Early Retirement is a Math Problem

Not what a lot of people want to hear, but it is. On the surface it's pretty simple:

1. Figure out what your expenses will be after retirement

2. Figure out what your take home pay will be after retirement

3. If you have more expenses than income, figure out how to make up the difference.

Expenses

You'll need to estimate these for most of your retirement as they may change over time.

As an example, if you have 5 years left to pay off your mortgage, your expenses may be a lot less five years down the road.

There's also some expenses that may just stop when you retire. For example, if you contribute to a pension plan, that may stop when you retire.

And if you plan on travelling the world for 5 years, your expenses may go up

Either way you need to know what your expenses are. It's not too difficult, but also remember to consider inflation. Your costs for something like food, may be a lot higher in 10 years.

Income

Income can be a little harder....

Some, like me, will have a pension. Early retirement can significantly affect that amount. Leaving 3 or 4 years early drops my pension amount by somewhere around 10%. And they take taxes off my pension, too. It's this drop that is the biggest reason many in government jobs keep working much later than they want/have to. Pension only replaces somewhere around 40% of you income, anyways.

CPP or Canada Pension Plan will add to your income, but only at age 60 and again the income is significantly less at 60 than it is at 65.

RRSP's. What's the plan with these? Are you going to invest them and use the income generated to top up your income, or are you just going to withdraw small amounts each year. Something that you need to figure out.

Other income generating investments. Like real estate.

A job. Maybe you get part-time, seasonal or contract work. Again, figure out how much and how many years you will do this.

The Difference

So you do the math and your income is higher than your expenses. You can retire today!!!

But for most though, including me, the expenses > income and you need to solve the problem

Unfortunately the mindset for most just jumps to 2 solutions, either:

1. Delaying retirement (so income increases), or

2. Cutting expenses

and that's sad.

When I went through the exercise, I did it a little differently...

• I kept the bulk of my expenses the same (deducted no-brainers like no more pension contributions) and bumped up some others for inflation.

• I kept focused on the goal - early retirement.

• I focused on increasing income.

I have real estate that produces income. That's part of the solution, but I'm still a little negative.

I plan on taking a seasonal job for a few years. THAT, gets my income higher than my expenses. I plan to add and improve my real estate, so the seasonal job is just temporary.

I know... Having a seasonal job is not truly full retirement. But it's not full-time work either. And it's temporary.