How To Retire In One Year

Sixty-five.  It was the workers’ magic number for decades.  The ultimate target for retirement from the daily grind.  That was when much of the labour force was employed in manufacturing and the trades, when a job at sixteen or eighteen meant the same job at sixty-five. 

Then insurance companies changed the rules.  Or so they promised.  “Freedom Fifty-five” – clearly the most well-known campaign to convince Canadian listeners that they could retire at 55.  In the USA, the approach was different, with credit card companies suggesting that you could enjoy life now, and pay for it far down the road.  Both strategies had the same aim: use money to buy freedom.  And the travel industry kept the pressure on, with shots of exotic locales with sexy women (and occasionally, men) to lure customers. 

In reality, the early retirement targets were always unrealistic, given our propensity for acquiring both wealth and material possessions.  A target needs to be attainable.

The economic crisis of 2008 changed the rules again.  Most of us now believe that retirement will not be viable until we are in our early 70s. Saving almost seems a foolish, frivolous exercise, given poor returns and high risk, along with nebulous job security.

My ex-spouse epitomized the force of fear on retirement planning. Because of health and job issues, she hoped to retire at 58, from a thirty-five year career.  The pension plan with her employer, a local university, allowed for the standard “85” formula for retirement eligibility: a combination of age and years of service totalling eighty-five. Fifty-eight plus thirty-five meant that she was well over the minimum threshold, and would have received her full pension, equal to about 70% of her gross salary.

In addition, she had slightly over $110,000 in retirement funds (RRSPs in Canada). She had a home with a net value of $95,000.  Her retirement plan also carried extended health care after retirement.  She had almost no debt ($30,000 mortgage on a $125,000 home). She had no family obligations.  She was two years from being eligible for early benefits with Canada Pension that would have given her an additional $550 per month. In seven years, the government Old Age Security would have kicked in with a benefit of an additional $600.

In summary, she would have immediately received income from her pension and investments equal to her current salary.  If she had sold her home and moved to an apartment, she would have saved about $90-120 per month.  Her work-related costs would have decreased (parking at work, fuel and vehicle maintenance, vehicle insurance) by $150.  She no longer would be paying into a pension fund (7% matched by the employer), Canada Pension (3.5% of income), or Employment Insurance (3% of income), for a total saving of 13-14% of gross revenues.  That meant that she would be receiving a company pension of 83% of her original gross pay, plus other revenue streams and reduce cost.  The final tally in the first year of retirement worked out to an increase of income of nearly 12% over her existing salary.

In two years, that income would have risen by 20%, and in seven years by 42%, without ever touching the principal on her investments.

Yet, she was convinced that she could not afford to retire.  Week after week, she complained about needing to retire, but week after week she raised unrealistic barriers to that retirement.  Ultimately, she remained at work for another five years.

Her dilemma is typical.  Many of us want to retire, but are afraid of the unknowns involved.  Many of us have unrealistic goals and objectives for our retirement, and do not understand, fully, the impact of retirement on all aspects of our lives.  Ultimately, we all are duped by the misinformation that permeates the world around us about the costs and the needs of retirement.

Mostly, we build our retirement dreams around the fantasy built for us, and think that the retirement that we want is the retirement that advertisers tell us that we want.  We want to travel to exotic locales, we want to leave a sizeable nest-egg for our children. We want to increase our standard of living while decreasing our income.  We want to lounge around all day during our retirement, without obligation or motivation. We want to remain young forever, while we get older.

That is not retirement.  There is a reason why many corporate executives remain on the job long after their seventieth birthday, or academics remain teaching at universities, or scientists continue to do research well into their eighties. It is because retirement is not about forfeiting all responsibility at a specific age.  Remember the 65-year-old retiree mentioned at the beginning?  It turns out that, in the 1960s and 1970s, when sixty-five meant quitting work and relaxing in the easy chair, scores of those newly retired men died of heart attacks within months or years of the beginning of their so-called life of leisure.  We should never quit enjoying life, and for many of us, enjoyment comes from accomplishment.

A recent study found that the vast majority of octogenarians and nonagenarians continued to be active, with specific goals, and many with specific (albeit part-time) jobs.  They had a purpose, and a reason to embrace life.

This article series will look at how to retire earlier than you thought possible.  In fact, it is possible for virtually anyone over 45 to “retire” within one year.  The key is to know your retirement objectives, be realistic, and focus.  It will not teach you how to sit back in your Lazyboy, and watch sports all day.  It will show you how to work, step by step, toward retirement in a manner easier than you may think is possible, but in one that involves a lot of work.  That is not contradictory. 

My brother, for instance, “retired” at forty-two.  The lifestyle that he endured simply is not realistic or desirable for virtually every one of us.  He suffered through the next twenty-three years.

I retired at fifty-seven, then redefined my retirement two years later, while waiting for my wife to choose to quit work.  In her opinion, she already is retired, since she works part-time, has full company benefits, chooses almost all of her schedule, and enjoys months on end of vacation and travel time. Both of us are living the lives we want.

Each week, I will be posting a new segment in the “How To Retire In One Year” series. Next week, we will be looking at goal setting and planning.