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Everyone:

Let's get this board running! I want suggestions and criticisms of my early-retirement plans!

I don't have the hard data here, because I am currently at work, but here is an introduction...

I am 27 years old, I have been working full time since 1998. My goal is FI (in the "Your Money or Your Life" sense) as soon as humanly possible. Although I like what I do for paid employment, I also like doing it for reasons other than being paid. I develop software.

I have maxed out my RRSP in 1999, 2000 and 2001. I purchase stock in my current company at a discount. I have been burned by a boiler-room pump-and-dump for about $5k and learned my lesson. I invest very lightly in KO, BFLY and tried to get NT at the right time -- that was at about $65/share. Poor me.

My current living expenses, including comforts but not luxuries, reaches the neighborhood of $30k/year. Since I like maxing out my RRSP, it appears that I need about $41k/year after-tax income to be comfortable and save for retirement.

My present income is about $65-70k after taxes, thanks mainly to my RRSP contributions. This leaves me about $20-25k/year in savings to either spend on emergencies or invest outside my RRSP.

According to my present calculations, if...
* by 2005 my RRSP gains an average of 7.5%/year for 25 years (At present: 3.5% at ING Direct.)
* I max out the RRSP five more times
* I contribute $2k/year (2001 dollars) the years I don't max out
* Inflation averages 3% per year

then by 2030, when I'm 56, I'll be able to withdraw about the equivalent of $15k/year in 2001 dollars for 15-20 years. I am fat and don't exercise much, so I don't envision reaching 80 or 90 years of age at this rate. :)

So my overall plan is to work like a dog for about another five years (out of the next ten), get paid as much as I possibly can, then start looking for creative ways to find just enough employment income to take care of my expenses and put a little something more into my RRSP. Contributing the equivalent of $2k/year should not be difficult, even if that actually means $7k/year in 2025 dollars.

I have the numbers somewhere. I'm interested in getting advice and seeing criticisms, especially things like, "Well what about paying for X, genius?!" I want to know if I'm missing anything basic.

I'll post the numbers when I get home.

<jbrains>
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jbrains:
FI/RE (financial independence/retire early) sounds pretty brainy to me.

A few thoughts off the top of my head:

1) $15,000 isn't very much money -- you might want to reevaluate. If you're living on $30K now, would you be able to cut your expenses in half if you couldn't find work?

2) What is your plan for going from 3.5% to 7.5% in your RRSP/other investments? You'd better bump up that return, because right now you're barely keeping up with inflation.

3) What about marriage, kids, home ownership? Early retirement plans notwithstanding, life happens.

Looking forward to seeing more details,
Mo.
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1) $15,000 isn't very much money -- you might want to reevaluate. If you're living on $30K now, would you be able to cut your expenses in half if you couldn't find work?


I figure I need to spend $30k, but I could as easily live on less. You're right, though: perhaps it should be a higher figure. I can crank through $25k and see how it goes. Certainly there are travel costs that go down after I stop working for money. There can also be savings in clothing and even food -- less convenience food to take to work for lunch. I can probably shave down to $25k.



2) What is your plan for going from 3.5% to 7.5% in your RRSP/other investments? You'd better bump up that return, because right now you're barely keeping up with inflation.


I don't know yet. I just know that I need to figure it out by 2005. :) I am investigating that idea these days and coming up with ideas. I need mostly safe, fixed income. "Growth" is not so important with me. I have a set amount that I want to invest into something stable, then I can speculate, if I like, with the rest. People are down on bonds, but I can't figure out why yet. What's so bad about bonds?


3) What about marriage, kids, home ownership? Early retirement plans notwithstanding, life happens.


I am attached, although not married. My girlfriend and I both don't seem to be in a hurry to get married. As far as we're concerned, we already are. As for kids, there are no plans for that, period. Of course that could change, and if it changed, then I could always change my plan. Home ownership remains a possibility, but it's not likely within at least the next three to five years, so I'm not concerned about that. If I got to FI before I wanted a house, then I could simply decide whether going back to paid employment is worth the house. It's a clear tradeoff decision at that point.

Yes, folks! This is what I'm looking for! Help me out!

<jbrains>

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I have run the numbers again with a withdrawal rate of $25k/year. I don't think it'll be that high, but it could be, so I did. In that case:

* If I can get 7.5% on my RRSP starting in 2010,
* and if inflation averages 3%/year starting now,
* and if I work the next 5 years, maxing out my RRSP,
* and if I contribute $3600/year adjusted for inflation starting 2008

then if I stop contributing at age 58 and start withdrawing at age 59, the money lasts until I'm 71. Surely I'll be dead by then. The withdrawals are $25k/year, inflation-adjusted.

One thing I have read around here is that we're heading towards a deflationary economy. I don't know whether that's true; if it were, who knows for how long? This could only help my plans by making the dollars have more future value.

I can see myself making the $30k-$40k/year it would take to be able to cover expenses and contribute to my RRSP, long after I've decided I don't want to work in a high-pressure, high-paying job.

And, of course, if I enjoy highly-paid employment enough to continue doing it, the numbers only go up. By saying "5 years out of 10," I allow for the possibility that, as a contractor in the software development business, I might not find work for up to a year at a time for the next few years. I'm OK with that. Worst case, I can crawl back to a full-time position somewhere for a finite period of time. Say, 3 years.

So, please, poke more holes.

<jbrains>
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I suppose I should point out that this is just my retirement savings, and that the $25k/year withdrawal is after-tax according to today's tax rates. That's a risky calculation, at best.

It assumes that my investments in KO and IBM, held outside my RRSP, become valueless. I certainly hope that's not the case, and I intend to continue to invest in those companies indefinitely.

It also assumes that my savings held outside my RRSP, not necessarily invested in stocks, become valueless. That should not happen. At my current rate, my non-RRSP savings are about 50% as much as my RRSP savings, and although they may not draw the same kind of interest over time, I can at least keep the rate of return above inflation -- for now.

<jbrains>
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Although it may be about average for a male, 71 seems awfully young to die. Particularly with medical technology improving all the time. I like to assume I'm going to live until 85 when planning retirement, as I don't really want to be a destitute senior living on social assistance.

I was also wondering about your girlfriend's retirement plans. Is she putting cash into an RRSP too, or are your retirement savings going to cover both of you? Or are you keeping your financial/retirement plans separate? Is she interested in RE or will she continue working? As for the $25K/year withdrawal, is that for the two of you or just your half of the expenses?

Cody
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Although it may be about average for a male, 71 seems awfully young to die. Particularly with medical technology improving all the time. I like to assume I'm going to live until 85 when planning retirement, as I don't really want to be a destitute senior living on social assistance.

I agree with you in principle; however, I have family history of diabetes and Alzheimer's disease. I have also been more than 50 pounds overweight for about half of my life so far (I'm 27). I don't see myself living into my 80s. :)

I was also wondering about your girlfriend's retirement plans. Is she putting cash into an RRSP too, or are your retirement savings going to cover both of you? Or are you keeping your financial/retirement plans separate? Is she interested in RE or will she continue working? As for the $25K/year withdrawal, is that for the two of you or just your half of the expenses?

She is still paying off debts: student loans. For now, we are keeping our plans separate. She has opted to enjoy her job for less money now rather than find a high-paying, less-fulfilling job for the time it takes to pay off her loans. At present, my plans would be sufficient only for me, but I could easily expand my plans to include her and let her work her way out of debt.

She is definitely the type to keep working. :)

<jbrains>
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I'm not an actuary, but as far as I'm aware the average age of 71 is "at birth". It would be more relevant to check the life expectancy of a 28 year old (I'll bet it's a lot better than 71).

Notwithstanding the above, I think the recommended safe withdrawal rate is under 4% of your assets - that should guarantee you a good 40+ years of income. So, if you need $25K per year, you should have at least $625,000. invested - which I'd guess would mean you need to get about $150K in the bank by the time you're 35 if you want to retire at 55 (assuming you'll save no more beyond 35...).

Plus, of course, adjustments upwards for taxes and CPI inflation.

Good luck!
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I'm not an actuary, but as far as I'm aware the average age of 71 is "at birth". It would be more relevant to check the life expectancy of a 28 year old (I'll bet it's a lot better than 71).


Thanks for the numbers. I really don't know what the current life expectancy is, but I'm fairly certain that I won't live as long. :)


I think the recommended safe withdrawal rate is under 4% of your assets - that should guarantee you a good 40+ years of income. So, if you need $25K per year, you should have at least $625,000. invested - which I'd guess would mean you need to get about $150K in the bank by the time you're 35 if you want to retire at 55 (assuming you'll save no more beyond 35...).


That should be (almost) trivial for me, assuming I don't allow myself to overspend while I'm working on contract, and I haven't, so far. With luck, I'll have much more than that.

Thanks again, for your help.

<jbrains>
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Jbrains,
May I suggest that you consider picking your local yellow pages and kook up Peimerica, PFSL Investments or Primerica Financial Services of Canada. Call the number and tell them you'd like to have your FNA (Financial Needs Analysis) done. It's totaly free of charge, the FNA is very comprehensive and a major section is dedicated to retirement planning.

Also I'd put aside as much funds as I possibly can. And isn't now the best time? No kids, lunches to work, substantial salary for a Canadian, and I assume, your girlfriend who does the shopping (women seem to be capable to save money there),and cooking.

Ever thought about a market average Index Fund for RRSP savings?

I'm afraid I'll never have to worry about RRSP again and focus on 401K instead. Sad. Very sad.

Good luck,
Max
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I wish I had the brains to be able to retire early.
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I wish I had the brains to be able to retire early.

It takes money, not brains.

rerics
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