Ok, it’s been close to a year since I sat down and crunched numbers on my early retirement plan. I’ve done a rough update, but I’m fairly curious where the numbers are now. So I’m going to run them again. Do to the length of this posts there will be no Green Spot this week. So with out further preamble let’s get started.
First off we need to figure out my baseline spending, or what I think I’ll be spending during my retirement years. In some ways this is fairly easy: current spending – mortgage (because I’m going to have it paid off) – work expenses. So it looks like this: $3040 – $1020 (principle and interest only) – $77 (gas and parking) = $1943/month. To make things easy I’m just rounding up to $2000/month or $24,000/year. In general I’m expecting my lifestyle to stay fairly close to what I do now, granted the kids will be mostly out the door at 45, but I’m just assuming my spending on them will just roll into my hobbies spending (currently about $160/month). I’m also assuming that being retired that I won’t be saving for my RRSP or pension or the kid’s RESPs anymore.
Yet, I need to add a few items to $24,000/year figure. First off I’m going to assume $1000/year in house maintenance and $1000/year in car depreciation and $1000/year in medical costs. So in total I’ll need $27,000/year.
Now I’m going to make one other assumption that could put things in a little doubt, because I’m not sure if I can do it. I’m going to assume I’m a very clever guy and managed to balance my RRSP’s and TFSA’s and taxable accounts to pay no income tax. The reality is this could take some work, but given my low income requirements it is entirely possible. Basic tax deduction is $10, 320 per person, so with a clean income split via spousal RRSP and pension spliting that totals $20,640, which leaves $6360/year to come out of our TFSA accounts to pay no tax. With TFSA contribution room of $5000 x 2 x 14 year = $140,000. So that $6360 represents a required yield of 4.5% which is fairly realistic.
Then to make things interesting I’m putting on an extra requirement of my travel fund of $3000/year from age 45 to 75. So that’s another $90,000 or so in savings required if you do the math. Yet if I look at it from a cash flow point of view at a 4% rate of return I need about $75,000 to generate $3000 a year. So I have two ways I could deal with this. Either simulate the larger draw on my savings during the first 30 years or just take off the extra off the top. I think for this exercise I’m going to do extra draw on my savings. It makes things more complex, but what the hell.
Oh, some general notes on this series of posts. All values are in 2009 dollars, so to achieve that I use real returns (which are just your normal return minus inflation), so all the return % may look low.
So how much am I going to have at 45? Well that we will calculate as I walk through my phases over the next few days and some other sources (OAS and CPP). Then on Friday I’ll run the numbers to see if this still looks like a good idea or what changes I need to make to my savings to have it happen.