How your part-time job can support your retirement

How your part-time job can support your retirement

You probably know from my site, including the last few years, I love sharing case studies.

Part of the reason I enjoy doing so is because of positive reader feedback. Another reason: I believe any case studies help the process of planning even if your personal finance situation is different. You can learn from others: what you want and what you don’t want. 

Here are some recent case studies on my site before we get into this one today: how your part-time job can support your retirement.

How much do you need to retire on $5,000 per month?

How much do you need to retire on $5,000 per month?

And this one:

How might you retire on a lower income?

Can you retire early on a lower income?

How your part-time job can support your retirement

During the pandemic, that caused so many impacts to so many people on various hardship levels, I recognized that some individuals took income matters into their own hands – they developed a side-hustle.

In doing so, these folks aspired to resolve a few issues:

1. it allowed them to further develop skills they already had, hone their craft or passions while
2. making financial ends meet out of necessity.

With pandemic concerns tailing off (although this virus is not going anywhere, anytime soon, I recently got COVID round #2!) whether you continue to enjoy a side-hustle during full-time work or during retirement as a part-time job – that’s totally up to you. But the math suggests working part-time or even occassionally can make a HUGE difference to support your retirement plan.

I know many people in their 40s and 50s that are looking to scale back from full-time work, a bit, and work part-time or occassionally as they consider semi-retirement. This is not to say this approach is common-place. Hardly. Many organizations and employers are not quite ready to change their culture or systems to adapt to these needs. They may lose valuable employees as a result. 

Some folks may work in semi-retirement because they need the money. Not ideal but that works of course.

Others may work mainly because they like what they do, they want to stay busy and they enjoy their co-workers. Far more ideal.

We’ve always considered retiring to something, and transitioning to full-on retirement after a few years of part-time work. We’ll keep that wish as our mortgage debt goes to zero in early 2024…

via GIPHY

This is because we believe Financial Independence, Work On Own Terms (FIWOOT) can offer many benefits:

• More life satisfaction,
• New opportunities, and more than likely,
• A better life-work balance. 

Consider this question:

Would you rather have really rich experiences when you’re 50 or be really rich when you’re 80?”

How your part-time job can support your retirement

Given quite a few My Own Advisor readers are also considering a better life-work balance as they age, I thought it would be interesting to profile a couple that seeks FIWOOT themselves and see how the math works out for them. 

Our fictitious case study participants today are Brandon and Stacey.

They live here in Ottawa, near me. 

After a few full-time decades in the workforce, Brandon and Stacey feel: 

Before we get into the results for Brandon and Stacey, here are some leading assumptions:

• Brandon is 45, Stacey is 42.
• Their combined salaries are about $140,000 per year (before tax).
• They aspire to spend about $60,000 per year in retirement, increasing by 3% inflation over time. (That should support rising healthcare costs as they age too.)
• They are thinking Brandon’s age 50 would be ideal to start semi-retirement….but are not sure…
• They are not government workers and therefore they cannot rely on any workplace pensions to support them. They must save and invest on their own…
• They are wondering if they can semi-retire with less than full-time income???
• Given their ages, and the desire to retire earlier than most, I’m going to assume up to 40% max Canada Pension Plan (CPP) benefits at age 65.
• They will also take Old Age Security (OAS) benefits at age 65, 100% benefits. 
• Brandon and Stacey have no kids. 
• They rent a 2-bedroom condo here in Ottawa, for about $2,700 per month. Considering their planned $60K annual spend, that means they have just over $2,000 per month to cover food, entertainment and other costs. 

They’ve read my post about when to take CPP and figure those ages make sense for them.

When to take your CPP benefit

Asset Assumptions:

• Combined, Brandon and Stacey have *$500,000 in RRSP assets.

*If you’re thinking this is not doable, it can be done. Saving early and often is a constant mantra in personal finance because it works. From age 25 to 45, if you saved $500 per month on average for 20 years, at 7% average returns, you’ll have about $260,000 starting from scratch…

Source: GetSmarterAboutMoney. More free calculators are on my Helpful Sites page here. 

• Combined, they know the power of the TFSA: they’ve managed to save and invest $200,000 to date. 
• They keep about $25,000 in their chequing account to cover emergenices – that money offers a very nice float for daily expenses. 
• They have no taxable investments.
• Again, they rent here in Ottawa, a 2-bedroom condo unit charging a very modest $2,700 per month. They may or may not decide to buy a home eventually or move to a lower cost of living area in Canada.

Asset Growth Assumptions:

• Brandon and Stacey follow My Own Advisor and know they should be able to expect about 7% long-term equity returns (like they have earned historically) by owning any desired combination of a simple two-ETF solution: XIU for Canadian stock exposure and XAW to own the rest of the world.

ETF Symbol	MER	# of holdings	5-Year Return	10-Year Return	Since Inception
XIU	0.18%	60 Canadian stocks	7.98%	8.89%	7.34%
XAW	0.22%	Over 9,500 beyond Canadian stocks	7.86%	N/A	8.59%

(Information in table current at the time of this post.)

While they intend to stick to mostly equities for long-term investment returns, for the purposes of our projections today, our couple agrees with me they should lower their equity return expectations to 6% for the coming decades to build-in a higher margin of safety. 

How your part-time job can support your retirement – Scenario 1

In this scenario, we’ll assume no part-time work at all and therefore no plans to retire early.

The good news is, if they defer retirement to Brandon’s age 55 (vs. age 50) assuming they only focus on maxing out their TFSA investments moving forward; while staying out of debt, they should be fine. 

They can start full-on retirement at his age 55 with their spending expectations essentially right on the number. 

Factoring in 3% inflation, that will feel more like spending about $125,000 per year years from now at Brandon’s age 70 – still aligned to their wishes:

How your part-time job can support your retirement – Scenario 2

But like we wrote about above, Brandon and Stacey are also considering a better life-work balance as they age.

Weekend Reading – Life and work balance

In this scenario, we’ll assume they work less than full-time, at Brandon’s age 50 (Stacey’s age 47) but assure themselves stable income flows in semi-retirement:

• Brandon will earn $25,000 per year, between ages 50-60, his salary increases with inflation. 
• Stacey will earn about $30,000 per year, between ages 47-60; that salary also increases with inflation.

But instead of maxing out their TFSAs (like they would have done by working full-time with higher salaries), I’m going to assume without debt they simply spend what they wish from their scaled back jobs and stop saving for retirement altogether. That’s correct. Without any debt, they earn only what they need to cover most of their rental, food and other key expenses and not much more. Instead they will let their RRSP investments compound away for the coming years and if/when they need some income, they can withdraw money from their TFSAs (tax-free) to close any income gaps before RRSP, CPP and OAS assets and benefits kick-in in their 60s. 

Again, factoring in 3% inflation, that will feel more like spending about $125,000 per year years from now at Brandon’s age 70. Assuming 6% long-term returns, they’ll still have money leftover in their 80s with this approach:

Even with lower incomes in their 50s, no longer saving for retirement, assuming lower expected CPP benefits in retirement at 40% max CPP, Brandon and Stacey could consider slowing down, working less/earning less, and still enjoy semi-retirement without much financial distress.

How your part-time job can support your retirement summary

Anyone in their 40s or 50s, considering semi-retirement or retirement, should likely start imaging now how various options could play out assuming they have invested early and saved early over the last few decades. 

No doubt, many Canadians can and will want to work well into their 60s. 

Other Canadians, not so much…and instead are looking at how they can remain active, purposeful but in a scaled-back capacity. 

There is growing, rather mountains, of evidence that points to even the non-monetary aspects of employment which are key drivers of people’s wellbeing – it provides social status, social relations, daily structure, and purpose – helping fulfill happiness. 

If you’ve thought about the opportunity to scale back a bit, in the coming years, hopefully this post is some inspiration for you. Not only can scaling back or working part-time be rewarding as part of your life-work balance but it can also support your retirement income plans too…

You can also check out Andrew Hallam’s fine book entitled Balance on this very theme.

It’s all about Balance with Andrew Hallam

Consider work on your own terms

There is certainly no one-size fits all retirement plan. Hardly.

I’m working through my own plans and thoughts real-time via this blog!

Some people can spend less than Brandon and Stacey. Some folks will absolutely want to spend more.

Working, saving, investing whereby money is only used up in my 60s and 70s however just doesn’t seem right. Maybe you feel the same.

Should you need any support for your retirement income projections – I can help.

Knowing how to save and invest wisely, as a My Own Advisor reader, is something you’re probably already good at! Kudos. 

Knowing how to drawdown your portfolio might take more guidance. 

If you are ever interested in obtaining some personal retirement projections reports, check out this next link for some low-cost retirement projections services. Happy to engage. 

Thanks for your readership and happy personal planning. More free content coming on my site in the coming weeks…

Stay well.

Mark

Further Reading:

You can check out dozens of free case studies, financial independence stories, retirement essays from readers and much more on my dedicated Retirement page here.

Here are more examples:

This 50-something couple wants to FIRE at 52. How much can they spend?

Why my goal own to live off dividends and distributions remains alive and well…

And finally for today:

I’m single – is it possible to retire at age 55?

Disclosure: This is not direct investing advice nor should it be taken as such. All information in today’s today, and assumptions, are for case study purposes only. Thanks for reading and sharing.