In the FIRE community, retirement planning for when you hit 65 likely isn’t relevant. You’ll have saved enough to become financially independent as soon as you can and that’s great!
Why focus on retirement at 65 then?
FIRE as a concept can be alienating if that’s not your plan.
With statistics like 44% of Canadians being within $200 from insolvency and 1 in 3 Americans having less $5000 saved , it’s obvious the majority will retire at 65 or later. Be it for lack of savings or by choice.
Give the statistics above, that’s a whole lot of potential people turning away and missing out on all the good resources and knowledge they could use.
And there are SO. MANY. Good things!
A Little Bit of FIRE For Everyone
Neither of my parents saved much for retirement. My mom passed away with enough to pay for her funeral and leave a few dollars to me and my sister. My dad, he’s closing in on retirement and will be dependent on government retirement benefits for income. He will likely be working well past 65 until his health will no longer allow it. After that, no idea how he’ll manage.
I don’t want that to be me.
Neither does anyone else. But many of us end up in that situation…
I’ve been fascinated by FIRE movement ever since I came across MrMoneyMustache some years ago. With my age (30’s) and some life goals, juries out if retiring early will be my end goal. Right now it’s financial security with opportunities for sabbaticals. The best outcome isn’t whether or not I FIRE. It’s the skills I’ve learned:
- Understanding my relationship with money and how I want to spend and save.
- Being empowered with knowledge to calculate what I need for retirement, how to invest it, being able to have conversations and making informed decisions.
- Losing my fear of investing and exposing the mirage that it’s complicated.
- Removing unnecessary stress and anxiety around money matters.
Government Retirement Benefits In Canada
Before we dive into the impact of using FIRE skills for traditional retirment planning, we need context into what most are facing when relying on government benefits. And yea, who knows if it’ll still be there in 20, 30, 40 years but let’s assume yes.
In Canada, you can get two retirement income sources: Canadian Pension Plan (CPP) and Old Age Security (OAS). I won’t go into too many details. Perhaps that’s its’ own article. To get exact figures, there’s a lot of variables to determine that, but at a high level:
- To get CPP, you must have contributed over your income earning years. How much you receive depends on your contribution over the years. On average, people got $664/month in 2018.
- Old Age Security is available to everyone assuming you meet a few basic requirements. The maximum in 2018 was $586/month.
- CPP and OAS are taxable benefits
- Assuming you get the average of both, this gives you $1,250/month or $15,000/year pre tax. Using the SimpleTax calculator, you would be left with $1,151/month after tax.
This is a very simplified scenario, and you should speak to a professional to find out your true situation as there is a lot that goes into this calculation. But with the basic assumptions, and individual person would be living off $1,151/month. That makes for a pretty tight budget!
Even with two people @ $2,302/month, it will still be tight. So with those sobering facts…
Preparing to Retire At 65 Using FIRE Skills
There are many ways to save for retirement. Your goals and situation will dictate exactly how you pursue securing retirement savings. It can range from investment accounts (RRSP, TFSA’s, etc), selling a business you’ve grown, rental property income or selling said property, continued partial income from hobbies, government benefits or the ever disappearing pension.
Before we get into applying the various FIRE skills, I want to take a look the benefits and impact.
Quality of Life In Retirement
If you’ve taken the time to plan and save, not only will you be more comfortable financially in retirement, you’ll likely have a vision for your lifestyle and a better chance at meeting it. Remember the government retirement benefits ($1,151/month for one or $2,302/month for two)? It’ll be difficult to maintain a comfortable lifestyle on that.
It’s not just financial and lifestyle comfort. Better financial security in retirement leads to less stress, improved mental health and better physical health and well being.
Empowered With Knowledge and A Plan
Taking the time to learn some basic financial skills, enough to plan your big financial goals and retirement, leaves you empowered with knowledge and a feeling of control. Sure it may not turn out quite how you think, but you’ll have the ability to make informed decisions along the way.
Knowledge combined with a plan leads to peace of mind.
Financially Equal In Relationships
It’s not unusual for one half of a couple to have more of a natural interest in financial planning. It’s hard to FIRE without the buy-in of both. It’s what occurs in the buy-in process that’s so valuable:
- Agreement on goals, dreams and values
- Basic understanding of knowledge and concepts — even if it’s at the highest level with one partner doing most of the research/putting plan into action
- Periodically checking in with each other and look at financial progress
This would have tremendous value even for retiring at 65. If nothing else, it helps create financial equality within the relationship. Everyone has a sense of direction, aware of the financial health and can have the confidence to actively make decisions and resolve curve balls life throws at ya. You’ll never find yourself saying: “I trust your judgement, you know more about this than I do”.
All this also helps make make it less likely to be in a few negative scenarios we’d rather not think about:
- Being surprised by your partner taking on significant without your knowledge
- A financial abusive relationship
- Having to remain in a relationship long past when it’s been done because of financial pressure
- Having the skills to 100% take over financial planning or at least have a foundation to start from. Think death, divorce or separation
- If your relationship does turn sour, you both have a firm grasp of finances to decide how to untangle them and come to an equitable split of resources
Mental Financial Security
Money wise, what makes you feel safe?
Is it knowing you have enough money saved to pay for 6 months of expenses? Or are you comfortable with two? If you think you need 600K to live off of, is having that amount enough or do you need a bit more, just in case you missed the mark?
The answer is different for everyone.
We all have different risk tolerances, situations and variables that determine the ‘what is financial security’. What’s common that will build security is financial knowledge, goals, understanding your relationship with money and if you’re in a partnership, managing the big financial picture together; to an extent, what helps you build ‘the what of financial security’ is more important. Circumstances change. Having the confidence that you can learn and figure it out is a game changer.
Monetary Financial Security
Those plans for a secure and comfortable retirement at 65 start paying off before you reach your big milestone; it’s kinda a two birds with one stone scenario. Your growing nest egg will make you less dependent on a particular job. If you want to take a sabbatical, encounter a health challenge or need to exit an unhealthy work environment, you’ll be in a position to make those calls.
If you reach your retirement savings goal earlier, or want to pivot your plans, either to reach the retirement magical number sooner or ramp up the savings for a time so you can take a step back to part-time work or a second passion career, you’ll at least have the chance to consider those options.
Couldn’t Anyone Plan Retiring At 65 Using Financial Independence Skills?
Yes. A thousand times yes!
I get FIRE blogs are there to prove you don’t need to work 40 years to retire. That needs to keep being said. And obviously, if that’s the blogs message, you don’t need to cater to every reader.
I personally felt that it was worth mentioning, if readers do come across FIRE blogs, and leaving the work force earlier isn’t your thing, there’s nothing wrong to gear your plans for retirement at 65.