Get a clear picture of your financial situation
Deciding if it’s possible for you to retire will depend on whether you have a clear idea of how you’ll cover your expenses if you stop working. Since you can’t claim CPP benefits just yet, the $970,000 in your RRSP needs to be truly enough to cover all of your expenses until you can.
Many retirees use a common retirement budgeting tactic, the 4% rule, to ensure there’s enough money from their retirement accounts when making withdrawals, even when adjusted for inflation. With $970,000 in a RRSP, you can typically withdraw $38,800 each year before taxes. Of course, your retirement income may be higher if you have more assets held in other retirement accounts.
Look at your spending now and whether this will change once you retire. Aside from costs like food, clothing and transportation, take a look at what you owe as well.
For example, do you still have personal loans you need to pay off? Will it be a few years before you no longer have a mortgage? If so, you need to factor in your monthly payments in your retirement budget.
Compare your spending with your retirement income — is it enough to live on? Do you have other income sources like investments from brokerage accounts or pensions (assuming you can tap into them right now)?
If not, you may need to hold off until you have more in your nest egg. Or perhaps when you can start to claim CPP benefits if you’ll need to rely on that extra boost to afford your retirement expenses.
Debt Hack: If you still have debt, consider lowering the interest cost on that debt with a lower-interest loan. To find low interest rate loans quickly, use a rate consolidator such as Loans Canada. By working with multiple lenders across Canada, Loans Canada can offer competitive rates with better terms.
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Get started todayMaking early retirement work for you
Still want to retire early? Here’s where getting crystal clear comes in handy: If you’re not clear on your income and expenses, you could be at risk of running out of money down the line.
As in, it’s still possible to make it work if you’re willing to get creative with how you can afford it.
Say you estimate your retirement expenses will be $50,000 each year and your only income source is your RRSP until you decide to claim CPP benefits when you’re 60. In this case, you’ll need to cover around a $12,000 shortfall (it’ll depend on how much you need to pay in taxes) for the next two years.
Instead of leaving your career entirely, see if you can work part-time hours or freelance for your current employer. Side hustles or gig work is another way to fill in any income gaps. Your skills may easily lend themselves to a side business idea. That way, you can free up some time to pursue your ideal retirement lifestyle while earning income.
Another option is to find ways to drastically reduce your expenses like downsizing to a smaller home, relocating to a lower cost of living area or selling one of your cars. Giving yourself that financial breathing room can take a lot of pressure off finding part-time work, or feeling that you have to wait longer before retirement is on the horizon.
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