- Rethinking retirement
Put in place a savings plan to the extreme to achieve financial independence at age 40 ? If this kind of project, inspired by the movement FIRE (Financial Independence, Retired Early), is not necessarily common, it is not out of reach, say experts, who formulate, however, a caveat on the importance of understanding the consequences.
Because with a life expectancy of more or less remote, and the factors that may influence the returns of the accumulated capital and the level of expenditures are multiple. Starting with the evolution of consumer prices, the unforeseen events, the vagaries of the market, health, etc
“This is a retirement planning like the others “, however, says Éric Brassard, accountant and investment advisor to the cabinet Brassard Goulet Yargeau. “The only thing about it is that it is a personal choice. Sometimes people call me to find out if they can retire. I ask them if this is their only issue, and I tell them that the answer is “yes”. It can always take, our retirement, everything is a question of cost of living. “
What distinguishes investors who adhere to the project of your life, it is the rate at which they accumulate their nest egg for retirement, ” remarked Mr. Cuff. The two factors that influence heavily in this planning are the age of retirement and the ” cost of living “, which they are intended. “If someone is happy with it, there is no problem, we’ll handle it. “
Historically, the case of a pension classic was preceded by forty years of work, followed by a stop at 65 and then a dozen of years to receive income from an employer plan and public plans. The past few years have printed a major transformation marked by the lengthening of life expectancy, the increasing use plans, personal RRSPS and TFSAS, the gradual disappearance of defined benefit plans and the recent enhancement of the public plans.
Savings habits are, however, less good as some may believe. According to the census of 2016, Statistics Canada, only 35 % of households in the country have contributed to a registered retirement savings plan (RRSP), compared to 40 % who have done the same thing in a savings account tax-free (TFSA). Finally, one-third of households contributed to a registered pension plan, whose retirement income is made up of a defined benefit or defined contribution plans.
Concerned about the potential effects of retirement incomes too low on the well-being of the individual and the collective, the governments have acknowledged a few years ago that the core protection of the public plans had become clearly insufficient. At the end of long discussions between Ottawa and the provincial governments, the protection has, therefore, been redesigned to cover 33.33% of the income earned during the career, instead of only 25 %. The maximum pensionable earnings increased from 54 900 to $ 62 500 $. The full effect would not be felt that in 2065, however. And pensions of the public system, remember, are always indexed.
A person who would target a level of annual expenditures of $ 25,000, which is apparently the result of a puncture of 4 % in capital accumulated 625 000 $, should absolutely take into account the effects of inflation, says Dany Provost, director of financial planning and tax optimization at SFL Expertise. “A sum of $ 25,000, if it is never indexed, in 30 years it could be worth about $ 12,000. […] It is necessary that the portfolio is more than 4 % to protect against inflation, or then it is necessary to withdraw more than 4 % to maintain their lifestyle. “
Freedom to work, or not
In other words, a person must move forward in the project, taking into account the range of factors that may influence the plan, today and far into the future. “We are not here to judge, but it is necessary that the people take the decision with full knowledge of the facts. You want to do ? So here are the implications. […] It is necessary to have the overall picture up to a very advanced age of their situation. Because they still have the choice to return to work, one day they will have more choice. “
This freedom to work as the mind and the body in the wish well is an important factor in the accumulation of capital. During the interview, Éric Brassard rumored to have said to a client that they can retire now if he was ready to reduce his pace of life of $ 15,000. “It is the principle of communicating vessels. When I work one more year, it is a year less to spend and one more year to save up. The more we worked for a long time, the less it is complicated to manage the retirement. But it takes work. “
This is the principle of communicating vessels. When I work one more year, it is a year less to spend and one more year to save up. The more we worked for a long time, the less it is complicated to manage the retirement.
— Eric Brassard
It is not impossible, of course, that some expenses disappear along the way. The mortgage, for example, or the expenses related to children. In the end, the most important is to design the plan with concrete.
Financial independence fast has this positive that it makes the promotion of the importance of repay the debts and to promote a high level of savings, ” said Cimon Plant, portfolio manager at National Bank Financial.
Ideally, he adds, a retirement plan early could even aim the accumulation of a nest egg that would go beyond the coverage of current needs. “I should aim at a style of life which would theoretically be superior to that of today. Like that, if one day, we are seeing inflation in different areas of life, I have the flexibility. “A person who is now 28-year-old will be nearly 80 in 2070. “What will be the costs of health care ? And in the diet ? “
The importance of saving is more rare in young people, but is generally marked in the quarantine, said Dany Provost. The time of a possible stop-work approach, and some workers fear they will have to fill out the bottom of wool faster than before to give themselves a chance to succeed.
See the following folder
Become independent of fortune before 45 years of age
Large plan on these Quebecers that aim for the financial autonomy thanks to the massive savings.
The stop work early: a project feasible, but beware of the unexpected
Multiple factors can affect the accumulated capital.
A project of life
Rest the acceptance of consequences and risks.
Other generations, other vision of the job market
The design of the work has changed over the generations, and the access to retirement could be adversely affected.