31, married, one child, living in Canada

[Iluminar30]

Hi fellow ER seekers!

Although my husband and I are only in our early 30's, we have been talking about early retirement for quite some time. Since the birth of our first child this year, the ER conversation has become an almost weekly occurance!! Having a child has made it even more clear to us that spending the majority of our days at work is not what we want to do.

We have been investing in real estate since we got married and have accumlated a decent net worth as a result. We know we want to retire early, but are currently struggling with figuring out when we should pull the plug. I think it would be best if we continued working for about another five years before taking the plunge, but I'm not sure my hubby can wait that long!

Here are our specs:

RRSPs - $259,000
Other Investments - $40,000
Real Estate - $950,000

We currently have a combined annual gross income of $170,000. My calculations show that we would "need" between $60,000 - $70,000 income if we retired now. We have one child and will likely have one more at some point. We currently live in Vancouver, but are willing to relocate to a less expensive location if it means we can retire.

I would love to get feedback/advice on if it would be feasible for us to retire now or if we need to set a more realistic goal.


Thanks!

 

[jambo101]

Sounds like you want to retire asap.You are making some good money at the moment do you think you could hold on for another 10 or 15 years?As you are only 30yrs old you have probably been working for 12yrs maybe its a bit too early to be thinking that working just that amount of time now merits 50yrs or more of retirement .
Maybe an option would be for one of you retiring now to look after the baby. Or a career change might enhance the situation.
Have you considered a cheaper retirement destination such as Canada's east coast,Quebec,New Brunswick or my favorite Nova Scotia?
Welcome to the forum. And good luck.

 

[kcowan]

I would suggest that you would be wise to aim for $2 million net worth. The costs of raising your children will be significant, especially through college. OTOH you could liquidate and live very comfortably in Mexico with your current assets.

But those are very different futures that you need to evaluate. Congratulations. You are well on your way toward planning for a great future.

 

[RetireeRobert]

I would suggest that you would be wise to aim for $2 million net worth. The costs of raising your children will be significant, especially through college. OTOH you could liquidate and live very comfortably in Mexico with your current assets.

But those are very different futures that you need to evaluate. Congratulations. You are well on your way toward planning for a great future.

Welcome. I would also suggest closer to $2 million net worth before pulling the plug.

You specify you would need/want $60k or $70k annually. Use the FIRECALC (see link below at this forum) to play with some scenarios. But assuming 4% withdrawal rate $1.2 million you have now only produces $48000 yearly. $1.7 million net worth would allow $68000 annual. $1.5 million net wroth would allow $60k withdrawals at the 4% rate.

At a more conservative and safer, more cushioned SWrate of 3.5%, then the $1.7 million worht allows the $60k withdrawals.

I'd say to try to accumulate the $2 million. Put the $1.7 million into your retirement pot and do an SWR of 3.5% to get annual income of %60 ooo. Put the remaining $300,000 into reserve funds for emergencies, funding childrens' college, extrordinary home repairs, medical expense emergencies, and maybe the once in a lifetime trip you get a sudden urge to take with your whole family (without feeling guilty or nervous about busting your retirement budget).

You've got a good start. With combined incomes now of $170000, it seems entirely plausible to accumulate the additional $800,000 net worth in 10 years or less. Save $60,000 a year into retirement pots, and you can be there 10 years max---with decent investment returns, maybe make it in your mentioned 5 years.

Good luck, good planning, and good dreams of ER.

 

[My Dream]

People have different definitions of Real Estate assets, is the $950 include your primary residence?

 

[Rambler]

Don't know itmuch about the Canadian markets but I would say that at your age even a 3.5% SWR is too high for comfort. I'm 46 and firecalc tells me that at an age 48 target and with my desired income levels and moderate conservative investment profile in retirement, 3.38% is my limit if I want to get to the high 90s in terms of success rate (can't stomach a 70% predicted success rate). I can tell you one thing for sure, you don't want to retire at 32-32 only to have to go back to work at 75 because you don't have food to eat or $$$ to pay for utils. OTOH, I sure understand you wanting to spend more time with thei kids. Ours our 20 (flown the coop) and 16 (18 months to go). Sometimes I feel like I missed out on a lot of "kid" things due to my career, but by the same token, have gained the ability to FIRE at 48 with a pretty decent investment income and security. Life is full of trade-offs, some are easier than others. Perhaps a couple-three more years of the heavy hitting, then downshift for a few years to give you more time with the kids, but still w*rk part or full time at less demanding positions. Probably by then things will be clearer and you'll be closer to something on the order of 2.5-3m and much more secure. Best of luck!
Rambler

 

[HobbyDave]

I think the first question we need to ask (as someone mentioned) is if that $950k is all investment real estate, or if some is your home. That's a pretty big chunk of change difference.

If your expenses are firm, you need to:
1. Keep working
or
2. Get part time jobs to fill in the gap

If your expenses can change, then you can obviously play around with your options.

I agree with Rambler though, the 4% widely touted withdrawal rate is for 30 years of deductions. If you're young, you want lower than 4%. Closer to 3% is much safer. So looking at that, you have a pretty big income cap.

As for quick ideas of solutions:
1. Keep working, the obvious one.
2. Get part time jobs that pay for health care and a portion of your expenses.
3. Move to Boofoo, Canada (some backwoods area), and live on ~2% of your funds to let them grow.
4. Buy a 35k boat and sail around the world on a 10k budget for awhile
5. Let him quit and raise the kids, while you keep working.
6. Both get new jobs, perhaps lower salary, but something you can do for a few more years.

Anyway, there are tons of options, but I think we're all saying that you're not quite ready with the finances you've mentioned and your expenses.

 

[HobbyDave]

As you are only 30yrs old you have probably been working for 12yrs maybe its a bit too early to be thinking that working just that amount of time now merits 50yrs or more of retirement .

I just had a slight problem with how this was phrased (could just be a language barrier problem). The whole "you haven't been working long, perhaps that doesn't merit a lifetime of retirement". The whole idea of saving money, capitalistic society, etc, is that you deserve to do whatever you want with the funds you have.

It's not about meriting your retirement, it's about affording it, and doing what you want. If they worked for 6 months, made a lot, and retired, I think they "merit" a lifetime retirement just fine.

 

[jambo101]

I just had a slight problem with how this was phrased (could just be a language barrier problem). .

It wasnt a language problem it was just my crappy way of saying that in this case unless you are independently wealthy or have just won the lottery retiring at 30 could be a bit of a pipe dream unless you are comfortable with a major downsizing in life style, because the money you have now wont last.

 

[Meadbh]

Welcome to the Forum from another Canuck who hangs out here.

First of all, I agree with earlier posters that for a LOOONG retirement, you would be wise to base your calculations on a lower safe withdrawal rate.

The location, type and income generation of your real estate is key here. You live in Vancouver. If you rent a modest apartment there and have $950,000 in owner equity in condos in Ontario or commercial property in Calgary, all of which generate steady rental income, that's great. But if you own a $950,000 house in Vancouver (which might be a nice 1 1/2 storey in the West End), well, you gotta live somewhere (are you willing to move to New Brunswick?); but income generating, it's not, and Brian Ripley's charts show Vancouver prices plateauing in October.

Real Estate Price Charts ~ Canadian Housing Price Charts and Real Estate Valuator Blog

So, bottom line, all real estate is not created equal from a retirement point of view. My impression, eyeballing your situation, is that you are financially not quite ready for ER.

 

[Iluminar30]

Thank you to everyone who replied to my original post. I appreciate the feedback, comments and suggestions. I love that this is such an active forum!

It was not my intention to suggest that we would fully retire right now. I would like to set us up on a trajectory to retire in about 5 years time. Based on some of the feedback, it sounds like we should aim to have about $2M in net worth in order to achieve that. We are quite knowledgable and comfortable with real estate - does anyone have an informed opinion about whether or not it would be wise of us to build the additional networth just through real estate investment?

For those of you who had questions about our real estate investments, we own five properties. Four of the five properties are tenanted and the other property is our primary residence. Four of the properties are in BC and the other is in Alberta. They are all in very strong real estate markets and have appreciated significantly in the time we've owned them. All of the properties, with the exception of personal residence, have a positive rental income stream. The approximate market value of the properties is $1.8M. If we liquidated we would end up with approximately $950,000 after commissions, legal fees, capital gains tax, etc. This would of course also leave us without a home, so a portion of that $$ would need to go towards buying another house...or a boat as someone cleverly suggested (my husband really like that idea!).

As much as the idea of ER sounds wonderful, I really couldn't see us both leaving full-time employment right now, but I could see us moving to a less expensive province/city and having one of us work until we could truly afford to retire. I guess retirement means different things to different people. For me I don't see it being simply leaving paid employment all together, but more about being financially secure enough to have options...not be obligated to wake up every morning and go to a job you don't enjoy.

The expenses of $60K - $70K per year I referenced was definitely a conservative estimate. Based on my calculations we could comfortbly afford to live on quite a bit less, but as a few of you pointed out, we are quite young, so I would rather work in some capacity for 5-10 more years and be able to have a higher yearly income when we retire than to pull the plug too early and be forced to return to high paying/less satisfying work.

I am going to check out firecalc and work our numbers a little bit more. I am sure I will be back with more questions. In the meantime, keep the feedback coming

 

[Rambler]

It was not my intention to suggest that we would fully retire right now. I would like to set us up on a trajectory to retire in about 5 years time. Based on some of the feedback, it sounds like we should aim to have about $2M in net worth in order to achieve that.

Illuminar

I think you would be wiser to consider "working investments" and their "return" rather than your "net worth". Your home, usually the largest part of a family's net worth, will not provide an income stream for you. However, if your home is large, luxurious and expensive, you could always trade down. Also, if your "working investments" are in real estate, it will be pretty easy for your to figure out your return, barring a calamity. However, the cash return and liquidity would be lower than stocks or bonds. If it were me, at your age, I would keep working for a while, as you said, but funnel the income from the rentals into relatively high dividend stocks or mutual funds and some bonds or bond funds. Pour any savings from w*rk into them as well for a while. After a while, your portfolio will be more balanced, firm, and you'll be in a better position to FIRE. Check out FIREcalc if you haven't.

Also think of what exactly you intend to do after FIRE...if what you want to do costs a lot, better save more. We have some friends who lived near us here in Asia who decided they were ready to go. He had a good job, they had saved some, but they found out the hard way that they had not saved enough. She was a stay at home mom, and he was the sole breadwinner. They anticipated he could work less and still meet their needs...turns out they did not do enough homework...he is now working more hours than he was, AND she is working too...to make ends meet. Moral or the story: make sure you do your homework, all of it, and have it checked...so you don't fall in a similar trap.

Once you have done firecalc, I'd be interested to know how the numbers turn out for you. Gook luck!!!

Rambler

 

[kcowan]

Depending on your flexibility and lifestyle ambitions, it is definitely possible to retire now. Here: Financial Webring Forum :: View topic - Saskatchewan, its' time in the sun. is one possibility

and there are many others like Mexico, Thailand, and Uruguay that offer inexpensive living.