So can I retire at 45?

[accountingsucks]

Hello everyone

Personally I've never been a huge fan of work - at least not full time. Once 2:00 rolls around I want to go home. I'd be perfectly happy working 4-5 hours per day and having the afternoon free to do what I want. Having said that, my goal is to retire early, or at least semi-retire. 45 is the number I"m striving to and based on some of my calcs it seems feasible. If some of you have read Derek Foster's book, you know he raises a family of 3 on about 30K per year all from passive investments so I think I would be OK.

Here's my pertinent info

I just turned 31
Income from work is 55K AFTER tax + 10K in RRSP match for 60K total after taxes from work (I make 80K pre tax). I can expect at least inflationary increases

Additional 10K per annum tax free from a side gig I have
Home worth about 400K and it is mortgage free
Retirement savings to date : 40K
Annual expected expenses: $18K
I have a 5 year old car and would not replace for another 5 years (used cars would be purchased every 10 years)

So in summary I can save around 55K per year. Am I on crack in thinking that 45 is doable? Worst case scenario is that I would at least stop working full time and only work part time to cover my expenses and to let my nest egg grow. This is an option that is also appealing.

 

[LOL!]

Why wait? Get married and become a stay-at-home-whatever. 'nuff said.

 

[maddythebeagle]

I think Derek Foster has been discussed a bit.....he's the canadian guy that says lives off of dividend stocks....I believe his math has been questioned by folks and doesnt sound like it adds up....and some have suggested that he is on government welfare to support himself...

You have a 400k house with no mortgage in early 30s....I think that deserves some explaining Can you get a smaller house and use the equity to pad your investments?

 

[dmpi]

Annual expected expenses: $18K

I don't think you can live in a 400K house and have only 18K of expenses. Just the general upkeep and property tax is going to cost some dollars.

 

[accountingsucks]

I think Derek Foster has been discussed a bit.....he's the canadian guy that says lives off of dividend stocks....I believe his math has been questioned by folks and doesnt sound like it adds up....and some have suggested that he is on government welfare to support himself...

You have a 400k house with no mortgage in early 30s....I think that deserves some explaining Can you get a smaller house and use the equity to pad your investments?

Home was purchased in 2002 at a price of $185,000 when I was 27. I lived at home until that point and was able to put $80,000 down. I was able to pay the remaining $105,000 down by dumping all my savings into the mortgage each year at around $25K per year. Home was valued by a real estate agent last month at $400K. I live in Edmonton, Alberta, and if anything my home has not gone up at the same % increase as other homes.

 

[accountingsucks]

I don't think you can live in a 400K house and have only 18K of expenses. Just the general upkeep and property tax is going to cost some dollars.

My property taxes are $2400 per year, utilities are about $2500. So far in 4 years the only thing I've fixed is my hot water tank and a cracked toilet. I live fairly frugally I guess.

Edit: Also, originally I paid 185K for my home 4years ago and the 400K is based on a recent assessment of my home. 400K in Edmonton will buy you a mediocore 2000 sq foot 2 storey home nowadays due to Alberta's booming economy so it's certainly not a mansion...just an average home.

 

[accountingsucks]

I left this question open ended because I have not yet formulated my exact plans. In the past when RRSP season rolled around I would contribute an amount and it would be with my bank's selection of mutual funds. I've at least learned that this was foolish as their MER's are outrageous. I also maxed out any work related RRSP matching but that is a no brainer. This is what I'm planning on doing. The specific funds probably are irrelevant to most as I am Canadian, but here they are:

45% ishares TSX 60 Index fund (tracks the TSX index - MER of 0.17%)
10% Mid Cap fund (don't know exact one)
10% Altamira Resource fund
20% Altamira high yield bond fund
10% International fund (have not decided on the exact one)
5% individual stocks - stable companies such as banks, utilities, etc

So basically a 80/20 equities to bond split.....

 

[heyyou]

Some say that high yield corporate bonds have about the same risks as stocks, i.e. the issuing companies are value/distressed businesses that would fail in an economic crash.

I used my dis-satisfaction with my employer as motivation to save, and that worked for me. So I'm encouraging you to try your plan. Instead of age, how about saving towards 25 multiples of your annual expenses? That leaves the big goal the same, while making the time irrelevant.

As others have mentioned, 2000 sf/$400K of house seems like a lot for someone who wants to keep expenses low, but you probably spend plenty of time indoors during Edmonton's winter. Maintenance will not stay cheap. Are you willing to move elsewhere when you get to ER? Downsizing from a paid-off house was the icing on the cake for our FIRE.

 

[Mr._johngalt]

Some say that high yield corporate bonds have about the same risks as stocks, i.e. the issuing companies are value/distressed businesses that would fail in an economic crash.

I have taken some heat here for my heavy reliance on junk/high yield
bonds. I confess that my "portfolio" is pretty highly loaded with
them. They have been good to me so far (went there when CDs yields
tanked). Want to add that I feel a little better as a bondholder
than I would as a stockholder in case the company has a complete
meltdown. Just my 2 cents. Pretty sure no one else here holds the %
of "junk" that I do.

JG

 

[bow-tie]

Hello everyone

Personally I've never been a huge fan of work - at least not full time.

Amen to that!

...I just turned 31...So in summary I can save around 55K per year. Am I on crack in thinking that 45 is doable? Worst case scenario is that I would at least stop working full time and only work part time to cover my expenses and to let my nest egg grow. This is an option that is also appealing.

I sure hope you're not on crack, because I want to do something very similar. I'll be 31 here in the next handful of months, and I want to go to some type of part-time gig sometime after 40. Just enough to cover some expenses - i.e. health insurance more than likely. I would think your yearly savings puts you on a great path to get there. The DW and I have a wee-one on the way, so I don't know if my plan holds as much water as yours, though. Good luck regardless, and keep plugging away.

 

[MasterBlaster]

Playing around with Firecalc, if you start out with $40k and invest $55k/year into a diversified portfolio then in 14 years when you are 45 you can safely spend ~$45-50k per year for the duration.

So yes, if you stick with your plan then retirement at 45 is doable.

 

[FinanceDude]

Home was purchased in 2002 at a price of $185,000 when I was 27. I lived at home until that point and was able to put $80,000 down. I was able to pay the remaining $105,000 down by dumping all my savings into the mortgage each year at around $25K per year. Home was valued by a real estate agent last month at $400K. I live in Edmonton, Alberta, and if anything my home has not gone up at the same % increase as other homes.

Ah............living at home................saves big money!!

 

[WRBT]

Wow $200/month for utilities with a house that size is quite a deal.

Does that include things like internet,phone,TV, etc. or is it strictly power/trash/water/sewer?

 

[bongo2]

The numbers clearly work. There is a good chance that something over the next 15 years will derail your plan, but give it a try.

 

[accountingsucks]

Wow $200/month for utilities with a house that size is quite a deal.

Does that include things like internet,phone,TV, etc. or is it strictly power/trash/water/sewer?

No that is just power, heat and water

 

[Corporateburnout]

Home was purchased in 2002 at a price of $185,000 when I was 27. I lived at home until that point and was able to put $80,000 down. I was able to pay the remaining $105,000 down by dumping all my savings into the mortgage each year at around $25K per year. Home was valued by a real estate agent last month at $400K. I live in Edmonton, Alberta, and if anything my home has not gone up at the same % increase as other homes.

Whow things must have dramatically appreciated in Edmonton Alberta since I was there on business back in 1998. Glancing through the real estate section of the local paper (being stuck in the hotel in a -30 dgrees f and sick of visiting the West Edmonton mall) I thought home price was pretty low as compared to the northeast US.

By the way if your situation does not change you should be able to RE at 45 based on your savings estimates.

Good luck.

 

[MooreBonds]

Ah............living at home................saves big money!!

I second that.

I also agree that 45 definitely sounds doable, pending adjustments to your annual expenses as time goes on (read: find a significant other, etc., etc.)

 

[accountingsucks]

Whow things must have dramatically appreciated in Edmonton Alberta since I was there on business back in 1998. Glancing through the real estate section of the local paper (being stuck in the hotel in a -30 dgrees f and sick of visiting the West Edmonton mall) I thought home price was pretty low as compared to the northeast US.

By the way if your situation does not change you should be able to RE at 45 based on your savings estimates.

Good luck.

Yea things started to get hot around 2001ish with prices becoming insane the last year and a half. The economy is good here and anyone can find a job unless they do not want to work. Places like Tim Horton's and 7-11 are giving out signing and retention bonuses but they are still short staffed. Some fast food places can't keep normal hours as they don't have the staff to stay open

 

[AltaRed]

45% ishares TSX 60 Index fund (tracks the TSX index - MER of 0.17%)
10% Mid Cap fund (don't know exact one)
10% Altamira Resource fund
20% Altamira high yield bond fund
10% International fund (have not decided on the exact one)
5% individual stocks - stable companies such as banks, utilities, etc

So basically a 80/20 equities to bond split.....

A few comments:

1) I would question going to a high yield bond fund because you don't get much of a premium for substantially more risk, but that is your choice. Why the Altamira High Yield rather than the PH&N equivalent? Did you consider iShares XBB instead?

2) The TSX is a considerably more volatile index than S&P500 or W5K, etc due to its high commodity content. I would expect it to underperform Int'l and USA over the longer term and especially the near term after a large rise the past 2 years. Why not put a bit of that 45% into iShares XSP to have some exposure to the US market?

3) Why have a Resources fund when you basically have all that already in iShares XIU? You will be very overweight in commodities if you do.

4) Consider iShares XIN for your Int'l EAFE.

 

[accountingsucks]

A few comments:

1) I would question going to a high yield bond fund because you don't get much of a premium for substantially more risk, but that is your choice. Why the Altamira High Yield rather than the PH&N equivalent? Did you consider iShares XBB instead?

2) The TSX is a considerably more volatile index than S&P500 or W5K, etc due to its high commodity content. I would expect it to underperform Int'l and USA over the longer term and especially the near term after a large rise the past 2 years. Why not put a bit of that 45% into iShares XSP to have some exposure to the US market?

3) Why have a Resources fund when you basically have all that already in iShares XIU? You will be very overweight in commodities if you do.

4) Consider iShares XIN for your Int'l EAFE.

Good Points - thank you

1. My understanding is that PH&N requires a minimum $25K investment in any one mutual fund and I do not have that much cash sitting around. Please correct me if I'm mistaken on this. Should I maybe consider no exposure to bonds at all and go with a 100% equity (gasp) allocation given my aggressive goal?

2. If I invest in XSP, would I be exposed to US$ fluctuations?

3. This crossed my mind as well. Over the long term of 15 years+ I think commodoties will do very well especially oil and gas. I would like more exposure to this then I'm getting from the TSX. I could invest in individual companies I guess to get this. If I follow your suggestion in point 2, perhaps it would leave room to more exposure in resources.

4. Will do

 

[youbet]

So in summary I can save around 55K per year. Am I on crack in thinking that 45 is doable? Worst case scenario is that I would at least stop working full time and only work part time to cover my expenses and to let my nest egg grow. This is an option that is also appealing.

This has been an interesting thread.

My opinion of your situation is that when you reach 45 you should have reached FIRE. If not, you can stand in front of the mirror and look at the person who failed to execute what should have been a no-brainer. Yes, you can retire at 45, just don't screw it up!

 

[nun]

This has been an interesting thread.

My opinion of your situation is that when you reach 45 you should have reached FIRE. If not, you can stand in front of the mirror and look at the person who failed to execute what should have been a no-brainer. Yes, you can retire at 45, just don't screw it up!

55k/year for 15 years at 6% should give you a nest egg of $1.2M. That, with a paid off house, should easily let you take $27k (18k today inflated over 15 yeasr at 3%). However, being comparatively young I think your life and plan will probably change before you get to 45. That being said you're goal is good and you are setting about it well. I'd take your 55k/year and put 80% in index funds, some Canadian, some US and some International and the other 20% into MM to build up a cash reserve.

 

[excellent]

By the time you're 45 the situation regarding the environment, energy sources, and the global economy will be vastly different. Noone can look into the future, but hopefully it will work out for you regardless. Have a good day!