After reading "Why Swim with the Sharks?" I have been fairly curious about how much my wife and I would actually need to retire assuming a comfortable retirement lifestyle. So, lets work on a case study… me!
In the book, the author suggests that you calculate the expenses that will be eliminated on a monthly basis due to not working anymore.
- Mortgage Payments
Costs of Working:
- Deductions off your paycheck
- Work clothes
- Lunches, Coffee, Social Fund, Gifts
- Commuting Costs
- Childcare Fees
Costs of Raising Children:
- Extra-Curricular Activities
- School Fees
- Dental and other health costs
- Clothes, haircuts, other personal items
- Groceries: $200/month (on top of what we usually spend)
- Line of Credit Payments
- Credit Card Bills
- Car Payments
- Retirement Savings
- Children's Education Savings (RESP)
The summary above doesn't account for extra spending required during retirement. Since you have a lot more time, wouldn't you think that you're going to spend more money? I also PLAN to have kids, but don't have any currently so I really don't know how much they're going to cost. As a result, I've decided that instead of using the suggested table, I'm going to do a rough calculation of the expenses that I predict that I'm going to have, instead of calculating what I'm NOT going to have.
Assume that all debt is paid off, kids are moved out or in college with an established RESP. I've listed below some expected expenses:
- Groceries: $500/month
- Car Insurance (1 car): $100/month (liability only)
- Gas: $200/month
- Car Maintenance: $100/month
- Heat/Light: $300/month
- Phone/Cell/Internet/TV: $150/month
- Home Insurance: $50/month
- Property Tax: $200/month
- Home Maintenance: $100/month
- Travel/Vacation: $500/month (We hope to travel a bit)
- Eating Out: $300/month (We like to eat)
- Medical Insurance: $300/month (estimated)
- Gym Membership: $80/month
- Misc Spending: $500/month
- Total Expected Expenses: $3,380/mo
- Expected Expenses x 10% contingency: $3,718/mo or $44,616/year
- Current Combined Income: $44,178 + $38,019 = $82,197/year (after tax, no CPP/EI/deductions )
- Percent of current income @ retirement: $44,616/$82,197 = 54.3% (this % will decrease as we advance in our career)
Notice that when you're retired, you don't need to worry about CPP, RRSP, pension, EI or any other deductions from your paycheck! That's a big chunk of your money during your working years.
I'm actually surprised to see that we would only need 54% of our CURRENT income to retire comfortably. Try the calculations yourself and you may be surprised.
Stay tuned…tomorrow, I will post about the expected income during retirement and calculate the a feasible age where we can retire comfortably.
Continue with the series:
Part 2: Early Retirement – The Income
Part 3: Early Retirement – Conclusions