When can I retire?” may have stumped the most smart people. So, in the this article, we’ll try to do what a lot of other people haven’t been able to do: give you the best answer possible.
When can I quit my job?
Almost everywhere. Yes, you did hear correctly. As soon as you’re an adult, when you reach the “age of majority” and your parents have no legal right to tell you what to do, you’d be free to quit the workforce before you’ve even joined it, just like you’d be free to use the bathroom whenever you want and get any regrettable face tattoo you could think of. The better question to ask yourself is, “How much money do I need to retire, and how long will it take me to save that much?” Because if you retire early, you’ll have to take care of yourself for longer without a paycheck.
Lucky kids who were born into old wealthy families with names like Getty and Rockefeller or newer wealthy families with names like Gates and Bezos may only have to look for job satisfaction and may be able to retire after getting their first painful paper cut at work. The rest of us have to keep working until we save enough money to pay our grocery, electric, and gas bills for the next 20 years.
When should I leave my job?
In addition to blown-out knees, neuropathy, sciatica, and other things that make office life less fun for older people, there’s another reason why most people retire between the ages of 60 and 70. Around this age, the government helps older people pay their bills by giving them certain benefits. Most people would not be able to make ends meet without a job.
People often talk about “retirement age,” which is now 65. (though it may be raised in the future.) This is because our government gives retirees a small safety net, which you can’t get until you reach a certain age. The Canada Pension Plan (CPP) says that 65 is the “normal” age to retire, but you can get a reduced benefit at 60. The earliest you can get Old Age Security is at 65. (OAS). How much CPP you get depends on how much you’ve paid into the system over the years. However, the average CPP payment is currently $673.10 per month, and the basic OAS payment is $586.66 per month. Together, these two payments add up to $15,116 per year.
If you wanted to make a total of $50,000 a year, you would need to make about $35,000 a year to add to your benefits. Plan on living 20 years after age 70, which is when most people retire. So you’d need to have $70,000 at your disposal. If your idea of retirement is to sleep on your kid’s pull-out sofa and eat a lot of packaged ramen, or to charter a lot of yachts in Bimini, you should change your annual needs to match.
How to get ready for old age
If you’ve been saving for retirement since you were young and are able to retire with a lot of money, you may choose to follow the famous “4% rule.” This rule was created by an American financial advisor named William Bengen, who did the math and found that if you take out 4% of your well-diversified retirement portfolio each year and adjust for inflation, you will never, ever run out of money. Legend has it that Dracula paid the rent on his castle for 400 years by following the “4% rule.” This is also how wealthy people save for retirement and then pass on their wealth.
How on earth did you get to be in this great situation? Ironically, the best way to live painlessly and comfortably in retirement is the way that hurts the most when you make the least. If you don’t make a lot of money, the best way to have a comfortable retirement is to let your savings simmer in an investment account for a very long time, letting the magic of compounding work year after year. Play around with a compounding calculator like this one to see what kind of magical effect has on money. Assuming a hypothetical but historically reasonable .
7 percent annual rate of return on an investment, a 25-year-old who saves $5,000 every year will have almost $1.18 million by the time they are 65. If he/she invests the same $5,000 starting when he/she is 35, she will only have $551,000 when he/she is 65. In fact, the 35-year-old would have to save more than $10,000 a year to catch up to the 25-year-old and end up with the same $1.18 million by the time he/she is 65.
What if I want to stop working sooner?
What if you really want to retire years or even decades before The Man thinks you should? Can you retire at 50? We have a plan for how to do it. Trying to retire at 40 will give your investments much less time to grow, but it is still possible, especially if you love to clip coupons and live on pasta.
No matter how old you are when you retire, the tips in our “Retirement Strategies” guide will be very helpful.