The Semi-Retired Calculations – Part I

For long time readers you are well aware that about once a year I sit down and recalculate how much I need to retire.  Basically I update my assumptions and find out if I’m any closer.  Given that this year I’m looking a bit more at the semi-retired option I’ve decided to run this scenario instead.

So first off you need to determine what kind of lifestyle you want in retirement since that drives your expenses and that is one of the key numbers in these type of calculations.  For me that is fairly easy since I rather like my life now.  I just wish I had more time.  So I’ll use my current spending as a baseline.

So on a monthly basis that is $3266, but I need to adjust that number.  First off I won’t have a mortgage payment, so I’ll deduct $1276.  That pushes me down to $1990/month.  Then for this scenario I’m still planning to work so all I want covered is my bills, property tax, food, gas, regular spending on kids (but not RESP contributions) and insurance costs.  Basically any spending money I want or vacations will have to come from working.  Also any new cars or home improvements will also be coming from my working income.  Good motivation don’t you think?  So with that in mind I can drive the monthly spending down to $1500 or $18,000/year.  This is much cheaper than my usual full-retirement calculation that has me at about $27,000/year plus any yearly vacation cost.

So overall I’m on the hook for working enough to raise $9000/year after taxes from some kind of work and then a bit more for a vacation.  Yet that includes me and my wife, so given right now my wife can clear about $6000/year from the daycare this should be very easy to pull off between us both.  I don’t mind doing some work, but I don’t want to be chained to a full time job.

Now given this is a new scenario I’m doing some crude guess work about how long I think I need to work full time to pull this off.  I know I will currently pay off my mortgage about the middle of 2012, so obviously I need to work to that point in time.  After that I’m taking a stab that I’ll need to keep working for another five years.  So overall that will put me at 39 when I shift over to semi-retirement (if I’m wrong I can always redo the numbers at a higher age).

I’m also going to be a bit conservative on this number crunch and assume I don’t seek a second term with the school board (also I have no idea if I’ll still want to do it at that time), so after my mortgage gets paid off in 2012 that extra money will stop flowing into savings.

On Wednesday we will pick this series up again and find out where some of this money is coming from to pull this off.

10 thoughts on “The Semi-Retired Calculations – Part I”

  1. Tim, I’m sure you’re going to address this in your later post – but a big factor to me in semi-ER has been also working to cover any shortfall in the investment accounts – having a year of losses, not expected gains. And also wanting to build up some cash to invest more in that down market at the same time.
    The spending I can pretty much control to a point, the stock drops I can’t.

  2. I’m 43 and constantly thinking about retirement but with three teenage kids, there really isn’t any chance of retirement at 45. So, I’m wondering if you have factored in the costs of your teenage kids come semi-retirement at 45. My guess is that you will need considerably more than an extra $9K per year. With the costs for clothes, sports tuition, sports equipment, gas to travel to sports, music lessons, musical instruments, books, computers, car lessons, cellphones, car insurance, RESPs, higher food costs, entertainment money/allowances, extra health insurance costs, I’m thinking you’ll find that kids will increase your estimates by another 20K per year, possibly more. Looking forward to your wednesday update.

  3. I ahd already paid off my mortgage 3 years before I semi-retired in 2001 at age 38. In those 3 years, I was enjoying huge surpluses between my full-time salary and greatly reduced expenses.

    When I semi-retired, I still enjoyed some surpluses but not nearly as high, of course. One thing I did was to increase my 401(k) contribution (as a percent of my reduced pay) to offset the change to P/T status as well as the reduced company match. Does this figure into your calculations? (I don’t know what your RESP refers to.)

    After 6 years of semi-retirement, I still could not stand the commute. So I cut my hours further, squeezing out most of the remaining surplus I had in 2007. In 2008, as I have mentioned in previous posts, I retired altogether at age 45.

    Those 7 years of semi-retirement were necessary to bridge my way to full retirement, both financially and personally. Semi-retiring in 2001 enabled me to get my personal life back, something I had pretty much lost in the 1990s as I accumulated wealth.

  4. HGM, I only have one child that’s almost 22, the other is 9 – but I found that the cost didn’t go up that much for the older one in his teen years – if at all. Having said that, he wasn’t involved in a lot of really expensive hobbies or sports – and most importantly, he had a part-time job starting in the summer when he was 13. I have never given my kids a penny in allowances. If they’re old enough to have a cell phone or to buy a car, they should be paying their own cell phone and paying their own insurance. I pay for the necessities, they pay for the extras. Their clothes last longer because they’re not ripping through the knees (just try buying a decent pair of 8 y.o. boys jeans at a thrift store – they’re impossible to find). Plus I think semi-retirement would allow some flex in the budget because you have the time to check out garage or ebay sales.
    What has cost more than I projected is my son’s university – but having paid for two semesters now and having a student loan and paying for it all myself when I went through – I’m not convinced that paying for a kids education is a good thing if they can get a loan or, like my son, work part-time. I think they take it more seriously when it’s their own money they’re frittering away.

  5. Tim,

    Do you ever take into consideration the fact that there may not be CPP and OAS when you hit 65? I guess 60 since you would probably start collecting right away?

    In other words are you planning on having CPP and OAS or have you budgeted so that if CPP is there it is a bonus, but if it isn’t your not going to be in trouble in your later years.

    Thanks,

    Rocky

  6. @Tim – Nice thread.

    @Jacqjoli – If you’re relying on investment income for retirement, maybe you could concentrate more on having less equity positions and increase your % of safety in your portfolio. Despite the lower yields, guaranteed income will never go down and when there are problems in the markets, if your asset allocation is properly aligned, it should weather the storm without sizable losses.

  7. Good point Rat 🙂

    I think when I feel I’m done even wanting to work at all, I’ll increase the safety. Right now, I’m kind of enjoying working part-time and it’s pretty lucrative so I’ll deal with the risk.

  8. @Rocky – Tim has covered it several times before and I agree with his assessment. CPP is not like the plan in the US. It’s not going anywhere. So yes, he’s planning on it being there and so am I.

  9. Like Tim, our mortgage will be paid of in 2012. And similarly, the next 5 years of saving and investing without a mortgage on the books will hopefully be the springboard for us into early retirement.

  10. @ Jacqjolie,

    Good point. I was going to point out later I’m planning on using a two to three year float of cash to help smooth out high/low income years.

    @ HGM,

    Actually I’m not too worried. I intend to cover the basics in life for my kids, if they want to do more than they have to help pay for it. Besides, the $9K/year number is the minimum. I could easily break that every year and have excess. In addition, I don’t post it in my net worth summaries, but the boys do have an RESP account with over $13K already.

    @ Rocky,

    Financial Student is correct. CPP is going to be fine until I’m an old man so I’m not worried about that. Also the advantage of working more in this case will boost my CPP payment when I fully retire. OAS I try not to include more than 50% of the payout as required money. The rest becomes bonus cash.

    Hope that helps everyone.

    Tim

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