Some people see retirement as only suitable for older adults above 65 years – after working for most parts of their younger, active years. Even the Canadian government’s benefits and pensions such as CPP and OAS can only be claimed by individuals above this age.
However, you should know that you don’t have to wait until you’re very old before retiring to enjoy your life. With proper planning and financial stability, you can be ahead of your colleagues and afford to retire years earlier.
Seasons Retirement, a retirement community in Canada, explores the concept of early retirement, explaining why it is an appealing option to consider. They have some of the best places to retire in Canada.
Getting back on track, discussions on how to retire early in Canada brought about the FIRE movement. Now, let’s delve right into what this movement is all about.
What exactly is the FIRE Movement?
FIRE is an acronym that means Financial Independence, Retire Early; particularly because financial discipline and freedom are key to early retirement.
The FIRE movement has attracted the interest of many, especially the millennials. Think extreme frugality; that’s what comes to mind when you reflect on the concept of FIRE.
The movement focuses on generating high investment returns from saving the better part of your income ahead of time for your retirement years.
Does this movement negate working after getting to a certain age? No, the FIRE movement is about helping you secure your future financially while giving you room to pursue your passion or other things that interest you.
In fact, some followers of this movement have made more income in retirement than during their working years.
FIRE provides you with “complete freedom to be the best, most powerful, energetic, happiest, and most generous version of you that you can be,” in Pete Adeney’s words – an early retiree – aka Mr. Money Mustache.
Thus, you can conclude that the FIRE movement is basically about gaining freedom by leaving a career or job that lacks fulfillment. Now that we’ve cleared the air on this concept, let’s go through how much is enough for your early retirement in Canada.
How much money is required to retire early in Canada?
If you’ve been wondering how to retire early in Canada, you should know that it’s doable, but then, the onus of the work ultimately depends on you.
Early retirement means that you’ll be financially buoyant to live off your investments and enjoy life rather than relying on your retirement benefits. And this is only possible if you do your homework well.
You have to be realistic, assess, and ask yourself questions like how I want my retirement to be? Do I intend to give up my work in retirement completely, or do I want to increase my income while at it? Am I ready for some lifestyle changes?
Since it depends on an individual’s preferences and choices, speculating the exact figure for early retirement may not be feasible.
However, here are some estimates to give you a clearer picture. Accordingly, you should be able to live off of the fruits of your labour for the rest of your life if you save 25 times your annual expenses.
Ultimately, retiring early requires retirement planning, strict spending, generous saving, a reliable income, aggressive budgeting, and wise investments.
How to Retire Early in Canada
About 30 years ago, the campaign “retire at 55 Canada” was introduced by the London Life Insurance Company in Canada to establish the advertising slogan – Freedom 55.
According to this slogan, it is possible to retire from your full-time career at 55. Afterward, you can enjoy a unique lifestyle. Whether this is possible, let’s find out.
Ever heard the saying,” nothing goes for nothing”? It’s appropriate in this case because retiring early demands many sacrifices and compromises from several people.
You may have to live frugally, change your lifestyle and spend drastically below your earnings for many years.
The bright side is that you’ll reap the reward of your sacrifice by retiring early, gaining freedom, and living your best life as you deem fit. Here’s how to retire early in Canada:
1. Measure your net worth
It’d be best to understand your current worth and where you hope to be in the future. Your net worth is calculated as the total sum or value of all your assets (your investments, savings, car, and home) minus all your debts (mortgages, credit card, and loans).
2. Plan what your retirement will be like
When you have a blueprint of what or how you expect your retirement to look like, then you can begin to act accordingly.
Do you want to tour and travel the world? Will you choose to eat out at five-star restaurants and taste exotic wine? How do you intend to keep and maintain your health? Do you want to live in a retirement home? These questions and more will help you set your goal.
However, Seasons Retirement provides beautiful accommodation for its residents with quality security and welfare.
3. Live below your means
Here’s the test and sacrifice of retiring early. You’d have to live frugally, below your means and spend carefully.
You’d have to stay off unnecessary expenditures and stick to the core basics. This means that, in the end, you may be entitled to spend only 50-60% of your disposable income and save the remaining money.
4. Avoid debt
Since debts can compound in interest, you’ll have to steer clear of them; you can kiss early retirement goodbye.
Your goal is to avoid any negative financial commitment and become debt-free. Loans and interest costs tend to reduce your net worth. Not to mention how paying off debts in retirement can skyrocket your cost of living.
Tackle your debt with the highest interest rates first. Proceed to use low-interest debts instead of high-interest debts. You may also consider transferring your debt to a LOC line of credit. LOCs operate on lower interest rates.
5. Cut down on your budget now
Spending below your means entails cutting down your budget and having absolute control over your income. Now, this is how you do it:
- Set and stick to your budget.
- Check and remove recurring and unnecessary bills.
- Check the amount you spend on food.
- Maximize your employer-administered retirement account.
6. Save aggressively
Financial freedom in retirement may seem easy on the eye. But when it comes to achieving FIRE in reality, it’s not straightforward. You may have to drastically cut your spending to save 50% or more of your income.
7. Invest your savings
No better way of growing your money than investing it. Investing your savings often provides higher returns than letting your money sit in a savings account, as long as you don’t need the money for some time.
While there are several investment options, go for the solid ones with low risk and reasonable returns on your investment.
Consider investing in real estate like rental properties. Nonetheless, you should do your research and go with what best resonates with you.
Nothing good comes easy. While retiring early is a great idea, it requires a lot of work.
To achieve FIRE, you will essentially live in austerity, save, invest and be patient for years. Following the aforementioned tips is how to retire early in Canada.
The procedures for early retirement in Canada may be difficult to follow, but the reward will be worth it if you manage to keep to them.