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Is it possible to save too much for the future?

DSC00843Back in December, I shared my panic about not saving enough for early retirement. I was putting away $950 each month back then, and once employer contributions kicked in, that increased to $1,200. Because of my little panic attack, I increased it again to $1,350/month for January, and then in another surge of panic in that same month, increased it yet again to where it currently sits at $1,685/month.

And even though I’m not stretching myself thin by contributing $1,685/month (which includes employer contribution), I couldn’t help but ask myself two important questions:

  1. Could I be saving less into retirement and more into my general savings? If I don’t actually need to be saving this much money to reach my goal of early retirement, would I be better off setting that money aside for a down payment on a future home? Or spending more of it on life (which basically means travel)?
  2. If I continue saving at this rate, could I potentially retire earlier than the 55-57 age that I’m currently targeted?

Even though I’ve been saving for retirement for 10 years already, and early retirement is my number one financial goal, I really don’t think I’ve ever grasped the actual reality of retirement. I’ve just kind of been wildly throwing money into my portfolio in the hope that it would fund whatever lifestyle I choose to have. But the thing is, I’ve always known what I want. Maybe I can’t picture the details exactly, but I know the feeling.

Related: What does retirement mean to you?

I wrote this back in 2013 and it still feels so true to me:

Retirement to me means having the freedom to do whatever I want to do, without the obligation to work for a living. I guess you could call it financial independence, rather than retirement. Who knows what I’ll be up to! But whatever it is, it’ll be my choice, and it won’t be based on the need to bring in an income.

Most experts say you want to replace 70% of your pre-retirement income in order to live comfortably. Which is what I’ve always been aiming for. 70% of my income right now would conservatively be about $55-60k. But the issue I’m having is, that number seems really, really high. And I’m beginning to realize that your retirement calculations should be based on your pre-retirement SPENDING, rather than your income. Right?

Because, come on. I’ve never in my life spent $55-60k in one year! I’m living quite comfortably right now on 35-40% of my income (and that includes paying rent) in Canada’s most expensive city. So if I have no rent/mortgage to pay during retirement, and I live a good life right now, why on earth would I ever need 70% of my current income during retirement?

Related: Why 20-somethings might have difficulties retiring by 65

Sure, unexpected costs will always creep up on you. So let’s say on the high end, I’ll want 50% of my income during retirement. I’m a cautious person, and there’s always a degree of uncertainty to life – so the extra padding would be nice. But that’s still a lot less than the 70% I’ve been stressing myself out to obtain.

My goal for this month is to take a really good look at my retirement plan, my current contribution rate, and what that means for my goal of early retirement. I don’t know if I’ll end up changing anything, but I do think it’s an important exercise. And if anything, it might calm me down a bit. :)

Do you have a favourite online retirement calculator?

The goal of early retirement

At least once a year I have bit of a breakdown about my early retirement plan. Even though I run the numbers every year to make sure I’m still on track, I somehow end up convincing myself that I’m not saving enough. This happened last week, and I promptly took an entire evening away from packing up my house to play in spreadsheets and run numbers through about a million online retirement calculators. I also tried to share my panic and frustration with RD, but because he’s got a nice government pension waiting for him when he retires, he didn’t really understand where I was coming from.

Early retirement is my number one financial goal. Right now my goal is 55-57. This has been what I’ve wanted since I started taking a keen interest in my finances back in 2006, and I don’t see it changing anytime soon. But what does retirement actually look like? Taken from a 2013 post I wrote, retirement to me means having the freedom to do whatever I want to do, without the obligation to work for a living. I guess you could call it financial independence, rather than retirement.”

Freedom. It’s a word I’ve been using a lot lately. I recently freed myself from my mortgage, and the lifestyle I desire now (as well as in retirement) allows me the freedom to make whatever choices I want to make. I want my life to be open to all opportunities, and perhaps as I get older, those opportunities will become more defined.

Related: Why 20-somethings might have trouble retiring by 65

I may not know what retirement looks like for me from a day-to-day point of view just yet (because a lot can happen in the next 25 years), and that’s okay. Right now, I want to live in a small (tiny) home in (or near) my hometown. But just like in life, I don’t think retirement needs to look a certain way in order to be happy. I may have this exact lifestyle for the rest of my life until I die. Or maybe a family is in my future. Or maybe as soon as I retire, I’ll want to move somewhere exotic or travel the world with my husband. I guess the point is, it doesn’t matter what I want to do when I’m older, it just matters that I’m taking the steps now to allow me the freedom to make those choices later.

Back in 2006, I was saving $50/month towards retirement. I’ve come a long way since then, but the $950/month I’m currently saving is still not enough. Once employer contributions kick in, that amount will increase to $1,200. If my average annual salary is around $80k, and I want to be saving 20% of my gross income towards retirement, then I should be at about $1,350/month.

I’ve got some time to think about it before I set my 2016 goals, but I’m fairly confident that I can save that amount, as well as save for travel and any other savings goals that may come up (my total savings rate should be about 50-60%). I’m just not sure how to adjust my auto-debits, as my income can fluctuate quite a lot from month to month.

How much are you putting away towards retirement? 
Does the amount you’re saving align with your retirement goals?

Breaking down my cost of renting vs. owning

Over the last few days I started calculating how much it would cost me to sell my home in the suburbs and move downtown. After a feeble attempt at finding a condo in Vancouver within my price range (that wasn’t a complete dump), I’ve come to the (obvious) realization that I’ll be a renter once I move. And I’m okay with that, because there are actually a lot of options for me to choose from.

So in order to see how much I would save by moving downtown, I decided to take a typical monthly budget with my mortgage and compare it to what I would be paying if I were renting instead:

mortgage_vs_rent

Note: Rent in the area I want can vary in price from $750/month micro-lofts to $6000/month luxury oceanfront condos. While I actually do find the idea of living in a micro-loft appealing, for the purposes of this exercise, I went with $1,200/month rent – which is slightly lower than the average of around $1,400 that I was finding.

So based on the numbers above, I’d be saving $400 month. Huge money to me. Not only that, but I’d be cutting down on my commute (most places I looked at I could walk to work), and I’d be within walking distance to a lot of the things that I love to do in this city.

There are drawbacks though. First of all, according to my mortgage terms, I’d have to pay approximately $1,900 to back out of my mortgage. Not as much as I thought I’d have to pay, but still a significant amount. And for field hockey and visiting my friends, I’d have a longer commute from downtown because obviously I’d be farther away. But I know I’d be happier moving, so I think the positives outweigh the negatives.

$400 extra in my budget means that I could bring my retirement contributions up towards the $1,200-$1,300/month range with no real effort, and I find that extremely appealing. It then becomes feasible to start looking at potentially being able to put away closer to 50% of my income from my full-time job towards retirement, but one step at a time I suppose. :)

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