Good Friday morning everyone!
This opening section is usually where I write a tad about my week and perhaps something that leads into the topic at hand.
This week is different though. This week, I’m going to put something onto paper that I hope to revisit a few years from now to remember what things were like today.
Here’s my daily schedule, which I hope will alleviate on May 29th:
- 6:00AM — Alarm goes off
- 6:30AM — Stumble into shower after falling back asleep
- 7:15AM — After getting dressed and putting together my lunch, depart for work
- 7:30AM — Arrive at work; sit down
- 1:00PM — Stand up; lunch time
- 1:15PM — Finish eating lunch and get back to what I was working on
- 3:15PM — Stand up and make a cup of coffee; if this doesn’t happen by 3:15PM, skip the cup of coffee.
- 6:00PM — Finish work at the office and drive home
- 6:15PM — Hang out with my girls for 15 minutes
- 6:30PM — Sit down; eat supper
- 6:45PM — Stand up; time to study
- 9:00PM — Finish round one of studying
- 9:05PM — Get changed for a ride on the Peloton
- 9:30PM — Pick myself up off the floor after riding the Peloton; hop in shower
- 9:40PM — Finish shower; return to studying
- 11:15PM — Finish studying; brush teeth and collapse in bed.
Rinse and repeat.
I’ve been detailed here, not for pity reasons, but for the chance to revisit in the future. There’s a time where everyone sacrifices to get ahead. Perhaps this is nothing compared to what will happen in the years to come. And perhaps this is nothing compared to other schedules.
For now though, it’s tough.
I’m looking forward to May 29th.
This week, I want to talk about how delaying retirement for even two years can make getting through today that much easier.
Delaying Retirement for Two Years is Powerful
Let’s start with some numerical analysis this week.
Here’s the scenario:
- You’re 30 years old.
- You have no savings.
- You expect to need $60,000 per year in retirement (for sake of argument, you’ll receive $15,000 of CPP and OAS, plus the $60,000 above)
- You’ll retire at 65 years of age.
- You’ll achieve 6% return on your savings and investments as you work and 3% after you retire.
- You’ll die at age 85.
- You want to leave an inheritance for your children or beneficiaries of about $200,000.
To achieve this goal, you need to contribute $300 per month to an RRSP and $5,000 a year to other investments or retirement savings plans (so about $8,600 of cash per year). This savings plan will yield you $984,587 for your retirement.
Remember that $8,600 number. Remember that $985,000 number.
Now, let’s keep the exact same details but delay retirement from 65 years of age to 67 years of age, with the same overall savings plan.
That same $8,600 saving plan results in $1,125,733 in savings for retirement — a $140,000 difference in retirement assets for just 2 years of delayed retirement. You’ll also be left with $340,000 to leave as an inheritance for your beneficiaries.
To achieve the $200,000 inheritance, you can cut your savings down from $8,600 to $7,500 per year — $1,100 of less cash that you can put towards other day-to-day expenses to make your life easier.
The Power of Compounding Goes Both Ways
Lots of personal finance folks like to talk about how saving just $50 each month can add up to a considerable sum after 40 years. Of course, they’re not wrong — compounding interest is one of the most powerful forces on earth.
But this thought process discounts the power that $50 may have on your life today. That same $50 could be a nice meal with your spouse that helps grow your relationship. It could be $50 you spend on yourself to keep your spirits up. It could be $50 you put towards a vacation fund.
The long and short of my advocacy: Don’t forget that the here and now is just as important as tomorrow. More important, in fact — if you don’t care about today, then tomorrow is bound to be more difficult. Worry first about today and worry about tomorrow later.
My Personal Retirement Timing
I find this particular way of thinking quite empowering — by delaying retirement for a few years, I can unlock extra cash today to spend on more fleeting and enjoyable things. It means I can drive a newer vehicle and not feel as guilty about it. It means I can go out for a burger with my wife if we feel like it.
I also plan to take the idea one step further by entering a stage of semi-retirement before full retirement. Instead of needing to draw down the fullest extent of my retirement savings each year, I hope to work a few hours each week at the office to supplement my retirement income. If my body and brain stay healthy, I hope to do this from 67 to 72 years of age, freeing that much more cash now.
The reason I want to delay retirement is three-fold:
- I know many 50 to 55 year olds who retire and who end up returning to the work force in some shape or form. They return because they feel they want more cash to fund their retirement and they return because they’re bored.
- Basing things entirely on how youthful 50 year olds are today, I think 65 years of age 35 years from now will look very different than 65 years of age looks today. If we continue on this path as a species, 65 will be the new 50.
- **The most powerful wealth building years of your life are in your 50s and 60s.**Just follow the rainbow on the compounding interest calculation to discover how much more wealth you can create by investing in your 50s rather than spending in your 50s.
I believe my generation is going to be forced to come to the conclusion of delaying retirement no matter what — with costs of living rising and taxation rates promising to soar, it’ll take longer to save and ensure a comfortable retirement. Fortunately though, our bodies are likely to live longer and healthier than our parents and grandparents, enabling us to delay retirement without some of the health side effects.
In the end, I’m choosing to embrace the delayed retirement reality and make life a little easier today instead.
I hope everyone has a wonderfully relaxing weekend and a healthy and prosperous week ahead.
Also, get your tax return filed — don’t leave it until April 30th. You won’t make any accounting friends if you wait until April 30th.
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