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).
85 was the magic number when I started my current career. When we were privatized in 1996 it took a number of years before we noticed that the new company had changed the rule to 30 years or 60 years old. That changed my new number to 90. My new date (old date Feb 27, 2012) is coming up this August, but like you this is the no penalty date. I plan to work another year to increase the pension and reduce the CPP discount. This should get me closer to the required retirement income level.
I thought I heard something about them looking at changing the rules for income sharing and not in a good way. If so that may change your retirement date.
Haven’t read anything yet, but I will look just in case too! I still have a while I am sure the rules may change before I am able to retire.
Forget any retirement, I’m just to spend my money and live in debt. That way I don’t need to plan.
(An email to my blog recently).
When I do the math 85 is the age at which I may finally be able to retire.
I am still not convinced I will be able to as well, we shall see…
I will be eligible to retire with an unreduced pension in about a month. I have done the math working on the same boolean equation as you. My target retirement income is my weekly take-home pay reduced by the amount that I put into rrsp’s and tfsa’s weekly. No, I’m not there yet.
I am no where near mentally ready to retire as I am only 52. I see far too many co-workers take this option and end up lost with not enough planned to fill their time. Apparently the first couple of weeks are like being on vacation, and then reality sinks in. But back to the financial part of the equation, what happens to your CPP when you go to collect at age 60 or 65 but haven’t contributed anything for the last 10 years because you were retired? Isn’t your CPP benefit weighted heavily on the last 10 years worth of contributions? If so this is going to be a big negative hit that I’m not so sure people who have retired young are anticipating when they reach that age.
Also, in my workplace we have lost P-COLA and there is no guarantee that we will ever get that back. While my retirement income might look good on the date of retirement that same amount is going to be awefully meager in 30 or 40 years without any COLA bumps.
All excellent points to ponder, and keep in mind. Maybe you can “retire” and do contract work to supplement things, or find a part-time “fun” job that pays a little more too? Not sure about your CPP questions, I’ll look into it, but maybe someone else can comment?
If I have too keep working I’d rather keep doing what I’m doing because I enjoy my job and make decent money and benefits. Something else people tend to not think about is if you retire from a job where you have high seniority and start over in a new job you will be back to only 2 weeks vacation time per year. I like my vacation time! 😉
As far as the CPP I went to Service Canada’s website and it looks like you are allowed to drop up to 10 years of lower income earnings when your CPP benefit is calculated. Also I was told that you still pay into your CPP from your company pension cheque when you retire before you start to collect CPP. Therefore I would take this to mean that you could retire 10 years before your CPP benefit kicks in without it affecting the amount of your benefit. Just an FYI.
Ok I feel like I’m kind of flogging a dead horse here but I posted something yesterday that isn’t factual and want to correct it. The company has clarified that we do NOT pay CPP from our pension cheques if we retire before 60.
An option that makes a lot of sense to me is to cut down work hours over a few years instead of doing a sudden retirement from 5 days/week to zero. However, few employers seem to like the idea. I can certainly see the appeal myself of at some point in the future dropping down to 3 days/week for 60% pay.
I believe I have that option available, sounds like a good idea.
I thought 85 was important because that is the age u expect the Senators to finally win a cup 🙂
Wasn’t that the year the Leafs last won the cup? No wait, that was 67!, magical…
I remember the last time the Leafs won the cup in 67 with Dave Keon and company. It was Canada’s centennial, the Beatles were together, I think Pearson was the prime minister, LBJ was in the White House, the only imported cars were VW, Renault, and Austin, and a bag of potato chips or a coke were 10 cents each.
The booming 60’s it was.