Time > Money

This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.

I have approximately 13 years until my projected retirement date – the point where I foresee my investment income overtaking my expenses (at their current level).  Until that point, I am selling my time to an employer.  This year will be 10 years since I entered the workforce full time, and I have to say I’m glad that I have an exit plan.

Overall, I like my job – I also have a set of skills that is somewhat desirable to potential employers, meaning if I didn’t like the duties I was currently carrying out while selling my time, I could change to another employer.  I may not make the same amount of money or have the same benefits I do with my current employer, but I’m reasonably certain I could find something I would enjoy doing for the time being, the thing is though – I have other stuff I’d like to do.

My wife and I live a fairly frugal lifestyle – we tend not to waste tons of money on things that we don’t need and as such are able to  think about getting out of the workforce at a relatively early age, as we are able to save a significant amount from our paycheques and put it towards investments.

Additionally, we would much rather do with less “stuff” in order to gain more time to ourselves.  I would rather do without the newest gadget, a trip or whatever else in order to gain some amount of freedom over my choice in lifestyle.  Most of my hobbies and interests are relatively inexpensive (or at least I make them that way through cost-cutting measures) and I would much rather spend the 40+ hours per week involved in that type of thing then doing what someone else wants me to do.

What the retirement equation comes down to for me, is at what point is the tradeoff worth it?  For example, if between the two of us, we could live off of $10,000 per year, we would be able to retire once our investments reached around $250,000 (withdrawing 4% per year).  Currently, our budget in today’s dollars is about double that, and this is something that we discuss from time to time in our house.  Normally this discussion takes place on a Monday morning, getting ready for work when we’d rather still be sleeping.

As we get closer to some bigger numbers, it will be easier for us to decide – we are still some time away from that $10,000 per year in investment income right now (which admittedly we would have trouble living on in the long-term).  I would much rather decide to live on significantly less than a “normal budget” than sell my time longer than I have to.

How do you decide on your exit point?  Would you live on significantly less to exit the workforce early?

14 thoughts on “Time > Money”

  1. I find it very hard to believe when people say they can live on 10k a year… if you live in a tiny city, with no car, no house insurance, house maintenance, no vacations it might be possible… but when you take those things into account it’s not really realistic… we live in Toronto and spend a substantial amount of money living in a way that makes us happy… we work hard but we love what we do it would be nice not to have to work at all but to be happy and not work at all money is essential so you can explore our wonderful world and take in life…

    I would love to see an outline of how you would allocate your 10k a year.

  2. While there were a number of pieces which fell into place in 2008 when I ERed, the one relating purely to a portion of my portfolio was the value of my company stock. Evaluated quarterly, thankfully, when it reached the $300k mark I knew I could cash it out at favorable tax rates (NUA) and be able to generate enough monthly dividends to cover my projected expenses with a decent cushion left over.

  3. I agree with Bart that 10k/yr is unrealistic, my understanding thru reading blogs and articles, most families in Canada would spend between 20k and 40k/yr. I recently heard an advice to choose a retired family whose lifestyle is close to what you want and ‘beg’ them disclose how much they spend each year and use that as your own target. I think this is interesting and practical.

  4. I also can’t see living on $10,000. The government of Canada deemed income below $15,264 the 65+ crowd to be the min that is needed going by the OAS + GIS max.

    You better have a big garden and raise egg laying hens along with a fish pond in your back yard. And maybe grow some weed for extra cash.

  5. @ Bart/Retired@44/Canuckguy – There are millions (billions??) of people that live on less than $10,000 per year, and they don’t have between $500,000 and $1,000,000 in assets as a backup as well as social security programs available in older age.

    My house will be paid for, my bills will be low – I don’t really travel or spend a lot of money, I don’t really see where the excess will go. I would much rather sit at home and read a book of my own choosing for the day (essentially a free hobby) than have to go to work.

    I don’t spend that much right now, I don’t see that increasing as I get older, I would suspect that my spending differs significantly from “most families”

    Dave

  6. Those millions and billions of people don’t live in Canada. Their annual salary might be what your property tax bill is. Yeah, you don’t pay property tax on a shed – but are you planning on living in a shed?

    How I’d spend $10k if I was going bare bones (which I have no intention of) – or how I’m guessing Dave might spend it:
    Property tax – $1000-$1500
    Utilities – $2500
    Food – $3000
    Misc. – $3000-$3500 (ie. no vehicle I guess?)

    Yes, it’s do-able – for awhile – but I think you’ll change your mind on that number and how easy peasy it is. I’m actually quite shocked that you’re spending less than $10k / year now. I guess you’re not counting your mortgage? So you’ll spend basically 2/3 of what Jacob of ERE spends (considering you’re a couple and he only counts his share)? I’m kind of surprised at that.

    Personally, I think it’s valuable to know that you could go super low – but not plan on having to do it. Which I’m guessing you aren’t.

    Really how long should it take two DINKS that make decent coin to save $250k? Maybe 4-5 years? Consider your drop in CPP as well – although you’re a government employee so have that whole defined benefit pension thing going on I imagine.

    I had my years of living on less than $10k/year while raising a kid in university. It was ok, even kind of fun – but not a lifestyle I aspire to long term. Sometimes something odd happens when you have to actually live on that amount and know you could live “better”. You feel the pain of missing the golf, not being able to eat out – ever… Not just because you don’t want to, but because you *can’t*. I don’t know, I’m planning for a pretty hefty excess myself – just for giggles. And to sleep at night when the market goes whoops.

    I wish you luck with your budget. It’s a good thought experiment anyway.

  7. I think this is possible.I will retire around 45 and live on less.And dependent on my investments and frugality.As were living on less than the average cdn and just doing fine.
    gl to everyone on the retirement dreams

  8. The beauty about living on 10k would be that when you start collecting CPP/OAS,that would probably more than cover your expenses…you would be set for life.
    You just need to save enough to get to that point.

    @Jacq
    When I had a house out in the country,I didn’t have to pay any property tax.
    Maybe you should consider getting yourself a little house on the prairie. 🙂

  9. I will retire early once I have enough money saved up to cover future expenses (roof repair, drain tiles, exterior repairs, furnace, hot water tank and the old folks home). I think I have enough money but I need to make sure the major illness and potential emergency fund is also covered. That is big bucks! $10K/year is not possible if you include fixed expenses. I live in an 80 year old house in the poor side of Vancouver. My expenses are: $5000 prop tax, $1500 insurance (with discounts), $2400 utilities (I turn off the heat 6 months of the year) = $8900. That only leaves me $1100/year (less than $100 per month) for everything else (food, repairs, dental coverage, medical, etc….) not possible.

  10. In the end it all comes down to how and where you want to live… bottom line…

    you can move to Africa and live on a $1000 a year not a problem… hell you could you probably live on that in Canada if you were homeless.

    I’ve given thought to purchasing a property for say 100k down south in one of the islands… I could easily take my business with me and do quite well.. reason I don’t… well we don’t have kids yet… but that will be coming and for them to have a good future, you want them educated and living in a place that has the potential to give you a great life and choice as to how they live.. if they apply yourself… that’s why my parents immigrated to Canada in the first place…

    So yes you can live on very little amounts of money, but if you want to experience life and the world where you feel you’ve done all you can with the time you have… then that takes money… and I rather do what I love and spend what money I can to live life to its fullest… rather then waiting for that last dreadful day.

  11. Hazy – could you let me know how you found no-property-tax property – and I’ve lived on the prairie in a little house. I’ve been going on MLS for quite awhile looking for raw (prairie) land and haven’t found anything with no mill rate??? This 0 property tax scenario doesn’t compute to me and I’d like to know how you managed that.

  12. Jacq – There was some property tax,but there was also an immediate tax credit that covered the cost.
    So there was no taxes left to be payed.

  13. Just this week I heard a story of a couple living on $200 per month, $2400.00 per year. Now that’s frugal. Just because you or I don’t understand how it is possible, doesn’t make it impossible. I think the key here is not “how you live”, but “what you live for”. Figure why you live, and then develop a life that supports that goal. If your goal is max comfort, then you should go read a different blog, if your goal is to be free to use your time as you see fit, then stick around and start figuring what your willing to give up to make it happen as early as possible.

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