Posted by Tim Stobbs on September 16, 2010
This is a guest post by Clinton, a 37 year old teacher from Ontario, who also wants to retire at 45.
My spouse and I have been school teacher’s in Ontario for about a decade and earn a good income. We have two children and live in a nice home in the suburbs. You will find us at swimming, baseball, soccer or another sporting event, two or three times a week. And I also want to retire at 45.
To date I’ve just about always have had a job. I had a couple of different paper routes when I was 11 and started working as a dishwasher in a local restaurant when I was 13. I was always employed throughout high school and university.
When I was in my late teens I felt like I had to make an employment decision for the future. With two generations of school teachers in my family, it was the obvious way for me to go. But I felt that I took the safe path when I became an elementary school teacher. I believed I could be a great entrepreneur and hold a number of small businesses, but the safety and security of the teaching profession drew me in.
By the time I had turned 29 years old, I knew that I wanted to have the choice to retire at 45, although it took me four years to actual take any successful actions towards this goal. Now at age 37, I know what I need to do and how to get there. So what is my plan? The major elements are:
1. Reduce Bad Debt – Credit cards, LOC used for personal purchases.
I’m focusing on paying for larger consumer goods, vacations and renovations outright. We used to purchase large items on credit cards and lines of credit. Then we spent a year to pay them back. Instead we now save up for these purchases in our TFSA.
2. Aggressively pay down the mortgage on our principal residence and reuse the equity to invest.
For example, on Dec. 31 2009 our principal residence has a readvancable mortgage of about $340,000. As you pay down the principal, amounts below 80% LTV becomes available as a secured line of credit. Now the mortgage part of that account currently sits at about $280,000. Ninety percent of the principal payment came from a real estate investment transaction. The other 10% comes from holding a prime-.9 variable mortgage while making payments as if we had a 5 year fixed rate mortgage at 4.5%.
3. Create alternate streams of income that act to replace our current income.
In particular, I am working to create income streams that are not co-related to an hourly wage as much as I possible. I really found it easy to pick up projects, contracts and various extra positions that paid me between $30-50 hour. I used to do a lot of this type of work between the age of 29-33, but I found that I was not leveraging my time effectively enough to achieve a balance of the goal of retirement at 45 with a healthy family life. Now, I am now trying to use my time more efficiently to create many little streams of income that will add up to something much bigger.
But don’t teachers have a great pension plan? Why retire early?
I would say that 99.9% of teachers in the profession are working towards a full pension and retirement in their 50’s and 60’s. You just do what you’re supposed to do – day in and day out and one day you reach the magic number of 85, then you retire. In Ontario, a full pension means the 85 factor, which basically is the age of the teacher + the number of years in teaching = 85. At this point you can retire with a full pension. I would also estimate that close to 20% net of every pay cheque goes towards that pension plan. For me to retire at 45, I would see my pension drop 2/3rd from $58,000 a year to $18,000 a year. In addition to the lowered pension amount, I would not be able to access those funds until I was 50. You can see why most people would want to work towards that full pension.
For me early retirement has a number of meanings. I really want to have the lifestyle that our family is living right now, without the obligations of our current employment. I want to be able to develop many of the business ideas that I have, write a few books, and do much more traveling as a family. To me that is worth giving up a full pension. You could say I’m not your average teacher.