The Blunt Bean Counter, Michael James and a few other Financial Blogging types have been discussing what the Magic Number is for retirement, and I would like to add something new, that magic number is 85. In the case of the other Financial Bloggodocio out there, they are trying to find the amount of money you need to retire (held in your RRSP, TFSA and other savings vehicles), for folks with pensions like me, there are many funny magic numbers that arise.
A major magic number is 85, which if reached is when my pension will no longer be “discounted” (if I chose to retire). This number 85 is simply:
Age of Pension Owner + Years of Service
After cobbling together quick formula for me, that magical number arrives in about 5 years (or so), which is not that far away (remembering that does not give me the maximum pension, I would need to work 35 years to get to that). When this magical number transpires, will I retire? Not likely, more likely I’ll keep working, because I have another more important formula that I will be watching (and luckily it is a simple Boolean comparison):
Net Income Retired >= Net Income Working
When that is TRUE, I will be putting in for my “Get Me Out of Here” package. Looks like a simple comparison however it is not as simple as you might think.
Net Income Working is very simple, just look at my pay cheque and maybe include the costs of commuting (and a few other extras) to come up with that number.
Net Income Retired is a much trickier number to conjure up in a spreadsheet. When I retire I stop paying for a boot load of things including:
- Pension payments, I no longer have to pay (which is increasing quickly thanks to new rules for the Public Service Pension)
- Employment Insurance Premiums (I never have got dime one from this system)
- Canada Pension Payments (I will get something from here, luckily, as will we all, but will it start changing soon too?)
- Union Dues (no comment)
- Group Medical (ends up being a wash, since I have to pay for a medical plan when I retire, and now the government seems to be targeting those benefits in the latest budget)
- Lower Income Taxes
The last one is the really important point that is very interesting. I can effectively “Income Balance” my pension income between my wife and myself, and it is simply a tax form change. This Income Sharing, should mean at least 1 (hopefully more) tax bracket drop for us, which may make retiring earlier more tasty for me.
Being a Mathematician (of sorts) I love “Magic Numbers” and as a Programmer, I really love Boolean Equations for decision points (True or False are your only choices). You’d be surprised how many of your favorite Financial Bloggers are mathematicians or programmers. In this case the Magic Number is 85 (for this calculation at least).