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?