My Simplified Retirement Plan

To me 45 was an arbitrary number to be financially independent.  Ideally, I would like to be financially independent today and be able to choose what to do with my time every morning, but I don’t have near enough money saved or invested to achieve this goal. What my goal really comes down to is time, which wealthy or poor is all everyone really has.

I figured out the rough math: in a conventional career I would work from the time I’m 20 until I’m 65. Over those 45 years, I would work for an average of 8 hours a day for 200 days a year or 72,000 hours.  These numbers seem fairly overwhelming after a while which gave me an incentive to look for alternatives. This is not to say that I dislike my job, which in fact is the exact opposite. I enjoy the work I do, and for the vast majority of mornings don’t regret the time I give up to do it.  Yet at some point though, there is probably something else that will interest me more that doesn’t involve my work.

Up until the last few years, I hadn’t really put a lot of thought into my saving or spending habits.  I generally bought what I wanted and saved the rest either through RRSPs or high interest savings accounts, with no real end goal in mind. But when I started looking at what I was trading my time at work for and found that I wasn’t really getting anything back.   I had a few cool toys and a car, but really I wasn’t really getting much return given the amount of time I was working.  Essentially giving up about 60% of my waking hours 5 days per week and getting very little in return. So I decided to try to achieve financial freedom early rather than later.

So what am I doing to get there?

1) I lowered my expenses (a lot)

By a lot, I mean by approximately 40%. Everything that wasn’t needed to survive was examined and a good chunk of expenses were removed. For example, the grocery bill was cut in half, our cable television was cancelled (instead we stream shows off of the internet), I changed phone companies and pared down our cell phone plans. Essentially any expense that could be lowered, was lowered.

2) I bought a house and intend to pay it off within six years

This may be a controversial point, as there is a great debate on the internet and books whether it is more cost effective to rent or buy. The way I look at it, if there is no mortgage or rent payment, that is free cash to be used in savings/investing and it results in lower overall expenses. I realize the money spent on the house could be used to invest, but at the same time, I’m going to need somewhere to live in the future.  Also living at nearly zero cost is better than the rising cost of rent that would have to be dealt with living in an apartment or rented house.

3) Invest like crazy

While the house is being paid off, the majority of investing I had been doing will be put on hold (down to approximately 10% of my net income).  After the house is paid off, basically any free money will be invested, with the intention of getting a large enough nest egg to pay for the expenses we incur (probably closer to 70% of net income).

A question I received from my significant other is: “How do I know this will work?” The fact is, is I don’t know if it will work or not.   I may get to 45 (15 years from now) and find out that I need more money saved, or (hopefully) get to 42 or 43 and find out that I’m already there. There aren’t many books out there telling you how to go about doing this, leaving sites like this one to provide the majority of reference. I guess my reason for attempting to achieve financial independence is for peace of mind. I don’t like to be essentially chained to a paycheque, and although I like my job, I would like to choose to do it, not have to do it.

One thing I’ll mention here is that I do have a backup plan to my early retirement goal. On top of the simplified plan outlined above, I have a company defined benefits pension plan that I’m not really including in any calculations.   Which if included with CPP and OAS should provide more than enough to survive on even if my investing doesn’t work out (I will outline my strategy in the coming weeks).

So that’s my simplified plan.  So what’s your goal and how do you plan to achieve it? If you are on an early retirement path, what do your friends and family say?

13 thoughts on “My Simplified Retirement Plan”

  1. I think when one factors in a commute (you must not have one?), dropping a kid off at daycare, lunch spent at work, getting ready for work (which is more time consuming than throwing on a pair of jeans and a t-shirt) etc., having to shop or do errands when things are busier – my time geared towards work ends up being closer to at least 10 hours a day, and closer to 12 hours much of the time.
    Also, most jobs that I’ve had require overtime, so many professional people have to factor that in as well.
    Probably the best investment of my time was figuring out how to increase my income while keeping my expenses low.
    My plan is to semi-FIRE in a couple of months (I will be 44), so it’s definitely possible for you, probably more possible since I’m a SIK (single income + kids) and not a DINK like yourself. 🙂
    I don’t talk about it to other people much since they just don’t get it. I do indicate to others in my line of work that after this contract is done, I would be interested in contract work in the future, but that’s more of a networking thing.

  2. I retired at age 56, early by most people’s standards. I had the benefit of an nice income and excellent pension plan that encouraged early retirement at age 55.

    I had set a simple goal of being able to retire at age 55, back when we had signed our last mortgage, perhaps 20 years earlier. I was sometimes kidded about being cheap by close family members. At work, I always had the oldest car in the parking lot but I was earning in the top 10 % of everyone there.

    It sounds like your on the right track Dave.

  3. My plan is pretty similar – get the house paid off early (by age 36-37 or so), then sock away as much as possible while maintaining a simple lifestyle so that I can exit the rat race early, if I choose to do so at the time.

    The magic number I’ve used is 33: I need 33 dollars in investments for every dollar in yearly income once retired. This provides for a comfortable cushion and enables the plan to survive almost any up or down market.

    Like Dave, I have a good defined-benefit pension plan that I can draw from as early as age 50, but I’d like to have enough cash saved up to retire earlier if I can…

  4. Nice post Dave.

    Sounds like you’ve got a solid plan in place (now that you have had toys to enjoy!)and if there’s anything I have learned it’s your # 3 point – Invest like crazy when the time is right.

    I’m a couple years older than you and my aspirations are to finish it all up by age 35 (or at least semi-retire in the near term), and based on what you are saying, I can’t think of anything more important than being mortgage free. Once that’s in place, you’re in business. I would even go as far as saying that I feel it is more important to focus on that than maximizing one’s RRSPs in the run of a year.

    Best of luck and again, congrats on the position and nice thread.

    Cheers

  5. The important thing for me is to reach a point where I can choose when I want to pull the plug. If its 45, great – if working isn’t completely sucking maybe I will stick it out to 50 to ensure that I won’t have any financial limitations on my retirement lifestyle.

    Its nice to see everyone here is pretty much on the same page….

  6. @jacqjolie – Reading your blog and your finances, you are doing a much better job at maximizing your income then I am (your income by yourself is significantly higher than my household income for the month), but for now I really like my job but there is just little room for upward movement in salary-wise.
    I agree, I just don’t think people would understand, I rarely discuss my financial plans (not that many people do) – many people tend to focus on what they have recently purchased.

    @ George – I haven’t really put much thought into a magic number, which is probably something I should do, but I would like to get the house paid off to increase cash flow. My defined benefit plan allows for “early” withdrawal at 60, so I require a bridge between my early retirement date and when I actually retire.

    @ Candidate #2 (The Rat?) – I hope it’s a solid plan, I would love to get out at 35, or at least have the choice of getting out at 35, but I think I’ll have to delay. The toys are fun to have at the time, but I’d rather have the time wasted working to earn the toys (hindsight is always 20-20) – I have a knack for justifying purchases, and probably always will.

    @ Jon Snow – I agree, I don’t know if I will get totally out of the workforce when I get to the point of financial independence, but I would like to get there as soon as possible.

  7. @Dave,

    Good post. Wow, cutting back your spending by 40% is impressive. On point number 2, I’m doing something similar so I agree the math is questionable, but from an emotional point of view it makes sense.

    Tim

  8. One can’t ‘hope’ for a plan to be solid because the activity we saw in the markets over the past 12 months (and will eventually repeat itself) will weed out plans that aren’t good over time. I’ve learned some very costly mistakes over time (such as being over exposed to income trusts and equities in general) and not enough cash/savings equivalents in terms of asset allocation. I recently did a post on my own Asset Allocation on my blog (actually, a gentleman named Sampson also corrected me on an error on the post); hit it up if you feel like it.
    Cheers,
    P.S. Yes, I’m The Rat 🙂
    Keep the good posts comin’!

  9. Don’t kid yourself that a paid-off mortgage is living at nearly zero cost. It’s nice to be sure, but there is always maintenance, insurance, property taxes (sure to be going up soon) and repairs. (How old is the roof?)

    Less than a mortgage, but a long way from zero, so budget accordingly.

  10. @LH: Living in a paid-off house is not “zero” cost, but it’s the closest one will ever get to zero for housing expenses, unless you choose to live permanently in an RV, shelter, or tent.

    Maintenance, insurance, property taxes, and utilities should not cost more than $500-800 per month, depending on the size of the home and where it’s located. My house will cost me about $600/month for all of the above once the mortgage is paid off. Compare that to the average rent of $1200/month for a 2-bedroom apartment, and it sounds like a heck of a deal!

  11. @ LH

    The house I’m paying off is a condo townhouse. Windows and roof is covered by condo fees at $140ish a month. Property taxes are at $200 or so per month. So it’s just things like furnace and A/C to look after – pretty cheap living if you ask me. Even with elevated fees, not too bad.

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