Wednesday, February 22, 2012
Posted by Canadian Dream on February 16, 2009
Well it’s Family Day in Saskatchewan, so even if you don’t have the day off perhaps you should spend some time with your family. Oh, I’m away from the blog for a day or two here so I won’t be responding to comments till I get back.
Posted by Canadian Dream on February 13, 2009
Alright, so now I have all these pools of investments, so how exactly do I spend them is the real question. So after playing around with a few different methods I put the numbers together in the following spreadsheet. See the BASE tab to see the calculations. Now note the data used in this sheet doesn’t match the last few days of numbers. Why? I didn’t want to do the hassle of calculating monthly compounding and by doing annual compounding only I’ve added an extra layer of being conservative (so hence the lower numbers).
Then I also dropped my rate of return after 45 down to 4%. So on the CHART tab you will see my income versus spending chart. The line goes up till 45 and drops down at 46, the reason is the change in the rate of return.
In the end if I could keep up the 5% rate of return I can pull the plug at 43, but given the number of conservative factors I’ve used it could be earlier than that. Also if I assume everything goes to hell for a long while here and I have crap returns for the next five years I would still likely retire by 49. So I’m retiring in my 40′s at some point, when that happens will depend on how life goes. Overall I find that a comforting thought.
Perhaps another comforting piece of information I took out of my sheet was the fact at 65 with no other income than CPP, OAS and my pension I could bring in $31,899. So now I have some parameters to plan within for some sensitivity tests that I want to run on these numbers.
I’m planning on working on several different scenarios like: being semi-retirement at 40, what happens if OAS gets cut in half, and what happens to my target date as rates of return move up and down. I’m curious what other ones you would run on your numbers? Please suggest them in the comments. I’ll try to get to these scenarios over the next few weeks and roll out the results from each one when it becomes available.
Note: No post on Monday (it’s Family Day here in SK).
Posted by Canadian Dream on February 12, 2009
Well before we look into the hard core math tomorrow on when I can leave work let’s have a look at some government programs which can help my plans along.
First up is the Old Age Security (OAS) Pension, which my wife and I should both qualify for the full amount see here for details. The current payment rate is $516.96/month per person. So in total for both of use that is $12,407/year (it is indexed for inflation). Now this program is out of general government revenue so there is the risk it could be cut or reduced. So depending on your personal feelings on the idea you might want to reduce the benefit in your own calculations. I’m really not sure what they are going to do, but I’m just leaving the full amount in. I think this one is going to be a big issue with the baby boomers so you could see some stiff resistance to cutting this back.
Next is the Canada Pension Plan (CPP), which in a nut shell is paid for with our contributions and is held in an arm’s length fund from the government (see here for more info). So it doesn’t face the same risk as OAS, there is more than enough money in that fund to cover pensions until I’m very old. Now your CPP benefit is calculated in a complex manner so if possible request an estimate of your pension. It at least gives you a baseline to work with. Something to keep in mind if you retire early is you are going to reduce your CPP pension by doing it. You see when they calculate your benefit they drop out 15% of your lowest earning years from 18 till 65 (plus drop out years if you were raising young kids). Keep in mind you also can take CPP early at 60, but doing so reduces your pension by 0.5% per month permanently.
So what does this all mean to me? Well I’m expecting a low pension amount. You see there are 42 years between 18 and 60, and I’m going to have zero incomes for 15 years (45 to 60) when that 15% drop out will only cover 6.3 of those. Then I’m getting a 30% reduction for taking the pension at 60. In the end I’ll have a low number. So the best way to get an estimate of your pension is to plug your data into this calculator and adjust your income level down later on to simulate your early retirement. It takes some work but it does give you a number.
I’m being lazy here and just carrying forward my previous numbers of $5460/year for me and $1200/year for my wife that I calculated last year. I don’t expect these numbers to change much so I’ll just keep them for now.
Therefore in grand total I expect these programs will provide $19,067 of income after age 65. So if you added that into my normal budget that’s like almost $59,000/year for retirement income after 65. Wow, I not sure I could even spend that in a year. I’m just too used to a frugal life.
Oh well tomorrow I’ll do some math and see what my options are.
