It’s almost been a full two years since I’ve done a full redo on my retirement calculations. Today I’m going to start redoing them, but I will caution I’m going to try something a little different and see if I can drift down that retirement age to 42.
To start with you need to know your spending, if you don’t know this you need to find out. Previously I’ve always estimated by spending with the following formula: current spending – mortgage (because I’m going to have it paid off) – work expenses. The reality is my current spending is only an estimated number, so in 2012 I’m going to track every penny of spending for that year to give me better data to work with.
Yet for now I’m going to just use my latest budget data: $3988 – $1840 (principle and interest only) – $79 (gas and parking) = $2069/month. To make things easy I’m just rounding up to $2100/month or $25,200/year. In general I’m expecting my lifestyle to stay fairly close to what I do now, granted the kids will be mostly out the door at 45, but I’m just assuming my spending on them will just roll into my hobbies spending (currently about $140/month). I’m also assuming that being retired that I won’t be saving for my RRSP or pension or the kid’s RESPs anymore.
One other comment on my living expenses, yes they are mostly covering just the basics since I fully expect to keep writing after early retirement and still get some income from that. So that extra money will fund any trips I want to take which given my typical travel budget has been $3000/year and I’ve already exceeded that in profit from my business for 2011: I think that is a fine assumption.
Yet, I need to add a few items to $25,200/year figure. First off I’m going to assume $1500/year in house maintenance and $1000/year in car depreciation and $1500/year in medical costs. So in total I’ll need $29,200/year.
Now I’m going to make one other assumption that could put things in a little doubt, because I’m not sure if I can do it. I’m going to assume I’m a very clever guy and managed to balance my RRSP’s and TFSA’s and taxable accounts to pay no income tax. The reality is this could take some work, but given my low income requirements it is entirely possible. Basic tax federal deduction is $10, 527 per person, so with a clean income split via spousal RRSP and pension spliting that totals $21,054, which leaves $8146/year to come out of our TFSA accounts to pay no tax. With TFSA contribution room of $5000 x 2 x 14 year = $120,000. So that $8146 represents a required yield of 6.8% which is a bit high, but possible. Worse case would be I would be out a little bit of living money to cover tax or have to work a little bit each year to cover tax (I ran a quick estimate one day it came out to less than $100/month). In either case that is acceptable for these calculations.
Oh, some general notes on this series of posts. All values are in 2011 dollars, so to achieve that I use real returns (which are just your normal return minus inflation), so all the return % may look low.
So how much am I going to have at 42? Well that we will calculate as I walk through my accumulation of assets over the next few posts and some other income sources (OAS and CPP). Then at the end of this series I’ll run the numbers to see if this still looks like a good idea or what changes I need to make to my savings to have it happen.