The Dollars and Cents For Early Retirement

Early retirement is closer than you think.

I was catching up on the Personal Finance Canada subreddit when I saw a post about the amount of money you needed to retire. In this blog post, the author calculated that a couple would only need $550,000 in savings to live a comfortable retirement while spending $50,000 a year.

Of course, this figure is no where near the millions and millions we are conditioned to believe are needed, so on with the OP bashing.

"$50k a year means you'll need to live frugally. No one in interested in that!"

"The OP didn't account for inflation!"

"The 4% safe withdrawal rate is a lie!"

I like Reddit. But I'm not really a fan of the Reddit hive mind. Piss them off and you get a crud storm of attacks.

First off, after all the cutbacks I've made to my budget, living on $50,000 a year is doable. I've cut the cable, changed my phone plan, and changed our life insurance.

Wifey and I don't watch as much TV. In fact, wifey hasn't noticed much of a difference at all. The only difference is that the TV in the kitchen is displaying the channels in crisp HD instead of the fuzzy signals we were getting if one plugs the cable directly to the TV.

I haven't noticed a change in my phone usage. As usual, no one calls me. I only send and receive texts. I'm still able to do that unhindered, so not much difference there.

Our life insurance coverage is the same. Only we won't be covered in 20 years. By then, wifey and I should be retired or close to retirement, so we won't need the coverage life insurance provides.

After all these cuts (and other cuts), our expenses should be under $50,000 a year. Since I implemented most of these changes in the summer, our 2014 budget will be over $50,000. We will be spending 60% of our after tax income as a result.

The blog post mentions that most financial professionals recommend we need incomes for 70-80% of our working years income. The author suggests 50-60% is doable.

I'd go one step further. In our situation, without a mortgage, changes to car insurance, no public transit costs, and less gas consumption, I expect we could live on 35% of our after tax income.

I need to point out that the author is assuming the retiree retires between 60-65 and will be getting benefits like CPP (Canadian Pension Plan) and OAS (Old Age Security) in addition to the income from their nest egg.

If wifey and I were planning on retiring at 60, maybe we could factor in CPP and OAS, but we're planning on early retirement so the $550,000 figure won't work for us. Just for fun, if I assume the maximum benefit for CPP and OAS, our figure drops to -3%... Wait, that means CPP and OAS covers our modest lifestyle with money left over. In any case, it's still better to ignore CPP and OAS as we are looking at early retirement.

With that in mind, onto the next point two points. Inflation and the 4% safe withdrawal rate. Assuming inflation is a steady 3% increase a year, that means your money needs to grow 7% a year to keep up with inflation and your 4% safe withdrawal rate. On average, stock markets for the last 200 years, have grown 10% annually. This includes the crazy crashes. If we assume a conservative 7%. Tada! The 4% rule holds true.

Of course, we're always going to have people whining and complaining about anything that goes against what they believe to be true.

If someone dares say something different, we need to attack them so they don't show up again!

That in a nutshell, is the Reddit hive mind. Sharpen your pitchforks and ready the torches!