are plain vanilla immediate annuities. 
- when asset management is included, you are buying active management along with the longevity insurance, and together these elements add up to high costs. 

But the costs of active management are distinct from the longevity insurance costs. Plenty of people are paying high MERs on products which offer no longevity insurance. 

I personally think there will be a lot of innovation in this market over the next decade. Certainly that's where I've got my eyes and my professional focus.


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## Four Pillars

Interesting. I think the low-cost passive investing product would be awesome.

That first idea is pretty neat. It would be interesting to see how something like that would be structured. I can't see an insurance company just selling plain insurance on your RRSP/RRIF portfolio because then the retiree would have more incentive to burn through their portfolio. There would have to be conditions attached. Maybe a lot of conditions.  Do you have any links to any articles etc that might exist on this idea? 

And yes, I definitely noticed your post time stamp. I was going to ask if you woke up early or stayed up late?


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## MoneyGal

Ask, and ye shall receive. Here is the paper that introduces the Ruin-Contingent Life Annuity: 

http://www.ifid.ca/pdf_workingpapers/WP2007SEPT15_RCLA.pdf


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## Lightlines

This discussion about annuities has piqued my curiousity. I guess I owe it to myself to pick up the phone and see if I can handle torturing myself with an insurance person's sales pitch. Or at least play around on some websites. That will be next week's adventure.

I haven't given up yet...but....as you will see by my post on the Investing Forum....I am getting close. It's a bit frustrating that the 3.25% plan of $48K/year after tax looks fine to me, yet the investing crowd are saying "no way Jose...you will be a bag lady eating Kibble" if you invest in GICs.

Why I wonder? I can get 3.5% GICs today which is more than the 3.25% assumption in the plan...and if I ladder them I should be able to keep up up with inflation, since (ok I know we could debate this) in a simple world interest goes up when inflation goes up....what on earth am I missing here? Do people refuse to believe that someone can live happily on $4k/month, inflation adjusted? 

As you can see...hope still burns eternal in the human heart!


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## the-royal-mail

Where can you get 3.5% GICs? Sorry if I missed that part upthread but the best I can do at my bank is around 1.3% or so.


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## Lightlines

5 year term at credit unions. Outlook, Achieva etc. (there are some others in case those ones don't). Plus if you have some $$ you can also negotiate with one of the Chartered Banks, into the low 3s...

Cheers (and wow it is late here...I really have to get to bed!)


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## Financial Cents

What about a combined approach:

-50% equities comprised of broad-market ETFs and a few dividend-paying stocks.
-25% bonds comprised of low-cost domestic ETFs.
-25% into an annuity

?

Definitely a trip to a fee-only advisor is in order, maybe a couple to get a few perspectives of course 

Sounds like you're ready to kiss stress and some unfortunate events goodbye, and good for you!


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## Cal

LL if you plan to live on 48K a year, what do you forsee the expected budget to be for your expenses? I don't mean it offensively, as some here believe you can't retire on this much per year, I do know people that do this on less.

But have you sat down and had a look at where the money might go? Just to make sure it will work for you and your lifestyle.


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## peterk

Lightlines said:


> I can get 3.5% GICs today which is more than the 3.25% assumption in the plan...and if I ladder them I should be able to keep up up with inflation, since (ok I know we could debate this) in a simple world interest goes up when inflation goes up....what on earth am I missing here?


Assuming you use _all_ the interest on living, just maintaining the principle and not adding to or taking away from it, doesn't maintain your buying power.
Interest will go up with inflation. But when interest and inflation come down, it doesn't mean things get cheaper, it means they get more expensive slower.

You are comparing apples to oranges, in that, inflation will grow exponentially, where you interest income will remain the same. The only way to make it work with GICs is to not spend ALL the interest income and grow your principle every year.
Say interest is 4% and inflation 2.5%. you make 80k a year on your 2 million. Next year things will be 2.5% more expensive. So instead of needing 80k you need 82000. To make that $2000, you need to save an extra *$50000* this year to make that interest. So essentially must save ~70% of the interest you make just to maintain your buying power. (of course then your buying power is only 30k this year so your inflation costs next year will be lower... this seems like it's an iterative problem that I don't care to solve..) 

THE POINT BEING, you must save a significant chunk of your income just to add to the principle so you have enough next year after inflation has taken its toll - If you only invest in GICs and bonds...

Edit: Please ask if this doesn't makes sense - some of it seems confusing on a second read - and I'll explain it a different way or someone else can explain it. It's critical that you understand that what you're proposing doesn't work in the way you think it does... Also, apologies if I start to sound pedantic, I am only trying to help in earnest.


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## MoneyGal

Peter - I think this is a great post. 

The issue is that the OP is trying to generate rising income on a shrinking base. Even low levels of inflation can have very corrosive effects over time.


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## steve41

At zero percent RoR (the hide your nest egg under the matress investment strategy) she still enjoys a $30.7K annual lifestyle -adjusted for inflation. With her condo purchase. I could do that.


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## celishave

Lightlines said:


> 5 year term at credit unions. Outlook, Achieva etc. (there are some others in case those ones don't). Plus if you have some $$ you can also negotiate with one of the Chartered Banks, into the low 3s...
> 
> Cheers (and wow it is late here...I really have to get to bed!)


I am hoping to retire with about what you have albeit abit later - somewhere closer to 50. Even at the later age versus your 43, I would not feel safe with your level of spending though if it were me. I think if you were more in the 30-35K per year in expenses, then doing so with a GIC type portfolio would work. You need to work more and accumulate more, or retire now, but try to pare back your expenses abit. What about a low stress part time, type of job?

Think of it this way. Let's say you clear 10K per year - that is really like having an additional $300,000 or so in investments as you would not have to draw from them for that 10K in income.


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## steve41

Once more..... she retires at 43, buys her $300K condo and doesn't invest her money.... ( 0% rate, 2% inflation), given her reduced CPP and OAS expectations, and the anticipation of just making it out to age 95... after taxes she can live on $30K per year. If she conservatively invested her funds at just 2%, that lifestyle would be $39.6 K.

Plus, if she makes it out to 95, her estate will still see net $800K from the sale of the condo.

What is the problem folks?


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## martinv

Can't see a problem Steve41.
Just curious about the numbers if you use 85 instead of 95. It seems 85 is quite a good life and even then we have to avoid numerous health minefields just to make it there!
Also, she could tap into the condo equity by way of a line of credit etc. to further increase the available monthly living amount.


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## steve41

martinv said:


> Can't see a problem Steve41.
> Just curious about the numbers if you use 85 instead of 95. It seems 85 is quite a good life and even then we have to avoid numerous health minefields just to make it there!
> Also, she could tap into the condo equity by way of a line of credit etc. to further increase the available monthly living amount.


If you pick a die-broke age of 85, then your lifestyle comes in at $46K at a modest 2% rate. At 0% rate, it amounts to $36K.....$3K a month after tax. Of course, if you do make it beyond 85, you will still have that condo (it will be then worth $750K) to reverse mortgage or what-have-you.


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## ShowMeTheMoney

So what did the OP decide to do?


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## marketwatcher

*5 years gic -cdic*

Hi guys - i have a question regarding CDIC and wish someone could help me out here. If I have my amount is greater than 200,000 with the same credit union or bank, will this be fully covered by CDIC or it's only covered for $100,000?! Thanks a lot


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## the-royal-mail

marketwatcher, your question has nothing at all to do with this thread. For best results, please open up a new thread if your question is not answered after using the search function in a relevant existing thread.


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## marketwatcher

thanks Royal..


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## Brian Weatherdon CFP

Reviewing this context and the original question about retiring at 43:
Could we re-phrase it, "Re-wiring life at 43". _(44 now? -- or any age)_

This could mean enjoying a temporary retirement. It could mean re-learning, re-tooling, re-buildling your future, taking a hiatus from professional life to re-assess what you want, and how you can best satisfy the feelings and desires you have about life. 

Result of that can become a vast re-creation of life and the meaning of work or volunteerism or other ways to contribute what is most valuable to you and toward others around you. 

Ie. the question may be less financial and more existential. What do you want? How can you best enjoy it? And then....what financial aspects are to be considered?

Best to you!
BW


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