# How much do you need for Early Retirement?



## kasmca

Hi there,

I'm new to the forum, and would like to get others thoughts on early retirement.

Most retirement calculators and advice assume retirement at 65. I think many people dream of retiring early, but how much is required? Also, many calculators assume dying pennyless as well as relying heavily on government assistance. 

I'm thinking that as soon as a portfolio hits $2 Million a couple can retire safely with a very high likelyhood of not outliving their funds. The idea is to keep the principal in tact as much as possible and live off the yield and gains alone. Things that would need to be considered include inflation, annual budget, rate of return, volatility of investments.

If the portfolio is diversified in both blue chip equities, ETF's, and bonds, perhaps a dividend yield of 2% and a capital gain of 2% may be reasonable. Due to tax rule, the dividend yield will for the most part be tax free (40K). The capital gain will also be taxed minimally and should provide another 30K, resulting in $70K in after tax income available to sustain a very comfortable lifestyle, while maintaining the principal.

Base on this theory, with $2M in the bank a couple can theoretically retire at 50, 40, or even 30 year of age. Now this does not take into account inflation, which may be a killer.

Can anyone see holes where this plan falls through? You will also notice that I am not including principal residence in the nest egg. Assume all debts and mortage are paid off and principal residence will not be touched.

If you don't think $2M is enough, what number do you think it should be for an after tax income of $70K a year for a couple that retires at 40? I guess my last question is for those who dream of early retirement, "How much would you need to retire today and be financially independant?" Thanks for your thoughts.


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## cannon_fodder

It depends on where you to choose to live as well. Which country, which region, which city.

I am surprised at how much more expensive groceries are in Vancouver suburbs compared to Toronto suburbs.

And, for the past couple of months, I've been in Sydney, Australia. It is very expensive to live here (interest rates are a few percentages higher, groceries are much more expensive, gasoline, autos, etc. are shockingly higher).

Your 2% yield and 2% capital gains growth is translating into a 4% drawdown rate. The viability of that is briefly discussed here with a link to a full discussion: http://www.advisorone.com/article/milevsky-there-optimal-portfolio-drawdown-rate I'd like to have a much larger growth rate to counter an inflation rate of 2.5%. I would also defer retirement until I acquired major depreciating assets (newer cars vs. the 7 and 10 year old vehicles we have now) and pay for, or set aside funds for, major home maintenance projects (new roof, new appliances, furnace, water heater, airconditioning unit, etc.).

Of course, the after tax income is more important than the before tax income. If the hypothetical couple is anything like CMF's poster Lister, they may have most of their money in TFSA's rather than RRSPs! 

You've not made mention of social programs helping out later on in life. If someone were to retire at 40, I'd imagine that their CPP would be trivial even if they waited until they were 70. OAS (assuming it were intact) would be significant.

But, if I had:


$2M in investment assets of which
60% in a non-registered account, 35% in RRSPs and 5% in TFSAs
with an effective dividend yield of 2% and growth of 6%
no debt
owning my home
retiring in the Toronto suburbs


then I would consider myself, based on my lifestyle, to be financially independent.


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## steve41

kasmca said:


> Hi there,
> If you don't think $2M is enough, what number do you think it should be for an after tax income of $70K a year for a couple that retires at 40? I guess my last question is for those who dream of early retirement, "How much would you need to retire today and be financially independant?" Thanks for your thoughts.


I calculated that a combined RRSP of $1.8M and full CPP and OAS eligibility would see the 40 year-old couple achieve an after tax income of $70K out to age 95. If there was a non-reg component, it would be less than 1.8M. If they wanted to leave an estate (i.e. not die broke) it would be more.


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## the-royal-mail

Good post, steve41.

For the OP's benefit in case they may not be aware, you run a company with software that answers these types of questions right?


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## steve41

the-royal-mail said:


> Good post, steve41.
> 
> For the OP's benefit in case they may not be aware, you run a company with software that answers these types of questions right?


Guilty.


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## the-royal-mail

Not guilty at all sir. Perhaps you could tell us more about what you do, services etc.


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## Square Root

Depends on how much you want to spend in retirement. Also the amount of other sources of income-eg pension, CPP,OAS, etc. Safe withrawal rates have been well discssed here and in other forums.


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## steve41

Square Root said:


> Depends on how much you want to spend in retirement. Also the amount of other sources of income-eg pension, CPP,OAS, etc. Safe withrawal rates have been well discssed here and in other forums.


 He indicated he wanted to spend $70K annually, after tax. CPP&OAS were included in the 1.8M calculation.


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## kasmca

Thanks Steve,

Can you give an indication on the asset mix of the portfolio or are you simply assuming a certain rate of return? Are the effects of inflation also taken into account?


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## Four Pillars

the-royal-mail said:


> Not guilty at all sir. Perhaps you could tell us more about what you do, services etc.


How come I get hassled for mentioning my book once and Steve gets the red carpet??


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## steve41

kasmca said:


> Thanks Steve,
> 
> Can you give an indication on the asset mix of the portfolio or are you simply assuming a certain rate of return? Are the effects of inflation also taken into account?


 I assume 5% rate of return, 2% inflation, taxation in BC.


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## steve41

the-royal-mail said:


> Not guilty at all sir. Perhaps you could tell us more about what you do, services etc.


 I am a software author. My market includes financial planners as well as DIYers. The major aspect of the program is that it is both 'needs-based' and tax accurate. You specify your assets (RRSP, nonreg, TFSA, RESP, salary/pension, realestate, CPP/OAS, future windfalls...) and the program develops a projection of cash flows... monies flowing into, out of, and between your reg and nonreg capital pools in order to meet a prescribed after tax income profile. Income tax is handled, not as an approximated tax rate, but as the full and complete T1 with all surtaxes, credits, clawbacks and brackets (indexed), and includes both the fed and provincial tax algorithms/code.


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## Mike59

If I owned a 2mil portfolio, I'm positive I could get off the grid at any age. 

Instead of assuming a 70k cost of living, can it not be done with a more modest living standard? As mentioned I'm sure it depends where you live. 

I live a what I think would be an above average lifestyle about 30 minutes outside of the GTA, and it currently costs $5k per month for total living cost, but that's counting mortgage/interest payments of nearly $2k per month. Once mortgage is out of the equation I'd target an annual need of at most $45k per year, indexed through retirement. That should allow you a few restaurant nights per week, and a couple of vacations per year. 

That $2 million figure becomes much more sustainable if your drawdown rate is lower. 

I'd park it in GICs and live off the interest, even at 2-3%/annum on a 5 year ladder that's not too shabby, and interest rates will only go up from here. 2 million is essentially an infinite pool of money provided the lifestyle is sustainable.


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## cannon_fodder

I've projected needing $42k after tax income in retirement for Canada and half of that in Panama. This assumes we are debt free and live a similar lifestyle to what we have now.


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## Square Root

I think the other thing to keep in mind is how much you want ER. People often reduce their spending in ER if they hate their job. For a longish retirement a very safe withdrawal rate might be 3-3.5% from a balanced type portfolio. I think in the withdrawal phase using simple assumptions on returns is risky. One should be concerned about what Otar calls the time value of fluctuations. His book is well worth reading.


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## Financial Cents

@Mike - you sound kinda jealous! 

Re: Original Question:
As long as you don't spend money like it's going out of style, I would think $2 M would be plenty for retirement. Especially if you have a paid-off home.


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## Brian Weatherdon CFP

Mike59 said:


> If I owned a 2mil portfolio, I'm positive I could get off the grid at any age.


Well put Mike, yet everyone has their own lifestyle dreams, and the relevant cost associated with those dreams.

I wanted to add: perhaps other planners do this too (I'm sure) and let me suggest we see the future in "time horizons". If we're 35 with $2M there are many many time horizons. A simple perspective for retirement 60+ is:
a) early retirement w active lifestyle, high expenses / drawdown / burn.
b) mid retirement, more sedentary, active but more local lifestyle, less burn.
c) later years, expenses of health & personal care.

Any discussion of retirement -- early or otherwise -- shouldn't track a straight-line expense to age 100 but factor in assumptions of changing patterns in lifestyle and spending over such seasons of life.

Yours truly,
BW


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## steve41

You should not only contour your lifestyle in macro stages, but factor in repetitive 'bumps' such as a new car every 4 years, etc.


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## Brian Weatherdon CFP

Good point Steve. My concept of what I call "lifestyles analysis" (TM) above is more macro, as you say; and bumps occur along the way such as for car purchase, financial issues arising for adult child, etc etc.


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## OhGreatGuru

_"How much would you need to retire today and be financially independant?" _

Enough for food, shelter, clothing, and a life style you can live with. Next question.


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## marina628

Four Pillars said:


> How come I get hassled for mentioning my book once and Steve gets the red carpet??


I read your RESP book


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## sprocket1200

steve41 said:


> You should not only contour your lifestyle in macro stages, but factor in repetitive 'bumps' such as a new car every 4 years, etc.


hmm, time to start thinking about trading in my 1994 truck. on second thought, nah, I'd have to return to work to afford a new car...


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## WallyK

As a person who has retired early at 49 and now am 59 (and I could have retired even earlier) I know a little about what I speak from a "practical" POV.

Certainly $2million is way enough for most average peoples lifestyles, $1million is more than enough for the average Joe. Why do I know this, because I know a lot of people that have retired around my age (either by choice or forced to retire). There's a dozen of us "old farts" in a sort of "man's club".

It all starts with the lifestyle you want to have. Personally, I like a nice car, my boat, a nice house (2500sqf, granite, stonework, etc). Other people might want to do extensive traveling or a winter place in florida, or a summer place in Muskoka. This is all a personal decision. Nobody can be faulted for the lifestyle they want to have....it's there life and you only get one of those.

BUT, lifetstyles will change. The life you live when you'rw 55 will be different than at 65. At 65 the bones are hurting, things are slowing down. At 75, travel is very expensive (medical insurance) and most people are not lucky enough to stay perfectly healthy. By 85 (if you hit that age at all) things are really slowing down. People at 85 are constantly talking about death. Anything past 85 and there's some serious stuff waiting to happen. 

There's a guy here that has software that projects the money will last to 95 or 88 or whatever age. What a load of crapola. Software like that does not take into the human factor and lifestyle is what it's about. If I'm lucky to live to 85 I know I won't be living in my 2500sqf home. If my wife is still with me we'll probably have a condo somewhere (no grass or maintenance). My spending will be wayyyyyy down. In fact my mother who is 81 lives in a very nice senior's apartment. Her rent is $600/mth, her drugs are free. She gets Canada Pension, OAS, Oas Sup and lives quite nicely. I offer her money but she doesn't want it or need it. She has a good life. Eventually, if she lives long enough, I will have to pay for an extended care accomodation.....but let's not get ahaead too far.

It's all about lifestyle.

What age to retire? Retire when you want to. If you are not self-employed, you may not have a choice. Out of our group of dozen, only 4 of us retired as a "planned" retirement. The rest of the guys were forced to retire. The lucky ones were packaged off with a fully vested pension. A few guys were just fired......funny that guys that were just fired were all salesmen replaced by youger (and cheaper) guys. It all depends on what job you have but the real kicker is that medical insurance and salary is expensive for a 60 year old versus a 25 year old. Why is it that you don't see too many firemen or police or paramedics at 60 years old.

The number one rule for retirement (in my opinion) is to be absolutely debt-free when you retire. This is a MUST. No discussion. No mortgage, no car loan, no credit card debt. That stuff is poison. And never have debt again, ever. If you make a purchase on a CC, pay it off immediately. Look at CCs as a convenience rathur than a loan instrument. It's amazing the relief and satisfaction one experiences when one realizes they are totally debt-free. No mortgae payment, no carloan or lease payment. Nothing. It's just such a breath of fresh air. 

So how much money will you need? First think about your (or you and spouse) "Base" amount. You have no debt but there is still expenses. House tax, maintenance, utilities, car insurance, gas, maintenance, food, clothing, medical (prescriptions, dental, etc). If you have kids they will be hopefully out of the house, but trust me, they will still be costing you some money. Don't worry about inflation because you will have your money invested at a rate above the inflation rate. If you are 60 you will get CPP (if you want it) and at 65 OAS.....that will cover most of the Base amount. You will also need some future lump sums to replacxe a car, furniture, computer, etc, etc. Nothing lasts forever. again this is personal choice. You can get a very decent 2-3 year old Malibu (a favourite among the grey-haired) for $15,000 or you may want a brand new Beamer. If you go for the Mailibu it will be good for at least 7 years so thats an amortization of $2,000/year. Likewise for other big future purchases. If you even have a car at 85 you won't be driving it much.

So now you have the Base amount (probably will be somewhere around $1000-1500/mth or $12,000-18,000/yr) add in another $2000-4000 amortization costs although those are not annual cash outlays. Now think about what you want to do when you retire. Summer cottage , boat, golfing, hobbies, winters in Florida, travel, etc, all that costs money but it can be easily budgeted. Break it down to 5 year periods because those will change as you get older. Don't worry about being exact. It's your lifestyle and your budget. Nobody can predict the future to a certainty. How healthy will you be in the future, when will you die, when will your spouse die.

Suppose you come up with an amount of $35,000/year (after tax) which actually is a lot of money when you have no debt. Your Base amount will be around $20,000 so that's $15,000 to play with each year. If you are 65 you will be getting $15,000-20,000 from CPP/OAS. You can do that math because it's all about lifestyle and YOUR choices. Forget the $2million crap. You can easily, easily fund this retirement as I've outlined on $600,000 (or a lot less if you are close or at 65). Of course if you have a retirement pension from work, then you're set for life anyway.

Good luck!


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## kcowan

Our attitude on cars and other toys changed after a few years in retirement. Even though we can afford a new nice car, we no longer value the contribution to our lifstyle. Same with the latest gadget. Same with ownership of boats and bikes.

So in addition to the lifestyle changes that Wally mentions, these changes may reduce your annual costs. We travel much more so that is an offset but, even then, we can travel when airfare is cheap, for example. So all the good news surprises have been to reduce the amount needed.

Fortunately, we have not been hit with any major medical expenses as yet.


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## mrbizi

WallyK said:


> As a person who has retired early at 49 and now am 59 (and I could have retired even earlier) I know a little about what I speak from a "practical" POV.
> 
> Certainly $2million is way enough for most average peoples lifestyles, $1million is more than enough for the average Joe. Why do I know this, because I know a lot of people that have retired around my age (either by choice or forced to retire). There's a dozen of us "old farts" in a sort of "man's club".
> 
> It all starts with the lifestyle you want to have. Personally, I like a nice car, my boat, a nice house (2500sqf, granite, stonework, etc). Other people might want to do extensive traveling or a winter place in florida, or a summer place in Muskoka. This is all a personal decision. Nobody can be faulted for the lifestyle they want to have....it's there life and you only get one of those.
> 
> BUT, lifetstyles will change. The life you live when you'rw 55 will be different than at 65. At 65 the bones are hurting, things are slowing down. At 75, travel is very expensive (medical insurance) and most people are not lucky enough to stay perfectly healthy. By 85 (if you hit that age at all) things are really slowing down. People at 85 are constantly talking about death. Anything past 85 and there's some serious stuff waiting to happen.
> 
> There's a guy here that has software that projects the money will last to 95 or 88 or whatever age. What a load of crapola. Software like that does not take into the human factor and lifestyle is what it's about. If I'm lucky to live to 85 I know I won't be living in my 2500sqf home. If my wife is still with me we'll probably have a condo somewhere (no grass or maintenance). My spending will be wayyyyyy down. In fact my mother who is 81 lives in a very nice senior's apartment. Her rent is $600/mth, her drugs are free. She gets Canada Pension, OAS, Oas Sup and lives quite nicely. I offer her money but she doesn't want it or need it. She has a good life. Eventually, if she lives long enough, I will have to pay for an extended care accomodation.....but let's not get ahaead too far.
> 
> It's all about lifestyle.
> 
> What age to retire? Retire when you want to. If you are not self-employed, you may not have a choice. Out of our group of dozen, only 4 of us retired as a "planned" retirement. The rest of the guys were forced to retire. The lucky ones were packaged off with a fully vested pension. A few guys were just fired......funny that guys that were just fired were all salesmen replaced by youger (and cheaper) guys. It all depends on what job you have but the real kicker is that medical insurance and salary is expensive for a 60 year old versus a 25 year old. Why is it that you don't see too many firemen or police or paramedics at 60 years old.
> 
> The number one rule for retirement (in my opinion) is to be absolutely debt-free when you retire. This is a MUST. No discussion. No mortgage, no car loan, no credit card debt. That stuff is poison. And never have debt again, ever. If you make a purchase on a CC, pay it off immediately. Look at CCs as a convenience rathur than a loan instrument. It's amazing the relief and satisfaction one experiences when one realizes they are totally debt-free. No mortgae payment, no carloan or lease payment. Nothing. It's just such a breath of fresh air.
> 
> So how much money will you need? First think about your (or you and spouse) "Base" amount. You have no debt but there is still expenses. House tax, maintenance, utilities, car insurance, gas, maintenance, food, clothing, medical (prescriptions, dental, etc). If you have kids they will be hopefully out of the house, but trust me, they will still be costing you some money. Don't worry about inflation because you will have your money invested at a rate above the inflation rate. If you are 60 you will get CPP (if you want it) and at 65 OAS.....that will cover most of the Base amount. You will also need some future lump sums to replacxe a car, furniture, computer, etc, etc. Nothing lasts forever. again this is personal choice. You can get a very decent 2-3 year old Malibu (a favourite among the grey-haired) for $15,000 or you may want a brand new Beamer. If you go for the Mailibu it will be good for at least 7 years so thats an amortization of $2,000/year. Likewise for other big future purchases. If you even have a car at 85 you won't be driving it much.
> 
> So now you have the Base amount (probably will be somewhere around $1000-1500/mth or $12,000-18,000/yr) add in another $2000-4000 amortization costs although those are not annual cash outlays. Now think about what you want to do when you retire. Summer cottage , boat, golfing, hobbies, winters in Florida, travel, etc, all that costs money but it can be easily budgeted. Break it down to 5 year periods because those will change as you get older. Don't worry about being exact. It's your lifestyle and your budget. Nobody can predict the future to a certainty. How healthy will you be in the future, when will you die, when will your spouse die.
> 
> Suppose you come up with an amount of $35,000/year (after tax) which actually is a lot of money when you have no debt. Your Base amount will be around $20,000 so that's $15,000 to play with each year. If you are 65 you will be getting $15,000-20,000 from CPP/OAS. You can do that math because it's all about lifestyle and YOUR choices. Forget the $2million crap. You can easily, easily fund this retirement as I've outlined on $600,000 (or a lot less if you are close or at 65). Of course if you have a retirement pension from work, then you're set for life anyway.
> 
> Good luck!


Wallyk, thanks so much for sharing your real-life retirement experience on this forum - I for one find it to be very insightful and quite informative. I am in my mid-40s and I don't know what it is about this age, but lately I've been reading up more on more on this topic.

The numbers you outlined above are quite interesting - it pretty much is consistent with the numbers presented in a booklet published by moneysense magazine e.g. for most folks, they should manage with a nest egg between $250k-$750k -depending on what type of retirement they want to have.


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## sprocket1200

shhh, don't tell too many people. i laugh at my neighbour who gets up at 530am everyday and home around 600pm. they spend every cent they earn and more. working for his pension, he will pay the taxes that are will fund my retirement. thanks man!


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## al42

Hello Wally, Thanks for your post. You have just confirmed exactly what I have done. I stopped working in 2008 at 48 but figured I would go back in a year or 2 but guess what, still not back and now consider myself retired.
And you are bang on when you say debt free is the way to go. We have been debt free since our early 30's but we moved from Mtl. to Toronto when we were 40. So the difference in house prices took up most of the cash we had but still managed to pay cash for the new house we bought in Burlington.
From 40 to 48 managed to build up enough cash again to pull the plug. Building up cash is allot easier when you have no debts. We have even paid cash for all of our cars since we were 30. The only thing that really worries me is inflation but as Wally says if you invest above the rate of inflation you should be OK.
Wally, just curious about CPP. I asked them for an estimate of what my CPP would be if I didn't make any further contributions and took my CPP at age 60 and at age 65. They came back with $6500. per year at age 60 and $8000. at age 65. I don't really need to take this at 60 and I think the rules have changed slightly for early with drawl,what have you decided to do?
And did you ask them for an estimate and was it accurate?

Thanks
Al











WallyK said:


> As a person who has retired early at 49 and now am 59 (and I could have retired even earlier) I know a little about what I speak from a "practical" POV.
> 
> Certainly $2million is way enough for most average peoples lifestyles, $1million is more than enough for the average Joe. Why do I know this, because I know a lot of people that have retired around my age (either by choice or forced to retire). There's a dozen of us "old farts" in a sort of "man's club".
> 
> It all starts with the lifestyle you want to have. Personally, I like a nice car, my boat, a nice house (2500sqf, granite, stonework, etc). Other people might want to do extensive traveling or a winter place in florida, or a summer place in Muskoka. This is all a personal decision. Nobody can be faulted for the lifestyle they want to have....it's there life and you only get one of those.
> 
> BUT, lifetstyles will change. The life you live when you'rw 55 will be different than at 65. At 65 the bones are hurting, things are slowing down. At 75, travel is very expensive (medical insurance) and most people are not lucky enough to stay perfectly healthy. By 85 (if you hit that age at all) things are really slowing down. People at 85 are constantly talking about death. Anything past 85 and there's some serious stuff waiting to happen.
> 
> There's a guy here that has software that projects the money will last to 95 or 88 or whatever age. What a load of crapola. Software like that does not take into the human factor and lifestyle is what it's about. If I'm lucky to live to 85 I know I won't be living in my 2500sqf home. If my wife is still with me we'll probably have a condo somewhere (no grass or maintenance). My spending will be wayyyyyy down. In fact my mother who is 81 lives in a very nice senior's apartment. Her rent is $600/mth, her drugs are free. She gets Canada Pension, OAS, Oas Sup and lives quite nicely. I offer her money but she doesn't want it or need it. She has a good life. Eventually, if she lives long enough, I will have to pay for an extended care accomodation.....but let's not get ahaead too far.
> 
> It's all about lifestyle.
> 
> What age to retire? Retire when you want to. If you are not self-employed, you may not have a choice. Out of our group of dozen, only 4 of us retired as a "planned" retirement. The rest of the guys were forced to retire. The lucky ones were packaged off with a fully vested pension. A few guys were just fired......funny that guys that were just fired were all salesmen replaced by youger (and cheaper) guys. It all depends on what job you have but the real kicker is that medical insurance and salary is expensive for a 60 year old versus a 25 year old. Why is it that you don't see too many firemen or police or paramedics at 60 years old.
> 
> The number one rule for retirement (in my opinion) is to be absolutely debt-free when you retire. This is a MUST. No discussion. No mortgage, no car loan, no credit card debt. That stuff is poison. And never have debt again, ever. If you make a purchase on a CC, pay it off immediately. Look at CCs as a convenience rathur than a loan instrument. It's amazing the relief and satisfaction one experiences when one realizes they are totally debt-free. No mortgae payment, no carloan or lease payment. Nothing. It's just such a breath of fresh air.
> 
> So how much money will you need? First think about your (or you and spouse) "Base" amount. You have no debt but there is still expenses. House tax, maintenance, utilities, car insurance, gas, maintenance, food, clothing, medical (prescriptions, dental, etc). If you have kids they will be hopefully out of the house, but trust me, they will still be costing you some money. Don't worry about inflation because you will have your money invested at a rate above the inflation rate. If you are 60 you will get CPP (if you want it) and at 65 OAS.....that will cover most of the Base amount. You will also need some future lump sums to replacxe a car, furniture, computer, etc, etc. Nothing lasts forever. again this is personal choice. You can get a very decent 2-3 year old Malibu (a favourite among the grey-haired) for $15,000 or you may want a brand new Beamer. If you go for the Mailibu it will be good for at least 7 years so thats an amortization of $2,000/year. Likewise for other big future purchases. If you even have a car at 85 you won't be driving it much.
> 
> So now you have the Base amount (probably will be somewhere around $1000-1500/mth or $12,000-18,000/yr) add in another $2000-4000 amortization costs although those are not annual cash outlays. Now think about what you want to do when you retire. Summer cottage , boat, golfing, hobbies, winters in Florida, travel, etc, all that costs money but it can be easily budgeted. Break it down to 5 year periods because those will change as you get older. Don't worry about being exact. It's your lifestyle and your budget. Nobody can predict the future to a certainty. How healthy will you be in the future, when will you die, when will your spouse die.
> 
> Suppose you come up with an amount of $35,000/year (after tax) which actually is a lot of money when you have no debt. Your Base amount will be around $20,000 so that's $15,000 to play with each year. If you are 65 you will be getting $15,000-20,000 from CPP/OAS. You can do that math because it's all about lifestyle and YOUR choices. Forget the $2million crap. You can easily, easily fund this retirement as I've outlined on $600,000 (or a lot less if you are close or at 65). Of course if you have a retirement pension from work, then you're set for life anyway.
> 
> Good luck!


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## GeniusBoy27

I too, find the story most useful. And it makes me rethink how much is enough to retire. I always thought my magic number is $3 million or so, because of how much I enjoy to travel and work in developing countries; the endeavour isn't that cheap.

But my dad retired 17 years ago with a nice pension at 65, indexed to inflation. The pension is currently about $60K. My parents had no debt and figured that the pension would hold them until 65, and then, they'd have to draw from their RRSPs, etc. 

This still isn't the case. In fact, my parents continue to save large amounts of money on an annual basis, while adding to their RRSPs and now their own personal savings. However, it's better to be on the positive than the short-side, so to speak!


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## Square Root

Great post Wally. Generally agree with what you said. We have been retired for almost 5 years now but our experience and means would not be typical. I am 60 and wife much younger and so far have not noticed a decline in spending desire. The financial crises certainly caused us to reappraise our priorities and the subsequent recovery as well. I am sure most people can retire on a quite modest nest egg and if the working world is stressful (or worse) that makes obvious sense. The key, as you point out is lifestyle choice. Once you decide on that the requirement for retirement is fairly easy to estimate. 

Having said all that and despite the fact that we have a retirement that is beyond the dreams of most people, I could still easily spend more. So it really is a balancing act and very personal. To say $xmillion is enough ignores this.


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## Brian Weatherdon CFP

*Wally*has said more eloquently than most, what I personally call "horizons analysis". Wally tells the story with flair, colour, & feeling (ie. aging bones) that can effect our future spending. Anyone coming in new should definitely read the above *discussion since Wally's post*. 

*Horizons Analysis*: 
*Early retirement*: we would spend richly on all we want to enjoy.
*Mid-retirement*: tell stories and show the pictures of what we've done.
*Later years*: health & personal care costs rise astronomically.

So I have often shown the shape (see below). No one has given this shape a proper mathematical name. 

For many people, this shape illustrates the financial spending we can expect to incur during the three main seasons or horizons of our retirement years.

(Darn, it didn't illustrate here---)

Anyone know if a computer program could easily illustrate this?
*Steve*.....any comments?

Yours truly,
BW


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## steve41

Most of the illustrations I post are of the constant spending throughout life variety. Those 2 illustrations I posted were of that variety... One, in which the subject invested in his RRSP, made it out to age 95, the other, under exactly the same spending regime and investing outside his RRSP (taxed as capital gains), ran out of funds 7 years earlier.

This wasn't to say that a constant spending regime was right or wrong, just that I wanted to show the folly of the "don't buy RRSPs" crowd. I could easily have changed the contour to a pre and a post retirement level and reduced it even more and had a pre and post dotage lifestyle. I leave this to the user to fashion.


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## marina628

One thing we noticed when my husband retired from his day job is he did not have the expenses to get to work , new clothes ,lunches etc.We also ate more meals at home as he loves to cook and finally had the time.Many of my friends and family who have worked up the 'mainland' retire back to east coast because they sell their homes in Ontario,BC ETC and move back where real estate is much cheaper.


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## Doug Out West

I think you really have to look at what you spend now and then have a hard look at what expenses go away and what expenses will be created.

What expenses do you have in your leisure time now? If you have 3.5 times as much will they increase? Will you have the time to do things for yourself that you used to pay others to do for you because you didn't have the time. And do you want to do those things for yourself?

Right now I'm not so much saving for retirement ( early 51 me wife 47) as spending for retirement. What that means is while my wife is getting ready to sell house and getting rid of stuff that we won't have room for or never use. I'm buying stuff that I think I will need in retirement so I will have new stuff for every activity. Recent and near future purchases:


XC skis for both of use
two pairs of snow shoes
elec ski boot warmers for wife and daugther ( future Xmas gift)
new ski pants insulated, need new shell pants
new skis for wife
extra dishes for cabin, need to be able to serve 10 with extra set for breakage- future xmas
enough ski wax and ski repair stuff to last 12 years

and forgot new vehicle bought early enough so won't pay PST when change provinces

Once you have the stuff the ongoing cost is pretty small. However if you like to travel and have people wait on you that's a totally different story. I for one feel no desire to travel. Done it and feel now feel no great desire. Don't know wwhat I'll do with Aeroplan points.


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## Plugging Along

I didn't see the mention of kids when retiring early as a consideration. 

This is probably the main reasons we won't be retiring early is because we had our kids a little later, and want to make sure their are able to fend for themselves. If we were to retire early, we would want to make sure we had enough to help cover their education. 

If considering early retirement, I would also add in any costs associated with not quite fully independant off spring that you would like to support, or even grand offspring. If you're cutting the purse strings as soon they are legal, that's fine too. 

I have seen others where they retired, and want to help their children, but have no income, and did not take this in consideration.


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## Jon_Snow

Plugging Along said:


> I didn't see the mention of kids when retiring early as a consideration.
> 
> This is probably the main reasons we won't be retiring early is because we had our kids a little later, and want to make sure their are able to fend for themselves. If we were to retire early, we would want to make sure we had enough to help cover their education.
> 
> If considering early retirement, I would also add in any costs associated with not quite fully independant off spring that you would like to support, or even grand offspring. If you're cutting the purse strings as soon they are legal, that's fine too.
> 
> I have seen others where they retired, and want to help their children, but have no income, and did not take this in consideration.


Yeah, no way I'd even be considering ER if I had kids... I'm almost excited by the challenge of how little income I can live on when I stop working. If I had a couple of little mouths to feed,clothe, educate, forget it....


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## Brian Weatherdon CFP

How about part-time early retirement: 

From age 50 I said I'd retire early..... ie. 3 weeks every quarter starting when I turn 55. OK, next month I turn 55 and I didn't get around to practicing how to do that. Life is about practice: probably at 55 I'll take 3 trips for 7-14 days each, and all of you will correctly remind me that's not early retirement. However....

Age 58 ff. I aim for 3 weeks off every 3 months, while working 4 days/wk. 4 days x 40 weeks = 160 days working; 205 days off. That's practically retirement. 

So, for self-employed and professionals who truly love their work as part of life itself (yay!) there are two questions: (*1*) Who are you when you're not working? and (*2*) Can you truly delegate everything to staff/colleagues and fully depart & retire from every responsibility during the periods when you're away?

I welcome your thoughts & comments*!*
Friends can help us be accountable to our dreams.

BW


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## HaroldCrump

Jon_Snow said:


> Yeah, no way I'd even be considering ER if I had kids... I'm almost excited by the challenge of how little income I can live on when I stop working. If I had a couple of little mouths to feed,clothe, educate, forget it....


You really think it is _that_ impossible?
It is true that your income/cash flow requirements are much higher if you have kids to raise and educate, but early retirement should still be possible.
I definetely have early retirement in my cross hair.
Long way to go still, but slowly inching towards it.
Sometimes walking, sometimes running and sometimes barely crawling.
But it's a goal for sure (one of many goals, actually)


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## steve41

The traditional _"now I am working, now I'm not"_ model is sort of passe. Likewise, pre-post retirement lifestyle. Ditto risk aversion. In order to plan realistically, you have to allow for discontinuous salary.... (sabbaticals, partial retirement), contoured lifestyle (post-retirement scaleback, special spending blips) as well as a reduced investment growth in retirement. 

It isn't called financial planning for nothing!


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## Square Root

Brian: Not sure why you would want to semi retire when you love you work so much? I could see it being difficult if you are still in charge of your clients. How about a partner? Succession arrangement? I agree that you will need to reassess " who you are" once retired. I went cold turkey from being a "big shot executive" to being some retired guy. Took a while to adapt my psyche. Retirement is a lot more than travel, but in our case travel is a big part of what we are doing in retirement. Retired at 56 currently 60.


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## Doug Out West

We only had one kid when I was 30 so if retire at 52 she'll be 22. If she wasn't doing well it would be more of a consideration. Have budgeted $40K in net worth calc for her to help her get started on top of the $15K she still has in her RESP after 3 years of University. Going to give her the car when we replace this year. So she's not going to be badly off. Plus have not included residence in net worth calc so that is the inheritence.

Now if things go bad for some reason would have to look at that then. Yooung adults have to stand on their own feet at some point.


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## Brian Weatherdon CFP

Square Root said:


> Brian: Not sure why you would want to semi retire when you love you work so much?


Hi SqRoot, hearty congrats on your move at 56. Terrific! In my own instance I want to reduce work-life, expand my non-work and philanthropic experiences, and continue profession to age 80 if able. Working 160 days/yr sounds good, and I only get to do what I'm best at and enjoy most.


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## Plugging Along

HaroldCrump said:


> You really think it is _that_ impossible?
> It is true that your income/cash flow requirements are much higher if you have kids to raise and educate, but early retirement should still be possible.
> I definetely have early retirement in my cross hair.
> Long way to go still, but slowly inching towards it.
> Sometimes walking, sometimes running and sometimes barely crawling.
> But it's a goal for sure (one of many goals, actually)


I don't neccessarily think its a question of being impossible, but with the kids, they add a lot more expenses, and its a different lifestyle choice. Not only do you need to spend lots to cloth, feed, and educate them, it's all the extras. We have 2 resp, in trust accounts, full time nanny (which is cheaper than daycare), activities, travel is 2X more, etc. It's this additional out put making it more difficult to save for earlier retirement. Its not only the cash output now, but also, the cash output later on near early retirement age. Kids are difficult to plan in the future. You don't know what you may need for them in terms of cash, despite the best of plans. We always figured we would send our kids to public school, however, we are finding that the regular system may not be the best fit, and may need to consider private school. Something I said I wouldn't be one of those parents. You just never know what unplanned expenses you may have in the future for kids. If we didn't have kids, we would be able to retire in our early 40s. 



Doug Out West said:


> We only had one kid when I was 30 so if retire at 52 she'll be 22. If she wasn't doing well it would be more of a consideration. Have budgeted $40K in net worth calc for her to help her get started on top of the $15K she still has in her RESP after 3 years of University. Going to give her the car when we replace this year. So she's not going to be badly off. Plus have not included residence in net worth calc so that is the inheritence.
> 
> Now if things go bad for some reason would have to look at that then. Yooung adults have to stand on their own feet at some point


I do agree young adults have to stand on their feet, however for us, we believe that if we can open opportunities for them through our finances (assuming they are responsible, grateful, hardworking, etc kids), we will do so. For us, education is one of those items that we will do anything we can to support. Before we retire, we would want to make sure we would have the means to help to at least a Master level degree (if that seems to be in the relm of possibility) for our two kids. We wouldn't have that idea until they are at least 21, so for us, I wouldn't feel comfortable retiring until at least 55. 

I think it's harder to plan for early retirement when you have young kids, or haven't started a family yet. When the kids are older, and you see more what they are turning out to be, its easier to make decisions.


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## Square Root

Plugging: Agree about helping one's kids re education. I feel sorry for kids who graduate with tens of thousands of student debt. We paid for my daughter's education to the masters level and if she wanted more would gladly pay for that as well. She is a hard working, grateful, independent woman who has never (had to) ask for anything from us. Luckily we are in a position to help her in this way.


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## Doug Out West

I look at in the same way my parents did , you get help with undergraduate degree ( 5 kids only 2 needed help) and get a kick start on house $10K in 1980 $s.

So with 15K left in RESP going into 4th year or hopefully vet school , $8k in her name from family allowance back in day, $40K to help with vet school/house start budgeted, that should surfice.


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## Plugging Along

Retirement, kids, money are all such personal choices based on our own values and beliefs.

For us, education is one of our high priority areas that we will not cut back on unless absolutely necessary. Even when both my spouse and I were not working, we still managed the private school fees, though we were reusing bath water. If my kids want to go further than a masters, we'll try to help there too, and are willing to sacrifice an earlier retirement. This also assume that are children down take it for granted, then our plans may change. 

If they don't go get their masters or further, then we may be retiring a few years earlier than planned. As long as when they leave the house for good, they realize its not a revoling door, we're happy


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## kasmca

Thanks for all the helpful and informative posts. I have been playing around with http://www.firecalc.com/ and my original scenario seems to work.


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## sucka

Hi new to the site here. I started a thread, but probably best to incorporate my question here. Like the original poster, I would very much like to retire at 50. I think i am setting myself up to do that. No mortgage, paid off rental property, i think i have a healthy RRSP and other saving accounts. I have no problems with being able to live comfortably if i were to work til 65. But to project a retirement age of 50, i''m not nearly as confident...which brings me to my question - 

Inflation: Why include it in calculations? Aside from your life span, this one is probably the hardest to estimate and is totally out of your control. I guess your life span can be, to a certain degree...but anyways...why include inflation? why not just use a present value, which is much easier to relate to? Wouldn't your return rate already factor in inflation? I mean, i probably wouldn't put my golden egg and lock myself into an investment for 30 years at 3%, where inflations would be a big factor. For fixed income, wouldn't you have a step maturity - ladder thing going, so at least you're constantly rolling over debt to keep the return fairly current to inflation levels? 

My calculations are always in today's dollars. So when at my projected retirement, i have say, 1M which earns 2% real return. this 1M is more meaningful as the monthly 'annuity' derived from it can be compared directly to what things cost today and that gives a much clearer picture than a future value, rather than guessing if that future value is enough to live on in future prices. Does this make sense or am i making a fatal flaw in my reasoning?


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## Square Root

Sucka: How much do you want to spend in retirement? A safe withdrawal rate might be 3-3.5% for a long retirement so you need 1/.033 or 30 times that invested in a balanced portfolio at retirement. This would take care of inflation(probably). Your assumptions work fine until retirement I think. 
If you want things simple retire when you have 30 times your desired spend. If things are going well at that stage, work longer, save more and spend more once retired. Pretty simple really.


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## fraser

My advice for anyone in retirement planning mode would be to plan for two different scenerios. Plan A would be you target retirement date...lets say at age 60. Plan B would be an earlier date, perhaps 54, based on early termination, health issues, risk associated with a particular DB plan, or significant change in remuneration/ family income.

I was 'retired' at 58 last summer. Fortunately I worked for a fair employer, had long tenure, and had good counsel. My settlement was was the icing on the cake for me. So now I am a 'has been' and my plans will involve some volunteer work, travel, and downsizing to a home/condo that we can easily walk away from for 3 months at a time. I worked in an industry that had major downsizing of individual contributors and management staff over the past 20 years. I was financially prepared at 55 (with a target age of 60) but I have seen many people in their early 50's 'surprised' to be the sudden target of a downsize. Often, these individuals are unable to secure employment at the same remuneration which places a significant burden on their future retirement plans.

It can happen to anyone. So, plan for the worst and hope for the best. Don't leave it too late.


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## kcowan

My retirement plan had three alternate scenarios: pessimistic, reasonable and optimistic with appropriate actions for each one. We did not buy our snowbird home until we had been retired for 5 years because our plans showed that it was not a good investment until we were spending 6 months there. So having alternative plans is useful for helping to decide major items.

On our 8 years of retirement, we have developed sufficient financial strength that we are now on our optimistic plan. But going forward, we have reduced our expected returns on investment.


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## steve41

> Inflation: Why include it in calculations? Aside from your life span, this one is probably the hardest to estimate and is totally out of your control.


 Well, not exactly. Inflation is one element which the govt has pledged to keep as constant as possible at around 2-3%. 
Along with income tax, the inflation rules are very predictable, unlike market rates of growth, your job security and health/life expectancy.


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## sucka

fraser said:


> My advice for anyone in retirement planning mode would be to plan for two different scenerios. Plan A would be you target retirement date...lets say at age 60. Plan B would be an earlier date, perhaps 54, based on early termination, health issues, risk associated with a particular DB plan, or significant change in remuneration/ family income.
> 
> I was 'retired' at 58 last summer. Fortunately I worked for a fair employer, had long tenure, and had good counsel. My settlement was was the icing on the cake for me. So now I am a 'has been' and my plans will involve some volunteer work, travel, and downsizing to a home/condo that we can easily walk away from for 3 months at a time. I worked in an industry that had major downsizing of individual contributors and management staff over the past 20 years. I was financially prepared at 55 (with a target age of 60) but I have seen many people in their early 50's 'surprised' to be the sudden target of a downsize. Often, these individuals are unable to secure employment at the same remuneration which places a significant burden on their future retirement plans.
> 
> It can happen to anyone. So, plan for the worst and hope for the best. Don't leave it too late.


Wow, are you my dad?! Exactly the same story...even the age where he was involuntarily retired was the same. Last year too! That's great for you, that you have a plan in place. My dad had no plans beyond work and i kinda feel sorry for him. Feels he can still contribute but, time has kinda passed him by. So he's on his laptop 16 hours a day doing god knows what, and sleeping all sorts of odd hours.


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## sprocket1200

we have twins that are almost 3. no way I am going back to work before they go to school. the time with them is way to precious...


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## I'm Howard

Debt Free, liveable lifestyle,no major extras, $50,000 per year is easily doable.
Retired for almost 15 years, took exit at 52.
Bored, at times, but then again, I was bored at times at work, but now I don't spend half my life flying to a Hotel room somewhere.
Donated 30 suits and 70 shirts to local Charity store.


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## Maltese

I'm Howard said:


> Debt Free, liveable lifestyle,no major extras, $50,000 per year is easily doable.


Howard, is the $50,000 in retirement income you refer to gross or net income? I'm hoping it's gross income.

Maltese


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## Square Root

Obviously, you could do either. Tax on $50k is probably only $5-10k. So even if it was pre tax the after tax amount is certainly within a reasonable life style. You shouldn't view this as a magic set number.


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## I'm Howard

Gross, and I must admit our lifesyle is subsidised by spending six months in Florida where there is No HST and things are generally much cheaper.

We no longer drink, that alone adds $500 a month to our income, plus we drive very little, so gas prices do not affect us much

We Golf a lot, but our town has a Par3 , 18 hole Golf Course that is Free to use, helps practice our short game and getting out of traps.


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## andrewf

An over-65 couple grossing $50k in Canada is probably not going to pay much if any income tax at all.


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## I'm Howard

Gross Income is well above $50,000, but we find anything above that is not spent but set aside.

Future plans include moving to a smaller residence, one that will meet our needs for six months, differential will be invested.

A future inheritance will add substantially to the pool, but I don't make enough income for an AMEX Gold Card, net worth is not a factor, cash flow is.


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