Retirement: The fast way to freedom

Many Canadians dream of retiring by 60 or even 55. Few of us, though, know how much we need to make that possible. Here’s the lowdown.



From the October 2009 issue of the magazine.


As he neared his 60th birthday earlier this year, Rick Sanderson knew he was fed up with the sales job he had held for 34 years. “It was starting to affect how I felt about everything,” says the resident of Crowsnest Pass, Alta. (whose name and identifying details we’ve changed). “I was kind of cranky, had some depression. I just felt that if I kept going to work my health was going to be affected.” Like many Canadians of similar age, Sanderson had long been counting on retiring before he hit 65. He and his wife, Heather had accumulated ample money to cover basics. But they wanted more. Their retirement wish list included a home renovation and extensive travel to Europe and South America.

The market collapse of this past year put those dreams in jeopardy. At one point, the Sandersons’ investments had lost 35% of their value. If Rick retired at 60, the couple was no longer sure that they would have enough to afford their entire wish list. Should Rick continue to do a job he disliked to ensure the retirement they desired? Or follow his heart and say good-bye to the office forever?

If you’re in your 50s or early 60s, you may be facing exactly the same dilemma. Many Canadians have had to re-evaluate their early retirement plans after watching their portfolios plunge in value over the past couple of years.

But don’t give up on your dreams of early retirement just yet. You may be able to make early retirement affordable if you’re willing to cut back, just a bit, on how you plan to enjoy life after you quit work. “I think most people do have an ability to cut back on the extravagances and live a life that’s less expensive but not much less enjoyable,” says Malcolm Hamilton, a consulting actuary with Mercer, a human resources consulting firm in Toronto.

Rick Sanderson is a case in point. After weighing the alternatives, he decided to plunge into early retirement despite his depleted portfolio. “I just had enough [of my job] and figured it was time to go,” he says. “If we have to, we’ll change our lifestyle to accommodate what we have.”

Rick is enjoying the early days of his retirement, doing small jobs around the house and golfing. Heather, 58, is still working, but hopes to also retire in the next few years. They’re confident they have enough money, even if they’re not so sure they can afford all their dreams. “If it’s a choice between renovating and traveling, we decided that we would travel,” Rick says. They are planning to drive across Canada with a trailer and visit Australia, but aspirations for further trips to South America and Europe will depend on how their finances hold up. “We just decided to do what we can with what we’ve got.”

How much is enough? As the Sandersons demonstrate, an early escape from work may be more affordable than you think, especially if you’re willing to scale back on some of your ambitions.

Consider a typical Canadian couple who earned average incomes during their working lives and don’t have a defined benefit pension plan. A nest egg of about $400,000 should be sufficient for them to retire at 65 and continue to live at the standard they enjoyed while working, says Hamilton. For that same couple to retire at 60 and live their accustomed lifestyle would require a nest egg of more like $600,000, estimates Hamilton. Yes, that’s still a fair amount of money, but it’s not anywhere close to the million dollars that many people think you need.

The 3% solution. If you plan to leap into retirement early, you must be careful about how much money you withdraw from your nest egg every year. That’s because you have to make your nest egg last a longer time. Let’s assume you have a balanced portfolio of both stocks and bonds. If you retire at 65 and want to minimize your risk of running out of money, researchers advise you to plan on withdrawals of no more than 4% annually of your initial portfolio value (plus inflation adjustments). If you retire earlier, you need to go even easier on your withdrawals.

How much easier? If you retire at 60, you would be wise to scale back your withdrawals to around 3.5% a year, say some experts. Retire at 55 and a withdrawal rate closer to 3% makes sense. But use these withdrawal rates as rough guidelines, notas precise markers. You may want to withdraw a bit more in the early retirement years when you’re most active, and less in your later years when you have less get-up-and-go. Moshe Milevsky, a professor of finance with York University’s Schulich School of Business, says it’s fine to withdraw more if your investments do particularly well—but you should also withdraw less if they do poorly.

No helping hand. Don’t expect a lot of help from government if you want to retire early. Government programs are geared to benefit you once you turn 65. If you retire at that age, you can expect to receive a combined total of up to $18,100 a year from three programs: the Canada Pension Plan (CPP) or its Quebec equivalent, Old Age Security (OAS) and the income tax age credit. You can also tap the Guaranteed Income Supplement (GIS) if your income is particularly low.

Early retirees get a lot less. While you can begin taking CPP as early as 60, it’s at a permanently reduced level. Except for a few special cases, you will not be eligible for other government stipends until you turn 65. A typical 60-year-old retiree can expect to get $7,600 a year or less from government, all of it in reduced CPP.

It’s all in the pension. If you’re fortunate enough to have a defined benefit pension plan where you work, it can be a big help in making early retirement affordable. In fact, if you work in the public sector, your pension may be sufficient for you to retire in your mid- to late 50s even if you have no other savings.

A defined benefit pension provides you with a set amount every month—the “defined benefit”—once you retire. The amount you get is usually based on how much money you were making toward the end of your career, as well as how many years you were covered by the plan.

Public sector pensions usually pay 2% of your peak earnings multiplied by your number of years of service. Someone who worked 35 years for a government department could typically expect an annual pension worth 70% (35 times 2%) of his or her final salary. The resulting amount is often fully indexed for inflation.

Most private plans are nowhere near as generous. Pensions are typically calculated based on only 1.5% of your peak earnings,multiplied by years of service. The payouts are often not adjusted at all for inflation.

In most cases, this pension math is based on the standard case of retiring at 65. If you retire earlier, you’re more expensive to the plan because it has to pay you for additional years of retirement. Who pays for that extra cost? It depends. Sometimes your employer pays through higher contributions. Sometimes you pay through a reduced pension. In fact, with many private sector plans, you can lose 4% or more of your annual pension for every year before 65 you start collecting.

But other plans are more generous to early retirees. Many public sector employers and a few private sector ones allow you to retire years early with no reduction in pension. To qualify, you must satisfy a formula that combines age plus years of service. Federal government employers, for example, can retire at 55 with no reduction in their pensions if they have 30 years of service. In that case they get a fully indexed pension that is at least 60% of their peak salary. Many experts say that should be enough to retire comfortably, even without additional savings. Thus, while the dream of Freedom 55 may be dimming for many Canadians, it continues to shine brightly in the public sector.

David Aston writes about personal finance. He is a certified management accountant with an MBA and MA in economics. For more Reward Years columns by David visit

50 comments on “Retirement: The fast way to freedom

  1. Thnak you for the information that is a very good blog!


  2. Thanks for these pointers. One thing I additionally believe is the fact that credit cards featuring a 0% interest often entice consumers in with zero interest rate, instant acceptance and easy internet balance transfers, nonetheless beware of the real factor that can void that 0% easy neighborhood annual percentage rate and throw one out into the poor house quick.


  3. bing is extremely working well really a big competitor to google around the other hand will require time.. lot time


  4. Thanks, it would be great if you should could publish a fundamental december what elements a video wish to be optimised. With thanks.


  5. Hello; great publish for me. Your publish has very good quality. I need to has very good posts like yours at my website. How don’t you arrive around these posts?


  6. Nice commentary. last thirty days I uncovered this internet internet site and desired to permit you be conscious that i’ve been gratified, heading via your site’s posts. I should certainly be signing equally as much as the RSS feed and can wait around for another post. Cheers, Glen


  7. If the equine feels restless or starts acting crazy, this could previously be an indication of colic. The man or lady will require to remain a small way more the perfect time to create an assessment as a consequence of the simple fact it is in real truth also doable how the four-legged friend was spooked by something.


  8. Sick and exhausted of acquiring minimal quantities of useless potential consumers to the site? very well i need to notify you of the brand-new underground tactic which creates myself $900 each and every 1 week on 100% AUTOPILOT. I may likely be right here all 1 week and heading into component but why do not you simply research their internet internet site out? There may likely be considered a very good video clip that points out everything. So in circumstance your severely contemplating making straightforward very hard money this could be the internet internet site for you.


  9. Need help please! Has any man or lady acquired any functioning experience while using conditioning computer software from 10BuckFitness? My new private coach swears by these wokouts and he and his son have similarly long gone from simply fire hydrants to tri-atheletes from the last twelve june thru september or so. I’,m in lookup of the very good lifting computer software for bodybuildingFor only 10 bucks- i am considering, but would be thankful for any encounters instead much. Thanks!


  10. Thanks just like a support to charming the metre to deliberate this, I be informed highly on heart-breaking it and lady-love erudition way more on this topic.


  11. I was more than happy to seek out this web-site.I wished to thanks to your time for this excellent read!! I undoubtedly enjoying every little little bit of it and I’ve you bookmarked to check out new stuff you weblog post.


  12. My spouse and i absolutely need to think much more in that area and see what i can do about that.


  13. My partner and i obviously need to think even more in that course and find out what i can do about that.


  14. Well, this is great, however what about the other choices we have here? Would you mind crafting a further article about all of them also? Thanks!


  15. obviously like your website but you need to check the spelling on quite a few of your posts. Many of them are rife with spelling problems and I find it very troublesome to tell the truth however I¡¦ll surely come again again. Koha Ditore


  16. I seemed to be aware of this previously, but nonetheless there was clearly some useful bits that completed the picture to me, thank you so much!


  17. wonderful web theme and also fantastic post.many thanks this is fantastic information and facts


  18. this was obviously a genuine very good post. My service company is in real truth looking for in the direction of the subsequent submit.


  19. The guidelines you shared here are genuinely beneficial. Rrt had been such a fun surprise to have that waiting for me right after i woke up this incredibly day. They’re continually to the point and straightforward to learn. Thanks a ton for the valuable suggestions you have shared appropriate here.


  20. The following time I read a weblog, I hope that it doesnt disappoint me as much as this one. I imply, I do know it was my choice to read, but I actually thought youd have one thing attention-grabbing to say. All I hear is a bunch of whining about something that you may repair if you happen to werent too busy looking for attention.


  21. My spouse and I absolutely love your blog and find almost all of your post’s to be just what I’m looking for. Do you offer guest writers to write content to suit your needs? I wouldn’t mind producing a post or elaborating on many of the subjects you write concerning here. Again, awesome web log!


  22. I’m still learning from you, while I’m making my way to the top as well. I absolutely liked reading everything that is posted on your blog.Keep the posts coming. I loved it!


  23. After study few of the articles on your blog these days, and that i love your approach of blogging. I tag it to my favorites web website list and will be checking back soon. Please visit my web site too and let me grasp your thought.


  24. Sorry for the noobie question. Could you let me know what this site template is? I really like it. Or is it custom template, maybe? I think it can be a decent choice for Google ads too. I’d love it if you can tell me about it. Thanks.


  25. Pingback: Check out my facebook profile

  26. Aw, this was a really nice post. In thought I wish to put in writing like this additionally – taking time and precise effort to make an excellent article… however what can I say… I procrastinate alot and on no account seem to get one thing done.


  27. Pingback: Sears Printable Coupons

  28. Pingback: Married Dating

  29. Pingback: Earth4Energy Review

  30. Pingback: Diet Solution

  31. Pingback: Ultimate Cleanse

  32. Pingback: Colon Cleanse Weight Loss

  33. Pingback: Transmission Rebuild Kits

  34. Pingback: Simply Earplugs

  35. Thanks a lot intended for post this specific, It’s purely what exactly Document had been searching for designed for about google. I’d loads fairly pick up beliefs by a man, a little bit when compared with an institution webpage, that’s the reason why I want information sites which means that substantially. Bless you!


  36. Pingback: Ile Maurice Location

  37. Pingback: Social Security Calculator

  38. Pingback: Mauritius Villas

  39. Pingback: Location Ile Maurice

  40. Pingback: Mauritius Accommodation

  41. Pingback: internal audit

  42. Pingback: Location Villa Ile Maurice

  43. I enjoy reading a post that will make people think. Also, thanks for allowing me to comment!


  44. Rarely do I encounter a blog that’s both educated and entertaining, and let me let you know, you could have hit the nail on the head. Your thought is excellent; the difficulty is something that not enough individuals are speaking intelligently about. I’m very joyful that I stumbled throughout this in my quest for info relating to this.


Leave a comment

Your email address will not be published. Required fields are marked *