Hi from Ontario. I'm lost and not use to that feeling.

[e86s54]

Hi all,

I'm a mid-40's Canadian, happily married, two great teenage kids and my life (part 1) has been great. I feel I have been lucky and done well. My finances are in good shape and I now am faced with the very real possibility of retiring very soon (within a year) or Life Part 2 as I refer to it. The only thing stopping me is that I don't have a clue about retiring as I have worked towards amassing assets all these years. So I'm here like a babe in the woods...searching.

A little more about my finances. I'm in the $125k pay range at my day job and I own a business that makes us about $200K that I redirect back into paying it off (about 4 yrs away). In the end it should be worth $2 million +. My wife is not employed and we own our house ($700K) and toys...yes many toys. My eldest is a couple of years away from university, while my second is 5 years away. Our RRSPs and other investments are in the $300K range.

We live fairly extravagantly. Luxury cars, boat, horses, vacations every year, so my day job pay almost covers that. We have too much fluff in our lives!

I wish to simplify and tone down the toys and retire. I want to spend as much time with my kids before they leave and then enter life part 2. In 5 years when my youngest leaves, I will likely sell the business, but until then, it would occupy an hour/day or my time (good staff).

So what would you do if you were me? Thank's in advance for the responses!

E86S54

 

[Bestwifeever]

Welcome to the boards!

Other people here are better than I at financial stuff (and several other posters hail from Canada), but I suggest the simple rule that you first figure out your expenses and see if your projected income will meet them. Then start stripping away the toys, etc., until it does, if necessary.

You probably already have done so, but I would also be as close to 100 percent sure that the business will indeed be worth what you believe and have a contingency in case it isn't. And that your spouse is on board with the plan.

 

[e86s54]

Bestwifeever,

Thanks for that. I have low balled the value of my assets incl the company (which is a real bricks an mortar company in an excellent location). If the value decreases substantially, I would keep it and there are two other profitable ventures I could undertake on the property to bring the value up and make more $. That is not my goal, but plan B. I also have various other skills (as many our age have accumulated) that can make us money if required.

Currently we burn through my salary and the toys are paid for...I just want move them to live a less conspicuous lifestyle. Back to driving Hondas and we are both happy with that. Time is what we need, not more stuff.

My kids current activities (that they can't do in University) will almost offset the cost of their education. They must also begin to stand on their own.

I guess I'm just surprised how fast this has come upon us and now I'm caught unprepared. My spouse is easy going and on board (so far ).

E86S54

 

[Coach]

Welcome aboard!

Your plan sounds fine to me. Assuming the business works out the way you see, I'd think you will be in fine shape.

Downsizing lifestyle in retirement is definitely something a lot of folks plan on and from what I've heard on here, it tends to work out pretty well. I do remember one case where the spouse was not anywhere as interested in doing that, which as you might imagine causes real problems.

If you haven't yet, spend a little time with FIRECalc. There's a link at the bottom of every page. It's a good retirement planning calculator (though US based) and will help you think about some of the issues you need to consider.

Glad to have you join us!

Coach

 

[jdw_fire]

Bestwifeever,

Currently we burn through my salary and the toys are paid for...I just want move them to live a less conspicuous lifestyle. Back to driving Hondas and we are both happy with that. Time is what we need, not more stuff.

...

I guess I'm just surprised how fast this has come upon us and now I'm caught unprepared. My spouse is easy going and on board (so far ).

if you are serious about cutting back on your lifestyle when you retire then i would suggest that you cut back now and see how that goes. otherwise you could keep your company (1 hr /day) and let it pay for your semi-retirement.

 

[e86s54]

if you are serious about cutting back on your lifestyle when you retire then i would suggest that you cut back now and see how that goes. otherwise you could keep your company (1 hr /day) and let it pay for your semi-retirement.

I actually plan on doing both...cutting back and keeping the biz for another 5 yrs until both kids have left home.

 

[Milton]

If I have correctly understood your original post:

• you work in paid employment with a salary of ~ $125,000
• you have (essentially) passive income of $200,000 from a private business, which has assets of ~ $2 million and debt of ~ $800,000
• your current lifestyle consumes all of your $125,000 salary, net of taxes
• the passive income stream is ploughed back into the private business, to gradually retire the oustanding debt
• you have investments worth ~ $300,000, most of which is presumably registered
• you own your own home, worth ~ $700,000, with no mortgage

My comments:

1. I agree that you should not be in a hurry to sell the business, as it reliably provides a good return on capital that you are unlikely to duplicate through stocks, bonds or similar investments.
2. Your family currently needs at least $125,000 pre-tax income a year. By the sound of it, some (much?) of that is discretionary and can be eliminated from your budget if you dispose of the toys and cut back on the vacations etc. You can figure out how much you'll actually need by tracking your expenses over the next six months, and subtracting those associated with the frills. While you're at it, why not get rid of the toys etc. ASAP ... no point in waiting, given that you and your wife are sincere in your desire to downsize.
3. If all of the $200K income from the business is being used to retire associated debt, and the employment income disappears when you retire in approximately one year, then for approximately three years [i.e., the remaining period of business debt retirement] you will have to fund your lifestyle entirely from your RRSP. Your RRSP isn't large enough for that purpose if you need pre-tax income > $125,000, but if you can reduce your expenses it should be possible.
4. If you don't want to collapse the RRSP, I guess you could allocate only part (e.g., half) of the $200K passive income stream to debt retirement and consume the balance. That means it will take longer than four years to pay off the business debt, but that's not the end of the world.
5. The biggest wild card in the equation is the actual value of your private business. It may indeed have a current net worth of $1.2 million, but it would be prudent to retain a chartered business valuator to confirm that.

 

[e86s54]

Milton,

Thanks for that!

You are correct about my original post and the financial situation. The $300k + is mostly registered and some in non-registered and TFSA.

Your comments:
1. I would like to sell the biz when the kids have left for University (5 yrs) as the business requires me to be available and thus limits my ability for extended leave (going south for the winter).

2. I am in the process of getting rid of a few toys that should gain us $60K in cash. It is not that we are sincere about downsizing, but that we don't feel that we even need all that extra stuff that requires time, $ and maintenance. Having said this, I don't believe we need $125k, but closer to $90k (70% rule), but I do need to get an even clearer handle on that before FIRE.

3. I won't be retiring for a year, so I should have 3 yrs remaining to pay off the biz. By then the math works on retiring the RRSP/TFSA until the biz is paid for.

4.That is the fall back position. And the biz will also likely take a few months to a year to sell.

5. This is a real, bricks and mortar type business in a great location that I own. I am comfortable with that valuation and I regularly get offers for it ( 3 in the last couple of months). Some would like me to call when I'm ready to sell. I believe it is actually worth as much as $2.5 mil, but that would be on the high side. As per the current metrics it is undeniably worth $2 mil today and I would not dream of selling it at that price today. But I'm trying to be on the negative side of conservative and I do agree that 5 years is a long time and things could change.

Regards...E86S54

 

[Milton]

Sounds like you're in great shape.

As you are receiving regular offers to purchase the business from multiple credible sources, you are in essentially the same position as a person who can check the price of their publicly-traded shares. I agree that you have no need for a business valuator.

My advice is forget about the '70% rule' and similar rules of thumb. We are all different, and such one-size-fits-all ratios are too inaccurate: could be too much for some, not enough for others.

Rather than guestimating your retirement income needs, I strongly suggest keeping a daily log of all your expenses for at least three months (six is better, 12 better yet). Then you will know exactly how much you are currently spending, and you can review your categories to see what will be reduced or eliminated once you've stopped working. Of course, some expenses (e.g., hobbies or travel) may well increase in early retirement, so you need to take that into account too.

 

[e86s54]

So an update to my situation.

First, I have set my ER date of May 1st that I plan to retire from my full time job. I'm really excited at the idea of having much more time as the last 5 years have been very stressful with the job, side business, kids, etc. I really feel like I'm slowly burning out...but now the weight has been lifted.

Second, I have worked towards better understanding my financials and here's an update.
I disposed of one luxury car (mine) and my wife's Lexus lease is up in the next few months and will not be renewed or replaced. We now have a new Honda and good 5 yr old truck. Will save me about $2k/month.

I had forgotten that we could take our initial investment of our company out tax free and so we have a total of $600K available to us with 70% of that tax free, the rest tax sheltered in RRSPs. House, cars, boat, etc worth about $800k and paid for. I had the business evaluated by a Realtor who specializes in these kinds of businesses and came up with $2 mil valuation (what I expected). If we subtract the debt and the investment owed to us, it adds $1,100,000 to our net worth of about $2.6 million.

I have looked at the what we need to live well on and its about $70K to $80K per year (based on credit card & bank statements over the past few years). But what I discovered is that with the small corporation dividend tax credit, both my wife and I can withdraw a total of $80K per year almost tax free (pay about 2% personal tax) from our business! So we can easily live on that without even touching our savings for the next 5 years while working on retiring the outstanding debt of the biz, until the kids are in university. Then sell the biz and retire completely.

If problems happen, I have two other ways to make $ from the property. I will also ask for a 6 month leave as a cushion and go from there.

Am I missing something?

E86S54

 

[kcowan]

I think you need to consider what to do with your time. You have been highly engaged so far. Suddenly you will have time on your hands. Your financial future looks good.

 

[e86s54]

I think you need to consider what to do with your time. You have been highly engaged so far. Suddenly you will have time on your hands. Your financial future looks good.

KCowan,

Yes I believe you are correct, that is my biggest problem. 1st I need to convince myself that this all true and stop being emotional about it. Next is to live life better...less stress is number one, but that will take time to adjust and since I will still have the biz to go to during that adjustment period, that should help.

E86S54

 

[Milton]

There are quite a few books that might give you some pointers on how to handle the transition. E.g., Leedy and Wynbrandt, Executive Retirement Management (1987); Scissons, Happily Ever After: Making the Most of Your Retirement, for Career Men and Women (1987). Your local library probably has two or three to choose from.

 

[e86s54]

Handed in my resignation letter this morning. Life (part 2) begins in a month!

E86S54

 

[rkser]

Congratulations !!!

A great job of planning, accumulating & getting out in time to enjoy some time with the family & live a little.

You should feel very satisfied !!

 

[e86s54]

rkser,

Thanks...I kinda feel numb about it. I've been planning this for so long, that when you get there it's kinda anticlimactic...it will take a while to sink in.

Regards...

 

[Ed_The_Gypsy]

Hope you managed to cut back.

 

[W2R]

rkser,

Thanks...I kinda feel numb about it. I've been planning this for so long, that when you get there it's kinda anticlimactic...it will take a while to sink in.

Regards...

Congratulations on making this momentous step!

I know what you mean about it seeming a little anticlimactic after years of planning. When I retired, I wanted trumpets playing a fanfare, marching bands, and fireworks! That didn't happen in real life, but I sure appreciated the congratulations of others on this forum.

And mews posted these fireworks for me - - I'll post them for you this time!

YouTube - Hong Kong Chinese New Year Fireworks 2009