Well today I pull together the last few days of numbers and see if I can pull off a retirement at 42.
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 $350,341 at 4% should produce $14,013/year income. The TFSA at 42 is expected to be at $140,112 should produce $5604/year income.
So working backwards at 67 between half of our OAS, and our CPP, which was $13,295 (from Part III) we add in the above TFSA and pension income that totals $32,912/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 67. Now my TFSA will be producing $5604/year income starting at 42. So I will deduct that from my spending target. That leaves a shortfall of $24,096/year which needs to come from my taxable and RRSP accounts (or $2008/month). If you add up my RRSP and taxable accounts (from Part II and Part III) that equals $353,832 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 -$2008 per month at 4% for 8 years (until age 50 when my pension dollars kick in). The result: I still have $260,272 left when I turn 50.
So now that $14,013 from my pension kicks in and reduces my spending again, so that drops the spending from my RRSP and taxable accounts to $10,083 for ages 50 to 67 (or $840/month). So staring with $260,272 with a savings rate of -$840 at 4% for 17 years. The result is $268,309 at age 67. Yes that is right…it went up since it accounts are producing more income than I’m taking off. So that would mean I could boast my spending at age 67, but an extra $10,732 which would take the grand total after 67 up to over $43,644.
So yes, apparently freedom 42 is still a done deal with lots of cash to spare, which is a good thing since the allows me to have one or more of my assumptions fail and I would still be fine. So a lower than expected rate of return or a further reduction of government benefits would be something we could deal with. The nice thing now with the calculations all done is you can easily go back and change any assumption you like and see the fallout.
Yet that isn’t the only safety cushion I have to these plans. I’ve also got some backup plans which I’ll discuss tomorrow and present a faster way to estimate all these calculations.
If you have any other questions, feel free to ask.