Continuing from Retiring Early – Part 1(Expenses), and Part 2 (Income), we will trek on with Part 3 – my conclusions regarding retiring early. This article will focus primarily on the savings required to meet our retirement goals at certain pre-defined ages that make sense for us.
Here are some tables summarizing our income, expenses, and required savings per year (assume RRSP withdrawals/taxation) if we retired:
@ age 45: Savings Required: $1,133,000
|Age||CPP||OAS||Pension||Pre-Tax Income||After-Tax Income||Expenses||Savings Req||After tax Savings Req|
@ age 52: Savings Required: $359,780
|Age||CPP||OAS||Pension||Pre-Tax Income||After Tax Income||Expenses||Savings Req||After Tax Savings Req|
@ age 55: Savings Required: $149,194
|Age||CPP||OAS||Pension||Pre-Tax Income||After-Tax Income||Expenses||Savings Req||After Tax Savings Req|
The problem with retirement projections is that it makes too many assumptions. Who knows if my wife will continue working until retirement, or if OAS will exist, or even if the tax brackets will be the same. I guess we just work with what we know at the current moment and adjust as we need to. I also only have a 10% contingency built in. Some of you may be more comfortable with a 20% contingency fund.
One tax issue I didn't deal with is converting the RRSP to an RRIF once I turn 69. An RRIF has an increasing withdrawal schedule starting at the age of 69 (4.69%). This can lead to large taxation hit IF you have a large RRSP remaining at this point. If I follow this plan and die broke, the RRSP balance will not be too large in any of the scenarios described above and the tax will be minimalized.
In Summary: If we were to retire: @ age 45, we would need a Savings of $1,133,000. @ age 52, we would need a Savings of $359,780. @ age 55, we would need a Savings of $149,494.
Assumes that our savings during retirement grows at the rate of inflation (extremely conservative) AND that we'll die broke.
Another bold assumption is that OAS will by FULLY intact when I reach 65. If OAS gets canned (or reduced) by the government sometime in the future, that would add an additional $235,680 ($11,794 x 20 yrs) to my required savings + income taxes charged to the additional savings. A large hit indeed.
Considering that I'm going to have $1 million in net worth by the time I'm 35, this whole retire early thing should be no problem right? ;)
Hope you enjoyed the early retirement series. I learned a lot by writing this series and hopefully you picked up a few things also. Let me know if you have any questions.
Have a good weekend!
Other Articles in the Series:
Part 1: Early Retirement – The Expenses
Part 2: Early Retirement – The Income-> If you would like to read more articles like this, you can sign up for my free newsletter service below (we will not spam you).