As Canadians approach the end of their working years, many dream of retiring early and heading off to their cottage or the Florida coast. And while it never hurts to dream, pursuing early retirement is an option that shouldn’t be taken lightly.
No matter what stage you’re at in thinking about or planning for early retirement, here are five key issues to consider before making the leap.
1. The Magic Number: How much should I save?
According to a 2019 investment poll by Scotiabank, the majority of Canadians (65%) who have retired or are planning to retire estimate they will need to save less than $1 million to fund their ideal retirement. The average amount thought to be needed to fund an ideal retirement is approximately $700,000 ($697,002).*
Exactly how much you’ll need depends on who you ask. Many financial planners suggest that $1 million might be the threshold for a safe and secure retirement, while, at the other end of the spectrum, some look to get by with only Old Age Security (OAS) and Canadian Pension Plan (CPP) payments– which is not a sound financial plan.
While there’s no hard number for retirement savings–so much will depend on your individual spending habits and lifestyle goals–now’s the time to assess what you’ve saved so far and can expect to have.
What’s the value of your retirement and savings accounts? What about your current assets (home, cars, real estate investments etc.)? What can you expect to receive from OAS and CPP (keeping in mind that drawing on benefits sooner may reduce your payout)? Do you still have debt?
2. The Other Magic Number: How much will I spend?
Many retirement experts suggest that prospective retirees should expect to spend about 70-80% of their pre-retirement budget. If you’re like most Canadians and haven’t been in the habit of keeping a budget, take some time to review your current expenses. Factor in all your fixed costs (rent or mortgage, utilities etc.) and then review your credit card records and bank statements to track your discretionary spending.
The nice thing about tracking your expenses is that you’ll probably identify a number of key areas where you can eliminate spending–and ultimately put more money away for retirement.
3. What will my future health care costs be?
Unforeseen medical costs can derail anyone’s retirement plans. While it’s impossible to foresee the future, it’s important to be realistic about future health costs–especially if you’re suffering from chronic health issues, such as diabetes or hypertension. If you haven’t had a recent physical, make plans to schedule one soon.
4. Are you emotionally ready to retire?
While that might seem like a rhetorical question, the fact is that many potential retirees haven’t considered the reality of a life without work. For many of us, work provides a sense of self and an essential social outlet.
Does your job still give you a sense of satisfaction? Consider how you’ll fill that void in retirement.
5. What about working part-time?
Once you crunch all the numbers, you might decide that early retirement might not be financially viable. If you feel like you’re close, but not quite there, you might consider working part-time before retiring completely. That way you’ll still have an income stream, albeit reduced, and a potential source of satisfaction to fill your time. It’s not an option for everyone, but it may be worth exploring before going forward with early retirement.