Posted by Canadian Dream on March 23, 2009
Well in 2009 so far that is got to be the biggest question on baby boomers’ minds: can I still retire? The short answer is likely: yes, but it depends on what you are willing to live with or do.
The reality of your exact situation will depend on several factors that I can’t possibly cover them all here, but generally speaking your ability to retire will depend on:
- Asset Allocation: Before the fall in 2008 did you have mostly bonds or not? Because is you had mostly bonds you likely didn’t suffer too much of a % loss compared to others and it improves the odds of you retiring. If you had a lot in stocks, then it reduces the odds of you retiring.
- Cash Reserve: How many years can you live on your cash reserve prior to dipping into your other retirement funds? You want at least two years here. If you don’t have this cash keep working to build it up. You want to allow some recover time to your portfolio prior to taking the money out (especially if you had too much in stocks).
- Cutting Back: How much extra spending in your retirement budget that you can cut back? If you don’t think you need the spending you might want to consider just retiring on a smaller budget. If you cut back by $1000/year that saves you about $25,000 in retirement savings.
- Working Part Time: Another option for those that want some more time now, but can’t afford to quit out right is to shift down to some part time work, also called semi-retirement. By reducing your income to match your spending you can give your portfolio time to recover while you work only part time for a few years. This can be a real win to your current boss if you are willing to sell the idea to them. They get to keep your experience available, but free up cash in their budget to hire someone younger to fill the rest of the work load. Or another option is to change careers entirely when you go part time or if you have a marketable skill set perhaps you want to try being an independent contractor.
- Sell Other Assets: Perhaps the last thing people think of at retirement, but it’s all a matter how badly you want to retire and what you can sell. Do you really want a cottage when you never spend any time there and it is costing you money to keep? Do you really want to keep that RV when you used it only once in the last two years and you don’t plan on taking any big trips in retirement with it? Think about what you have and what you are going to use in retirement, it you don’t plan on using it consider selling it (especially if it is costing you money to keep it).
Now out of all of the above working part time is going to be the big trend going forward. I can see many companies doing the math an realizing you can higher two people for the price of one if you can get your older staff to drop to part time. It also then allows some internal transfering of skills prior to the full retirement of senior staff. In additional the part timers get what they want, some income, but more time to do what they want each week. If it is done right, it can be a good situation for several people.
So any other ideas for those that want to retire now? If so please share them in the comments.
Posted by Canadian Dream on March 20, 2009
People are often encouraged to buy local. The idea being local food typically has less transportation emissions involved and has the benefit of stimulating your local economy. I personally tend to spend my some of my money during the summer months at the local farmer’s market.
Now despite the logical reasons for doing it for the environment I’ll be honest: I don’t buy at my farmer’s market just for the environment. I buy produce there because it tastes much better than the stuff I can buy at my local grocery store. It’s all about freshness (and the fact I’ve always worked within two blocks of the market so it’s convenient too).
It’s an interesting fact now a days that people who buy from the big change stores sometimes don’t realize how much different food can taste when it is really fresh. There is just some vital to food just out of the garden the day before you buy it and take it home and eat it. It just tastes better and often has a much nicer texture too. Also at the market I’ve found I tried a bunch of food I never would have thought of to try before. I’m not sure if my regular store even carries some of the squash I bought last fall or some of varieties of greens.
The down side of the market is: it’s a market, so prices can be higher than your grocery store, the same or even lower some times. It really just depends on the local supply and demand. I know last fall I literaly watched the price of my potatoes drop for about four weeks in a row at the market. As more crops came in they fulled the market and the price dropped as every tried to move them.
So this spring I’ll encourage you to try and find you local farmer’s market and give it a try. You might find like me the original reason for being there might change from environmentally motivated to just plain old selfish.
Posted by Canadian Dream on March 19, 2009
Well welcome back to part II of the family profile. Well last week it was determined the couple could easily have kids, but what about early retirement? Could they leave the working world at 55? Well to crack that nut we need some net worth information.
Assets
Her RRSP (including locked in) = $60,000
His RRSP (including locked in) = $60,000
Her non registered = $190,000
His non registered = $190,000
Her TFSA = $5000
His TFSA = $5000
House (no mortgage) = $400,000 (approx worth)
Debt
Her investment loans = $130,000
His investment loans = $120,000
Net Worth = $660,000
So that looks good given their ages (35 her, 37 him). Now those investment loans are suppose to be paid off in 20 years, so that would be just in time for retirement (I’m making the assumption that since his is a lower loan that he can pay it off in 18 rather than 20 years). I’m also assuming they retire when he is 55, so they have 18 years to get things together.
Now I wasn’t given a average rate of return to use, but based on what income is coming in on those loans I’m going to estimate their rate of return at 8%. Then let’s shave off 2% for inflation and 1% extra to be a buffer. So I’ll use 5% real return in these calculations.
Rather than try to determine estimate their saving rate I’m going to do this backwards assume zero extra savings for now and define the short fall if there is any.
So let’s grow these accounts forward. The RRSP’s will both grow to $147,000 in today’s dollars each. Then the investment loans I’m assuming 4% of the return goes to paying down the loans with 1% left over for growth. So those would grow to $227,500 each. The TFSA’s would grow to about $12,300 each. Which isn’t much so I’m going to just treat those accounts as extra vacation money and not worry about them. So without adding anything to the accounts they would have $749,000 at age 55.
Other income will be OAS at 65 for $12,400 a year total. CPP I’m going to assume he gets the average pension of $5777/year and she will get half that at $2888/year at age 65 (I’m assuming she is staying home with no income from post baby onwards). Therefore they will take in $21,065/year after 65.
Assuming they keep their spending the same as I proposed last week. The would need about $38,736/year in retirement income.
Now let’s draw down their accounts. I’m going to assume they shift to a bit more conservative portfolio at 55 and they are only earning 4% real return at that time. So from 55 to 65 they drawn down $3228/month. That would leave them with $641,300 at 65.
Then continuing the drawn down at a slower rate since OAS and CPP are now off setting some income requirements. So now they are taking out $1472/month. Which of course to those with handy calculators would realize is less than 4% of their remaining $641,300 at 65. So they won’t run out of money.
So in conclusion, yes they can have kids at once. Yes, she can stay home with the kids and yes they can retire at 55 if they are willing to stop using the cleaning lady and drop their travel budget down to $6000/year once the car payment is done.
Of course there are so many assumptions in these calculations I could be completely wrong, but from a high level analysis it does look possible. Also they could down size the house and free up some cash if need be and the TFSA accounts give them a little extra saving for a few bonus trips in retirement. All in all they look like they will be fine.
