Posted by Tim Stobbs on March 7, 2008
Inspired by Larry MacDonald’s recent post about bloggers and their day jobs. I’m presenting a little humorous view of how an engineer would approach retirement.
Step 1: Define the Problem
- I rather be doing any of the following more than working for a living till I turn 65: reading, cooking, gardening, home improvement, writing, playing board games, playing computer games, watching movies, watching paint dry or grass grow.
Step 2: Define the Variables
- Current money dedicated to retirement, amount of positive cash flow for additional investing, list of debts, list of assets, previous rate of return for the previous five years on investments (recalling that prior performance is no indication of future performance), desired age of retirement (45), amount of low interest credit available for leverage (providing it passes the sensitivity analysis – you can sleep at night and not worry about it!), government provided income in retirement
Step 3: State Assumptions (if you don’t know the answer, here is what I used for guesses)
- I’m going to do my genetic hardware proud and live till 90 years old (based on that fact my grandfather survived four heart attacks, smoked for 30 years and still lived to 86)
- The government will not try to achieve political suicide by reducing benefits to the CPP and OAS programs in the next 60 years (or if they do they won’t fall below my personal inflation rate)
- Using the divination tool of your choice (cards, rocks, sticks, candles, animal insides (from the butcher)) or a SWAG (scientific wild ass guess) to determine your future rate of investment return for the next 60 years
- Assume my personal inflation will stay below the government’s inflation rate by at least 0.5% based on the fact I’m cheap and know how to keep my expenses down better than they do
- Based on my wife’s intelligence and my own, my children will hopefully take up some engineering like tendencies and be self supporting by age 22 and won’t need any additional assistance to pay for their university education beyond their RESP account balance
Step 4: Solve the Problem
- Using the Murphy’s law of engineering calculations (which states any calculation you do that takes five hours will be approximately just as good as anything you come up with one sheet of paper in under ten minutes)
- Keep income up and expenses down, save the difference, be smart about your investing and one day your investment income will exceed your expenses which means you should resign because you don’t need to work
Step 5: Perform Sensitivity Analysis
- Given humans still can’t predict the stock market for ten seconds or the weather for tomorrow I’m not going to try and predict the next 60 years of my life and that of the economic, political and social forces that will influence my life. It would be a waste of my time.
Step 6: Bask in the glow of being right and knowing that one day you will retire early.
- Problem solved.
This post is now part of the 145th Carnival of Personal Finance.