Tuesday, August 14, 2012

Retirement planning

A book called, 'Free at 45:  How to retire early and happy' caught my eye at the library.  A quick and interesting read, it gives some great advice on preparing for retirement, regardless of age.

Although I enjoy my work, mostly, attending some recent retirement parties has put the subject in my mind.  Many of our friends at BPYC are happily enjoying their retirement years, living wisely and well.

Financial planning is one aspect... market forecasts these days are bleak and it is hard to project what will happen long term.

Rule of 72
  • How long will it take for your money to double? interest percentage times the number of years it takes to double a principal amount of money is approximately equal to 72.
4% rule
  • Safe withdrawal rate:  you can sustainably withdraw about 4% of your capital in a diversified portfolio each year for about 30 years.
  • Is that 4% enough of an annual allowance to live on (combining it with CPP, OAS, company pension etc).

Who really knows if my company pension and personal fortunes will withstand the challenging fiscal times ahead? 

The flip side, though, is why wait until retirement to do the things you want?  Who says you will have the wealth, health, or inclination when the time comes?  

One of the things I liked about the book is that it challenged me to think about the things that bring me real happiness and enjoyment.  How am I currently spending my time?  Am I enjoying it?  Luckily there isn't a big discrepancy for me between what I love to do and the activities that fill my day.  I feel blessed to have many diverse interests and active pursuits in addition to challenging work that I enjoy.

There was some good advice about living frugally.  Not living 'cheaply', but spending money wisely: thinking twice before making purchases, and looking for value-priced alternatives.  Why buy something cheap if you'll only have to replace it sooner?  Why spend more for the higher priced item if it doesn't give you a noticeable return on investment?  Common sense advice that bears repeating.  These days Rob and I will often judge a big-ticket item by whether  or not it is worth working a few extra years to pay the sticker price.

There is a section about putting the numbers together that I'm still slogging through about identifying start amounts, withdrawal rates and end amounts.

I particularly like this advice:
When you begin to consider retirement, take a month, or even six! - off.  Use vacation time or take an unpaid leave of absence and test drive your retirement.  Live on your retirement budget and do the things you planned to do to be happy and see how it goes.  Then go back to work for at least a month after your break.  Write up a list of what you liked or didn't like about working and about your test retirement.  This is a great way to identify worries and put your mind at ease about when to pull the plug and retire completely.
I see myself working for at least another 10 years, but it never hurts to plan ahead.


Dick Grannan said...


I guess it is a little late for me to be reading "Free at 45"!

Tim Stobbs said...

Hi Diane,

I'm glad you liked the book. Yes I know the calculations chapter is a bit thick, but I do hope it all helps in the end.

@Dick - Actually 95% of the book applies regardless of age, so you might enjoy it anyway.

Tim Stobbs

Cara Larose said...

Handling the financial aspect of a retirement plan is definitely difficult, especially since the economy today has yet to quite find its footing. The ‘book Free at 45’ has great lesson about it though. I like the advice it has on frugal living - people should think twice before purchasing something. For example, when buying a retirement house, you should see if the community has all the necessary amenities, like medical and recreational facilities.