How do you know when it’s the right time to retire?

Retirement readiness is not really tangible.  If you think about it, we use dates, ages. rules and money to make our target retirement date more tangible.  For example:

  • In the pension world, people will say, I'm ready to retire because I have a full pension or I have reached my 85 factor
  • We sometimes use the rules around Canada Pension Plan and Old Ages security to define retirement like moving the age of eligibility from 65 to 67
  • And in the financial world, we talk about how much money do we need in order to retire.

After being in the retirement planning field for over 25 years, I believe true readiness is not always tangible.  I've seen people with good pensions and people who have saved a lot of money but are not really ready to retire.  Sometimes it's because they love their jobs.  Other's hate their jobs but don't have a life to retire to.  Some people are on the fence.  They are ready to retire but worry about being bored or missing their friends from work

Sometimes readiness has more to do with instinct, feelings and lifestyle than it has to do with money.

Related article:  Retirement planning is about more than just money

Don't get me wrong, money is clearly important to retirement readiness but it's important to understand the difference between retiring FROM something and retiring TO something.  Often the people that are MOST ready have planned a life to RETIRE TO!!

Could the economy have people thinking early retirement and what might that mean, factors around retiring a bit sooner than you might have thought?

Time Is MoneyAbsolutely.  Every retirement plan includes things you can control and things you can't control.  In our retirement planning workshops we call these things curveballs.  You can have a retirement plan all worked out and then a curve ball is thrown at you and your plan.

The economy now is a good current example.  How many people here in Alberta were forced to retire sooner than they wanted or though because of the change in the economy here? Some people were planning to work part time in retirement but with unemployment at a record high, there may be fewer opportunities.

And how about the stock market?  How many people do you know that were planing to retire and then the stock market took a 15% to 20% drop?  And how many of these people decided to delay their retirement as a result?

Related article:  Falling stock markets affect retirees the most

People are living longer, what might you caution people to really look at when it comes to savings to make sure they are on firm footing?

It's really about the assumptions in a retirement plan.  If you think about there retirement planning calculators, you INPUT a bunch of number and magically you get the RESULTS.  for example, “You need 2.8 million dollars in order to retire.”  When it comes to these calculators, it's important to understand, the OUTPUT is only as good as the INPUT.  And a lot of the INPUT is a set of ASSUMPTIONS (otherwise known as GUESSES).  If you don't like the output then you need to revisit the INPUT.

I tell people all the time “When it comes to understanding your retirement plan, spend more time understanding the assumptions than the results.  Its the assumptions that determine the results. In terms of key assumptions, it's important to look at things like:

  • life expectancy
  • rates of return
  • inflation
  • withdrawal rates

Is there a middle ground around part-time work, scaling back or returning in a few years which people might now consider?

This is probably one of the biggest trends I see in retirement.  Retirement is no longer about NOT WORKING.  More and more people are wanting to work in retirement, planning to work in retirement and being pulled into work in retirement.  There was more opportunities than ever to work in retirement.  In fact the new terminology that is not so new anymore is the idea of planning a PHASED RETIREMENT or a TRANSITIONAL RETIREMENT.  Personally, I think it's great and I think a lot of people are finding success with this idea in their retirements.

At a certain point you do have to draw on your RRSP so how does that factor in?

The rules are that you must start drawing income from your RRSPs by December 31 in the year in which you turn 71.  you can draw it sooner but not later.  My suggesting has always been to start a withdrawal strategy as soon as you retire.  I've seen too many people wait to convert their RRSPs to income at 71 usually for 2 reasons:  They did not need the money or they did not want to pay the tax.  For a lot of people, waiting till 71 to use your RRSPs for income defeats the purpose of the RRSP and that's to make your retirement the golden years.  Sometimes the withdrawal strategy is because of lifestyle but sometimes it based soley on a tax strategy.

Related article: Developing a RRSP withdrawal strategy

What would you advise boomers thinking about retirement to consider?

Have a plan.  A plan that includes both lifestyle issues and money issues.  Too often the retirement plan focuses on the financial issues.  remember that retirement is about more than just money.  You can have all the money in the world but if you don't know how to spend it or have good people around you or you don't have your health, what good is the money?  Remember the point of money is to buy you a life and that retirement is really about living the golden years.

Related article:  Three steps to a great retirement plan

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites Group Benefits Online and Advisor Think Box.

19 Responses to How do you know when it’s the right time to retire?

  1. I hadn’t planned on retirement when I did decide to retire.

    I just didn’t have enough retirement capital, but I was unemployed in 2001. It seemed only crappy minimum wage jobs were possible.

    I decided to use my retirement capital to generate the cash a minimum wage job would get me: about $400 a week.

    Turns out it’s not that hard to do, but it takes time and effort to achieve it. Time and effort: isn’t that the definition of a job?

    So I created my own retirement activity that paid me minimum wage over about 15 hours a week at the time. It’s much more money now. And about half the time.

    What your article touched on was, and I think it’s the heart of the matter, that retirement shouldn’t be viewed as life from a bar stool.

    In my case, my goal became $400 a week and I became my own portfolio manager out of necessity, not planning.

  2. Good write up Jim

    But I think missing friends from work is s stretch. That would not be a good enough reason in my opinion

  3. I really enjoy these articles. My retirement date goal is 6 years away but I feel more comfortable about it with more information. I know what I am retiring to… I remember Jim telling us how important this is! Thanks, Jim 🙂

  4. If people really want to get depressed, read the book “Pay Cheques and Play Cheques” to find out how to turn a million $ in rrsps into bottom end of middle class retirement.

  5. I was under the impression that you had to convert your RSP to a RIF by December 31 in the year in which you turn 71. Then you did not need to start withdrawing income from your RIF until December 31st of the following year.

  6. Thanks for this article. My retirement date is sometime between 6 and 10 years from now. I teach at a university and I know I will miss my students. However, there will be no money to replace me unless I go, so I will go. I may just teach part-time in retirement. These articles help me think about what I want to retire to.

  7. I retired at age 68 because I felt that it was the right time for me. I had worked in health care for 25 or so years, which is a demanding job in many ways and takes its toll. Traveling to work and back also became excruciating as the years wore on and traffic became gradually more dangerous and frightening for me. I do miss my colleagues and the salary but this does not make up for the fact I have much more stress free time to spend on activities that I love and don’t cost anything…hiking in beautiful parts of the province, gardening and visiting the library for DVD’s as well as books. Now I have the time to kick back and enjoy all my spare time!

    I was never very good with money but have a small pension as well as the OAS and CPP to keep me going. I did spend most of my “company” pension to pay off my mortgage so I now own my home.

    I know that if I need extra money I can always take on a part-time or seasonal job but I would only do that if I found myself in really dire straits.

  8. Like most people I was looking at retirement numbers to replace the 70 to 80% of my income. When I extrapolated the 70- 80% #’s my retirement fund was required to be a couple of M$. I wasn’t going to get there. I setup a spreadsheet. Arranged it with current Monthly expenses. Populated with taxes, insurance, car payments , fuel,groceries, etc. I was able to look at my present cash flow and catagorized it as essential and non essential. I then added discretionary spending ie vacations.
    Once I had my monthly / yearly total figured out , I then added monthly income CPP and OAS projections. Subtracted those numbers from my monthly expenses, to see what the difference would be which would be my RRSP withdrawals. I made a set of calculation columns, consisting of RRSP year after year drawdown, a calculation for ( variables) COL increases, RRSP interest growth and Inflation (% decreases).
    Using current Savings + CPP and OAS I played what-ifs with the % variables. I did not include my wife’s RRSP and TFSA or our home which is paid for ( that’s the safety net) I was still looking at high 6 figure numbers but was able to swing retirement at 63 with RRSP + TFSA +CCP. OAS kicks in next year. I do regular sanity checks.
    So far my projection Calculations have been on the low side relative to expenses. Holidays have been fine. And they would be the first to go if life goes off the rails for whatever reason. It was pretty easy to set the sheet up and get real numbers and projections.

  9. I retired in June, 2 years earlier than planned. It was a gut decision one day after increasing challenges at work I did once truly enjoy. I did plan for retirement from an early age – glad I did, because it gave me options. What has surprised me most is how much I love being retired. It’s a complete shift in time – no more rushing about and doing the commuting thing. I’m feeling way healthier and happier because there’s more exercise and time outside. I’m enjoying being a student again, hobbies, puttering, social outlets.. Suggest research and reflection before retiring. Think about what you want to do with your time and what makes you happy. Also, plan a budget. I found it helpful to practice living on my retirement amount for several months before resigning.

  10. Jim I enjoyed the article, It is very timely for me as I am going through that struggle right now. Should I keep working or retire and do part time work. I will be 63 next may and my job is an elected position so there are more factors than just putting in my notice and retiring. The good news is I have taken your retirement one day course a few times and have done my homework. For me it is just the mental game more than the money game.
    Dan

    • Well I am lucky to have define benefit pension. I took the optional bridging amount which allows me to live comfortable.
      My father retired at 55 and I am 59.
      If he was still alive he would of said what took you
      so long. He had a Mortgage and bills when he retired and did just fine.
      I am looking forward to my future.

  11. Great article Jim, and I’d like to offer my two cents worth . . .

    I was glad you included “health” as a key consideration in determining an appropriate and complete self-removal from the workforce. During a 36 year career, I saw numerous colleagues get ill, or worse, immediately prior to or shortly following retirement. As a consequence, I would strongly encourage the workforce to adapt this mindset and repeat after me, “ I am NOT this job”.

    Regardless of how well you enjoy your job or not, it’s just a job; it’s what helps provide for you and your family. Family first. You owe your employer nothing, they pay you your ongoing dedication in support of their business goals. People who are consumed by their job need to understand that this thing called work is just a chapter in the book called, “This is Your Life”. Accept when working for a living is over and move onto the next chapter called “My Time”.

    Anyone who fears there’ll be nothing to do in retirement is sadly, sadly mistaken. Save wisely, and focus on your health. That’s health with an “h”, not a “w” and while we can’t ignore the latter, it can’t be at the expense of the former. As my old man used to remind us growing up, “If you ain’t got your health, you ain’t got nothin’”. Thanx dad.

  12. My question is we are retired but still taking a monthly income from our Ltd company. We are 60 and 64, and have about 399 thousand Each in Rrsp, should we be withdrawing as much as we can in the company, or start withdrawing our RRSP. What would benefit us most?

  13. I, too, had not planned to retire but after some workplace bullying and threats I could not face going back to work because I was so angry and depressed. I loved having the income which was considerable and the flexibility to work when I wanted and to have the benefits and retirement savings plan — all through employment and my union. I was fortunate enough to go on short term disability due to the emotional turmoil and I took advantage of counselling and financial planning offered through the union. That time off eventually made me realize I had been under great stress for a number of years due to the demands of the workplace and I had to have a long talk with myself to come to grips with this. I finally decided to submit my request for retirement letter and take the great leap. Yes, I was nervous about income as I had only my CPP and OAS coming in but I figured I had three good options: 1. I could use some RRSP funds if I got into trouble; 2. I could always sell my house and use the proceeds to fund my retirement; and 3. I could consider working part time in a completely different field. I set up a highly detailed and strict budget and set the challenge to live on very little and reordered my life to cut back all expenses. I went without a vehicle for 6 months and hated that so purchased a 5 year old vehicle for $10,000 all in and added that and its related costs to my budget. I also spent some RRSP money to make sure my greatest asset (my house) was in good repair and upgraded my furnace, AC, electrical, plumbing and added insulation and new siding to my home. Finally, I offered to do some gardening, housekeeping, personal care giving and bookkeeping for friends and neighbours. I am doing all of those things now, a few hours a day which boosts my income. But you have to have some “people interaction”, some goals and some fun so I joined the local community centre which is so cheap for seniors and enjoy being in the gym, using the pool and taking art classes. I love being out at the mall to see what’s new and have a coffee even though I go alone…and I always end up talking to people. Walking my dogs means I interact with all the neighbours and other dog owners. And I spend lots of time in the garden. I am never lonely even though I live alone. I am happier than I have ever been in my life. And I have virtually NO stress. It’s amazing what you can do to save money and reduce expenses or to earn a little extra income when you put your mind to it. I see all of these things as a personal challenge and keep track of every cent going out and every cent coming in. My next goal is to help people get through the pre-retirement and retirement phases of their lives and show them it’s a great time to finally enjoy life.

  14. We (wife and I ) retired 2 years ago just before I turned 54 (she was 51) After raising 4 kids and working 7 days a week in our small business ( 3 one week vacations in the past 20 years) I decided (with my wife’s blessing) that I had had enough. Through hard work, doing without all the toys and vacations my friends had, and diligent saving and investing I figured that our investment income (we sold our house and downsized to a 2 bedroom condo) should be suffient to meet our living expenses. We budgeted for an after tax income of $45,000 ( which through tax efficient planning is also our before tax income) It’s been 2 years now and I can happily say that life has never been as good as it’s been now.

    Looking back at the last 2 years the one thing that has amazed me is how family and friends reacted to our decision to pack it in. The one thing that literraly everyone said was what are you going to do with all our time and if they retired they would go crazy with boredom. While I can tell you that after 2 years of freedom the one thing that I can truly say is “how did I ever have time to work”. Our days are filled with endless possibilities and we never lack for things ( especially free things) to do. When people now ask me what do I do to fill my days I say ” anything I want to do”. Don’t let the idea that you will be bored in any way stop you from taking the plunge ( assuming you are financially able to). The other thing many people also asked was “how are you going to be able to spend all your time with your spouse”. To this I have always thought ( and now say) is if you can not spend the rest of your life with your spouse then you chose the wrong person to be with. While we do not spend every waking hour together I have found that the time we do spend together has made our relationship much stronger than it ever was.

    Of course the financial side of the retirement equation has to work or you are going to quickly run into problems. Through my planning ( and I started thinking and planning my retirement before I was married) the best piece of advise I received was to try out your retirement spending plan for at least 1 year before you actually retire and see if the retiremnt lifestyle you want is acheivable. We did this and realized that we would have to make some changes if things were going to work out or we would have to work longer. As working longer was not going to happen in our case we made the changes necessary to make things work. The choice to work longer or change your expectations is a personal choice but by living within your retiremnt budget for the 1 year you can make an informed decission on how you want to proceed.

    Hopefully you find this advise helpful and for those if you who might say that $45,000 is no were near enough money to retire on we’ll be think of you on our 3 month winter getaway to Mexico this year.

  15. Everyone’s formula will be different and while we can learn from all the experiences each solution has to fit the individual. Hopefully all the various comments have bits that help someone find their own solution. In my case I retired 3 years ago at age 55. It was always one of our goals. We had planned for years to leave Calgary and move to Vancouver Island to a property we purchased almost 18 years ago. The Island was and remains our happy place and our go to goal. For us it was all about chasing the lifestyle and having healthy time to use it. Working longer would certainly have generated higher traditional retirement income levels which would have been nice but at a cost. Looking at things differently we went the route of buying an investment property in Victoria for longer term optionality (bit of income now and possible home when we are old) and we designed our cottage up island to be expanded into our retirement home to have a separate income suite or Air B&B option. Although we are not generating income from our home (not sure I am or ever will be ready for income guests) these options can more than make up what working longer would have provided -if required. Having reduced our needs from the hectic live to the max Calgary life means Island living is reasonable. My point- consider what you really need and want to be happy and look at alt means to get there. It does not always have to be sock the money away first. Today we volunteer almost the equivalent of full time, while enjoying low cost activities like hiking with the dog. It is fun and more rewarding than work was. Our one really costly vice -boating- is expensive but balances out with savings in other areas. Fewer diners out these days and I load up every 6 to 9 months with single malts from Costco when in AB. It is a different life on the Island from Calgary but one I enjoy more.

  16. Hi Jim,

    This was an excellent article that has sparked some excellent conversation in the thread. It’s very interesting to hear the way different people think about and approach retirement. I like the inventiveness of some people when they need to be (‘Necessity is the mother of all invention’ or something like that!)!
    Cash flow, while the most boring and tedious of all financial planning tasks, is the most important. Figure out what you spend now and what will be different in retirement. Then, where will that money come from?
    I like what one person said about friends’ saying ‘what will you do with all the time?’. It’s a common refrain and the answer from retired people is always the same – ‘I don’t know how I had time to work!’
    Many Canadians would do well by reading your article and the stories by your readers. I will be sharing your post on my social media channel!
    Thanks again,
    Steve Bridge

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