Read an Excerpt from Retired at 48 - One Couple's Journey to a Pensionless Retirement
We are a middle-aged married couple living in Toronto, without children, in a mortgage-free home. We each had successful professional careers, but it had always been our goal to retire early. By retirement, we mean no longer having to work anymore, ever. We do not mean trading in an initial career to take on a less-demanding or less-stressful job, probably for less pay. Work never defined us and was merely a way to make money so that we could enjoy life. There was so much that we wanted to do, but there was never enough time on the weekends or on our all-too-brief vacation days. So the sooner we could dispense with work and get on with life, the better.
Unfortunately, neither of us was forward-thinking or wise enough to pick a career that would provide us with an actual pension — that blessed concept where once you retire, your employer would continue to pay you a regular sum of money for the rest of your life. We each had a locked-in defined contribution RRSP to which our company would contribute only while we were still working. So our retirements would have to be funded from these meagre and insufficient sums, along with whatever we could save on our own. The money we accumulated when we walked away from our jobs would have to last us for the rest of our lives.
This was a daunting prospect, fraught with risks and dangers. How would we know whether we would have enough money to last our lifetimes? How long would we live? How would inflation affect us? What would the markets do? Much thought, research and careful planning would have to go into our retirement preparations.
We are by no means financial experts trying to offer advice or provide the magic answer. We didn’t win the lottery. We didn’t inherit a pile of money. We didn’t invest in Apple or Google at rock-bottom prices and make a killing. Rather, we are just two reasonably intelligent, extremely motivated people who had a common goal and worked hard to achieve it.
We have been asked by so many people how we were able to achieve early retirement that we thought it would be best to write about our experiences. Our specific personal circumstances and situation probably won’t apply exactly to everyone else. But some of the general concepts that we followed, our thought processes, and the practical descriptions and examples of what we did and how we did it just might be useful. Regardless of whether early retirement is in the cards or not, anyone without a pension needs to consider what amount of savings is required to retire on and whether that amount will last his or her expected lifetime.
The following recounts our path to achieving early retirement without a pension at age 48.
Before we could calculate how much money we would need to support our retirement, we had to determine what we wanted our retirement to be like. We knew we didn’t want to have to stay home and eat Kraft Dinner every night, but we had to be realistic and pick a scenario that would make us happy and still be achievable.
We realized that if we wanted to live a jet-setting lifestyle even though we had not had the foresight to be born into a family with the last names of Gates, Buffett or Jolie-Pitt, then early retirement was probably not in the cards. On the other hand, there were articles indicating that if we were willing to move to the Philippines, we could live quite well on $800 per month, and we could probably have retired years ago. Our plans were somewhere in between these two extremes.
We considered whether we wanted to live in another city, or another home. We had friends who planned to downsize from their large homes to smaller accommodations, or move to a smaller town with a slower pace, or live full-time at their summer cottages, or even relocate to Europe for a total change of lifestyle. Luckily we already owned our perfect, mortgage-free condo in a city and location that we loved, and could not imagine living anywhere else. We needed to make no changes in this respect. Unfortunately, this also meant that we would not be able to count on any cost savings or influx of capital that would result from downsizing our accommodations.
In determining what type of lifestyle we wanted after retirement, we considered all the activities we enjoyed and wanted to do more of, as well as all the new interests that we’ve always wanted to try but never had enough time to pursue. We took an inventory of this wish list, quantified how often we would like to do each activity, and estimated how much it would cost. Any expenses above and beyond what we were spending in the working years would eventually be added to our “retirement budget.”
We don’t really have an extravagant lifestyle. Material things like fancy sports cars, designer clothes, expensive jewellery or art are not important to us. We don’t have any super-expensive hobbies, and could be very happy spending time on activities that cost little or no money, such as reading or walking. Our major entertainment expenses go toward travel, dining out and live theatre. In making our budget, we did not want to have to compromise or skimp on any of these activities.
We wanted to make sure we could actually afford to enjoy our retirement. There was no point having all this extra free time if we did not have enough money to do some of the extra things we wanted. So how much would we need?
The most difficult part of retiring without a pension was being confident that we had saved enough to last our lifetimes. We both come from families whose members live to ripe old ages, so who knows how long that might be for us? Just for fun, we found this life expectancy calculator at media.nmfn.com/tnetwork/lifespan that told us we would live until age 97! A more comprehensive life expectancy calculator can be found at www.livingto100.com, but the site asked for an email address to contact us before providing the results, which was not what we were looking for.
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