Contingency Plan

The basis of my entire Early Retirement plan is that I will be able to achieve enough in the way of investment returns over 10 and a half years to live off for 55 years (which will bring me to age 100). Both my wife and I realize that this goal is aggressive, and may not be doable – depending on both our investment returns, as well as our spending patterns over the next decade. If either differs significantly, our plans could change.

Although our day-to-day life is relatively stress free, due to my inherent nature as a financial worry-wart I do get concerned at times about our ability to maintain the lifestyle we want to have after retirement. I get troubled about the possibility of health problems, of market crashes, and many other things that could possibly go wrong – sometimes in excess.

The thing with most of these negative thoughts is they would be an issue whether I was retired or not. I don’t get insomnia from these kind of dark thoughts, they just exist at the back of my mind sometimes – a part of my “personal finance” brain that won’t shut off. I have (to a certain extent) included contingency plans into my financial “base”.

I haven’t included either my work pension or any government money into my financial plans. My defined-benefit work pension is not inflation-adjusted, which will obviously leave me much less buying power at retirement. I would prefer not to depend on CPP coming through, as I don’t have a lot of faith in my government to pay up 30 years from now (whether right or wrong – as noted I’m a bit of a pessimist).

Either of these sources of income will provide a boost to my available dollars from age 65 – 70 onwards. This is the period of time that I am most concerned about – an age where it would be much more difficult to find a job anywhere, at any pay, and also an age range where the probability is high that health problems will become an issue and an additional boost to retirement funds will be welcome for peace of mind.

Both of these pension plans act as a savings plan that I really had no choice but to become involved with. I would have preferred to have control over either of them to do as I liked, but as a part of my overall plan, it seems like this buffer will add some insurance to my overall aggressive plan – beyond the obvious working for additional years.

Do you have a contingency in your personal finance plan?

4 thoughts on “Contingency Plan”

  1. I don’t have much faith that CPP will be there either. …Or that they won’t slowly shove the eligible age to something ridiculous like 79.

    Because financial independence is still quite a ways off, I’ve decided that I’ll tackle the bear when I get to it. No need worrying too much about it right now. It’s difficult for many of us money micro-managers not to want to have a 100% solidified financial plan, but we have to toss that aside and realize that our mind just likes to work on problems even if it’s nowhere near imminent. (That’s what it’s designed to do–invent and solve problems.) When the day finally comes, I may decide to overshoot by an extra year, or year and a half, or two. Throw an extra $300K on the pile. …I know at this moment I want early retirement ASAP, but who knows how I’ll feel in a decade? I certainly don’t remember the exact plan I had laid out 10 years ago. So yeah, just say, “Shut up, brain!! It’s a long, long way off–no need to get crazy about it now so please turn off the loony tunes.”

  2. We are a lot alike, Dave. I view my current ER in two parts. The first is getting to age ~60 using only my taxable accounts (about 2/3 of my total investment portfolio). The second, and far easier, is going beyond age ~60 once my “reinforcements” begin arriving. Those include (a) unfettered access to my IRA (the remaining 1/3 of my portfolio), my frozen (and non-COLAed) company pension, and Social Security (I do expect it to be there but if that takes a hit I will be okay).

    I made sure to build a nice surplus or cushion into my current (pre-age-60) plan of investment income over expenses. I am not even using all of my current investment income to cover my expenses, so my first contigency plan is to stop reinvesting all of my excess investment income and divert some of it to my local bank account. This is before I have to tap into any principal, something which is years away, if it will ever happen (maybe in the last few years before I turn 60 in 10 years from now).

  3. I’ve got a little more faith in CPP than others, maybe, but I’ve also gone with the idea to not include it in my plans, as a buffer.

    I am treating health-plan paybacks similarly: we get reimbursed for many things, but I don’t include the reimbursement cheques in my numbers – which means our cost of living isn’t quite as high as it looks. (It also means that if we lost our health plan for some reason, we wouldn’t suddenly need to consider those extra costs.)

    I also make sure rounding is working in my favour, as another contingency: I round our cost of living numbers up to the next even thousand, and round our income numbers *down* to the next even thousand.

    It’s not a huge thing, but it means that we are always able to live on a bit less than the numbers show, and we’ve always got a little more money kicking around than we think we will.

  4. I retired unexpectedly 9 years ago. I was a saver but I had no thought-out retirement plan. I have a defined non-cola company pension plan and currently only $180,000 RRSP(still untouched) I am collecting the CPP and I will start collecting the OAS this April. I guess I can say my only plan was to cross my fingers and hope to god we don’t experience high inflation like back in the late 70’s and early 80’s. My biggest regret is the fact my Company pension dies with me. I selfishly went for that option because I was convinced I would outlive my spouse but now, I am not so sure of that. The spouse only has the OAS, CPP and a small company plan. Oh well, that is water under the bridge now.

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