# Change of plan Jan 2012 now date- would you?



## Doug Out West (Apr 25, 2010)

As things have been going well it looks like Jan 2012 would be the date. In that I mean at that point will start process to retire early. I'd be 51 and wife would be 48. Getting ready to sel house in spring etc though I would probalby work till Jan 2013 to get bonus, stock etc.

Would you is the question?

Estimated required retirement income including taxes $55K in 2010 $

assume 2% inflation with 5.5% return before inflation

calculated amount required $1,100,000 for money to run out at 100 ( me)
drop required income by 5% at age 80
don't include OAS in calculation

target to start process $1.2mil so $100k margin
Does not include residence (cabin) in net worth, value $450K so that is inheritance /insurance policy

Spilt will be about 50-50% RRSP and outside RRSP
residence in B.C. with income spilt pretty much 50%- 50%

Any thoughts?


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## Doug Out West (Apr 25, 2010)

Estimated Expenses

MONTHLY COST	ANNUAL COST

ELECTRICITY $60.00 /month	
LAND LINE PHONE $80.00 /month	
CELL PHONE $80.00 /month	
SAT TV AND INTERNET	$220.00 /month
PROPERTY TAX $1,800.00
VEHICLE FUEL $200.00 /month	
HOME INSURANCE $ 1,400.00
VEHICLE MAINTENANCE $2,000.00
VEHICLE INSURANCE $2,000.00
FOOD $800.00 /month	
ALCOHOL $200.00 /month	
ENTERTAINMENT $300.00 /month	
DOG FOOD $ 100.00 /month	
HORSE COSTS X2 HORSES $1,500
VET COSTS DOG AND HORSE	$90.00 /month $2,000.00
SPORTS EQUIP $50.00 /month $1,200.00
CLOTHES MISC $150.00 /month $1,000.00
SKI PASSES $1,200.00
dental& Medical $4,000.00
misc $300.00 /month $2,000.00

per month	$2,630.00 /month	
yearly cost in per month $1,675.00 /month
Total monthly cost	$4,305.00	

Year $51,660.00	

taxes $2,500.00	

gross	$54,160.00


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## OhGreatGuru (May 24, 2009)

How do you figure on getting an average tax rate of 4.6%? Check this site for average tax rates. http://lsminsurance.ca/calculators/canada/income-tax


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## kcowan (Jul 1, 2010)

I don't see any line for travel and travel insurance?
What about a provision for buying new cars, new toys (iPhones), etc.


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## Square Root (Jan 30, 2010)

The rule of thumb is that you should not count on more than 4% each year from your portfolio. I think you withdrawal rate a little higher. You should read Jim Otar's book before you pull the trigger. Where's you cabin? We have a place in Canmore. Love it.


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## Cal (Jun 17, 2009)

Nice Pic. 

After a year or so, you will probably not need both vehicles.


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## marina628 (Dec 14, 2010)

Doug you should be proud to be able to retire so young. I think you should double up on these electricity and Property Taxes numbers as these go up consistently every year and probably in 15-20 years or so that will be reality.I think you have been very generous with the rest of the numbers and maybe when you are reaching 100 you won`t have these pet expenses
Also you should plan to pay more realistic tax rates.You probably need closer to $65,000 a year with your lifestyle and hobbies.


Doug Out West said:


> Estimated Expenses
> 
> MONTHLY COST	ANNUAL COST
> 
> ...


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## marina628 (Dec 14, 2010)

Doug Out West said:


> for taxes I ran a fictional tax return and that is what it came to. I was surprised.
> 
> Could put more in to autos but not stated will start retirement with two pretty new vehicles.
> 
> Travel , short term sure there will be some but not a lot. Done it and right now neither one of use really want to. Have 200K aeroplan points don't know what to do with. Will retire to place people around the world come to for the view. A view I have from cabin deck and from my pillow in bed. Its more about the skiing , hunting , fishing , hiking , camping stuff. All the toys will be there for those things ahead of time.


Is Alberta taxes really that low ?


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## Doug Out West (Apr 25, 2010)

BC taxes are lower than AB with low income must be the flat tax thingie. The prop tax is right off the statement for a BC resident so should be right on. Be nice to pay the lower resident rate as paying a higher rate right now. The taxes are based on doing a fictional return with a mix of RRSP withdrawls , div income and capital gains. So cash with be just from cash so no taxes there.

On the rate of return. Over time I've done a lot better so I'm pretty comfortable with that.

I think electricty is ok based on what we spend now. Other utilities are probably high as may not even get a land line.

Other expenses are probably high or not really long term. For example my wife will probably be riding horses till she's 90 , me not so much. She won't ski past 70. Short term will probably work for pass by working two weeks in fall.


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## marina628 (Dec 14, 2010)

Doug I was saying you need to budget for things like taxes and electricity to go up every year.5% tax rate is leaving me speechless !


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## Square Root (Jan 30, 2010)

marina628 said:


> Is Alberta taxes really that low ?


In Alberta max marginal income tax rates are lower by 7.4% points for ordinary income(half that for cap gains) and about 9% points for dividends compared to Ont. Each lower bracket is lower as well. This really adds up. Next time you do your taxes put Alberta as province of residence to see how much you are paying extra to live in your province. May surprise you if you are a high income earner.


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## Square Root (Jan 30, 2010)

Sustainable withdrawal rate is not dependant on expected returns. Otar talks about the time value of fluctuations. You should understand this concept before you pull the trigger.


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## steve41 (Apr 18, 2009)

Doug Out West said:


> As things have been going well it looks like Jan 2012 would be the date. In that I mean at that point will start process to retire early. I'd be 51 and wife would be 48. Getting ready to sel house in spring etc though I would probalby work till Jan 2013 to get bonus, stock etc.
> 
> Would you is the question?
> 
> ...


 $1.1M is spot on by my calc, although I question why you are assuming OAS won't be there. I'd be inclined to lower the 5.5% and include OAS.


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## Doug Out West (Apr 25, 2010)

Square Root said:


> Sustainable withdrawal rate is not dependant on expected returns. Otar talks about the time value of fluctuations. You should understand this concept before you pull the trigger.


What I produced was a spread sheet based on a cooperaters retirement calculator output. Its a every year calculation, worth + investment income - required income including inflation. Yes off course there will be flucuations above and below the assumed rate of return. As I have put in what I think is a conservative rate of return , my plan is to monitor the surplus to ensure its there. So after 3 years if not sufficient to cover markets down turns then I will have to go back to work at least part time or decrease withdraw rate.

Increaseing the rate of return by 1% means that there should be ~$70K more in balance after 5 years. I will monitor the difference between planned and actual to ensure healthy margin.


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## sprocket1200 (Aug 21, 2009)

go for it man. there is lots of room for cutting expenses if necessary (internet, tv, landline, etc).

the tax rate depends on where the income comes from. currently if it is dividends you are laughing (though dividends are grossed up for gov't benefit calculations). use the calculator at taxtips.ca to figure things out.

also, I would maximize your TFSA each year as a budgeted item. the funds in there are currently protected from being included in the calculation of gov't benefits you will be eligible for later on.

have fun and enjoy. our gross needs are $42,000 pretax and we are almost there. if the kids weren't so young I would be looking into stopping work soon too...


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## steve41 (Apr 18, 2009)

Question? did the calculator that determined $1.1M use the discrete RRSP and outside RRSP amounts, or just the aggregate? It makes a big difference.


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## Doug Out West (Apr 25, 2010)

steve41 said:


> $1.1M is spot on by my calc, although I question why you are assuming OAS won't be there. I'd be inclined to lower the 5.5% and include OAS.


I'm looking at OAS as a bonus as its out there in future and it works without it not using it. The 3.5% above inflation is something I feel comfortable with as have done better than that with active management. Expect to do better and put surplus into lower risk stuff latter. Starting out with $100K margin on top of calculated min of 1.1mil.

Actaully works with $60K income with $1.15mil and no income in 2012 which will be the case. Will still have $100k margin as hedge.


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## Doug Out West (Apr 25, 2010)

steve41 said:


> Question? did the calculator that determined $1.1M use the discrete RRSP and outside RRSP amounts, or just the aggregate? It makes a big difference.



no, I treated everything the same whether from RRSP or from trading account. Have struggled to account for that as 50-50 split. Though as big % of trading account income will be div or capital gains I think it should work out.


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## Doug Out West (Apr 25, 2010)

sprocket1200 said:


> go for it man. there is lots of room for cutting expenses if necessary (internet, tv, landline, etc).
> 
> ...


Yes I think there is lots of room to cut but wanted a budget that is easy to beat. I don't spend $1800 on sports stuff now and I know I'm pretty well set for 5 years with the stuff I have now. One thing I wanted to avoid was cheaping out before an early retirement date so you start retirement with worn out stuff. Starting out with pretty much brand new appliances and furniture.


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## Square Root (Jan 30, 2010)

Doug Out West said:


> What I produced was a spread sheet based on a cooperaters retirement calculator output. Its a every year calculation, worth + investment income - required income including inflation. Yes off course there will be flucuations above and below the assumed rate of return. As I have put in what I think is a conservative rate of return , my plan is to monitor the surplus to ensure its there. So after 3 years if not sufficient to cover markets down turns then I will have to go back to work at least part time or decrease withdraw rate.
> 
> Increaseing the rate of return by 1% means that there should be ~$70K more in balance after 5 years. I will monitor the difference between planned and actual to ensure healthy margin.


I understand. My recommendation is to read Otar's book. Don't rely on a commissioned salesperson to help you with your plan.


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## marina628 (Dec 14, 2010)

Good luck Doug !Only 11.1 years for me to retire !February 5,2022 my 55th birthday.I originally thought I would retire at age 50 but my youngest won't even be done high school by then and I love my work.


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## MoneyGal (Apr 24, 2009)

Time value of fluctuations = also known as "sequence of returns risk."


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## Doug Out West (Apr 25, 2010)

Square Root said:


> I understand. My recommendation is to read Otar's book. Don't rely on a commissioned salesperson to help you with your plan.


I've seen him on TV and I think I know what he is saying but I think he goes too far. Certainly I agree that can't use a rate of return of 10% or anything like that. But the idea that would just buy annuities to put the risk on somebody else I think is silly. Yes that takes all the risk away but if you thought that way you should have been a civil servant to get the pension and decided that in HS.


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## Square Root (Jan 30, 2010)

Doug Out West said:


> I've seen him on TV and I think I know what he is saying but I think he goes too far. Certainly I agree that can't use a rate of return of 10% or anything like that. But the idea that would just buy annuities to put the risk on somebody else I think is silly. Yes that takes all the risk away but if you thought that way you should have been a civil servant to get the pension and decided that in HS.


That's not what he is saying. Read the book and Money Gal's too. That's all from me.


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## steve41 (Apr 18, 2009)

That OAS will reduce your $1.1M down to $930K.... not chump change IMHO.


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## Doug Out West (Apr 25, 2010)

steve41 said:


> That OAS will reduce your $1.1M down to $930K.... not chump change IMHO.


That much? That does surprize me. Well extra margin.


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## sprocket1200 (Aug 21, 2009)

civil servants also don't leave their loved ones a huge nest egg. once their lives are over, nearly zero dollars remain...


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## Doug Out West (Apr 25, 2010)

sprocket1200 said:


> civil servants also don't leave their loved ones a huge nest egg. once their lives are over, nearly zero dollars remain...


Well I guess it depends on the person but there are lots in my family and everyone paid off their houses fairly quickly.


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## Doug Out West (Apr 25, 2010)

MoneyGal said:


> Time value of fluctuations = also known as "sequence of returns risk."


If I understand the concept properly I would guess that is taken care of by starting off with a 10% margin on calculated on day one. I would agree if you just got to your amount "X" at the end of a 20% gain that would be a problem as your paper value would be inflated compared to you long term rate of return.

I've redone the calc with a 5% before inflation rate ( inflation 2%) with only $55K income required starting in Jan 2013. $1,150,000 still works. OAS still not included.

Looking at my budget I would consider it a P70 budget in that 70% of time would beat it especially in first 5 years.


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## celishave (May 8, 2010)

I'm surprised that others are surprised about the low tax rate. When I look into the future that is about the tax rate I expect to pay. In Alberta one can earn about 70K TAX FREE if it is all dividend income. ONe of course would be smart to withdraw a little bit from rrsp to avoid rrif tax problems down the road (and oas clawback) + some dividends. If your tax rate is more than 10% in retirement you've done something wrong in your planning.


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## sprocket1200 (Aug 21, 2009)

true about the dividends, but be careful about the gross up. gross up may mean more clawback for you, and means you can only have $50,000 tax free dividends on all dividend income.

and don't be too hard on all those govt employees with pensions that will be paying large income tax rates (can you say more than 30%!) and will have no way to avoid them....

go to taxtips.ca for the calculations and info....


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## jmalias (Aug 10, 2010)

sprocket1200 said:


> civil servants also don't leave their loved ones a huge nest egg. once their lives are over, nearly zero dollars remain...


If you are living properly, this should be the case for everyone.


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## jmalias (Aug 10, 2010)

Wow, some are wow

LAND LINE PHONE $80.00 /month - get Voip, reduce to $7
CELL PHONE $80.00 /month - travel and get better rates in any country but OhCanada
SAT TV AND INTERNET $220.00 /month - wow again, you must have all the bells and whistles

ALCOHOL $200.00 /month - wow, can we hang out


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## Doug Out West (Apr 25, 2010)

jmalias said:


> Wow, some are wow
> 
> LAND LINE PHONE $80.00 /month - get Voip, reduce to $7
> CELL PHONE $80.00 /month - travel and get better rates in any country but OhCanada
> ...


Debating whether to get land line or not. Right now all we have is cell at cabin and not very good. Have to go out on deck in winter and walk out to road in summer. The internet and Sat TV are based on waht people pay around us. Its coming down but its expensive in the country with not a lot of choice.

Alcohol- well that might be high as was probably stocking up for Xmas at time and take advantage of some sales. That could be lower ~ $120/month -ish


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## sprocket1200 (Aug 21, 2009)

jmalias said:


> If you are living properly, this should be the case for everyone.


I beg to differ, if you are living properly you are ready for all circumstances. simply can't be the case if you are that close to the line. besides, living well means living for your community too...


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## skiwest (Oct 24, 2011)

Rather than starting a new thread thought I'd update here.

Target is now $1.2mil with target date Dec 2013, 5% return 2% inflation but still with no OAS

Hope to reach $1.2 by end of year and work 2013 as extra margin to reach $1.4

Sold house in Calgary and cleared about 10K over budgeted for. A plus is that I hadn't taken into account that will be able to claim real est. commision against wife's consulting earnings in 2012.

All major upgrades to BC place have been done , a bit over budget but nothing serious.


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## skiwest (Oct 24, 2011)

I guess right on original plan as Jan 2012 was sell time and work till end of year. Now its work till end on the next year.


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