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Tuesday, March 28, 2017

Retirement Calculations 2011 – Part IV

Posted by Tim Stobbs on September 4, 2011

Well today I pull together the last few days of number and see if I can pull off a retirement at 42 rather than 45.  Based on the feedback from Part I of these calculations I’ve boosted my house maintenance  amount up from $1500 to $2000 per year.  I managed to get a friend in town to let me know what he paid to replace all of his windows earlier this year and in total $15,000 with tax and installation.  I assumed a 30 year lifespan for the windows.  The new grand total spending target is now $29,700/year.

I’m going to assume my real rate of return drops to 4% at age 42 to reflect the fact the portfolio is going to get a bit more conservative.  I will also assume that I don’t touch the principle from my pension and TFSA accounts.  I will only be using the investment income.  So that means at age 50 my pension account which is expected to be at $339,154 at 4% should produce $13, 566/year income.  The TFSA at 42 is expected to be at $136,151 should produce $5446/year income.

So working backwards at 65 between only half of our OAS, our CPP, TFSA and pension income that totals $32,172/year which is in excess of our spending target of $29,700.  (Recall all these values are in today’s dollars so there is no inflation adjustment, that was handled by using real returns).  So it is nice to know that I have an extra cushion as I get older and our traditional retirement should work out just fine.

Yet I still have to live from 42 to 65.  Now my TFSA will be producing $5446/year income starting at 42.  So I will deduct that from my spending target.  That leaves a shortfall of $24,254/year which needs to come from my taxable and RRSP accounts (or $2021/month).  If you add up my RRSP and taxable accounts that equals $378,922 at age 42.  So using that handy compound interest calculator again I input my starting amount of money and put in a negative savings rate of -$2021 per month at 4% for 23 years.  The result: I still have $36,614 left when I turn 65.

So I’m more than fine to retire at 42, since I ignored that I can tap into my pension at 50 and my CPP early at 62.  So all in all, I could have picked an earlier retirement date for these calculations or spend a bit more than my budget.  Either case it is a nice issue to have. :)

So just how early could I retire?  Well based on my educated guess from looking at these numbers for years  I suspect I could pull it off at 40.  Yet there isn’t much point of counting my chickens before they hatch.  These calculations are fairly sensitive to the real rate of return on my investments, so until I get there I won’t be renaming this site to ‘Free at 40′ yet.

To answer a somewhat likely question, how come my numbers have drifted so much lower since last time I ran the calculations in 2009?  To be blunt: I’m making a lot more money now.  The calculations as you may recall from earlier in this series don’t take into account any raises beyond inflation.  I’ve doing much better than inflation over the last few years so that jumps up my savings capacity.

If you have any other questions, feel free to ask.

Comments

One Response to “Retirement Calculations 2011 – Part IV”
  1. Gus says:

    How do you account for CPP when it is linked to a defined benefit pension plan?

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