Thanks for the tip to that site. Although I’m frugal (comparatively to the populace) I couldn’t come close to doing what he’s doing. Especially with a wife! She must really love him and subscribe to his philosophy to some degree.

The formula for the ‘portfolio value’ column is currently:
(C8+$B$2*$B$1)*(1+$B$4)

I wonder if it shouldn’t be:
(C8*(1+$B$4)+$B$2*$B$1*(1-$F$2))

which puts retirement, at a 50% savings rate, at 13 years, not 8.5.

Please correct me if I misunderstand.

http://www.financialpost.com/story.html?id=1628703

The purpose of the exercise was to show if one focuses on savings first, rather than spending first, one can achieve FI much faster. You can find numerous calculations showing how long it takes to get to $X if that is the figure you ‘need’ to retire.

The fact that the spending amount varies is valid – the premise is that your savings rate varies based on your expenses. Thus, if you can find a way to live on only 50% of your income, then the remainder can go towards savings. When you retire, one would expect that (after factoring inflation) the expenses certainly would not go up but would be in line with expenses before.

It is a very different way of looking at it and perhaps you will see this perspective if you read through the example and comments again.

However, from your spreadsheet, I notice that you are also varying the amount of money spent in retirement between the two scenarios – you only like on 20K/year in the 50% scenario as opposed to 45K/year in the 25% scenario. That’s kind of misleading – or at least is does not clearly limit your findings to the impact of increased saving ONLY.

I agree with your point that increased saving is very powerful, but it is really only fair to compare the impact of increased saving on the same end state. For example, how many years does it take to get to $1M under the 25% and 50% scenarios? Using your spreadsheet:

At 25% it takes about 24 years
At 50% it takes about 15 years

That’s the real impact of increased savings (without the distortion introduced by the reduced expenses).

I think that living on one’s income in a relationship is highly ambitious and would compromise the quality of life for some people. While retiring young is no doubt something we all want to do, do we really want to reduce our quality of life getting there?

Just some thoughts.

We’ve taken a slightly different approach. Instead of trying to retire early, we’re trying to live a more balanced life now. I work part time while the kids are still growing. When they’re grown, I plan on working full time into my 50s and 60s. I’d rather earn less now but get the time with them while they are young. It may be Freedom 65 but we’re happy with our lives (so far so good).

If someone is willing to forward me their information, I can try to see if it fits my model. I don’t want to know who you are (perhaps you can forward to FT and then FT can forward it to me blind) but what I would need are these facts:

By year, your pensionable earnings
Your birth month (unless when you turned 18 you made very little money that year and we can drop it)
What the government has given you as their estimate of CPP payments when you turn 65.

The government calculates this on a monthly basis rather than yearly. I don’t have records for myself when I was much younger. Thus, I can’t see how much I earned every month during the years when I wasn’t earning the maximum, making it hard for me to figure out which months to drop. From what I could put together, I’m within 1% of what the government’s estimate.

There are 4 main components to calculate the CPP payments from what I can tell, and the ‘Replacement Rate’, ‘Pension Adjustment Factor’ and ‘Actuarial Adjustment Factor’ are all simple. The ‘Earnings Rating’ which gives a sense as to how close to Maximum Pensionable Earnings you achieved over your contributory period is the most problematic and requires a lot of manual input.

Once I’m comfortable that I’ve hit upon a decent spreadsheet, I’ll share it within this community.

Make sure you check out Redflagdeals.com if you want to get in on a deal for a big screen TV. I believe Costco is clearing out Samsung 61″ DLPs with stand for as low as $1,399 and they have Viewsonic 52″ LCD’s for $999 if my memory serves.

On the other hand, maybe you shouldn’t…you can’t easily get a TV that large home in your 350Z.

How, with H1N1, is your friend going to relax in Mexico right now?

;-)

I use a super-rough estimate of 70% of the maximum. I know if I worked until 65 (and maybe earlier) I would get about $10k in today’s dollars. If I retire at 55 I should be able to still get a good chunk of that maximum (ie $7k). If you are retiring earlier or have less working years then you’ll have to adjust that amount downward.

I think for someone retiring 45 or less they might as well not count the CPP at all – it won’t be very much (I don’t think).

It would be great if cannon_fodder can figure out the secret CPP sauce.

CPP estimates are HARD to do. The only way I’ve found was using the governments own retirement calculator and fooling around with the options. You can simulate dropping your CPP rate to zero. It’s not easy, but the only way I’ve found to get a number.

See:http://www.hrsdc.gc.ca/eng/isp/common/cricinfo.shtml

Tim

350z (though the 370z looks frickin sweet :-) I bought a used 2004 with 11,000 miles on it (imported from Arizona).

The frugalness, once instilled, is hard to purge. It is a good habit to have, though I find myself walking down the aisles of Costco and Future shop longing for a big flat screen tv.

On paper, I had not much less than I have now. My growth was all unrealized capital gains. I did aggressively use my HELOC to buy income producing stocks, reits and trusts rather than sell all my growth stocks as I didn’t want to get hit with capital gains all at once (oops!).

However, the leverage has worked to my favour on a cashflow basis and as we climb out of this recession, I should come out ahead.

QCash

You’re right, OAS is easy, and I get that. CPP is another story though, it is difficult to understand how they treat people who retire early. Let me know if you figure out anything, even rough estimates. I’ve been paying into the CPP at the max amount for the last 8 years or so, but I don’t know what I’d get if I stopped now and began collecting CPP in 20 years or so.

A fixed rate of return (”after inflation” or otherwise) is simply one of the many possible market outcomes. For example, the S&P500’s risk (as measured by standard deviation of returns) over the last century has been appx. 18%. That’s a lot – and even if your investment horizon is in excess of 20-30 years, there is a chance of low returns over that period – much lower than the historical average.

My point here is that any retirement calculation must consider the risk of the underlying portfolio (read – expected standard deviation of the returns for the asset classes held and in what proportion). The trick isn’t to have enough savings/investments for the average or median case (as is done in most calculations), but to have enough to survive some lower expectation of returns, eg. the lower 10% so you can be reasonably confident that you will achieve your goals.

There are simulators available to do this, eg. MCRetire.