But people do appreciate good coaching when they see it and feel it. People tend to appreciate the lessons learned shared by others – to tailor their own path. They genuinely want to be better over time.
At least my readership feels that way…which is very inspirational…
So, for today’s post, I thought I would act on one reader’s email to me in particular and highlight how she can still retire, maybe not earlier than most, but retire all the same without some of the financial stressors she is feeling today.
How to retire on a lower income – case study
Read on for information below from a reader I’ll call “Kat” for privacy reasons, and where I’ve changed some of the information to be tailored for our case study:
First off, love, love, love your blog and look forward to reading your weekend roundups every Saturday.
You mentioned that you will be featuring a case study of a millennial couple soon and wondered if you are in the need of any more case studies?
I feel my situation is dire and I would love to hear your feedback (I know you can’t give direct advice) on what I could do better for me…
Quick background – I’m 43, separated, 2 kids (one is 19 and in university now, the other is 14). I work full-time making less than $45,000 per year. I’ve had financial issues in the past. I have around $30,000 invested, in mostly my RRSP. I am way behind at my age (for retirement planning). I don’t have a lot of disposable income, so I’m trying to put aside $300/month now.
I have lots of questions for you but thoughts on the best route for me (meaning, TFSA over RRSP I have now?). What can I do with my $300 per month? What might that give me in terms of the next 25 years of saving and investing? Could I retire at age 65 or 67?
I currently have ETFs in the Canadian versions of S&P (VFV), international (VEE) and high dividend XEI. I am torn with sticking with this route of buying ETFs or also diversifying to include Canadians stocks with good dividends. I have a few of these stocks already, but not much.
I was thinking that if I don’t have a larger enough amount to live off at retirement, at least if I could have a small dividend income stream (say $5,000 would be ideal), that will help me bump up my monthly income with my OAS and CPP payments…
So, some questions:
At my current income level, say $42,000 per year, saving $300 per month, is it better to focus on building up ETFs and get as much growth as possible? Or, do half and half (50% ETFs and 50% stocks)?
What income might I be able to expect at ages 65-67, in addition to my OAS and CPP? I know I won’t retire with a million dollars, but trying to figure out what that might be – assuming growth or dividends or both helps.
Please let me know if you are interested in doing a case study! I’m not sure how many of your readers are in similar positions to me…
Thanks so much for your amazing blog and all your articles. I read them constantly and have them bookmarked!
How to retire on a lower income – results
Kat, happy to run some inputs and assumptions for you. Here’s what the projections say and assume since so much can change over the coming decades. On that note, we encourage you to annually monitor your progress to any personal plans!
1. Salary – we have assumed that you will maintain your employment role, for the coming years, with salary increases aligned with inflation at about 2%.
2. Investing – given your salary, and because we also believe in tax-free investing (i.e., using the TFSA for wealth building), we have assumed you will contribute at least $300 per month on average inside this account; contributions will increase over time aligned to inflation (2%) per year, and finally because you have a few decades to invest, you will be in mostly equities (instead of bonds) and earn annualized 6.5% over the coming decades.
3. Government benefits – assuming you will continue to work, and therefore contribute to Canada Pension Plan (CPP), we have assumed it might make sense to delay these CPP benefits until age 70. We leveraged your desired, latest retirement age date of 67 to start taking Old Age Security (OAS) – so that’s when that income stream will kick-in.
The math says, you can essentially continue your current after-tax spending in retirement Kat!
The other good news is, we see your taxation in retirement being sustained quite low while you draw down tax efficient income from primarily your TFSA starting at age 67. The combination of your income sources will last you to age 100, adjusted for inflation throughout.
Can you retire early on a lower income?
The short answer is – yes.
The long answer is, for all readers, it depends.
While I’ve written that pursuing financial Independence is a choice, depending on your income level, there will be more sacrifices to be made on a lower income. Those retirement plans can however be realized, even if your path is not as financially fortunate as others. Don’t despair. Don’t give up. Embrace your journey. This site hopefully provides that motivation.
I want to thank Kat for sharing her story and I hope this information was valuable to her.
My partner and I have been using various retirement projection tools for our personal FIRE journeys and now we’re using these tools to help readers, like you, with your personal retirement projections. We often answer key questions like, do I have enough to retire? When can I retire with my current lifestyle? Which account should I withdraw from (and when) to minimize taxes and maximize my retirement income?
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and now investing beyond the 7-figure portfolio to start semi-retirement with. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.