As my first “official” post on FB, I thought of sharing one of my financial goals obsessions. As a father of three at the age of 30, I realized early in life that there are a lot more important things in life than my job. This is why I’m thinking about retiring early.
The big paradox here is that I just LOVE my day job. I’m a financial planner and I really enjoy helping people with their money. I have a true passion for meeting different people and exchanging ideas with them. But still, I enjoy my life outside my work even more. I just think that life has a lot more to offer than a9 to 5job (even though a job is pretty useful to pay the bills!). But how realistic is early retirement in the current economy? I guess it depends on how young you want to retire ;-).
Early Retirement Extreme
I don’t know if you have heard of Jacob Lund Fisker from Early Retirement Extreme? He retired at 33 and living on a $7,000/year budget. Since I spend almost that amount per month, I can’t imagine myself living this tight budget. That’s definitely not my definition of living my life or retirement. It’s obvious that I could cut some expenses from my budget but I would never be able to drop it down to such a low amount. Therefore, I need to face reality: I won’t retire in the next 3 years! However, I don’t expect to work past 55. And I don’t plan on living off $7K/year either! In fact, I aim more to spend $70,000 per year! (I have expensive tastes and I will be able to afford them).
My Definition of Retirement
Before I tell you how I intend to retire at 55 with over $70,000 per year to spend, I need to tell you what my definition of retirement is. 50 years ago, “retirement” was another word for “about to die”. Now, you can see “young” men and women of 75 running 30 minutes daily. This means that if you want to stop working at 55, you need a nest egg able to cover about 35 years of living. This is why the definition of retirement needs to be reviewed.
I don’t expect to stop working ever. On the other hand, what I really want to get rid of is the “obligation to work”. At 28, I started to work 4 days a week and this is only the beginning. I don’t want to be forced to work or have to be there from 9 to 5. Therefore, my definition of retiring is being able to do what I want to do when I want to do it. This is closer to financial independence than retirement ;-). If I could work 20 hours a week and still live the same lifestyle, I think I would retire today!
The main reason why I want to retire early is definitely not because I hate my job. I would actually keep doing it but at a much more relaxed pace. On the other hand, I really like to enjoy life as it should be:
- Spending as much time as possible with my wife and children,
- Travelling around the world, eating at the best restaurants available,
- Trying new activities (like skydiving or climbing a mountain!) ,
- Volunteering.
Unfortunately, in order to do this whole list I need 2 things: time and money!
How Can You Retire at 55 and Spend $70,000 per Year?
Retiring early is pretty simple if you are willing to cut on everything up to the sugar you put in your morning coffee. It’s another thing to retire young and have plenty of money to spend. Nonetheless, I expect to retire at the latest at 55. Here’s how I will do it:
Start working young in a big firm. I started working for my employer at the age of 23. This is a big firm offering a generous pension plan. At the age of 55, I’ll be able to take 96% of my full pension. This pension equals 70% of my base income (so 67% in my case since I’ll be having 96%).
Maximize my retirement account. Since the beginning of my career, I don’t save much money on the side. But, I’ve had 2 priorities: building a 25% down payment for my home and maximizing my RRSP contributions (which is the Canadian equivalent to a 401(k)). So far, my RRSP contributions are maxed every single year. By the age of 55, I should have a solid nest egg. I usually use my year-end bonus do to it.
Have a sideline. Having a “plan B” has always been on my mind since the age of 14 (the year my parents went bankrupt… but that’s another story). This is why I started my online company; to never be left without an income. I currently don’t have an emergency fund; I have a small money making machine instead. I hope to grow this machine to a level where I could “retire” before 55 J.
Early retirement is affordable for anyone
Over the years working as a financial planner, I have realized that the concept of early retirement is accessible for almost everybody. It is obvious that retiring before 45 requires extreme sacrifice (would you really mend your clothes to retire younger?), but retiring around 55 is definitely feasible. A good job combined with a strong saving strategy and you are almost set. If you want to make sure you cover all the angles, just add a sideline to the equation.
Financial professional and online entrepreneur, I'm best known as The Financial Blogger. I want to make money because I like enjoying life the way it should be; with a lot of great food and wine! I also love to spend time with my lovely wife and 3 kids!
Look, if you want to check out of the game early,,,,,,,,,,,,PLAN!!!!!! It is a slow process but it works, Know what you want and set some realistic goals. Here is the hint. Don’t make goals you can’t reach. Set small reachable goals and move on to the n next.
More people would afford to retire if they just bought less.
Once you have the basics house/apt., car, furniture, appliances, clothes, then you can do other things with your money like save for retirement. I guess it depends where you live too. I would never live anywhere expensive like NYC, SF, etc. Too expensive.
A lot of people overspend on their mortgage, furnishings, cars, on hobbies that are money pits, and by eating out 7 days a week. Seriously there are people like this out there. So many people end up in debt as a result. Early retirement can be achievable if you’re smart with your money. You don’t have to deprive yourself either.
Why are there people who make $40,000 but they have an emergency fund, savings, and are able to send their kids to college? Then there are couples where they both make six figures each but have zero savings, and credit card debt? Then there are people who never made more than $100,000 but were able to retire.
Obviously its possible but its really all about controlling one’s spending.
Loved the article 🙂
Sounds like you have your plan figured out. I think you should make a move to semi-retirement.
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my dad is 55 years old and he want to take some service plans for retirement so what do you think will be ok with us
Thats nice planning. In todays world everyone wants to retire early. RETIRE YOUNG has become the business moto and promotional line for many investment policies. Definitely, retiring at 55 with comfortable pension is very feasible.
Not me! As much as early retirement sounds pretty cool, my big goal is to have a job that means so much to me that I wouldn’t want to retire from it. Right now I do work I love which does not pay well but that I enjoy so much it usually doesn’t feel like work (I am a carer for people with disabilities). I am also pursuing a career in film making and am getting my masters degree as a wildlife researcher. Bewtween all of these things I don’t imagine wanting to give it up! I remember reading a study once about how people’s health tends to declide dramatically after retirement because on some level we still see it as the final train stop before the funeral home ..
Totally agreed. Ideally, I’ll be done slaving a 9-5 by 50 and be able to live comfortably. Not extravagantly, but comfortably. That gives me about 39 years or so to set that up. I’d hopefully be able to do some consulting or work part-time for a few years after, because I know after about two months at home all day I’d be bored out of my skull.
My dad is 57- he has no savings, no assets & no income other than a very small VA pension that barely covers his expenses. He didn’t plan (& still doesn’t now) and I worry about what the future holds for him. Seeing his life pushes me to make better decisions (even though I’ve made plenty of stupid financial mistakes).
I think retirement is an outdated concept. But that could very well be the pragmatic Gen X’er part of me refusing to accept what seems to be an inefficient lifestyle model.
Good luck to him… perhaps you can include him in your plans and give him a small second income in his retirement years? I’ve seen that done a lot with family businesses.
Great forethought! My own plan (rather short-term) is to make it through university without any debt. Thereafter I hope to start working full time and live well within my means so I can set aside a LOT (say, 40%) of my income to savings.
In the meantime, I’m also pursuing potential sources of passive income… but I’ll have to see how that pans out. =P
Why would would you want to retire? I know plenty of 80+ year olds who are still working and loving it.
I want to retire to enjoy life, not because I don’t like working :-). I’d like to retire and keep working. The difference is that I would be financially independent and do whatever I want instead of being “stuck” to work from Monday to Friday.
Were admirable plan. Do not forget that kids need an inspiration as well. You will not be rich, hence it will be difficult to explain what you are doing at home in your prime.
50+ is golden age in finances. You will not be killing yourself at work but will be counting pennies from withdrawal to withdrawal. If you would be single that would be great.
Hopefully your own online business will be answer to the questions!
I definitely don’t want to retire and count each pennies that go out of my wallet. If it’s the case, I’ll continue working and retire later on ;-D
You are right, kids need an inspiration. I have 3 kids and I want to make sure to show them that hard work and saving are important.
Actually TFB pensions will not be here in the future with the US. Many are switching over to defined contribution plans. They only grandfather in those who are already retired. The big problem is counting on being able to get a pension at 55. Friends now who have pensions, mostly school teachers, cannot retire until the rule of 85. Years of work plus age = 80 or 85. Say you work 30 years from age 25 to 55 then you can retire at 55. But many won’t reach that at 55 with time and they keep raising the rule.
I wouldn’t count on it in the US, Canada probably has something different but most of my friends in the US even in government jobs aren’t counting on it. Too easy to cut. Also a big difference between US and Canada, at age 55 if you retire in the US, what do you do for medical insurance until Medicare kicks in at age 65? Self insurance during the years of 55 to 65 is the most prohibitive, most likely to be not covered due to pre-existing conditions. So your OOP could potentially be prohibitive because of premiums or non-coverage.
I don’t believe that you can compare a society with socialized medical care to one without. The basic premise of life/health is completely different.
Personally I’ve very liberal and strongly support socialized medicine and retirement system. I married however a libertarian Canadian. So I can see the other side, I know my mom’s pension versus my MIL. And my MIL’s friends who are younger are much better of than my mom’s. As she calls it “civil servant reform”.Most people don’t realize that without employer provided insurance they have to buy it on their own. The costs let alone the pre-exisiting coverage riders will probably make it next to impossible to retire prior to Medicare unless one gets medical coverage from their company (not happening anymore in the US). Most canadians can’t even fathom the US health insurance system with HMO, PPO, EPO, HDHP, 80/20 plans, HSA, FSA, Dental, Vision, etc.
Also BK can allow companies and governments to restructure pensions at will. And state governments in the US can easily change pensions with a legislative bill.
So proposing to retire early is likely a pipe dream for those not above 50.
I agree with you that the US Government could do whatever they want with the pensions. But what would be the purpose? If there is no money to support the retirees, we will live back in 1900’s. If people can’t pay their rent, they will live on the streets, this will cause a lot more problems and it will be even more expensive to solve those problems than keeping pensions.
As for defined pension plans, they are getting rarer these days. That’s unfortunate!
Because they can’t afford the liability of pensions. They would move to a 401k with a match making it the person’s responsibility. Pensions used to work when people didn’t live as long so they didn’t owe so much. Unlike Candian pensions the rate of contribution for the person doesn’t change based on need, it’s a flat rate until new bargaining negotiations occurred with the unions. My mom paid 7.5% and got 2% per year of service. Her contributions equated to 4.5 years of contributions before she began living off the state. Even worse was people who contributed nothing and got pensions.
You didn’t address the issue of medical insurance from age 55 to 65? And if medicare reform goes through till age 67 or 70.
Unless your child gets divorced contentiously and you have to fund atoorneys and support her for a time.We retired at 55 and 64 with what was plenty, and now it is vanishing. And there is no choice.
Do you think that the pension plans will still be around by the time many of us younger ones finish school and start working? (I’m 20, and going for a Ph.D hopefully soon.) I don’t think that there will be any more pensions left (at least in the US) sooner or later.
Pension will always be there for USA or Canada. However, pension rules may change. For example, we are hearing a lot of things about postponing the age of retirement to 67 or 68. The reason why Gov pensions will always be around is that it would be a lot more complicated to deal with a country where retirees don’t have the basic pension. It would be anarchy.
In the US when we refer to “pension plan” we’re usually talking about a defined benefit plan offered by employers. What TFB is talking about is what we call Social Security.
And no, very few employers in the US still offer defined benefit plans. Most have switched over to defined contribution plans. Working for a large company in the US will at most get you a nice match for your DC plan, but will not give you access to a DB plan.